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Fixed income market 01 Sep 2017

BBVA plans to issue up to €4.5 billion in senior non-preferred debt in 2017 and 2018

BBVA Group has published the June 2017 update of its presentation aimed mainly at analysts and fixed-income investors. The key new point is the incorporation of the 2017-2018 issuance plan for senior non-preferred debt. BBVA plans to issue up to €4.5 billion of this type of instrument this year and next.

The main new point in the latest fixed-income presentation is the incorporation of the 2017-2018 issuance plan for senior non-preferred debt (SNP), a new type of instrument approved by Spanish law in June. It is a category of liability with a greater legal capacity to absorb losses, which allows financial institutions in the European Union to comply with the requirements of the MREL (Minimum Requirement for Eligible Liabilites) regulation. BBVA plans to issue up to €4.5 billion this year and next. BBVA Group’s strategy is to use these issues to refinance some of the maturities of its wholesale debt instruments that are not eligible under the new European legislation. Yesterday BBVA brilliantly launched its participation in this market with the issue of €1.5 billion at the lowest price achieved in Europe for this maturity.

The fixed-income document is divided into seven chapters.

  1. The first chapter sums up the main strengths and highlights of BBVA Group in the first half of 2017: growth of recurring revenue, cost control, reduction of loan-loss provisions, solid asset quality, strong capital adequacy ratios and the outstanding progress made in the bank’s transformation process.
  2. The second chapter stresses BBVA’s balanced risk diversification, as the bank has franchises with great growth potential in strategic developed and emerging markets in which the Group is leader. It also shows the main highlights in earnings and activity over the half year for each of the Group’s main business areas.
  3. The following chapter is focused on asset quality, referring to BBVA’s risk profile based on prudence and a proactive approach. This can be seen in the positive trends in the key figures (NPL ratio, coverage ratio and cost of risk).
  4. With respect to solvency, the fourth chapter provides a breakdown of the Group’s solid capital position (with ratios that easily exceed regulatory requirements), its capacity to generate capital (based on its highly recurring earnings) and its high level of quality.
  5. The fifth chapter focused on  MREL regulatory requirement. It explains the new regulation, approved in June, related to the issue of senior non-preferred debt by Spanish institutions. It also sets out BBVA’s issuance plan mentioned above for these kinds of instruments.
  6. Other key indicators for the fixed-income market are those related to liquidity, which are covered in chapter six of the presentation. The BBVA business model is characterized by decentralized liquidity management: self-sufficient franchises in which there are no liquidity transfers between the parent and the subsidiaries, or between the subsidiaries. The presentation also highlights BBVA’s comfortable liquidity position, with LCR ratios above the minimum regulatory requirement in the main geographic areas where it operates. In addition, BBVA’s nature as a retail bank is reflected in the fact that its sources of funding include a high percentage of deposits, thus reducing its dependence on the wholesale markets. The Group also has extensive access to the main capital markets where it operates. Finally, the document specifies the entity’s ratings assigned by the main agencies, this quarter including SNP debt.
  7. Finally, the presentation shows the changes over the last year in customers and digital sales (the latter both at global level and broken down by areas) in BBVA Group. These are two key variables for measuring the progress made in the bank’s transformation process.

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