General information requirements

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 of the banking entities operating in Spain and carries out its activity through branches and agencies throughout the country and abroad.

The bylaws and other public information are available for consultation at the Bank's registered office (Plaza San Nicolás, 4, Bilbao) and on its website (www.bbva.com).

Solvency regulations are applicable at a consolidated level for the whole Group.

Differences between the consolidated group for the purposes of solvency regulations and accounting criteria

The Group's Consolidated Financial Statements are presented in accordance with the International Financial Reporting Standards adopted by the European Union (hereinafter referred to as 'IFRS-EU') applicable as of December 31, 2019, considering the Bank of Spain Circular 4/2017, and its successive modifications and the other provisions of the financial reporting framework applicable to the Group in Spain.

On the basis of accounting criteria, companies are considered to form part of a consolidated group when the parent entity holds or can hold, directly or indirectly, control of them. An institution is understood to control a subsidiary 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 over the subsidiary. For 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. Investor returns can be positive only, negative only, or positive and negative at the same time.
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 it also has the capacity to use its power to influence the returns it obtains due to its involvement in the subsidiary.

Therefore, in drawing up the Group’s Consolidated Financial Statements, all dependent companies and consolidating structured entities have been consolidated by applying the full consolidation method.

Associated companies, 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 BBVA Group is included in the appendices to the Group's Consolidated Financial Statements.

For the purposes of solvency regulations, the following subsidiaries form part of the consolidated group, as defined in Article 18 of the CRR:

Credit institutions
Investment firms
Financial institutions

A financial institution is a company, separate from other institutions (credit institution or investment firm), whose main activity consists of acquiring holdings or performing one or more of the following activities:

Loans, including in particular consumer finance, credit agreements relating to immovable property, recourse and non-recourse factoring, and financing of commercial transactions (including forfaiting)
Financial leasing
Payment services
Issuing and managing other payment channels (e.g. traveller’s cheques and bank cheques)
Granting of guarantees and commitments
Trading on their own account or on behalf of customers on any of the following instruments:

- Money market instruments (cheques, bills, certificates of deposit etc.)
- Foreign currency
- Financial futures and options
- Foreign-exchange or interest-rate instruments
- Marketable securities

Participating in the issuance of securities and the provision of corresponding services
Advising companies with regard to capital structure, industrial strategy and related matters, as well as advice and services for mergers and acquisitions of companies
Brokerage in the interbank markets
Managing or advising on equity management
Custody and administration of marketable securities
Issuance of electronic money

This definition includes financial holding companies, mixed financial holding companies, payment institutions and asset management firms, but excludes pure industrial holding companies, insurance companies, insurance holding companies and mixed insurance holding companies.

Auxiliary services companies: A company whose main activity is holding or management of property, management of computing services or any other similar activity of an auxiliary nature with regard to the main activity of one or more institutions (credit institution or investment firm).

Therefore, for the purposes of calculating solvency requirements, and hence the drawing up of this Prudential Relevance Report, the scope of consolidating entities is different from the scope defined for the purposes of drawing up the Group’s Consolidated Financial Statements.

The effect of the difference between the two regulations is mainly due to:

Withdrawals from the balance made by entities (largely insurance companies regulated by the regulatory framework of Solvency II) that are consolidated in the Group’s Consolidated Financial Statements by the full consolidation method and consolidated for the purposes of solvency by applying the equity method.
Entries to the balance contributed mainly by financial entities consolidated by applying the equity method at the accounting level, but for purposes of solvency, are proportionally integrated.

The details of these companies can be found in the Annexes in the file Pillar 3 2019 Annexes available in the section for Shareholders and Investors / Financial Information on the Group’s website.

Main changes in the Group in the 2019 financial year

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay S.A., a subsidiary of the Gilinski Financial Group, for the sale of its direct and indirect shareholding in Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). BBVA’s total direct and indirect stake in BBVA Paraguay is 100% of its share capital.

