Subir

Notes to the interim consolidated financial statements.

1. Introduction, basis for the presentation of the consolidated financial statements, internal control of financial information and other information.

1.1 Introduction

Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank” or “BBVA”) is a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad.

The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 Bilbao) as on its web site (www.bbva.com).

In addition to the activities it carries out directly, the Bank heads a group of subsidiaries, joint venture and associates which perform a wide range of activities and which together with the Bank constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, “the Group” or “the BBVA Group”). In addition to its own separate financial statements, the Bank is therefore required to prepare the Group’s consolidated financial statements.

As of December 31, 2016, the BBVA Group had 370 consolidated entities and 89 entities accounted for using the equity method (see Notes 3 and 16 Appendix I to V).

The consolidated financial statements of the BBVA Group for the year ended December 31, 2015 were approved by the shareholders at the Annual General Meetings (“AGM”) on March 11, 2016.

BBVA Group’s consolidated financial statements and the financial statements for the Bank and most of the remaining entities within the Group have been prepared as of December 31, 2016, and are pending approval by their respective AGMs. Notwithstanding, the Board of Directors of the Bank understands that said financial statements will be approved without changes.

1.2 Basis for the presentation of the consolidated financial statements

The BBVA Group’s consolidated financial statements are presented in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”) applicable as of December 31, 2016, considering the Bank of Spain Circular 4/2004, of 22 December (and as amended thereafter), and with any other legislation governing financial reporting applicable to the Group in Spain.

The BBVA Group’s accompanying consolidated financial statements for the year ended December 31, 2016 were prepared by the Group’s Directors (through the Board of Directors held on February 9, 2017) by applying the principles of consolidation, accounting policies and valuation criteria described in Note 2, so that they present fairly the Group’s total consolidated equity and financial position as of December 31, 2016, together with the consolidated results of its operations and cash flows generated during the year ended December 31, 2016.

These consolidated financial statements were prepared on the basis of the accounting records kept by the Bank and each of the other entities in the Group. Moreover, they include the adjustments and reclassifications required to harmonize the accounting policies and valuation criteria used by the Group (see Note 2.2).

All effective accounting standards and valuation criteria with a significant effect in the consolidated financial statements were applied in their preparation.

The amounts reflected in the accompanying consolidated financial statements are presented in millions of euros, unless it is more appropriate to use smaller units. Some items that appear without a total in these consolidated financial statements do so because of how the units are expressed. Also, in presenting amounts in millions of euros, the accounting balances have been rounded up or down. It is therefore possible that the totals appearing in some tables are not the exact arithmetical sum of their component figures.

The percentage changes in amounts have been calculated using figures expressed in thousands of euros.

1.3 Comparative information

The consolidated financial statements of BBVA Group for the year 2016 are prepared in accordance with the presentation models required by Circular 5/2015 of the Comisión Nacional del Mercado de Valores. The aim is to adapt the content of the public financial information from the credit institutions and formats of the financial statements established mandatory by the European Union regulation for the credit institution.

The information included in the accompanying consolidated financial statements and the explanatory notes referring to December 31, 2015 and December 31, 2015 are presented exclusively for the purpose of comparison with the information for December 31, 2016. In order to facility the comparison, the financial statements and the information referred of those dates of 2015 and 2014, has been restated according to the new models mentioned in the previous paragraph. As shown in Appendix XIV attached, the presentation of the consolidated financial statements in accordance with these new formats has no significant impact on the financial statements included in the consolidated financial statements for the years ended December 31, 2015 and 2014.

Certain financial information for the year 2015 has been restated, with no significant impact, as a result of the end in 2016 of the purchase accounting period related to the Garanti Group acquisition (July 2015), as required by IFRS 3 “Business Combinations” paragraph 49 (see Note 18).

Likewise, during 2016, the BBVA Group operating segments have not been significant changes with regard to the existing structure in 2015 (Note 6). The information related to operating segments as of December 31, 2015 and 2014 has been restated for comparability purposes, as required by IFRS 8 “Operating segments”.

1.4 Seasonal nature of income and expenses

The nature of the most significant activities carried out by the BBVA Group’s entities is mainly related to traditional activities carried out by financial institutions, which are not significantly affected by seasonal factors within the same year.

1.5 Responsibility for the information and for the estimates made

The information contained in the BBVA Group’s consolidated financial statements is the responsibility of the Group’s Directors.

Estimates have to be made at times when preparing these consolidated financial statements in order to calculate the recorded amount of some assets, liabilities, income, expenses and commitments. These estimates relate mainly to the following:

Although these estimates were made on the basis of the best information available as of December 31, 2016 on the events analyzed, future events may make it necessary to modify them (either up or down) over the coming years. This would be done prospectively in accordance with applicable standards, recognizing the effects of changes in the estimates in the corresponding consolidated income statement.

1.6 BBVA Group’s Internal Control over financial reporting

The financial information prepared by the BBVA Group is subject to an Internal Control over Financial Reporting (hereinafter “ICFR”), which provides reasonable assurance with respect to its reliability and the integrity of the consolidated financial information. It is also aimed to ensure that the transactions are processed in accordance with the applicable laws and regulations.

The ICFR was developed by the BBVA Group’s management in accordance with the framework established by the “Committee of Sponsoring Organizations of the Treadway Commission” (hereinafter, “COSO”). The COSO framework sets five components that constitute the basis of the effectiveness and efficiency of the internal control systems:

The ICFR is a dynamic model that evolves continuously over time to reflect the reality of the BBVA Group’s businesses, processes, risks and controls designed to mitigate them. It is subject to a continuous evaluation by the internal control units located in the different entities of BBVA Group.

These internal control units are integrated within the BBVA internal control model which is based in two pillars:

The internal control units comply with a common and standard methodology established at Group level, as set out in the following diagram:

The Internal Control Units, ICFR Model is subject to annual evaluations by the Group’s Internal Audit Unit and external auditors. It is also supervised by the Audit and Compliance Committee of the Bank’s Board of Directors.

The BBVA Group also complies with the requirements of the Sarbanes-Oxley Act (hereafter “SOX”) for consolidated financial statements as a listed company in the U.S. Securities and Exchange Commission (“SEC”). The main senior executives of the Group take part in the design, compliance and implementation of the internal control model to make it efficient and to ensure the quality and accuracy of the financial information.

The description of the Internal Financial Control System for financial information is detailed in the Corporate Governance Annual Report, which is included within the Management Report attached to the consolidated financial statements for the year ended December 31, 2016.

1.7 Mortgage market policies and procedures

The information on “Mortgage market policies and procedures” (for the granting of mortgage loans and for debt issues secured by such mortgage loans) required by Bank of Spain Circular 5/2011, applying Royal Decree 716/2009, dated April 24 (which developed certain aspects of Act 2/1981, dated March 25, on the regulation of the mortgage market and other mortgage and financial market regulations), can be found in Appendix X.

2. Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

The Glossary includes the definition of some of the financial and economic terms used in Note 2 and subsequent Notes.

2.1 Principles of consolidation

In terms of its consolidation, in accordance with the criteria established by the IFRS, the BBVA Group is made up of four types of entities: subsidiaries, joint ventures, associates and structured entities, defined as follows:

Subsidiaries are entities controlled by the Group (for definition of the criterion for control, see Glossary).The financial statements of the subsidiaries are fully consolidated with those of the Bank. The share of noncontrolling interests from subsidiaries in the Group’s consolidated total equity is presented under the heading “Non-controlling interests” in the consolidated balance sheet. Their share in the profit or loss for the period or year is presented under the heading “Attributable to minority interest” in the accompanying consolidated income statement (see Note 31).

Note 3 includes information related to the main subsidiaries in the Group as of December 31, 2016. Appendix I includes other significant information on these entities.

In all cases, results of equity method investees acquired by the BBVA Group in a particular period are included taking into account only the period from the date of acquisition to the financial statements date. Similarly, the results of entities disposed of during any year are included taking into account only the period from the start of the year to the date of disposal.

The financial statements of subsidiaries, associates and joint ventures used in the preparation of the consolidated financial statements of the Group relate to the same date of presentation than the consolidated financial statements. If financial statements at those same dates are not available, the most recent will be used, as long as these are not older than three months, and adjusting to take into account the most significant transactions. As of December 31, 2016, save for the case of the financial statements of 5 associates and joint-ventures deemed non-significant (four of which presented financial statements as of November 30, 2016 and one as of October 31, 2016), all of the financial statements of all Group entities were available.

Our banking subsidiaries, associates and joint venture around the world, are subject to supervision and regulation from a variety of regulatory bodies in relation to, among other aspects, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of such entities to transfer funds in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where such entities are incorporated, dividends may only be paid out through funds legally available for such purpose. Even when the minimum capital requirements are met and funds are legally available, the relevant regulator or other public administrations could discourage or delay the transfer of funds to the Group in the form of cash, dividends, loans or advances for prudential reasons.

Separate financial statements

The separate financial statements of the parent company of the Group (Banco Bilbao Vizcaya Argentaria, S.A.) are prepared under Spanish regulations (Circular 4/2004 of the Bank of Spain, and subsequent amendments) and following other regulatory requirements of financial information applicable to the Bank. The Bank uses the cost method to account in its separate financial statements its investments in subsidiaries, associates and joint venture entities, which are consistent with the requirements of Bank of Spain Circular 4/2004 and IAS 27.

Appendix IX shows BBVA’s financial statements as of December 31, 2015 and 2016.

2.2 Accounting policies and valuation criteria applied

The accounting standards and policies and the valuation criteria applied in preparing these consolidated financial statements may differ from those used by some of the entities within the BBVA Group. For this reason, necessary adjustments and reclassifications have been made in the consolidation process to standardize these principles and criteria and comply with the EU-IFRS.

The accounting standards and policies and valuation criteria used in preparing the accompanying consolidated financial statements are as follows:

2.2.1 Financial instruments

Measurement of financial instruments and recognition of changes in subsequent fair value

All financial instruments are initially accounted for at fair value which, unless there is evidence to the contrary, shall be the transaction price.

Excluding all trading derivatives not considered as economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interests and similar items are recognized under the headings “Interest income” or “Interest expenses”, as appropriate, in the accompanying consolidated income statement for the year in which the change occurred (see Note 37). The dividends received from other entities, other than associate entities and joint venture entities, are recognized under the heading “Dividend income” in the accompanying consolidated income statement for the year in which the right to receive them arises (see Note 38).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial assets and liabilities.

“Financial assets and liabilities held for trading” and “Financial assets and liabilities designated at fair value through profit or loss”

The assets and liabilities recognized under these headings of the consolidated balance sheets are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the heading “Gains (losses) on financial assets and liabilities (net)” in the accompanying consolidated income statements (see Note 41). Except those interests derivatives designated as economic hedges on interest rate are registered in interest income or expense (Note 37), depending on where the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Exchange differences (net)” in the accompanying consolidated income statements.

“Available-for-sale financial assets”

Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily for their amount net of tax effect, under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Available-for-sale financial assets” in the consolidated balance sheets.

Changes in the value of non-monetary items resulting from changes in foreign exchange rates are recognized temporarily under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” in the accompanying consolidated balance sheets. Changes in foreign exchange rates resulting from monetary items are recognized under the heading “Exchange differences (net)” in the accompanying consolidated income statements.

The amounts recognized under the headings “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Available-for-sale financial assets” and “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group’s consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairment loss is recognized in the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities (net)” or “Exchange differences (net)”, as appropriate, in the consolidated income statement for the year in which they are derecognized.

The net impairment losses in “Available-for-sale financial assets” over the year are recognized under the heading “Impairment losses on financial assets (net) – Other financial instruments not at fair value through profit or loss” (see Note 47) in the consolidated income statements for that period.

“Loans and receivables”, “Held-to-maturity investments” and “Financial liabilities at amortized cost”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are measured once acquired at “amortized cost” using the “effective interest rate” method. This is because the consolidated entities generally intend to hold such financial instruments to maturity.

Net impairment losses of assets recognized under these headings arising in each period are recognized under the heading “Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss – loans and receivables”, “Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss - held to maturity investments” or “Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss – financial assets measured at cost” (see Note 47) in the consolidated income statement for that period.

“Derivatives-Hedge Accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are measured at fair value.

Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:

Other financial instruments

The following exceptions are applicable with respect to the above general criteria:

Impairment losses on financial assets
Definition of impaired financial assets carried at amortized cost

A financial asset is considered impaired – and therefore its carrying amount is adjusted to reflect the effect of impairment – when there is objective evidence that events have occurred, which:

As a general rule, the carrying amount of impaired financial assets is adjusted with a charge to the consolidated income statement for the period in which the impairment becomes known. The recoveries of previously recognized impairment losses are reflected, if appropriate, in the consolidated income statement for the year in which the impairment is reversed or reduced, with an exception: any recovery of previously recognized impairment losses for an investment in an equity instrument classified as financial assets available for sale is not recognized in the consolidated income statement, but under the heading “ Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” in the consolidated balance sheet (see Note 30).

In general, amounts collected on impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal.

When the recovery of any recognized amount is considered remote, such amount is written-off on the consolidated balance sheet, without prejudice to any actions that may be taken in order to collect the amount until the rights extinguish in full either because it is time-barred debt, the debt is forgiven, or other reasons.

Impairment on financial assets

The impairment on financial assets is determined by type of instrument and other circumstances that could affect it, taking into account the guarantees received by the owners of the financial instruments to assure (in part or in full) the performance of the financial assets. The BBVA Group recognizes impairment charges directly against the impaired financial asset when the likelihood of recovery is deemed remote, and uses an offsetting or allowance account when it recognizes non-performing loan provisions for the estimated losses.

Impairment of debt securities measured at amortized cost

With regard to impairment losses arising from insolvency risk of the obligors (credit risk), a debt instrument, mainly Loans and receivables, is impaired due to insolvency when a deterioration in the ability to pay by the obligor is evidenced, either due to past due status or for other reasons.

The BBVA Group has developed policies, methods and procedures to estimate incurred losses on outstanding credit risk. These policies, methods and procedures are applied in the study, approval and execution of debt instruments and Commitments and guarantees given; as well as in identifying the impairment and, where appropriate, in calculating the amounts necessary to cover estimated losses.

The amount of impairment losses on debt instruments measured at amortized cost is calculated based on whether the impairment losses are determined individually or collectively. First it is determined whether there is objective evidence of impairment individually for individually significant debt instrument, and collectively for debt instrument that are not individually significant. In the case where the Group determines that no objective evidence of impairment in the case of debt instrument analyzed individually will be included in a group of debt instrument with similar risk characteristics and collectively impaired is analyzed.

In determining whether there is objective evidence of impairment the Group uses observable data on the following aspects:

Impairment losses on financial assets individually evaluated for impairment

The amount of the impairment losses incurred on financial assets represents the excess of their respective carrying amounts over the present values of their expected future cash flows. These cash flows are discounted using the original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.

As an exception to the rule described above, the market value of listed debt instruments is deemed to be a fair estimate of the present value of their expected future cash flows.

The following is to be taken into consideration when estimating the future cash flows of debt instruments:

Impairment losses on financial assets collectively evaluated for impairment

Impairment losses on financial assets collectively evaluated for impairment are calculated by using statistical procedures, and they are deemed equivalent to the portion of losses incurred on the date that the accompanying consolidated financial statements are prepared that has yet to be allocated to specific asset. The BBVA Group estimates impairment losses through statistical processes that apply historical data and other specific parameters that, although having been generated as of closing date for these consolidated financial statements, have arisen on an individual basis following the reporting date.

With respect to financial assets that have no objective evidence of impairment, the Group applies statistical methods using historical experience and other specific information to estimate the losses that the Group has incurred as a result of events that have occurred as of the date of preparation of the consolidated financial statements but have not been known and will be apparent, individually after the date of submission of the information. This calculation is an intermediate step until these losses are identified on an individual level, at which these financial instruments will be segregated from the portfolio of financial assets without objective evidence of impairment.

The incurred loss is calculated taking into account three key factors: exposure at default, probability of default and loss given default.

In order to calculate the LGD at each balance sheet date, the Group evaluates the whole amount expected to be obtained over the remaining life of the financial asset. The recoverable amount from executable secured collateral is estimated based on the property valuation, discounting the necessary adjustments to adequately account for the potential fall in value until its execution and sale, as well as execution costs, maintenance costs and sale costs.

In addition, to identify the possible incurred but not reported losses (IBNR) in the unimpaired portfolio, an additional parameter called “LIP” (loss identification period) has to be introduced. The LIP parameter is the period between the time at which the event that generates a given loss occurs and the time when the loss is identified at an individual level. The analysis of the LIPs is carried out on the basis of uniform risk portfolios.

When the property right is contractually acquired at the end of the foreclosure process or when the assets of distressed borrowers are purchased, the asset is recognized in the financial statements (see Note 2.2.4).

Impairment of other debt instruments classified as financial assets available for sale

The impairment losses on other debt instruments included in the “Available-for-sale financial asset” portfolio are equal to the excess of their acquisition cost (net of any principal repayment), after deducting any impairment loss previously recognized in the consolidated income statement over their fair value.

When there is objective evidence that the negative differences arising on measurement of these debt instruments are due to impairment, they are no longer considered as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” and are recognized in the consolidated income statement.

If all, or part of the impairment losses are subsequently recovered, the amount is recognized in the consolidated income statement for the year in which the recovery occurred, up to the amount previously recognized in the income statement.

Impairment of equity instruments

The amount of the impairment in the equity instruments is determined by the category where they are recognized:

2.2.2 Transfers and derecognition of financial assets and liabilities

The accounting treatment of transfers of financial assets is determined by the form in which risks and benefits associated with the financial assets involved are transferred to third parties. Thus the financial assets are only derecognized from the consolidated balance sheet when the cash flows that they generate are extinguished, when their implicit risks and benefits have been substantially transferred to third parties or when the control of financial asset is transferred even with no physical transfer or substantial retention of such assets. In the latter case, the financial asset transferred is derecognized from the consolidated balance sheet, and any right or obligation retained or created as a result of the transfer is simultaneously recognized.

Similarly, financial liabilities are derecognized from the consolidated balance sheet only if their obligations are extinguished or acquired (with a view to subsequent cancellation or renewed placement).

The Group is considered to have transferred substantially all the risks and benefits if such risks and benefits account for the majority of the risks and benefits involved in ownership of the transferred financial assets. If substantially all the risks and benefits associated with the transferred financial asset are retained:

2.2.3 Financial guarantees

Financial guarantees are considered to be those contracts that require their issuer to make specific payments to reimburse the holder of the financial guarantee for a loss incurred when a specific borrower breaches its payment obligations on the terms – whether original or subsequently modified – of a debt instrument, irrespective of the legal form it may take. Financial guarantees may take the form of a deposit, bank guarantee, insurance contract or credit derivative, among others.

In their initial recognition, financial guarantees are recognized as liabilities in the consolidated balance sheet at fair value, which is generally the present value of the fees, commissions and interest receivable from these contracts over the term thereof, and the Group simultaneously recognize a corresponding asset in the consolidated balance sheet for the amount of the fees and commissions received at the inception of the transactions and the amounts receivable at the present value of the fees, commissions and interest outstanding.

Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required for them. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost (see Note 2.2.1).

The provisions recognized for financial guarantees considered impaired are recognized under the heading “Provisions - Provisions for contingent risks and commitments” on the liability side in the consolidated balance sheets (see Note 24). These provisions are recognized and reversed with a charge or credit, respectively; to “Provisions or reversal of provision” in the consolidated income statements (see Note 46).

Income from financial guarantees is recorded under the heading “Fee and commission income” in the consolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee (see Note 40).

2.2.4 Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale

The heading “Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets includes the carrying amount of assets that are not part of the BBVA Group’s operating activities. The recovery of this carrying amount is expected to take place through the price obtained on its disposal (see Note 21).

This heading includes individual items and groups of items (“disposal groups”) and disposal groups that form part of a major operating segment and are being held for sale as part of a disposal plan (“discontinued operations”). The individual items include the assets received by the subsidiaries from their debtors, in full or partial settlement of the debtors’ payment obligations (assets foreclosed or donated in repayment of debt and recovery of lease finance transactions), unless the Group has decided to make continued use of these assets. The BBVA Group has units that specialize in real estate management and the sale of this type of asset.

Symmetrically, the heading “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets reflects the balances payable arising from disposal groups and discontinued operations. Profit or loss from non-current assets and disposal groups classified as held for sale are generally measured, at the acquisition date and at any later date deemed necessary, at either their carrying amount or the fair value of the property (less costs to sell), whichever is lower.

In the case of real estate assets foreclosed or received in payment of debts, they are initially recognized at the lower of: the restated carrying amount of the financial asset and the fair value at the time of the foreclosure or receipt of the asset less estimated sales costs. The carrying amount of the financial asset is updated at the time of the foreclosure, treating the real property received as a secured collateral and taking into account the credit risk coverage that would correspond to it according to its classification prior to the delivery. For these purposes, the collateral will be valued at its current fair value (less sale costs) at the time of foreclosure. This carrying amount will be compared with the previous carrying amount and the difference will be recognized as a provision increase, if applicable. On the other hand, the fair value of the foreclosed asset is obtained by appraisal, evaluating the need to apply a discount on the asset derived from the specific conditions of the asset or the market situation for these assets, and in any case, deducting the company’s estimated sale costs.

At the time of the initial recognition, these real estate assets foreclosed or received in payment of debts, classified as “Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale” are valued at the lower of: their restated fair value less estimated sale costs and their carrying amount; a deterioration or impairment reversal can be recognized for the difference if applicable.

Non-current assets and disposal groups held for sale groups classified as held for sale are not depreciated while included under this heading.

Fair value of non-current assets and disposable instruments held for sale from foreclosures or recoveries is based, mainly, in appraisals or valuations made by independent experts on a yearly based or less should there be evidence of impairment. Gains and losses generated on the disposal of assets and liabilities classified as noncurrent held for sale, and liabilities included in disposal groups classified as held for sale as well as impairment losses and, where pertinent, the related recoveries, are recognized in “Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” in the consolidated income statement (see Note 50). The remaining income and expense items associated with these assets and liabilities are classified within the relevant consolidated income statement headings.

Income and expenses for discontinued operations, whatever their nature, generated during the year, even if they have occurred before their classification as discontinued operations, are presented net of the tax effect as a single amount under the heading “Profit from discontinued operations” in the consolidated income statement, whether the business remains on the balance sheet or is derecognized from the balance sheet. As long as an asset remains in this category, it will not be amortized. This heading includes the earnings from their sale or other disposal.

2.2.5 Tangible assets

Property, plant and equipment for own use

This heading includes the assets under ownership or acquired under lease finance, intended for future or current use by the BBVA Group and that it expects to hold for more than one year. It also includes tangible assets received by the consolidated entities in full or partial settlement of financial assets representing receivables from third parties and those assets expected to be held for continuing use.

Property, plant and equipment for own use are presented in the consolidated balance sheets at acquisition cost, less any accumulated depreciation and, where appropriate, any estimated impairment losses resulting from comparing this net carrying amount of each item with its corresponding recoverable amount.

Depreciation is calculated using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land on which the buildings and other structures stand is considered to have an indefinite life and is therefore not depreciated.

The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading “Depreciation” (see Note 45) and are based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):

Type of Assets Annual Percentage
Building for own use 1% - 4%
Furniture 8% - 10%
Fixtures 6% - 12%
Office supplies and hardware 8% - 25%

Download Excel

The BBVA Group’s criteria for determining the recoverable amount of these assets, in particular buildings for own use, is based on independent appraisals that are no more than 3-5 years old at most, unless there are indications of impairment.

At each reporting date, the Group entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the Group analyzes whether this impairment actually exists by comparing the asset’s net carrying amount with its recoverable amount (as the higher between its recoverable amount less disposal costs and its value in use). When the carrying amount exceeds the recoverable amount, the carrying amount is written down to the recoverable amount and depreciation charges going forward are adjusted to reflect the asset’s remaining useful life.

Similarly, if there is any indication that the value of a tangible asset has been recovered, the consolidated entities will estimate the recoverable amounts of the asset and recognize it in the consolidated income statement, recording the reversal of the impairment loss registered in previous years and thus adjusting future depreciation charges. Under no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior years.

Running and maintenance expenses relating to tangible assets held for own use are recognized as an expense in the year they are incurred and recognized in the consolidated income statements under the heading “Administration costs - Other administrative expenses - Property, fixtures and equipment” (see Note 44.2).

Other assets leased out under an operating lease

The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognize the impairment losses on them, are the same as those described in relation to tangible assets for own use.

Investment properties

The heading “Tangible assets - Investment properties” in the consolidated balance sheets reflects the net values (purchase cost minus the corresponding accumulated depreciation and, if appropriate, estimated impairment losses) of the land, buildings and other structures that are held either to earn rentals or for capital appreciation through sale and that are neither expected to be sold off in the ordinary course of business nor are destined for own use (see Note 17).

The criteria used to recognize the acquisition cost of investment properties, calculate their depreciation and their respective estimated useful lives and recognize the impairment losses on them, are the same as those described in relation to tangible assets held for own use.

The BBVA Group’s criteria for determining the recoverable amount of these assets is based on independent appraisals that are no more than one year old at most, unless there are indications of impairment.

2.2.6 Inventories

The balance under the heading “Other assets - Inventories” in the consolidated balance sheets mainly includes the land and other properties that the BBVA Group’s real estate entities hold for development and sale as part of their real estate development activities (see Note 20).

The cost of inventories includes those costs incurred in during their acquisition and development, as well as other direct and indirect costs incurred in getting them to their current condition and location.

In the case of the cost of real-estate assets accounted for as inventories, the cost is comprised of: the acquisition cost of the land, the cost of urban planning and construction, non-recoverable taxes and costs corresponding to construction supervision, coordination and management. Borrowing cost incurred during the year form part of cost, provided that the inventories require more than a year to be in a condition to be sold.

Properties purchased from customers in distress, which the Group manages for sale, are measured at the acquisition date and any subsequent time, at either their related carrying amount or the fair value of the property (less costs to sell), whichever is lower. The carrying amount at acquisition date of these properties is defined as the balance pending collection on those assets that originated said purchases (net of provisions).

Impairment

The amount of any subsequent adjustment due to inventory valuation for reasons such as damage, obsolescence, reduction in sale price to its net realizable value, as well as losses for other reasons and, if appropriate, subsequent recoveries of value up to the limit of the initial cost value, are registered under the heading “ Impairment or (-) reversal of impairment on non-financial assets ” in the accompanying consolidated income statements (see Note 48) for the year in which they are incurred.

In the case of real-Estate assets above mentioned, if the fair value less costs to sell is lower than the carrying amount of the loan recognized in the consolidated balance sheet, a loss is recognized under the heading “Impairment or (-) reversal of impairment on non-financial assets” in the consolidated income statement for the period (see Note 48). In the case of real-estate assets accounted for as inventories, the BBVA Group’s criterion for determining their net realizable value is mainly based on independent appraisals no more than one year old, or less if there are indications of impairment.

Inventory sales

In sale transactions, the carrying amount of inventories is derecognized from the consolidated balance sheet and recognized as an expense under the income statement heading “Other operating expenses – Changes in inventories” in the year in which the income from its sale is recognized. This income is recognized under the heading “Other operating income – Financial income from non-financial services” in the consolidated income statements (see Note 42).

2.2.7 Business combinations

A business combination is a transaction, or any other deal, by which the Group obtains control of one or more businesses. It is accounted for by applying the acquisition method.

According to this method, the acquirer has to recognize the assets acquired and the liabilities and contingent liabilities assumed, including those that the acquired entity had not recognized in the accounts. The method involves the measurement of the consideration received for the business combination and its allocation to the assets, liabilities and contingent liabilities measured according to their fair value, at the purchase date, as well as the recognition of any non-controlling participation (minority interests) that may arise from the transaction.

In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss under the heading “Gains (losses) on derecognized of non-financial assets and subsidiaries, net” of the Consolidated Income Statements. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.

In addition, the acquirer shall recognize an asset in the consolidated balance sheet under the heading “Intangible asset - Goodwill” if on the acquisition date there is a positive difference between:

If this difference is negative, it shall be recognized directly in the income statement under the heading “Gain on Bargain Purchase in business combinations”.

Non-controlling interests in the acquired entity may be measured in two ways: either at their fair value; or at the proportional percentage of net assets identified in the acquired entity. The method of valuing non-controlling interest may be elected in each business combination. So far, the BBVA Group has always elected for the second method.

2.2.8 Intangible assets

Goodwill

Goodwill represents a portion of consideration transferred in advance by the acquiring entity for the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is never amortized. It is subject periodically to an impairment analysis, and is written off if it is clear that there has been impairment.

Goodwill is assigned to one or more cash-generating units that expect to be the beneficiaries of the synergies derived from the business combinations. The cash-generating units represent the Group’s smallest identifiable asset groups that generate cash flows for the Group and that are largely independent of the flows generated from the Group’s other assets or groups of assets. Each unit or units to which goodwill is allocated:

The cash-generating units to which goodwill has been allocated are tested for impairment (including the allocated goodwill in their carrying amount). This analysis is performed at least annually or more frequently if there is any indication of impairment.

For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that cash-generating unit, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, in the event they are not valued at fair value, is compared with its recoverable amount.

The recoverable amount of a cash-generating unit is equal to the fair value less sale costs and its value in use, whichever is greater. Value in use is calculated as the discounted value of the cash flow projections that the unit’s management estimates and is based on the latest budgets approved for the coming years. The main assumptions used in its calculation are: a sustainable growth rate to extrapolate the cash flows indefinitely, and the discount rate used to discount the cash flows, which is equal to the cost of the capital assigned to each cashgenerating unit, and equivalent to the sum of the risk-free rate plus a risk premium inherent to the cashgenerating unit being evaluated for impairment.

If the carrying amount of the cash-generating unit exceeds the related recoverable amount, the Group recognizes an impairment loss; the resulting loss is apportioned by reducing, first, the carrying amount of the goodwill allocated to that unit and, second, if there are still impairment losses remaining to be recognized, the carrying amount of the remainder of the assets. This is done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. In the event the non-controlling interests are measured at fair value, the deterioration of goodwill attributable to non-controlling interests will be recognized. In any case, an impairment loss recognized for goodwill shall not be reversed in a subsequent period.

They are recognized under the heading “Impairment or (-) reversal of impairment on non-financial assets – Intangible assets” in the consolidated income statements (see Note 48).

Other intangible assets

These assets may have an indefinite useful life if, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the consolidated entities. In all other cases they have a finite useful life.

Intangible assets with a finite useful life are amortized according to the duration of this useful life, using methods similar to those used to depreciate tangible assets. The defined useful time intangible asset is made up mainly of IT applications acquisition costs which have a useful life of 3 to 5 years. The depreciation charge of these assets is recognized in the accompanying consolidated income statements under the heading “Depreciation” (see Note 45).

The consolidated entities recognize any impairment loss on the carrying amount of these assets with charge to the heading “Impairment or (-) reversal of impairment on non - financial assets- Intangible assets” in the accompanying consolidated income statements (see Note 48). The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior years, are similar to those used for tangible assets.

2.2.9 Insurance and reinsurance contracts

The assets of the BBVA Group’s insurance subsidiaries are recognized according to their nature under the corresponding headings of the consolidated balance sheets and the initial recognition and valuation is carried out according to the criteria set out in IFRS 4.

The heading “Reinsurance assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance subsidiaries are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries.

The heading “Liabilities under insurance contracts” in the accompanying consolidated balance sheets includes the technical provisions for direct insurance and inward reinsurance recognized by the consolidated insurance subsidiaries to cover claims arising from insurance contracts in force at period-end (see Note 23).

The income or expenses reported by the BBVA Group’s consolidated insurance subsidiaries on their insurance activities is recognized, in accordance with their nature, in the corresponding items of the consolidated income statements.

The consolidated insurance entities of the BBVA Group recognize the amounts of the premiums written to the income statement and a charge for the estimated cost of the claims that will be incurred at their final settlement to their consolidated income statements. At the close of each year the amounts collected and unpaid, as well as the costs incurred and unpaid, are accrued.

The most significant provisions registered by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 23.

According to the type of product, the provisions may be as follows:

The BBVA Group controls and monitors the exposure of the insurance subsidiaries to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.

2.2.10 Tax assets and liabilities

Expenses on corporate income tax applicable to the BBVA Group’s Spanish entities and on similar income taxes applicable to consolidated foreign entities are recognized in the consolidated income statement, except when they result from transactions on which the profits or losses are recognized directly in equity, in which case the related tax effect is also recognized in equity. The total corporate income tax expense is calculated by aggregating the current tax arising from the application of the corresponding tax rate to the tax for the year (after deducting the tax credits or discounts allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the consolidated income statement.

Deferred tax assets and liabilities include temporary differences, defined as the amounts to be payable or recoverable in future years arising from the differences between the carrying amount of assets and liabilities and their tax bases (the “tax value”), and tax loss and tax credit or discount carry forwards (see Note 19).

The “Tax Assets” line item in the accompanying consolidated balance sheets includes the amount of all the assets of a tax nature, and distinguishes between: “Current” (amounts recoverable by tax in the next twelve months) and “Deferred” (which includes the amount of tax to be recovered in future years, including those arising from tax losses or credits for deductions or rebates that can be compensated). The “Tax Liabilities” line item in the accompanying consolidated balance sheets includes the amount of all the liabilities of a tax nature, except for provisions for taxes, broken down into: “Current” (income tax payable on taxable profit for the year and other taxes payable in the next twelve months) and “Deferred” (the amount of corporate tax payable in subsequent years).

Deferred tax liabilities attributable to taxable temporary differences associated with investments in subsidiaries, associates or joint venture entities are recognized as such, except where the Group can control the timing of the reversal of the temporary difference and it is unlikely that it will reverse in the future. Deferred tax assets are recognized to the extent that it is considered probable that the consolidated entities will have sufficient taxable profits in the future against which the deferred tax assets can be utilized and are not from the initial recognition (except in the case of a business combination) of other assets or liabilities in a transaction that does not affect the fiscal outcome or the accounting result.

The deferred tax assets and liabilities recognized are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they are still current, and the appropriate adjustments are made on the basis of the findings of the analyses performed. In those circumstances in which it is unclear how a specific requirement of the tax law applies to a particular transaction or circumstance, and the acceptability of the definitive tax treatment depends on the decisions taken by the relevant taxation authority in future, the entity recognizes current and deferred tax liabilities and assets considering whether it is probable or not that a taxation authority will accept an uncertain tax treatment. Thus, if the entity concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, the entity uses the amount expected to be paid to (recovered from) the taxation authorities.

The income and expenses directly recognized in equity that do not increase or decrease taxable income are accounted for as temporary differences.

2.2.11 Provisions, contingent assets and contingent liabilities

The heading “Provisions” in the consolidated balance sheets includes amounts recognized to cover the BBVA Group’s current obligations arising as a result of past events. These are certain in terms of nature but uncertain in terms of amount and/or settlement date. The settlement of these obligations is deemed likely to entail an outflow of resources embodying economic benefits (see Note 24). The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Group entities relative to third parties in relation to the assumption of certain responsibilities or through virtually certain developments of particular aspects of the regulations applicable to the operation of the entities; and, specifically, future legislation to which the Group will certainly be subject. The provisions are recognized in the consolidated balance sheets when each and every one of the following requirements is met:

Among other items, these provisions include the commitments made to employees by some of the Group entities (mentioned in Note 2.2.12), as well as provisions for tax and legal litigation.

Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement; however, they will be disclosed, should they exist, in the Notes to the consolidated financial statements, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.

Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the Group. They also include the existing obligations of the Group when it is not probable that an outflow of resources embodying economic benefits will be required to settle them; or when, in extremely rare cases, their amount cannot be measured with sufficient reliability.

Contingent liabilities are not recognized in the consolidated balance sheet or the income statement (excluding contingent liabilities from business combination) but are reported in the consolidated financial statements.

2.2.12 Pensions and other post-employment commitments

Below we provide a description of the most significant accounting criteria relating to post-employment and other employee benefit commitments assumed by BBVA Group entities (see Note 25).

Short-term employee benefits

Benefits for current active employees which are accrued and settled during the year and for which a provision is not required in the entity´s accounts. These include wages and salaries, social security charges and other personnel expenses.

Costs are charged and recognized under the heading “Administration costs – Personnel expenses – Other personnel expenses” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-contribution plans

The Group sponsors defined-contribution plans for the majority of its active employees. The amount of these benefits is established as a percentage of remuneration and/or as a fixed amount.

The contributions made to these plans in each period by BBVA Group entities are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-contribution plan expense” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-benefit plans

Some Group entities maintain pension commitments with employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. These commitments are covered by insurance contracts, pension funds and internal provisions.

In addition, some of the Spanish entities have offered certain employees the option to retire before their normal retirement age, recognizing the necessary provisions to cover the costs of the associated benefit commitments, which include both the liability for the benefit payments due as well as the contributions payable to external pension funds during the early retirement period.

Furthermore, certain Group entities provide welfare and medical benefits which extend beyond the date of retirement of the employees entitled to the benefits.

All of these commitments are quantified based on actuarial valuations, with the amounts recorded under the heading “Provisions – Provisions for pensions and similar obligations” and determined as the difference between the value of the defined-benefit commitments and the fair value of plan assets at the date of the consolidated financial statements (see Note 25).

Current service cost are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-benefit plan expense” of the consolidated income statement (see Note 44.1).

Interest credits/charges relating to these commitments are charged and recognized under the headings “Interest income” and “Interest expense” of the consolidated income statement.

Past service costs arising from benefit plan changes as well as early retirements granted during the period are recognized under the heading “Provisions or reversals of provisions” of the consolidated income statement (see Note 46).

Other long-term employee benefits

In addition to the above commitments, certain Group entities provide long service awards to their employees, consisting of monetary amounts or periods of vacation granted upon completion of a number of years of qualifying service.

These commitments are quantified based on actuarial valuations and the amounts recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet (see Note 24).

Valuation of commitments: actuarial assumptions and recognition of gains/losses

The present value of these commitments is determined based on individual member data. Active employee costs are determined using the “projected unit credit” method, which treats each period of service as giving rise to an additional unit of benefit and values each unit separately.

In establishing the actuarial assumptions we taken into account that:

The BBVA Group recognizes actuarial gains/losses relating to early retirement benefits, long service awards and other similar items under the heading “Provisions or reversal of provisions” of the consolidated income statement for the period in which they arise (see Note 46). Actuarial gains/losses relating to pension and medical benefits are directly charged and recognized under the heading “Accumulated other comprehensive income – Items that will not be reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans” of equity in the consolidated balance sheet (see Note 30).

2.2.13 Equity-settled share-based payment transactions

Provided they constitute the delivery of such equity instruments following the completion of a specific period of services, equity-settled share-based payment transactions are recognized as an expense for services being provided by employees, by way of a balancing entry under the heading “Shareholders’ equity – Other equity” in the consolidated balance sheet. These services are measured at fair value for the employees services received, unless such fair value cannot be calculated reliably. In such case, they are measured by reference to the fair value of the equity instruments granted, taking into account the date on which the commitments were granted and the terms and other conditions included in the commitments.

When the initial compensation agreement includes what may be considered market conditions among its terms, any changes in these conditions will not be reflected in the consolidated income statement, as these have already been accounted for in calculating the initial fair value of the equity instruments. Non-market vesting conditions are not taken into account when estimating the initial fair value of equity instruments, but they are taken into account when determining the number of equity instruments to be issued. This will be recognized on the consolidated income statement with the corresponding increase in total equity.

2.2.14 Termination benefits

Termination benefits are recognized in the accounts when the BBVA Group agrees to terminate employment contracts with its employees and has established a detailed plan.

2.2.15 Treasury stock

The value of common stock issued by the BBVA Group’s entities and held by them - basically, shares and derivatives on the Bank’s shares held by some consolidated entities that comply with the requirements to be recognized as equity instruments - are recognized as a decrease to net equity, under the heading “Shareholders’ funds - Treasury stock” in the consolidated balance sheets (see Note 29).

These financial assets are recognized at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Shareholders’ funds - Retained earnings” in the consolidated balance sheets (see Note 28).

2.2.16 Foreign-currency transactions and exchange differences

The BBVA Group’s functional currency, and thus the currency in which the consolidated financial statements are presented, is the euro. Thus, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”.

Conversion to euros of the balances held in foreign currency is performed in two consecutive stages:

Conversion of the foreign currency to the functional currency

Transactions denominated in foreign currencies carried out by the consolidated entities (or accounted for using the equity method) are initially accounted for in their respective currencies. Subsequently, the monetary balances in foreign currencies are converted to their respective functional currencies using the exchange rate at the close of the financial year. In addition,

The exchange differences produced when converting the balances in foreign currency to the functional currency of the consolidated entities are generally recognized under the heading “Exchange differences (net)” in the consolidated income statements. However, the exchange differences in non-monetary items, measured at fair value, are recognized temporarily in equity under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” in the consolidated balance sheets.

Conversion of functional currencies to euros

The balances in the financial statements of consolidated entities whose functional currency is not the euro are converted to euros as follows:

The exchange differences arising from the conversion to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recognized under the heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Exchange differences” in the consolidated balance sheets. Meanwhile, the differences arising from the conversion to euros of the financial statements of entities accounted for by the equity method are recognized under the heading “ Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Entities accounted for using the equity method” until the item to which they relate is derecognized, at which time they are recognized in the income statement.

The breakdown of the main consolidated balances in foreign currencies, with reference to the most significant foreign currencies, is set forth in Appendix VII

Venezuela

Local financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan Bolivar, and converted into euros for the consolidated financial statements, as indicated below, since Venezuela is a country with strong exchange restrictions and has different rates officially published:

The summarized balance sheet and income statements of the Group subsidiaries in Venezuela, whose local financial statements are expressed in Venezuelan bolivars comparing their conversion to euros with the estimated exchange rate with the balances that would have result by applying the SIMADI exchange rate, are as follows:

Million of Euros
Balance sheet December 2016 Estimated exchange rate DIRCOM Variation
Cash and balances with central banks 363 971 608
Securities portfolio 93 248 155
Loans and recievables 513 1,371 858
Tangible assets 66 177 111
Other 36 95 59
TOTAL ASSETS 1,070 2,862 1,791
Deposits from central bank and credit institutions 2 5 3
Customer deposits 778 2,080 1,302
Provisions 21 57 35
Other 112 299 187
TOTAL LIABILITIES 913 2,441 1,528

Download Excel

Income statements December 2016 Estimated exchange rate DIRCOM Variation
NET INTEREST ICOME 103 275 172
GROSS INCOME 52 139 87
Administration costs 55 146 91
NET OPERATING INCOME (3) (7) (5)
OPERATING PROFIT BEFORE TAX 31 82 51
Tax expense or (-) income related to profit or loss from continuing 38 100 63
PROFIT (7) (19) (12)
Attributable to minority interest (non-controlling interests) (3) (8) (5)
Attributable to owners of the parent (4) (10) (6)

Download Excel

2.2.17 Recognition of income and expenses

The most significant criteria used by the BBVA Group to recognize its income and expenses are as follows.

2.2.18 Sales and income from the provision of non-financial services

The heading “Other operating income” in the consolidated income statements includes the proceeds of the sales of assets and income from the services provided by the Group entities that are not financial institutions. In the case of the Group, these entities are mainly real estate and service entities (see Note 42).

2.2.19 Leases

Lease contracts are classified as finance leases from the inception of the transaction, if they substantially transfer all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. Leases other than finance leases are classified as operating leases.

When the consolidated entities act as the lessor of an asset in finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recognized as financing provided to third parties and, therefore, are included under the heading “Loans and receivables” in the accompanying consolidated balance sheets.

When the consolidated entities act as lessors of an asset in operating leases, the acquisition cost of the leased assets is recognized under “Tangible assets – Property, plant and equipment – Other assets leased out under an operating lease” in the consolidated balance sheets (see Note 17). These assets are depreciated in line with the criteria adopted for items of tangible assets for own use, while the income arising from the lease arrangements is recognized in the consolidated income statements on a straight-line basis within “Other operating expenses” (see Note 42).

