Letter from the Group Executive Chairman
It is an honor for me to address you as Chairman of BBVA for the first time. My appointment and other recent changes to the management team will provide continuity to our strategy and an even greater focus on our Purpose: to bring the age of opportunity to everyone. This is what moves all of us at BBVA. The Purpose guides our strategy and inspires our culture and values. It is what ultimately enables us to achieve better financial results for our shareholders with a long-term vision.
BBVA’s excellent results in 2018 are a good example of our successful strategy, despite the volatility in some of the countries within our footprint, namely Turkey and Argentina. Our net attributable profit reached €5,324 million in 2018, a 51% increase over 2017 (or 7% in comparable terms) — an achievement driven by recurring revenues, cost containment, and the capital gains from the sale of BBVA Chile. The book value per share increased 10.1% and the return on tangible equity stood at 14.1%, positioning BBVA as a leader in profitability in the financial sector. The Group’s fully-loaded CET1 ratio ended the year at 11.34%, 26 basis points above December 2017.
In addition to achieving excellent financial results, in 2018 we also worked to address the big challenges facing society today. We are living in a truly revolutionary age, driven by the rapid emergence of new technologies, such as artificial intelligence, cloud computing, the proliferation of connected devices, decentralized applications, blockchain and biometrics, to name a few. All of this represents a genuine era of opportunity for humanity, but there are also significant social and environmental challenges, such as the fight against climate change and inequality. Challenges that are global in nature and that require everyone’s involvement, including banks as important players in the economy. We can make a difference by financing socially sustainable projects and providing financial advice to help people achieve their life goals.
This is why I specifically want to emphasize our contribution in the face of these challenges. In 2018, in addition to our commitment with the United Nations Global Compact, we publicly embraced the Pledge 2025, our commitment to sustainable finance, which is based on three central pillars. First, a commitment to finance sustainable development, mobilizing €100 billion through 2025 to combat climate change, facilitating the transition to a low-carbon economy, and promoting sustainable infrastructure, financial inclusion and entrepreneurship. Second, a commitment to manage the impact our business activity has on the environment. Our commitments include reducing CO₂ emissions by 68% by 2025 and reaching 70% use of renewable energy. Lastly, actively engaging other stakeholders to promote a collective approach to sustainable development.
In 2018 we played a defining role in the development of the Principles for Responsible Banking, together with 16 other financial institutions. These principles represent the guiding framework for financial institutions — a new approach to banking that society both demands and needs. Our success ultimately depends on the prosperity of the communities we serve. We need an inclusive society, one that takes a sustainable approach to natural resources.
In addition to promoting sustainable development and contributing to the generation of wealth, growth, and individual prosperity, the BBVA foundations make an invaluable contribution to society. The foundations undertake an important work in economic, cultural, and scientific fields, such as promoting the development of vulnerable segments of the population. Other examples include BBVA Foundation’s prestigious Frontiers of Knowledge Awards, BBVA Bancomer Foundation’s program to rebuild schools and its scholarship program “Por los que se quedan”. Additionally, the BBVA Microfinance Foundation has worked on creating opportunities for the most vulnerable, especially women for over ten years. This final example is in fact the private philanthropic initiative that has had the greatest social impact in Latin America, successfully supporting more than five million entrepreneurs over the past ten years.
Technology and the considerable changes taking place in the World are clearly having a significant impact on our business. Opportunities are increasingly found in the digital world. At BBVA we have been pioneers, and we continue to be at the forefront with our commitment to digital transformation. Thanks to these efforts our customers increasingly interact with the bank through digital channels, which are always available and more convenient than ever thanks to our simple, intuitive user experience.
Our business is changing both profoundly and quickly. These changes are exemplified by our increasing digitization. In 2018, 41% of BBVA Group unit sales were made through digital channels, compared to just 16% two years ago. In terms of value, digital sales account for 32% compared to 12% two years ago. This significant transformation is not only reflected at the Group level, but represents a trend that is repeated in each of the countries where we operate.
The evidence shows that customers who use digital channels interact with us more frequently, and report greater satisfaction and loyalty to BBVA. In 2018 we achieved a key milestone: our digital customer base surpassed the 50% threshold, reaching 27 million. The bank’s mobile customer base has increased by 29%, reaching 23 million mobile users, or 43% of total customers. Our goal is to have more than 50% our customers interacting with us through their smartphones in 2019.
Beyond the important changes in the way customers interact with us, the new era in which we live enables us to create opportunities through an even better value proposition. The focus is on helping people and businesses make better financial decisions that help them better achieve their personal and professional goals. The way we treat our customers’ data and the use of artificial intelligence are fundamental ingredients in this enhanced value proposition.
