BBVA 2017 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; quarterly results are not clearly provided in the supplied text. Financial statements are audited and prepared under EU-IFRS and IFRS as issued by the IASB.
Business context
BBVA is a diversified international banking and financial group operating across Spain, Mexico, the United States, Turkey, South America and other markets. At year-end it reported 72 million customers, 131,856 employees and operations in 35 countries. The group’s largest profit contributors were Mexico and Spain; its Non-Core Real Estate segment remained loss-making.
Key financial metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Gross income | €25.27bn | €24.65bn | +2.5% |
| Net interest income | €17.76bn | €17.06bn | +4.1% |
| Net fee and commission income | €4.92bn | €4.72bn | +4.3% |
| Operating profit before tax | €6.93bn | €6.39bn | +8.4% |
| Profit attributable to parent | €3.52bn | €3.48bn | +1.3% |
| Total assets | €690.06bn | €731.86bn | −5.7% |
| Loans and receivables | €431.52bn | €465.98bn | −7.4% |
| Customer deposits | €376.38bn | €401.47bn | −6.3% |
Profit attributable to the parent rose modestly despite higher impairment charges on financial assets, up 26.4% to €4.80bn. The increase included a €1.12bn impairment on BBVA’s Telefónica stake. Administration costs fell 2.2% to €11.11bn. Return on average assets was 0.7% (0.6% in 2016); return on average shareholders’ funds was 6.4% (6.7%). The filing gives two net interest margin measures: 2.52% using average total assets, and 2.7% using average interest-earning assets; these use different definitions.
Credit quality: Non-performing asset ratio improved to 4.49% from 4.90%; impaired loans were €19.39bn versus €22.92bn. Loan-loss reserves declined to €12.78bn from €16.02bn, and reserve coverage was 2.96% of loans and receivables versus 3.44%. Turkey’s segment NPA ratio deteriorated to 3.9% from 2.7%, with coverage falling to 85% from 124%.
Cash flow and liquidity: Net cash from operating activities was €2.06bn, versus €6.62bn; investing activities provided €2.90bn, versus a €0.56bn outflow; financing activities used €0.10bn. Exchange-rate effects reduced cash by €4.27bn, leaving a €0.59bn net increase in cash and cash equivalents to €45.55bn. These bank cash-flow figures are affected by movements in financial assets and liabilities. Group LCR was 128% at year-end, and all banking subsidiaries exceeded 100%. Customer deposits remained the primary funding source.
Capital and debt: Phased-in CET1 capital ratio was 11.67% and total capital ratio 15.37% at year-end, above the stated 2018 consolidated requirements of 8.4375% CET1 and 11.9375% total capital. Financial liabilities at amortized cost were €543.71bn, including €376.38bn of customer deposits, €63.92bn of debt certificates and €17.32bn of subordinated debt and preferred securities. Senior debt outstanding was approximately €47.03bn.
Material changes versus 2016
- Assets, loans and deposits declined, partly reflecting foreign-exchange depreciation and the classification of BBVA Chile and the Spanish real-estate business as held for sale.
- Net interest income and fee income increased, while lower portfolio-sale gains reduced net gains on financial assets and liabilities by 43.5%.
- BBVA acquired an additional 9.95% of Garanti for approximately €859m, bringing its ownership to 49.85%.
- BBVA agreed to sell its approximately 68.19% stake in BBVA Chile to Scotiabank for about $2.2bn, subject to regulatory approval.
- BBVA agreed to transfer Spanish real-estate assets and operations to a Cerberus-controlled joint venture, retaining 20%. The business included REOs with approximately €13bn gross book value; the indicated price for 80% was approximately €4bn, subject to adjustments and closing conditions.
Outlook, commentary and risks
Management cited improving global activity and expected continued growth, while noting that outlooks varied by market. BBVA Research forecast Spanish growth to slow below 3% in 2018, Mexican growth around 2%, U.S. growth around 2.8% and Turkish growth around 4.5%. These are forecasts cited in the filing, not company earnings guidance. The group emphasized digital transformation and efficiency, including cost synergies in Spain.
IFRS 9 took effect in 2018. BBVA estimated an initial CET1 impact of approximately 31 basis points and an increase in provisions of approximately 10%, concentrated in Spain and Mexico; the estimates were not final. Other material risks include foreign-exchange volatility, particularly in Turkey, Latin America and Venezuela; economic and political uncertainty in Spain and Catalonia; real-estate and credit exposures; changing capital, liquidity and resolution rules; potential bail-in of debt and securities; litigation and regulatory proceedings; and cyber, fraud and operational risks. Venezuelan subsidiaries’ results use estimated exchange rates and inflation assumptions because of exchange restrictions and unavailable official data.
BBVA reported that the 2016 €577m provision for Spanish mortgage “floor clause” claims was used during 2017; additional 2017 provisions were described as not significant. Management said ongoing legal proceedings were adequately provided for and were not expected to have a material adverse effect. The auditors issued an unqualified opinion on the 2017 financial statements and internal controls.
Investor verification priorities
- Confirm the final IFRS 9 transition impact, including the effect on capital, provisions and comparability.
- Check the closing status, final consideration and accounting treatment of the Chile sale and Cerberus real-estate transaction.
- Review the Telefónica impairment, remaining equity exposure and any further valuation risk.
- Assess credit trends and reserve coverage, especially in Turkey, Spain’s real-estate portfolio and South America.
- Verify capital and liquidity headroom against current supervisory requirements, and any resulting limits on dividends or other distributions.
- Reconcile reported 2017 dividend figures: the filing gives €0.17 per share in selected data, while its dividend schedule shows €0.09 interim plus €0.15 final, with the final payment scheduled for April 2018.