If a fair value sale and leaseback results in an operating lease, the profit or loss generated from the sale is recognized in the consolidated income statement at the time of sale. If such a transaction gives rise to a finance lease, the corresponding gains or losses are accrued over the lease period.

The assets leased out under operating lease contracts to other entities in the Group are treated in the consolidated financial statements as for own use, and thus rental expense and income is eliminated and the corresponding depreciation is recognized.

2.2.20 Entities and branches located in countries with hyperinflationary economies

In order to assess whether an economy is under hyperinflation, the country’s economic environment is evaluated, analyzing whether certain circumstances exist, such as:

The fact that any of these circumstances is present will not be a decisive factor in considering an economy hyperinflationary, but it does provide some reasons to consider it as such.

Since 2009, the economy of Venezuela can be considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Venezuela have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “ Financial Reporting in Hyperinflationary Economies“.

The breakdown of the General Price Index and the inflation index used as of December 31, 2016 and 2015 for the inflation restatement of the financial statements of the Group companies located in Venezuela is as follows:

General Price Index 2016 (*) 2015 (**)
GPI 9,431.60 2,357.90
Average GPI 5,847.74 1,460.50
Inflation of the period 300% 170%

Descargar Excel

The losses recognized under the heading “Profit attributable to the parent company” in the accompanying consolidated income statement as a result of the adjustment for inflation on net monetary position of the Group entities in Venezuela amounted to €28 and 45 million in 2016 and 2015 respectively.

2.3 Recent IFRS pronouncements

Changes introduced in 2016

The following modifications to the IFRS standards or their interpretations (hereinafter “IFRIC”) came into force after January 1, 2016. They have not had a significant impact on the BBVA Group’s consolidated financial statements corresponding to the period ended December 31, 2016.

Amended IFRS 11 - “Joint Arrangements”

The amendments made to IFRS 11 require the acquirer of an interest in a joint operation in which the activity constitutes a business to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs. These modifications will be applied to the accounting years starting on or after January 1, 2016, although early adoption is permitted.

Amended IAS 16 - “Property, Plant and Equipment” and Amended IAS 38 – “Intangible Assets”.

The amendments made to IAS 16 and IAS 38 exclude, as general rule, as depreciation method to be used, those methods based on revenue that is generated by an activity that includes the use of an asset, because the revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits of the asset.

Amended IAS 27 – “Separate financial statements”

Changes to IAS 27 allow entities to use the equity method to account for investment in subsidiaries, joint ventures and associates, in their separate financial statements.

Annual improvements cycle to IFRSs 2012-2014

The annual improvements cycle to IFRSs 2012-2014 includes minor changes and clarifications to IFRS 5 – Non current assets held for sale and discontinued operations, IFRS 7 – Financial instruments: Information to disclose, IAS 19 – Employee benefits and IAS 34 – interim financial information.

Amended IAS 1 – Presentation of Financial Statements

The amendments made to IAS 1 further encourage companies to apply professional judgment in determining what information to disclose in their financial statements, in determining when line items are disaggregated and additional headings and subtotals included in the statement of financial position and the statement of profit or loss and other comprehensive income, and in determining where and in what order information is presented in the financial disclosures

Amended IFRS 10 - “Consolidated Financial Statements”, Amended IFRS 12 – “Disclosure of interests in other entities” and Amended IAS 28 – “Investments in Associates and Joint Ventures”

The amendments to IFRS 10, IFRS 12 and IAS 28 introduce clarifications to the requirements when accounting for investment entities in three aspects:

Standards and interpretations issued but not yet effective as of December 31, 2016

New International Financial Reporting Standards together with their interpretations had been published at the date of preparation of the accompanying consolidated financial statements, but are not obligatory as of December 31, 2016. Although in some cases the IASB permits early adoption before they come into force, the BBVA Group has not done so as of this date, as it is still analyzing the effects that will result from them.

IFRS 9 - “Financial instruments”

As of July, 24, 2014, IASB issued the IFRS 9 which will replace IAS 39 and includes a new classification and assessment requirements of financial assets and liabilities, impairment requirements of financial assets and hedge accounting policy.

The classification of financial assets will depend on the company’s business model used for management purposes and the characteristics of the contractual cash flows, resulting in the measurement of such financial assets at amortized cost, fair value with changes in other comprehensive income and liabilities not measured at fair value through profit or loss, net.

The combined effect of applying the company’s business model and the characteristics of the contractual cash flows may result in differences in the stock of financial assets measured at amortized cost or at fair value compared to IAS 39, although the Group does not expect significant changes in this regard.

With regard to financial liabilities, the classification categories proposed by IFRS 9 are similar to those contained in IAS 39, so there should not be very significant differences save for the requirement to recognize changes in fair value related to own credit risk as a component of equity, in the case of financial liabilities designated at fair value through profit or loss.

Impairment requirements will apply to financial assets measured at amortized cost and at fair value through other comprehensive income, and to lease receivables and certain loan commitments and financial guarantee contracts.

At initial recognition, an allowance is required for expected credit losses resulting from default events that may occur within the next 12 months (“12 month expected credit losses”).

In the event of a significant increase in credit risk, an allowance is required for expected credit losses resulting from all possible default events over the expected life of the financial instrument (“lifetime expected credit losses”).

The assessment of whether the credit risk has increased significantly since initial recognition should be performed for each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument. The assessment of credit risk, and the estimation of expected credit losses, should be performed so that they are probability-weighted and unbiased and shall include all available information that is relevant to the assessment, including information about past events, current conditions and reasonable and supportable expectations of future events and economic conditions at the reporting date.

As a result, the goal is for the recognition and measurement of impairment to be more proactive and forward-looking than under the current incurred loss model of IAS 39.

Theoretically, an increase in the total level of impairment allowances is expected, since all financial assets will be assessed for at least 12 month expected credit losses and the population of financial assets to which lifetime expected credit losses will be applied is expected to be larger than the population for which there is objective evidence of impairment under IAS 39

IFRS 9 will also affect hedge accounting, because the focus of the Standard is different from that of the current IAS 39, as it tries to align the accounting requirements with economic risk management. IFRS 9 will also permit to apply hedge accounting to a wider range of risks and hedging instruments. The Standard does not address the accounting for the macro hedging strategies. To avoid any conflict between the current macro hedge accounting and the new general hedge accounting requirements, IFRS 9 includes an accounting policy choice to continue applying hedge accounting according to IAS 39.

The IASB has established January 1, 2018, as the mandatory application date, with the possibility of early adoption.

During 2015 and 2016, the Group has been analyzing this new Standard and the implications it will have in 2018 on the classification of portfolios and the valuation models for financial instruments, focusing on impairment loss models for financial assets through expected loss models.

In 2017, the Group will continue working on the definition of accounting policies, on the implementation of the Standard, which has implications both on the financial statements and on the Group´s daily operations (initial and subsequent risk assessment, changes in systems, management metrics, etc.), and also on the models used for the presentation of financial statements.

As of the date of preparation of these Consolidated Financial Statements, the Group does not have an estimation of the quantitative impact that this Standard will have on January 1, 2018 when it will come into force. The Group expects to have a parallel calculation during 2017 in order to have comparative information for the previous year when the Standard comes into effect.

Amended IFRS 7 - “Financial instruments: Disclosures”

The IASB modified IFRS 7 in December 2011 to include new disclosures on financial instruments that entities will have to provide as soon as they apply IFRS 9 for the first time.

IFRS 15 - “Revenue from contracts with customers”

IFRS 15 contains the principles that an entity shall apply to account for revenue and cash flows arising from a contract with a customer.

The core principle of IFRS 15 is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services, in accordance with contractually agreed. It is considered that the good or service is transferred when the customer obtains control over it.

The new Standard replaces IAS 18 - Revenue IAS 11 - Construction Contracts, IFRIC 13 - Customer Loyalty Programmes, IFRIC 15 - Agreements for the Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC 31 – Revenue-Transactions Involving Advertising Services

This Standard will be applied to the accounting years starting on or after January 1, 2018, although early adoption is permitted.

IFRS 15 – “Clarifications to IFRS 15 Revenue from Contracts with Customers”

The amendments to the Revenue Standard clarify how some of the underlying principles of the new Standard should be applied. Specifically, they clarify how to:

In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.

The amendments will be applied at the same time as the IFRS 15, i.e. to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

Amended IFRS 10 – “Consolidated financial statements” and Amended IAS 28 - “Investments in Associates and Joint Ventures”

The amendments to IFRS 10 and IAS 28 establish that when an entity sells or transfers assets are considered a business (including its consolidated subsidiaries) to an associate or joint venture of the entity, the latter will have to recognize any gains or losses derived from such transaction in its entirety. Notwithstanding, if the assets sold or transferred are not considered a business, the entity will have to recognize the gains or losses derived only to the extent of the interests in the associate or joint venture with unrelated investors.

These changes will be applicable to accounting periods beginning on the effective date, still to be determined, although early adoption is allowed.

IAS 12 – “Income Taxes. Recognition of Deferred Tax Assets for Unrealized Losses”

The amendments made to IAS 12 clarify the requirements on recognition of deferred tax assets for unrealized losses on debt instruments measured at fair value. The following aspects are clarified:

These modifications will be applied to the accounting periods beginning on or after January 1, 2017, although early application is permitted.

IFRS 16 – “Leases”

On January 13, 2016 the IASB issued the IFRS 16 which will replace IAS 17. The new standard introduces a single lessee accounting model and will require a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee will be required to recognize a right-of–use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

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 account for those two types of leases differently.

The standard will be applied to the accounting years starting on or after January 1, 2019, although early application is permitted if IFRS 15 is also applied.

IAS 7 – “Statement of Cash Flows. Disclosure Initiative”

The amendments to IAS 7 introduce the following new disclosure requirements related to changes in liabilities arising from financing activities, to the extent necessary to enable users of financial statements to evaluate changes in those liabilities: changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes.

Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows arising from financing activities. Additionally, the disclosure requirements also apply to changes in financial assets if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.

These modifications will be applied to the accounting periods beginning on or after January 1, 2017, although early application is permitted.

IFRS 2 – “Classification and Measurement of Share-based Payment Transactions”

The amendments made to IFRS 2 provide requirements on three different aspects:

These modifications will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

Amended IFRS 4 “Insurance Contracts”

The amendments made to IFRS 4 address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming insurance contracts Standard, by introducing two optional solutions:

These modifications will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

Annual improvements cycle to IFRSs 2014-2016

The annual improvements cycle to IFRSs 2014-2016 includes minor changes and clarifications to IFRS 1- Fristtime Adoption of International Financial Reporting Standards, IFRS 12 – Disclosure of Interests in Other Entities and IAS 28 – Investments in Associates and Joint Ventures.

Amendments to IFRS 1 and IAS 28 will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted to amendments to IAS 28. Amendments to IFRS 12 will be applied to the accounting periods beginning on or after January 1, 2017.

IFRIC 22- Foreign Currency Transactions and Advance Consideration

The Interpretation addresses how to determine the date of the transaction, and thus, the exchange rate to use to translate the related asset, expense or income on initial recognition, in circumstances in which a non-monetary prepayment asset or a non-monetary deferred income liability arising from the payment or receipt of advance consideration is recognized in advance of the related asset, income or expense. It requires that the date of the transaction will be the date on which an entity initially recognizes the non-monetary asset or non-monetary liability.

If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.

The interpretation will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted

Amended IAS 40 – Investment Property

The amendment states that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property.

The amendments will be applied to the accounting periods beginning on or after January 1, 2018, although early adoption is allowed.

3. BBVA Group

The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking, asset management and private banking. The Group also operates in other sectors such as insurance, real estate, operational leasing, etc.

Appendices I and II provide relevant information as of December 31, 2016 on the Group’s subsidiaries, consolidated structured entities, and investments in associate entities and joint venture entities. Appendix III shows the main changes in investments for the year ended December 31, 2015, and Appendix IV gives details of the consolidated subsidiaries and which, based on the information available, are more than 10% owned by non-Group shareholders as of December 31, 2016.

The following table sets forth information related to the Group’s total assets as of December 31, 2016, 2015 and 2014, broken down by the Group’s entities according to their activity:

Millions of Euros
Contribution to Consolidated Group Total Assets. Entities by Main Activities 2016 2015 2014
Banks and other financial services 699,592 717,981 601,794
Insurance and pension fund managing companies 26,831 25,741 23,370
Other non-financial service 5,433 6,133 6,778
Total 731,856 749,855 631,942

Download Excel

The total assets and results of operations broken down by the geographical areas, in which the BBVA Group operates, are included in Note 6.

The BBVA Group’s activities are mainly located in Spain, Mexico, South America, the United States and Turkey, with active presence in other countries, as shown below:

The Group’s activity in Spain is mainly through Banco Bilbao Vizcaya Argentaria, S.A., which is the parent company of the BBVA Group. The Group also has other entities that operate in Spain’s banking sector, insurance sector, real estate sector, services and as operational leasing entities.

The BBVA Group operates in Mexico, not only in the banking sector, but also in the insurance sector through Grupo Financiero Bancomer.

The BBVA Group’s activities in South America are mainly focused on the banking and insurance sectors, in the following countries: Argentina, Chile, Colombia, Peru, Paraguay, Uruguay and Venezuela. It has a representative office in Sao Paulo (Brazil).

The Group owns more than 50% of most of the entities based in these countries. Appendix I shows a list of the entities which, although less than 50% owned by the BBVA Group as of December 31, 2016, are consolidated (see Note 2.1).

The Group’s activity in the United States is mainly carried out through a group of entities with BBVA Compass Bancshares, Inc. at their head, the New York BBVA branch and a representative office in Silicon Valley (California).

The Group’s activity in Turkey is mainly carried out through the Garanti Group.

The Group’s activity in Europe is carried out through banks and financial institutions in Ireland, Switzerland, Italy, Netherlands, Romania and Portugal, branches in Germany, Belgium, France, Italy and the United Kingdom, and a representative office in Moscow.

The Group’s activity in this region is carried out through branches (in Taipei, Seoul, Tokyo, Hong Kong Singapore and Shanghai) and representative offices (in Beijing, Mumbai, Abu Dhabi, Sydney and Jakarta).

Changes in the Group in 2016

Mergers

The BBVA Group, at its Board of Directors meeting held on March 31, 2016, adopted a resolution to begin a merger process of BBVA S.A. (absorbing company), Catalunya Banc, S.A., Banco Depositario BBVA, S.A. y Unoe Bank, S.A.

This transaction is part of the corporate reorganization of its banking subsidiaries in Spain and has been successfully completed throughout 2016 and has no impact in the consolidated financial statements both from the accounting and the solvency stand points.

Changes in the Group in 2015

During 2015, it was registered the full consolidation of Garanti since the date of effective control (third quarter) and the acquisition of Catalunya Banc (second quarter). These effects impact on the period-on-period comparison of all the income statements was affected with the previous first semester results.

Investments
Acquisition of an additional 14.89% of Garanti

On November 19, 2014, the Group signed a new agreement with Dogus Holding AS, Ferit Faik Sahenk, Dianne Sahenk and Defne Sahenk (hereinafter “Dogus”) to, among other terms, the acquisition of 62,538,000,000 additional shares of Garanti (equivalent to 14.89% of the capital of this entity) for a maximum total consideration of 8,90 Turkish lira per batch (Garanti traded in batches of 100 shares each).

In the same agreement stated that if the payment of dividends for the year 2014 was executed by Dogus before the closing of the acquisition, that amount would be deducted from the amount payable by BBVA. On April 27, 2015, Dogus received the amount of the dividend paid to shareholders of Garanti, which amounted to Turkish Liras 0,135 per batch.

On July 27, 2015, after obtaining all the required regulatory approvals, the Group has materialized said participation increase after the acquisition of the new shares. Now the Group’s interest in Garanti is 39.9%.

The total price effectively paid by BBVA amounts to 8,765 TL per batch (amounting to approximately TL 5,481 million and €1,857 million applying a 2.9571 TL/EUR exchange rate).

In accordance with the EU-IFRS accounting rules, and as a consequence of the agreements reached, the BBVA Group shall, at the date of effective control, measure at fair value its previously acquired stake of 25,01% in Garanti (classified as a joint venture accounted for using the equity method) and shall consolidate Garanti in the consolidated financial statements of the BBVA Group, beginning on the above-mentioned effective control date.

Measuring the above-mentioned stake in Garanti Bank at fair value resulted in a negative impact in “Gains or (-) losses on derecognition of non-financial assets and subsidiaries, net” in the consolidated income statement of the BBVA Group for the second semester of 2015, which resulted in a net negative impact in the Profit attributable to owners of the parent of the BBVA Group in 2015 amounting to €1.840 million. Such accounting impact does not translate into any additional cash outflow from BBVA. Most of this impact is generated by the exchange rate differences due to the depreciation of the TL against Euro since the initial acquisition by BBVA of the 25,01% stake in Garanti Bank up to the date of effective control. As of December 31, 2015, these exchange rate differences were already registered as Other Comprehensive Income deducting the stock shareholder’s equity of the BBVA Group.

The agreements with the Dogus group include an agreement for the management of the bank and the appointment by the BBVA Group of the majority of the members of its Board of Directors (7 of 10). The 39.9% stake in Garanti is consolidated in the BBVA Group, because of these management agreements.

The Group estimate according to the acquisition method, the comparison between the fair values assigned to the assets acquired and the liabilities assumed from Garanti, along with the identified intangible assets, and cash payment made by the BBVA Group in consideration of the transaction generated a goodwill of €624 million (at exchange rate of December 31.2016), which is registered under the heading “Intangible assets - Goodwill” in the accompanying consolidated balance sheets as of December 31, 2016 (see Note 18.1)

Acquisition of Catalunya Banc

On July 21, 2014, the Management Commission of the Banking Restructuring Fund (known as “FROB”) accepted BBVA´s bid in the competitive auction for the acquisition of Catalunya Banc, S.A. (“Catalunya Banc”).

On April 24, 2015, once the necessary authorizations have been obtained and all the agreed conditions precedent have been fulfilled, BBVA announced that it acquired 1,947,166,809 shares of Catalunya Banc, S.A. (approximately 98.4% of its share capital) for a price of approximately €1,165 million.

According to the purchase method, the comparison between the fair values assigned to the assets acquired and the liabilities assumed from Catalunya Banc, and the cash payment made to the FROB in consideration of the transaction generated a difference of €26 million, which is registered under the heading “Negative goodwill recognized in profit or loss” in the accompanying consolidated income statement as of December 31, 2015. According to the IFRS 3, there is a period, up to a year, to complete the necessary adjustments to the calculation of initial acquisition (see Note 18.1). After the deadline, there has not been any significant adjustment that involves amending the calculation recorded in the year 2015.

Divestitures
Partial sale of China CITIC Bank Corporation Limited (CNCB)

On January 23, 2015 the Group BBVA signed an agreement to sell 4.9% in China CITIC Bank Corporation Limited (CNCB) to UBS AG, London Branch (UBS), who entered into transactions pursuant to which such CNCB shares will be transferred to a third party and the ultimate economic benefit of ownership of such CNCB shares will be transferred to Xinhu Zhongbao Co., Ltd (Xinhu) (the Relevant Transactions). On March 12, 2015, after having obtained the necessary approvals, BBVA completed the sale.

The selling price to UBS is HK$ 5.73 per share, amounting to a total of HK$ 13,136 million, equivalent to approximately €1,555 million (with an exchange rate of EUR/HK$=8.45 as of the date of the closing).

In addition to the above mentioned 4.9%, during the first semester of 2015 various sales were made in the market to total a 6.34% participation sale. The impact of these sales on the consolidated financial statements of the BBVA Group was a gain net of taxes of approximately €705 million. This gain gross of taxes was recognized under “Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations”.

Sale of the participation in Citic International Financial Holding (CIFH)

On December 23, 2014, the BBVA Group signed an agreement to sell its participation of 29.68% in Citic International Financial Holdings Limited (hereinafter “CIFH”), to China CITIC Bank Corporation Limited (hereinafter “CNCB”). CIFH is a non-listed subsidiary of CNCB domiciled in Hong Kong. The selling price is HK$8,162 million. The closing of such agreement is subject to the relevant regulatory approvals. The estimated impact on the attributable profit of the consolidated financial statements of the BBVA Group will not be significant.

On August 27, BBVA completed the sale of this participation. The impact on the consolidated financial statements of the BBVA Group was not significant.

Changes in the Group in 2014

In 2014 there were no significant changes.

4. Shareholder remuneration system

Shareholder remuneration scheme

During 2012, 2013, 2014, 2015 and 2016 a shareholder remuneration system called the “Dividend Option” was implemented.

Under this remuneration scheme, BBVA offers its shareholders the possibility to receive all or part of their remuneration in the form of BBVA newly-issued ordinary shares; whilst maintaining the possibility for BBVA shareholders to receive their entire remuneration in cash by selling their free allocation rights to BBVA (in execution of the commitment assumed by BBVA to acquire the free allocation rights attributed to the shareholders at a guaranteed fixed price) or by selling their free allocation rights on the market at the prevailing market price at that time.

On September 28, 2016, the Board of Directors approved the execution of the second of the share capital increases charged to voluntary reserves, as agreed by the AGM held on March 11, 2016 to implement the Dividend Option. As a result of this increase, the Bank’s share capital increased by €42,266,085.33 by the issuance of 86,257,317 BBVA newly-issued shares at a €0.49 par value each. 87.85% of the right owners have opted to receive newly-issued BBVA ordinary shares. The other 12.15% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 787,374,942 rights for a total amount of €62,989,995.36. The price at which BBVA has acquired such rights of free allocation (in execution of said commitment) was €0,08 per right, registered in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December, 31, 2016.

On March 31, 2016, the Board of Directors approved the execution of the first of the share capital increases charged to voluntary reserves, as agreed by the AGM held on March 11, 2016 to implement the Dividend Option. As a result of this increase, the Bank’s share capital increased by €55,702,125.43 by the issuance of 113,677,807 BBVA newly-issued shares at a €0.49 par value each. 82.13% of the right owners have opted to receive newly-issued BBVA ordinary shares. The other 17.87% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 1,137,500,965 rights for a total amount of €146,737,624.49. The price at which BBVA has acquired such rights of free allocation (in execution of said commitment) was €0,129 per right, registered in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of June, 30, 2016.

On September 30, 2015, the Board of Directors approved the execution of the second of the share capital increases charged to voluntary reserves, as agreed by the AGM held on March 13, 2015 to implement the Dividend Option. As a result of this increase, the Bank’s share capital increased by €30,106,631.94 by the issuance of 61,442,106 BBVA newly-issued shares at a €0.49 par value each. 89.65% of the right owners opted to receive newly issued ordinary shares. The other 10.35% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 652,564,118 rights for a total amount of €52,205,129.44. The price at which BBVA acquired such rights of free allocation was €0,08 per right, registered in “Total Equity- Interim dividends” of the consolidated balance sheet as of December 31, 2015.

On March 25, 2015, the Board of Directors approved the execution of the first of the share capital increases charged to voluntary reserves, as agreed by the AGM held on March 13, 2015 to implement the Dividend Option. As a result of this increase, the Bank’s share capital increased by €39,353,896.26 (80,314,074 shares at a €0.49 par value each). 90.31% of the right owners opted to receive newly-issued BBVA ordinary shares. The other 9.69% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 602,938,646 rights for a total amount of €78,382,023,98. The price at which BBVA acquired such rights of free allocation was €0.13 per right, registered in “Total Equity- Interim dividends” of the consolidated balance sheet as of December 31, 2015.

Dividends

The Board of Directors, at its meeting held on June 22, 2016, approved the payment in cash of €0,08 (€0,0648 withholding tax) per BBVA share, as gross interim dividend against 2016 results. The dividend has been set to be paid on July 11, 2017

The Board of Directors, at its meeting held on December 21, 2016, approved the payment in cash of €0,08 (€0,0648 withholding tax) per BBVA share, as gross interim dividend against 2016 results. The dividend has been set to be paid on January 12, 2017 (see Note 22.4).

The interim accounting statements prepared in accordance with legal requirements evidencing the existence of sufficient liquidity for the distribution of the interim dividend in the amount approved, are as follows:

Millions of Euros
Available Amount for Interim Dividend Payments May 31, 2016 November 30, 2016
Profit of BBVA, S.A. at each of the dates indicated, after the provision for income tax 1,371 1,826
Less -    
Estimated provision for Legal Reserve 11 20
Acquisition by the bank of the free allotment rights in 2016 capital increase 147 210
Additional Tier I capital instruments remuneration 114 260
Interim dividends for 2016 already paid - 518
Maximum amount distributable 1,099 818
Amount of proposed interim dividend 518 525
BBVA cash balance available to the date 2,614 3,003

Download Excel

The first amount of the 2016 interim dividend which was paid to the shareholders on July 11, 2016, after deducting the treasury shares held by the Group’s entities, amounted to €517 million, and is recognized under the heading “Stockholders’ funds – Interim dividends” of the interim balance sheet as of June 30, 2016

The total amount of the second dividend of 2016, which was paid to the shareholders on January 12, 2017, after deducting the treasury shares held by the Group’s companies, amounted to €525 million and was recognized under the heading “Stockholders’ funds – Interim dividends” charged in the “Financial liabilities at amortized cost – Other financial liabilities (see Note 22.4) of the consolidated balance sheet as of December 31, 2016.

As of January 1, 2017 and in accordance with BBVA’s remuneration policy, it is expected to be proposed for the consideration of the competent governing bodies of approval of a capital increase to be charged to reserves for the instrumentation of a “Dividend Option” in 2017 in a gross of 0.13 euro per share approximately. The subsequent shareholders’ remunerations that could be approved would be fully in cash.

The allocation of earnings for 2016 subject to the approval of the Board of Directors at the Annual Shareholders Meeting is presented below:

Millions of Euros
Allocation of Earnings 2016
Profit for year (*) 1,662
Distribution:  
Interim dividends 1,043
Acquisition by the bank of the free allotment rights(**) 210
Additional Tier 1 securities 260
Legal reserve 19
Voluntary reserves 130

Download Excel

5. Earnings per share

Basic and diluted earnings per share are calculated in accordance with the criteria established by IAS 33. For more information see Glossary of terms.

The Bank issued additional share capital in 2016, 2015 and 2014 (see “Dividend Option” Program in 2015 in Note 26). In accordance with IAS 33, when events, other than the conversion of potential shares, have changed the number of shares outstanding without a corresponding change in resources, the weighted average number of shares outstanding during the period and for all the periods presented shall be adjusted. The prior year weighted average number of shares is adjusted by applying a corrective factor.

The calculation of earnings per share is as follows:

Basic and Diluted Earnings per Share 2016 2015 (*) 2014 (*)
Numerator for basic and diluted earnings per share (millions of euros)      
Profit attributable to parent company 3,475 2,642 2,618
Adjustment: Additional Tier 1 securities (1) (260) (212) (126)
Profit adjusted (millions of euros) (A) 3,215 2,430 2,492
Profit from discontinued operations (net of non-controlling interest) (B) - - -
Denominator for basic earnings per share (number of shares outstanding):      
Weighted average number of shares outstanding (2) 6,468 6,290 5,908
Weighted average number of shares outstanding x corrective factor (3) 6,468 6,517 6,278
Adjusted number of shares - Basic earning per share (C) 6,468 6,517 6,278
Adjusted number of shares - diluted earning per share (D) 6,468 6,517 6,278
Earnings per share 0.50 0.37 0.40
Basic earnings per share from continued operations (Euros per share)A-B/C 0.50 0.37 0.40
Diluted earnings per share from continued operations (Euros per share)A-B/D 0.50 0.37 0.40
Basic earnings per share from discontinued operations (Euros per share)B/C - - -
Diluted earnings per share from discontinued operations (Euros per share)B/D - - -

Download Excel

As of December 31, 2016, 2015 and 2014, there were no other financial instruments or share options awarded to employees that could potentially affect the calculation of the diluted earnings per share for the years presented. For this reason, basic and diluted earnings per share are the same for both dates.

6. Operating segment reporting

The information about operating segments is provided in accordance with IFRS 8. Operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on disaggregated business activities. These business activities are then aggregated in accordance with the organizational structure determined by the BBVA Group management into operating segments and, ultimately, the reportable segments themselves.

During 2016, there have not been significant changes in the reporting structure of the operating segments of the BBVA Group compared to the structure existing at the end of 2015. The structure of the operating segment is as follows:

Lastly, the Corporate Center comprised of the rest of the items that have not been allocated to the operating segments. It includes: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of capital instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with employees; goodwill and other intangibles. It also comprises the result from certain corporate operations.

The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
Total Assets by Operating Segment 2016 2015 (1) 2014
Banking Activity in Spain 332,642 339,775 318,446
Real Estate Activity in Spain 13,713 17,122 17,365
United States 88,902 86,454 69,261
Turkey (2) 84,866 89,003 22,342
Mexico 93,318 99,594 93,731
South America 77,918 70,661 84,364
Rest of Eurasia 18,980 23,469 22,325
Subtotal Assets by Operating Segments 710,339 726,079 627,834
Corporate Center and other adjustments (3) 21,517 23,776 4,108
Total Assets BBVA Group 731,856 749,855 631,942

Download Excel

The attributable profit and main earning figures in the consolidated income statements for the six months period ended December 31, 2016, 2015 and 2014 by operating segments are as follows:

Millions of Euros
Operating Segments
Main Margins and Profits by Operating Segments BBVA Group Spain Real Estate Activity in Spain United Sates Turkey Mexico South America Rest of Eurasia Corporate Center Adjustments (3)
2016
Net interest income 17,059 3,883 60 1,953 3,404 5,126 2,930 166 (461) -
Gross income 24,653 6,445 (6) 2,706 4,257 6,766 4,054 491 (60) -
Net operating income (2) 11,862 2,846 (130) 863 2,519 4,371 2,160 149 (916) -
Operating profit /(loss) before tax 6,392 1,278 (743) 612 1,906 2,678 1,552 203 (1,094) -
Profit 3,475 912 (595) 459 599 1,980 771 151 (801) -
2015 (1)                    
Net interest income 16,022 4,001 71 1,811 2,194 5,387 3,202 183 (424) (404)
Gross income 23,362 6,804 (28) 2,631 2,434 7,081 4,477 473 (192) (318)
Net operating income (2) 11,254 3,358 (154) 825 1,273 4,459 2,498 121 (1,017) (109)
Operating profit /(loss) before tax 4,603 1,548 (716) 685 853 2,772 1,814 111 (1,187) (1,276)
Profit 2,642 1,085 (496) 517 371 2,094 905 75 (1,910) -
2014                    
Net interest income 14,382 3,830 (38) 1,443 735 4,910 4,699 189 (651) (734)
Gross income 20,725 6,621 (220) 2,137 944 6,522 5,191 736 (575) (632)
Net operating income (2) 10,166 3,534 (373) 640 550 4,115 2,875 393 (1,328) (240)
Operating profit /(loss) before tax 3,980 1,220 (1,287) 561 392 2,519 1,951 320 (1,615) (83)
Profit 2,618 858 (901) 428 310 1,915 1,001 255 (1,249) -

Download Excel

The accompanying consolidated Management Report presents the income statements and the balance sheets by operating segments in more detail.

7. Risk management

7.1 General risk management and control model

The BBVA Group has an overall risk management and control model (hereinafter ‘the model’) tailored to their individual business, their organization and the geographies in which they operate, allowing them to develop their activity in accordance with their strategy and policy control and risk management defined by the governing bodies of the Bank and adapt to a changing economic and regulatory environment, tackling risk management globally and adapted to the circumstances of each instance.

The model establishes a system of appropriate risk management regarding risk profile and strategy of the Group. This model is applied comprehensively in the Group and consists of the basic elements listed below:

The Group encourages the development of a risk culture to ensure consistent application of the control and risk management Model in the Group, and to ensure that the risk function is understood and assimilated at all levels of the organization.

7.1.1 Governance and organization

The governance model for risk management at BBVA is characterized by a special involvement of its corporate bodies, both in setting the risk strategy and in the ongoing monitoring and supervision of its implementation.

Thus, as developed below, the corporate bodies are the ones that approve this risk strategy and corporate policies for the different types of risk, being the risk function responsible for the management, its implementation and development, reporting to the governing bodies.

The responsibility for the daily management of the risks lies on the businesses which abide in the development of their activity to the policies, standards, procedures, infrastructure and controls, based on the framework set by the governing bodies, which are defined by the function risk.

To perform this task properly, the risk function in the BBVA Group is configured as a single, comprehensive and independent role of commercial areas.

Corporate governance system

BBVA Group has developed a corporate governance system that is in line with the best international practices and adapted to the requirements of the regulators in the countries in which its various business units operate.

The Board of Directors (hereinafter also referred to as “the Board”) approves the risk strategy and oversees the internal management and control systems. Specifically, in relation to the risk strategy, the Board approves the Group’s risk appetite statement, the core metrics (and their statements) and the main metrics by type of risk (and their statements), as well as the general risk management and control model.

The Board of Directors is also responsible for approving and monitoring the strategic and business plan, the annual budgets and management goals, as well as the investment and funding policy, in a consistent way and in line with the approved Risk Appetite Framework. For this reason, the processes for defining the Risk Appetite Framework proposals and strategic and budgetary planning at Group level are coordinated by the executive area for submission to the Board.

With the aim of ensuring the integration of the Risk Appetite Framework into management, on the basis established by the Board of Directors, the Executive Committee approves the metrics by type of risk in relation to concentration, profitability and reputational risk and the Group’s basic structure of limits at geographical area, risk type, asset type and portfolio level. This Committee also approves specific corporate policies for each type of risk.

Lastly, the Board has set up a Board committee focus in risks, the Risk Committee, that assists the Board and the Executive Committee in determining the Group’s risk strategy and the risk limits and policies, respectively, analyzing and assessing beforehand the proposals submitted to those bodies. The amendment of the Group’s risk strategy and of its elements is the exclusive power of the BBVA Board of Directors, while the Executive Committee is responsible for amending the metrics by type of risk within its scope of decision and the Group’s basic structure of limits, when applicable. In both cases, the amendments follow the same decision-making process described above, so the proposals for amendment are submitted by the Chief Risk Officer (“CRO”) and later analyzed, first by the Risks Committee, for later submission to the Board of Directors or to the Executive Committee, as appropriate.

Moreover, the Risks Committee, the Executive Committee and the Board itself conduct proper monitoring of the risk strategy implementation and of the Group’s risk profile. The risks function regularly reports on the development of the Group’s Risk Appetite Framework metrics to the Board and to the Executive Committee, after their analysis by the Risks Committee, whose role in this monitoring and control work is particularly relevant.

The head of the risk function in the executive hierarchy is the Group’s CRO, who carries out its functions with independence, authority, rank, experience, knowledge and resources to do so. He is appointed by the Board of the Bank as a member of its Senior Management, and has direct access to its corporate bodies (Board, Executive Standing Committee and Risk Committee), who reports regularly on the status of risks to the Group.

The CRO, for the utmost performance of its functions, is supported by a cross composed set of units in corporate risk and the specific risk units in the geographical and / or business areas of the Group structure. Each of these units is headed by a Risk Officer for the geographical and/or business area who, within his/her field of competence, carries out risk management and control functions and is responsible for applying the corporate policies and rules approved at Group level in a consistent manner, adapting them if necessary to local requirements and reporting to the local corporate bodies.

The Risk Officers of the geographical and/or business areas report both to the Group’s CRO and to the head of their geographical and/or business area. This dual reporting system aims to ensure that the local risk management function is independent from the operating functions and that it is aligned with the Group’s corporate risk policies and goals.

Organizational structure and committees

The risk management function, as defined above, consists of risk units from the corporate area, which carry out cross-cutting functions, and risk units from the geographical and/or business areas.

The local risk units thus work with the corporate area risk units in order to adapt to the risk strategy at Group level and share all the information necessary for monitoring the development of their risks.

The risk function has a decision-making process to perform its functions, underpinned by a structure of committees, where the Global Risk Management Committee (GRMC) acts as the highest committee within Risk. It proposes, examines and, where applicable, approves, among others, the internal risk regulatory framework and the procedures and infrastructures needed to identify, assess, measure and manage the material risks faced by the Group in its businesses, the determination of risk limits by portfolio or counterparty; and the admission of the operations involving the most relevant risks. The members of this Committee are the Group’s CRO and the heads of the risk units of the corporate area and of the most representative geographical and/or business areas.

The GRMC carries out its functions assisted by various support committees which include:

Each geographical and/or business area has its own risk management committee (or committees), with objectives and contents similar to those of the corporate area, which perform their duties consistently and in line with corporate risk policies and rules.

Under this organizational scheme, the risk management function ensures the risk strategy, the regulatory framework, and standardized risk infrastructures and controls are integrated and applied across the entire Group. It also benefits from the knowledge and proximity to customers in each geographical and/or business area, and transmits the corporate risk culture to the Group’s different levels. Moreover, this organization enables the risks function to conduct and report to the corporate bodies integrated monitoring and control of the entire Group’s risks.

Internal Risk Control and Internal Validation

The Group has a specific Internal Risk Control unit whose main function is to ensure there is an adequate internal regulatory framework in place, together with a process and measures defined for each type of risk identified in the Group, (and for other types of risk that could potentially affect the Group, to oversee their application and operation, and to ensure that the risk strategy is integrated into the Group’s management. The Internal Risk Control unit verifies the performance of their duties by the units that develop the risk models, manage the processes and execute the controls. Its scope is global both geographically and in terms of type of risk.

The Director of Group Internal Control Risk is responsible for the function, and reports its activities and work plans to the CRO and the Risk Committee of the Board, besides attending to it on issues deemed necessary.

For these purposes the Internal Risks Control department has a Technical Secretary’s Office, which offers the Committee the technical support it needs to better perform its duties.

The unit has a structure of teams at both corporate level and in the most relevant geographical areas in which the Group operates. As in the case of the corporate area, local units are independent of the business areas that execute the processes, and of the units that execute the controls. They report functionally to the Internal Risk Control unit. This unit’s lines of action are established at Group level, and it is responsible for adapting and executing them locally, as well as for reporting the most relevant aspects.

Additionally, the Group has an Internal Validation unit, which reviews the performance of its duties by the units that develop risk models and of those who use them to manage. Its functions include, among others, review and independent validation, internally, of the models used for the control and management of the Group’s risks.

7.1.2 Risk appetite framework

The Group’s risk appetite framework, approved by the Board, determines the risks (and their level) that the Group is willing to assume to achieve its business objectives considering an organic evolution of its business. These are expressed in terms of solvency, liquidity and funding profitability, recurrent earnings, cost of risk or other metrics, which are reviewed periodically as well as in case of material changes to the entity’s business or relevant corporate transactions.. The definition of the risk appetite has the following goals:

Risk appetite framework is expressed through the following elements:

Risk appetite statement

Sets out the general principles of the Group’s risk strategy and the target risk profile. The Group’s Risk appetite statement is:

BBVA Group’s risk policy is designed to achieve a moderate risk profile for the entity, through: prudent management and a responsible universal banking business model targeted to value creation, risk-adjusted return and recurrence of results; diversified by geography, asset class, portfolio and clients; and with presence in emerging and developed countries, maintaining a medium/low risk profile in every country, and focusing on a long term relationship with the client.

Core metrics and statements

Based on the risk appetite statement, statements are established to set down the general risk management principles in terms of solvency, profitability, liquidity and funding.

In addition, the core metrics define, in quantitative terms, the principles and the target risk profile set out in the risk appetite statement and are in line with the strategy of the Group. Each metric have three thresholds (traffic light approach) ranging from a standard business management to higher deterioration levels: Management reference, Maximum appetite and Maximum capacity. The Group’s Core metrics are:

Metric
Solvency Economic Solvency
  Regulatory Solvency: CET1 Fully Loaded
Liquidity and Funding Loan to Stable Costumer Deposits (LTSCD)
  Liquidity Coverage Ratio (LCR)
Income recurrence and profitability Net margin / Average Total Assets
  Cost of Risk
  Return on Equity (ROE)

Download Excel

By type of risk metrics and statements

Based on the core metrics, statements are established for each type of risk reflecting the main principles governing the management of that risk and several metrics are calibrated, compliance with which enables compliance with the core metrics and the statement of the Group. By type of risk metrics define the strategic positioning per type of risk and have a maximum appetite level.

Basic limits structure (core limits)

The purpose of the basic limits structure or core limits is to manage risks on an ongoing basis within the thresholds tolerated by core and “by type of risk” metrics; so they are a breakdown by geography and portfolio of the same metrics or complementary metrics.

In addition to this framework, there’s a Management limits level that is defined and managed by the Risk Area developing the core limits, in order to ensure that the early management of risks by subcategories or by subportfolios complies with that core limits and, in general, with the risk appetite framework.

The following graphic summarizes the structure of BBVA’s Risk appetite framework:

The corporate risk area works with the various geographical and/or business areas to define their risk appetite framework, which will be coordinated with and integrated into the Group’s risk appetite to ensure that its profile fits as defined.

The risk appetite framework defined by the Group expresses the levels and types of risk that the Bank is willing to assume to be able to implement its strategic plan with no relevant deviations, even in situations of stress. The risk appetite framework is integrated in the management and determines the basic lines of activity of the Group, because it sets the framework within the budget is developed.

During 2016, the Risk Appetite metrics evolved in line with the set profile.

7.1.3 Decisions and processes

The transfer of risk appetite framework to ordinary management is supported by three basic aspects:

Standardized regulatory framework

The corporate GRM area is responsible for proposing the definition and development of the corporate policies, specific rules, procedures and schemes of delegation based on which risk decisions should be taken within the Group.

This process aims for the following objectives:

The approval of corporate policies for all types of risks corresponds to the corporate bodies of the Bank, while the corporate risk area endorses the remaining regulations.

Risk units of geographical and / or business areas continue to adapt to local requirements the regulatory framework for the purpose of having a decision process that is appropriate at local level and aligned with the Group policies. If such adaptation is necessary, the local risk area must inform the corporate GRM area, which must ensure the consistency of the set of regulations at the level of the entire Group, and thus must give its approval prior to any modifications proposed by the local risk areas.

Risk planning

Risk planning ensures that the risk appetite framework is integrated into management through a cascade process for establishing limits and profitability adjusted to the risk profile, in which the function of the corporate area risk units and the geographical and/or business areas is to guarantee the alignment of this process against the Group’s risk appetite framework in terms of solvency, profitability, liquidity and funding.

It has tools in place that allow the risk appetite framework defined at aggregate level to be assigned and monitored by business areas, legal entities, types of risk, concentrations and any other level considered necessary.

The risk planning process is present within the rest of the Group’s planning framework so as to ensure consistency among all of them.

Daily risk management

All risks must be managed comprehensively during their life cycle, and be treated differently depending on the type.

The risk management cycle is composed of 5 elements:

7.1.4 Assessment, monitoring and reporting

Assessment, monitoring and reporting is a cross-cutting element that should ensure that the Model has a dynamic and proactive vision to enable compliance with the risk appetite framework approved by the corporate bodies, even in adverse scenarios. The materialization of this process has the following objectives:

This process is integrated in the activity of the risk units, both of the corporate area and in the business units, and it is carried out during the following phases:

7.1.5 Infrastructure

The infrastructure is an element that must ensure that the Group has the human and technological resources needed for effective management and supervision of risks in order to carry out the functions set out in the Group’s risk Model and the achievement of their objectives.

With respect to human resources, the Group’s risk function has an adequate workforce, in terms of number, skills, knowledge and experience.

With regards to technology, the Group ensures the integrity of management information systems and the provision of the infrastructure needed for supporting risk management, including tools appropriate to the needs arising from the different types of risks for their admission, management, assessment and monitoring.

