Letter from the Chief Executive Officer

Dear shareholders,

2020 has been a challenging year, marked by the strong impact of the COVID-19 pandemic, with severe health and economic consequences. In this context, our priorities have remained clear and unchanged: protecting the health of our employees, clients and society as a whole, providing an essential service to the economy, and financial support to individuals and businesses.

As a result of the pandemic, the global economy shrunk, according to BBVA Research estimates, by around 2.6% in terms of GDP in 2020. This impact is heterogeneous across the countries in which BBVA is present, with a decline of 11.0% in Spain, 9.1% in Mexico, 3.6% in the United States, and 6.8% in South America¹ as a whole, and all this despite fiscal stimulus and monetary policy measures swiftly implemented by central banks and governments. Turkey closed the year with a slight growth of 1.0% in 2020. As for 2021, we expect strong recovery across our footprint, even though uncertainty remains high.

Despite this challenging scenario, BBVA once again has demonstrated the strength of its business model, and has reported solid financial results in a context of high uncertainty, with operating income growing at double digit and remaining at the forefront of its European peer group in terms of profitability.

The net attributable profit of BBVA Group in 2020, excluding one-offs, stood at €3.08 billion, 27.2% less than in the previous year, at constant euros, as a result of front-loading of provisions and impairments during the first half of the year. Taking into account the impact of the goodwill impairment from BBVA USA and the net capital gains from the agreement reached with Allianz, the net attributable profit stood at €1.31 billion.

I would also like to comment on other major milestones we achieved in 2020, the historic sale agreement of our business in the United States, which has allowed us to emerge the tremendous value of the unit and which offers ample strategic optionality. This transaction confirms our clear commitment to creating shareholder value, placing the pro-forma fully-loaded CET1 capital ratio at 14.58%. Excluding the impact of this sale, the ratio closed the year at 11.73%, within the target range and almost flat compared to 2019, after recovering from a sharp drop in the first quarter due to the pandemic.

In terms of shareholder value creation, the tangible book value per share plus dividends closed the year at €6.21, a level similar to that of 2019. And yet for another year, our profitability metrics remained at the top of our peer group. Excluding the year’s one-offs, i.e. the impact of the goodwill impairment and net capital gains from the Allianz agreement, the return on equity closed at 6.9% and the return on tangible equity at 7.8%.

All this will allow us to submit, for the consideration of shareholders and supervisors, the proposal to resume shareholder distribution with a payment of 5.9 euro cents gross per share in April 2021.

It is also worth noting the solid performance of our recurring income, which despite the complexity of the environment, grew by 2.7%, at constant exchange rates – i.e. without taking into account the impact of the exchange rate -; and the discipline in controlling expenses, which, for the first time in many years, fell to 2.6%, at constant euros, despite significant inflation rates in some of the countries where BBVA is present. As a result, the efficiency ratio improved by 342 basis points, to 46.8%, leading, for yet another year, our group of comparable competitors. All of this led to an operating income growth of 11.7% compared to last year, in constant euros.

Regarding risk indicators, it should be noted that, following front-loaded provisions in the first half of the year as a result of the pandemic, they behaved better than expected. Cost of risk stood at 1.51%, at the bottom end of the expected range announced by the Bank in the first quarter of the year. The NPL rate rose slightly to 4.0%, while the coverage ratio remained at very high levels, closing the year at 81%.

As for the main business areas, I would like to underline the following:

In Spain, the net attributable profit stood at €606 million, down 56.3% from the previous year, due to provisions related to the pandemic. However, operating income grew 4.7%, driven by revenues from fees and commissions and the drop in operating expenses. The cost of risk improved as the year progressed, after a first half impacted by significant provisioning efforts, to finish at 0.67%. The NPL ratio improved to 4.27% and the NPL coverage ratio closed the year at 67%. BBVA’s coverage ratio is the highest in Spain’s banking sector.
In the United States, the net attributable profit stood at €429 million in 2020, after declining 25.5% from 2019, at constant euros, due mainly to the increase in loan-loss provisions. As for the top lines, it is worth underscoring the 4.4% growth of the operating income, driven by growth in fees and commissions and net trading income and by the decline in operating expenses. Cost of risk closed at 1.18%, a significantly lower level than expected in the third quarter.
In Mexico, net attributable profit reached €1,769 million, a figure that represents a 25.8% year-on-year decline, at constant euros, as a result of the loan-loss provisions recorded to face the pandemic, partially offset by cost containment efforts, which kept expenses well below inflation. Risk indicators closed the year in line with expectations, after a first half of the year impacted by strong provisioning efforts.
In Turkey, the net attributable profit reached €563 million. Excluding the currency fluctuations during the year – that is, in constant terms – this figure represents a 41% increase from the preceding year. It is worth noting the positive performance of the net interest income, driven by investment growth and solid price management practices, as well as net trading income and cost containment efforts.
In South America, it is worth noting the solid performance in the main countries: Argentina, Colombia and Peru. The area’s attributable profit stood at €446 million in 2020, down 22.6% at constant terms, as a result of provisions related to the pandemic.

I would like to end by expressing my gratitude to the Group’s more than 123,000 employees for their constant dedication, their continuous effort and their contribution to these results in a particularly difficult year for everyone. It is thanks to each one of these individuals that we are able to work as one team. And of course, I would also like to thank you, the shareholders, for your trust and your constant support that drives us to deliver on our purpose: to bring the age of opportunity to everyone.

Onur Genç
BBVA's Chief Executive Officer

¹ Includes Argentina, Brazil, Chile, Colombia and Peru.