General information requirements
Corporate name and scope of application
Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank”, “BBVA" or “BBVA, S.A.”) is a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad.
The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 Bilbao) as noted on its web site (www.bbva.com).
Solvency regulations are applicable at a consolidated level for the whole Group.
Differences between the consolidable group for the purposes of solvency regulations and accounting criteria
The BBVA Group’s Consolidated Financial Statements are presented in compliance with IFRS-IASB (International Financial Reporting Standards as issued by the International Accounting Standards Board), as well as in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”) applicable as of December 31, 2022, considering the Bank of Spain Circular 4/2017, as well as its successive amendments, and with any other legislation governing financial reporting which is applicable and with the format and mark-up requirements established in the EU Delegated Regulation 2019/815 of the European Commission.
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 Consolidated Financial Statements of BBVA Group, 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 the Group is included in the appendices to the Consolidated Financial Statements of BBVA Group.
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 may consist 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. traveler's checks and bank checks)
- Granting of guarantees and commitments
- Trading on their own account or on behalf of customers on any of the following instruments:
- - Money market instruments (checks, 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 Consolidated Financial Statements of BBVA Group.
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 Solvency II regulatory framework) that are consolidated in the Consolidated Financial Statements of BBVA Group 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 the purposes of solvency, are proportionally integrated.
The list of entities that use different consolidation methods in their public and regulatory balance sheets is included in the table EU LI3 in Annex I.
Significant transactions in the Group in 2022
Announcement of the agreement with Neon Payments Limited
On February 14, 2022, BBVA announced the agreement with the company Neon Payments Limited (the "Company" in this section) for the subscription of 492,692 preference shares, representing approximately 21.7% of its share capital, through a share capital increase and in consideration of approximately USD 300 million (equal to approximately €263 million, using the applicable 1.14 EUR/USD exchange rate as of February 11, 2022).
The Company, which is incorporated and domiciled in the United Kingdom, is the owner of 100% of the shares of the Brazilian company Neon Pagamentos S.A.
As of February 14, 2022, BBVA was already the indirect owner of approximately 10.2% of the share capital of the Company through companies where BBVA owns more than 99% of the share capital. As of December 31, 2022, BBVA held, directly and indirectly, approximately 2920.0% of the share capital of the Company. Despite owning more than 20% of the share capital, BBVA's ability to influence the Company ́s financial and operating decisions policies is very limited, so the investment is recognized under the heading "Non-trading financial assets mandatorily at fair value through profit or loss" (see Note 11).
Voluntary takeover bid for the entire share capital of Türkiye Garanti Bankası A.Ş (Garanti BBVA)
On November 15, 2021, BBVA announced a voluntary takeover bid (hereinafter "VTB") addressed to the 2,106,300,000 shares1 not controlled by BBVA, which represented 50.15% of the total share capital of Türkiye Garanti Bankası A.Ş (hereinafter "Garanti BBVA"). BBVA submitted for authorization an application of the VTB to the supervisor of the securities markets in Turkey (Capital Markets Board, hereinafter "CMB") on November 18, 2021.
On March 31, 2022, CMB approved the offer information document and on the same day BBVA announced the commencement of the VTB acceptance period on April 4, 2022. On April 25, 2022 BBVA informed of an increase of the cash offer price per Garanti BBVA share from that initially announced (12.20 Turkish lira) to 15.00 Turkish lira.
On May 18, 2022, BBVA announced the finalization of the offer acceptance period, with the acquisition of 36.12% of Garanti BBVA’s share capital. The total amount paid by BBVA was approximately 22,758 million Turkish lira (equivalent to approximately €1,390 million2 including the expenses associated with the transaction and net of the collection of the dividends corresponding to the stake acquired).
The transaction resulted in a capital gain of approximately €924 million (including the impacts after the application of IAS 29, see Note 2.2.19). An amount of €3,609 million was recorded under the heading “Other reserves” and there was a reclassification to “Accumulated other comprehensive income (loss)” corresponding to the 36.12% acquired from minority interests to “Accumulated other comprehensive income (loss)” of the parent company for an amount of €-2,685 million. The total derecognition associated with the transaction of the heading “Minority interests” considering “Other items” and “Accumulated other comprehensive income (loss)” amounted to €-2,541 million.