The principles that govern the Group risk technology are:

7.1.6 Risk culture

BBVA considers risk culture to be an essential element for consolidating and integrating the other components of the Model. The culture transfers the implications that are involved in the Group’s activities and businesses to all the levels of the organization. The risk culture is organized through a number of levers, including the following:

7.2 Risk factors

As mentioned earlier, BBVA has processes in place for identifying risks and analyzing scenarios that enable the Group to manage risks in a dynamic and proactive way.

The risk identification processes are forward looking to ensure the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.

Risks are captured and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected.

As part of this process, a forward projection of the risk appetite framework variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile.

To this extent, there are a number of emerging risks that could affect the Group’s business trends. These risks are described in the following main blocks:

7.3 Credit risk

Credit risk arises from the probability that one party to a financial instrument will fail to meet its contractual obligations for reasons of insolvency or inability to pay and cause a financial loss for the other party.

It is the most important risk for the Group and includes counterparty risk, issuer risk, settlement risk and country risk management.

The principles underpinning credit risk management in BBVA are as follows:

Credit risk management in the Group has an integrated structure for all its functions, allowing decisions to be taken objectively and independently throughout the life cycle of the risk.

7.3.1 Credit risk exposure

In accordance with IFRS 7, “Financial Instruments: Disclosures” the BBVA Group’s maximum credit risk exposure (see definition below) by headings in the balance sheets as of December 31, 2016, 2015 and 2014 is provided below. It does not consider the availability of collateral or other credit enhancements to guarantee compliance with payment obligations. The details are broken down by financial instruments and counterparties.

Millions of Euros
Maximum Credit Risk Exposure Notes 2016 2015 2014
Financial assets held for trading 10 31,995 37,424 39,028
Debt securities   27,166 32,825 33,883
  Government   24,165 29,454 28,212
  Credit institutions   1,652 1,765 3,048
  Other sectors   1,349 1,606 2,623
Equity instruments   4,675 4,534 5,017
Customer lending   154 65 128
Other financial assets designated at fair value through profit or loss 11 2,062 2,311 2,761
Loans and advances to credit institutions   - 62 -
Debt securities   142 173 737
  Government   84 132 141
  Credit institutions   47 29 16
  Other sectors   11 11 580
Equity instruments   1,920 2,075 2,024
Available-for-sale financial assets 12 79,553 113,710 95,049
Debt securities   74,739 108,448 87,679
  Government   55,047 81,579 63,764
  Credit institutions   5,011 8,069 7,377
  Other sectors   14,682 18,800 16,538
Equity instruments   4,814 5,262 7,370
Loans and receivables   482,011 490,580 390,362
Loans and advances to central banks 13.1 8,894 17,830 5,429
Loans and advances to credit institutions 13.1 31,416 29,368 25,371
Loans and advances to customers 13.2 430,474 432,856 352,900
  Government   34,873 38,611 37,113
  Agriculture   4,312 4,315 4,348
  Industry   57,072 56,913 37,580
  Real estate and construction   37,002 38,964 33,152
  Trade and finance   47,045 43,576 43,880
  Loans to individuals   192,281 194,288 158,586
  Other   57,889 56,188 38,242
Debt securities 13.3 11,226 10,526 6,663
  Government   4,709 3,275 5,608
  Credit institutions   37 125 81
  Other sectors   6,481 7,126 975
Held-to-maturity investments 14 17,710 - -
  Government   16,049 - -
  Credit institutions   1,515 - -
  Other sectors   146 - -
Derivatives (trading and hedging)   54,122 49,350 47,248
Total Financial Assets Risk   667,454 693,375 574,448
Loan commitments given   107,254 123,620 96,714
Financial guarantees given   18,267 19,176 14,398
Other Commitments given   42,592 42,813 28,881
Total Loan commitments and financial guarantees 33 168,113 185,609 139,993
Total Maximum Credit Exposure   835,567 878,984 714,441

Download Excel

The maximum credit exposure presented in the table above is determined by type of financial asset as explained below:

The consideration of the potential risk (“add-on”) relates the risk exposure to the exposure level at the time of a customer’s default. The exposure level will depend on the customer’s credit quality and the type of transaction with such customer. Given the fact that default is an uncertain event which might occur any time during the life of a contract, the BBVA Group has to consider not only the credit exposure of the derivatives on the reporting date, but also the potential changes in exposure during the life of the contract. This is especially important for derivatives, whose valuation changes substantially throughout their terms, depending on the fluctuation of market prices.

The breakdown by counterparty and product of loans and advances, net of impairment losses, classified in the different headings of the assets, as of December 31, 2016 and 2015 is shown below:

Millions of Euros
December 2016 Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total
On demand and short notice - 373 - 246 8,125 2,507 11,251
Credit card debt - 1 - 1 1,875 14,719 16,596
Trade receivables   2,091 - 998 20,246 418 23,753
Finance leases - 261 - 57 8,647 477 9,442
Reverse repurchase loans 81 544 15,597 6,746 - - 22,968
Other term loans 8,814 29,140 7,694 6,878 136,105 167,892 356,524
Advances that are not loans - 2,410 8,083 2,082 1,194 620 14,389
Loans and advances 8,894 34,820 31,373 17,009 176,192 186,633 454,921
of which: mortgage loans (Loans collateralized by immovable property)   4,722 112 690 44,406 132,398 182,328
of which: other collateralized loans   3,700 15,191 8,164 21,863 6,061 54,979
of which: credit for consumption           44,504 44,504
of which: lending for house purchase           127,606 127,606
of which: project finance loans         19,269   19,269

Download Excel

Millions of Euros
December 2015 Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total
On demand and short notice - 783 - 38 8,356 2,050 11,228
Credit card debt - 1 - 2 1,892 15,057 16,952
Trade receivables   3,055 - 800 19,605 411 23,871
Finance leases - 301 - 420 7,534 1,103 9,357
Reverse repurchase loans 149 326 11,676 4,717 9 - 16,877
Other term loans 10,017 31,971 8,990 5,968 134,952 168,729 360,626
Advances that are not loans 7,664 2,108 8,713 2,261 919 863 22,528
Loans and advances 17,830 38,544 29,379 14,206 173,267 188,213 461,438
of which: mortgage loans (Loans collateralized by immovable property)   4,483 264 656 43,961 135,102 184,466
of which: other collateralized loans   3,868 12,434 6,085 22,928 6,131 51,446
of which: credit for consumption           40,906 40,906
of which: lending for house purchase           126,591 126,591
of which: project finance loans         21,141   21,141

Download Excel

7.3.2 Mitigation of credit risk, collateralized credit risk and other credit enhancements

In most cases, maximum credit risk exposure is reduced by collateral, credit enhancements and other actions which mitigate the Group’s exposure. The BBVA Group applies a credit risk hedging and mitigation policy deriving from a banking approach focused on relationship banking. The existence of guarantees could be a necessary but not sufficient instrument for accepting risks, as the assumption of risks by the Group requires prior evaluation of the debtor’s capacity for repayment, or that the debtor can generate sufficient resources to allow the amortization of the risk incurred under the agreed terms.

The policy of accepting risks is therefore organized into three different levels in the BBVA Group:

The procedures for the management and valuation of collaterals are set out in the Corporate Policies (retail and wholesale), which establish the basic principles for credit risk management, including the management of collaterals assigned in transactions with customers.

The methods used to value the collateral are in line with the best market practices and imply the use of appraisal of real-estate collateral, the market price in market securities, the trading price of shares in mutual funds, etc. All the collaterals assigned must be properly drawn up and entered in the corresponding register. They must also have the approval of the Group’s legal units.

The following is a description of the main types of collateral for each financial instrument class:

Collateralized loans granted by the Group as of December 31, 2016, 2015 and 2014 excluding balances deemed impaired, is broken down in Note 13.2.

7.3.3 Credit quality of financial assets that are neither past due nor impaired

The BBVA Group has tools (“scoring” and “rating”) that enable it to rank the credit quality of its operations and customers based on an assessment and its correspondence with the probability of default (“PD”) scales. To analyze the performance of PD, the Group has a series of tracking tools and historical databases that collect the pertinent internally generated information, which can basically be grouped together into scoring and rating models.

Scoring

Scoring is a decision-making model that contributes to both the arrangement and management of retail loans: consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to originate a loan, what amount should be originated and what strategies can help establish the price, because it is an algorithm that sorts transactions by their credit quality. This algorithm enables the BBVA Group to assign a score to each transaction requested by a customer, on the basis of a series of objective characteristics that have statistically been shown to discriminate between the quality and risk of this type of transactions. The advantage of scoring lies in its simplicity and homogeneity: all that is needed is a series of objective data for each customer, and this data is analyzed automatically using an algorithm.

There are three types of scoring, based on the information used and on its purpose:

Rating

Rating tools, as opposed to scoring tools, do not assess transactions but focus on the rating of customers instead: companies, corporations, SMEs, general governments, etc. A rating tool is an instrument that, based on a detailed financial study, helps determine a customer’s ability to meet his/her financial obligations. The final rating is usually a combination of various factors: on one hand, quantitative factors, and on the other hand, qualitative factors. It is a middle road between an individual analysis and a statistical analysis.

The main difference between ratings and scorings is that the latter are used to assess retail products, while ratings use a wholesale banking customer approach. Moreover, scorings only include objective variables, while ratings add qualitative information. And although both are based on statistical studies, adding a business view, rating tools give more weight to the business criterion compared to scoring tools.

For portfolios where the number of defaults is very low (sovereign risk, corporates, financial entities, etc.) the internal information is supplemented by “benchmarking” of the external rating agencies (Moody’s, Standard & Poor’s and Fitch). To this end, each year the PDs compiled by the rating agencies at each level of risk rating are compared, and the measurements compiled by the various agencies are mapped against those of the BBVA master rating scale.

Once the probability of default of a transaction or customer has been calculated, a “business cycle adjustment” is carried out. This is a means of establishing a measure of risk that goes beyond the time of its calculation. The aim is to capture representative information of the behavior of portfolios over a complete economic cycle. This probability is linked to the Master Rating Scale prepared by the BBVA Group to enable uniform classification of the Group’s various asset risk portfolios.

The table below shows the abridged scale used to classify the BBVA Group’s outstanding risk as of December 31, 2016:

External rating Internal rating Probability of default (basic points)
Escala Standard&Poor's Reduced List (22 groups) Average Minimum from >= Maximum
AAA AAA 1 - 2
AA+ AA+ 2 2 3
AA AA 3 3 4
AA- AA- 4 4 5
A+ A+ 5 5 6
A A 8 6 9
A- A- 10 9 11
BBB+ BBB+ 14 11 17
BBB BBB 20 17 24
BBB- BBB- 31 24 39
BB+ BB+ 51 39 67
BB BB 88 67 116
BB- BB- 150 116 194
B+ B+ 255 194 335
B B 441 335 581
B- B- 785 581 1,061
CCC+ CCC+ 1,191 1,061 1,336
CCC CCC 1,500 1,336 1,684
CCC- CCC- 1,890 1,684 2,121
CC+ CC+ 2,381 2,121 2,673
CC CC 3,000 2,673 3,367
CC- CC- 3,780 3,367 4,243

Download Excel

These different levels and their probability of default were calculated by using as a reference the rating scales and default rates provided by the external agencies Standard & Poor’s and Moody’s. These calculations establish the levels of probability of default for the BBVA Group’s Master Rating Scale. Although this scale is common to the entire Group, the calibrations (mapping scores to PD sections/Master Rating Scale levels) are carried out at tool level for each country in which the Group has tools available.

The table below outlines the distribution of exposure, including derivatives, by internal ratings, to corporates, financial entities and institutions (excluding sovereign risk), of BBVA, S.A., Bancomer, Compass and subsidiaries in Spain as of December 31, 2016 and 2015:

December 2016 December 2015
Credit Risk Distribution by Internal Rating Amount (Millions of Euros) % Amount (Millions of Euros) %
AAA/AA+/AA/AA- 35,430 11.84% 27,913 9.17%
A+/A/A- 58,702 19.62% 62,798 20.64%
BBB+ 43,962 14.69% 43,432 14.27%
BBB 27,388 9.15% 28,612 9.40%
BBB- 41,713 13.94% 40,821 13.41%
BB+ 32,694 10.92% 28,355 9.32%
BB 19,653 6.57% 23,008 7.56%
BB- 13,664 4.57% 12,548 4.12%
B+ 10,366 3.46% 8,597 2.83%
B 4,857 1.62% 5,731 1.88%
B- 3,687 1.23% 3,998 1.31%
CCC/CC 7,149 2.39% 18,488 6.08%
Total 299,264 100.00% 304,300 100.00%

Download Excel

7.3.4 Past due but not impaired and impaired secured loans risks

The table below provides details by counterpart and by product of past due risks but not considered to be impaired, as of December 31, 2016 and 2015, listed by their first past-due date; as well as the breakdown of the debt securities and loans and advances individually and collectively estimated, and the specific allowances for individually estimated and for collectively estimated (see Note 2.2.1):

Millions of Euros
Past due but not impaired
December 2016 <= 30 days > 30 days <= 60 days > 60 days <= 90 days Impaired assets Carrying amount of the impaired assets Specific allowances for financial assets, individually estimated Specific allowances for financial assets, collectively estimated Collective allowances for incurred but not reported losses Accumulated write-offs
Debt securities - - - 272 128 (120) (24) (46) (1)
Loans and advances 3,384 696 735 22,925 12,133 (3,084) (7,708) (5,224) (29,346)
Central banks - - - - - - - - -
General governments 66 - 2 295 256 (19) (20) (13) (13)
Credit institutions 3 - 82 10 3 - (7) (36) (5)
Other financial corporations 4 7 21 34 8 (6) (20) (57) (6)
Non-financial corporations 968 209 204 13,786 6,383 (2,602) (4,801) (2,789) (18,020)
Households 2,343 479 426 8,801 5,483 (458) (2,860) (2,329) (11,303)
TOTAL 3,384 696 735 23,197 12,261 (3,204) (7,733) (5,270) (29,347)
Loans and advances by product, by collateral and by subordination                  
On demand (call) and short notice (current account) 79 15 29 562 249 (70) (243)    
Credit card debt 377 88 124 643 114 (11) (518)    
Trade receivables 51 15 13 424 87 (67) (271)    
Finance leases 188 107 59 516 252 (18) (246)    
Reverse repurchase loans - - 82 1 - - (1)    
Other term loans 2,685 469 407 20,765 11,429 (2,909) (6,427)    
Advances that are not loans 5 - 21 14 2 (10) (2)    
of which: mortgage loans (Loans collateralized by inmovable property) 1,202 265 254 16,526 9,008 (1,256) (4,594)    
of which: other collateralized loans 593 124 47 1,129 656 (93) (181)    
of which: credit for consumption 1,186 227 269 1,622 455 (145) (1,023)    
of which: lending for house purchase 883 194 105 6,094 4,546 (140) (1,408)    
of which: project finance loans 138 - 0 253 105 (76) (71)  

Download Excel

Millions of Euros
Past due but not impaired
December 2015 <= 30 days > 30 days <= 60 days > 60 days <= 90 days Impaired assets Carrying amount of the impaired assets Specific allowances for financial assets, individually estimated Specific allowances for financial assets, collectively estimated Collective allowances for incurred but not reported losses Accumulated write-offs
Debt securities - - - 81 46 (21) (14) (113) -
Loans and advances 3,445 825 404 25,358 12,527 (3,830) (9,001) (5,911) (26,143)
Central banks - - - - - - - - -
General governments 154 278 2 194 157 (14) (23) (30) (19)
Credit institutions - - - 25 9 (11) (6) (34) (5)
Other financial corporations 7 1 14 67 29 (11) (27) (124) (5)
Non-financial corporations 838 148 48 16,254 7,029 (3,153) (6,071) (3,096) (15,372)
Households 2,446 399 340 8,817 5,303 (641) (2,873) (2,626) (10,743)
TOTAL 3,445 825 404 25,439 12,573 (3,851) (9,015) (6,024) (26,143)
Loans and advances by product, by collateral and by subordination                  
On demand (call) and short notice (current account) 134 13 7 634 204 (106) (324)    
Credit card debt 389 74 126 689 161 (24) (503)    
Trade receivables 98 26 22 628 179 (119) (330)    
Finance leases 136 29 21 529 222 (31) (276)    
Reverse repurchase loans 1 - - 1 1 - (1)    
Other term loans 2,685 682 227 22,764 11,747 (3,540) (7,477)    
Advances that are not loans 2 - - 113 13 (10) (89)    
of which: mortgage loans (Loans collateralized by inmovable property) 1,342 266 106 16,526 9,767 (1,705) (5,172)    
of which: other collateralized loans 589 102 27 1,129 809 (182) (157)    
of which: credit for consumption 957 164 220 1,543 404 (129) (1,010)    
of which: lending for house purchase 616 174 110 5,918 4,303 (293) (1,322)    
of which: project finance loans 3 - 1 276 66 (32) (178)  

Download Excel

The breakdown of loans and advances of loans and receivables, impaired and accumulated impairment by sectors as of December 31, 2016 and 2015 is as follows:

Millions of Euros
December 2016 Of which: non-performing Accumulated impairment or Accumulated changes in fair value due to credit risk Non-performing loans and advances as a % of the total
General governments 295 (52) 0.8%
Credit institutions 10 (42) 0.0%
Other financial corporations 34 (82) 0.2%
Non-financial corporations 13,786 (10,192) 7.4%
Agriculture, forestry and fishing 221 (188) 5.1%
Mining and quarrying 126 (83) 3.3%
Manufacturing 1,569 (1,201) 4.5%
Electricity, gas, steam and air conditioning supply 569 (402) 3.2%
Water supply 29 (10) 3.5%
Construction 5,358 (3,162) 26.3%
Wholesale and retail trade 1,857 (1,418) 6.2%
Transport and storage 442 (501) 4.5%
Accommodation and food service activities 499 (273) 5.9%
Information and communication 112 (110) 2.2%
Real estate activities 1,441 (1,074) 8.7%
Professional, scientific and technical activities 442 (380) 6.0%
Administrative and support service activities 182 (107) 7.3%
Public administration and defense, compulsory social security 18 (25) 3.0%
Education 58 (31) 5.4%
Human health services and social work activities 89 (88) 1.8%
Arts, entertainment and recreation 84 (51) 5.1%
Other services 691 (1,088) 4.2%
Households 8,801 (5,648) 4.6%
LOANS AND ADVANCES 22,925 (16,016) 5.0%

Download Excel

Millions of Euros
December 2015 Non-performing Accumulated impairment or Accumulated changes in fair value due to credit risk Non-performing loans and advances as a % of the total
General governments 194 (67) 0.5%
Credit institutions 25 (51) 0.1%
Other financial corporations 67 (162) 0.5%
Non-financial corporations 16,254 (12,321) 8.8%
Agriculture, forestry and fishing 231 (180) 5.4%
Mining and quarrying 192 (114) 4.7%
Manufacturing 1,947 (1,729) 5.8%
Electricity, gas, steam and air conditioning supply 250 (395) 1.4%
Water supply 44 (23) 5.2%
Construction 6,585 (4,469) 30.1%
Wholesale and retail trade 1,829 (1,386) 6.3%
Transport and storage 616 (607) 6.4%
Accommodation and food service activities 567 (347) 7.0%
Information and communication 110 (100) 2.3%
Real estate activities 1,547 (1,194) 9.1%
Professional, scientific and technical activities 944 (454) 12.8%
Administrative and support service activities 224 (148) 6.9%
Public administration and defense, compulsory social security 18 (25) 2.8%
Education 26 (19) 2.6%
Human health services and social work activities 82 (91) 1.8%
Arts, entertainment and recreation 100 (63) 6.6%
Other services 942 (977) 6.1%
Households 8,817 (6,140) 4.5%
LOANS AND ADVANCES 25,358 (18,742) 5.5%

Download Excel

As of December 31, 2016, 2015 and 2014, the accumulated financial income accrued with origin in the impaired assets that, as mentioned in Note 2.2.1 are not recognized in the accompanying consolidated income statements as there are doubts as to the possibility of their collection, were 2,910, 3,429 and 3,091 million euros, respectively.

The changes in 2016, 2015 and 2014 of impaired financial assets and guarantees are as follow:

Millions of Euros
Changes in Impaired Financial Assets and Contingent Risks 2016 2015 2015
Balance at the beginning 26,103 23,234 25,978
Additions (*) 11,133 14,872 8,874
Decreases (**) (7,633) (6,720) (7,172)
Net additions 3,500 8,152 1,702
Amounts written-off (5,592) (4,989) (4,720)
Exchange differences and other (134) (295) 274
Balance at the end 23,877 26,103 23,234

Download Excel

The changes in 2016, 2015 and 2014 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely (hereinafter “write-offs”), is shown below:

Millions of Euros
Changes in Impaired Financial Assets Written-Off from the Balance Sheet 2016 2015 2014
Balance at the beginning 26,143 23,583 20,752
Acquisition of subsidiaries in the year - 1,362 -
Increase: 5,699 6,172 4,878
Decrease: (2,384) (4,830) (2,204)
Re-financing or restructuring (32) (28) (3)
Cash recovery (Note 47) (541) (490) (443)
Foreclosed assets (210) (159) (116)
Sales of written-off (45) (54) (66)
Debt forgiveness (864) (3,119) (1,231)
Time-barred debt and other causes (692) (980) (345)
Net exchange differences (111) (144) 156
Balance at the end 29,347 26,143 23,583

Download Excel

As indicated in Note 2.2.1, although they have been derecognized from the consolidated balance sheet, the BBVA Group continues to attempt to collect on these written-off financial assets, until the rights to receive them are fully extinguished, either because it is time-barred financial asset, the financial asset is condoned, or other reasons.

7.3.5 Impairment losses

Below are the changes in 2016 and 2015, in the provisions recognized on the accompanying consolidated balance sheets to cover estimated impairment losses in loans and advances and debt securities, according to the different headings under which they are classified in the accompanying consolidated balance sheet:

Millions of Euros
December 2016 Opening balance Increases due toamounts set aside for estimated loan losses during the period Decreases due toamounts reversed for estimated loan losses during the period Decreases due toamounts taken against allowances Transfers between allowances Other adjustments Closing balance Recoveries recorded directly to the statement of profit or loss
Equity instruments                
Specific allowances for financial assets, individually estimated (3,851) (765) 351 283 749 30 (3,204) 2
Debt securities (21) (164) 3 64 - (1) (120) -
Central banks - - - - - - - -
General governments - - - - - - - -
Credit institutions (20) - - 5 - - (15) -
Other financial corporations (2) (26) - 26 - - (2) -
Non-financial corporations - (138) 3 33 - (1) (103) -
Loans and advances (3,830) (601) 348 220 749 31 (3,084) 2
Central banks - - - - - - - -
General governments (14) - 2 - (6) - (19) -
Credit institutions (11) - - - 10 - - -
Other financial corporations (11) (3) 1 - 6 3 (6) -
Non-financial corporations (3,153) (494) 310 206 525 4 (2,602) -
Households (641) (104) 35 13 214 24 (458) 2
Specific allowances for financial assets, collectively estimated (9,015) (6,146) 2,357 5,390 (872) 553 (7,733) 538
Debt securities (14) (2) 3 - (10) (1) (24) -
Central banks - - - - - - - -
General governments - - - - - - - -
Credit institutions - - - - - - - -
Other financial corporations (14) (2) 3 - (10) (1) (24) -
Non-financial corporations - - - - - - - -
Loans and advances (9,001) (6,144) 2,354 5,390 (862) 554 (7,708) 538
Central banks - - - - - - - -
General governments (23) (2) 18 6 (21) 2 (20) 1
Credit institutions (6) (2) 3 - - (3) (7) -
Other financial corporations (27) (31) 8 22 5 4 (20) -
Non-financial corporations (6,071) (3,211) 1,848 3,051 (804) 386 (4,801) 335
Households (2,873) (2,898) 476 2,312 (42) 165 (2,860) 203
Collective allowances for incurred but not reported losses on financial assets (6,024) (1,558) 1,463 88 775 (15) (5,270) 1
Debt securities (113) (11) 15 1 64 - (46) -
Loans and advances (5,911) (1,546) 1,449 87 711 (15) (5,224) -
Total (18,890) (8,470) 4,172 5,762 652 568 (16,206) 541

Download Excel

Millions of Euros
December 2015 Opening balance Increases due toamounts set aside for estimated loan losses during the period >Decreases due toamounts reversed for estimated loan losses during the period Decreases due toamounts taken against allowances Transfers between allowances Other adjustments SClosing balance Recoveries recorded directly to the statement of profit or loss
Equity instruments                
Specific allowances for financial assets, individually estimated (2,563) (1,375) 27 384 154 (479) (3,851) -
Debt securities (21) (4) 4 - - - (21) -
Central banks - - - - - - - -
General governments - - - - - - - -
Credit institutions (17) (2) 1 - (1) - (20) -
Other financial corporations (4) (2) 4 - 1 - (2) -
Non-financial corporations - - - - - - - -
Loans and advances (2,542) (1,371) 23 384 154 (478) (3,830) -
Central banks - - - - - - - -
General governments (9) (4) 13 - 1 (15) (14) -
Credit institutions (13) (0) 3 - - - (11) -
Other financial corporations - (240) 1 - 233 (5) (11) -
Non-financial corporations (2,175) (872) (1) 159 (242) (22) (3,153) -
Households (345) (254) 8 225 162 (436) (641) -
Specific allowances for financial assets, collectively estimated (7,956) (4,797) 1,408 4,778 234 (2,681) (9,015) 490
Debt securities (12) (2) 3 - - (3) (14) -
Central banks - - - - - - - -
General governments - - - - - - - -
Credit institutions - - - - - - - -
Other financial corporations (12) (2) 3 - - (3) (14) -
Non-financial corporations - - - - - - - -
Loans and advances (7,944) (4,795) 1,404 4,778 234 (2,678) (9,001) 490
Central banks - - - - - - - -
General governments (16) (11) 5 3 (13) 9 (23) -
Credit institutions (5) (11) 2 - 9 (2) (6) 1
Other financial corporations (21) (36) 1 23 (3) 8 (27) -
Non-financial corporations (5,434) (2,357) 1,170 2,421 (56) (1,815) (6,071) 301
Households (2,469) (2,381) 227 2,331 297 (877) (2,873) 187
Collective allowances for incurred but not reported losses on financial assets (3,829) (578) 576 110 (486) (1,817) (6,024) -
Debt securities (42) (9) 6 - (67) (1) (113) -
Loans and advances (3,787) (569) 570 110 (420) (1,816) (5,911) -
Total (14,348) (6,750) 2,011 5,272 (98) (4,977) (18,890) 490

Download Excel

7.3.6 Refinancing and restructuring operations

Group policies and principles with respect to refinancing and restructuring operations

Refinancing and restructuring operations (see definition in the Glossary) are carried out with customers who have requested such an operation in order to meet their current loan payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future.

The basic aim of a refinancing and restructuring operation is to provide the customer with a situation of financial viability over time by adapting repayment of the loan incurred with the Group to the customer’s new situation of fund generation. The use of refinancing and restructuring for other purposes, such as to delay loss recognition, is contrary to BBVA Group policies.

The BBVA Group’s refinancing and restructuring policies are based on the following general principles:

These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.

In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing and restructuring loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of customer’s loan. The solution required is adapted to each case and the loan repayment is made easier, in accordance with the following principles:

In the case of non-retail customers (mainly companies, enterprises and corporates), refinancing/restructuring is authorized according to an economic and financial viability plan based on:

In accordance with the Group’s policy, the conclusion of a loan refinancing and restructuring operation does not imply the loan is reclassified from “impaired” or “standard under special monitoring” to outstanding risk; such a reclassification must be based on the analysis mentioned earlier of the viability and sufficiency of the new guarantees provided.

The Group maintains the policy of including risks related to refinanced and restructured loans as either:

The conditions established for “standard under special monitoring” to be reclassified out of this category are as follows:

The BBVA Group’s refinancing and restructuring policy provides for the possibility of two modifications in a 24 month period for loans that are not in compliance with the payment schedule.

The internal models used to determine allowances for loan losses consider the restructuring and renegotiation of a loan, as well as re-defaults on such a loan, by assigning a lower internal rating to restructured and renegotiated loans than the average internal rating assigned to non-restructured/renegotiated loans. This downgrade results in an increase in the probability of default (PD) assigned to restructured/renegotiated loans (with the resulting PD being higher than the average PD of the non- renegotiated loans in the same portfolios).”

For quantitative information on refinancing and restructuring operations see Appendix XI.

7.4 Market risk

7.4.1 Market risk portfolios

Market risk originates as a result of movements in the market variables that impact the valuation of traded financial products and assets. The main risks generated can be classified as follows:

The metrics developed to control and monitor market risk in BBVA Group are aligned with best practices in the market and are implemented consistently across all the local market risk units.

Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group’s Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used to measure market risk is Value at Risk (“VaR”), which indicates the maximum loss that may occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and commodity prices. The market risk analysis considers risks, such as credit spread, basis risk, volatility and correlation risk.

Most of the headings on the Group’s consolidated balance sheet subject to market risk are positions whose main metric for measuring their market risk is VaR. This table shows the accounting lines of the consolidated balance sheet as of December 31, 2016 and 2015 in which there is a market risk in trading activity subject to this measurement:

Millions of Euros
December 2016 December 2015
Headings of the balance sheet under market risk Main market risk metrics - VaR Main market risk metrics - Others (*) Main market risk metrics - VaR Main market risk metrics - Others (*)
Assets subject to market risk        
Financial assets held for trading 64,623 1,480 64,370 4,712
Available for sale financial assets 7,119 28,771 8,234 50,088
'Of which: Equity instruments - 3,559 - 4,067
Hedging derivatives 1,041 1,415 528 1,888
Liabilities subject to market risk        
Financial liabilities held for trading 47,491 2,223 42,550 6,277
Hedging derivatives 1,305 689 1,128 806

Download Excel

Although the prior table shows details the financial positions subject to market risk, it should be noted that the data are for information purposes only and do not reflect how the risk is managed in trading activity, where it is not classified into assets and liabilities.

With respect to the risk measurement models used in BBVA Group, the Bank of Spain has authorized the use of the internal model to determine bank capital requirements deriving from risk positions on the BBVA S.A. and BBVA Bancomer trading book, which jointly account for around 66% of the Group’s trading-book market risk. For the rest of the geographical areas (mainly South America, Garanti and BBVA Compass), bank capital for the risk positions in the trading book is calculated using the standard model.

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the “historical simulation” methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it infers the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years. The historical simulation method is used in BBVA S.A., BBVA Bancomer, BBVA Chile, BBVA Colombia, Compass Bank and Garanti.

VaR figures are estimated following two methodologies:

In the case of South America (except BBVA Chile and BBVA Colombia), a parametric methodology is used to measure risk in terms of VaR.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain’s regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the new measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at trading desk level in order to enable more specific monitoring of the validity of the measurement models.

Market risk in 2016

The Group’s market risk remains at low levels compared with the risk aggregates managed by BBVA, particularly in terms of credit risk. This is due to the nature of the business. During 2016 the average VaR was €29 million, above 2015 figure, with a high on January 28, of €38 m. The evolution in the BBVA Group’s market risk during 2016, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in millions of Euros) is as follows:

By type of market risk assumed by the Group’s trading portfolio, the main risk factor for the Group continues to be that linked to interest rates, with a weight of 58% of the total at the end of 2016 (this figure includes the spread risk). The relative weight has increased compared with the close of 2015 (48%). Exchange-rate risk accounts 13%, decreasing its proportion with respect to December 2015 (21%), while equity, volatility and correlation risk have decreased, with a weight of 29% at the close of 2016 (vs. 32% at the close of 2015).

As of December 31, 2016, 2015 and 2014 the balance of VaR was €26 million, €24 million and €25 million respectively. These figures can be broken down as follows:

Millions of Euros
VaR by Risk Factor Interest/Spread Risk Currency Risk Stock-market Risk Vega/Correlation Risk Diversification Effect(*) Total
December 2016            
VaR average in the period 28 10 4 11 (23) 29
VaR max in the period 30 16 4 11 (23) 38
VaR min in the period 21 10 1 11 (20) 23
End of period VaR 29 7 2 12 (24) 26
December 2015            
VaR average in the period           24
VaR max in the period 32 5 3 9 (18) 30
VaR min in the period 20 6 3 9 (17) 21
End of period VaR 21 9 3 11 (20) 24
VaR average in the period           23
VaR max in the period 31 6 4 10 (22) 28
VaR min in the period 24 4 3 11 (23) 20
End of period VaR 30 5 2 7 (20) 25

Download Excel

Validation of the model

The internal market risk model is validated on a regular basis by backtesting in both BBVA S.A. and Bancomer.

The aim of backtesting is to validate the quality and precision of the internal market risk model used by BBVA Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group’s results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both BBVA, S.A. and Bancomer is adequate and precise.

Two types of backtesting have been carried out during the year 2016:

In addition, each of these two types of backtesting was carried out at the level of risk factor or business type, thus making a deeper comparison of the results with respect to risk measurements.

For the period between the end of 2015 and the end of 2016, it was carried out the backtesting of the internal VaR calculation model, comparing the daily results obtained with the estimated risk level estimated by the internal VaR calculation model. At the end of the semester the comparison showed the internal VaR calculation model was working correctly, within the “green” zone (0-4 exceptions), thus validating the internal VaR calculation model, as has occurred each year since the internal market risk model was approved for the Group.

Stress test analysis

A number of stress tests are carried out on BBVA Group’s trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the “Tequilazo” crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions.

Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on Resampling methodology. This methodology is based on the use of dynamic scenarios are recalculated periodically depending on the main risks held in the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from 1-1-2008 until today), a simulation is performed by resampling of historic observations, generating a loss distribution and profits to analyze most extreme of births in the selected historical window. The advantage of this resampling methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10.000 simulations) allows a richer information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) flexibility in the inclusion of new risk factors and c) to allow the introduction of a lot of variability in the simulations (desirable to consider extreme events).

The impact of the stress test under multivariable simulation of the risk factors of the portfolio (Expected shortfall 95% to 20 days) as of December 31, 2016 is as follows:

Millions of Euros
Europe Mexico Peru Venezuela Argentina Colombia Chile Turkey
Expected Shortfall (92) (42) (5) - (4) (1) (7) (24)

Download Excel

7.4.2 Structural risk

The Assets and Liabilities Committee (ALCO) is the key body for the management of structural risks relating to liquidity/funding, interest rates, solvency and currency rates. Every month, with representatives from the areas of Finance, Risks and Business Areas, this committee monitors the above risks and is presented with proposals for managing them for its approval. These management proposals are made proactively by the Finance area, taking into account the risk appetite framework and with the aim of guaranteeing recurrent earnings and preserving the entity’s solvency. All the balance-sheet management units have a local ALCO, assisted constantly by the members of the Corporate Center. There is also a corporate ALCO where the management strategies in the Group’s subsidiaries are monitored and presented.

Structural interest-rate risk

The structural interest-rate risk (“SIRR”) is related to the potential impact that variations in market interest rates have on an entity’s net interest income and equity. In order to properly measure SIRR, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed from two complementary points of view: net interest income (short term) and economic value (long term).

ALCO monitors the interest-rate risk metrics and the Finance area carries out the management proposals for the structural balance sheet. The management objective is to ensure the stability of net interest income and book value in the face of changes in market interest rates, while respecting the internal solvency and limits in the different balance-sheets and for BBVA Group as a whole; and complying with current and future regulatory requirements.

BBVA’s structural interest-rate risk management control and monitoring is based on a set of metrics and tools that enable the entity’s risk profile to be monitored correctly. A wide range of scenarios are measured on a regular basis, including sensitivities to parallel movements in the event of different shocks, changes in slope and curve, as well as delayed movements. Other probabilistic metrics based on statistical scenario-simulating methods are also assessed, such as income at risk (“IaR”) and economic capital (“EC”), which are defined as the maximum adverse deviations in net interest income and economic value, respectively, for a given confidence level and time horizon. Impact thresholds are established on these management metrics both in terms of deviations in net interest income and in terms of the impact on economic value. The process is carried out separately for each currency to which the Group is exposed, and the diversification effect between currencies and business units is considered after this.

In order to guarantee its effectiveness, the model is subjected to regular internal validation, which includes backtesting. In addition, the banking book’s interest-rate risk exposures are subjected to different stress tests in order to reveal balance sheet vulnerabilities under extreme scenarios. This testing includes an analysis of adverse macroeconomic scenarios designed specifically by BBVA Research, together with a wide range of potential scenarios that aim to identify interest-rate environments that are particularly damaging for the entity. This is done by generating extreme scenarios of a breakthrough in interest rate levels and historical correlations, giving rise to sudden changes in the slopes and even to inverted curves.

The model is necessarily underpinned by an elaborate set of hypotheses that aim to reproduce the behavior of the balance sheet as closely as possible to reality. Especially relevant among these assumptions are those related to the behavior of “accounts with no explicit maturity”, for which stability and remuneration assumptions are established, consistent with an adequate segmentation by type of product and customer, and prepayment estimates (implicit optionality). The hypotheses are reviewed and adapted, at least on an annual basis, to signs of changes in behavior, kept properly documented and reviewed on a regular basis in the internal validation processes.

The impacts on the metrics are assessed both from a point of view of economic value (gone concern) and from the perspective of net interest income, for which a dynamic model (going concern) consistent with the corporate assumptions of earnings forecasts is used.

The table below shows the profile of average sensitivities to net interest income and value of the main entities in BBVA Group in the first half of 2016:

Impact on Net Interest Income (*) Impact on Economic Value (**)
Sensitivity to Interest-Rate Analysis December 2016 100 Basis-Point Increase 100 Basis-Point Decrease 100 Basis-Point Increase 100 Basis-Point Decrease
Europe (***) 14.12% (7.09%) 4.90% (3.62%)
Mexico 2.13% (2.02%) (2.42%) 2.55%
USA 8.91% (8.30%) 0.41% (7.57%)
Turkey (6.64%) 4.64% (2.78%) 3.84%
South America 2.40% (2.41%) (2.82%) 3.04%
BBVA Group 4.15% (2.89%) 2.69% (2.47%)

Download Excel

In 2016 in Europe monetary policy has remained expansionary, which pushed interest rates lower, towards more negative levels in short term rates. In The United States, Fed’s reference interest rate continues the upward cycle initiated in 2015. While in Mexico, the upward interest rates cycle has intensified given the Mexican peso evolution and the inflation prospects, setting the rates level at the maximum since 2009. In Turkey, the weakness of the Turkish lira has led to a rise in rates in the last quarter of the year following declines in the first three quarters. The main economies of South America appear to have completed the cycle of increases initiated at the end of 2015.

The BBVA Group in all its Balance Sheet Management Units (“BSMUs”) maintains a positive sensitivity in its net interest income to an increase in interest rates. Turkey, helps to diversify the Group’s net exposure due to the opposite direction of its position on Europe. The higher sensitivities in the net interest income, relatively speaking, are observed in mature markets (Europe and USA), where, however, the negative sensitivity in their net interest income to decrease in interest rates is limited by the plausible downward trend in interest rates. The Group maintains a moderate risk profile, according to its target risk, through effective management of its balance sheet structural risk.

Structural exchange-rate risk

In BBVA Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint handling of permanent foreign currency exposures, taking into account the diversification.

The corporate Assets and Liabilities Management unit, through ALCO, designs and executes hedging strategies with the main purpose of controlling the potential negative effect of exchange-rate fluctuations on capital ratios and on the equivalent value in euros of the foreign-currency earnings of the Group’s subsidiaries, considering transactions according to market expectations and their cost.

The risk monitoring metrics included in the system of limits are integrated into management and supplemented with additional assessment indicators. At corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 (“Common Equity Tier 1”) ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

The suitability of these risk assessment metrics is reviewed on a regular basis through backtesting exercises. The final element of structural exchange-rate risk control is the analysis of scenarios and stress with the aim of identifying in advance possible threats to future compliance with the risk appetite levels set, so that any necessary preventive management actions can be taken. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

As for the market, in 2016 it is noteworthy the US dollar strength, boosted by higher yields, and the outperformance of the currencies of Andean area, while Mexican peso and Turkish lira depreciate against USD dollar, affected by higher uncertainty and concerns about the growth in these economies.

The Group’s structural exchange-rate risk exposure level has decreased since the end of 2015 mostly due to the increased hedging, focused on Mexican peso and Turkish lira, intended to keep low levels of sensitivity to movements in the exchange rates of emerging currencies against the euro. The risk mitigation level in capital ratio due to the book value of BBVA Group’s holdings in foreign emerging currencies stood at around 70% and, as of the end of the year, CET1 ratio sensitivity to the appreciation of 1% in the euro exchange rate for each currency is: US Dollar: +1.2 bps; Mexican peso -0.2 bps; Turkish Lira -0.2 bps; other currencies: -0.3 bps. On the other hand, hedging of emerging-currency denominated earnings of 2016 stood at 47%, concentrated in Mexican peso and Turkish lira.

Structural equity risk

BBVA Group’s exposure to structural equity risk stems basically from investments in industrial and financial companies with medium- and long-term investment horizons. This exposure is mitigated through net short positions held in derivatives of their underlying assets, used to limit portfolio sensitivity to potential falls in prices.

Structural management of equity portfolios is the responsibility of the Group’s units specializing in this area. Their activity is subject to the corporate risk management policies for equity positions in the equity portfolio. The aim is to ensure that they are handled consistently with BBVA’s business model and appropriately to its risk tolerance level, thus enabling long-term business sustainability.

The Group’s risk management systems also make it possible to anticipate possible negative impacts and take appropriate measures to prevent damage being caused to the entity. The risk control and limitation mechanisms are focused on the exposure, annual operating performance and economic capital estimated for each portfolio. Economic capital is estimated in accordance with a corporate model based on Monte Carlo simulations, taking into account the statistical performance of asset prices and the diversification existing among the different exposures.

Backtesting is carried out on a regular basis on the risk measurement model used.

In the market, it is remarkable the underperformance of European stock markets in 2016, while main US stock exchange indices have reached historical maximum levels. It is also noteworthy the upsurge in stock prices volatility , and the initial shock in the financial markets after the Brexit, due to the policy uncertainty that this process entails and its potential impact on the Eurozone growth expectations. This effect led to a deterioration of capital gains accumulated in the Group’s equity portfolios as of the end of June, although it faded away as main equity indices have recovered pre-Brexit levels.

Structural equity risk, measured in terms of economic capital, has decreased in the period as a result of the reduction of the stake in China Citic Bank, along with lower positioning in some sectors.

Stress tests and analyses of sensitivity to different simulated scenarios are carried out periodically to analyze the risk profile in more depth. They are based on both past crisis situations and forecasts made by BBVA Research. This checks that the risks are limited and that the tolerance levels set by the Group are not at risk.

The aggregate sensitivity of the BBVA Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio stood at around -€38 million as of December 31, 2016. This estimate takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (except for the positions in the Treasury Area portfolios) and the net delta-equivalent positions in options on the same underlyings.

7.4.3 Financial Instruments compensation

Financial assets and liabilities may be netted, i.e. they are presented for a net amount on the consolidated balance sheet only when the Group’s entities satisfy with the provisions of IAS 32-Paragraph 42, so they have both the legal right to net recognized amounts, and the intention of settling the net amount or of realizing the asset and simultaneously paying the liability.

In addition, the Group has presented as gross amounts assets and liabilities on the consolidated balance sheet for which there are master netting arrangements in place, but for which there is no intention of settling net. The most common types of events that trigger the netting of reciprocal obligations are bankruptcy of the entity, surpassing certain level of indebtedness threshold, failure to pay, restructuring and dissolution of the entity.

In the current market context, derivatives are contracted under different framework contracts being the most widespread developed by the International Swaps and Derivatives Association (“ISDA”) and, for the Spanish market, the Framework Agreement on Financial Transactions (“CMOF”). Almost all portfolio derivative transactions have been concluded under these framework contracts, including in them the netting clauses mentioned in the preceding paragraph as “Master Netting Agreement”, greatly reducing the credit exposure on these instruments. Additionally, in contracts signed with professional counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty.

