Letter from the Group executive chairman

Dear shareholder,

The year 2020 was marked by COVID-19, a global pandemic with severe health and economic consequences. From the very beginning, BBVA has stepped up to protect the health and well-being of everyone: employees, customers and society in general, with a donation of more than €35 million to purchase medical equipment and support particularly vulnerable groups, and research on the disease.

We have continued providing an essential service and supporting our customers when they needed it most thanks to our digital capabilities and remote managers. We have alleviated the financial burden on families and businesses through €38 billion of deferrals and flexible payments and our active participation in government aid programs, financing €25 billion. With all of this support, we have helped three million customers overcome this crisis, preserving jobs and contributing to the recovery.

I am very proud of the Bank’s response and of all of the teams’ hard work to make it possible, in line with our purpose: to bring the age of opportunity to everyone.

The health crisis has led to sharp declines in GDP around the world. In particular, the countries where BBVA operates have posted a -7.2% fall as a whole, according to BBVA Research estimates. The rapid response from central banks and governments, with monetary and fiscal stimulus measures like assistance programs, government-backed lines of credit or measures to support jobs have prevented the crisis from having an even greater impact.

Although early 2021 continues to be affected by the same uncertainties we faced at the end of the previous year, growth will be greater in the second half of the year if vaccination plans are fulfilled. An effective, rapid and global vaccination campaign will be critical to making mobility restrictions more flexible and allowing the sectors of the economy that were hit the hardest to return to a certain level of normality.

Despite this environment and the high level of uncertainty, the Bank reported good results in 2020, posting a net attributable profit for the year of €3.08 billion excluding one-offs, thanks to the hard work of our team in a highly complex environment. Following a first quarter affected by the significant efforts to front-load provisions for the impact of COVID-19, the Bank’s results have shown a growing trend, reaching €1.32 billion in the last quarter of the year. The efforts made in provisions in 2020 allow us to be better prepared for the challenges of 2021, with an 81% NPL coverage ratio - the highest of the past decade. Operating income rose 11.7% at constant exchange rates, and we continue to lead our European peers in terms of efficiency and profitability.

The pandemic we are facing has accelerated trends on which our strategy is based, such as digitization. Our pioneering commitment is paying off, and has given us an advantage over our competitors that has allowed us to better serve our customers, even in a context as complex as the present, and largely operating remotely. Over 34 million customers do their banking with us via smartphone, which represents 59% of the total customer base. In 2020, nearly two-thirds of the Group’s sales took place on digital channels.

We have also made great strides in our commitment to environmental and social sustainability - one of our strategic priorities. In this regard, BBVA has been recognized as the most sustainable bank in Europe, and the second most sustainable bank in the world, according to the Dow Jones Sustainability Index.

Our commitment to sustainability is structured around several pillars. First, we help our clients in their transition toward a sustainable and inclusive future, with advice, financing and new innovative solutions. A strategy that allows us to take advantage of the enormous business opportunity that sustainable investment represents - especially related to climate change. In 2020, we mobilized a total of €11 billion in sustainable wholesale loans and bonds, which positions us as one of the leading banks in Spain and Europe. This financing is part of our Pledge 2025, of which we have already mobilized over €50 billion in just three years, meaning we are well ahead of our total goal of €100 billion by 2025.

We have also made great progress in our commitment to the Paris Agreement on climate change. Since 2020, we have been carbon neutral in the emissions directly generated by our own activity and we have moved forward in aligning our investment portfolio to this agreement (also taking into account the impact our clients have on emissions). This will be a key issue at the next COP 26, which will be held in Glasgow this year. BBVA will certainly play a highly active role in this event.

Furthermore, in order to be successful in the fight against climate change and inequality, it is critical to have adequate information. For this reason, in 2020 we published our first TCFD (‘Task Force on Climate-related Financial Disclosure’) report on the risks and opportunities posed by climate change. We also made the commitment to publish the ESG metrics promoted by the World Economic Forum’s International Business Council in order to establish international standards to measure, compare and manage performance in sustainability.

Finally, I would like to emphasize the great work that we have been directly carrying out in social action. In 2020, BBVA allocated over €140 million to social initiatives and programs to support education, culture, science, entrepreneurship and alleviate the effects of COVID-19, benefiting more than 12 million people. But also through our foundations, which promote research, culture and education, such as the BBVA Foundation or the BBVA Foundation Mexico, and development funding in the case of the BBVA Microfinance Foundation. The efforts of the latter were awarded for a second year in a row as the second largest private philanthropic initiative in the world, and the largest in Latin America, by the Organization for Economic Cooperation and Development (OECD).

Without a doubt, the other major milestone in BBVA’s strategy in 2020 was the sale of our United States business. A historic transaction with very attractive multiples that value our United States subsidiary at nearly 20 times its 2019 profit.

The operation allows us to bring out the tremendous value of this business,generating €8.5 billion in capital. This puts at an unparalleled position of strength in the sector and gives us a wide range of strategic options.

Following the United States sale, the Group’s Common Equity Tier 1 capital ratio stands at 14.6% - well above our capital target of 11.5 to 12%. It also positions us as one of the European banks with the greatest distance between the capital ratio and the minimum requirement.

This excess capital allows us to advance in our clear commitment to create value for shareholders. With regards to the year 2020, we will propose to the Annual General Meeting a payment of 5.9 euro cents gross per share in April 2021; and expect to resume our dividend distribution policy of a 35 to 40% payout for the year 2021.

In addition, this solid capital position opens to the door to other forms of extraordinary distribution to our shareholders. Our goal is to put in place a plan to buy back around 10% of the Group’s shares after the United States sale. All subject to market conditions and the necessary approvals.

Ultimately, BBVA looks to 2021 with the same commitment to society that we have had in 2020. Thanks to our great strength, we will continue providing our support to overcome this crisis and in the recovery phase.

Thank you for your support and confidence as a shareholder in such a complex year. It motivates us to continue working for a better future.

Carlos Torres Vila
BBVA’s Group Executive Chairman