Financial statements 2016
BBVA is a customer-centric global financial services group founded in 1857. It has presence in 35 countries. The Group has a solid position in Spain; it is the largest financial institution in Mexico and leading franchises in South America and the Sunbelt region of the United States. It is also Turkish bank Garanti’s leading shareholder. Its diversified business is biased on high-growth markets and it relies on technology as a key sustainable competitive advantage.
BBVA has a responsible banking model based on seeking out a return adjusted to principles, legal compliance, best practices and the creation of long-term value for all its stakeholders.
BBVA Group is immersed in a transformation process necessary to adapt to the new environment of the financial industry and preserve its leadership. Success in this new environment requires a more selective approach, involving a redefinition of the value proposition and the adaptation of the universal banking business model.
In this context, the goal of BBVA Group’s transformation strategy is to strengthen its relationship with its customers. This strategy is structured around a Purpose and six Strategic Priorities, which are the pillars buttressing not only the strategic plans across all the Group’s regions and areas but also the culture of the Organization as a whole.
In 2016, BBVA Group made significant progress on its Transformation Journey. It has strengthened the Entity’s new strategy, with particular focus on digitalization and customer experience, and has simplified the organizational structure.
Digitalization is making an impact on the financial industry, since it can satisfy the new demands of customers in various ways.
Firstly, the entry of mobile devices has led to changes in the distribution model. Mobile devices have become the main channel of contact.
Moreover, new developments in technology (big data, artificial intelligence, Blockchain, the cloud, data processing, biometry, etc.) represent a major advance in customer experience.
New technologies foster the democratization of financial services: the entire world will be able to gain access to better and more sophisticated services that were up to now only available for high-value segments.
Additionally, new, specialized players are entering the financial industry and successfully tackling parts of the value chain (payments, financing, asset management, insurance, etc.). Their disruptive proposals are primarily based on improving customer experience and enhancing specialization in certain products. These players include FinTech companies and large digital corporations (Google, Amazon, etc.), which are now competing with banks in the new environment.
In conclusion, traditional banking should respond by becoming more competitive and providing value-added solutions, with greater focus on customer experience and the development of their digital offering.
Customers are asking for a new type of banking relationship and have begun demanding new services based on new needs. We are currently in an environment where consumers are permanently connected; they are already accustomed to digital experiences and the use of multiple devices and applications. They are also calling for greater transparency and trust in their banking relationship, in addition to enhanced customization, accessibility and convenience in financial services in order to achieve their own goals in life.
Furthermore, a socio-demographic shift is underway that should also be considered. The Millennial Generation has a clearly digital profile and is becoming a new group of consumers requiring services. Digitalization is reaching the adult population, while the middle class in emerging countries is also increasing their digital potential.
In this context, the main objective of the BBVA Group’s transformation strategy, i.e. our aspiration, is to strengthen the relationship with our customers. We want to help our customers take the best decisions (banking and non-banking) through an attractive experience (clear, simple, transparent, based on fair conditions and concepts of prudence and integrity), and provide them the appropriate assistance and advice in order to cover all their financial needs.
We have taken great strides in 2016 to fulfill our Purpose: “To bring the age of opportunity to everyone”. We want to help our customers achieve their goals in life. We want to go beyond being a bank and become a vehicle of opportunities with a positive impact on the lives of people and on the business of companies.
In line with our Purpose, significant steps have also been taken in the development of the Group’s six Strategic Priorities to make headway in our transformation process.
BBVA has a customer-oriented business model that offers a differential service with a very ambitious goal: to be leaders in customer satisfaction across our global footprint.
(Percentage)
Our relationship model is evolving to adapt to our customers’ multi-channel profile. The number of digital and mobile BBVA Group customers grew considerably in 2016, while branch activity has declined in recent years.
Our relationship model is evolving to adapt to our customers’ multi-channel profile. The number of digital and mobile BBVA Group customers grew considerably in 2016, while branch activity has declined in recent years.
(Millions of transactions)
(Million)
(Million)
At BBVA, it is essential to drive digitalization for our transformation while boosting business on digital channels. In this regard, we are developing a range of digital products and services that enable customers to use the channel most convenient for them. Moreover, significant work is being carried out on sales through digital channels, which have been developing very positively in all countries.