Moreover, in transactions involving assets purchased or sold under a purchase agreement there is a high volume transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signature of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by International Capital Market Association (“ICMA”), to which the clauses related to the collateral exchange are usually added within the text of the master agreement itself.

A summary of the effect of the compensation (via netting and collateral) for derivatives and securities operations is presented below as of December 31, 2016 and 2015:

Millions of Euros
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets (D)
December 2016 Notes Gross Amounts Recognized (A) Gross Amounts Offset in the Condensed Consolidated Balance Sheets (B) Net Amount Presented in the Condensed Consolidated Balance Sheets (C=A-B) Financial Instruments Cash Collateral Received/ Pledged Net Amount (E=C-D)
Trading and hedging derivatives 10, 15 59,374 13,587 45,788 32,146 6,571 7,070
Reverse repurchase, securities borrowing and similar agreements 35 25,833 2,912 22,921 23,080 174 (333)
Total Assets   85,208 16,499 68,709 55,226 6,745 6,738
Trading and hedging derivatives 10, 15 59,545 14,080 45,465 32,146 7,272 6,047
Repurchase, securities lending and similar agreements 35 49,474 2,912 46,562 47,915 176 (1,529)
Total Liabilities   109,019 16,991 92,027 80,061 7,448 4,518

Download Excel

Millions of Euros
Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets (D)
December 2015 Notes Gross Amounts Recognized (A) Gross Amounts Offset in the Condensed Consolidated Balance Sheets (B) Net Amount Presented in the Condensed Consolidated Balance Sheets (C=A-B) Financial Instruments Cash Collateral Received/ Pledged Net Amount (E=C-D)
Trading and hedging derivatives 10, 15 52,244 7,805 44,439 30,350 5,493 8,597
Reverse repurchase, securities borrowing and similar agreements 35 21,531 4,596 16,935 17,313 24 (402)
Total Assets   73,775 12,401 61,374 47,663 5,517 8,195
Trading and hedging derivatives 10, 15 53,298 8,423 44,876 30,350 9,830 4,696
Repurchase, securities lending and similar agreements 35 72,998 4,596 68,402 68,783 114 (495)
Total Liabilities   126,296 13,019 113,278 99,133 9,944 4,201

Download Excel

7.5 Liquidity risk

7.5.1 Liquidity risk management

Management of liquidity and structural finance within the BBVA Group is based on the principle of the financial autonomy of the entities that make it up. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability in periods of high risk. This decentralized management avoids possible contagion due to a crisis that could affect only one or several BBVA Group entities, which must cover their liquidity needs independently in the markets where they operate. Liquidity Management Units (LMUs) have been set up for this reason in the geographical areas where the main foreign subsidiaries operate, and also for the parent BBVA S.A., within the Euro currency scope, which includes BBVA Portugal.

Finance Division, through Global ALM, manages BBVA Group’s liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMUs and proposes to ALCO the actions to adopt in this regard in accordance with the policies and limits established by the Standing Committee.

As first core element, the Bank’s target behavior in terms of liquidity and funding risk is characterized through the Liquidity Coverage Ratio (LCR) and the Loan-to-Stable-Customer-Deposits (LtSCD) ratio. LCR is a regulatory measurement aimed at ensuring entities’ resistance in a scenario of liquidity stress within a time horizon of 30 days. BBVA, within its risk appetite framework and its limits and alerts schemes, has established a level of requirement for compliance with the LCR ratio both for the Group as a whole and for each of the LMUs individually. The internal levels required are geared to comply sufficiently and efficiently in advance with the implementation of the regulatory requirement of 2018, at a level above 100%.
Throughout 2016 the level of the LCR for BBVA Group has remained above 100%. At the European level the LCR ratio was effective beginning October 1, 2015, with an initial required level of 60%, and a phased-in level of up to 100% in 2018.

The LtSCD measures the relation between the net credit investment and stable funds. The aim is to preserve a stable funding structure in the medium term for each of the LMUs making up BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile.
Customer funds captured and managed by business units are defined as stable customer funds. These funds usually show little sensitivity to market changes and are largely non-volatile in terms of aggregate amounts per operation, thanks to customer linkage to the unit. Stable funds in each LMU are calculated by analyzing the behavior of the balance sheets of the different customer segments identified as likely to provide stability to the funding structure, and by prioritizing an established relationship and applying bigger haircuts to the funding lines of less stable customers. The main base of stable funds is composed of deposits by individual customers and small businesses.

For the purpose of establishing the (maximum) target levels for LtSCD in each LMU and providing an optimal funding structure reference in terms of risk appetite, GRM-Structural Risks identifies and assesses the economic and financial variables that condition the funding structures in the various geographical areas. The behavior of the indicators reflects that the funding structure remained robust in 2016, in the sense that all the LMUs maintain levels of self-funding with stable customer funds higher than the required levels.

LtSCD by LMU
December 2016 December 2015
Group (average) 113% 116%
Eurozone 113% 116%
Bancomer 113% 110%
Compass 108% 112%
Garanti 124% 128%
Other LMUs 107% 111%

Download Excel

The second core element in liquidity and funding risk management is to achieve proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term borrowing comprising both wholesale funding as well as less stable funds from non-retail customers. Regarding long-term funding, the maturity profile does not show significant concentrations, which enables adaptation of the anticipated issuance schedule to the best financial conditions of the markets. Finally, concentration risk is monitored at the LMU level, with a view to ensuring the right diversification both per counterparty and per instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, making sure that each LMU has sufficient collateral to address the risk of wholesale markets closing. Basic Capacity is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets and the maturities of wholesale liabilities and volatile funds, at different terms, with special relevance being given to 30day maturities.

Each entity maintains an individual liquidity buffer, both Banco Bilbao Vizcaya Argentaria SA and its subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti Bank and the Latin American subsidiaries. The table below shows the liquidity available by instrument as of December 31, 2016 and 2015 for the most significant entities:

Millions of Euros
December 2016 BBVA Eurozone (1) BBVA Bancomer BBVA Compass Garanti Bank Other
Cash and balances with central banks 16,038 8,221 1,495 4,758 6,504
Assets for credit operations with central banks 50,706 4,175 26,865 4,935 4,060
Central governments issues 30,702 1,964 1,084 4,935 3,985
Of Which: Spanish government securities 23,353 - - - -
Other issues 20,005 2,212 8,991 - 75
Loans - - 16,790 - -
Other non-eligible liquid assets 6,884 938 662 1,478 883
ACCUMULATED AVAILABLE BALANCE 73,629 13,335 29,022 11,171 11,447
AVERAGE BALANCE 68,322 13,104 27,610 12,871 11,523

Download Excel

Millions of Euros
December 2015 BBVA Eurozone (1) BBVA Bancomer BBVA Compass Garanti Bank Other
Cash and balances with central banks 10,939 6,936 3,214 6,585 7,122
Assets for credit operations with central banks 51,811 5,534 22,782 4,302 4,559
Central governments issues 31,314 2,303 8,086 4,186 3,654
Of Which: Spanish government securities 25,317 - - - -
Other issues 20,497 3,231 479 116 905
Loans - - 14,217 - -
Other non-eligible liquid assets 5,760 757 20 1,680 229
ACCUMULATED AVAILABLE BALANCE 68,510 13,227 26,016 12,567 11,910
AVERAGE BALANCE 67,266 12,222 24,282 12,418 10,863

Download Excel

Stress analyses are also a basic element of the liquidity and funding risk monitoring system, as they help anticipate deviations from the liquidity targets and limits set out in the risk appetite as well as establish tolerance ranges at different management levels. They also play a key role in the design of the Liquidity Contingency Plan and in defining the specific measures for action for realigning the risk profile.

For each of the scenarios, a check is carried out whether the Bank has a sufficient liquid assets to meet the liquidity commitments/outflows in the various periods analyzed. The analysis considers four scenarios, one core and three crisis-related: systemic crisis; unexpected internal crisis with a considerable rating downgrade and/or affecting the ability to issue in wholesale markets and the perception of business risk by the banking intermediaries and the bank’s customers; and a mixed scenario, as a combination of the two aforementioned scenarios. Each scenario considers the following factors: liquidity existing on the market, customer behavior and sources of funding, impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the performance of the bank’s asset quality.

The results of these stress analyses carried out regularly reveal that BBVA has a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario such as a combination of a systemic crisis and an unexpected internal crisis, during a period in general longer than 3 months for LMUs, including a major downgrade in the bank’s rating (by up to three notches).

Beside the results of stress exercises and risk metrics, Early Warning Indicators play an important role in the corporate model and also in the Liquidity Contingency Plan. These are mainly financing structure indicators, related to asset encumbrance, counterparty concentration, outflows of customer deposits, unexpected use of credit lines, and market indicators, which help to anticipate potential risks and capture market expectations.

Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2016 and 2015:

Millions of Euros
December 2016 - Contractual Maturities Demand Up to 1 Month 1 to 3 Months 3 to 6 Months 6 to 9 Months 9 to 12 Months 1 to 2 Years 2 to 3 Years 3 to 5 Years Over 5 Years Total
Cash, cash balances at central banks and other demand deposits 23,191 13,825 - - - - - - - - 37,016
Deposits in credit entities 991 4,068 254 155 48 72 117 87 122 4,087 10,002
Deposits in other financial institutions 1 1,192 967 675 714 532 1,330 918 942 336 7,608
Reverse repo, securities borrowing and margin lending - 20,232 544 523 - 428 500 286 124 189 22,826
Loans and Advances 591 20,272 25,990 22,318 16,212 15,613 44,956 35,093 55,561 133,589 370,195
Securities' portfolio settlement - 708 3,566 3,688 2,301 4,312 19,320 10,010 16,662 51,472 112,039

Download Excel

Millions of Euros
December 2016 - Contractual Maturities Demand Up to 1 Month 1 to 3 Months 3 to 6 Months 6 to 9 Months 9 to 12 Months 1 to 2 Years 2 to 3 Years 3 to 5 Years Over 5 Years Total
Wholesale funding 419 7,380 2,943 5,547 3,463 5,967 7,825 5,963 14,016 31,875 85,397
Deposits in financial institutions 6,762 5,365 1,181 2,104 800 2,176 746 1,156 859 3,714 24,862
Deposits in other financial institutions and international agencies 15,375 6,542 8,624 3,382 2,566 1,897 1,340 686 875 2,825 44,114
Customer deposits 206,140 49,053 25,522 15,736 11,863 11,343 8,619 5,060 781 936 335,052
Securitiy pledge funding - 38,153 3,561 1,403 1,004 912 1,281 640 23,959 1,712 72,626
Derivatives (net) - (2,123) (95) (190) (111) (326) (132) (82) (105) (47) (3,210)

Download Excel

Millions of Euros
December 2015 - Contractual Maturities Demand Up to 1 Month 1 to 3 Months 3 to 6 Months 6 to 9 Months 9 to 12 Months 1 to 2 Years 2 to 3 Years 3 to 5 Years Over 5 Years Total
Cash, cash balances at central banks and other demand deposits 34,796 - - - - - - - - - 34,796
Deposits in credit entities 1,077 4,594 766 260 70 42 520 6 950 3,988 12,273
Deposits in other financial institutions 7 1,246 401 628 595 526 448 495 977 275 5,600
Reverse repo, securities borrowing and margin lending - 12,348 853 546 201 2,323 10 84 125 370 16,859
Loans and Advances 1,364 21,639 25,624 23,777 16,750 18,477 40,512 33,835 54,790 140,602 377,371
Securities' portfolio settlement 484 2,001 4,014 7,073 7,835 4,129 11,944 14,722 20,366 59,755 132,324

Download Excel

Millions of Euros
December 2015 - Contractual Maturities Demand Up to 1 Month 1 to 3 Months 3 to 6 Months 6 to 9 Months 9 to 12 Months 1 to 2 Years 2 to 3 Years 3 to 5 Years Over 5 Years Total
Wholesale funding 7 5,106 9,093 5,751 2,222 5,160 15,856 7,845 11,072 33,840 95,953
Deposits in financial institutions 4,932 6,271 2,064 2,783 995 1,952 2,314 1,110 1,283 4,270 27,975
Deposits in other financial institutions and international agencies 13,380 8,907 6,494 2,939 2,442 2,217 205 12 7 274 36,877
Customer deposits 193,079 29,003 22,846 15,983 13,517 13,751 14,076 4,615 1,447 1,190 309,508
Securitiy pledge funding - 50,042 11,166 1,197 495 966 2,253 15,045 1,815 1,103 84,081
Derivatives (net) 1 (2,621) (208) (21) (253) (74) 120 (220) 14 (95) (3,357)

Download Excel

The matrix shows the retail nature of the funding structure, with a loan portfolio being mostly funded by customer deposits. On the outflows side of the matrix, the “demand” maturity bucket mainly contains the retail customers sight accounts whose behavior shows a high level of stability. According to internal methodology they are estimated to mature on average in more than three years.

Long and short term wholesale funding markets were stable in 2016. The ECB carried out the new program Targeted Longer-Term Refinancing Operations (TLTRO II), based on four quarterly targeted 4 years refinancing operations, with the aim of boosting channeled lending and improving financial conditions for the whole European economy. In the first auction the Euro LMU took €23.7 billion after amortizing €14 billion in previous TLTRO auctions. In addition, over the whole year the Euro LMU made issues in the public market for €6.350 million, which has allowed it to obtain funding at favorable price conditions.

In Mexico, the liquidity position is still solid in spite of the market volatility after the US elections. Dependence on wholesale funding remains relatively low, where the good dynamics of customers funds have enabled a low appeal to wholesale markets, satisfied at the local market.
In United States, the decrease in the credit gap during the year has diminished the need of wholesale funding, staying in a comfortable liquidity situation during 2016.

In Turkey, despite geopolitical tension and downgrading of Moody’s credit rating, the domestic environment has remained stable, with no pressure on funding sources, favored by global stability and by the measures adopted by the Central Bank of Turkey (CBRT). The liquidity position of the rest of subsidiaries has continued to be comfortable, maintaining a solid liquidity position in all the jurisdictions in which the Group operates. Access to capital markets of these subsidiaries has also been maintained with recurring issues in the local market

In this context, BBVA has maintained its objective of strengthening the funding structure of the different Group entities based on growing their self-funding from stable customer funds, while guaranteeing a sufficient buffer of fully available liquid assets, diversifying the various sources of funding available, and optimizing the generation of collateral available for dealing with stress situations in the markets

7.5.2 Asset encumbrance

As of December 31, 2016 and 2015, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:

Millions of Euros Millions of Euros
Encumbered assets
December 2016 Book value of Encumbered assets Market value of Encumbered assets Book value of non encumbered assets Market value of non encumbered assets
Equity instruments 2,214 2,214 9,022 9,022
Debt securities 40,114 39,972 90,679 90,679
Loans and Advances and other assets 94,718 - 495,109 -

Download Excel

Millions of Euros Millions of Euros
Encumbered assets
December 2015 Book value of Encumbered assets Market value of Encumbered assets Book value of non encumbered assets Market value of non encumbered assets
Equity instruments 2,680 2,680 9,046 9,046
Debt securities 56,155 56,230 95,669 95,669
Loans and Advances and other assets 100,139 - 486,165 -

Download Excel

The committed value of “Loans and Advances and other assets” corresponds mainly to loans linked to the issue of covered bonds, territorial bonds or long-term securitized bonds (see Note 22.3) as well as those used as a guarantee to access certain funding transactions with central banks. Debt securities and equity instruments respond to underlying that are delivered in repos with different types of counterparties, mainly clearing houses or credit institutions, and to a lesser extent central banks. Collateral provided to guarantee derivative operations is also included as committed assets.

As of December 31, 2016 and 2015, collateral pledge mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:

Millions of Euros
December 2016 - Collateral received Fair value of encumbered collateral received or own debt securities issued Fair value of collateral received or own debt securities issued available for encumbrance Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received 19,921 10,039 173
Equity instruments 58 59 -
Debt securities 19,863 8,230 28
Loans and Advances and other assets - 1,750 144
Own debt securities issued other than own covered bonds or ABSs 5 - -

Download Excel

Millions of Euros
December 2015 - Collateral received Fair value of encumbered collateral received or own debt securities issued Fair value of collateral received or own debt securities issued available for encumbrance Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received 21,532 9,415 -
Equity instruments - 768 -
Debt securities 21,532 6,872 -
Loans and Advances and other assets - 1,774 -
Own debt securities issued other than own covered bonds or ABSs 6 162 -

Download Excel

The guarantees received in the form of reverse repos or security lending transactions are committed by their use in repos, as is the case with debt securities.

As of December 31, 2016 and 2015, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:

Millions of Euros
December 2016 - Sources of encumbrance Matching liabilities, contingent liabilities or securities lent Matching liabilities, contingent liabilities or securities lent
Book value of financial liabilities 134,387 153,632
Derivatives 9,304 9,794
Loans and Advances 96,137 108,268
Outstanding subordinated debt 28,946 35,569
Other sources - 2,594

Download Excel

Millions of Euros
December 2015 - Sources of encumbrance Matching liabilities, contingent liabilities or securities lent Matching liabilities, contingent liabilities or securities lent
Book value of financial liabilities 155,999 180,735
Derivatives 10,683 11,962
Loans and Advances 106,884 118,951
Outstanding subordinated debt 35,257 43,206
Other sources 3,175 6,616

Download Excel

7.6 Operational Risk

Operational risk is defined as one that could potentially cause losses due to human errors, inadequate or faulty internal processes, system failures or external events. This definition includes legal risk but excludes strategic and/or business risk and reputational risk.

Operational risk is inherent to all banking activities, products, systems and processes. Its origins are diverse (processes, internal and external fraud, technology, human resources, commercial practices, disasters, suppliers). Operational risk management is a part of the BBVA Group global risk management structure.

Operational risk management framework

Operational risk management in the Group is based on the value-adding drivers generated by the advanced measurement approach (AMA), as follows:

The above helps create a proactive model for making decisions about control and business, and for prioritizing the efforts to mitigate relevant risks in order to reduce the Group’s exposure to extreme events.

Operational Risk Management Principles

Operational risk management in BBVA Group should:

These principles reflect BBVA Group’s vision of operational risk, on the basis that the resulting events have an ultimate cause that should always be identified, and that the impact of the events is reduced significantly by controlling that cause.

Irrespective of the adoption of all the possible measures and controls for preventing or reducing both the frequency and severity of operational risk events, BBVA ensures at all times that sufficient capital is available to cover any expected or unexpected losses that may occur.

7.7 Risk concentration

Policies for preventing excessive risk concentration

In order to prevent the build-up of excessive concentrations of credit risk at the individual, country and sector levels, BBVA Group maintains maximum permitted risk concentration indices updated at individual and portfolio sector levels tied to the various observable variables within the field of credit risk management.
The limit on the Group’s exposure or financial commitment to a specific customer therefore depends on the customer’s credit rating, the nature of the risks involved, and the Group’s presence in a given market, based on the following guidelines:

Risk concentrations by geography

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix XII.

Sovereign risk concentration

Sovereign risk management

The risk associated with the transactions involving sovereign risk is identified, measured, controlled and tracked by a centralized unit integrated in the BBVA Group’s Risk Area. Its basic functions involve the preparation of reports in the countries where sovereign risk exists (called “financial programs”), tracking such risks, assigning ratings to these countries and, in general, supporting the Group in terms of reporting requirements for any transactions involving sovereign risk. The risk policies established in the financial programs are approved by the relevant risk committees.

The country risk unit tracks the evolution of the risks associated with the various countries to which the Group are exposed (including sovereign risk) on an ongoing basis in order to adapt its risk and mitigation policies to any macroeconomic and political changes that may occur. Moreover, it regularly updates its internal ratings and forecasts for these countries. The internal rating assignment methodology is based on the assessment of quantitative and qualitative parameters which are in line with those used by certain multilateral organizations such as the International Monetary Fund (IMF) and the World Bank, rating agencies and export credit organizations.

For additional information on sovereign risk in Europe see Appendix XII

Valuation and impairment methods

The valuation methods used to assess the instruments that are subject to sovereign risks are the same ones used for other instruments included in the relevant portfolios and are detailed in Note 8.

Specifically, the fair value of sovereign debt securities of European countries has been considered equivalent to their listed price in active markets (Level 1 as defined in Note 8).

One of the main Group activities of the Group in Spain is focused on developer and mortgage loans. The policies and strategies established by the Group to deal with risks related to the developer and real-estate sector are explained below:

BBVA has teams specializing in the management of the Real-Estate Sector risk, given its economic importance and specific technical component. This specialization is not only in the Risk-Acceptance teams, but throughout the handling, commercial, problem risks and legal, etc. It also includes the research department of the BBVA Group (BBVA Research), which helps determine the medium/long-term vision needed to manage this portfolio. Specialization has been increased and the management teams in the areas of recovery and the Real Estate Unit itself have been reinforced.

The policies established to address the risks related to the developer and real-estate sector, aim to accomplish, among others, the following objectives: to avoid concentration in terms of customers, products and regions; to estimate the risk profile for the portfolio; and to anticipate possible worsening of the portfolio.

Specific policies for analysis and admission of new developer risk transactions

In the analysis of new operations, the assessment of the commercial operation in terms of the economic and financial viability of the project has been one of the constant points that have helped ensure the success and transformation of construction land operations for customers’ developments.

With regard the participation of the Risk Acceptance teams, they have a direct link and participate in the committees of areas such as Recoveries and the Real Estate Unit. This guarantees coordination and exchange of information in all the processes.

The following strategies have been implemented with customers in the developer sector: avoidance of large corporate transactions, which had already reduced their share in the years of greatest market growth; non active participation in the second-home market; commitment to public housing financing; and participation in land operations with a high level of urban development security, giving priority to land open to urban development.

Risk monitoring policies

The base information for analyzing the real estate portfolios is updated monthly. The tools used include the so-called “watch-list”, which is updated monthly with the progress of each client under watch, and the different strategic plans for management of special groups. There are plans that involve an intensification of the review of the portfolio for financing land, while, in the case of ongoing promotions, they are classified based on the rate of progress of the projects.

These actions have enabled BBVA to identify possible impairment situations, by always keeping an eye on BBVA’s position with each customer (whether or not as first creditor). In this regard, key aspects include management of the risk policy to be followed with each customer, contract review, deadline extension, improved collateral, rate review (repricing) and asset purchase.

Proper management of the relationship with each customer requires knowledge of various aspects such as the identification of the source of payment difficulties, an analysis of the company’s future viability, the updating of the information on the debtor and the guarantors (their current situation and business course, economic-financial information, debt analysis and generation of funds), and the updating of the appraisal of the assets offered as collateral.

BBVA has a classification of debtors in accordance with legislation in force in each country, usually categorizing each one’s level of difficulty for each risk.

Based on the information above, a decision is made whether to use the refinancing tool, whose objective is to adjust the structure of the maturity of the debt to the generation of funds and the customer’s payment capacity.

As for the policies relating to risk refinancing with the developer and real-estate sector, they are the same as the general policies used for all of the Group’s risks (see Note 7.3.6). In the developer and real estate sector, they are based on clear solvency and viability criteria for projects, with demanding terms for additional guarantees and legal compliance, given a refinancing tool that standardizes criteria and variables when considering any refinancing operation.

In the case of refinancing, the tools used for enhancing the Bank’s position are: the search for new intervening parties with proven solvency and initial payment to reduce the principal debt or outstanding interest; the improvement of the debt bond in order to facilitate the procedure in the event of default; the provision of new or additional collateral; and making refinancing viable with new conditions (period, rate and repayments), adapted to a credible and sufficiently verified business plan.

Policies applied in the management of real estate assets in Spain

The policy applied for managing these assets depends on the type of real-estate asset, as detailed below.

For quantitative information about the risk related to the developer and Real-Estate sector in Spain see Appendix XII.

8. Fair value

8.1 Fair value of financial instrument

The fair value of financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is therefore a market-based measurement and not specific to each entity.

All financial instruments, both assets and liabilities are initially recognized at fair value, which at that point is equivalent to the transaction price, unless there is evidence to the contrary in the market. Subsequently, depending on the type of financial instrument, it may continue to be recognized at amortized cost or fair value through adjustments in the income statement or equity.

When possible, the fair value is determined as the market price of a financial instrument. However, for many of the financial assets and liabilities of the Group, especially in the case of derivatives, there is no market price available, so its fair value is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, by using mathematical measurement models that are sufficiently tried and trusted by the international financial community. The estimates of the fair value derived from the use of such models take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent in the measurement models and possible inaccuracies in the assumptions and parameters required by these models may mean that the estimated fair value of an asset or liability does not exactly match the price for which the asset or liability could be exchanged or settled on the date of its measurement.

The process for determining the fair value established in the Group to ensure that trading portfolio assets are properly valued, BBVA has established, at a geographic level, a structure of New Product Committees responsible for validating and approving new products or types of financial assets and liabilities before being contracted. The members of these Committees, responsible for valuation, are independent from the business (see Note 7).

These areas are required to ensure, prior to the approval stage, the existence of not only technical and human resources, but also adequate informational sources to measure the fair value these financial assets and liabilities, in accordance with the rules established by the Global Valuation Area and using models that have been validated and approved by the Risk Analytics Department that reports to Global Risk Management.

Additionally, for financial assets and liabilities that show significant uncertainty in inputs or model parameters used for assessment, criteria is established to measure said uncertainty and activity limits are set based on these. Finally, these measurements are compared, as much as possible, against other sources such as the measurements obtained by the business teams or those obtained by other market participants.

The process for determining the fair value requires the classification of the financial assets and liabilities according to the measurement processes used as set forth below:

Below is a comparison of the carrying amount of the Group’s financial instruments in the accompanying consolidated balance sheets and their respective fair values.

Millions of Euros
2016 2015 2014
Fair Value and Carrying Amount Notes Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value
ASSETS-              
Cash and balances with central banks 9 40,039 40,039 29,282 29,282 27,719 27,719
Financial assets held for trading 10 74,950 74,950 78,326 78,326 83,258 83,258
Financial assets designated at fair value through profit or loss 11 2,062 2,062 2,311 2,311 2,761 2,761
Available-for-sale financial assets 12 79,221 79,221 113,426 113,426 94,875 94,875
Loans and receivables 13 465,977 468,844 471,828 480,539 376,086 377,108
Held-to-maturity investments 14 17,696 17,619 - - - -
Derivatives – Hedge accounting 15 2,833 2,833 3,538 3,538 2,551 2,551
LIABILITIES-              
Financial liabilities held for trading 10 54,675 54,675 55,202 55,202 56,798 56,798
Financial liabilities designated at fair value through profit or loss 11 2,338 2,338 2,649 2,649 2,724 2,724
Financial liabilities at amortized cost 22 589,210 594,190 606,113 613,247 491,899 486,904
Derivatives – Hedge accounting 15 2,347 2,347 2,726 2,726 2,331 2,331

Download Excel

Not all financial assets and liabilities are recorded at fair value, so below we provide the information on financial instruments recorded at fair value and subsequently the information of those recorded at cost (including their fair value), although this value is not used when accounting for these instruments.

8.1.1 Fair value of financial instrument recognized at fair value, according valuation criteria

The following table shows the main financial instruments carried at fair value in the accompanying consolidated balance sheets, broken down by the measurement technique used to determine their fair value:

Millions of Euros
2016 2015 2014
Fair Value of financial Instruments by Levels Notes Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Financial assets held for trading 10 32,544 42,221 184 37,922 40,240 164 39,603 43,459 195
Loans and advances   - 154 - - 65 - - 128 -
Debt securities   26,720 418 28 32,381 409 34 33,150 691 43
Equity instruments   4,570 9 96 4,336 106 93 4,923 17 77
Derivatives   1,254 41,640 60 1,205 39,661 36 1,530 42,623 76
Financial assets designated at fair value through profit or loss 11 2,062 - - 2,246 2 62 2,690 71 -
Loans and advances   - - - - - 62 - - -
Debt securities   142 - - 173 - - 666 71 -
Equity instruments   1,920 - - 2,074 2 - 2,024 - -
Available-for-sale financial assets 12 62,125 15,894 637 97,113 15,477 236 76,693 17,236 406
Debt securities   58,372 15,779 429 92,963 15,260 86 70,225 16,987 396
Equity instruments   3,753 115 208 4,150 217 150 6,468 249 10
Hedging derivatives 15 41 2,792 - 59 3,478 - 59 2,491 -
LIABILITIES-                    
Financial liabilities held for trading 10 12,502 42,120 53 14,074 41,079 50 13,627 43,135 36
Derivatives   952 42,120 47 1,037 41,079 34 1,880 43,135 36
Short positions   11,550 - 6 13,038 - 16 11,747 - -
Financial liabilities designated at fair value through profit or loss 11 - 2,338 - - 2,649 - - 2,724 -
Derivatives – Hedge accounting 15 94 2,189 64 - 2,594 132 - 2,270 62

Download Excel

The heading “Available-for-sale financial assets” in the accompanying consolidated balance sheets as of December 31, 2016, 2015 and 2014 additionally includes €565 million, €600 and €540 million for equity instruments, respectively, for financial assets accounted for at cost, as indicated in the section of this Note entitled “Financial instruments at cost”.

In 2016 and 2015, financial instruments carried at fair value corresponding to the companies that belong to Banco Provincial Group in Venezuela whose balance is denominated in “bolivares fuertes” are classified under Level 3 in the above tables (see Note 2.2.20.)

The following table sets forth the main valuation techniques, hypothesis and inputs used in the estimation of fair value of the financial instruments classified under Levels 2 and 3, based on the type of financial asset and liability and the corresponding balances as of December 31, 2016:

Financial Instruments Level 2 Fair Value (Millions of euros) Valuation technique(s) Unobservable inputs
Loans and advances
Financial assets held for trading 154 Present-value method (Discounted future cash flows)
  • Prepayment rates
  • Issuer credit risk
  • Current market interest rates
Debt securities
Financial assets held for trading 418 Present-value method (Discounted future cash flows)
  • Prepayment rates
  • Issuer credit risk
  • Current market interest rates
Financial assets designated at fair value through profit or loss - Active price in inactive market
  • Brokers/dealers quotes
  • External contributing prices
  • Market benchmarks
Available-for-sale financial assets 15,779 Comparable pricing (Observable price in a similar market)
Equity instruments
Financial assets held for trading 9 Comparable pricing (Observable price in a similar market)
  • Brokers quotes
  • Market operations
  • NAVs published
Financial assets designated at fair value through profit or loss -
Available-for-sale financial assets 155
Other financial liabilities
Financial liabilities designated at fair value through profit or loss 2,338 Present-value method (Discounted future cash flows)
  • Prepayment rates
  • Issuer credit risk
  • Current market interest rates
Derivatives
Derivatives
  • Commodities: Discounted cash flows and moment adjustment
  • Credit products: Default model and Gaussian copula
  • Exchange rate products: Discounted cash flows, Black,Local Vol and Moment adjustment
  • Fixed income products: Discounted cash flows
  • Equity instruments: Local-V ol , Black, Moment adjustment and Discounted cash flows
  • Interest rate product:
    • Interest rate swaps, Call money Swaps y FRA: Discounted cash
    • Caps/Floors: Black, Hull-W hite y SABR
    • Bond options: Black
    • Swaptions: Black, Hull-W hite y LGM
    • Interest rate options: Black, Hull-W hite y SABR
    • Constant Maturity Swaps: SABR
  • Exchange rates
  • Market quoted future prices
  • Market interest rates
  • Underlying assests prices: shares, funds, commodities
  • Market observable volatilities
  • Issuer credit spread levels
  • Quoted dividends
  • Market listed correlations
Financial assets held for trading 41,640
Financial liabilities held for trading 42,120
Hedging derivatives
Assets 2,792
Liability 2,189

Download Excel

Financial Instruments Level 3 Fair Value (Millions of euros) Valuation technique(s) Unobservable inputs
Debt securities
Financial assets held for trading 28 Present-value method (Discounted future cash flows)
  • Credit spread
  • Recovery rates
  • Interest rates
  • Market benchmark
  • Default correlation
Available-for-sale financial assets 429 Comparable pricing (Comparison with prices of similar instruments) • Prices of similar instruments or market benchmark
Equity instruments
Financial assets held for trading 96 Net Asset Value • NAV provided by the administrator of the fund
Available-for-sale financial assets 208 Comparable pricing (Comparison with prices of similar instruments) • Prices of similar instruments or market benchmark
Short Positions
Financial liabilities held for trading 6 Present-value method (Discounted future cash flows)
  • Credit spread
  • Recovery rates
  • Interest rates
  • Market benchmark
  • Default correlation
Derivatives
Trading Derivatives Credit Option: Gaussian Copula
  • Correlation default
  • Credit spread
  • Recovery rates
  • Interest rate yields
Financial assets held for trading 60 Equity OTC Options: Heston
  • Volatility of volatility
  • Interest rate yields
  • Dividends
  • Assets correlation
Financial liabilities held for trading 47
Hedging derivatives Interest rate options: Libor Market Model
  • Beta
  • Correlation rate/credit
  • Credit default volatili
Liability 64

Download Excel

Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below:

Financial instrument Valuation technique(s) Significant unobservable inputs Min Max Average Units
Debt securities Net Present Value Credit Spread 61.23 396.76 225.58 b.p
    Recovery Rate 40.00% 61.46% 40.30% %
  Comparable pricing   0.47% 93.40% 41.73% %
Equity instruments Net Asset Value Too wide Range to be relevant
  Comparable pricing Too wide Range to be relevant
Credit Option Gaussian Copula Correlation Default 0.48 0.73 0.67 %
Corporate Bond Option Black 76 Price Volatility 5.16     vegas
Equity OTC Option Heston Forward Volatility Skew 79.58 79.58 79.58 Vegas
Interest Rate Option Libor Market Model Beta 0.25 18.00 9.00 %
    Correlation Rate/Credit (100.00) 100.00   %
    Credit Default Volatility 0.00 0.00 0.00 Vegas

Download Excel

The main techniques used for the assessment of the main financial instruments classified in Level 3, and its main unobservable inputs, are described below:

Adjustments to the valuation for risk of default

The credit valuation adjustments (“CVA”) and debit valuation adjustments (“DVA”) are a part of derivative instrument valuations, both financial assets and liabilities, to reflect the impact in the fair value of the credit risk of the counterparty and its own, respectively.

These adjustments are calculated by estimating Exposure At Default, Probability of Default and Loss Given Default, for all derivative products on any instrument at the legal entity level (all counterparties under a same ISDA / CMOF) in which BBVA has exposure.

As a general rule, the calculation of CVA is done through simulations of market and credit variables to calculate the expected positive exposure, given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Consequently, the DVA is calculated as the result of the expected negative exposure given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Both calculations are performed throughout the entire period of potential exposure.

The information needed to calculate the exposure at default and the loss given default come from the credit markets (Credit Default Swaps or iTraxx Indexes), where rating is available. For those cases where the rating is not available, BBVA implements a mapping process based on the sector, rating and geography to assign probabilities of both probability of default and loss given default, calibrated directly to market or with an adjustment market factor for the probability of default and the historical expected loss.

The amounts recognized in the Consolidated balance sheet as of December 31, 2016 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) and the derivative liabilities were -€275 million and €291 million respectively. The impact recorded under “Gains or (-) losses on financial assets and liabilities held for trading, net” in the consolidated income statement as of 2016 and 2015 corresponding to the mentioned adjustments was a net impact of €46 million and €109 million respectively.

Financial assets and liabilities classified as Level 3

The changes in the balance of Level 3 financial assets and liabilities included in the accompanying consolidated balance sheets are as follows:

Millions of Euros
2016 2015 2014
Financial Assets Level 3. Changes in the Period Assets Liabilities Assets Liabilities Assets Liabilities
Balance at the beginning 463 182 601 98 881 52
Group incorporations - - 148 - - -
Changes in fair value recognized in profit and loss (*) 33 (86) 124 (100) 39 46
Changes in fair value not recognized in profit and loss (81) (3) 27 (123) (43) 1
Acquisitions, disposals and liquidations (**) 438 (25) (510) 89 (153) (6)
Net transfers to Level 3 16 - 145 - 5 -
Exchange differences and others (47) 49 (71) 219 (130) 5
Balance at the end 822 116 463 182 601 98

Download Excel

As of December 31, 2016, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying income statement was not material.

Transfers between levels

The Global Valuation Area, in collaboration with the Technology and Methodology Area, has established the rules for a proper financials assets held for trading classification according to the fair value hierarchy defined by international accounting standards.

On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the accounting subsidiary. Then, there is a quarterly review of the portfolio in order to analyze the need for a change in classification of any of these assets.

The financial instruments transferred between the different levels of measurement for the year ended December 31, 2016 are at the following amounts in the accompanying consolidated balance sheets as of December 31, 2016:

Millions of Euros
From: Level I Level 2 Level 3
Transfer Between Levels To: Level 2 Level 3 Level 1 Level 3 Level 1 Level 2
ASSETS              
Financial assets held for trading   2 1 192 5 - -
Available-for-sale financial assets   56 - 259 10 - -
Total   58 1 451 15 - -
LIABILITIES              
Financial liabilities held for trading   5 - - - - -
Total   5 - - - - -

Download Excel

The amount of financial instruments that were transferred between levels of valuation for the year ended December 31, 2016 is not material relative to the total portfolios, basically corresponding to the above revisions of the classification between levels because these financial instruments had modified some of its features. Specifically:

Sensitivity Analysis

Sensitivity analysis is performed on financial instruments with significant unobservable inputs (financial instruments included in level 3), in order to obtain a reasonable range of possible alternative valuations. This analysis is carried out on a monthly basis, based on the criteria defined by the Global Valuation Area taking into account the nature of the methods used for the assessment and the reliability and availability of inputs and proxies used. In order to establish, with a sufficient degree of certainty, the valuating risk that is incurred in such assets without applying diversification criteria between them.

As of December 31, 2016, the effect on profit for the period and total equity of changing the main unobservable inputs used for the measurement of Level 3 financial instruments for other reasonably possible unobservable inputs, taking the highest (most favorable input) or lowest (least favorable input) value of the range deemed probable, would be as follows:

Millions of Euros
Potential Impact on Consolidated Income Statement Potential Impact on Total Equity
Financial Assets Level 3. Sensitivity Analysis Most Favorable Hypothesis Least Favorable Hypothesis Most Favorable Hypothesis Least Favorable Hypothesis
ASSETS        
Financial assets held for trading 17 (30) - -
Debt securities 4 (8) - -
Equity instruments 5 (14) - -
Derivatives 8 (8) - -
Available-for-sale financial assets - - 4 (3)
Debt securities - - 4 (3)
Equity instruments     - -
LIABILITIES-        
Financial liabilities held for trading - - - -
Total 17 (30) 4 (3)

Download Excel

8.1.2 Fair value of financial instruments carried at cost

The valuation technique used to calculate the fair value of financial assets and liabilities carried at cost are presented below:

The following table presents the fair value of key financial instruments carried at amortized cost in the accompanying consolidated balance sheets, broken down according to the method of valuation used for the estimation:

Millions of Euros
2016 2015 2014
Fair Value of financial Instruments at amortized cost by Levels Notes Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
ASSETS-                    
Cash and cash balances at central banks 9 39,373 - 666 28,961 - 322 27,719 - -
Loans and receivables 13 - 10,991 457,853 - 7,681 472,858 - 3,046 374,063
Held-to-maturity investments 14 17,567 11 41 - - - - - -
LIABILITIES-                    
Financial liabilities at amortized cost 22 - - 594,190 - - 613,247 - - 486,904

Download Excel

The main valuation techniques and inputs used to estimate the fair value of financial instruments accounted for at cost and classified in levels 2 and 3 is shown below. These are broken down by type of financial instrument and the balances correspond to those as of December 31, 2016:

Financial Instruments - Level 2 Fair Value (Millions of euros) Valuation technique(s) Unobservable inputs
Level 2        
Loans and receivables   Present-value method (Discounted future cash flows) -
  • Credit spread
  • Interest rate
Debt securities 10,991    
Level 3      
Loans and receivables   Present-value method (Discounted future cash flows)
  • Credit spread
  • Prepayment rates
  • Market interest rates
Central banks 11,038    
Loans and advances to credit institutions 31,855    
Loans and advances to customers 414,742    
Debt securities 218    
       
Financial liabilities at amortized cost   Present-value method (Discounted future cash flows)
  • Credit spread
  • Prepayment rates
  • Market interest rates
Deposits from central banks 34,736    
Deposits from credit institutions 63,626    
Customer deposits 404,400    
Debt certificates 61,395    
Other financial liabilities 30,033  

Download Excel

Financial instruments at cost

As of December 31, 2016, 2015 and 2014 there were equity instruments and certain discretionary profit sharing arrangements in some entities which were recognized at cost in the Group’s consolidated balance sheets because their fair value could not be reliably determined, as they were not traded in organized markets and reliable unobservable inputs are not available. On the above dates, the balances of these financial instruments recognized in the portfolio of available-for-sale financial assets amounted to €565 million, €600 million and €540 million, respectively.

The table below outlines the financial instruments carried at cost that were sold in the six months period ended December 31, 2016, 2015 and 2014:

Millions of Euros
Sales of Financial Instruments at Cost 2016 2015 2014
Amount of Sale (A) 201 33 71
Carrying Amount at Sale Date (B) 58 22 21
Gains/Losses (A-B) 142 11 50

Download Excel

8.2 Assets measured at fair value on a non-recurring basis

As indicated in Note 2.2.4, non-current assets held for sale are measured at the lower of their fair value less costs to sell and its carrying amount. As of December, 2016 nearly the entire book value of the non-current assets held for sale from foreclosures or recoveries approximate their fair value (see Note 20 and 21).The global valuation of the portfolio of assets has been carried out using a statistical methodology based on real estate and local macroeconomic variables.

Valuation standards

The overall rating of the portfolio of assets has been carried out using a statistical methodology based on real estate and local macroeconomic variables.

The details of each property which has been based each of the assessments are specified in the data sheet valuation of each asset.

Valuation Methodology
Overall valuation of real estate assets portfolio

The overall valuation of the portfolio of real estate assets as of December 31, 2016 was performed from the latest appraisal values available. This value was corrected based on the following:

Individual valuation of real estate assets sample

The basic methods used in the valuation were as follows:

To calculate the value, once the market conditions have been analyzed, the following factors are taken into consideration:

Valuation Criteria

Real estate properties have been appraised individually considering a hypothetical stand-alone sale and not as part of a real estate portfolio type of sale.

The portfolio of Non-current assets and disposal groups classified as held for sale by type of asset and inventories as of December 31, 2016, 2015 and 2014 is provided below by hierarchy of fair value measurements:

Millions of Euros
2016 2015 2014
Fair Value at Non-current assets and disposal groups classified as held for sale and inventories by levels Notes Level 2 Level 3 Total Level 2 Level 3 Total Level 2 Level 3 Total
Non-current assets and disposal groups classified as held for sale 21                  
Housing   2,059 301 2,360 2,192 98 2,291 2,045 9 2,054
Offices, warehouses and other   326 105 431 353 53 406 399 8 407
Land   - 150 150 12 236 248 - 237 237
TOTAL   2,385 556 2,941 2,557 388 2,945 2,444 255 2,699
Inventories 20                  
Housing   903 - 903 1,452 - 1,452 1,424 - 1,424
Offices, warehouses and other   620 - 620 647 - 647 628 - 628
Land   - 1,591 1,591 - 2,056 2,056 - 2,169 2,169
TOTAL   1,523 1,591 3,114 2,099 2,056 4,155 2,052 2,169 4,221

Download Excel

Since the amount classified in Level 3 (€2,147 million) is not significant compared to the total consolidated assets and that the inputs used in the valuation (DRM or DFC), are very diverse based on the type and geographic location (being the typical ones used in the valuation of real estate assets of this type), they have not been disclosed.

