BBVA 2020 Form 20-F Summary
Business context and reporting period
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) filed an audited annual report for the fiscal year ended December 31, 2020, with comparisons to 2019 and 2018. The consolidated statements are prepared under IFRS as issued by the IASB and EU-IFRS. This is a full-year filing, not a standalone fourth-quarter report. BBVA operates across Spain, the United States, Mexico, Turkey, South America and Rest of Eurasia. The U.S. banking business was classified as held for sale and discontinued operations following the agreement to sell it to PNC.
Financial and operating highlights
| Metric | 2020 | 2019 |
|---|---|---|
| Gross income | €20.166bn | €21.522bn |
| Net interest income | €14.592bn | €15.789bn |
| Net fees and commissions | €4.123bn | €4.502bn |
| Net operating income | €5.153bn | €7.202bn |
| Profit before tax from continuing operations | €5.248bn | €7.046bn |
| Profit from continuing operations | €3.789bn | €5.103bn |
| Profit for the year, including discontinued operations | €2.060bn | €4.345bn |
| Profit attributable to parent company | €1.305bn | €3.512bn |
| Net interest margin (as reported in selected data) | 2.30% | 2.62% |
| Return on average assets, adjusted for specified items | 0.5% | 0.8% |
| Return on average shareholders’ funds, adjusted for specified items | 6.9% | 9.9% |
Revenue and profit weakened year over year. Net interest income fell 7.6% as lower asset yields and volumes outweighed lower funding costs; at constant exchange rates it increased 4.8%. Net fees fell 11.9%, reflecting lower transactions, pandemic-related fee relief and foreign-exchange effects. Administration costs declined 11.1% to €7.799bn. Credit impairment expense rose 45.8% to €5.179bn, primarily due to the pandemic-related deterioration in the macroeconomic outlook.
Total assets were €736.176bn, up from €697.737bn. Total equity was €50.020bn, down from €54.925bn, principally reflecting increased accumulated other comprehensive loss, including adverse foreign-currency translation. Customer deposits at amortized cost were €342.661bn versus €384.219bn; the decline was materially affected by the U.S. disposal-group reclassification and currency movements. Debt certificates were €66.311bn versus €68.619bn. The filing reports customer deposits as 70% of financial liabilities at amortized cost.
Cash flows from operating activities were €39.349bn, compared with an outflow of €10.654bn in 2019; investing activities used €0.037bn and financing activities used €2.069bn. Cash and cash equivalents at year-end were €76.888bn including €11.368bn classified as held for sale; balance-sheet cash, central-bank balances and demand deposits were €65.520bn. These bank cash-flow figures are affected by substantial movements in financial assets and liabilities.
Credit quality indicators were mixed: the non-performing asset ratio was 4.11%, compared with 3.79%; impaired loans and advances were €14.672bn versus €15.954bn. The loan-loss reserve was €12.141bn, and its ratio to financial assets at amortized cost rose to 3.30% from 2.83%. The report also cites a 4.0% NPL ratio using a different measure; investors should confirm definitions when comparing these ratios.
At December 31, 2020, the consolidated phased-in CET1 ratio was 12.15% and total capital ratio was 16.46%, against stated minimum requirements of 8.59% and 12.75%, respectively. The phased-in leverage ratio was 6.68%. The liquidity coverage ratio was 149% (129% in 2019), and the net stable funding ratio was 127% (120%).
Material changes versus the prior comparable period
- Parent-attributable profit declined 62.9%; 2020 included a €1.729bn loss from discontinued operations, compared with a €0.758bn loss in 2019.
- A €2.084bn goodwill impairment was recorded for the U.S. cash-generating unit in 2020, following a €1.318bn impairment in 2019. The 2020 impairment was mainly attributed to the pandemic-driven U.S. macroeconomic outlook; it reduced reported profit but, according to the filing, did not affect tangible book value or solvency.
- BBVA agreed to sell 100% of BBVA USA Bancshares and related U.S. banking businesses to PNC for approximately $11.6bn cash. The sale remained subject to regulatory approvals at the report date and was expected to close in mid-2021. BBVA estimated a fully loaded CET1 uplift of approximately 294 basis points on completion; approximately 9 basis points had been recognized by year-end.
- The Allianz transaction transferred 50% plus one share of BBVA’s Spanish non-life insurance venture for €274m cash. BBVA reported a €304m after-tax gain and a 7-basis-point fully loaded CET1 increase.
- Foreign currencies, including the Mexican peso, U.S. dollar and Turkish lira, depreciated against the euro, affecting reported results and equity. The U.S. business reclassification and disposal also reduce comparability of selected balance-sheet and segment figures.
- Comparative presentation was restated for the U.S. sale and certain accounting presentation changes. The filing says these changes did not affect 2019 or 2018 profit for the IFRS 9 impaired-interest reclassification.
Outlook, management commentary, risks and unusual items
BBVA Research projected economic recovery in 2021, with substantial uncertainty and uneven regional outcomes. Its estimates included 2021 GDP growth of about 5.5% in Spain, 3.2% in Mexico, 5.5% in Turkey, 3.6% in the United States, 6.0% in Argentina, 4.8% in Colombia and 10% in Peru. These are research forecasts, not quantified BBVA earnings guidance. Management expected pandemic effects to persist and warned that non-performing loans and risk-weighted assets could rise as payment moratoria expire. Spain’s GDP was estimated to have contracted about 11% in 2020.
COVID-19 affected lending activity, credit quality, markets and operations. As of year-end, approximately 9% of Group exposure at default related to industries identified as particularly challenged by the pandemic. Payment deferrals and public-guarantee lending supported customers, but may delay recognition of credit deterioration; most mandatory deferred amounts were expected to fall due by the end of the first half of 2021. Credit impairment expense included pandemic-related impacts, and the filing states it could not isolate the pandemic’s full-year effect after June 30.
Key risks include economic weakness and sovereign exposure, low or negative interest rates, currency volatility and emerging-market conditions, credit deterioration after support measures end, reliance on ECB funding, regulatory capital and MREL requirements, competition from digital and non-bank providers, cybersecurity and operational disruption, and legal and compliance matters. The Group had €612m of provisions for tax and other legal contingencies, including €574m for legal matters and €38m for tax matters. The Spanish criminal investigation concerning alleged bribery, disclosure of secrets and corruption remained in pre-trial proceedings; no formal accusation against the Bank had been made, and the outcome could not be predicted.
BBVA suspended 2020 shareholder remuneration in response to ECB recommendations. In January 2021, it announced its intention to submit a €0.059-per-share cash distribution relating to 2020 profit for approval; payment was subject to applicable approvals and supervisory restrictions. Executive directors and Senior Management voluntarily waived their 2020 annual variable remuneration. The audited IFRS statements received an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether and when the PNC sale closed, final proceeds and adjustments, realized gain or loss, and actual CET1 impact; distinguish the sale perimeter from excluded U.S. businesses.
- The quality and adequacy of expected-credit-loss provisions, particularly for borrowers on moratoria or public-guarantee programs, and the trend in NPLs after those programs expire.
- The reconciliation of reported earnings: continuing operations, discontinued U.S. operations, the U.S. goodwill impairment, and the Allianz gain; also verify EPS measures and their respective bases.
- Capital and liquidity headroom after the U.S. disposal, future regulatory requirements, and dependence on TLTRO III funding (year-end drawdown €35.032bn).
- Dividend approval and payment status, including any subsequent ECB or other supervisory restrictions.
- Developments in the Spanish criminal investigation and other legal matters, including whether provisions remain sufficient as proceedings progress.