1.1.1. Corporate name and scope of application
Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter, “the Bank” or “BBVA”) is a private-law entity subject to the rules and regulations governing banking institutions operating in Spain.
The Bylaws and other public information about the Bank are available for consultation at its registered address (Plaza San Nicolás, 4 Bilbao) and on its official website: www.bbva.com.
In addition to the transactions it carries out directly, the Bank heads a group of subsidiaries, jointly-controlled and associate institutions which perform a wide range of activities and which, together with the Bank, constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, “the Group” or “the BBVA Group”).
Circular 3/2008 and its amendments 9/2010 and 4/2011 are binding at a consolidated level for the entire Group.
1.1.2. Differences among the consolidated group for the purposes of the Solvency Circular and the Accounting Circular
The Group’s consolidated financial statements are drawn up in accordance with what is laid down in the International Financial Reporting Standards adopted by the European Union (hereinafter, “EU-IFRS”). The EU-IFRS were adapted to the Spanish credit institution sector in Spain via Bank of Spain Circular 4/2004 of 22 December 2004 (hereinafter, “the Accounting Circular”) as well as through its subsequent amendments, including Bank of Spain Circulars 6/2008 of November 26, 2008, 3/2010 of June 29, and 8/2010 of November 30. Bank of Spain Circulars 5/2013 of October 30, 2013 on public and restricted financial reporting rules and 5/2011 of November 30, 2011 on financial statement models also apply.
For the purposes of the Accounting Circular, companies are considered to form part of a consolidated group when the controlling institution holds or can hold, directly or indirectly, control of them. An institution is understood to control another entity when it is exposed, or is entitled to variable returns as a result of its involvement in the subsidiary and has the capacity to influence those returns through the power it exercises on the subsidiary. For such control to exist, the following aspects must be fulfilled:
a) Power: An investor has power over a subsidiary when it has current rights that provide it with the capacity to direct its relevant activities, i.e. those that significantly affect the returns of the subsidiary.
b) Returns: An investor is exposed, or is entitled to variable returns as a result of its involvement in the subsidiary when the returns obtained by the investor for such involvement may vary based on the economic performance of the subsidiary. The investor’s returns may be positive only, negative only or both positive and negative.
c) Relationship between power and returns: An investor has control over a subsidiary when it not only has power over the subsidiary and is exposed, or is entitled to variable returns for its involvement in the subsidiary, but also has the capacity to use its power to influence the returns it obtains for such involvement in the subsidiary.
Therefore, in drawing up the Group’s consolidated financial statements, all dependent companies and consolidated structured entities have been consolidated by applying the full consolidation method.
Jointly-controlled entities, as well as joint ventures (those over which joint control arrangements are in place), are valued using the equity method.
The list of all the companies forming part of the BBVA Group is included in the appendices to the Group’s Annual Consolidated Financial Statements.
For the purposes of the Solvency Circular, as set out in Spanish Law 36/2007, heading two, section 3.4, the consolidated group comprises the following subsidiaries:
- Credit institutions.
- Investment services companies.
- Open-end funds.
- Companies managing mutual funds, together with companies managing pension funds, whose sole purpose is the administration and management of the aforementioned funds.
- Companies managing mortgage securitization funds and asset securitization funds.
- Venture capital companies and venture capital fund managers.
- Institutions whose main activity is holding shares or investments, unless they are mixed-portfolio financial corporations supervised at the financial conglomerate level.
Likewise, the special-purpose entities whose main activity implies a prolongation of the business of any of the institutions included in the consolidation, or includes the rendering of back-office services to these, will also form part of the consolidated group.
However, according to the provisions of this law, insurance entities and some service firms do not form part of consolidated groups of credit institutions.
Therefore, for the purposes of calculating solvency requirements, and hence the drawing up of this Information of Prudential Relevance, the perimeter of consolidated institutions is different from the perimeter defined for the purposes of drawing up the Group’s financial statements.
The outcome of the difference between the two regulations is that institutions, largely real-estate, insurance and service companies, which are consolidated in the Group’s financial statements by the full consolidation method, are consolidated for the purposes of Solvency by applying the equity method. In addition, insurance companies in which the holding is over 20% and financial institutions in which the holding is over 10% are deducted from capital.
The Annex of this report presents a list of these institutions.
1.1.3. Reconciliation of the Public Balance Sheet from the accounting perimeter to the regulatory perimeter
This section includes an exercise in transparency aimed at offering a clear view of the process of reconciliation between the book balances reported in the Public Balance Sheet (which stems from the Group’s Annual Consolidated Financial Statements) and the book balances this report refers to (regulatory perimeter).