9. Cash and cash balances at centrals and banks and other demands deposits and Financial liabilities measured at amortized cost

The breakdown of the balance under the headings “Cash and cash balances at central banks and other demands deposits” and “Financial liabilities at amortized cost – Deposits from central banks” in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Cash and cash balances at central banks 2016 2015 2014
Cash on hand 7,413 7,192 6,247
Cash balances at central banks 28,671 18,445 19,755
Other demand deposits 3,955 3,646 1,717
Total 40,039 29,282 27,719

Download Excel

Millions of Euros
Financial liabilities at amortized cost Notes 2016 2015 2014
Deposits from Central Banks Notes 2016 2015 2014
Deposits from Central Banks (*)   30,022 20,956 19,405
Repurchase agreements 35 4,649 19,065 8,774
Accrued interest until expiration   69 66 14
Total 22 34,740 40,087 28,193

Download Excel

10. Financial assets and liabilities held for trading

10.1 Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Financial Assets and Liabilities Held-for-Trading 2016 2015 2014
ASSETS-      
Derivatives 42,955 40,902 44,229
Debt securities 27,166 32,825 33,883
Loans and advances 154 65 128
Equity instruments 4,675 4,534 5,017
Total Assets 74,950 78,326 83,258
LIABILITIES-      
Derivatives 43,118 42,149 45,052
Short positions 11,556 13,053 11,747
Total Liabilities 54,675 55,202 56,798

Download Excel

10.2 Debt securities

The breakdown by type of issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Financial Assets Held-for-Trading 2016 2015 2014
Debt securities by issuer 2016 2015 2014
Issued by Central Banks 544 214 193
Spanish government bonds 4,840 7,419 6,332
Foreign government bonds 18,781 21,821 21,688
Issued by Spanish financial institutions 218 328 879
Issued by foreign financial institutions 1,434 1,438 2,169
Other debt securities 1,349 1,606 2,623
Total 27,166 32,825 33,883

Download Excel

10.3 Equity instruments

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Financial assets held for trading 2016 2015 2014
Equity instruments by Issuer
Shares of Spanish companies      
Credit institutions 781 804 865
Other sectors 956 1,234 1,677
Subtotal 1,737 2,038 2,541
Shares of foreign companies      
Credit institutions 220 255 107
Other sectors 2,718 2,241 2,368
Subtotal 2,938 2,497 2,476
Total 4,675 4,534 5,017

Download Excel

10.4 Derivatives

The derivatives portfolio arises from the Group’s need to manage the risks it is exposed to in the normal course of business and also to market products amongst the Group’s customers. As of December 31, 2016, 2015 and 2014, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties which are mainly foreign credit institutions, and related to foreign-exchange, interest-rate and equity risk.

Below is a breakdown of the net positions by transaction type of the fair value and notional amounts of derivatives recognized in the accompanying consolidated balance sheets, divided into organized and OTC markets:

Millions of Euros
Derivatives by type of risk / by product or by type of market - December 2016 Assets Liabilities Notional amount - Total
Interest rate 25,770 25,322 1,556,150
OTC options 3,331 3,428 217,958
OTC other 22,339 21,792 1,296,183
Organized market options 1 - 1,311
Organized market other 100 102 40,698
Equity 2,032 2,252 90,655
OTC options 718 1,224 44,837
OTC other 109 91 5,312
Organized market options 1,205 937 36,795
Organized market other - - 3,712
Foreign exchange and gold 14,872 15,179 425,506
OTC options 417 539 27,583
OTC other 14,436 14,624 392,240
Organized market options 3 - 175
Organized market other 16 16 5,508
Credit 261 338 19,399
Credit default swap 246 230 15,788
Credit spread option - - 150
Total return swap 2 108 1,895
Other 14 - 1,565
Commodities 6 6 169
Other 13 22 1,065
DERIVATIVES 42,955 43,118 2,092,945
of which: OTC - credit institutions 26,438 28,005 806,096
of which: OTC - other financial corporations 8,786 9,362 1,023,174
of which: OTC - other 6,404 4,694 175,473

Download Excel

Millions of Euros
Derivatives by type of risk / by product or by type of market - December 2015 Assets Liabilities Notional amount - Total
Interest rate 22,425 23,152 1,289,986
OTC options 3,291 3,367 208,175
OTC other 19,134 19,785 1,069,909
Organized market options - - -
Organized market other - - 11,902
Equity 3,223 3,142 108,108
OTC options 1,673 2,119 65,951
OTC other 112 106 4,535
Organized market options 1,437 918 34,475
Organized market other 1 - 3,147
Foreign exchange and gold 14,706 15,367 439,546
OTC options 387 458 41,706
OTC other 14,305 14,894 395,327
Organized market options 1 - 109
Organized market other 13 16 2,404
Credit 500 441 33,939
Credit default swap 436 412 30,283
Credit spread option - - 300
Total return swap - 28 1,831
Other 64 - 1,526
Commodities 31 37 118
Other 16 10 675
DERIVATIVES 40,902 42,149 1,872,373
of which: OTC - credit institutions 23,385 28,343 974,604
of which: OTC - other financial corporations 9,938 8,690 688,880
of which: OTC - other 6,122 4,177 156,828

Download Excel

Millions of Euros
Derivatives by type of risk / by product or by type of market - December 2014 Assets Liabilities Notional amount - Total
Interest rate 29,504 28,770 1,160,445
OTC options 3,919 4,301 214,621
OTC other 25,578 24,283 936,281
Organized market options 1 25 1,470
Organized market other 6 162 8,073
Equity 2,752 3,980 108,327
OTC options 1,229 1,874 64,552
OTC other 169 1,068 3,382
Organized market options 1,353 1,038 38,185
Organized market other 1 - 2,209
Foreign exchange and gold 11,409 11,773 360,573
OTC options 243 372 33,119
OTC other 10,862 11,098 323,275
Organized market options 1 - 10
Organized market other 303 304 4,170
Credit 548 504 45,066
Credit default swap 545 335 43,406
Credit spread option 3 1 1,650
Total return swap - - -
Other - 167 10
Commodities 14 24 378
Other 1 1 247
DERIVATIVES 44,229 45,052 1,675,036
of which: OTC - credit institutions 29,041 32,807 931,198
of which: OTC - other financial corporations 6,557 7,455 556,090
of which: OTC - other 6,966 3,261 133,631

Download Excel

11. Financial assets and liabilities designated at fair value through profit or loss

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Financial assets and liabilities designated at fair value through profit or loss 2016 2015 2014
ASSETS-      
Equity instruments 1,920 2,075 2,024
Unit-linked products 1,749 1,960 1,930
Other securities 171 115 94
Debt securities 142 173 737
Unit-linked products 128 164 157
Other securities 14 9 580
Loans and advances to credit institutions - 62 -
Total Assets 2,062 2,311 2,761
LIABILITIES-      
Other financial liabilities 2,338 2,649 2,724
Unit-linked products 2,338 2,649 2,724
Total Liabilities 2,338 2,649 2,724

Download Excel

As of December 31, 2016, 2015 and 2014 the most significant balances within financial assets and liabilities designated at fair value through profit or loss related to assets and liabilities linked to insurance products where the policyholder bears the risk (“Unit-Link”). This type of product is sold only in Spain, through BBVA Seguros SA, insurance and reinsurance and in Mexico through Seguros Bancomer S.A. de CV.

Since the liabilities linked to insurance products in which the policyholder assumes the risk are valued the same way as the assets associated to these insurance products, there is no credit risk component borne by the Group in relation to these liabilities

12. Available-for-sale financial assets

12.1 Available-for-sale financial assets - Balance details

The breakdown of the balance by the main financial instruments in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Available-for-sale financial assets 2016 2015 2014
Debt securities 74,739 108,448 87,679
Impairment losses (159) (139) (70)
Subtotal 74,580 108,310 87,608
Equity instruments 4,814 5,262 7,370
Impairment losses (174) (146) (103)
Subtotal 4,641 5,116 7,267
Total 79,221 113,426 94,875

Download Excel

The amount of “Available for sale financial assets - debt securities” decreases in 2016, mainly due to:

12.2 Debt securities

The breakdown of the balance under the heading “Debt securities” of the accompanying financial statements, broken down by the nature of the financial instruments, is as follows:

Millions of Euros
Available-for-sale financial assets Debt Securities December 2016 Amortized Cost (*) Unrealized Gains Unrealized Losses Book Value
Domestic Debt Securities        
Spanish Government and other general governments agencies debt securities 22,427 711 (18) 23,119
Other debt securities 2,305 117 (1) 2,421
Issued by Central Banks - - - -
Issued by credit institutions 986 82 - 1,067
Issued by other issuers 1,319 36 (1) 1,354
Subtotal 24,731 828 (19) 25,540
Foreign Debt Securities        
Mexico 11,525 19 (343) 11,200
Mexican Government and other general governments agencies debt securities 9,728 11 (301) 9,438
Other debt securities 1,797 8 (42) 1,763
Issued by Central Banks - - - -
Issued by credit institutions 86 2 (1) 87
Issued by other issuers 1,710 6 (41) 1,675
The United States 14,256 48 (261) 14,043
Government securities 8,460 9 (131) 8,337
US Treasury and other US Government agencies 1,702 1 (19) 1,683
States and political subdivisions 6,758 8 (112) 6,654
Other debt securities 5,797 39 (130) 5,706
Issued by Central Banks - - - -
Issued by credit institutions 95 2 - 97
Issued by other issuers 5,702 37 (130) 5,609
Turkey 5,550 73 (180) 5,443
Turkey Government and other general governments agencies debt securities 5,055 70 (164) 4,961
Other debt securities 495 2 (16) 482
Issued by Central Banks - - - -
Issued by credit institutions 448 2 (15) 436
Issued by other issuers 47 - (1) 46
Other countries 17,923 634 (203) 18,354
Other foreign governments and other general governments agencies debt securities 7,882 373 (98) 8,156
Other debt securities 10,041 261 (105) 10,197
Issued by Central Banks 1,657 4 (2) 1,659
Issued by credit institutions 3,269 96 (54) 3,311
Issued by other issuers 5,115 161 (49) 5,227
Subtotal 49,253 773 (987) 49,040
Total 73,985 1,601 (1,006) 74,580

Download Excel

Millions of Euros
Available-for-sale financial assets Debt Securities December 2015 Amortized Cost (*) Unrealized Gains Unrealized Losses Fair Value
Domestic Debt Securities        
Spanish Government and other general governments agencies debt securities 38,763 2,078 (41) 40,799
Other debt securities 4,737 144 (11) 4,869
Issued by Central Banks - - - -
Issued by credit institutions 2,702 94 - 2,795
Issued by other issuers 2,035 50 (11) 2,074
Subtotal 43,500 2,221 (53) 45,668
Foreign Debt Securities        
Mexico 12,627 73 (235) 12,465
Mexican Government and other general governments agencies debt securities 10,284 70 (160) 10,193
Other debt securities 2,343 4 (75) 2,272
Issued by Central Banks - - - -
Issued by credit institutions 260 1 (7) 254
Issued by other issuers 2,084 3 (68) 2,019
The United States 13,890 63 (236) 13,717
Government securities 6,817 13 (41) 6,789
US Treasury and other US Government agencies 2,188 4 (15) 2,177
States and political subdivisions 4,629 9 (26) 4,612
Other debt securities 7,073 50 (195) 6,927
Issued by Central Banks - - - -
Issued by credit institutions 71 5 (1) 75
Issued by other issuers 7,002 45 (194) 6,852
Turkey 13,414 116 (265) 13,265
Turkey Government and other general governments agencies debt securities 11,801 111 (231) 11,682
Other debt securities 1,613 4 (34) 1,584
Issued by Central Banks - - - -
Issued by credit institutions 1,452 3 (30) 1,425
Issued by other issuers 162 1 (4) 159
Other countries 22,803 881 (490) 23,194
Other foreign governments and other general governments agencies debt securities 9,778 653 (76) 10,356
Other debt securities 13,025 227 (414) 12,838
Issued by Central Banks 2,277 - (4) 2,273
Issued by credit institutions 3,468 108 (88) 3,488
Issued by other issuers 7,280 119 (322) 7,077
Subtotal 62,734 1,132 (1,226) 62,641
Total 106,234 3,354 (1,278) 108,310

Download Excel

Millions of Euros
Available-for-sale financial assets Debt Securities December 2014 Amortized Cost (*) Unrealized Gains Unrealized Losses Fair Value
Domestic Debt Securities        
Spanish Government and other general governments agencies debt securities 34,445 2,290 (55) 36,680
Other debt securities 5,892 252 (22) 6,122
Issued by Central Banks - - - -
Issued by credit institutions 3,567 162 (13) 3,716
Issued by other issuers 2,325 90 (9) 2,406
Subtotal 40,337 2,542 (77) 42,802
Foreign Debt Securities        
Mexico 12,662 493 (96) 13,060
Mexican Government and other general governments agencies debt securities 10,629 459 (76) 11,012
Other debt securities 2,034 34 (20) 2,048
Issued by Central Banks - - - -
Issued by credit institutions 141 3 (3) 142
Issued by other issuers 1,892 31 (17) 1,906
The United States 10,289 102 (83) 10,307
Government securities 4,211 28 (8) 4,231
US Treasury and other US Government agencies 1,539 6 (3) 1,542
States and political subdivisions 2,672 22 (5) 2,689
Other debt securities 6,078 73 (76) 6,076
Issued by Central Banks - - - -
Issued by credit institutions 24 - - 24
Issued by other issuers 6,054 73 (76) 6,052
Other countries 20,705 1,044 (310) 21,439
Other foreign governments and other general governments agencies debt securities 10,355 715 (104) 10,966
Other debt securities 10,350 329 (206) 10,473
Issued by Central Banks 1,540 10 (9) 1,540
Issued by credit institutions 3,352 175 (55) 3,471
Issued by other issuers 5,459 143 (141) 5,461
Subtotal 43,657 1,639 (490) 44,806
Total 83,994 4,181 (566) 87,608

Download Excel

The credit ratings of the issuers of debt securities in the available-for-sale portfolio as of December 31.2016, 2015 and 2014 are as follows:

December 2016 December 2015 Reconciliation of total equity with regulatory capital December 2014
Available for Sale financial assets Debt Securities by Rating Fair Value (Millions of euros) % Fair Value (Millions of euros) % Fair Value (Millions of euros) %
AAA 4,922 6.6% 1,842 1.7% 1,459 1.7%
AA+ 11,172 15.0% 10,372 9.6% 7,620 8.7%
AA 594 0.8% 990 0.9% 329 0.4%
AA- 575 0.8% 938 0.9% 1,059 1.2%
A+ 1,230 1.6% 1,686 1.6% 597 0.7%
A 7,442 10.0% 994 0.9% 2,223 2.5%
A- 1,719 2.3% 4,826 4.5% 13,606 15.5%
BBB+ 29,569 39.6% 51,885 47.9% 9,980 11.4%
BBB 3,233 4.3% 23,728 21.9% 41,283 47.1%
BBB- 6,809 9.1% 5,621 5.2% 2,568 2.9%
BB+ or below 2,055 2.8% 2,639 2.4% 3,942 4.5%
Without rating 5,261 7.1% 2,789 2.6% 2,942 3.4%
Total 74,580 100% 108,310 100.0% 87,608 100.0%

Download Excel

12.3 Equity instruments

The breakdown of the balance under the heading “Equity instruments” of the accompanying financial statements as of December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
Available-for-sale financial assets Equity Instruments December 2016 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Equity instruments listed        
Listed Spanish company shares 3,690 17 (944) 2,763
Credit institutions - - - -
Other entities 3,690 17 (944) 2,763
Listed foreign company shares 793 289 (15) 1,066
United States 16 22 - 38
Mexico 8 33 - 41
Turkey 5 1 - 6
Other countries 763 234 (15) 981
Subtotal 4,483 306 (960) 3,829
Unlisted equity instruments        
Unlisted Spanish company shares 57 2 (1) 59
Credit institutions 4 - - 4
Other entities 53 2 (1) 55
Unlisted foreign companies shares 708 46 (2) 752
United States 537 13 - 550
Mexico 1 - - 1
Turkey 18 7 (2) 24
Other countries 152 26 - 178
Subtotal 766 48 (3) 811
Total 5,248 355 (962) 4,641

Download Excel

Millions of Euros
Available-for-sale financial assets Equity Instruments December 2015 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Equity instruments listed        
Listed Spanish company shares 3,402 17 (558) 2,862
Credit institutions - - - -
Other entities 3,402 17 (558) 2,862
Listed foreign company shares 1,027 392 (44) 1,375
United States 41 21 - 62
Mexico 9 42 (10) 40
Turkey 6 4 (5) 6
Other countries 972 325 (29) 1,267
Subtotal 4,430 409 (602) 4,236
Unlisted equity instruments        
Unlisted Spanish company shares 74 5 (1) 78
Credit institutions 4 1 - 6
Other entities 69 3 (1) 72
Unlisted foreign companies shares 701 108 (7) 802
United States 549 5 - 554
Mexico 1 - - 1
Turkey 21 13 (6) 27
Other countries 130 91 (1) 220
Subtotal 775 113 (8) 880
Total 5,204 522 (610) 5,116

Download Excel

Millions of Euros
Available-for-sale financial assets Equity Instruments December 2014 Amortized Cost Unrealized Gains Unrealized Losses Fair Value
Equity instruments listed        
Listed Spanish company shares 3,129 92 (71) 3,150
Credit institutions 2 1 - 3
Other entities 3,126 92 (71) 3,147
Listed foreign company shares 2,227 1,235 (34) 3,428
United States 54 2 - 56
Mexico 54 - (5) 49
Turkey        
Other countries 2,118 1,233 (28) 3,323
Subtotal 5,356 1,327 (105) 6,578
Unlisted equity instruments        
Unlisted Spanish company shares 48 1 - 49
Credit institutions - - - -
Other entities 48 1 - 49
Unlisted foreign companies shares 616 28 (3) 641
United States 486 16 - 502
Mexico 1 - - 1
Turkey        
Other countries 129 12 (3) 138
Subtotal 664 29 (3) 690
Total 6,020 1,356 (108) 7,267

Download Excel

12.4 Gains/losses

The changes in the gains/losses, net of taxes, recognized under the equity heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss- Available-for-sale financial assets” in the accompanying consolidated balance sheets are as follows:

Millions of Euros
Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Available-for-Sale Financial Assets 2016 2015 2014
Balance at the beginning 1,674 3,816 851
Valuation gains and losses 400 (1,222) 5,777
Income tax (62) 924 (1,414)
Amounts transferred to income (1,181) (1,844) (1,398)
Other reclassifications 116 - -
Balance at the end 947 1,674 3,816
Of which:      
Debt securities 1,629 1,769 2,965
Equity instruments (682) (95) 851

Download Excel

During 2016, the losses recognized mainly for certain Debt securities from Brazil, United States and Colombia in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss- Available- for-sale financial assets” in the accompanying consolidated income statement amounted to €157 million (Note 47). In 2015 and 2014 the losses recognized were not significant (€1 and €19 million respectively).

For the rest of debt securities, the 92.2% of the unrealized losses recognized under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss– Available-for-sale financial assets” and originating in debt securities were generated over more than twelve months. However, no impairment was recognized, as following an analysis of these unrealized losses we concluded that they were temporary due to the following reasons: the interest payment dates of all the fixed-income securities have been satisfied; and because there is no evidence that the issuer will not continue to meet its payment obligations, nor that future payments of both principal and interest will not be sufficient to recover the cost of the debt securities.

The losses recognized, for equity instruments Available-for-Sale, under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss - Available- for-sale financial assets” in the accompanying consolidated income statement amounted to €46, €23 and €17 million in 2016, 2015 and 2014 respectively (see Note 47).

As of December 31, 2016, the Group has analyzed the unrealized losses recognized under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss– Available-for-sale financial assets” resulting from equity instruments generated over a period of more than 12 months and with a fall of more 20% in their price, as a first approximation to the existence of possible impairment. As of 31 December, 2016, the unrealized losses recognized under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss– Available-for-sale financial assets” resulting from equity instruments generated over a period of more than 18 months or with a fall of more 40% in their price are not significant in the accompanying consolidated financial statements.

13. Loans and receivables

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the nature of the financial instrument, is as follows:

Millions of Euros
Loans and receivables Notes 2016 2015 2014
Debt securities 13.3 11,209 10,516 6,659
Loans and advances to central banks 13.1 8,894 17,830 5,429
Loans and advances to credit institutions 13.1 31,373 29,317 25,342
Loans and advances to customers 13.2 414,500 414,165 338,657
Total   465,977 471,828 376,086

Download Excel

13.1 Loans and advances to credit institutions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:

Millions of Euros
Loans and Advances to Central Banks and Credit Institutions Notes 2016 2015 2014
Loans and advances to central banks   8,872 17,821 5,428
Loans and advances to credit institutions   31,364 29,301 25,257
Deposits with agreed maturity   5,063 6,732 3,679
Other accounts   10,739 10,820 11,138
Reverse repurchase agreements 35 15,561 11,749 10,440
Total gross 7.3.1 40,235 47,122 30,686
Valuation adjustments   32 24 85
Impairment losses 7.3.4 (43) (51) (29)
Accrued interests and fees   75 75 114
Derivatives – Hedge accounting and others   - - -
Total net   40,267 47,147 30,771

Download Excel

13.2 Loans and advances to customers

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:

Millions of Euros
Loans and advances to Customers Notes 2016 2015 2014
Mortgage secured loans   142,269 144,203 124,097
Operating assets mortgage loans   9,376 6,813 4,062
Home mortgages   122,758 120,164 109,031
Rest of mortgages   10,135 17,226 11,005
Other loans secured with security interest   59,898 57,041 28,419
Cash guarantees   1,253 479 468
Secured loan (pledged securities)   709 734 518
Rest of secured loans (*)   57,936 55,828 27,433
Unsecured loans   134,275 137,322 119,002
Credit lines   12,268 13,758 12,851
Commercial credit   14,877 13,434 10,015
Receivable on demand and other   8,858 9,226 7,021
Credit cards   15,238 15,360 11,756
Finance leases   9,144 9,032 7,095
Reverse repurchase agreements 35 7,279 5,036 6,990
Financial paper   1,020 1,063 873
Impaired assets 7.3.4 22,915 25,333 22,703
Total gross 7.3.1 428,041 430,808 350,822
Valuation adjustments   (13,541) (16,643) (12,166)
Impairment losses 7.3.4 (15,974) (18,691) (14,244)
Derivatives – Hedge accounting and others   1,222 1,199 1,215
Rest of valuation adjustments   1,211 849 863
Total net   414,500 414,165 338,657

Download Excel

As of December, 2016, 34% of “Loans and advances to customers” with maturity greater than one year have fixed-interest rates and 66% have variable interest rates.

The heading “Loans and receivables – Loans and advances to customers” includes financial leases that several Group entities execute with customers to fund acquisitions of goods, both properties and fixtures. The breakdown of financial lease agreements as of December 31, 2016, 2015 and 2014 was the following:

Millions of Euros
Financial Lease Arrangements 2016 2015 2014
Movable property 6,265 6,181 4,413
Real Estate 2,878 2,851 2,682
Fixed rate 80% 74% 73%
Floating rate 20% 26% 27%

Download Excel

The heading “Loans and receivables – Loans and advances to customers” in the accompanying consolidated balance sheets also includes certain secured loans that, as mentioned in Appendix X and pursuant to the Mortgage Market Act, are linked to long-term mortgage-covered bonds. This heading also includes some loans that have been securitized. The balances recognized in the accompanying consolidated balance sheets corresponding to these securitized loans are as follows:

Millions of Euros
Securitized Loans 2016 2015 2014
Securitized mortgage assets 29,512 28,955 25,099
Other securitized assets 3,731 3,666 2,225
Commercial and industrial loans 762 751 735
Finance leases 100 154 219
Loans to individuals 2,269 2,067 1,213
Other 601 694 58
Total 33,243 32,621 27,324
Of which:      
Liabilities associated to assets retained on the balance sheet(*) 6,525 7,619 5,215

Download Excel

13.3 Debt securities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the issuer of the debt security, is as follows:

Millions of Euros
Debt securities Notes 2016 2015 2014
Government   4,709 3,275 5,608
Credit institutions   37 125 81
Other sectors (*)   6,481 7,126 975
Total gross 7.3.1 11,226 10,526 6,663
Impairment losses   (17) (10) (4)
Total net   11,209 10,516 6,659

Download Excel

In 2016, some debt securities were reclassified from “Available-for-sale financial assets” to “Loans and receivables Debt securities”.

The following table shows the fair value and carrying amounts of these reclassified financial assets:

Millions of Euros
As of Reclassification date As of December 31, 2016
Debt Securities reclassified to "Loans and receivables" from "Available-for-sale financial assets" Carrying Amount Fair Value Carrying Amount Fair Value
BBVA S.A. 862 862 844 863
Total 862 862 844 863

Download Excel

The following table presents the amount recognized in 2016 income statement from the valuation at amortized cost of the reclassified financial assets, as well as the impact recognized on the income statement and under the heading “Total Equity - Accumulated other comprehensive income”, as of December 31, 2016, if the reclassification was not performed.

Millions of Euros
Recognized in Effect of not Reclassifying
Effect on Income Statement and Other Comprehensive Income Income Statement Income Statement Equity "Valuation Adjustments"
BBVA S.A. 22 22 (5)
Total 22 22 (5)

Download Excel

14. Held-to-maturity investments

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the according to the issuer of the financial instrument, is as follows:

Millions of Euros
Held-to-maturity investments Debt Securities 2016
Domestic Debt Securities  
Spanish Government and other general governments agencies debt securities 8,063
Other debt securities 562
Issued by Central Banks -
Issued by credit institutions 494
Issued by other issuers 68
Subtotal 8,625
Foreign Debt Securities  
Mexico -
The United States -
Turkey 6,184
Turkey Government and other general governments agencies debt securities 5,263
Other debt securities 921
Issued by Central Banks -
Issued by credit institutions 876
Issued by other issuers 45
Other countries 2,887
Other foreign governments and other general governments agencies debt securities 2,719
Other debt securities 168
Issued by Central Banks -
Issued by credit institutions 146
Issued by other issuers 22
Subtotal 9,071
Total 17,696

Download Excel

In 2016, some debt securities were reclassified from “Available-for-sale financial assets” to “Held-to-maturity investments” amounting to €17.650 million. This reclassification has been carried out once past the two-year penalty established in IAS-39 standard (penalization which meant not being able to keep maturity portfolio due to the significant sales that occurred in the year 2013) and since the intention the Group regarding how to manage such securities, is held to maturity.

As of December 31, 2016, the credit ratings of the issuers of debt securities classified as held-to-maturity investments were as follows:

December 2016
Held to maturity investments - Debt Securities by Rating Book value (Millions of Euros) %
AAA - -
AA+ - -
AA 43 0.2%
AA- 134 0.8%
A+ - -
A - -
A- - -
BBB+ 10,472 59.2%
BBB 591 3.3%
BBB- 5,187 29.3%
BB+ or below - -
Without rating 1,270 7.2%
Total 17,696 100%

Download Excel

The following table shows the fair value and carrying amounts of these reclassified financial assets:

Millions of Euros
As of Reclassification date As of December 31, 2016
Debt Securities reclassified to "Held to Maturity Investments" Carrying Amount Fair Value Carrying Amount Fair Value
BBVA S.A. 11,162 11,162 9,589 9,635
TURKIYE GARANTI BANKASI A.S 6,488 6,488 6,230 6,083
Total 17,650 17,650 15,819 15,718

Download Excel

The fair value carrying amount of these financials asset on the date of the reclassification becomes its new amortized cost. The previous gain on that asset that has been recognized in “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Available for sale financial assets” is amortized to profit or loss over the remaining life of the held-to-maturity investment using the effective interest method. Any difference between the new amortized cost and maturity amount is also amortized over the remaining life of the financial asset using the effective interest method, similar to the amortization of a premium and a discount. This reclassification was triggered by a change in the Group´s strategy regarding the management of these securities.

The following table presents the amount recognized in the 2016 income statement from the valuation at amortized cost of the reclassified financial assets, as well as the impact recognized on the income statement and under the heading “Total Equity - Accumulated other comprehensive income”, as of December 31, 2016, if the reclassification was not performed.

Millions of Euros
Recognized in Effect of not Reclassifying
Effect on Income Statement and Other Comprehensive Income Income Statement Income Statement Equity "Accumulated other comprehensive
BBVA S.A. 230 230 (86)
TURKIYE GARANTI BANKASI A.S 326 326 (225)
Total 557 557 (311)

Download Excel

15. Hedging derivatives and fair value changes of the hedged items in portfolio hedge of interest rate risk

The balance of these headings in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk 2016 2015 2014
ASSETS-      
Hedging Derivatives 2,833 3,538 2,551
Fair value changes of the hedged items in portfolio hedges of interest rate risk 17 45 121
LIABILITIES-      
Hedging Derivatives 2,347 2,726 2,331
Fair value changes of the hedged items in portfolio hedges of interest rate risk - 358 -

Download Excel

As of December 2016, 2015 and 2014, the main positions hedged by the Group and the derivatives designated to hedge those positions were:

Note 7 analyze the Group’s main risks that are hedged using these derivatives.

The details of the net positions by hedged risk of the fair value of the hedging derivatives recognized in the accompanying consolidated balance sheets are as follows:

Millions of Euros
Hedging Derivatives - Breakdown by type of risk and type of hedge December 2016 Assets Liabilities Notional amount - Total hedging
Interest rate 1,154 974 68,293
OTC options 125 118 1,495
OTC other 1,029 856 66,798
Organized market options - - -
Organized market other - - -
Equity - 50 731
OTC options - 50 731
OTC other - - -
Organized market options - - -
Organized market other - - -
Foreign exchange and gold 817 553 2,883
OTC options - - -
OTC other 817 553 2,883
Organized market options - - -
Organized market other - - -
Credit - - -
Commodities - - -
Other - - -
FAIR VALUE HEDGES 1,970 1,577 71,908
Interest rate 194 358 26,798
OTC options - - -
OTC other 186 358 26,504
Organized market options - - -
Organized market other 8 - 294
Equity - - -
Foreign exchange and gold 248 118 7,089
OTC options 89 70 4,331
OTC other 160 48 2,758
Organized market options - - -
Organized market other - - -
Credit - - -
Commodities - - -
Other - - -
CASH FLOW HEDGES 442 476 33,887
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION 362 79  
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK 55 214 13,133
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK 4 - 284
DERIVATIVES-HEDGE ACCOUNTING 2,833 2,347 119,212
of which: OTC - credit institutions 2,381 2,103 42,343
of which: OTC - other financial corporations 435 165 67,773
of which: OTC - other 9 79 8,803

Download Excel

Millions of Euros
Hedging Derivatives - Breakdown by type of risk and type of hedge December 2015 Assets Liabilities Notional amount - Total hedging
Interest rate 1,660 875 55,767
OTC options 187 128 1,390
OTC other 1,473 747 54,377
Organized market options - - -
Organized market other - - -
Equity 12 74 2,500
OTC options - 72 791
OTC other 12 2 1,709
Organized market options - - -
Organized market other - - -
Foreign exchange and gold 675 389 3,335
OTC options - - 1
OTC other 675 388 3,334
Organized market options - - -
Organized market other - - -
Credit - - -
OTC options - - -
OTC other - - -
Organized market options - - -
Organized market other - - -
Commodities - - -
Other - - -
FAIR VALUE HEDGES 2,347 1,337 61,602
Interest rate 204 319 13,593
OTC options - - -
OTC other 204 318 13,329
Organized market options - - -
Organized market other - 1 264
Equity - - -
OTC options - - -
OTC other - - -
Organized market options - - -
Organized market other - - -
Foreign exchange and gold 242 34 2,382
OTC options 42 12 1,493
OTC other 200 22 889
Organized market options - - -
Organized market other - - -
Credit - - -
OTC options 42 12 1,493
OTC other 200 22 889
Organized market options - - -
Organized market other - - -
Commodities - - -
Other - - -
CASH FLOW HEDGES 446 353 15,974
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION 47 304  
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK 697 732 17,919
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK - - -
DERIVATIVES-HEDGE ACCOUNTING 3,538 2,726 100,858
of which: OTC - credit institutions 3,413 2,366 49,776
of which: OTC - other financial corporations 95 256 47,881
of which: OTC - other 29 103 2,936

Download Excel

Millions of Euros
Hedging Derivatives - Breakdown by type of risk and type of hedge December 2014 Assets Liabilities Notional amount - Total hedging
Interest rate 2,174 990 56,125
OTC options - - 2
OTC other 2,174 990 56,123
Organized market options - - -
Organized market other - - -
Equity 13 101 578
OTC options 8 89 578
OTC other 6 12 -
Organized market options - - -
Organized market other - - -
Foreign exchange and gold - 12 2,741
OTC options - - -
OTC other - 12 2,741
Organized market options - - -
Organized market other - - -
Credit - - 20
OTC options - - 20
OTC other - - -
Organized market options - - -
Organized market other - - -
Commodities - - -
Other - 61 115
FAIR VALUE HEDGES 2,188 1,164 59,578
Interest rate 265 272 6,014
OTC options 3 7 -
OTC other 262 265 5,777
Organized market options - - -
Organized market other - - 238
Equity - - -
Foreign exchange and gold 36 27 2,070
OTC options 22 12 1,064
OTC other 14 16 1,006
Organized market options - - -
Organized market other - - -
Credit - - -
Commodities - - -
Other - - -
CASH FLOW HEDGES 301 299 8,085
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION - 502  
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK 62 366 10,783
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK - - -
DERIVATIVES-HEDGE ACCOUNTING 2,551 2,331 82,606
of which: OTC - credit institutions 2,305 1,954 42,724
of which: OTC - other financial corporations 236 280 39,169
of which: OTC - other 10 97 476

Download Excel

The cash flows forecasts for the coming years for cash flow hedging recognized on the accompanying consolidated balance sheet as of December 31, 2016 are:

Millions of Euros
Cash Flows of Hedging Instruments 3 Months or Less From 3 Months to 1 Year From 1 to 5 Years More than 5 Years Total
Receivable cash inflows 548 1,103 1,794 2,857 6,302
Payable cash outflows 526 815 1,795 3,009 6,146

Download Excel

The above cash flows will have an impact on the Group’s consolidated income statements until 2054.

In the years ended December 31, 2016, 2015 and 2014 there was no reclassification in the accompanying consolidated income statements of any amount corresponding to cash flow hedges that was previously recognized in equity.

The amount for derivatives designated as accounting hedges that did not pass the effectiveness test during the years ended December 31, 2016, 2015 and 2014 was not material.

16. Investments in subsidiaries, joint ventures and associates

16.1 Associates and joint venture entities

The breakdown of the balance of “Investments in joint ventures and associates” (see Note 2.1) in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Associates Entities and joint ventures. Breakdown by entities 2016 2015 2014
Joint ventures      
Fideicomiso 1729 Invex enajenacion de cartera 57 66 70
Fideicomiso F 403853 5 BBVA Bancomer ser.zibata 33 44 20
PSA Finance Argentina compañia financiera S.A. 21 23 26
Other joint ventures 118 110 3,976
Subtotal 229 243 4,092
Associates Entities      
Metrovacesa, S.A. - 351 233
Metrovacesa Suelo y Promoción, S.A. 208 - -
Metrovacesa Promoción y Arrendamientos S.A. 67 - -
Testa Residencial SOCIMI SAU 91 - -
Atom Bank, PLC. 43 - -
Brunara SICAV, S.A. - 54 52
Servired Sociedad Española de Medios de Pago, S.A 11 92 8
Other associates 116 139 124
Subtotal 536 636 417
Total 765 879 4,509

Download Excel

Details of the joint ventures and associates as of December 31, 2016 are shown in Appendix II.

The following is a summary of the changes in the years ended December 31, 2016, 2015 and 2014, under this heading in the accompanying consolidated balance sheets:

Millions of Euros
Associates Entities and joint ventures. Changes in the Year 2016 2015 2014
Balance at the beginning 879 4,509 4,742
Acquisitions and capital increases 456 464 36
Disposals and capital reductions (91) (32) (10)
Transfers and changes of consolidation method (351) (3,850) (948)
Share of profit and loss (Note 38) 25 174 343
Exchange differences (34) (250) 235
Dividends, valuation adjustments and others (118) (136) 111
Balance at the end 765 879 4,509

Download Excel

The variation in 2014 is mainly explained by the reclassification of CNBC to “Available-for-sale financial Assets” (see Note 3).

The variation in 2015 is mainly explained by the change of the method of consolidation of Garanti (see Note 3) and by the capital increase in Metrovacesa, S.A, for compensation credits amounting to 159 million euros.

The variation in 2016 is mainly explained, by:

Appendix III provides notifications on acquisitions and disposals of holdings in subsidiaries, joint ventures and associates, in compliance with Article 155 of the Corporations Act and Article 53 of the Securities Market Act 24/1988

16.2 Other information about associates and joint ventures

If these entities had been consolidated rather than accounted for using the equity method, the change in each of the lines of balance sheet and the consolidated income statement would not be significant.

As of December 31, 2016 there was no financial support agreement or other contractual commitment to associates and joint ventures entities from the holding or the subsidiaries that are not recognized in the financial statements (see Note 53.2).

As of December 31, 2016 there was no contingent liability in connection with the investments in joint ventures and associates (see Note 53.2).

16.3 Impairment

As described in IAS 36, when there is indicator of impairment, the book value of the associates and joint venture entities should be compared with their recoverable amount, being the latter calculated as the higher between the value in use and the fair value minus the cost of sale. As of December 31, 2016, 2015 and 2014, there was no significant impairments recognized.

17. Tangible assets

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Millions of Euros
For Own Use
Tangible Assets. Breakdown by Type of Assets and Changes in the year 2016 Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Total Tangible Asset of Own Use Investment Properties Assets Leased out under an Operating Lease Total
Cost              
Balance at the beginning 5,858 545 7,628 14,029 2,391 668 17,088
Additions 30 320 563 913 62 337 1,312
Retirements (85) (29) (468) (582) (117) (97) (796)
Acquisition of subsidiaries in the year - - - - - - -
Disposal of entities in the year (7) - (1) (8) (3) - (11)
Transfers 676 (544) (386) (254) (986) 84 (1,156)
Exchange difference and other (296) (52) (277) (625) (184) (34) (843)
Balance at the end 6,176 240 7,059 13,473 1,163 958 15,594
Accrued depreciation -              
Balance at the beginning 1,103 - 4,551 5,654 116 202 5,972
Additions (Note 45) 106 - 561 667 23 - 690
Retirements (72) - (461) (533) (10) (17) (560)
Acquisition of subsidiaries in the year - - - - - - -
Disposal of entities in the year - - - - - - -
Transfers (1) - (37) (38) (55) 55 (38)
Exchange difference and other (20) - (153) (173) (11) (24) (208)
Balance at the end 1,116 - 4,461 5,577 63 216 5,856
Impairment -              
Balance at the beginning 354 - - 354 808 10 1,172
Additions (Note 48) 48 - 5 53 90 - 143
Retirements (2) - - (2) (9) - (11)
Acquisition of subsidiaries in the year - - - - - - -
Disposal of entities in the year - - - - - - -
Transfers (1) - - (1) (380) - (381)
Exchange difference and other (20) - (5) (25) (100) - (125)
Balance at the end 379 - - 379 409 10 798
Net tangible assets -              
Balance at the beginning 4,401 545 3,077 8,021 1,467 456 9,944
Balance at the end 4,681 240 2,598 7,519 691 732 8,941

Download Excel

Millions of Euros
For Own Use
Tangible Assets. Breakdown by Type of Assets and Changes in the year 2015 Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Total Tangible Asset of Own Use Investment Properties Assets Leased out under an Operating Lease Total
Cost -              
Balance at the beginning 4,168 1,085 5,904 11,157 2,180 674 14,012
Additions 105 715 1,097 1,917 14 240 2,171
Retirements (18) (39) (146) (203) (167) (74) (444)
Acquisition of subsidiaries in the year 1,378 78 1,426 2,882 738 - 3,620
Disposal of entities in the year - - - - - - -
Transfers 718 (1,211) 40 (453) (235) (153) (841)
Exchange difference and other (494) (83) (693) (1,271) (139) (19) (1,429)
Balance at the end 5,858 545 7,628 14,029 2,391 668 17,088
Accrued depreciation -              
Balance at the beginning 1,255 - 3,753 5,008 102 226 5,335
Additions (Note 45) 103 - 512 615 25 - 640
Retirements (16) - (129) (145) (10) - (155)
Acquisition of subsidiaries in the year 140 - 940 1,080 23 - 1,103
Disposal of entities in the year - - - - - - -
Transfers (19) - (16) (35) (9) (15) (59)
Exchange difference and other (360) - (509) (869) (15) (9) (893)
Balance at the end 1,103 - 4,551 5,654 116 202 5,972
Impairment -              
Balance at the beginning 148 - 16 164 687 6 857
Additions (Note 48) 7 - 19 26 30 4 60
Retirements - - (1) (1) (64) - (65)
Acquisition of subsidiaries in the year 187 - - 187 295 - 482
Disposal of entities in the year - - - - - - -
Transfers 9 - (15) (6) (62) - (68)
Exchange difference and other 3 - (19) (16) (78) - (94)
Balance at the end 354 - - 354 808 10 1,172
Net tangible assets -              
Balance at the beginning 2,764 1,085 2,135 5,985 1,392 443 7,819
Balance at the end 4,401 545 3,077 8,021 1,467 456 9,944

Download Excel

Millions of Euros
For Own Use
Tangible Assets. Breakdown by Type of Assets and Changes in the year 2014 Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Total Tangible Asset of Own Use Investment Properties Assets Leased out under an Operating Lease Total
Cost -              
Balance at the beginning 3,980 715 6,827 11,522 2,519 705 14,747
Additions 153 517 568 1,238 4 176 1,418
Retirements (48) (32) (697) (777) (96) (38) (911)
Acquisition of subsidiaries in the year - - - - - - -
Disposal of entities in the year - - - - - - -
Transfers (30) (94) 33 (91) (41) (173) (305)
Exchange difference and other 113 (21) (827) (735) (206) 4 (937)
Balance at the end 4,168 1,085 5,904 11,157 2,180 674 14,012
Accrued depreciation - - - - - - - -
Balance at the beginning 1,179 - 4,801 5,980 102 233 6,314
Additions (Note 45) 94 - 495 589 22 - 611
Retirements (20) - (669) (689) (6) (1) (696)
Acquisition of subsidiaries in the year - - - - - - -
Disposal of entities in the year - - - - - - -
Transfers (11) - (17) (28) (1) (20) (49)
Exchange difference and other 13 - (857) (844) (15) 14 (845)
Balance at the end 1,255 - 3,753 5,008 102 226 5,335
Impairment -              
Balance at the beginning 153 - 15 168 727 6 900
Additions (Note 48) 25 - 10 35 61 - 97
Retirements (1) - - (1) (46) - (47)
Acquisition of subsidiaries in the year - - - - - - -
Disposal of entities in the year - - - - - - -
Transfers (17) - - (17) (17) - (34)
Exchange difference and other (12) - (9) (21) (38) - (59)
Balance at the end 148 - 16 164 687 6 857
Net tangible assets -              
Balance at the beginning 2,647 715 2,011 5,373 1,693 468 7,534
Balance at the end 2,764 1,085 2,135 5,985 1,392 443 7,820

Download Excel

As of December 31, 2016, 2015 and 2014, the cost of fully amortized tangible assets that remained in use were €2,313, €2,663 and 2,198 million respectively while its recoverable residual value was not significant.

The balance of amortizations in this heading during the years ended December 2016, 2015 and 2014 are provided in Note 45.

As of December 31, 2016, 2015 and 2014 the amount of tangible assets under financial lease schemes on which the purchase option is expected to be exercised was not material.

