The BBVA Group's risk management system and risk exposure are described in Note 7, Risk Management of the accompanying Consolidated Financial Statements. The evolution of the risk metrics appears in the Risk Management section while the non-financial risks, environmental and social, are shown in the corresponding section of Management of environmental and social impacts, both included in this Management Report.
In addition, since 2016, BBVA has a methodology for the identification, assessment and management of reputational risk. Through this methodology, the Bank regularly defines and reviews a map in which it prioritizes the reputational risks it faces, as well as a set of action plans to mitigate them. The prioritization is made based on two variables: the impact on stakeholders' perceptions and the BBVA's strength against risk.
This exercise is carried out annually in all the countries where the Group is present, as well as in the CIB EMEA Area. Following the result of the exercise, 32 mitigation action plans were carried out in 2018.
New measures aimed at strengthening the most outstanding reputational risk management model of 2018 are:
- Review of the risk factors subjected to analysis with the incorporation of feedback on areas of improvement carried out by Global Risk Management and Compliance areas, as well as the Responsible Business Department itself.
- Coordination of the annual review of the risk map by the reputational risk specialist at local level.
- Review of the catalog of reputational risk indicators in order to improve the handling of any potential events that may occur in any given location.
- Incorporation of local reputational risk specialists in the New Product Committees in Spain, Mexico, the United States, Colombia, Peru, Venezuela and Turkey.
Contractual obligations and off-balance-sheet operations
Information on contingent risks and commitments can be found in Note 33 Commitments and guarantees given of the accompanying Consolidated Financial Statements. Information on purchase and sale commitments and future payment obligations can be found in Note 35 Purchase and sale commitments and future payment obligations of the accompanying Consolidated Financial Statements.
Innovation and technology
BBVA is engaged in a process of digital transformation, the main aim of which is to achieve its aspiration of strengthening relationships with its customers and being the best possible bank for them. Engineering is an essential component of this transformation. Its mission has always been to enable a technology strategy that provides the foundation for this transformation, thus becoming more customer-centric and establishing a more global strategy, fast to implement, digital, flexible and leveraged on the Group's data. This must be done while continuing to provide support to the Bank's core business: catering to the demand for traditional business (multi-segment, multi-product, multi-channel, etc.); and b) contributing reliability, with the necessary tools to ensure adequate internal controls, based on consistent information and data. In addition, Engineering objective is provide the group with all the tools it needs to drive profitability, new productivity paradigms and new business processes.
The area´s responsabilities in 2018 were focused on:
- A technology stack (first release) to offer customers services that are more suited to their needs, in terms of speed and content and begin with its full deployment, in several geographical areas, in addition to the partial deployment of certain strategic pieces, in some other geographical areas.
- Alliances with strategic partners to harness cutting-edge technology, and the necessary collaboration to speed up the transformation process.
- Productivity and reliability, i.e. securing improved performance from technology, and doing so in a manner that is fully reliable and guarantees the highest quality and security standards.
Technology stack: cloud paradigms
With customers increasingly making use of digital channels, and therefore driving an exponential increase in transaction numbers, the Group is continuing to develop its IT model into a more uniform and scalable system, boosting cloud technology.
During 2018, Engineering completed the construction and deployment of the building blocks of the global technological stack for the whole of BBVA. This stack shares the cloud attributes of flexibility and stability that are demanded by the digital world, while strictly complying with regulatory requirements. As of 2019, global projects are being implemented on the technological stack, that allows a very high degree of reuse, not only global, but also local, real-time access, different handling of the data and an optimization of processing costs, which will enable a service offer as close as possible to the needs of customers .
Engineering continues to encourage the creation of a network of strategic alliances, giving traction to BBVA's digital transformation and complement its technology stack. Establishing an ecosystem of strategic alliances with some of the leading businesses in the market ensures the adoption of innovative technologies, digitalization of the business, speed in activation, as well as global deployment of solutions. Furthermore, by building a network of technological alliances with strategic partners, BBVA will work in close cooperation with some of the foremost companies in their respective fields.
In 2018 BBVA continued with its strategy of alliances with relevant companies that will be responsible, on the one hand, for operating and optimizing BBVA's current technology and, on the other hand, for managing the communications infrastructure in a global manner, of providing new technological capabilities and assist in the use of the most advanced technologies.
Productivity and reliability
Productivity is a key part of the transformation process. Greater productivity is needed to provide our customers with the best possible service while being profitable. The area is therefore working on the following:
- Technological shift at the level of:
- Hardware: creating lower-cost infrastructure components based on the cloud paradigm. Spain processes half of its volume with this technology in 2018, while Mexico made significant progress. Other countries are expected to join in 2019 and 2020.
- Software: multiple global functionalities have been constructed, reused by various of the Group's geographic areas, and construction continues on the technological stack with a high level of automation. In 2018, Engineering has worked with the business areas to align their plans with the deployment of new technological capabilities that enables the Bank to begin to materialize the objectives of the strategy.
- Transformation of operations: Engineering has continued with the operations optimization exercise in several geographical areas, with good results, applying the working methodology, created in a global way to implement it throughout the whole Group, and already including robotics activities in several geographical areas .
Reliability remains another key factor for the Engineering function and digital transformation. It is crucial to obtain the best possible performance from infrastructures, architectures, operations and internal processes, and to do so in a way that is fully reliable.
In this sense, BBVA continues to implement programs to strengthen security and control technological risk, in all areas, and keeps working on continuous improvement to guarantee service levels.
Patents, licenses or similar
At the time of preparing the accompanying Consolidated Financial Statements, the BBVA Group is not materially dependent on the issuance of patents, licenses and industrial, mercantile or financial contracts or on new manufacturing processes in carrying out its business purpose.
On January 15, 2019, BBVA announced its irrevocable decision to early redeem, on February 19, 2019, the issuance of preferred securities contingently convertible (additional tier 1 instrument) carried out by the Bank on February 19, 2014, for an amount of €1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator was obtained (see Note 22.4 of the accompanying Consolidated Financial Statements).
The Board of Directors, in their meeting on January 31, 2019, agreed on carrying out an issuance of bonds convertible into ordinary shares of BBVA with exclusion of pre-emptive subscription rights, under the power delegated by the General Shareholders' Meeting of the Company held on March 17, 2017 under the fifth item on the agenda which is pending to be executed.
On February 1, 2019 it was announced that it was foreseen to submit to the consideration of the corresponding government bodies the proposal of cash payment in a gross amount of euro 0.16 per share to be paid in April as final dividend for 2018 (see Note 4 of the accompanying Consolidated Financial Statements).
From January 1, 2019 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.