Annex

Other information: Corporate & Investment Banking

• Continued pressure on margins and excess liquidity.
• Slight decline in lending.
• Customer deposits are recovering.
• Positive trend in earnings, strongly supported by revenue from Global Markets and a lower level of provisions.
• Improved risk indicators.

Business activity ⁽¹⁾
(Year-on-year change at constant exchange rate. Data as of 31-03-2017)

⁽¹⁾ Excluding repos.

Gross income/ATA
(Percentage. Constant exchange rate)

Operating income
(Million euros at constant exchange rate)

Net attributable profit
(Million euros at constant exchange rate)

Breakdown of performing loans under management ⁽¹⁾
(31-03-2017)

Breakdown of customer funds under management ⁽¹⁾
(31-03-2017)

Macro and industry trends

In the first quarter of 2017, the financial markets have been guided by the actions of central banks and developments in political risks. Favorable economic expectations have led the Fed to continue with its upward cycle of interest-rate hikes (in March it increased the refinancing rate by 25 basis points). However, it has confirmed that rises will continue to be gradual, and this has favored the stabilization of U.S. sovereign bond yields. The ECB has shown somewhat higher optimism with respect to growth, introducing a slight reversal in its discourse. This could be a prelude to greater changes over the coming months, in the midst of an incipient debate on the exit strategy from the ECB’s non-standard measures. These factors have tightened the European monetary curve and strengthened the euro.

However, optimism has moderated regarding the implementation of reflationary policy in the United States, which had steered the U.S. stock market to all-time highs, as the new administration has encountered some obstacles in Congress. This factor has halted stock-market gains and weakened the U.S. dollar over the last month. In contrast, political risk could have eased in Europe.

All this has meant that financial tension has remained moderate in the markets, while emerging-market assets have recovered some of the ground lost since November 2016, thanks to the stabilization of oil prices, containment of the upward trend in interest rates and the dollar rate. In the specific case of the Mexican peso, the more conciliatory tone of the U.S. administration has helped the currency to recover.

Activity

All the comments below on rates of change, for both activity and earnings, will be given at constant exchange rate, unless expressly stated otherwise. These rates, together with changes at the current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.

The market context remains unchanged, with margins squeezed and surplus liquidity. In the first quarter of the year, lending (performing customer loans under management) has declined by 4.0%. There was outstanding growth in the Rest of Europe and Asia, but declines in Spain, the United States and Mexico.

As regards the credit quality indicators, the NPL ratio has improved on December 2016 (0.8% compared with 1.0% as of 31-Dec-2016), while the coverage ratio closed at 93% (79% as of the close of 2016).

In customer funds there was a slight recovery in customer deposits under management, which increased by 4.0% over the quarter, particularly in Spain (up 3.3%), Mexico (up 12.3%) and South America (up 26.3%).

Financial statements and relevant business indicators (Million euros and percentage)

Result

CIB had a net attributable profit of €320m in the first quarter of 2017, €202m more than in the first quarter of 2016. This is mainly due to revenues obtained by Global Markets and a reduction in loan-loss provisions. The highlights of this income statement are summarized below:

• Good performance of gross income, which in the first three months of the year was significantly better than in the same period in 2016 (up 28.9%), thanks to the results from management of market volatility and the positive performance of activity with customers. The good performance of this item is bolstered strongly by the Deep Blue commercial initiative, whose aim is to proactively and selectively promote potential underwriting solutions in a context of acquisitions. Underwriting instructions worth €13,000m have been presented in the first quarter.

  The Global Markets unit has performed outstandingly well in the quarter, generating a rise in gross income of 65.3% on the first quarter of 2016, thanks to the good management of market volatility, mainly in Europe, Mexico and Chile. Particularly outstanding were interest rate and credit activity in Mexico and Chile, and equity in Europe.

  The corporate finance business in the first three months of the year was characterized by a high level of activity and significant marketing effort, thanks to which BBVA has won numerous mandates, some of which will be completed in the second quarter. In Europe, the Equity Capital Markets (ECM) unit has taken part in capital increases in the financial sector (Unicredit) and as global coordinator in the biggest IPO ever on the Spanish or European market so far in 2017, for Prosegur Cash (a transaction amounting to €825m).

  From the point of view of mergers & acquisitions (M&A), a number of deals have been concluded which have been work in progress since last year. They have closed a good quarter in terms of number of deals and their volume. The M&A market continues to take advantage of low interest rates and the good performance of the Spanish economy.

  In addition, BBVA has demonstrated its leading position in green finance with the start-up of the green loans plan, following the success achieved in recent years with the green bonds format. This format reflects BBVA’s commitment to sustainability and green principles.

• Cumulative operating expenses have increased by 5.3% on the same period in 2016. The keys to this change are a slowdown in the increase of personnel expenses, containment of discretionary expenses and the increase in costs associated with investment in technology.

• Lastly, it is worth of note the lower impairment losses on financial assets with respect to the first quarter of 2016 (when there were increased provisions arising from downgrades in the rating of oil & gas companies in the United States).