The main activity of the Group is carried out through a network of bank branches located geographically as shown in the following table:

Number of Branches
Branches by Geographical Location 2016 2015 2014
Spain 3,303 3,811 3,112
Mexico 1,836 1,818 1,831
South America 1,667 1,684 1,676
The United States 676 669 672
Turkey 1,131 1,109 1
Rest of Eurasia 47 54 79
Total 8,660 9,145 7,371

Download Excel

The following table shows the detail of the net carrying amount of the tangible assets corresponding to Spanish and foreign subsidiaries as of December 31, 2016, 2015 and 2014:

Millions of Euros
Tangible Assets by Spanish and Foreign Subsidiaries Net Assets Values 2016 2015 2014
BBVA and Spanish subsidiaries 3,692 4,584 4,083
Foreign subsidiaries 5,249 5,360 3,737
Total 8,941 9,944 7,820

Download Excel

18. Intangible assets

18.1 Goodwill

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating units (CGUs), is as follows:

Millions of Euros
Goodwill. Breakdown by CGU and Changes of the year 2016 Balance at the beginning Additions Exchange Difference Impairment Rest Balance at the end
The United States 5,328 - 175 - - 5,503
Turkey 727 - (101) - (1) 624
Mexico 602 - (79) - - 523
Colombia 176 - 14 - - 191
Chile 62 - 6 - - 68
Rest 20 8 - - - 28
Total 6,915 8 15 - (1) 6,937

Download Excel

The change in 2016 is mainly as a result of the exchange differences due to the appreciation of the US Dollar against the euro and the depreciation of the Turkish lira and the Mexican peso.

Millions of Euros
Goodwill. Breakdown by CGU and Changes of the year 2015 Balance at the beginning Additions Exchange Difference Impairment Other Balance at the end
The United States 4,767 12 549 - - 5,328
Turkey - 788 (62) - - 727
Mexico 638 - (35) - - 602
Colombia 208 - (31) - - 176
Chile 65 - (3) - - 62
Rest 20 - (1) - - 20
Total 5,697 800 418 - - 6,915

Download Excel

The change in 2015 is mainly as a result of the full consolidation of Garanti since the date of effective control (see Note 3) assigned to the CGU of Turkey and exchange differences due to the appreciation of the US Dollar against the euro and the depreciation of the other currencies.

Millions of Euros
Goodwill. Breakdown by CGU and Changes of the year 2014 Balance at the beginning Additions Exchange Difference Impairment Other Balance at the end
The United States 4,133 65 570 - (1) 4,767
Mexico 630 - 7 - - 638
Turkey - - - - - -
Colombia 227 - (19) - - 208
Chile 66 - (1) - - 65
Rest 12 8 - - - 20
Total 5,069 73 557 - (1) 5,697

Download Excel

Impairment Test

As described in Note 2.2.8, the cash-generating units (CGUs) to which goodwill has been allocated are periodically tested for impairment by including the allocated goodwill in their carrying amount. This analysis is performed at least annually and whenever there is any indication of impairment.

Both the CGU’s fair values in the United States and the fair values assigned to its assets and liabilities had been based on the estimates and assumptions that the Group’s Management has deemed most likely given the circumstances. However, some changes to the valuation assumptions used could result in differences in the impairment test result.

Three key hypotheses are used when calculating the impairment test. They those to which the amount of the recoverable value is most sensitive:

The focus used by the Group’s management to determine the values of the hypotheses is based both on its projections and past experience. These values are uniform and use external sources of information. At the same time, the valuations of the most significant goodwill have in general been reviewed by independent experts (not the Group’s external auditors) who apply different valuation methods according to each type of asset and liability. The valuation methods used are: The method for calculating the discounted value of future cash flows, the market transaction method and the cost method.

As of December 31, 2016, 2015 and 2014, no indicators of impairment have been identified in any of the main CGUs.

The Group’s most significant goodwill corresponds to the CGU in the United States, the main significant hypotheses used in the impairment test of this mentioned CGU are:

Impairment test hypotheses CGU Goodwill in the United States 2016 2015 2014
Discount rate 10.0% 9.8% 10.0%
Sustainable growth rate 4.0% 4.0% 4.0%

Download Excel

Given the potential growth of the sector, in accordance with paragraph 33 of IAS 36, as of December 31, 2016, 2015 and 2014 the Group used a steady growth rate of 4% based on the real GDP growth rate of the United States and expected inflation. This 4% rate is less than the historical average of the past 30 years of the nominal GDP rate of the United States and lower than the real GDP growth forecasted by the IMF.

The assumptions with a greater relative weight and whose volatility could affect more in determining the present value of the cash flows starting on the fifth year are the discount rate and the growth rate. Below is shown the increased (or decreased) amount of the recoverable amount as a result of a reasonable variation (in basic points) of each of the key assumptions:

Millions of Euros
Sensitivity analysis for main hypotheses Impact of an increase of 50 basis points (*) Impact of a decrease of 50 basis points (*)
Discount rate (1,106) 1,309
Sustainable growth rate 521 (441)

Download Excel

Another assumption used, and with a high impact on the impairment test, is the budgets of the CGU and specifically the effect that changes in interest rates have on cash flows. The rise in interest rates in December 2016 and the expected rise in interest rates in 2017, net interest income would be positively affected and, therefore, the recoverable amount of the CGU would increase.

Goodwill in business combinations 2016

There were no significant business combinations

Goodwill in business combinations 2015
Catalunya Banc

As stated in Note 3, in the six month ended June 30, 2015 the Group acquired 98.4% of the share capital of the Catalunya Banc.

Shown below are details of the carrying amount of the consolidated assets and liabilities of Catalunya Banc prior to its acquisition and the corresponding fair values, gross of tax, which have been estimated in accordance with the IFRS-3 acquisition method.

Millions of Euros
Valuation and calculation of badwill for the acquisition of stake in Catalunya Banc Carrying Amount Fair Value
Acquisition cost (A) - 1,165
Cash on hand 616 616
Financial assets held for trading 341 341
Available-for-sale financial assets 1,845 1,853
Loans and receivables 37,509 36,766
Held-to-maturity investments (*) - -
Fair value changes of the hedged items in portfolio hedge of interest rate risk 23 23
Derivatives – Hedge accounting 845 845
Non-current assets and disposal groups classified as held for sale 274 193
Investments in subsidiaries, joint ventures and associates 209 293
Tangible assets 908 626
>Intangible assets 7 129
Other assets 581 498
Financial Liabilities Held for Trading (332) (332)
Financial liabilities at Amortized Cost (41,271) (41,501)
Fair value changes of the hedged items in portfolio hedge of interest rate risk (490) (490)
Derivatives – Hedge accounting (535) (535)
Provisions (1,248) (1,667)
Other liabilities (84) (84)
Deferred tax 3,312 3,630
Total fair value of assets and liabilities acquired (B) - 1,205
Non controlling Interest Grupo Catalunya Banc (**) (C) 2 2
Non controlling Interest after purchase (D) - 12
Badwill (A)-(B)+(C )+(D) - (26)

Download Excel

Because the resulting goodwill was negative, the net fair value of identifiable assets acquired and lesser liabilities assumed was initially estimated as of June 30, 2015 in an amount of 22 million euros but subsequently the calculation was modified to 26 million euros a gain was recognized in the accompanying consolidated income statement for 2015 under the heading “Badwill” (see Note 2.2.7).

The calculation of this amount was subject to change, since the estimate of all the fair values has been reviewed and, according to IFRS-3, they may be modified during a period of one year from the acquisition date (April 2015). After the deadline, there are not ben significant changes in that amount recorded in the year 2015.

Garanti Bank

As stated in Note 3, in the year ended December 31, 2015 the Group acquired 14.89% of the share capital of the Garanti Bank.

Shown below are details of the carrying amount of the consolidated assets and liabilities of Garanti Bank prior to its acquisition and the corresponding fair values, gross of tax, which have been estimated in accordance with the IFRS-3 acquisition method.

Millions of Euros
Valuation and calculation of goodwill in Garanti Bank Carrying Amount Fair Value
Acquisition cost (A) - 5,044
Cash on hand 8,915 8,915
Financial assets held for trading 419 419
Available-for-sale financial assets 14,618 14,773
Loans and receivables 58,495 58,054
Non-current assets and disposal groups classified as held for sale - (2)
Investments in subsidiaries, joint ventures and associates 14 21
Hedging Derivatives 785 1,399
Non-current assets held for sale 11 1,188
Other assets 3,715 3,652
Financial liabilities at Amortized Cost (70,920) (70,926)
Provisions (394) (697)
Other liabilities (6,418) (6,418)
Deferred tax 263 182
Total fair value of assets and liabilities acquired (B) - 10,560
Non controlling Interest Grupo Garanti (C) 5,669 5,669
Non controlling Interest after purchase (D) - 635
Goodwill (A)-(B)+(C )+(D) - 788

Download Excel

In accordance with the acquisition method, which implies to account at fair value the assets acquired and liabilities of Garanti Bank along with the intangible assets identifies, as well as the cash payment carried out by the Group related to the transaction generates goodwill.

As of December 31, 2016, the calculation of goodwill, compared to the previous year, according to IFRS-3, they may be modified during a period of one year from the acquisition date. Subsequent to the abovementioned date, the Group has finalized said process without significant changes. Among the adjustments to this calculation, Garanti´s brand has been reclassified as an intangible asset with a definite useful life, with its subsequent amortization under “Amortization - Other intangible assets” in the consolidated income statement.

The main significant hypotheses used in the impairment test of this mentioned CGU are:

Impairment test hypotheses CGU Goodwill in Turkey 2016 2015
Discount rate 17.7% 14.8%
Sustainable growth rate 7.0% 7.0%

Download Excel

The assumptions with a greater relative weight and whose volatility could affect more in determining the present value of the cash flows starting on the fifth year are the discount rate and the growth rate. Below is shown the increased (or decreased) amount of the recoverable amount as a result of a reasonable variation (in basic points) of each of the key assumptions:

Millions of Euros
Sensitivity analysis for main hypotheses Impact of an increase of 50 basis points (*) Impact of a decrease of 50 basis points (*)
Discount rate (172) 189
Sustainable growth rate 123 (112)

Download Excel

18.2 Other intangible assets

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Millions of Euros
Other intangible assets 2016 2015 2014
Computer software acquisition expenses 1,877 1,875 1,517
Other intangible assets with a infinite useful life 12 26 22
Other intangible assets with a definite useful life 960 1,235 134
Total 2,849 3,137 1,673

Download Excel

Millions of Euros
Other Intangible Assets. Changes Over the Period Notes 2016 2015 2014
Balance at the beginning   3,137 1,673 1,690
Acquisition of subsidiaries in the year   - 1,452 -
Additions   645 571 467
Amortization in the year 45 (735) (631) (535)
Exchange differences and other   (196) 76 59
Impairment 48 (3) (4) (8)
Balance at the end   2,849 3,137 1,673

Download Excel

As of December 31, 2016, the balance of fully amortized intangible assets that remained in use was €1.501 million, while their recoverable value was not significant.

19. Tax assets and liabilities

19.1 Consolidated tax group

Pursuant to current legislation, the BBVA Consolidated Tax Group includes the Bank (as the parent company) and its Spanish subsidiaries that meet the requirements provided for under Spanish legislation regulating the taxation regime for the consolidated profit of corporate groups.

The Group’s non-Spanish other banks and subsidiaries file tax returns in accordance with the tax legislation in force in each country.

19.2 Years open for review by the tax authorities

The years open to review in the BBVA Consolidated Tax Group as of December 31, 2016 are 2010 and subsequent years for the main taxes applicable.

The remainders of the Spanish consolidated entities in general have the last four years open for inspection by the tax authorities for the main taxes applicable, except for those in which there has been an interruption of the limitation period due to the start of an inspection.

In the year 2014 as a consequence of the tax authorities examination reviews, inspections were initiated until the year 2009 inclusive, all of them signed in acceptance during the year 2014.

In view of the varying interpretations that can be made of some applicable tax legislation, the outcome of the tax inspections of the open years that could be conducted by the tax authorities in the future could give rise to contingent tax liabilities which cannot be reasonably estimated at the present time. However, the Group considers that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise therefore would not materially affect the Group’s accompanying consolidated financial statements.

19.3 Reconciliation

The reconciliation of the Group’s corporate income tax expense resulting from the application of the Spanish corporation income tax rate and the income tax expense recognized in the accompanying consolidated income statements is as follows:

Millions of Euros
2016 2015 2014
Reconciliation of Taxation at the Spanish Corporation Tax Rate to the Tax Expense Recorded for the Period Amount Effective Tax
%
Amount Effective Tax
%
Amount Effective Tax
%
Profit or (-) loss before tax 6,392   4,603   3,980  
From continuing operations 6,392   4,603   3,980  
From discontinued operations            
Taxation at Spanish corporation tax rate 30% 1,918   1,381   1,194  
Lower effective tax rate from foreign entities (*) (298)   (221)   (318)  
Mexico (105) 26% (149) 25% (145) 24%
Chile (27) 17% (28) 18% (71) -8%
Colombia 22 36% 2 30% 2 30%
Peru (18) 26% (13) 28% (12) 28%
Other 6   (33)   (92)  
Revenues with lower tax rate (dividends) (69)   (65)   (88)  
Equity accounted earning (11)   (74)   (147)  
Other effects 159   253   257  
Current income tax 1,699   1,274   898  
Of which:            
Continuing operations 1,699   1,274   898  
Discontinued operations -   -   -

Download Excel

The effective income tax rate for the Group in the years ended December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
Effective Tax Rate 2016 2015 2014
Income from:      
Consolidated Tax Group (483) (1,426) (997)
Other Spanish Entities 52 107 18
Foreign Entities 6,823 5,922 4,959
Total 6,392 4,603 3,980
Income tax and other taxes 1,699 1,274 898
Effective Tax Rate 26.58% 27.68% 22.56%

Download Excel

19.4 Income tax recognized in equity

In addition to the income tax expense recognized in the accompanying consolidated income statements, the Group has recognized the following income tax charges for these items in the consolidated total equity:

Millions of Euros
Tax recognized in total equity 2016 2015 2014
Charges to total equityy      
Debt securities (533) (593) (953)
Equity instruments (2) 113 (188)
Subtotal (535) (480) (1,141)
Total (535) (480) (1,141)

Download Excel

19.5 Deferred taxes

The balance under the heading “Tax assets” in the accompanying consolidated balance sheets includes deferred tax assets. The balance under the “Tax liabilities” heading includes to the Group’s various deferred tax liabilities. The details of the most important tax assets and liabilities are as follows:

Millions of Euros
Tax assets and liabilities 2016 2015 2014
Tax assets-      
Current 1,853 1,901 2,035
Deferred 16,391 15,878 10,391
Pensions 1,190 1,022 902
Portfolio 1,371 1,474 920
Other assets (investments in subsidiaries) 662 554 535
Impairment losses 1,390 1,346 1,041
Other 1,236 981 905
Secured tax assets (*) 9,431 9,536 4,881
Tax losses 1,111 965 1,207
Total 18,245 17,779 12,426
Tax Liabilities-      
Current 1,276 1,238 980
Deferred 3,392 3,415 3,177
Portfolio 1,794 1,907 2,096
Charge for income tax and other taxes 1,598 1,508 1,081
Total 4,668 4,653 4,157

Download Excel

The most significant variations in the years ended December 31, 2016, 2015 and 2014 derived from the followings concepts:

Millions of Euros
2016 2015 2014
Guaranteed tax assets and liabilities Deferred Assets Deferred Liabilities Deferred Assets Deferred Liabilities Deferred Assets Deferred Liabilities
Balance at the beginning 15,878 3,418 10,391 3,177 9,202 1,537
Pensions 168 - 120 - 152 -
Financials Instruments (103) (113) 554 (189) (218) 1,171
Other assets 108 - 19 - 79 -
Impairment losses 44 - 305 - 251 -
Others 255 - 76 - 393 -
Guaranteed Tax assets (*) (105) - 4,655 - 508 -
Tax Losses 146 - (242) - 24 -
Charge for income tax and other taxes - 87 - 430 - 469
Balance at the end 16,391 3,392 15,878 3,418 10,391 3,177

Download Excel

With respect to the changes in assets and liabilities due to deferred tax contained in the above table, the following should be pointed out:

On the assets and liabilities due to deferred tax contained in the above table, those included in section 19.4 above have been recognized against the entity’s equity, and the rest against earnings for the year.

As of December 31, 2016, 2015 and 2014, the estimated amount of temporary differences associated with investments in subsidiaries, joint ventures and associates, which were not recognized deferred tax liabilities in the accompanying consolidated balance sheets taxes, amounted to 874, 656 and 497 million euros respectively.

Of the deferred tax assets contained in the above table, the detail of the items and amounts guaranteed by the Spanish and Portuguese governments, broken down by the items that originated those assets is as follows:

Millions of Euros
Secured tax assets 2016 2015 2014
Pensions 1,901 1,904 1,741
Impairment losses 7,530 7,632 3,140
Total 9,431 9,536 4,881

Download Excel

As of December 31, 2016, non-guaranteed net deferred tax assets of the above table amounted to €3,568 million (€2,924 and €2,333 million as of December 31, 2015 and 2014), which broken down by major geographies is as follows:

Based on the information available as of December 31, 2016, including historical levels of benefits and projected results available to the Group for the coming years, it is considered that sufficient taxable income will be generated for the recovery of above mentioned unsecured deferred tax assets when they become deductible according to the tax laws.

20. Other assets and liabilities

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Other assets and liabilities. Breakdown by nature 2016 2015 2014
ASSETS-      
Inventories 3,298 4,303 4,443
Real estate companies 3,268 4,172 4,389
Others 29 131 54
Transactions in progress 241 148 230
Accruals 723 804 706
Unaccrued prepaid expenses 518 558 491
Other prepayments and accrued income 204 246 215
Other items 3,012 3,311 2,715
Total Assets 7,274 8,565 8,094
LIABILITIES-      
Transactions in progress 127 52 77
Accruals 2,721 2,609 2,370
Unpaid accrued expenses 2,125 2,009 1,772
Other accrued expenses and deferred income 596 600 598
Other items 2,131 1,949 2,072
Total Liabilities 4,979 4,610 4,519

Download Excel

The heading “Inventories” includes the net book value of land and building purchases that the Group’s Real estate entities have available for sale or as part of their business. Balances under this heading include mainly real estate assets acquired by these entities from distressed customers (mostly in Spain), net of their corresponding losses. The impairment included under the heading “Impairment or reversal of impairment on non-financial assets” of the accompanying consolidated financial statements were €375, €209 and €192 million for the years ended December 31, 2016, 2015 and 2014 respectively (see Note 48).The roll-forward of our inventories from distressed customers is provided below:

Millions of Euros
Inventories from Distressed Customers 2016 2015 2014
Gross value      
Balance at the beginning 9,318 9,119 9,343
Business combinations and disposals (*) - 580 -
Acquisitions 336 797 479
Disposals (1,214) (1,188) (971)
Others 59 10 268
Balance at the end 8,499 9,318 9,119
Accumulated impairment losses (5,385) (5,291) (4,898)
Carrying Amount 3,114 4,154 4,219

Download Excel

21. Non-current assets and disposal groups classified as held for sale

The composition of the balance under the heading “Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets, broken down by the origin of the assets, is as follows:

Millions of Euros
Non-current assets and disposal groups classified as held for sale. Breakdown by items 2016 2015 2014
Foreclosures and recoveries 4,225 3,991 3,330
Foreclosures 4,057 3,775 3,144
Recoveries from financial leases 168 216 186
Other assets from: 1,181 706 315
Property, plant and equipment 378 431 272
Operating leases (*) 803 275 43
Business sale - Assets 40 37 924
Accrued amortization (**) (116) (80) (74)
Impairment losses (1,727) (1,285) (702)
Total Non-current assets and disposal groups classified as held for sale 3,603 3,369 3,793

Download Excel

The changes in the balances of “Non-current assets available for sale” in 2016, 2015 and 2014 are as follows:

Millions of Euros
Foreclosed Assets
Non-current assets and disposal groups classified as held for sale. Changes in the year 2016 Notes Foreclosed Assets through Auction Proceeding Recovered Assets from Finance Leases From Own Use Assets (*) Other assets Total
Cost (1)            
Balance at the beginning   3,775 216 626 37 4,617
Additions   582 57 23 - 662
Contributions from merger transactions   - - - - -
Retirements (sales and other decreases)   (779) (77) (170) 3 (1,026)
Transfers, other movements and exchange differences   480 (28) 586 - 1,037
Balance at the end   4,057 168 1,065 40 5,290
Impairment (2)            
Balance at the beginning   994 52 240 - 1,285
Additions 50 129 3 5 - 136
Contributions from merger transactions   - - - - -
Retirements (sales and other decreases)   (153) (6) (33) - (192)
Other movements and exchange differences   268 (2) 232 - 499
Balance at the end   1,237 47 443 - 1,727
Balance at the end of Net carrying value (1)-(2)   2,820 121 621 40 3,563

Download Excel

Millions of Euros
Foreclosed Assets
Non-current assets and disposal groups classified as held for sale. Changes in the year 2015 Notes Foreclosed Assets through Auction Proceeding Recovered Assets from Finance Leases From Own Use Assets (*) Other assets (**) Total
Cost (1)            
Balance at the beginning   3,144 186 241 924 4,495
Additions   801 94 79 - 974
Contributions from merger transactions   446 1 163 - 609
Retirements (sales and other decreases)   (586) (53) (163) (887) (1,688)
Transfers, other movements and exchange differences   (30) (13) 307 - 264
Balance at the end   3,775 216 626 37 4,654
Impairment (2)            
Balance at the beginning   578 53 70 - 702
Additions 50 208 11 66 - 285
Contributions from merger transactions   328 - 75 - 404
Retirements (sales and other decreases)   (117) (14) (39) - (170)
Other movements and exchange differences   (4) 2 66 - 64
Balance at the end   994 52 240 - 1,285
Balance at the end of Net carrying value (1)-(2)   2,781 164 387 37 3,369

Download Excel

Millions of Euros
Foreclosed Assets
Non-current assets and disposal groups classified as held for sale. Changes in the year 2014 Notes Foreclosed Assets through Auction Proceeding Recovered Assets from Finance Leases From Own Use Assets (*) Other assets (**) Total
Cost (1)            
Balance at the beginning   2,914 186 253 92 3,445
Additions   783 50 82 - 916
Contributions from merger transactions   - - - - -
Retirements (sales and other decreases)   (565) (36) (161) - (762)
Transfers, other movements and exchange differences   12 (14) 67 832 897
Balance at the end   3,144 187 241 924 4,495
Impairment (2)            
Balance at the beginning   420 45 99 - 565
Additions 50 391 12 4 - 406
Contributions from merger transactions   - - - - -
Retirements (sales and other decreases)   (140) (7) (51) - (198)
Transfers, other movements and exchange differences   (93) 3 19 - (71)
Balance at the end   578 53 71 - 702
Balance at the end of Net carrying value (1)-(2)   2,565 134 170 924 3,793

Download Excel

Assets from foreclosures or recoveries

As of December 31, 2016, 2015 and 2014, assets from foreclosures and recoveries, net of impairment losses, by nature of the asset, amounted to €2,326, €2,415 and €2,330 million in assets for residential use; €574, €486 and €432 million in assets for tertiary use (industrial, commercial or office) and €41, €44 and €26 million in assets for agricultural use, respectively.

In December 31, 2016, 2015 and 2014, the average sale time of assets from foreclosures or recoveries was between 2 and 3 years.

During the years 2016, 2015 and 2014, some of the sale transactions for these assets were financed by Group companies. The amount of loans to buyers of these assets in those years amounted to €219, €179 and €165 million, respectively; with an average financing of 78% of the sales price.

As of December 31, 2016, 2015 and 2014, the amount of the profits arising from the sale of Group companies financed assets - and therefore not recognized in the consolidated income statement - amounted to €1, €18 and €22 million, respectively.

22. Financial liabilities at amortized cost

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Financial liabilities measured at amortised cost Notes 2016 2015 2014
Deposits        
Deposits from Central Banks 9 34,740 40,087 28,193
Deposits from Credit Institutions 22.1 63,501 68,543 65,168
Customer deposits 22.2 401,465 403,362 319,334
Debt securities issued 22.3 76,375 81,980 71,917
Other financial liabilities 22.4 13,129 12,141 7,288
Total   589,210 606,113 491,899

Download Excel

22.1 Deposits from credit institutions

The breakdown of the balance under this heading in the consolidated balance sheets, according to the nature of the financial instruments, is as follows:

Millions of Euros
Deposits from credit institutions Notes 2016 2015 2014
Reciprocal accounts   165 160 218
Deposits with agreed maturity   30,286 37,859 26,731
Demand deposits   4,435 4,121 5,082
Other accounts   35 149 51
Repurchase agreements 35 28,421 26,069 32,935
Subtotal   63,342 68,359 65,017
Accrued interest until expiration   160 185 151
Total   63,501 68,543 65,168

Download Excel

The breakdown by geographical area and the nature of the related instruments of this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Deposits from Credit Institutions. December 2016 Demand Deposits & Reciprocal Accounts Deposits with Agreed Maturity Deposits with Agreed Maturity Total
Spain 956 4,995 817 6,768
Rest of Europe 896 13,751 23,691 38,338
Mexico 306 426 2,931 3,663
South America 275 3,294 465 4,035
The United States 1,812 3,225 3 5,040
Turkey 317 1,140 5 1,463
Rest of the world 88 3,597 509 4,194
Total 4,651 30,429 28,420 63,501

Download Excel

Millions of Euros
Deposits from Credit Institutions. December 2015 Demand Deposits & Reciprocal Accounts Deposits with Agreed Maturity Deposits with Agreed Maturity Total
Spain 951 6,718 593 8,262
Rest of Europe 801 15,955 23,140 39,896
Mexico 54 673 916 1,643
South America 212 3,779 432 4,423
The United States 1,892 5,497 2 7,391
Turkey 355 1,423 8 1,786
Rest of the world 53 4,108 981 5,142
Total 4,318 38,153 26,072 68,543

Download Excel

Millions of Euros
Deposits from Credit Institutions. December 2014 Demand Deposits & Reciprocal Accounts Deposits with Agreed Maturity Deposits with Agreed Maturity Total
Spain 1,327 6,504 2,442 10,273
Rest of Europe 1,191 9,925 27,940 39,056
Mexico 125 1,066 1,875 3,065
South America 961 3,221 456 4,638
The United States 1,669 4,743 - 6,411
Turkey        
Rest of the world 33 1,461 231 1,725
Total 5,306 26,920 32,944 65,168

Download Excel

22.2 Customer deposits

The breakdown of this heading in the accompanying consolidated balance sheets, by type of financial instrument, is as follows:

Millions of Euros
Customer deposits Notes 2016 2015 2014
General Governments   21,359 25,343 22,122
Current accounts   123,401 112,273 96,414
Savings accounts   88,835 82,975 65,555
Time deposits   153,123 165,125 111,796
Repurchase agreements 35 13,491 15,711 21,595
Subordinated deposits   233 285 260
Other accounts   329 812 677
Accumulated other comprehensive income   694 839 915
Total   401,465 403,362 319,334
Of which:        
In euros   189,438 203,053 162,844
In foreign currency   212,027 200,309 156,489
Of which:        
Deposits from other creditors without valuation adjustment   400,742 402,689 318,657
Accrued interests   723 673 677

Download Excel

The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:

Millions of Euros
Customer Deposits December 2016 Demand Deposits Deposits with Agreed Maturity Repurchase Agreements Total
Spain 102,730 56,391 1,901 161,022
Rest of Europe 6,959 19,683 4,306 30,949
Mexico 36,468 10,647 7,002 54,117
South America 26,997 23,023 263 50,282
The United States 47,340 14,971 - 62,311
Turkey 9,862 28,328 21 38,211
Rest of the world 1,190 3,382 - 4,572
Total 231,547 156,425 13,493 401,465

Download Excel

Millions of Euros
Customer Deposits December 2015 Demand Deposits Deposits with Agreed Maturity Repurchase Agreements Total
Spain 86,564 70,816 11,309 168,689
Rest of Europe 5,514 22,833 7,423 35,770
Mexico 36,907 10,320 4,195 51,422
South America 24,574 19,591 304 44,469
The United States 47,071 15,893 24 62,988
Turkey 9,277 26,744 15 36,036
Rest of the world 357 3,631 - 3,988
Total 210,264 169,828 23,270 403,362

Download Excel

Millions of Euros
Customer Deposits December 2014 Demand Deposits Deposits with Agreed Maturity Repurchase Agreements Total
Spain 43,732 90,206 9,783 143,721
Rest of Europe 2,267 7,884 8,036 18,187
Mexico 22,550 17,769 6,359 46,678
South America 23,118 34,680 441 58,239
The United States 19,020 31,881 1 50,902
Rest of the world 734 873 - 1,607
Total 111,421 183,293 24,620 319,334

Download Excel

22.3 Debt securities issued (including bonds and debentures)

The breakdown of the balance under this heading, by currency, is as follows:

Millions of Euros
Debt certificates issued 2016 2015 2014
In euros 45,619 51,449 49,659
Promissory bills and notes 841 456 410
Non-convertible bonds and debentures at floating interest rates 3,138 3,375 2,376
Non-convertible bonds and debentures at fixed interest rates 5,284 6,389 8,555
Mortgage Covered bonds 23,869 28,740 26,119
Hybrid financial instruments 450 384 234
Securitization bonds made by the Group 3,548 4,580 4,741
Other securities - - -
Accrued interest and others (*) 1,518 1,425 1,865
Subordinated liabilities 6,972 6,100 5,359
Convertible 4,000 3,000 1,500
Convertible perpetual securities 4,000 3,000 1,500
Non-convertible 2,852 3,040 3,778
Preferred Stock 359 357 1,033
Other subordinated liabilities 2,493 2,683 2,745
Accrued interest and others (*) 120 60 81
In Foreign Currency 30,759 30,531 22,258
Promissory bills and notes 377 192 660
Non-convertible bonds and debentures at floating interest rates 1,044 1,240 588
Non-convertible bonds and debentures at fixed interest rates 13,880 13,553 9,898
Mortgage Covered bonds 147 146 117
Hybrid financial instruments 2,030 2,392 1,945
Securitization bonds made by the Group 2,977 3,039 474
Other securities - - -
Accrued interest and others (*) 288 254 114
Subordinated liabilities 10,016 9,715 8,462
Convertible 1,487 1,439 1,235
Convertible perpetual securities 1,487 1,439 1,235
Non-convertible 8,134 7,818 6,833
Preferred Stock 629 616 876
Other subordinated liabilities 7,505 7,202 5,957
Accrued interest and others (*) 394 458 394
Total 76,375 81,980 71,917

Download Excel

Most of the foreign currency issues are denominated in U.S. dollars.

22.3.1 Promissory notes and bills

Promissory notes were issued by BBVA Senior Finance, S.A.U. and BBVA US Senior, S.A.U. The promissory notes issued by BBVA Senior Finance, S.A.U. and BBVA US Senior, S.A.U., are guaranteed jointly, severally and irrevocably by the Bank.

22.3.2 Bonds and debentures issued

The senior debt issued by BBVA Senior Finance, S.A.U., BBVA U.S. Senior, S.A.U. and BBVA Global Finance, Ltd. are guaranteed jointly, severally and irrevocably by the Bank (included within “Non-convertible bonds and debentures at floating interest rates” and “Non-convertible bonds and debentures at fixed interest rates” in the table above).

22.3.3 Subordinated liabilities

Of the above, the issuances of BBVA International Preferred, S.A.U., BBVA Subordinated Capital, S.A.U., BBVA Global Finance, Ltd., Caixa Terrassa Societat de Participacions Preferents, S.A.U. and CaixaSabadell Preferents, S.A.U., are jointly, severally and irrevocably guaranteed by the Bank. The balance variances are mainly due to the following transactions:

Convertible perpetual securities

On April 8, 2016, BBVA carried out the fourth issuance of perpetual securities eventually convertible into new ordinary shares of BBVA, (additional tier I capital instruments) without pre-emption rights, for a nominal total amount of €1.000 million.

On February, 10 2015, BBVA carried out the third issuance of perpetual securities eventually convertible into new ordinary shares of BBVA, (additional tier I capital instruments) without pre-emption rights, for a nominal total amount of €1.500 million.

In 2014, BBVA carried out the second issuance of perpetual securities eventually convertible into new ordinary shares of BBVA, (additional tier I capital instruments) without pre-emption rights, for a nominal total amount of €1.500 million.

These securities were listed in the Global Exchange Market of the Irish Stock Exchange. This issuance was targeted only at qualified foreign investors and in any case would not be made or subscribed in Spain or by Spanish-resident investors.

These perpetual securities issued could be converted into new ordinary shares of BBVA if the common equity Tier 1 (CET 1) of the individual or consolidated Bank is below the 5,125%, among other assumptions.

These issues may be fully redeemed at BBVA´s election only in the cases contemplated in its terms and conditions, and in any case, in accordance with the provisions of the applicable legislation.

Preferred securities

The breakdown by issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Preferred Securities by Issuer 2016 2015 2014
BBVA International Preferred, S.A.U. (*) 855 842 1,750
Unnim Group (**) 100 109 109
Compass Group 22 22 20
BBVA Capital Finance, S.A.U. - - 25
BBVA Colombia, S.A. 1 1 -
BBVA International, Ltd. - - 7
Total 979 974 1,910

Download Excel

These issues were fully subscribed at the moment of the issue by investors outside the Group and are redeemable at the issuer company’s option after five years from the issue date, depending on the terms of each issue and with prior consent from the Bank of Spain.

Amortization of preferred securities

On February, 27, 2015 BBVA Capital Finance, S.A.U., BBVA International Limited, Caixa de Manlleu Preferents, S.A.U., Caixa Terrassa Societat de Participacions Preferents, S.A.U. CaixaSabadell Preferents, S.A.U. carried out the early redemption of following issuances which amounted to €46 million, after having obtained all required authorizations.

On December 19, 2014 the amortization in full of preferred securities called “Issue of Series E Preferred Securities” and “Issue of Series F Preferred Securities” was announced. At their nominal amount of €633 million and €251 million pounds (approximately €323 million as of December 31, 2014) respectively. These issues were made by BBVA International Preferred, S.A. Unipersonal on October 19, 2009. On January 21, 2015, after obtaining the necessary authorizations, BBVA International Preferred, S.A. Unipersonal proceeded to its effective amortization.

Other subordinated liabilities

On February 27, 2015, BBVA announced the early redemption of some issuances that amounted to €36 million, after having obtained all required authorizations.

On September 23, 2014, BBVA announced the early expiration of the outstanding nominal amount of €633 million of the issue “Subordinated debt – October 04”. On October 20, 2014, after having obtained the necessary approvals, BBVA completed the expiration.

22.4 Other financial liabilities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Other financial liabilities 2016 2015 2014
Creditors for other financial liabilities 3,465 3,303 1,692
Collection accounts 2,768 2,369 2,402
Creditors for other payment obligations 6,370 5,960 3,194
Dividend payable but pending payment (Note 4) 525 509 -
Total 13,129 12,141 7,288

Download Excel

23. Liabilities under reinsurance and insurance contracts

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

There are two types of life-saving insurance products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.

The insurance business is affected by different risks, including those that are related to the BBVA Group such as credit risk, market risk, liquidity risk and operational risk and the methodology for risk measurement applied in the insurance activity is similar (see Note 7), although it has a differentiated management due to the particular characteristics of the insurance business, such as the coverage of contracted obligations and the long term of the commitments. Additionally, the insurance business generates certain specific risks, of a probabilistic nature:

The insurance industry is highly regulated in each country. In this regard, it should be noted that the insurance industry is undergoing a gradual regulatory transformation through new capital regulations risk-based, which have already been published in several countries.

The most significant provisions recognized by consolidated insurance subsidiaries with respect to insurance policies issued by them are under the heading “Liabilities under “Insurance and reinsurance contracts” in the accompanying consolidated balance sheets.

The breakdown of the balance under this heading is as follows:

Millions of Euros
Technical Reserves by type of insurance product 2016 2015 2014
Mathematical reserves 7,813 8,101 9,352
Individual life insurance (1) 4,791 4,294 5,683
Savings 3,943 3,756 5,073
Risk 848 526 610
Other - 12 -
Group insurance (2) 3,022 3,807 3,669
Savings 2,801 3,345 3,207
Risk 221 462 462
Other - - -
Provision for unpaid claims reported 691 697 578
Provisions for unexpired risks and other provisions 635 609 529
Total 9,139 9,407 10,460

Download Excel

The cash flows of those Liabilities under Reinsurance and reinsurance contracts are shown below:

Millions of Euros
Maturity Up to 1 Year 1 to 3 Years 3 to 5 Years Over 5 Years Total
Liabilities under Insurance and Reinsurance Contract 1,705 1,214 1,482 4,738 9,139

Download Excel

The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are actuarial and financial methods and modeling techniques approved by the respective country’s insurance regulator or supervisor. The most important insurance entities are located in Spain and Mexico (which together account for approximately 96% of the insurance revenues), where the modeling methods and techniques are reviewed by the insurance regulator in Spain (General Directorate of Insurance) and Mexico (National Insurance and Bonding Commission), respectively. The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are based on IFRS and primarily involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each policy. To ensure this technical interest rate, asset-liability management is carried out, acquiring a portfolio of securities that generate the cash flows needed to cover the payment commitments assumed with the customers.

The table below shows the key assumptions used in the calculation of the mathematical reserves for insurance products in Spain and Mexico, respectively:

Mortality table Average technical interest type
Mathematical Reserves Spain Mexico Spain Mexico
Individual life insurance (1) "GKMF80 PASEM//Own tables" Tables of the Comision Nacional De Seguros y Fianzas 2000-individual 1.15%-3.00% 2.5%
Group insurance(2) PERMF2000//Own tables Tables of the Comision Nacional De Seguros y Fianzas 2000-group 1.37%-3.00% 5.5%

Download Excel

The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of December 31, 2016, 2015 and 2014 the balance is €447 million, €511 million and €559 million, respectively.

24. Provisions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, based on type of provisions, is as follows:

Millions of Euros
Provisions. Breakdown by concepts Notes 2016 2015 2014
Pensions and other post employment defined benefit obligations 25 6,025 6,299 5,970
Other long term employee benefits 25 69 68 62
Pending legal issues and tax litigation   418 616 262
Commitments and guarantees given   950 714 381
Other provisions (*) (**)   1,609 1,155 769
Total   9,071 8,852 7,444

Download Excel

The change in provisions for pensions and similar obligations for the years ended December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
Provisions for Pensions and Similar Obligations. Changes Over the Period Notes 2016 2015 2014
Balance at the beginning   6,299 5,970 5,512
Add -        
Charges to income for the year   402 687 1,004
Interest expenses and similar charges 37.2 96 108 172
Personnel expenses 44.1 67 57 58
Provision expenses   239 522 774
Charges to equity (*) 25 356 135 497
Transfers and other changes (**)   66 440 75
Less -        
Benefit payments 25 (926) (925) (854)
Employer contributions 25 (154) (8) (264)
Balance at the end   6,043 6,299 5,970

Download Excel

Millions of Euros
Provisions for Taxes, Legal Contingents and Other Provisions. Changes Over the Period 2016 2015 2014
Balance at the beginning 1,771 1,031 933
Add -   -  
Charge to income for the year 1,109 334 387
Acquisition of subsidiaries (*) - 1,256 -
Transfers and other changes - - -
Less -   -  
Available funds (311) (205) (75)
Amount used and other variations (540) (645) (214)
Disposal of subsidiaries - - -
Balance at the end 2,028 1,771 1,031

Download Excel

Different entities of the BBVA Group are frequently party to legal actions in a number of jurisdictions (including, among others, Spain, Mexico and the United State) arising in the ordinary course of business. According to the procedural status of these proceedings and the criteria of the legal counsel, BBVA considers that, except for the proceeding mentioned below, none of such actions is material, individually or as a whole, and with no significant impact on the operating results, liquidity or financial situation at a consolidated or individual level of the Bank. The Group´s Management believes that the provisions made in respect of such legal proceedings are adequate.

Regarding the consequences of the invalidity of the clauses of limitation of interest rates in mortgage loans with consumers (the so-called “cláusulas suelo”) the legal situation is as follows:

In an individual claim, the Provincial Court of Alicante raised a preliminary ruling to the Court of Justice of the European Union (CJEU), for the CJEU to determine if the time limitation for the refund of the amounts set forth by the Supreme Court complies with Directive 93/13/EEC. On July 13, the opinion of the Advocate-General of the CJEU was published and in its conclusions it stated that the European directive did not oppose to a Member State’s Supreme Court limiting, due to exceptional circumstances, the restorative effects of the invalidity to the date on which its first judgment in this regard was issued.

Last December 21, the CJEU published its sentence that decided the preliminary ruling raised by the Provincial Court of Alicante and other national judicial bodies, in the sense that the Supreme Court’s case law that limited in time the restorative effects related to the unfair declaration of a clause included in an agreement between a consumer and a professional is contrary to Article 6.1 of Directive 93/13/EEC on unfair terms in consumer contracts.

After the mentioned CJEU’s decision, BBVA has made, once analyzed the portfolio of mortgage loans to consumers, in which the “cláusulas suelo” have applied, a provision of €577 million (with an impact on the attributed profit of approximately €404 million, as communicated to the market in the Relevant Event dated December 21, 2016), to cover future claims that could be filed.

25. Post-employment and other employee benefit commitments

As stated in Note 2.2.12, the Group has assumed commitments with employees including short-term employee benefits, defined contribution and defined benefit plans (see Note 44.1), healthcare and other long-term employee benefits.

The Group sponsors defined-contribution plans for the majority of its active employees with the plans in Spain and Mexico being the most significant. Most defined benefit plans are closed to new employees and with liabilities relating largely to retired employees, the most significant being those in Spain, Mexico, the United States and Turkey. In Mexico, the Group provides medical benefits to a closed group of employees and their family members, both active service and in retirement.

The breakdown of the balance sheet net defined benefit liability as of December 31, 2016, 2015 and 2014 is provided below:

Millions of Euros
Net Defined Benefit Liability (asset) on the Balance Sheet 2016 2015 2014
Pension commitments 5,277 5,306 4,737
Early retirement commitments 2,559 2,855 2,803
Medical benefits commitments 1,015 1,023 1,083
Other long term employee benefits 69 68 62
Total commitments 8,920 9,252 8,685
Pension plan assets 1,909 1,974 1,697
Medical benefit plan assets 1,113 1,149 1,240
Total plan assets (*) 3,022 3,124 2,937
Total net liability / asset on the balance sheet 5,898 6,128 5,748
Of which:
Net asset on the balance sheet (**) (194) (238) (285)
Net liability on the balance sheet for provisions for pensions and similar obligations (***) 6,025 6,299 5,970
Net liability on the balance sheet for other long term employee benefits (****) 69 68 62

Download Excel

The amounts relating to benefit commitments charged to consolidated income statement for the years 2016, 2015 and 2014 are as follows:

Millions of Euros
Consolidated Income Statement Impact Notes 2016 2015 2014
Interest and similar expenses 37.2 96 108 172
Interest expense   303 309 336
Interest income   (207) (201) (165)
Personnel expenses   154 141 121
Defined contribution plan expense 44.1 87 84 63
Defined benefit plan expense 44.1 67 57 58
Provisions (net) 46 332 592 816
Early retirement expense   236 502 681
Past service cost expense   (2) 26 (29)
Remeasurements (*)   3 20 93
Other provision expenses   95 44 71
Total impact on Consolidated Income Statement: Debit (Credit)   582 841 1,109

Download Excel

The amounts relating to post-employment benefits charged to the balance sheet as of December 31, 2016, 2015 and 2014 are as follows:

Millions of Euros
Equity Impact Notes 2016 2015 2014
Defined benefit plans   237 128 353
Post-employment medical benefits   119 7 144
Total impact on equity: Debit (Credit) (*) 2.2.12 356 135 497

Download Excel

25.1 Defined benefit plans

Defined benefit commitments relate mainly to employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. For the latter the Group pays the required premiums to fully insure the related liability. The change in these pension commitments during the year ended December 31, 2016, 2015 and 2014 is presented below.

