BBVA 2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB and EU-endorsed IFRS.
Business context
BBVA is a diversified international banking and financial group operating principally in Spain, Mexico, the United States, Turkey and South America. It reported 125,627 employees, 74.5 million customers and 7,963 branches at year-end. The report includes seven operating segments and a Corporate Center.
Financial performance and position
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Gross income | €23.747bn | €25.270bn | -6.0% |
| Net interest income | €17.591bn | €17.758bn | -0.9% |
| Net operating income | €7.691bn | €7.222bn | +6.5% |
| Profit before tax | €8.446bn | €6.931bn | +21.9% |
| Profit attributable to parent | €5.324bn | €3.519bn | +51.3% |
| Total assets | €676.689bn | €690.059bn | -1.9% |
| Total equity | €52.874bn | €53.323bn | -0.8% |
| Customer deposits at amortized cost | €375.970bn | €376.379bn | -0.1% |
| Gross loans and advances to customers | €400.049bn | €401.074bn | -0.3% |
| Operating cash flow | €8.664bn | €2.055bn | — |
Net interest margin was reported as 2.59% in selected financial data, where it is defined as net interest income over average total assets; the operating review also reports 2.8% using average interest-earning assets. Return on average total assets was 0.9% versus 0.7%, and return on average shareholders’ funds was 10.1% versus 6.7%.
Cash flows were €8.664bn from operations, €7.516bn from investing and negative €5.092bn from financing; exchange-rate effects reduced cash by €2.498bn. Cash and cash equivalents ended the year at €54.138bn, up from €45.549bn.
Phased-in CET1 capital was 11.58% and total capital was 15.71% at year-end. The Group’s LCR was 127%. Loan-loss reserves were approximately €12.2bn; the non-performing asset ratio was 3.82%, down from 4.49%.
Material changes versus 2017
- Parent-attributable profit rose 51.3%, while gross income fell 6.0%. The increase in profit reflected, among other items, the €633m after-tax gain on the sale of BBVA Chile and higher profit from assets held for sale.
- Net interest income fell 0.9% in reported euros, principally due to currency depreciation; excluding that effect, management reported growth of 10.8%.
- Financial-asset impairment expense declined 17.1% to €3.981bn. Administration costs fell 5.6%, while technology and systems expense increased 63.7% to €1.133bn.
- Impaired loans and advances decreased to €16.359bn from €19.401bn. The reported NPA ratio improved, although Turkey and South America recorded higher segment-level NPL ratios.
- Total assets declined, with disposals and foreign-exchange movements contributing to changes in the Group and segment balances.
Outlook, risks and unusual items
- Outlook: BBVA announced a fully loaded CET1 target range of 11.5%–12.0% by year-end 2019; achievement is not assured. The filing provides no specific consolidated earnings guidance. BBVA Research expected slower global growth and cited continuing trade, Brexit and geopolitical uncertainty.
- Accounting changes: IFRS 9 was adopted from January 1, 2018, changing classification and measurement of financial instruments and replacing incurred-loss provisioning with expected credit losses. Comparative periods were not fully restated. Argentina was treated as hyperinflationary for the first time in 2018; the related impact on parent-attributable profit was negative €266m.
- Portfolio actions: BBVA completed the sale of its 68.19% stake in BBVA Chile for about $2.2bn and recognized a €633m after-tax gain. It transferred much of its Spanish real-estate business to Divarian, selling an 80% stake and retaining 20%; some asset transfers remained conditional. A sale of approximately €1.49bn of mainly non-performing mortgage credits was agreed, with completion expected in 2019.
- Key risks: Exposure to Spain and real estate; currency volatility and inflation in Turkey and Latin America; economic slowdown, interest-rate changes and funding pressures; regulatory, capital and MREL requirements; cybersecurity and operational risks; and legal, compliance and reputational matters.
- Contingencies: The Group disclosed multiple legal and regulatory proceedings, including mortgage-related claims and Mexican government-bond competition investigations. It also reported an ongoing investigation into allegations concerning its relationship with Grupo Cenyt, with governmental authorities investigating. Outcomes and potential financial effects were uncertain.
- Capital and distributions: Regulatory capital requirements, MREL and supervisory recommendations may constrain dividends or other discretionary payments. The filing reported a 15.08% MREL requirement for the European resolution group, due by January 1, 2020, and stated that management estimated the existing structure was in line with it.
Most important facts for investors to verify
- Reconcile the 51.3% increase in parent-attributable profit to recurring operating performance versus the Chile sale, real-estate transactions and other unusual items.
- Review IFRS 9’s opening-balance-sheet effects and the comparability of 2017 figures; verify the distinct net interest margin definitions used in the filing.
- Assess credit quality and reserve adequacy, particularly exposures in Turkey, Argentina, Spanish real estate and restructured loans.
- Verify progress toward the 2019 fully loaded CET1 target and the 2020 MREL requirement, including any effect on distributions.
- Monitor the Cenyt investigation, other legal proceedings, and completion or final pricing of conditional asset sales.
- Evaluate liquidity beyond the consolidated LCR, including funding concentration, subsidiary-level constraints and foreign-exchange effects on reported results.