BBVA2019

Dear shareholders,

In 2019, we witnessed a slowdown in global growth resulting from geopolitical risks and trade tensions, which in turn led to weaker international trade, less investment, and reduced industrial activity. In addition, the major central banks continued to support measures in favor of low interest rates. Despite this challenging environment, BBVA has proven once again the strength of its diversified business model and its ability to generate strong results with double-digit returns.

The world economy grew 3.1 percent in 2019, representing the lowest growth rate since 2009. At the national level, economic performance varied by country across the BBVA footprint. On one hand, Spain achieved 2 percent growth, jumping ahead of the eurozone. And, in the United States, despite a slight downturn, growth stood at 2.3 percent, bolstered by expansive fiscal policies. Even so, growth across the Sunbelt region, where BBVA mainly operates, outpaced the national average, standing at 3.2 percent. Colombia and Peru also posted solid growth at 3.2 percent and 2.1 percent, respectively. Mexico experienced sluggish growth in 2019 owing to, among other factors, the delayed ratification of the new trade deal with the United States and Canada and a slowdown in employment and private consumption. In Turkey, economic policies adopted over the course of the year contributed to putting growth on the path to recovery. By contrast, in Argentina we are facing a situation of real uncertainty.

Despite this challenging environment, BBVA Group’s 2019 net attributable profit, excluding non-recurring impacts, was €4,830 million, representing a 2.7 percent year-on-year increase. This equates to the Bank’s highest net attributable profit, without non-recurring impacts, since 2009. Including the goodwill impairment related to our unit in the United States, the net attributable profit totals €3,512 million. The goodwill accounting impact, generated in 2009 as a consequence of the acquisition of our main assets in the U.S., is due to the descending interest rate trends and economic slowdown in the country. The goodwill impairment has no effect on the tangible net equity, capital, liquidity nor BBVA Group’s ability to pay out dividends.

As for shareholder value creation, the tangible book value per share plus dividends reached €6.53 at the close of the year, representing an 11.5 percent increase from the year before. And for another year, our profitability metrics place us ahead of our peers. Excluding the goodwill impairment, return on equity stood at 9.9% and the return on tangible assets at 11.9%.

I would also like to highlight that our strong capital position once again came to the fore in 2019. The fully-loaded CET1 ratio stands within our target range and closed the year at 11.74 percent, representing an increase of 40 basis points in the year, despite negative impacts related to accounting standards and other regulatory adjustments.

The recurring revenues trend is also worth noting: despite low interest-rate environments in some of our major markets, recurring revenues grew more than 5 percent at constant exchange rates — meaning without factoring in exchange rate impacts — thus reaching a record high in absolute terms. Cost containment is also worth mentioning, with expenses growing around 2.2 percent, well below the average rate of inflation across our footprint. As a result, the efficiency ratio improved by 92 basis points reaching 48.5 percent, which once again positions us well ahead of our peer group.

And we have achieved all this while maintaining strong risk indicators, with a significant improvement in the NPL ratio, which stood at 3.8 percent, 15 basis points better than the 2018 figure. The NPL coverage ratio improved 349 basis points in the year, ending up at 77 percent. The results for both indicators are the best they have been in the last ten years. The Group's cost of risk also remained low, near 1 percent.

With respect to our primary business units, I would like to especially point out the following:

• In Spain, the net attributable profit stood at €1,386 million, 1 percent less compared to the previous year, weighed down from the drop in net interest income, which was as expected, and by the results from net trading income, which was partially countered by the positive performance of commissions, a significant reduction in costs, and lower impairments from the sale of NPL portfolios throughout the year. From a risk perspective, we saw a positive trend with the NPL ratio dropping to 4.4 percent and the cost of risk to 0.12 percent.
• In the United States, the net attributable profit for 2019 reached €590 million, 23.9 percent less than in 2018 in constant exchange rates. This was fundamentally due to the drop of interest rates and the increase in impairment losses on financial assets as a consequence of greater one-time provisions in the commercial and consumer portfolio and the adjustment in the macroeconomic scenario.
• In Mexico, the net attributable profit for the unit was €2,699 million, representing a year-on-year increase of 8.2 percent at constant exchange rates, driven by the net interest income and improved efficiency. It is also worth pointing out the unit’s solid risk indicators.
• In Turkey, the net attributable profit reached €506 million. Without taking into account the depreciation of the lira throughout the year — meaning in constant terms — this result is similar to the previous year, with a slight decline of 0.5 percent. I would like to emphasize the positive performance in net interest income, as a result of an outstanding price management, which compensated for the drop in contribution from inflation-linked bonds.
• In South America positive trends stand out in leading markets: Argentina, Colombia, and Peru. The net attributable profit for the area rose to €721 million in 2019, which represents year-on-year growth of 64 percent (excluding the BBVA Chile business from the annual comparison) in constant terms.

Finally, I don't want to miss this opportunity to thank the more than 126,000 Group employees for their ongoing effort, their commitment, and for their contribution to our outstanding results, each day demonstrating the real value that comes from working together as one team. And, of course, thank you to all of you, our shareholders, for your constant support which inspires us to realize our purpose: to bring the age of opportunity to everyone.