Millions of Euros
2016 2015 2014
Defined Benefit Defined Benefit Obligation Plan Assets Net Liability (asset) Defined Benefit Obligation Plan Assets Net Liability (asset) Defined Benefit Obligation Plan Assets Net Liability (asset)
Balance at the beginning 9,184 3,124 6,060 8,622 2,937 5,685 7,714 2,375 5,337
Current service cost 67 - 67 57 - 57 58 - 58
Interest income or expense 299 207 92 309 201 108 336 165 172
Contributions by plan participants 5 5 - 2 2 - 1 1 -
Employer contributions - 154 (154) - 8 (8) - 264 (264)
Past service costs (1) 235 - 235 530 - 530 652 - 652
Remeasurements: 354 (5) 359 42 (113) 155 769 178 590
Return on plan assets (2) - (20) 20 - (106) 106 - 178 (178)
From changes in demographic assumptions 107 - 107 8 - 8 31 - 31
From changes in financial assumptions 106 - 106 (53) - (53) 724 - 724
Other actuarial gain and losses 141 15 125 88 (7) 94 13 - 13
Benefit payments (1,052) (169) (883) (1,086) (146) (940) (984) (130) (854)
Settlement payments (43) - (43) (2) (17) 15 - - -
Business combinations and disposal - - - 795 321 474 - - -
Effect on changes in foreign exchange rates (282) (293) 11 (136) (98) (38) 43 53 (10)
Other effects 84 - 84 50 28 22 33 31 3
Balance at the end 8,851 3,022 5,829 9,184 3,124 6,060 8,622 2,937 5,685
Of which:                  
Spain 6,157 358 5,799 6,491 380 6,111 6,212 382 5,830
Mexico 1,456 1,627 (171) 1,527 1,745 (219) 1,643 1,908 (266)
The United States 385 339 46 362 329 33 362 324 38
Turkey 447 348 99 435 337 98    

Download Excel

The balance under the heading “Provisions - Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet as of December 31, 2016 includes €355 million relating to postemployment benefit commitments to former members of the Board of Directors and the Bank’s Management.

The most significant commitments are those in Spain and Mexico and, to a lesser extent, in the United States and Turkey. The remaining commitments are located mostly in Portugal and South America. Unless otherwise required by local regulation, all defined benefit plans have been closed to new entrants, who instead are able to participate in the Group´s defined contribution plans. Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method.

In order to guarantee the good governance of these plans, the Group has established specific benefits committees. These benefit committees include members from the different areas of the business to ensure that all decisions are made taking into consideration all of the associated impacts. Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method.

The following table sets out the key actuarial assumptions used in the valuation of these commitments:

2016 2015 2014
Actuarial Assumptions Spain Mexico USA Turkey Spain Mexico USA Turkey Spain Mexico USA
Discount rate 1.50% 9.95% 4.04% 11.50% 2.00% 9.30% 4.30% 10.30% 2.25% 8.75% 3.97%
Rate of salary increase 1.50% 4.75% 3.00% 9.30% 2.00% 4.75% 3.00% 8.60% 2.00% 4.75% 3.25%
Rate of pension increase - 2.13% - 7.80%   2.13%   7.10%   2.13% 2.25%
Medical cost trend rate - 6.75% - 10.92%   6.75%   9.94%   6.75% 8.00%
Mortality tables PERM/F 2000P EMSSA97 (adjustment EMSSA09) RP 2014 CSO2001 PERM/F 2000P EMSSA 97 RP 2014 CSO2001 PERM/F 2000P EMSSA 97 RP 2014

Download Excel

Discount rates used to value future benefit cash flows have been determined by reference to high quality corporate bonds (Note 2.2.12) in Euro in the case of Spain, Mexican peso for Mexico and USD for the United States), and government bonds in new Turkish Lira for Turkey.

The expected return on plan assets has been set in line with the adopted discount rate.

Assumed retirement ages have been set by reference to the earliest age at which employees are entitled to retire, the contractually agreed age in the case of early retirements in Spain or by using retirement rates.

Changes in the main actuarial assumptions may affect the valuation of the commitments. The table below shows the sensitivity of the benefit obligations to changes in the key assumptions:

Millions of Euros
2016 2015
Sensitivity Analysis Sensitivity Analysis Increase Decrease Increase Decrease
Discount rate 50 (367) 401 (357) 391
Rate of salary increase 50 9 (9) 9 (9)
Rate of pension increase 50 28 (27) 23 (22)
Medical cost trend rate 100 263 (204) 213 (169)
Change in obligation from each additional year of longevity - 121 - 130 -

Download Excel

The sensitivities provided above have been determined at the date of these consolidated financial statements, and reflect solely the impact of changing one individual assumption at a time, keeping the rest of the assumptions unchanged, thereby excluding the effects which may result from combined assumption changes.

In addition to the commitments to employees shown above, the Group has other less material long-term employee benefits. These include long-service awards, which consist of either an established monetary award or some vacation days granted to certain groups of employees when they complete a given number of years of service. As of December 31, 2016, 2015 and 2014 the actuarial liabilities for the outstanding awards amounted to €69 million, €68 million and €62 million, respectively. These commitments are recorded under the heading “Provisions - Other long-term employee benefits” of the accompanying consolidated balance sheet (see Note 24).

As described above, the Group maintains both pension and medical post-employment benefit commitments with their employees.

Post-employment commitments and similar obligations

These pension commitments relate mostly to pensions where the employees are already receiving payment, and which have been determined based on salary and years of service in accordance with the specific plan rules. For most plans pension payments are due on retirement, death and long term disability.

In addition, during the year 2016, Group entities in Spain offered certain employees the option to take early retirement (that is, earlier than the age stipulated in the collective labor agreement in force). This offer was accepted by 613 (1,817 and 1,706 during years 2015 and 2014, respectively). These commitments include both the compensation and indemnities due as well as the contributions payable to external pension funds during the early retirement period. As of December 31, 2016, 2015 and 2014 the value of these commitments amounted to €2,559 million, €2,855 million and €2,803 respectively.

Millions of Euros
Defined Benefit Obligation
Post-employment commitments 2016 Spain Mexico USA Turkey Rest of the world
Balance at the beginning 6,489 517 364 435 357
Current service cost 10 6 4 22 5
Interest income or expense 105 42 14 41 11
Contributions by plan participants - - - 4 1
Employer contributions - - - - -
Past service costs (1) 240 1 - 4 (4)
Remeasurements: 223 - 7 31 34
Return on plan assets (2) - - - - -
From changes in demographic assumptions - 2 (5) - (1)
From changes in financial assumptions 192 (22) 13 (23) 37
Other actuarial gain and losses 31 19 (1) 54 (2)
Benefit payments (931) (41) (16) (21) (11)
Settlement payments (43) - - - -
Business combinations and disposal - (70) 13 (69) (18)
Effect on changes in foreign exchange rates 63 - (2) - 19
Other effects 63 - (3) - 20
Balance at the end 6,157 455 385 447 392
Of which:
Vested benefit obligation relating to current employees 161
Vested benefit obligation relating to retired employees 5,996

Download Excel

Millions of Euros
Plan Assets
Post-employment commitments 2016 Spain Mexico United States Turkey Rest
Balance at the beginning 380 596 329 337 333
Current service cost - - - - -
Interest income or expense 7 49 13 33 9
Contributions by plan participants - - - 4 1
Employer contributions - 14 1 17 9
Past service costs (1) - - - - -
Remeasurements: 35 (23) (3) 23 23
Return on plan assets (2) 35 (23) (3) 23 23
From changes in demographic assumptions - - - - -
From changes in financial assumptions - - - - -
Other actuarial gain and losses - - - - -
Benefit payments (64) (40) (13) (12) (9)
Settlement payments - - - - -
Business combinations and disposal - - - - -
Effect on changes in foreign exchange rates - (81) 11 (54) (14)
Other effects - - 1 - (1)
Balance at the end 358 514 339 348 350

Download Excel

Millions of Euros
Net Liability (asset)
Post-employment commitments 2016 Spain Mexico United States Turkey Rest
Balance at the beginning 6,109 (79) 35 97 24
Current service cost 10 6 4 22 5
Interest income or expense 98 (7) 1 8 2
Contributions by plan participants - - - - 0
Employer contributions - (14) (1) (17) (9)
Past service costs (1) 240 1 - 4 (4)
Remeasurements: 188 23 10 8 11
Return on plan assets (2) (35) 23 3 (23) (23)
From changes in demographic assumptions - 2 (5) - (1)
From changes in financial assumptions 192 (22) 13 (23) 37
Other actuarial gain and losses 31 19 (1) 54 (2)
Benefit payments (867) - (3) (9) (2)
Settlement payments (43) - - - -
Business combinations and disposal - - - - -
Effect on changes in foreign exchange rates - 10 2 (15) (4)
Other effects 63 - (3) - 20
Balance at the end 5,799 (59) 46 99 42

Download Excel

The change in net liabilities (assets) during the years ended 2015 and 2014 was as follows:

Millions of Euros
2015: Net liability (asset) 2014: Net liability (asset)
Post-employment commitments Spain Mexico USA Turkey Rest of the world Spain Mexico USA Rest of the world
Balance at the beginning 5,830 (94) 38 - 69 5,395 (38) 32 76
Current service cost 9 8 3 2 4 18 7 5 6
Interest income or expense 123 (10) 1 4 3 169 (3) 2 17
Contributions by plan participants - - - - - - - - -
Employer contributions - (1) - - (7) - (72) (2) (7)
Past service costs (1) 550 (15) - 2 - 683 - (20) (12)
Remeasurements: 112 29 (9) 10 7 394 12 19 20
Return on plan assets (2) - 50 19 (54) (3) - (27) (47) (59)
From changes in demographic assumptions - - (7) 15 - - 1 31 -
From changes in financial assumptions 101 (23) (18) (25) 3 398 38 39 69
Other actuarial gain and losses 11 2 (3) 74 7 (4) - (3) 10
Benefit payments (913) - (20) (4) (3) (847) - (3) (4)
Settlement payments - - 17 - - - - - -
Business combinations and disposal 378 - - 96 - - - - -
Effect on changes in foreign exchange rates 1 5 4 (11) (45) 1 - 6 (16)
Other effects 23 1 (1) - (1) 17 - (1) (13)
Balance at the end 6,111 (78) 33 98 23 5,830 (82) 38 89
Of which: - - - - -        
Vested benefit obligation relating to current employees 172         221      
Vested benefit obligation relating to retired employees 5,939         5,609    

Download Excel

In Spain, local regulation requires that pension and death benefit commitments must be funded, either through the assets held for a qualified pension plan or an insurance contract.

In the Spanish entities these commitments are covered by insurance contracts which meet the requirements of the accounting standard regarding the non-recoverability of contributions. However, a significant number of the insurance contracts are with BBVA Seguros, S.A. and CatalunyaCaixa Vida –consolidated subsidiaries and related parties – and consequently these policies cannot be considered plan assets under IAS 19. For this reason, the liabilities insured under these policies are fully recognized under the heading “Provisions – Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet (see Note 24), while the related assets held by the insurance company are included within the Group´s consolidated assets (registered according to the classification of the corresponding financial instruments). As of December 31, 2016 the value of these separate assets was €2,983 million, representing direct rights of the insured employees held in the consolidated balance sheet, hence these benefits are effectively fully funded,

On the other hand, some pension commitments have been funded through insurance contracts with insurance companies not related to the Group, and can therefore be considered qualifying insurance policies and plan assets under IAS 19. In this case the accompanying consolidated balance sheet reflects the value of the obligations net of the fair value of the qualifying insurance policies. As of December 31, 2016, 2015 and 2014, the fair value of the aforementioned insurance policies (€358 million, €380 million and €382 million, respectively) exactly match the value of the corresponding obligations and therefore no amount for this item has been recorded in the accompanying consolidated balance sheet.

Pensions benefits are paid by the insurance companies with whom BBVA has insurance contracts and to whom all insurance premiums have been paid. The premiums are determined by the insurance companies using “cash flow matching” techniques to ensure that benefits can be met when due, guaranteeing both the actuarial and interest rate risk.

In Mexico, there is a defined benefit plan for employees hired prior to 2001. Other employees participate in a defined contribution plan. External funds/trusts have been constituted locally to meet benefit payments as required by local regulation.

In The United States there are mainly two defined benefit plans, both closed to new employees, who instead are able to join a defined contribution plan. External funds/trusts have been constituted locally to fund the plans, as required by local regulation.

In 2008, the Turkish government passed a law to unify the different existing pension systems under a single umbrella of Social Security. Such system provides for the transfer of the various prior funds established.

The financial sector is in this stage at present, maintaining these pension commitments managed by external pension funds (foundations) established for that purpose.

The foundation that maintains the assets and liabilities relating to employees of Garanti in Turkey, as per the local regulatory requirements, has registered an obligation amounting to €218 million as of December 31, 2016 pending future social security transfer.

Furthermore, the Group has set up a defined benefit pension plan for employees, additional to the social security benefits, reflected in the consolidated balance sheet.

The Bank also has commitments to pay indemnities to certain employees and members of the Group’s Senior Management in the event that they cease to hold their positions for reasons other than their own will, retirement, disability or serious dereliction of duties. The amount will be calculated according to the salary and professional conditions of each employee, taking into consideration fixed elements of the remuneration and the length of office at the Bank. Under no circumstances indemnities will be paid in cases of disciplinary dismissal for misconduct upon decision of the employer on grounds of the employee’s serious dereliction of duties.

In 2016 as a consequence of certain Senior Management members leaving the Group, indemnities for an overall total of €1,788 thousand were paid, which have been recorded as Other Personnel Expenses (see Note 44).

Medical benefit commitments

The change in defined benefit obligations and plan assets during the years 2016, 2015 and 2014 was as follows:

Millions of Euros
2016 2015 2014
Medical Benefits Commitments Defined Benefit Obligation Plan Assets Net Liability (asset) Defined Benefit Obligation Plan Assets Net Liability (asset) Defined Benefit Obligation Plan Assets Net Liability (asset)
Balance at the beginning 1,022 1,149 (127) 1,083 1,240 (157) 811 938 (128)
Current service cost 24 - 24 31 - 31 23 - 23
Interest income or expense 86 97 (11) 95 109 (14) 78 90 (13)
Contributions by plan participants - - - - - - - - -
Employer contributions - 114 (114) - - - - 183 (183)
Past service costs (1) (5) - (5) 1 - 1 1 - 1
Remeasurements: 59 (60) 119 (87) (94) 7 190 46 144
Return on plan assets (2) - (60) 60 - (94) 94 - 46 (46)
From changes in demographic assumptions 110 - 110 - - - - - -
From changes in financial assumptions (91) - (91) (91) - (91) 181 - 181
Other actuarial gain and losses 39 - 39 4 - 4 10 - 10
Benefit payments (33) (30) (2) (30) (30) - (29) (28) (1)
Settlement payments - - - (2) - (2) - - -
Business combinations and disposal - - - - - - - - -
Effect on changes in foreign exchange rates (138) (156) 18 (69) (76) 8 9 10 (1)
Other effects - - - - - - - 1 (1)
Balance at the end 1,015 1,113 (98) 1,022 1,149 (127) 1,083 1,240 (157)

Download Excel

In Mexico there is a medical benefit plan for employees hired prior to 2007. New employees from 2007 are covered by medical insurance policy. An external trust has been constituted locally to fund the plan, in accordance with local legislation and Group policy.

In Turkey employees are currently provided with medical benefits through a foundation in collaboration with the social security system, although local legislation prescribes the future unification of this and similar systems into the general social security system itself.

The valuation of these benefits and their accounting treatment follow the same methodology as that employed in the valuation of pension commitments.

Estimated benefit payments

The estimated benefit payments over the next ten years for all the entities in Spain, Mexico, The United States and Turkey are as follows:

Millions of Euros
Estimated Benefit Payments 2017 2018 2019 2020 2021 2022-2026
Commitments in Spain 820 736 652 563 470 1,269
Commitments in Mexico 79 80 84 88 93 556
Commitments in United States 17 18 18 19 20 112
Commitments in Turkey 25 15 16 18 21 165
Total 941 849 770 688 604 2,102

Download Excel

Plan assets

The majority of the Group´s defined benefit plans are funded by plan assets held in external funds/trusts legally separate from the Group sponsoring entity. However, in accordance with local regulation, some commitments are not externally funded and covered through internally held provisions, principally those relating to early retirements in Spain.

Plan assets are those assets which will be used to directly settle the assumed commitments and which meet the following conditions: they are not part of the Group sponsoring entity´s assets, they are available only to pay post-employment benefits and they cannot be returned to the Group sponsoring entity.

To manage the assets associated with defined benefit plans, BBVA Group has established investment policies designed according to criteria of prudence and minimizing the financial risks associated with plan assets.

The investment policy consists of investing in a low risk and diversified portfolio of assets with maturities consistent with the term of the benefit obligation and which, together with contributions made to the plan, will be sufficient to meet benefit payments when due, thus mitigating the plans‘ risks.

In those countries where plan assets are held in pension funds or trusts, the investment policy is developed consistently with local regulation. When selecting specific assets, current market conditions, the risk profile of the assets and their future market outlook are all taken into consideration. In all the cases, the selection of assets takes into consideration the term of the benefit obligations as well as short-term liquidity requirements.

The risks associated with these commitments are those which give rise to a deficit in the plan assets. A deficit could arise from factors such as a fall in the market value of plan assets, an increase in long-term interest rates leading to a decrease in the fair value of fixed income securities, or a deterioration of the economy resulting in more write-downs and credit rating downgrades.
The table below shows the allocation of plan assets of the main companies of the BBVA Group as of December 31, 2016:

Millions of Euros
Plan Assets Breakdown 2016
Cash or cash equivalents 151
Debt securities (Government bonds) 2,150
Property 1
Mutual funds 1
Insurance contracts 5
Other investments 9
Total 2,317
Of which: 2,317
Bank account in BBVA 4
Debt securities issued by BBVA 3

Download Excel

In addition to the above there are plan assets relating to the previously mentioned insurance contracts in Spain and the foundation in Turkey.

The following table provides details of investments in listed securities (Level 1) as of December 31, 2016:

Millions of Euros
Investments in listed markets 2016
Cash or cash equivalents 151
Debt securities (Government bonds) 2,150
Mutual funds 1
Total 2,302
Of which:  
Bank account in BBVA 4
Debt securities issued by BBVA 3

Download Excel

The remainders of the assets are mainly invested in Level 2 assets in in accordance with the classification established under IFRS 13 (mainly insurance contracts). As of December 31, 2016, almost all of the assets related to employee’s commitments corresponded to fixed income securities.

Defined contribution plans

Certain Group entities sponsor defined contribution plans. Some of these plans allow employees to make contributions which are then matched by the employer.

Contributions are recognized as and when they are accrued, with a charge to the consolidated income statement in the corresponding financial year. No liability is therefore recognized in the accompanying consolidated balance sheet (see Note 44.1).

26. Common stock

As of December 31, 2016, BBVA’s common stock amounted to €3,217,641,468.58 divided into 6,566,615,242 fully subscribed and paid-up registered shares, all of the same class and series, at €0.49 par value each, represented through book-entry accounts. All of the Bank shares carry the same voting and dividend rights, and no single stockholder enjoys special voting rights. Each and every share is part of the Bank’s common stock.

The Bank’s shares are traded on the Spanish stock market, as well as on the London and Mexico stock markets. BBVA American Depositary Shares (ADSs) traded on the New York Stock Exchange. Also, as of December 31, 2016, the shares of BBVA Banco Continental, S.A., Banco Provincial S.A., BBVA Colombia, S.A., BBVA Chile, S.A., and BBVA Banco Frances, S.A. were listed on their respective local stock markets. BBVA Banco Frances, S.A. is also listed on the Latin American market (Latibex) of the Madrid Stock Exchange and on the New York Stock Exchange.

As of December 31, 2016, State Street Bank and Trust Co., Chase Nominees Ltd and The Bank of New York Mellon SA NV in their capacity as international custodian/depositary banks, held 11.74%, 7.04%, and 5.18% of BBVA common stock, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding.

On January 13, 2016, the Blackrock, Inc. reported to the Spanish Securities and Exchange Commission (CNMV) that, it now has an indirect holding of BBVA common stock totaling 5.606%, of which 5.253% are voting rights attributed to shares and 0,353% are voting rights through financial instruments.

BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. BBVA has not received any information on stockholder agreements including the regulation of the exercise of voting rights at its annual general meetings or restricting or placing conditions on the free transferability of BBVA shares. No agreement is known that could give rise to changes in the control of the Bank.

The changes in the heading “Common Stock” of the accompanying consolidated balance sheets are due to the following common stock increases:

Capital Increase Number of Shares Common Stock (Millions of Euros)
As of December 31, 2014 6,171,338,995 3,024
Dividend option - January 2015 53,584,943 26
Dividend option - April 2015 80,314,074 39
Dividend option - October 2015 61,442,106 30
As of December 31, 2015 6,366,680,118 3,120
Dividend option - April 2016 113,677,807 56
Dividend option - October 2016 86,257,317 42
As of December 31, 2016 6,566,615,242 3,218

Download Excel

“Dividend Option” Program in 2016:

The AGM held on March 11, 2016 under Third Point of the Agenda, adopted four resolutions on capital increase to be charged to reserves, to once again implement the shareholder remuneration program called the “Dividend Option” (see Note 4), pursuant to article 297.1 a) of the Spanish Corporate Enterprises Act, conferring on the Board of Directors the authority to indicate the date on which said capital increases should be carried out, within one year of the date of the AGM, including the power not to implement any of the resolutions, when deemed advisable.

As a consequence of such agreement, on March 31, 2016, the Board of Directors of BBVA approved the execution of the first of the capital increases charged to voluntary reserves agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €55,702,125.43 through the issue and circulation of 113,677,807 shares with a €0.49 par value each.

On September 28, 2016, the Board of Directors of BBVA approved the execution of the second of the capital increases charged to voluntary reserves agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €42,266,085.33 through the issue and circulation of 86,257,317 shares with a €0.49 par value each.

“Dividend Option” Program in 2015:

The AGM held on March 13, 2015 under Point Four of the Agenda, adopted four resolutions on capital increase to be charged to voluntary reserves, to once again implement the shareholder remuneration program called the “Dividend Option” (see Note 4), pursuant to article 297.1 a) of the Spanish Corporate Enterprises Act, conferring on the Board of Directors the authority to indicate the date on which said capital increases should be carried out, within one year of the date of the AGM, including the power not to implement any of the resolutions, when deemed advisable.

On March 25, 2015, the Board of Directors of BBVA approved the execution of the first of the capital increases charged to voluntary reserves agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €39,353,896.26 through the issue and circulation of 80,314,074 shares with a €0.49 par value each.

Likewise, on September 30, 2015, the Board of Directors of BBVA approved the execution of the second of the capital increases charged to voluntary reserves agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €30,106,631.94 through the issue and circulation of 61,442,106 shares with a €0.49 par value each.

“Dividend Option” Program in 2014:

Formerly, on December 17, 2014, Board of Directors of BBVA approved the execution of the third of the capital increases charged to reserves agreed by the aforementioned AGM. As of January 14, 2015, the Bank’s common stock increased by €26,256,622.07 through the issue and circulation of 53,584,943 ordinary shares with a €0.49 par value each, of the same class and series as the shares currently in circulation, without issuance premium and represented by book entries.

Capital increase

The Bank’s AGM held on March 16, 2012 agreed, in Point Three of the Agenda, to confer authority on the Board of Directors to increase common stock in accordance with Article 297.1.b) of the Corporations Act, on one or several occasions, within the legal deadline of five years from the date the resolution takes effect, up to the maximum nominal amount of 50% of the subscribed and paid-up common stock on the date on which the resolution is adopted. Likewise, an agreement was made to enable the Board of Directors to exclude the preemptive subscription right on those common stock increases in line with the terms of Article 506 of the Corporations Act. This authority is limited to 20% of the common stock of the Bank on the date the agreement is adopted.

On November 19, 2014, the Board of Directors of BBVA, exercising the authority delegated by the AGM held on March 16, 2012 under point Three of its Agenda, decided to carry out a capital increase though an accelerated bookbuilt offering.

On November 20, 2014, the capital increase finished with a total par value of €118,787,879.56 through the issue of 242,424,244 shares of BBVA, each with a par value of €0.49, of the same class and series as the shares currently in circulation and represented by book entries. The subscription price of these new shares was determined to be €8.25 per share (corresponding €0.49 to par value and €7.76 to share premium). Therefore, the total effective amount of the Capital Increase was of €2,000,000,013 corresponding €118,787,879.56 euros to par value and €1,881,212,133.44 euros to share premium (see Note 27).

Convertible and/or exchangeable securities:

At the AGM held on March 16, 2012 the shareholders resolved, in Point Five of the Agenda, to delegate to the Board of Directors the authority to issue bonds, convertible and/or exchangeable into BBVA shares, for a maximum total of €12 billion. The authority include the right to establish the different aspects and conditions of each issue; to exclude the pre-emptive subscription right of shareholders in accordance with the Corporations Act; to determine the basis and methods of conversion and/or exchange; and to increase the Banks common stock as required to address the conversion commitments.

Exercising the authority delegated by the AGM, BBVA, on April 8, 2016, BBVA S.A. has agreed to carry out the fourth issue of perpetual contingent convertible securities, convertible into issued ordinary shares of BBVA (Additional level I capital instruments), without pre-emption rights, for a nominal total amount of €1.000 million (see Note 22.3).

Likewise, exercising the authority delegated by the AGM, BBVA, on February 10, 2015, BBVA S.A. has agreed to carry out the third issue of perpetual contingent convertible securities, convertible into issued ordinary shares of BBVA (Additional level I capital instruments), without pre-emption rights, for a nominal total amount of €1.500 million (see Note 22.4).

Exercising the authority delegated by the AGM, BBVA, in 2014, BBVA S.A. has agreed to carry out the second issue of perpetual contingent convertible securities, convertible into issued ordinary shares of BBVA (Additional level I capital instruments), without pre-emption rights, for a nominal total amount of €1.500 million.

Other securities:

At the AGM held on March 13, 2015, in Point Three of the agenda, the shareholders resolve to delegate to the Board of Directors, the authority to issue, within the three-year maximum period stipulated by law, on one or several occasions, directly or through subsidiaries, with the full guarantee of the Bank, any type of fixed-income securities, documented in obligations, bonds of any kind, promissory notes, all type of covered bonds, warrants, mortgage participation, mortgage transfers certificates and preferred securities (that are totally or partially exchangeable for shares already issued by the Bank or by another company, in the market or which can be settled in cash), or any other fixed-income securities, in euros or any other currency, that can be subscribed in cash or in kind, registered or bearer, unsecured or secured by any kind of collateral, including a mortgage guarantee, with or without incorporation of rights to the securities (warrants), subordinate or otherwise, for a limited or indefinite period of time, up to a maximum nominal amount of €250 billion.

27. Share premium

There are no changes for years 2016 and 2015 in the balances under this heading in the accompanying consolidated balance sheets, amounting €23,992 million due to the common stock increases carried out in 2014 (see Note 26).

The amended Spanish Corporation Act expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use.

28. Retained earnings, revaluation reserves and other reserves

The breakdown of the balance under this heading in the accompanying consolidated balance sheet is as follows:

Millions of Euros
Retained earnings, revaluation reserves and other reserves. Breakdown by concepts Notes 2016 2015 2014
Legal reserve 28.1 624 605 567
Restricted reserve for retired capital 28.2 201 213 268
Reserves for balance revaluations   20 22 23
Voluntary reserves   8,521 6,971 6,784
Total reserves holding company (*))   9,366 7,811 7,642
Consolidation reserves attributed to the Bank and dependents consolidated companies.   14,275 14,701 13,294
Total   23,641 22,512 20,936

Download Excel

Under the amended Corporations Act, 10% of any profit made each year must be transferred to the legal reserve. The transfer must be made until the legal reserve reaches 20% of the common stock.

The legal reserve can be used to increase the common stock provided that the remaining reserve balance does not fall below 10% of the increased capital. While it does not exceed 20% of the common stock, it can only be allocated to offset losses exclusively in the case that there are not sufficient reserves available.

28.2 Restricted reserves

As of December 31, 2016, 2015 and 2014, the Bank’s restricted reserves are as follows:

Millions of Euros
Restricted Reserves 2016 2015 2014
Restricted reserve for retired capital 88 88 88
Restricted reserve for Parent Company shares and loans for those shares 111 123 178
Restricted reserve for redenomination of capital in euros 2 2 2
Total 201 213 268

Download Excel

The restricted reserve for retired capital resulted from the reduction of the nominal par value of the BBVA shares made in April 2000.

The most significant heading corresponds to restricted reserves related to the amount of shares issued by the Bank in its possession at each date, as well as the amount of customer loans outstanding at those dates that were granted for the purchase of, or are secured by, the Bank’s shares.

Finally, pursuant to Law 46/1998 on the Introduction of the Euro, a restricted reserve is recognized as a result of the rounding effect of the redenomination of the Bank’s common stock in euros.

28.3 Retained earnings, revaluation reserves and other reserves by entity

The breakdown, by company or corporate group, under the heading “Reserves” in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Retained earnings, Revaluation reserves and Other reserves 2016 2015 2014
Accumulated income and Revaluation reserves      
Holding Company 14,101 14,763 11,634
BBVA Bancomer Group 9,108 8,178 7,482
BBVA Seguros, S.A. (62) 261 431
Corporacion General Financiera, S.A. 1,187 1,192 711
BBVA Banco Provincial Group 1,752 1,751 1,592
BBVA Chile Group 1,264 1,115 1,048
Compañía de Cartera e Inversiones, S.A. (27) (16) 10
Anida Grupo Inmobiliario, S.L. 528 527 589
BBVA Suiza, S.A. (1) (4) (17)
BBVA Continental Group 611 506 437
BBVA Luxinvest, S.A. 16 33 467
BBVA Colombia Group 803 656 492
BBVA Banco Francés Group 827 621 439
Banco Industrial de Bilbao, S.A. 61 33 43
Uno-E Bank, S.A. (*) - (62) (65)
Gran Jorge Juan, S.A. (30) (40) (45)
BBVA Portugal Group (477) (511) (519)
Participaciones Arenal, S.L. (180) (180) (180)
BBVA Propiedad S.A. (431) (412) (342)
Anida Operaciones Singulares, S.L. (4,127) (3,962) (1,788)
Grupo BBVA USA Bancshares (1,053) (1,459) (1,747)
Garanti Turkiye Bankasi Group 127 - -
Unnim Real Estate (477) (403) (348)
Bilbao Vizcaya Holding, S.A. 139 73 70
BBVA Autorenting, S.A. (38) (49) (30)
Pecri Inversión S.L. (75) (78) 15
Other 162 77 (75)
Subtotal 23,708 22,610 20,304
Reserves or accumulated losses of investments in joint ventures and associates      
Citic International.Financial Holdings Limited - - 197
Garanti Turkiye Bankasi Group - - 609
Metrovacesa - (143) (68)
Metrovacesa Suelo (52) - (94)
Other (15) 45 (11)
Subtotal (67) (98) 633
Total 23,641 22,512 20,937

Download Excel

For the purpose of allocating the reserves and accumulated losses to the consolidated entities and to the parent company, the transfers of reserves arising from the dividends paid and transactions between these entities are taken into account in the period in which they took place.

29. Treasury shares

In the years ended December 31, 2016, 2015 and 2014 the Group entities performed the following transactions with shares issued by the Bank:

2016 2015 2014
Treasury Stock Number of Shares Millions of Euros Number of Shares Millions of Euros Number of Shares Millions of Euros
Balance at beginning 38,917,665 309 41,510,698 350 6,876,770 66
+ Purchases 379,850,939 2,004 431,321,283 3,273 425,390,265 3,770
- Sales and other changes (411,537,817) (2,263) (433,914,316) (3,314) (390,756,337) (3,484)
+/- Derivatives on BBVA share - (1) - - - (3)
+/- Other changes - - - - - -
Balance at the end 7,230,787 48 38,917,665 309 41,510,698 350
Of which:            
Held by BBVA, S.A. 2,789,894 22 1,840,378 19 5,001,897 46
Held by Corporación General Financiera, S.A. 4,440,893 26 37,077,287 290 36,480,861 304
Held by other subsidiaries - - - - 27,940 -
Average purchase price in Euros 5.27   7.60   8.86  
Average selling price in Euros 5.50   7.67   8.94  
Net gain or losses on transactions
(Shareholders' funds-Reserves)   (30)   6   5

Download Excel

The percentages of treasury stock held by the Group in the years ended December 31, 2016, 2015 and 2014 are as follows:

2016 2015 2014
Treasury Stock Min Max Closing Min Max Closing Min Max Closing
% treasury stock 0.081% 0.756% 0.110% 0.000% 0.806% 0.613% 0.000% 0.699% 0.672%

Download Excel

The number of BBVA shares accepted by the Group in pledge of loans as of December 31, 2016, 2015 and 2014 is as follows:

Shares of BBVA Accepted in Pledge 2016 2015 2014
Number of shares in pledge 90,731,198 92,703,291 97,795,984
Nominal value 0.49 0.49 0.49
% of share capital 1.38% 1.46% 1.58%

Download Excel

The number of BBVA shares owned by third parties but under management of a company within the Group as of December 31, 2016, 2015 and 2014 is as follows:

Shares of BBVA Owned by Third Parties but Managed by the Group 2016 2015 2014
Number of shares owned by third parties 85,766,602 92,783,913 101,425,692
Nominal value 0.49 0.49 0.49
% of share capital 1.31% 1.46% 1.64%

Download Excel

30. Accumulated other comprehensive income

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Accumulated other comprehensive income 2016 2015 2014
Items that will not be reclassified to profit or loss (1,095) (859) (777)
Actuarial gains or (-) losses on defined benefit pension plans (1,095) (859) (777)
Non-current assets and disposal groups classified as held for sale - - -
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates - - -
Other adjustments - - -
Items that may be reclassified to profit or loss (4,363) (2,490) 429
Hedge of net investments in foreign operations (effective portion) (118) (274) (373)
Foreign currency translation (5,185) (3,905) (2,173)
Hedging derivatives. Cash flow hedges (effective portion) 16 (49) (46)
Available-for-sale financial assets 947 1,674 3,816
Non-current assets and disposal groups classified as held for sale - - -
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates (23) 64 (796)
Total (5,458) (3,349) (348)

Download Excel

The balances recognized under these headings are presented net of tax.

The main variation is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not euros. In this regard, the increase in item “Foreign currency translation” in the above table in the year 2016 is mainly related to the depreciation of the Mexican peso and the Turkish lira, partially offset by the appreciation of the U.S. dollar against the euro.

31. Non-controlling interests

The breakdown by groups of consolidated entities of the balance under the heading “Non-controlling interests” of total equity in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Non-Controlling Interests 2016 2015 2014
BBVA Colombia Group 67 58 59
BBVA Chile Group 377 314 347
BBVA Banco Continental Group 1,059 913 839
BBVA Banco Provincial Group 97 100 958
BBVA Banco Francés Group 243 220 230
Garanti Group (Note 3) 6,157 6,302 -
Other companies 64 86 78
Total 8,064 7,992 2,511

Download Excel

These amounts are broken down by groups of consolidated entities under the heading “Profit - Attributable to non-controlling interests” in the accompanying consolidated income statements:

Millions of Euros
Profit attributable to Non-Controlling Interest 2016 2015 2014
BBVA Colombia Group 9 11 11
BBVA Chile Group 40 42 53
BBVA Banco Continental Group 193 211 195
BBVA Banco Provincial Group (2) - 131
BBVA Banco Francés Group 55 76 65
Garanti Group (Note 3) 917 316 -
Other companies 8 30 9
Total 1,218 686 464

Download Excel

Dividends distributed to non-controlling interests of the Group during the year 2016 are: BBVA Banco Continental Group €90 million, BBVA Chile Group €11 million, BBVA Banco Francés Group €12 million, Garanti Group €106 million, BBVA Colombia Group €4 million, and other Spanish entities accounted for €5 million.

32. Capital base and capital management

Capital base

As of December 31, 2016, 2015 and 2014, equity is calculated in accordance with current regulation on minimum capital base requirements for Spanish credit institutions –both as individual entities and as consolidated group– and how to calculate them, as well as the various internal capital adequacy assessment processes they should have in place and the information they should disclose to the market.

The minimum capital base requirements established by the current regulation are calculated according to the Group’s 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 said regulation and the internal corporate governance obligations.

As a result of the Supervisory Review and Evaluation Process (SREP) carried out by the European Central Bank (ECB), BBVA has received a communication from the ECB requiring BBVA to maintain, on a consolidated basis, effective from the 1st of January 2017, a phased-in total capital of 11,125% and on an individual bases, a phased-in total capital of 10.75%.

This total capital requirement of 11,125% includes: i) the minimum CET1 capital ratio required under Pillar 1 (4.5%); ii) Pillar 1 Additional Tier 1 capital requirements (1.5%); iii) Pillar 1 Tier 2 capital requirements (2%); iv) Pillar 2 CET1 capital requirement (1.5%); v) the capital conservation buffer (CCB) (1.25% CET1 in a phased-in term and 2.5% in a fully loaded term) and vi) the Other Systemic Important Institution buffer (OSII) (0,375% CET1 in a phased-in term and 0.75% in a fully loaded term).

Since BBVA has been excluded from the list of global systemically important financial institutions in 2016 (which is updated every year by the Financial Stability Board (FSB)), as of January 1, 2017, the G-SIB buffer will not apply to BBVA in 2017, (notwithstanding the possibility that the FSB or the supervisor may include BBVA on it in the future).

However, the supervisor has informed BBVA that it is included on the list of other systemically important financial institutions, and a D-SIB buffer of 0.75% of the fully-loaded ratio applies at the consolidated level. It will be implemented gradually from January 1, 2016 to January 1, 2019.

The CET1 requirement on phased-in terms stands at 7,625% on a consolidated basis and 7.25% on an individual basis.

The Group’s bank capital in accordance with the aforementioned applicable regulation, considering entities scope required by the above regulation, as of December 31, 2016, 2015 and 2014 is shown below: (please note that the information for the latter period has been adapted to the new presentation format for comparison purposes):

Millions of Euros
Eligible capital resources Reconciliation of total equity with regulatory capital December 2016 (*) Reconciliation of total equity with regulatory capital December 2015 (**) Reconciliation of total equity with regulatory capital December 2014
Capital 3,218 3,120 3,024
Share premium 23,992 23,992 23,992
Retained earnings, revaluation reserves and other reserves 23,641 22,512 20,936
Other equity instruments (net) 54 35 67
Treasury shares (48) (309) (350)
Attributable to the parent company 3,475 2,642 2,618
Attributable dividend (1,510) (1,352) (841)
Total Equity 52,821 50,640 49,446
Accumulated other comprehensive income (5,458) (3,349) (348)
Non-controlling interests 8,064 8,149 2,511
Shareholders´ equity 55,428 55,440 51,610
Intangible assets (5,675) (3,901) (1,748)
Fin. treasury shares (82) (95) (124)
Indirect treasury shares (51) (415) -
Deductions (5,808) (4,411) (1,872)
Temporary CET 1 adjustments (129) (788) (3,567)
Capital gains from the Available-for-sale debt instruments portfolio (402) (796) (2,713)
Capital gains from the Available-for-sale equity portfolio 273 8 (854)
Differences from solvency and accounting level (120) (40) (140)
Equity not eligible at solvency level (249) (828) (3,707)
Other adjustments and deductions (2,001) (1,647) (1,414)
Common Equity Tier 1 (CET 1) 47,370 48,554 44,617
Additional Tier 1 before Regulatory Adjustments 6,114 5,302 4,205
Total Regulatory Adjustments of Aditional Tier 1 (3,401) (5,302) (6,990)
Tier 1 50,083 48,554 41,831
Tier 2 8,810 11,646 10,986
Total Capital (Total Capital=Tier 1 + Tier 2) 58,893 60,200 52,817
Total Minimum equity required 37,923 38,125 28,064

Download Excel

Millions of Euros
Capital Base 2016 (*) 2015 2014
Tier 1 (thousand of euros) (a) 50,083 48,554 41,832
Exposure (thousand of euros) (b) 747,217 766,589 671,081
Leverage ratio (a)/(b) (percentage) 6.70% 6.33% 6.23%

Download Excel

Variations in the amount of Tier 1 Common Equity in the above table are mainly explained by the organic generation of capital leaning against the recurrence of the results, net of dividends paid and remunerations; and the efficient management and allocation of capital in line with the strategic objectives of the Group.

Additionally, there is a negative effect on the minority interests and deductions due to the regulatory phase-in calendar of 60% in 2016 compared with 40% in 2015.

During the first semester of the year, BBVA Group has completed the additional Tier 1 capital recommended by the Regulator (1.5% of Risk-Weighted Assets) with the issuance of perpetual securities eventually convertible into shares, classified as additional Tier 1 equity instruments (contingent convertible) under the solvency rules and contributing to the ratio of Tier 1 stood at 12.88%

Finally, the total capital ratio is located at 15.14% reflecting the effects discussed above.

The increase in minimum capital requirements is mainly due to the consideration of the aforementioned new prudential capital requirements applicable to BBVA.

A reconciliation of the balance sheet to the accounting and regulatory scope (provisional data) as of December 31, 2016 is provided below:

Millions of Euros
Public balance sheet headings Public balance sheet Insurance companies and real estate companies Jointly controlled entities and other adjustments Regulatory balance sheet
Cash and balances with central banks and other demand deposits 40,039 - 59 40,098
Financial assets held for trading 74,950 (1,117) 2,509 76,342
Other financial assets designated at fair value through profit or loss 2,062 (2,058) - 4
Available-for-sale financial assets 79,221 (20,608) 25 58,638
Loans and receivables 465,977 (1,298) 2,010 466,689
Held-to-maturity investments 17,696 - - 17,696
Fair value changes of the hedged items in portfolio hedges of interest rate risk 2,833 (124) - 2,709
Hedging derivatives 17 - - 17
Non-current assets held for sale 765 3,716 (103) 4,378
Investments in entities accounted for using the equity method 3,603 (14) (29) 3,560
Other 44,693 (2,862) 2,622 44,453
Total Assets 731,856 (24,365) 7,093 714,584

Download Excel

Capital management

Capital management in the BBVA Group has a twofold aim:

This capital management is carried out determining the capital base and the solvency ratios established by the prudential and minimum capital requirements also have to be met for the entities subject to prudential supervision in each country.

The current regulation allows each entity to apply its own internal ratings-based (IRB) approach to risk assessment and capital management, subject to Bank of Spain approval. The BBVA Group carries out an integrated management of these risks in accordance with its internal policies and its internal capital estimation model has received the Bank of Spain’s approval for certain portfolios (see Note 7).

33. Commitments and guarantees given

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Millions of Euros
Loan commitments, financial guarantees and other commitments 2016 2015
Loan commitments given 107,254 123,620
of which: defaulted 411 446
Central banks 1 8
General governments 4,354 3,823
Credit institutions 1,209 1,239
Other financial corporations 4,155 4,032
Non-financial corporations 71,710 71,583
Households 25,824 42,934
Financial guarantees given 18,267 19,176
of which: defaulted 278 146
Central banks - -
General governments 103 100
Credit institutions 1,553 1,483
Other financial corporations 722 1,621
Non-financial corporations 15,354 15,626
Households 534 346
Other commitments and guarantees given 42,592 42,813
of which: defaulted 402 517
Central banks 12 15
General governments 372 101
Credit institutions 9,880 9,640
Other financial corporations 4,892 5,137
Non-financial corporations 27,297 27,765
Households 138 156
Total Loan commitments and financial guarantees 168,113 185,609

Download Excel

Since a significant portion of the amounts above will expire without any payment being made by the consolidated entities, the aggregate balance of these commitments cannot be considered the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.

