Solvency

Capital base

Fully-loaded CET1 ratio stood at 11.3% for the period ended September 30, 2018, above the Group's target ratio of 11%. In the third quarter of 2018, the sale of the stake in BBVA Chile generated a positive impact on the fully-loaded CET1 ratio of 50 basis points (pbs), in line with expectations. Additionally, transfer of the real estate business of BBVA in Spain to Cerberus is estimated to have no material impact on the ratios. Also note that the measures activated at the local level by the Turkish regulator and supervisor (BRSA) in the quarter have no impact on the Group at a consolidated level.

Risk-weighted assets (RWAs) have decreased in the year, excluding the effect of the sale of BBVA Chile, due to a large extent  to the depreciation of currencies against the euro. The Group carried out two securitizations in the year, a standard one in June related to a portfolio of consumer finance car loans for an amount of €800 million and a synthetic one in March, on which the European Investment Fund (FEI, subsidiary of the European Investment Bank) granted a financial guarantee on an intermediate tranche of a total portfolio of €1,950 million of loans to SMEs. The positive impact on capital of both securitizations via the release of RWAs was €767 million. In addition, during the first semester BBVA received authorization from the European Central Bank (ECB) to update the RWA calculation for structural exchange rate risk under the standard model.

Evolution of fully-loaded capital ratios (Percentage)

Capital base (Millions of Euros)

Regarding capital issues, the Group has computed a new issuance of contingent convertible bonds (CoCos) as an AT1 instrument for an amount of US$1,000 million carried out in November 2017 and no longer includes an issuance of AT1 of US$1,500 million that was canceled in advance in May 2018. Likewise, the Group carried out in September a new issuance of contingent convertible bonds (CoCos) for €1,000 million. Once the regulator’s authorization is received, this issuance will compute as AT1 with an impact of approximately +30 pbs on the fully-loaded Tier 1 ratio. Lastly, the Group received regulator’s authorization in the quarter for the computation of a Tier 2 subordinated issue of US $300 million carried out in May, with a positive impact of about 8 bps on the fully-loaded total ratio.

The Group has continued with its program to meet the MREL requirements by closing two public issuances of non-preferred senior debt, for a total of €2,500 million.

In relation to shareholder remuneration, on October 10, BBVA paid the first cash dividend charged to the 2018 earnings, with an amount of €0.10 gross per share. The total amount disbursed by the Group was €667 million, with no impact on solvency since the capital ratios include the accrual of dividends in line with the published dividend pay-out policy of around 35-40% of the recurring profit. In addition, BBVA paid in cash, on April 10, 2018, the complementary dividend for 2017 for an amount of €0.15 gross per share.

As of 30-September-2018, the phased-in CET1 ratio stood at 11.6%, taking into account the impact of the initial implementation of IFRS 9. In this context the European Commission and Parliament have established temporary arrangements that are voluntary for the institutions, adapting the impact of IFRS 9 on capital ratios. BBVA has informed the supervisory body of its adherence to these arrangements. Tier 1 capital stood at 13.3% and Tier 2 at 2.6% resulting in a total capital ratio of 15.9%. These levels are above the requirements established by the regulator in its SREP letter and the systemic buffers applicable in 2018 for BBVA Group. Since January 1, 2018, the requirement has been established at 8.438% for the phased-in CET1 ratio and 11.938% for the total capital ratio. The change with respect to 2017 is due to the steady implementation of the capital conservation buffers and the capital buffer applicable to other systemically important banks. The regulatory requirement for 2018 in fully-loaded terms remains unchanged (CET1 of 9.25% and total ratio of 12.75%) compared with the previous year.

In terms of MREL, the requirement that BBVA resolution group (BBVA S.A. and its subsidiaries) must reach as of January 1, 2020 will be 15.08% of total liabilities and own funds. With data as of December 31, 2016 (28.04% expressed in terms of RWAs). The Group estimates that it is currently in line with this MREL requirement.

Finally, the Group's leverage ratio maintained a solid position, with 6.6% fully-loaded (6.7% phased-in), which is still the largest of its peer group.

Ratings

During the first nine months of the year. S&P and DBRS and Moody's upgraded BBVA's rating to A3, A- and A (high), respectively. Throughout the third quarter of 2018, Moody´s, Fitch and S&P reaffirmed the rating given to BBVA (A3, A- and A-, respectively), being S&P the only one that placed BBVA’s outlook in negative due to the recent trend of the Turkish economy.

Following these upgrades, all the agencies assign BBVA a category “A” rating, which did not occur since mid-2012, thus recognizing the strength and robustness of BBVA’s business model.

Ratings