The percentage of total share capital of Garanti BBVA owned by BBVA (after the completion of the VTB on May 18) is 85.97%.
In relation to the rest of the effects of the application of IAS 29 "Financial Reporting in hyperinflationary economies" on the entities of the Group in Turkey, see Note 2.2.19 to these Consolidated Financial Statements.
1 All references to “shares” or “share” shall be deemed made to lots of 100 shares, which is the trading unit in which Garanti BBVA shares are listed at Borsa Istanbul.
2 Using the effective exchange rate of 16.14 Turkish lira per euro.
Reconciliation of the Public Balance Sheet from the accounting perimeter to the regulatory perimeter
The following table includes an exercise in transparency to show the reconciliation process between the book balances reported in the public balance sheet (attached to the Consolidated Financial Statements of BBVA Group) and the book balances this report uses (regulatory perimeter), revealing the main differences between both perimeters.
EU CC2 - Reconciliation of regulatory capital to balance sheet (Million Euros)
| Public Balance Sheet Headings | Public Balance Sheet | Regulatory balance sheet | Referece to template EU CC1 |
|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits | 79,756 | 79,992 | |
| Financial assets held for trading | 110,671 | 111,578 | |
| Non-trading financial assets mandatorily at fair value through profit or loss | 6,888 | 1,500 | |
| Financial assets designated at fair value through profit or loss | 913 | — | |
| Financial assets at fair value through accumulated other comprehensive income | 58,980 | 45,428 | |
| Financial assets at amortised cost | 422,061 | 414,000 | |
| Derivatives - Hedge accounting | 1,891 | 1,812 | |
| Fair value changes of the hedged items in portfolio hedges of interest rate risk | (148) | (148) | |
| Joint ventures and associates | 916 | 3,436 | |
| Insurance and reinsurance assets | 210 | — | |
| Tangible assets | 8,737 | 8,205 | |
| Intangible assets | 2,156 | 2,125 | g) |
| Tax assets | 16,472 | 16,223 | |
| Of which: deferred tax assets | 14,494 | 14,294 | h) |
| Other assets | 2,614 | 3,815 | |
| Non-current assets and disposal groups classified as held for sale | 1,022 | 984 | |
| Total Assets | 713,140 | 688,951 | |
| Financial liabilities held for trading | 95,611 | 96,000 | |
| Financial liabilities designated at fair value through profit or loss | 10,580 | 3,288 | |
| Financial liabilities at amortised cost | 528,629 | 524,359 | o) q) |
| Derivatives - Hedge accounting | 3,303 | 3,069 | |
| Fair value changes of the hedged items in portfolio hedges of interest rate risk | — | — | |
| Liabilities under insurance and reinsurance contracts | 11,848 | — | |
| Provisions | 4,933 | 4,588 | |
| Tax liabilities | 2,742 | 2,291 | |
| Of which: deferred tax liabilities | 1,326 | 922 | |
| Other liabilities | 4,880 | 4,864 | |
| Non-current assets and disposal groups classified as held for sale | — | — | |
| Total liabilities | 662,526 | 638,459 | |
| Capital | 2,955 | 2,955 | a) |
| Share premium | 20,856 | 20,856 | a) |
| Equity instruments issued other than capital | — | — | |
| Other equity | 63 | 63 | c) |
| Retained earnings | 32,536 | 31,436 | b) |
| Revaluation reserves | — | — | |
| Other reserves | 2,345 | 3,234 | c) |
| Less: treasury shares | (29) | (29) | l) |
| Profit or loss atributable to owners of the parent | 6,420 | 6,407 | e) |
| Less: interim dividend | (722) | (722) | e) |
| Accumulated other comprehensive income (loss) | (17,432) | (17,248) | c) |
| Minority interests | 3,624 | 3,541 | |
| Total equity | 50,615 | 50,492 | |
| Total equity and total liabilities | 713,140 | 688,951 |
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 €-25,359 million; and balance entries generated by entities that are consolidated using the proportional integration method for an amount of €+1,170 million.
For more information, see section 2 of the report.