Solvency

Capital base

BBVA's fully loaded CET1 ratio stood at 11.74% at the end of 2019 which, excluding the impact of IFRS 16 standard’s implementation that entered into force on January 1, 2019 (down 11 basis points), the ratio increased by 51 basis points during the year. This increase is supported by the profit generation, net of dividend payments and remuneration of contingent convertible capital instruments (CoCos), notwithstanding the moderate growth of risk-weighted assets. In addition, the goodwill impairment in the United States recognized by the Group amounting to €1,318m has no impact on the regulatory capital.

Risk-weighted assets (RWAs) increased by approximately €16,100m in 2019 as a result of activity growth, mainly in emerging markets and the incorporation of regulatory impacts (the application of IFRS 16 standard and TRIM - Targeted Review of Internal Models) for approximately €7,600m (impact on the CET1 ratio of -25 basis points). It should be noted that during the second quarter of the year the recognition by the European Commission¹ of Argentina as a country whose supervisory and regulatory requirements are considered equivalent had a positive effect on the evolution of the RWAs.

The fully loaded additional tier 1 ratio (AT1) stood at 1.62% as of December 31, 2019. In this regard, BBVA S.A. carried out an issue of €1,000m CoCos, registered at the Spanish Securities Market Commission (CNMV) with an annual coupon of 6.0% and a redemption option from the fifth year, and another issue of the same type of instruments, registered in the Securities Exchange Commission (hereinafter, SEC) for USD 1,000m and a coupon of 6.5% with a redemption option after five and a half years.

On the other hand, in February 2020 the CoCos issuance of €1,500m with 6.75% coupon issued in February 2015 will be amortised. As of December 31, 2019, it is no longer included in the capital ratios.

Finally, in terms of issues eligible as Tier 2 capital, BBVA S.A. issued a €750m subordinated debt over 10-year period and a redemption option in the fifth year, coupon of 2.575%; and carried out the early redemption of two subordinated-debt issues: one for €1,500m with a 3.5% coupon issued in April 2014 and redeemed in April 2019, and another issued in June 2009 by Caixa d'Estalvis de Sabadell with an outstanding nominal amount of €4.9m and redeemed in June 2019.

With regard to the subsidiaries of the Group, BBVA Mexico carried out a Tier 2 issuance of USD 750m over a 15-year period with an early redemption option from the tenth year and a 5.875% coupon; and partially repurchased two subordinated debt issuances (USD 250m due in 2020 and USD 500m due in 2021). Meanwhile, Garanti Bank issued another Tier 2 issuance of TRY 253m.

All of this, together with the evolution of the remaining elements eligible as Tier 2 capital, set the Tier 2 fully loaded ratio at 2.06% as of December 31, 2019.

In addition, in January 2020, BBVA, S.A. issued €1,000m of Tier 2 eligible subordinated debt over a ten-year period, with an early redemption option in the fifth year, with a coupon of 1%. This issue will be included in the capital ratios for the first quarter of 2020 with an estimated impact of approximately +27 basis points on the T2 capital ratio.

The phased-in CET1 ratio stood at 11.98% at the end of 2019, taking into account the transitional implementation of IFRS 9. The AT1 stood at 1.66% and the Tier 2 at 2.28%, resulting in a total capital ratio of 15.92%. These levels are above the requirements established by the supervisor in its SREP (Supervisory Review and Evaluation Process) letter, applicable in 2019. Starting on January 1st, 2020, at the consolidated level, this requirement has been established at 9.27% for the CET1 ratio and 12.77% for the total capital ratio. It should be noted that the Pillar 2 requirement of CET1 remains unchanged from the one included in the previous SREP decision, being the sole difference of the capital requirement, the evolution of the Countercyclical Capital buffer of approximately 0.01%. Furthermore, as of December 31, 2019, the Group’s capital ratios remain above the regulatory requirements applicable as of January 1, 2020.

Fully-loaded capital ratios (Percentage)

Capital base (Millions of euros)

In November 2019, BBVA received a new communication from the Bank of Spain regarding its minimum requirement for own funds and eligible liabilities (MREL), as determined by the Single Resolution Board, that was calculated taking into account the financial and supervisory information as of December 31, 2017.

In accordance with such communication, BBVA has to reach, by January 1, 2021, an amount of own funds and eligible liabilities equal to 15.16% of the total liabilities and own funds of its resolution group, on sub-consolidated basis (the MREL requirement). Within this MREL, an amount equal to 8.01% of the total liabilities and own funds shall be met with subordinated instruments (the subordination requirement), once the relevant allowance is applied.

This MREL requirement is equal to 28.50% in terms of risk-weighted assets (RWA), while the subordination requirement included in the MREL requirement is equal to 15.05% in terms of RWA, once the relevant allowance has been aplied.

In order to comply with this requirement, BBVA has continued its issuance program during 2019 by closing three public senior non-preferred debt, for a total of €3,000m, of which one in green bonds by €1,000m. In addition, BBVA issued a senior preferred debt of €1,000m.

The Group estimates that the current own funds and eligible liabilities structure of the resolution group meets the MREL requirement, as well as with the new subordination requirement.

Finally, the Group's leverage ratio maintained a solid position, at 6.7% fully loaded (6.9% phased-in), which remains the highest among its peer group.

Ratings

In 2019, Moody's, S&P, DBRS and Scope confirmed the rating they assigned to BBVA's senior preferred debt (A3, A-, A (high) and A+, respectively). Fitch increased this rating by a notch in July 2019, considering that BBVA's loss-absorbing debt buffers (such as senior non-preferred debt) are sufficient to materially reduce the risk of default. In these actions, the agencies highlighted the Group's diversification and self-sufficient franchise model, with subsidiaries responsible for managing their own liquidity. These ratings, together with their outlooks, are shown in the following table:

Ratings