In addition, it shows the transition from the accounting information and the prudential information, based on a Public Balance Sheet of accounting information, to a Public Balance Sheet in terms of credit risk, guaranteeing an adequate understanding of the Public Balance Sheet for regulatory purposes.
Table 2. Reconciliation of the Public Balance Sheet from the accounting perimeter to the regulatory perimeter
(Millions of euros)
| Public Balance Sheet Headings | Public Balance Sheet |
Insurance companies and financial institutions (1) |
Jointly-controlled entities and other adjustments (2) |
Regulatory Balance Sheet |
|---|---|---|---|---|
| 1. Cash and Balances at Central Banks | 34,903 | 0 | 2,162 | 37,065 |
| 2. Trading Book | 72,112 | –974 | 2,105 | 73,243 |
| 3. Financial assets designated at fair value through profit or loss | 2,413 | –1,915 | 17 | 514 |
| 4. Available-for-sale financial assets | 77,774 | –15,877 | 3,089 | 64,986 |
| 5. Loans and Receivables | 350,945 | –1,098 | 15,529 | 365,376 |
| 6. Held-to-maturity investments | 0 | 0 | 0 | 0 |
| 7. Adjustments to Financial Assets for Portfolio Hedges | 98 | 0 | 0 | 98 |
| 8. Hedging Derivatives | 2,530 | –138 | 10 | 2,402 |
| 9. Non-current assets held for sale | 2,880 | –15 | 16 | 2,880 |
| 10. Investments | 4,742 | –102 | 32 | 4,672 |
| 11. Other | 34,178 | –1,539 | 2,900 | 35,538 |
| Total Assets | 582,575 | –21,658 | 25,859 | 586,776 |
Table 3. Reconciliation of the Public Balance Sheet from the accounting perimeter to the regulatory perimeter –EO, EAD and RWAs–
(Millions of euros)
|
|
Credit risk | ||
|---|---|---|---|
| Public Balance Sheet Headings | Original exposure | EAD | RWAs |
| 1. Cash and Balances at Central Banks | 37,499 | 37,494 | 10,684 |
| 2. Trading Book | 24,749 | 23,682 | 8,386 |
| 3. Financial assets designated at fair value through profit or loss |
514 | 514 | 244 |
| 4. Available-for-sale financial assets | 64,561 | 64,550 | 16,659 |
| 5. Loans and Receivables | 542,913 | 447,423 | 217,983 |
| 6. Held-to-maturity investments | 0 | 0 | 0 |
| 7. Adjustments to Financial Assets for Portfolio Hedges | 0 | 0 | 0 |
| 8. Hedging Derivatives | 0 | 0 | 0 |
| 9. Non-current assets held for sale | 2,880 | 2,880 | 3,613 |
| 10. Investments | 3,181 | 3,181 | 4,794 |
| 11. Other | 13,836 | 13,835 | 12,427 |
| Total Assets | 690,133 | 593,559 | 274,790 |
The differences seen between the amount of the Regulatory Balance Sheet in the first table and the Original Exposure in the second table are due to the fact that, unlike the Regulatory Balance Sheet, the Original Exposure includes the amount of some liabilities positions (mainly assets sold under repurchase agreements) as well as the amount for memorandum accounts (contingent and nominal exposures and commitments on derivatives).
1.1.4. Main changes in the Group’s scope of consolidation in 2013
New agreement with the CITIC Group
On October 17, 2013, BBVA reached a new agreement with the CITIC Group that included the sale of 5.1% of the stake in China CITIC Bank Corporation Limited (“CNCB”) to CITIC Limited. After this agreement, BBVA’s stake in CNCB was reduced to 9.9%.
At the same time, BBVA and the CITIC Group agreed to adapt their strategic cooperation agreement, eliminating the exclusivity obligation that affected BBVA’s activities in China, and to negotiate new areas of cooperation between both banks, with BBVA intending to maintain its stake in CNCB in the long term.
According to IFRS 11, the new situation involves a change in the criteria applied to BBVA’s holding in CNCB, which is now a financial holding registered as “Available-for-sale financial assets”.
Sale of the pensions business in Latin America
The sale of several holdings in Pension Fund Administrators in Latin American countries was completed in 2013. The details of these transactions are described in Note 3 to the Group’s Consolidated Report.
See Note 3 of the Consolidated Financial Statement for more information.