(Percentage of total sales YTD, number of transactions)
In 2016 a major effort was also made to develop new business models, taking advantage of the FinTech ecosystem to develop our value proposition, basically leveraged on four drivers:
Internal incubator; a model that combines internal talent and know-how with the partnership of “resident” entrepreneurs. As a result of this process we already have our first beta version company on the market: BBVA Open Platform. It is a pioneer in opening APIs (application programming interfaces) for third parties, with more than 100 users in the testing environment in Spain and over 300 in the United States.
Strategic alliances, with four agreements reached during the year (Dwolla, Google, Prosper and R3).
Merger &Acquisitions, such as Holvi, Atom and the conclusion of a purchase agreement for the Mexican company Openpay.
Acquisitions by means of venture capital: Propel Venture Partners (Propel) is the new independent venture-capital firm that manages BBVA funds destined for startups that use technology for changing financial services for the benefit of our customers. BBVA has allocated US$250 million for investment in FinTech companies, and these funds will be managed by the Propel team.
The objective of this priority is centered on improving the profitability and sustainability of the business while simplifying and focusing it in on the most relevant activities.
We have been working throughout 2016 to adapt and make our business model more efficient, profitable and dynamic. A number of initiatives (business portfolio optimization, capital tracking committees in all geographic areas, etc.) have been launched that have ensured BBVA Group will achieve solid capital adequacy ratios. In this regard, at the end of 2016, BBVA Group had a fully-loaded CET1 of 10.9%, which represents a rise of 58 basis points on the figure of 10.3% at the close of 2015.
In an environment of lower profit yields for the financial industry, efficiency has become an essential priority in the BBVA transformation plan. This priority is based on building a new organizational model as agile, simple and automated as possible.
In this regard, in 2016 we identified the key levers and developed the action plans necessary to make this change a reality. We are thus transforming our distribution model, systems architecture, operational model, organizational structures and processes. And we are doing so without losing sight of providing a new standard in customer experience.
Our priority at BBVA entails attracting, developing, motivating and retaining a first-class workforce, providing the best employee experience and bringing corporate culture into line with the Group’s transformation process and its Purpose.
Achieving our objectives involves transforming the Organization by implementing new ways of working (organization based on projects, communities of expertise, agile methodology, collaborative tools, etc.) and boosting a culture of collaboration and entrepreneurship, with flatter structures. We have also launched a new model of variable remuneration, aligned with BBVA’s strategic objectives. These initiatives will help ensure that BBVA is the best place to work.
A year ago, BBVA’s new Purpose, to bring the age of opportunity to everyone, was communicated internally to all our employees.
We’re starting 2017 by communicating externally our message of bringing the age of opportunity to the communities we serve. We are doing that through the launch of our new corporate tagline: Creating Opportunities. This tagline was also the result of a collaborative effort. The final choice was the winner in every consumer survey.
Years ago, Adelante was an invitation to move forward. Now, we’re inviting people and businesses to explore the opportunities that exist in a world where the access to knowledge through technology is opening all sorts of possibilities. At BBVA, we view ourselves as enablers to help people make better financial decisions, so they can seize opportunities, wherever they may be.
The new tagline comes with a bold new brand identity designed to create a stronger emotional connection through our different consumer touch points. Throughout 2017, this new BBVA Brand will be expressed in our online/mobile banking experience, through our advertising, in our social media, through the way the brand looks. We’re committed to building an even more powerful BBVA Brand. That means making our Brand more attractive, not only visually, but providing it with more meaning.
At BBVA we have a differential banking model that we refer to as responsible banking.
In 2016 the governance of the responsible banking model has been strengthened. Furthermore, this year a new Plan 2016-2018 has been approved, with four main initiatives for the coming years:
Creation of lasting and more balanced relationships with our customers through transparent, clear and responsible communication and financial literacy in the solutions that we offer.
Full integration of how we do business through responsible business policies, a reputational risk model, and a peoplecentric culture throughout the Organization.
Promotion of responsible and sustainable growth through financial inclusion, sustainable finance, support for SMEs and responsible investment.
Investment in the community, with priority for financial literacy initiatives for society, entrepreneurship, knowledge and other social causes that are relevant from a local point of view.
This responsible banking model is supervised by the Board of Directors and coordinated through the Group’s Responsible Business unit.
BBVA announced in July 2016 that it would simplify its organizational structure to streamline and accelerate transformation.
The main changes include direct reporting of the main business areas and geographies to the CEO, and the integration of key areas in Customer Solutions to develop our value proposal for customers globally and locally.
The new organizational chart is divided into four areas: Execution & Performance, New Core Competences, Risk & Finance and Strategy & Control. The CEO handles the first three functions while the Group Executive Chairman handles Strategy & Control.