In the years 2016 and 2015 no issuance of debt securities carried out by associates of the BBVA Group, joint venture entities or non-Group entities have been guaranteed.

34. Other contingent assets and liabilities

As of December 30, 2016, 2015 and 2014 there were no material contingent assets or liabilities other than those disclosed in the accompanying notes to the financial statements.

35. Purchase and sale commitments and future payment obligations

The breakdown of purchase and sale commitments of the BBVA Group as of December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
Purchase and Sale Commitments Notes 2016 2015 2014
Financial instruments sold with repurchase commitments   46,562 68,401 66,326
Central banks 9 4,649 19,065 8,774
Credit institutions 22.1 28,421 26,069 32,935
General governments 22.2 - 7,556 3,022
Other domestic sectors 22.2 5,271 11,092 13,306
Foreign sectors 22.2 8,221 4,619 8,289
Financial instruments purchased with resale commitments   22,921 16,935 17,639
Central banks 9 81 149 209
Credit institutions 13.1 15,561 11,749 10,440
General governments 13.2 544 326 378
Other domestic sectors 13.2 3,388 3,952 5,932
Foreign sectors 13.2 3,347 758 680

Download Excel

A breakdown of the maturity of other payment obligations, not included in previous notes, due after December 31, 2016 is provided below:

Millions of Euros
Maturity of Future Payment Obligation Up to 1 Year 1 to 3 Years 3 to 5 Years Over 5 Years Total
Finance leases - - - - -
Operating leases 263 305 321 2,397 3,286
Purchase commitments 23 - - - 23
Technology and systems projects 2 - - - 2
Other projects 20 - - - 20
Total 286 305 321 2,397 3,309

Download Excel

36. Transactions on behalf of third parties

As of December 31, 2016, 2015 and 2014 the details of the most significant items under this heading are as follows:

Millions of Euros
Transactions on Behalf of Third Parties 2016 2015 2014
Financial instruments entrusted by third parties 637,761 664,911 602,791
Conditional bills and other securities received for collection 16,054 15,064 4,438
Securities lending 3,968 4,125 3,945
Total 657,783 684,100 611,174

Download Excel

As of December 31, 2016, 2015 and 2014 the customer funds managed by the BBVA Group are as follows:

Millions of Euros
Customer Funds by Type 2016 2015 2014
Asset management by type of customer (*):      
Collective investment 55,037 54,419 52,782
Pension funds 33,418 31,542 27,364
Customer portfolios managed on a discretionary basis 40,805 42,074 35,129
Of which:      
Portfolios managed on a discretionary 18,165 19,919 17,187
Other resources 2,831 3,786 3,577
Customer resources distributed but not managed by type of product:      
Collective investment 3,695 4,181 3,197
Collective investment 39 41 -
Other - 31 30
Total 135,824 136,074 118,502

Download Excel

37. Interest income and expense

37.1 Interest income

The breakdown of the interest and similar income recognized in the accompanying consolidated income statement is as follows:

Millions of Euros
Interest Income. Breakdown by Origin 2016 2015 2014
Central banks 229 140 132
Loans and advances to credit institutions 217 260 235
Loans and advances to customers 21,608 19,200 17,565
General governments 408 550 693
Resident sector 2,983 3,360 3,754
Non resident sector 18,217 15,290 13,118
Debt securities 4,128 3,792 3,486
Held for trading 1,014 981 1,134
Available-for-sale financial assets 3,114 2,810 2,352
Adjustments of income as a result of hedging transactions (385) (382) (321)
Cash flow hedges (effective portion) 12 47 6
Fair value hedges (397) (429) (327)
Insurance activity 1,219 1,152 1,199
Other income 692 621 542
Total 27,708 24,783 22,838

Download Excel

The amounts recognized in consolidated equity in connection with hedging derivatives and the amounts derecognized from consolidated equity and taken to the consolidated income statement during both periods are given in the accompanying “Consolidated statements of recognized income and expenses”.

37.2 Interest expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
Interest Expenses. Breakdown by Origin 2016 2015 2014
Central banks 192 138 62
Deposits in financial institutions 1,367 1,186 1,012
Customer deposits 5,766 4,340 4,246
Debt securities issued 2,323 2,548 2,546
Adjustments of expenses as a result of hedging transactions (574) (859) (930)
Cash flow hedges (effective portion) 42 (16) (18)
Fair value hedges (616) (844) (912)
Cost attributable to pension funds (Note 25) 96 108 172
Insurance activity 846 816 912
Other expenses 634 484 436
Total 10,648 8,761 8,456

Download Excel

37.3 Average return on investments and average borrowing cost

The detail of the average return on investments in the years ended December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
2016 2015 2014
Assets Average Balances Interest income Average Interest Rates (%) Average Balances Interest income Average Interest Rates (%) Average Balances Interest income Average Interest Rates (%)
Cash and balances with central banks and other demand deposits 26,209 10 0.04 23,542 2 0.01 15,219 4 0.02
Securities portfolio and derivatives 202,388 5,072 2.51 211,589 4,673 2.21 181,762 4,505 2.48
Loans and advances to central banks 15,326 229 1.50 12,004 140 1.17 11,745 132 1.12
Loans and advances to credit institutions 28,078 218 0.78 27,171 270 0.99 22,811 234 1.03
Loans and advances to customers 410,895 21,853 5.32 382,125 19,471 5.10 328,183 17,803 5.42
Euros 201,967 3,750 1.86 196,987 4,301 2.18 186,965 4,843 2.59
Foreign currency 208,928 18,104 8.67 185,139 15,170 8.19 141,218 12,960 9.18
Other assets 52,748 325 0.62 49,128 226 0.46 40,686 159 0.39
Totals 735,645 27,708 3.77 705,559 24,783 3.51 600,407 22,838 3.80

Download Excel

The average borrowing cost in the years ended December 31, 2016, 2015 and 2014 is as follows:

Millions of Euros
2016 2015 2014
Liabilities Average Balances Interest income Average Interest Rates (%) Average Balances Interest income Average Interest Rates (%) Average Balances Interest income Average Interest Rates (%)
Deposits from central banks and credit institutions 101,975 1,866 1.83 99,289 1,559 1.57 81,860 1,292 1.58
Customer deposits 398,851 5,944 1.49 366,249 4,390 1.20 307,705 4,335 1.41
Euros 195,310 766 0.39 187,721 1,024 0.55 160,946 1,725 1.07
Foreign currency 203,541 5,178 2.54 178,528 3,366 1.89 146,759 2,610 1.78
Debt certificates issued 89,876 1,738 1.93 89,672 1,875 2.09 80,132 1,831 2.29
Other liabilities 89,328 1,101 1.23 96,049 936 0.97 83,620 998 1.19
Equity 55,616 - - 54,300 - - 47,091 - -
Totals 735,645 10,648 1.45 705,559 8,761 1.24 600,407 8,456 1.41

Download Excel

The change in the balance under the headings “Interest and similar income” and “Interest and similar expenses” in the accompanying consolidated income statements is the result of exchange rate effect, changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:

Millions of Euros
2016 / 2015 2015 / 2014
Interest Income and Expenses. Change in the Balance Volume Effect (1) Price Effect (2) Total Effect Volume Effect (1) Price Effect (2) Total Effect
Cash and balances with central banks and other demand deposits - 7 8 2 (4) (1)
Securities portfolio and derivatives (203) 602 399 739 (572) 168
Loans and advances to Central Banks 39 51 89 3 5 8
Loans and advances to credit institutions 9 (61) (52) 45 (9) 36
Loans and advances to customers 1,466 916 2,382 2,926 (1,258) 1,668
In Euros 109 (660) (552) 260 (801) (542)
In Foreign currency 1,949 985 2,934 4,031 (1,821) 2,210
Other assets 17 82 99 33 34 67
Interest income     2,925     1,945
Deposits from central banks and credit institutions 42 265 307 275 (8) 267
Customer deposits 391 1,162 1,553 825 (769) 56
Domestic 41 (300) (258) 287 (988) (701)
Foreign currency 472 1,340 1,812 565 192 757
Debt certificates issued 4 (142) (137) 218 (174) 44
Other liabilities (66) 230 165 148 (210) (62)
Interest expenses     1,888     305
Net interest income     1,037     1,641

Download Excel

38. Dividend income

The balances for this heading in the accompanying consolidated income statements correspond to dividends on shares and equity instruments other than those from shares in entities accounted for using the equity method (see Note 39), as can be seen in the breakdown below:

Millions of Euros
Dividend Income 2016 2015 2014
Dividends from:      
Financial assets held for trading 156 144 137
Available-for-sale financial assets 307 271 394
Other 5 - -
Total 467 415 531

Download Excel

39. Share of profit or loss of entities accounted for using the equity method

The breakdown of the balance under the heading “Investments in Entities Accounted for Using the Equity Method” in the accompanying consolidated income statements is as follows:

Millions of Euros
Investments in Entities Accounted for Using the Equity Method 2016 2015 2014
CIFH - - 71
Garanti Group - 167 312
Metrovacesa, S.A. - (46) (75)
Other 25 53 35
Total 25 174 343

Download Excel

40. Fee and commission income and expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
Fee and Commission Income 2016 2015 2014
Credit and debit cards 2,679 2,336 2,061
Asset Management 839 686 594
Transfers and others payment orders 578 474 329
Current accounts 469 405 321
Contingent risks 406 360 297
Securities fees 335 283 274
Commitment fees 237 172 184
Checks 207 239 219
Insurance product commissions 178 171 79
Custody securities 122 314 308
Bills receivables 52 94 77
Other fees and commissions 701 807 787
Total 6,804 6,340 5,530

Download Excel

Millions of Euros
Fee and Commission Expense 2016 2015 2014
Credit and debit cards 1,334 1,113 881
Transfers and others payment orders 102 92 63
Commissions for selling insurance 63 69 53
Other fees and commissions 587 454 360
Total 2,086 1,729 1,356

Download Excel

41. Gains (losses) on financial assets and liabilities (net) and Exchange Differences

The breakdown of the balance under this heading, by source of the related items, in the accompanying consolidated income statements is as follows:

Millions of Euros
Gains or losses on financial assets and liabilities and exchange differences Breakdown by Heading of the Balance Sheet 2016 2015 2014
Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net 1,375 1,055 1,439
Available-for-sale financial assets 1,271 980 1,400
Loans and receivables 95 76 31
Other 10 (1) 7
Gains or losses on financial assets and liabilities held for trading, net 248 (409) 11
Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net 114 126 32
Gains or losses from hedge accounting, net (76) 93 (47)
Subtotal Gains or losses on financial assets and liabilities 1,661 865 1,435
Exchange Differences 472 1,165 699
Total 2,133 2,030 2,134

Download Excel

The breakdown of the balance (excluding exchange rate differences) under this heading in the accompanying income statements by the nature of financial instruments is as follows:

Millions of Euros
Gains or losses on financial assets and liabilities Breakdown by nature of the Financial Instrument 2016 2015 2014
Debt instruments 906 522 1,683
Equity instruments 597 (414) 345
Loans and advances to customers 65 88 35
Derivatives - Hedge accounting 109 561 (648)
Customer deposits 87 83 (4)
Other (103) 25 24
Total 1,661 865 1,435

Download Excel

The breakdown of the balance of the impact of the derivatives (trading and hedging) under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
Derivatives - Hedge accounting 2016 2015 2014
Derivatives      
Interest rate agreements 431 666 (429)
Security agreements 86 751 34
Commodity agreements (29) (1) (1)
Credit derivative agreements (118) 39 76
Foreign-exchange agreements 186 (1,001) (285)
Other agreements (371) 15 4
Subtotal 185 468 (601)
Hedging Derivatives Ineffectiveness     -
Fair value hedges (76) 80 (47)
Hedging derivative (330) (28) (488)
Hedged item 254 108 441
Cash flow hedges - 13 -
Subtotal (76) 93 (47)
Total 109 561 (648)

Download Excel

In addition, in the years ended December 31, 2016, 2015 and 2014, under the heading “Gains or losses on financial assets and liabilities held for trading, net” of the consolidated income statement, net amounts of positive €151 million, positive €135 million, and positive €39 million, respectively were recognized for transactions with foreign exchange trading derivatives.

42. Other operating income and expenses

The breakdown of the balance under the heading “Other operating income” in the accompanying consolidated income statements is as follows:

Millions of Euros
Other operating income 2016 2015 2014
Financial income from non-financial services 882 912 650
Of which: Real estate companies 588 668 464
Rest of other operating income 390 403 309
Of which: from rented buildings 76 90 65
Total 1,272 1,315 959

Download Excel

The breakdown of the balance under the heading “Other operating expenses” in the accompanying consolidated income statements is as follows:

Millions of Euros
Other operating expenses 2016 2015 2014
Change in inventories 617 678 506
Of Which: Real estate companies 511 594 448
Rest of other operating expenses 1,511 1,607 2,200
Total 2,128 2,285 2,706

Download Excel

43. Insurance and reinsurance contracts incomes and expenses

The breakdown of the balance under the headings “Insurance and reinsurance contracts incomes and expenses” in the accompanying consolidated income statements is as follows:

Millions of Euros
Other operating expenses and expenses on insurance and reinsurance contracts 2016 2015 2014
Income on insurance and reinsurance contracts 3,652 3,678 3,622
Expenses on insurance and reinsurance contracts (2,545) (2,599) (2,714)
Total 1,107 1,080 908

Download Excel

The table below shows the contribution of each insurance product to the Group’s income for the year ended December 31, 2016, 2015 and 2014:

Millions of Euros
Revenues by type of insurance product 2016 2015 2014
Life insurance 634 670 599
Individual 268 329 272
Savings 30 80 67
Risk 238 249 205
Group insurance 366 342 327
Savings 8 22 90
Risk 357 320 237
Non-Life insurance 474 409 309
Home insurance 131 127 117
Other non-life insurance products 342 283 192
Total 1,107 1,080 908

Download Excel

44. Administration costs

44.1 Personnel expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
Personnel Expenses Notes 2016 2015 2014
Wages and salaries   5,267 4,868 4,108
Social security costs   784 733 683
Defined contribution plan expense 25 87 84 63
Defined benefit plan expense 25 67 57 58
Other personnel expenses   516 531 498
Total   6,722 6,273 5,410

Download Excel

The breakdown of the average number of employees in the BBVA Group in the years ended December 31, 2016, 2015 and 2014 by professional categories and geographical areas, is as follows:

Average number of employees
Average Number of Employees by Geographical Areas 2016 2015 2014
Spanish banks
Management Team 1,044 1,026 1,079
Other line personnel 23,211 22,702 21,452
Clerical staff 3,730 4,033 3,793
Branches abroad 718 747 758
Subtotal (*) 28,703 28,508 27,081
Companies abroad
Mexico 30,378 29,711 28,798
United States 9,710 9,969 10,193
Turkey (*) 23,900 11,814 -
Venezuela 5,097 5,183 5,221
Argentina 6,041 5,681 5,368
Colombia 5,714 5,628 5,464
Peru 5,455 5,357 5,312
Other 5,037 4,676 4,829
Subtotal 91,332 78,019 65,184
Pension fund managers 335 332 278
Other non-banking companies 16,307 17,337 16,695
Total 136,677 124,196 109,239
Of which:
Men 62,738 57,841 51,724
Woman 73,939 66,355 57,515
Of which:
BBVA, S.A. 25,979 25,475 27,062

Download Excel

The breakdown of the number of employees in the BBVA Group as of December 31, 2016, 2015 and 2014 by category and gender, is as follows:

2016 2015 2014
Number of Employees at the period end Professional Category and Gender Male Female Male Female Male Female
Management Team 1,331 350 1,493 365 1,579 358
Other line personnel 38,514 39,213 38,204 38,868 24,103 21,845
Clerical staff 22,066 33,318 23,854 35,184 25,601 35,284
Total 61,911 72,881 63,551 74,417 51,283 57,487

Download Excel

44.1.1 Share-based employee remuneration

The amounts recognized under the heading “Personnel expenses - Other personnel expenses” in the consolidated income statements for the years ended December 31, 2016, 2015 and 2014 corresponding to the plans for remuneration based on equity instruments in each year, amounted to €57, €38 and €68 million, respectively. These amounts have been recognized with a corresponding entry under the heading “Shareholders’ funds - Other equity instruments” in the accompanying consolidated balance sheets, net of tax effect.

The characteristics of the Group’s remuneration plans based on equity instruments are described below.

System of Variable Remuneration in Shares

In BBVA, the annual variable remuneration applying to all employees consists of a one incentive only, paid in cash, awarded once a year and linked to the achievement of previously established goals and to a sound risk management based on the design of incentives that are aligned with the company’s long-term interests and that take into account current and future risks (hereinafter, the “Annual Variable Remuneration”).

Nevertheless, the remuneration policy of the BBVA Group, in force since 2015, has a specific settlement and payment scheme of the Annual Variable Remuneration applicable to those employees, including the executive directors and members of the BBVA Senior Management, performing professional activities that may have a significant impact on the risk profile of the Group or engaged in control functions (hereinafter, the “Identified Staff”), that includes, among others, the payment in shares of part of their Annual Variable Remuneration.

This remuneration policy was approved for the directors by the Annual General Meeting, March 13, 2015.

The specific settlement and payment scheme for the Annual Variable Remuneration of executive directors and members of the Senior Management is described in Note 54, while the rules listed below are applicable to the rest of the Identified Staff:

In this regard, the Annual General Meeting held on March 14, 2014 resolved, in line with applicable legislation, the application of the maximum level of variable remuneration up to 200% of the fixed remuneration for a specific group of employees whose professional activities have a material impact on the Group’s risk profile or are engaged in control functions. Additionally, the General Meeting held on March 13, 2015, resolved to enlarge this group, whose variable remuneration will be subject to the maximum threshold of 200% of the fixed component of their total remuneration. This is entirely consistent with the Recommendations Report issued by the BBVA’s Board of Directors on February 3, 2015.

According to the settlement and payment scheme mentioned above, in 2016 a number of 5,187,750 shares corresponding to the initial payment of 2015 Annual Variable Remuneration were delivered to the beneficiary members of the Identified Staff.

Additionally, the remuneration policy prevailing until 2014 provided a specific settlement and payment scheme for the variable remuneration of the Identified Staff that established a deferral period of three years for the Annual Variable Remuneration, being the deferred amount paid in thirds over this period.

According to this prior scheme, in 2016 the shares corresponding to the deferred parts of the Annual Variable Remuneration paid in shares from previous years, and their corresponding adjustments in cash, were delivered to the beneficiary members of the Identified Staff, giving rise in 2016, of a total of 945.053 shares corresponding to the first deferred third of the 2014 Annual Variable Remuneration were granted, and €349.670 as adjustments for updates of the shares granted; a total of 438.082 shares corresponding to the second deferred third of the 2013 Annual Variable Remuneration, and €340,828 in adjustments for updates; and a total of 502,622 shares corresponding to the final third of the 2012 Annual Variable Remuneration, with €551,879 in adjustments for updates.

Likewise, in 2016 the Identified Staff received the shares corresponding to the deferred parts of the long-term incentive programmes in the United States, as outlined below:

When the term of the Long-Term Incentive 2010-2012 Plan for the BBVA Compass Management Team ended, on December 31, 2012, it was settled pursuant to the conditions established when it began.

For those beneficiaries of this programme who are members of the Identified Staff, it was agreed that the same settlement and payment rules would be applied mentioned above, in line with the remuneration policy in force prior to 2015 which established a payment of the deferred amount in thirds over the deferral period.

Thus, in 2016 those beneficiaries who are members of the Identified Staff in BBVA Compass have been awarded 6,314 shares, corresponding to the last third of the deferred part of the shares resulting from the settlement of the 2010-2012 Long-Term Incentive Share Plan, and €6,933 in the adjustment to the updated share value.

Additionally, BBVA Compass’ remuneration structure includes long-term incentive programmes for remuneration in shares for employees in certain key positions. These plans run over a three-year term. On December 31, 2016 there is one programme in force (2014-2016). In 2016, 206.190 shares corresponding to this programme were delivered.

44.2 General and administrative expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
General and Administrative Expenses 2016 2015 2014
Technology and systems 673 625 585
Communications 294 281 271
Advertising 398 387 333
Property, fixtures and materials 1,080 1,030 916
Of which: Rent expenses (*) 616 591 461
Taxes other than income tax 433 466 418
Other expenses 1,766 1,775 1,480
Total 4,644 4,563 4,004

Download Excel

45. Depreciation

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
Depreciation Notes 2016 2015 2014
Tangible assets 17 690 641 611
For own use   667 615 589
Investment properties   23 25 22
Assets leased out under financial lease   - - -
Other Intangible assets 18.2 735 631 535
Total   1,426 1,272 1,145

Download Excel

46. Provisions or reversal of provisions

In the years ended December 31, 2016, 2015 and 2014 the net provisions registered in this income statement line item were as follows:

Millions of Euros
Provisions or reversal of provisions Notes 2016 2015 2014
Pensions and other post employment defined benefit obligations 25 332 592 816
Other long term employee benefits   - - -
Commitments and guarantees given   56 10 14
Pending legal issues and tax litigation 24 76 (25) 94
Other Provisions 24 722 154 218
Total   1,186 731 1,142

Download Excel

47. Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss

The breakdown of Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss by the nature of those assets in the accompanying consolidated income statements is as follows:

Millions of Euros
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss Notes 2016 2015 2014
Financial assets measured at cost   - - -
Available-for-sale financial assets 12 202 24 35
Debt securities   157 1 19
Other equity instruments   46 23 17
Loans and receivables 7.3.5 3,597 4,248 4,304
Of which: Recovery of written-off assets 7.3.5 541 490 443
Held-to-maturity investments   1 - -
Total   3,801 4,272 4,340

Download Excel

48. Impairment or reversal of impairment on non-financial assets

The impairment losses on non-financial assets broken down by the nature of those assets in the accompanying consolidated income statements are as follows:

Millions of Euros
Impairment or reversal of impairment on non-financial assets Notes 2016 2015 2014
Tangible assets 17 143 60 97
Intangible assets 18.2 3 4 8
Others   375 209 192
Total   521 273 297

Download Excel

49. Gains (losses) on derecognized of non financial assets and subsidiaries, net

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Millions of Euros
Gains or losses on derecognition of non-financial assets and investments in subsidiaries, joint ventures and associates, net 2016 2015 2014
Gains:      
Disposal of investments in subsidiarie 111 23 28
Disposal of tangible assets and other 64 71 38
Losses:      
Disposal of investments in subsidiarie (58) (2,222) -
Disposal of tangible assets and other (47) (7) (20)
Total 70 (2,135) 46

Download Excel

During 2015, the heading “Losses – Disposal of investments in subsidiaries” included, mainly, the fair value measurement of its previously acquired stake in Garanti Group because of the change in the consolidation method (see Note 3).

50. Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

The main items included in the balance under this heading in the accompanying consolidated income statements are as follows:

Millions of Euros
Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations Notes 2016 2015 2014
Gains on sale of real estate   66 97 (5)
Impairment of non-current assets held for sale 21 (136) (285) (406)
Gains on sale of investments classified as non current assets held for sale   39 45 (42)
Gains on sale of equity instruments classified as non current assets held for sale (*)   - 877 -
Total   (31) 734 (453)

Download Excel

51. Consolidated statements of cash flows

Cash flows from operating activities decreased in the year ended December 31, 2016 by €16,478 million (compared with an increase of €29,289 million in 2015, respectively). The most significant reason for the change occurred under the heading “Financial liabilities at amortized cost”.

The variances in cash flows from investing activities increased in the year ended December 31, 2016 by €3,851 million (compared with a decrease of €3.260 million in 2015, respectively). The most significant reason for the change occurred under the heading “Investments in subsidiaries, joint ventures and associates”.

The variances in cash flows from financing activities decreased in the year ended December 31, 2016 by €1.240 million (compared with a decrease of €3.030 million in 2015, respectively). The most significant reason for the change occurred under the heading “Financial liabilities at amortized cost”.

52. Accountant fees and services

The details of the fees for the services contracted by entities of the BBVA Group in the year ended December 31, 2016 with their respective auditors and other audit entities are as follows:

Millions of Euros
Fees for Audits Conducted 2016
Audits of the companies audited by firms belonging to the Deloitte worldwide organization and other reports related with the audit (*) 26.5
Issued by the national supervisory bodies of the countries in which the Group operates, reviewed by firms belonging to the Deloitte worldwide organization 3.6
Fees for audits conducted by other firms 0.8

Download Excel

In the year ended December 31, 2016, other entities in the BBVA Group contracted other services (other than audits) as follows:

Millions of Euros
Other Services Contracted 2016
Firms belonging to the Deloitte worldwide organization 1.1
Other firms 30.1

Download Excel

The services provided by the auditors meet the independence requirements established under Audit of Accounts Law RD 1/2011 and under the Sarbanes-Oxley Act of 2002 adopted by the Securities and Exchange Commission (SEC); accordingly they do not include the performance of any work that is incompatible with the auditing function.

As financial institutions, BBVA and other entities in the Group engage in transactions with related parties in the normal course of their business. All of these transactions are not material and are carried out under normal market conditions. As date of December 31, 2016, 2015 and 2014, the following are the transactions with related parties:

53.1 Transactions with significant shareholders

As of December 31, 2016, there were no shareholders considered significant (see Note 26).

53.2 Transactions with BBVA Group entities

The balances of the main aggregates in the accompanying consolidated balance sheets arising from the transactions carried out by the BBVA Group with associates and joint venture entities accounted for using the equity method are as follows:

Millions of Euros
Balances arising from transactions with Entities of the Group 2016 2015 2014
Assets:      
Loans and advances to credit institutions 69 109 835
Loans and advances to customers 442 710 639
Liabilities:      
Deposits from financial institutions 1 2 144
Customer deposits 533 449 332
Debt certificates      
Memorandum accounts:      
Financial guarantees given 1,586 1,671 162
Contingent commitments 42 28 108

Download Excel

The balances of the main aggregates in the accompanying consolidated income statements resulting from transactions with associates and joint venture entities that are accounted for under the equity method are as follows:

Millions of Euros
Balances of Income Statement arising from transactions with Entities of the Group 2016 2015 2014
Income statement:      
Financial incomes 26 53 55
Financial costs 1 1 7
Fee and Commission Income 5 5 6
Fee and Commission Expenses 58 55 71

Download Excel

There were no other material effects in the consolidated financial statements arising from dealings with these entities, other than the effects from using the equity method (see Note 2.1) and from the insurance policies to cover pension or similar commitments, as described in Note 25; and the futures transactions arranged by BBVA Group with these entities, associates and joint ventures.

In addition, as part of its normal activity, the BBVA Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the accompanying consolidated financial statements.

53.3 Transactions with members of the Board of Directors and Senior Management

The information on the remuneration of the members of the BBVA Board of Directors and Senior Management is included in Note 54.

As of December 31, 2016, there were no loans granted by the Group’s entities to the members of the Board of Directors. As of December 31, 2015 and 2014 the amount availed against the loans by the Group’s entities to the members of the Board of Directors was €200 and €235 thousand, respectively. The amount availed against the loans by the Group’s entities to the members of Senior Management on those same dates (excluding the executive directors) amounted to €5,573, €6,641 and €4,614 thousand, respectively.

As of December 31, 2016, there were no loans granted to parties related to the members of the Board of Directors. As of December 31, 2015, the amount availed against the loans to parties related to the members of the Bank’s Board of Directors was €10.000 thousand, and as of December 31, 2014 there were no loans granted to parties related to the members of the Board of Directors. As of December 31, 2016, 2015 and 2014 the amount availed against the loans to parties related to members of the Senior Management amounted to €98, €113 and €291 thousand, respectively.

As of December 31, 2016, 2015 and 2014 no guarantees had been granted to any member of the Board of Directors.

As of December 31, 2016, the amount availed against guarantees arranged with members of the Senior Management totaled €28 thousand. As of December 31, 2015 and 2014 no guarantees had been granted to any member of the Senior Management

As of December 31, 2016, 2015 and 2014 the amount availed against commercial loans and guarantees arranged with parties related to the members of the Bank’s Board of Directors and the Senior Management totaled €8, €1,679 and €419 thousand, respectively.

In the years ended December 31, 2016, 2015 and 2014 the Group did not conduct any transactions with other related parties that are not in the ordinary course of its business, which were carried out at arm’s-length market conditions and of marginal relevance; whose information is not necessary to give a true picture of the BBVA Group’s consolidated net equity, result of operations and financial condition.

54. Remuneration and other benefits received by the Board of Directors and members of the Bank’s Senior Management

Remuneration of non-executive directors received in 2016

The remuneration paid to the non-executive members of the Board of Directors during 2016 is indicated below. The figures are given individually for each non-executive director and itemised:

Thousands of Euros
Remuneration for non-executive directors Board of Directors Executive Committee Audit & Compliance Committee Risks Committee Remuneration Committee Appointments Committee Technology and Cybersecurity Committee Total
Tomás Alfaro Drake 129 - 71 - 11 102 25 338
José Miguel Andrés Torrecillas 129 - 179 107 - 31 - 445
José Antonio Fernández Rivero 129 125 - 53 32 10 - 350
Belén Garijo López 129 - 71 - 32 - - 232
Sunir Kumar Kapoor (1) 107 - - - - - 25 132
Carlos Loring Martínez de Irujo 129 125 18 80 27 - - 379
Lourdes Máiz Carro 129 - 71 - - 31 - 231
José Maldonado Ramos 129 167 - - - 41 - 336
José Luis Palao García-Suelto 129 - - 107 32 10 - 278
Juan Pi Llorens 129 - 54 27 91 - 25 325
Susana Rodríguez Vidarte 129 167 - 107 - 41 - 443
James Andrew Stott (2) 107 - - 160 32 - 25 325
Total (3) 1,502 584 464 642 257 265 100 3,813

Download Excel

Moreover, during 2016, €132 thousand was paid in healthcare and casualty insurance premiums for nonexecutive members of the Board of Directors.

Remuneration of executive directors received in 2016

The remuneration scheme for the executive directors is in line with the general model applicable to BBVA senior managers. This comprises a fixed remuneration and a variable remuneration, which is in turn made up of a single incentive (hereinafter the “Annual Variable Remuneration”).

Thus, during 2016, the executive directors were paid the amount of fixed remuneration corresponding to that year and the Annual Variable Remuneration corresponding to 2015, paid during the first quarter of the year 2016, according to the settlement and payment system set out in the current Remuneration Policy for BBVA Directors as approved by the General Meeting held on 13 March 2015 (hereinafter, the “Settlement and Payment System”). The Settlement and Payment System provides that:

Likewise, in application of the settlement and payment system of the Annual Variable Remuneration corresponding to years 2014, 2013 and 2012, under the applicable policy for those years, the executive directors have received the deferred parts of the Annual Variable Remuneration corresponding to those years, which vested in the first quarter of year 2016.

Pursuant to the above, the remuneration paid to the executive directors during 2016 is shown below. The figures are given individually for each executive director and itemised:

Thousands of Euros
Remuneration of executive directors Fixed Remuneration 2015 Annual Variable Remuneration in cash (1) Deferred variable remuneration in cash (2) Total Cash 2015 Annual Variable Remuneration in BBVA shares (1) Deferred Variable Remuneration in BBVA shares (2) Total Shares
Group Executive Chairman 1,966 897 893 3,756 135,300 103,112 238,412
Chief Executive Officer (*) 1,923 530 240 2,693 79,956 27,823 107,779
Head of Global Economics, Regulation & Public Affairs (“Head of GERPA”) 800 98 47 945 14,815 5,449 20,264
Total 4,689 1,526 1,180 7,394 230,071 136,384 366,455

Download Excel

The executive directors will receive, during the first quarter of each of the next two years, the deferred amounts that in each case correspond in application of the settlement of the deferred Annual Variable Remuneration from previous years (2014 and 2013), and subject to the conditions established in the applicable settlement and payment system.

Likewise, during 2016, the executive directors received payment in kind, including insurance premiums and others, amounting to an overall total of €240 thousand, of which €17 thousand were paid to the Group Executive Chairman; €139 thousand to the Chief Executive Officer; and €84 thousand to the executive director Head of GERPA.

Annual Variable Remuneration for executive directors for the year 2016

Following year-end 2016, the Annual Variable Remuneration for the executive directors corresponding to that year has been determined applying the conditions established for that purpose at the beginning of that year, as set forth in the Remuneration Policy for BBVA Directors as approved by the General Meeting held on 13 March 2015. Consequently, during the first quarter of 2017, the executive directors will receive 50% of the 2016 Annual Variable Remuneration, in equal parts in cash and in shares, i.e., €734 thousand and 114.204 BBVA shares in the case of the Group Executive Chairman; €591 thousand and 91,915 BBVA shares the case of the Chief Executive Officer; and €89 thousand and 13,768 BBVA shares the case of the executive director Head of GERPA.

The remaining 50%, in cash and in shares, will be deferred for a three-year period, and its accrual and vesting will be subject to compliance with multi-year indicators established by the Board of Directors at the beginning of the year. Based on the result of each multi-year indicator during the deferred period and applying the performance scales assigned to each of them and their weightings, the final deferred amount of the Annual Variable Remuneration will be determined after the deferred period. The deferred Annual Variable Remuneration may be reduced and even reach zero, but in no event may be increased. To these effect, the maximum amounts that could be received during the first quarter of 2020 are: €734 thousand and 114.204 BBVA shares the case of the Group Executive Chairman; €591 thousand and 91,915 BBVA shares the case of the Chief Executive Officer; and €89 thousand and 13,768 BBVA shares the case of the executive director Head of GERPA; all subject to the settlement and payment conditions established in the Remuneration Policy for BBVA Directors.

These amounts are recorded under the item “Other Liabilities” of the balance sheet at 31 December 2016.

Remuneration of the members of the Senior Management received in 2016

During 2016, the remuneration paid to the members of BBVA’s Senior Management as a whole, excluding executive directors, is shown below (itemised):

Thousands of Euros
Remuneration of members of the Senior Management Fixed Remuneration 2015 Annual Variable Remuneration in cash (1) Deferred variable remuneration in cash (2) Total Cash 2015 Annual Variable Remuneration in BBVA shares (1) Deferred Variable Remuneration in BBVA shares (2) Total Shares
Total Members of the Senior Management (*) 11,115 2,457 1,343 14,915 370,505 155,746 526,251

Download Excel

During the first quarter of each of the next two years, under the applicable settlement and payment system of the variable remuneration, all members of the Senior Management will receive the corresponding amounts, stemming from the settlement of the deferred Annual Variable Remuneration from previous years (2014 and 2013), and subject to the conditions established in this system.

Moreover, during 2016, all members of the Senior Management, with the exception of the executive directors, received remuneration in kind, including insurance premiums and others, for a total overall amount of €664 thousand.

System of remuneration in shares with deferred delivery for non-executive directors

BBVA has a remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the General Meeting held on 18 March 2006 and extended under General Meeting resolutions dated 11 March 2011 and 11 March 2016, for a further 5-year period in each case.

This System is based on the annual allocation to non-executive directors of a number of “theoretical shares”, equivalent to 20% of the total remuneration in cash received by each of them in the previous year, according to the closing prices of the BBVA share during the sixty trading sessions prior to the Annual General Meeting approving the corresponding financial statements for each year.

These shares, where applicable, will be delivered to each beneficiary on the date they leave the position as director for any reason other than dereliction of duty.

The number of “theoretical shares” allocated in 2016 to the non-executive directors beneficiaries of the system of remuneration in shares with deferred delivery, corresponding to 20% of the total remuneration received in cash by said directors during 2015, is as follows:

Theoretical shares allocated in 2016 Theoretical shares accumulated to 31st December 2016
Tomás Alfaro Drake 11,363 62,452
José Miguel Andrés Torrecillas 9,808 9,808
José Antonio Fernández Rivero 12,633 91,046
Belén Garijo López 6,597 19,463
Carlos Loring Martínez de Irujo 10,127 74,970
Lourdes Máiz Carro 5,812 8,443
José Maldonado Ramos 11,669 57,233
José Luis Palao García-Suelto 11,070 51,385
Juan Pi Llorens 9,179 32,374
Susana Rodríguez Vidarte 14,605 78,606
Total (1) 102,863 485,780

Download Excel

Pension commitments

The commitments undertaken regarding pension benefits for the Chief Executive Officer and the executive director Head of GERPA, pursuant to the Company Bylaws and their respective contracts with the Bank include a pension system covering retirement, disability and death.

The Chief Executive Officer’s contractual conditions determine that he will retain the pension system to which he was entitled previously as senior manager in the Group, with the benefits and the provisions being adjusted to the new remuneration conditions derived from the position that he currently holds.

The executive director Head of GERPA retains the same pension system he has had since his appointment in 2013, which comprises a defined-contributions system of 20% per year over the fixed remuneration received during that period to cover retirement commitments and provisions covering death and disability.

To such end, the provisions recorded as of 31 December 2016 to cover pension commitments undertaken for the Chief Executive Officer amounted to €16.051 thousand, of which, during 2016 and according to applicable accounting regulations, €2,342 thousand have been provisioned against earnings of the year and €836 thousand against equity, in order to adapt the interest rate assumption used for the valuation of pension commitments in Spain. In the case of the executive director Head of GERPA, the provisions recorded as of 31 December 2016 amounted to €609 thousand, of which €310 have been provisioned against earnings of the year. In both cases, these amounts include the provisions covering retirement, as well as death and disability.

There are no other pension obligations in favour of other executive directors.

The provisions recorded as of 31 December 2016 for pension commitments for members of the Senior Management, excluding executive directors, amounted to €46,299 thousand, of which, during 2016 and according to applicable accounting regulations, €4,895 thousand have been provisioned against earnings of the year and €2,226 thousand against equity, in order to adapt the interest rate assumption used for the valuation of pension commitments in Spain. These amounts include the provisions covering retirement, as well as death and disability.

As a result of the entry into force of Circular 2/2016, of the Bank of Spain to the credit institutions, 15% of the annual contributions agreed to pension systems determined on the basis of the vesting estimated for the financial year corresponding to executive directors and BBVA’s senior managers, will be based on variable components and will be considered as discretionary pension benefits, and in consequence will be deemed as deferred variable remuneration, subject to the payment and retention conditions provided in the applicable regulations, as well as malus arrangements and other applicable conditions established to the variable remuneration in the Remuneration Policy for BBVA’s Directors.

Extinction of contractual relationship

The Bank has no commitments to pay severance indemnity to executive directors other than to the executive director Head of GERPA, whose contract includes, as of 31 December 2016, his right to receive an indemnity equivalent to two times his fixed remuneration should he cease to hold his position on grounds other than his own will, death, retirement, disability or dereliction of duty.

The contractual conditions of the Chief Executive Officer with regard to his pension arrangements determine that, as of 31 December 2016, in the event of his ceasing to hold his position on grounds other than his own will, retirement, disability or dereliction of duty, he will take early retirement with a pension that he may receive as a lifelong annuity or as a capital lump sum, at his own choice. The annual amount will be calculated as a function of the provisions which, according to the actuarial criteria applicable at any time, the Bank may have made up to that date to cover the retirement pension commitments provided for in his contract, without this commitment in any way compelling the Bank to set aside additional provisions. Moreover, this pension may not be greater than 75% of the pensionable base should the event occur before he reaches the age of 55, or 85% of the pensionable base should the event occur after having reached the age of 55.

According to the proposal for a new Remuneration Policy for BBVA’s Directors to be submitted to the next Annual General Shareholders’ Meeting in 2017, if approved, the pension scheme and the extinction of contractual relationships of the executive directors, the Chief Executive Officer and the Head of GERPA will be amended for 2017 and following financial years, in the terms established under such Policy.

55. Other information

55.1 Environmental impact

Given the activities BBVA Group entities engage in, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that could have a significant effect on its consolidated equity, financial situation and profits. Consequently, as of December 31, 2016, there is no item in the Group’s accompanying consolidated financial statements that requires disclosure in an environmental information report pursuant to Ministry of Economy Order JUS/206/2009 dated January 28, and consequently no specific disclosure of information on environmental matters is included in these financial statements.

55.2 Reporting requirements of the Spanish National Securities Market Commission (CNMV)

Dividends paid in the year

The table below presents the dividends per share paid in cash in 2016, 2015 and 2014 (cash basis dividend, regardless of the year in which they were accrued, but without including other shareholder remuneration, such as the “Dividend Option”). See Note 4 for a complete analysis of all remuneration awarded to shareholders during 2016, 2015 and 2014.

2016 (*) 2015 2014
Dividends Paid ("Dividend Option" not included) % Over Nominal Euros per Share Amount (Millions of Euros) % Over Nominal Euros per Share Amount (Millions of Euros) % Over Nominal Euros per Share Amount (Millions of Euros)
Ordinary shares 16% 0.08 1,028 16% 0.08 504 16% 0.08 471
Rest of share - - - - - - - - -
Total dividends paid in cash 16% 0.08 1,028 16% 0.08 504 16% 0.08 471
Dividends with charge to income 16% 0.08 1,028 16% 0.08 504 16% 0.08 471
Dividends with charge to reserve or share premium - - - - - - - - -
Dividends in kind - - - - - - - - -

Download Excel

Earnings and ordinary income by operating segment

The detail of the consolidated profit for the years ended December 31, 2016, 2015 and 2014 for each operating segment is as follows:

Millions of Euros
Profit Attributable by Operating Segments 2016 2015 2014
Banking Activity in Spain 912 1,085 858
Real Estate Activity in Spain (595) (496) (901)
Turkey 599 371 310
Rest of Eurasia 151 75 255
Mexico 1,980 2,094 1,915
South America 771 905 1,001
United States 459 517 428
Subtotal operating segments 4,276 4,551 3,867
Corporate Center (801) (1,910) (1,249)
Profit attributable to parent company 3,475 2,641 2,618
Non-assigned income - - -
Elimination of interim income (between segments) - - -
Other gains (losses) (*) 1,218 686 464
Income tax and/or profit from discontinued operations (1,699) (1,274) (898)
Operating profit before tax 6,392 4,603 3,980

Download Excel

For the years ended December 31, 2016, 2015 and 2014 the detail of the BBVA Group’s Gross income for each operating segment, which is made up of the “Interest and similar income”, “Dividend income”, “Fee and commission income”, “Gains (losses) on financial assets and liabilities (net)” and “Other operating income”, is as follows:

Millions of Euros
Gross income by Operating Segments 2016 2015 2014
Banking Activity in Spain 6,445 6,804 6,621
Real Estate Activity in Spain (6) (16) (220)
Turkey (*) 4,257 2,434 944
Rest of Eurasia 491 473 736
Mexico 6,766 7,069 6,522
South America 4,054 4,477 5,191
The United States 2,706 2,652 2,137
Corporate Center (60) (212) (575)
Adjustments and eliminations of ordinary profit between segments - (318) (632)
Total Ordinary Profit BBVA Group 24,653 23,362 20,725

Download Excel

Interest income by geographical area

The breakdown of the balance of “Interest Income” in the accompanying consolidated income statements by geographical area is as follows:

Millions of Euros
Interest Income. Breakdown by Geographical Area 2016 2015 2014
Domestic 5,962 6,275 7,073
Foreign 21,745 18,507 15,765
European Union 291 387 369
Other OECD countries 17,026 13,666 9,492
Other countries 4,429 4,454 5,904
Total 27,708 24,783 22,838

Download Excel

56. Subsequent events

The interim dividend approved on December 21, 2016 was paid out on January 12, 2017, as detailed in Note 4.

On February 1, 2017, BBVA´s shareholder remuneration policy for 2017 was announced (see Note 4).

From January 1, 2017 to the date of preparation of these consolidated financial statements, no other subsequent events not mentioned above in these financial statements have taken place that could significantly affect the Group’s earnings or its equity position.

Subir