The Banco Bilbao Vizcaya Argentaria Group (the “Group” or “BBVA Group”) is an internationally diversified financial group with a significant presence in traditional retail banking, asset management and wholesale banking.
In addition to the operations it carries out directly, the Bank heads a group of subsidiaries, jointly-controlled businesses and associate institutions which perform a wide range of activities and which, together with the Bank, constitute BBVA Group. This allows BBVA Group to achieve a high level of geographical diversification, which is one of the levers of sustainable growth and organic generation of highly satisfactory earnings.
We are facing a new environment that poses a significant challenge for the financial industry. Technological and consumer preference changes are transforming society and the way of doing business, affecting the banking industry as has already happened in other sectors.
Moreover, the sector’s return is under pressure due to: the sluggish growth in activity and the pressure to attain margins, increased regulatory pressure and capital requirements, widespread distrust of traditional banking and the emergence of new competitors.
In this context, BBVA has a vantage point because it has a large customer base, a great deal of information, presence in attractive markets, significant know-how in risk management and a sound corporate governance model.
These strengths are the starting point of our transformation strategy, that places the customers at the core to offer them the best solutions that help them manage their money and make the best financial decisions, with the aim of having more customers, more satisfied, more loyal and more profitable.
To this end, the Group’s organizational structure was changed in May 2015 to adapt it to this new strategy, accelerate the transformation process and promote the growth of earnings of our franchises.
The Group has also defined 6 strategic priorities to guide this transformation:
- To offer the best customer experience.
- To make progress in this area it is essential for customers to go digital, so we want to boost digital sales.
- The third priority is to create, associate with or acquire new digital business models, businesses with new ways of providing financial services using different approaches and with innovative value propositions.
- The fourth priority refers to optimizing capital allocation. This priority is focused on maximizing the return on available capital in a sustainable manner over time.
- The fifth priority is adapting the model, the processes and the structures to achieve the highest level of efficiency.
- The last priority is associated with the Group’s talent and culture. We want to develop, retain and motivate the best team.
In 2015, earnings were influenced by the incorporation, since April 24, of Catalunya Banc (CX) and, since the third quarter of 2015, the purchase of an additional 14.89% stake in Garanti.
Apart from these operations, 2015 closed with positive growth in different performance areas, on both the cost management side and generation of income. As a result, the solvency position in the market was improved.
As regards liquidity, the good situation in the wholesale funding markets and constant access by BBVA and its franchises to the market were maintained, and in 2015 the liquidity and funding conditions have remained comfortable across BBVA’s global footprint.
In general, the financial soundness of the Group’s banks is based on the funding of lending activity, basically through customer funds, so the adequate trend in the weight of retail deposits continues to strengthen the Group’s liquidity position and to improve the funding structure, maintaining very favorable liquidity ratios in terms of LTD (Loan-to- Deposits) and LCR (Liquidity Coverage Ratio).
The Group’s performance in relation to managing credit risk has been favorable, reducing the NPL ratio and increasing the coverage ratio, thus strengthening the entity’s adequate position in terms of credit risk.
In solvency, BBVA ended 2015 with capital levels above the minimum levels required, in terms of phased-in and fully-loaded capital, and reached a leverage ratio that continues to compare very favorably with its peer group. In addition, the Group has waived the so-called “sovereign filter” in anticipation of the bill proposed by the European Central Bank (ECB) on the exercise of the options and powers offered by European Union law (November 2015), which is expected to come into effect in March 2016.
As regards regulation, BBVA has published its prudential capital requirements applicable to the Entity following the Supervisory Review and Evaluation Process (SREP), which establishes that BBVA should maintain a phased-in core capital ratio of 9.5% at both individual and consolidated levels. This will all be described in greater detail throughout this report.