The estimated net tax surplus calculated as of the date of this report will amount to approximately 40 million euros and the positive impact on the Group's Common Equity Tier 1 (fully loaded) would be approximately 6 basis points. It is estimated that the operation will close during the first quarter of 2020, once the relevant authorizations have been received.

As a result of the above, in the Group's consolidated public balance sheet, all the items in BBVA Paraguay's balance sheet have been reclassified to the category of “Non-current assets (liabilities) and divested groups of items classified as held for sale”, but not for the purposes of the regulatory perimeter where such reclassification has not been carried out.

For more information on the main transactions during the year, see Note 3 of the Group's Consolidated Financial Statements.

Reconciliation of the Public Balance Sheet from the accounting perimeter to the regulatory perimeter

This section includes an exercise in transparency to show the reconciliation process between the book balances reported in the Public Balance Sheet (attached to the Group’s Consolidated Financial Statements) and the book balances this report uses (regulatory perimeter), revealing the main differences between both perimeters.

CC2 – Reconciliation of regulatory capital to the balance sheet

Million Euros

Public Balance Sheet Headings	Public Balance Sheet	Regulatory balance sheet	Reference to template CC1
Cash, cash balances at central banks and other demand deposits	44,303	44,496
Financial assets held for trading	102,6887	103,454
Non-trading financial assets a mandatorily at fair value through profit or loss	5,557	1,692
Financial assets designated at fair value through profit or loss	1,214	-
Financial assets at fair value through accumulated other comprehensive income	61,183	45,888
Financial assets at amortized cost	439,162	433,158
Derivatives - Hedging derivatives	1,729	1,610
Fair value changes of the hedged items in portfolio hedges of interest rate risk	28	28
Joint ventures and associates	1,488	4,520
Insurance and reinsurance assets	341	-
Tangible assets	10,068	9,797
Intangibles assets	6,966	6,875	g)
Tax assets	17,083	16,733
Of which: deferred tax assets	15,318	15,051	h)
Other assets	3,800	5,723
Non-current assets and desposal groups held for sale	3,079	3,082
Total Assets	698,690	677,054
Financial liabilities held for trading	89,663	89,843
Financial liabilities designated at fair value through profit or loss	10,010	4,656
Financial liabilities at amortized cost	516,641	512,709	o) p) r)
Derivatives - Hedging accounting	2,233	2,076
Fair value changes of the hedged items in portfolio hedges of interest rate risk	-	-
Liabilities under insurance and reinsurance contracts	10,606	-
Provisions	6,538	5,946
Tax liabilities	2,808	1,861
Of which: deferred tax liabilities	1,928	1,100
Other liabilities	3,742	3,696
Liabilities included in disposal groups clasified as held for sale	1,554	1,557
Total liabilities	643,765	622,345
Capital	3,267	3,267	a)
Share premium	23,992	23,992	a)
Equity instruments issued other than capital	-	-	b)
Other equity	56	56	b)
Retained earnings	26,402	26,142	b)
Revaluation reserves	-	-	b)
Other reserves	(125)	83	b)
Less: treasury shares	(62)	(62)	l)
Profit or loss atributable to owners of the parent	3,512	3,469	e)
Less: interim dividend	(1,084)	(1,804)	e)
Accumulated other comprehensive income (loss)	(7,235)	(7,287)	c) i) k)
Minority interest (non-controlling interest)	6,201	6,133
Total equity	54,925	54,709
Total equity and total liabilities	698,690	677,054

⁽¹⁾ These headings include BBVA Paraguay's assets and liabilities (see section 1.1.3.).

The main differences between the public balance sheet and the regulatory balance sheet are due to withdrawals from the balance generated by insurance, real estate and financial entities that are consolidated through the application of the equity method for the amount of -22,352 million euros; and balance entries generated by entities that are consolidated using the proportional integration method for an amount of +716 million euros.

For more details, see section 1 of the Report.