In 2018, we developed new features that use data to help anticipate problems, draw conclusions, and make better recommendations; ultimately to offer our customers value-added services. As a result, BBVA Spain’s mobile banking app was recognized as the best in the world for the second year in a row by consulting firm Forrester Research. BBVA Turkey’s app ranked second in the same study. Among other distinctions, we were recognized as the best digital bank in Spain, Mexico, and Turkey according to World Finance magazine’s Digital Banking Awards.
Our business transformation is undoubtedly tied to how we do things internally. For this reason, the way we work is also changing, driven by the necessary cultural revolution in this new age. We are leaders in the financial sector in the adoption of agile methodologies, which has transformed the way the entire organization works, using independent, multi-disciplinary teams. By working in this manner, we have managed to improve the quality of our deliverables, reduce time-to-market, increase productivity and enhance employees’ sense of belonging. There are currently some 30,000 people at BBVA using agile methodologies in their daily activities.
Most importantly, beyond changing the way we work, BBVA’s culture remains deeply rooted in a strong set of values. We have always considered this to be one of our biggest strengths. BBVA is a honest bank, and we will always act in the best interest of our shareholders showing absolutely no tolerance for any conduct or behaviour that runs counter to our values.
The three values guiding our actions and behaviors are:
- “The customer comes first”, meaning we are empathetic and put ourselves in the customer’s shoes. We are, and have always been, principled and resourceful and are fast agile and decisive when solving customers’ problems and addressing their needs.
- “We think big”, not just in the sense that we are ambitious, but also because we break molds. We innovate and promote change in the statu quo, amazing customers with unique personal experiences and solutions that beat their expectations.
- “We are one team”, personally committed to the bank, the project, and our customers. There is mutual trust, a sense of ownership and a feeling that we all are BBVA.
In conclusion, I am tremendously proud to be leading what I believe to be the greatest project in the world of banking. A project that is possible thanks to each and every one of the more than 125,000 people who work at BBVA. I would like to thank them for their dedication and commitment to our Purpose and our values, and congratulate them on a job well done.
Finally, thanks to you, our shareholders, for your constant support, which motivates us to continue giving our best every day.
Letter from the Chief Executive Officer
BBVA posted strong results in 2018. Our diversified business model has once again proved its resilience and capacity to generate recurring income with double-digit returns, despite a complex environment with high volatility and significant depreciation of currency in some footprint countries.
The global economy grew by 3.6% despite increased volatility and trade tensions. In our footprint, performance varied among countries. We saw positive trends in Spain, with growth of 2.5%, which was above the Eurozone average, and in the United States, the economy grew by 2.9%, driven by expansionary fiscal policies. Growth in our U.S. Sunbelt footprint was 3.2%, higher than the country’s average. Mexico maintained solid growth of more than 2%, which was strong in a year influenced by presidential elections. Colombia and Peru also showed strong growth of 2.6% and 3.9% respectively. In Turkey and Argentina, volatility was high and BBVA faced significant currency devaluations, although there was some improvement in the last quarter of the year.
BBVA Group’s net attributable profit in 2018 was €5,324 million, representing a 51% increase versus 2017 (7% increase on a more comparable basis). The net attributable profit was impacted by the capital gains realized from the 2018 sale of BBVA Chile and the 2017 impairment of the Group’s stake in Telefónica.
Tangible book value per share plus dividends increased by 10.1% over the year, despite the depreciations in the Turkish lira and the Argentine peso. This increase is accompanied by peer-leading double-digit returns in both return on tangible equity and return on equity, which were 14.1% and 11.6% respectively.
Also of note is the trend in recurring revenue, 10.4% growth in the year in constant Euros (without accounting for the impact of the exchange rate) and discipline in cost control, which grew by just 2.5%, well below the average inflation of our footprint. This trend was repeated consistently across our geographies. Because of this, the efficiency ratio of the Group has improved by 89 basis points to 49.3%, despite the negative accounting impact the hyperinflation adjustment in Argentina had on gross income.
One of the keys to efficiency improvement has been making our business more digital, which has increased sales in a very efficient manner. It also has an impact on customer satisfaction and we are leaders in six of our banking franchises, which has a direct effect on improving customer loyalty and reducing attrition.
The strength of the Group’s risk indicators must also be highlighted, with the NPL ratio improving significantly, ending 2018 at 3.9%, down 61 basis points compared to 2017. The NPL coverage ratio improved 812 basis points over the year to 73%. The Group’s cost of risk remained low at 1%.
The resilience of our capital position from a solvency standpoint is also worth to mention. The fully loaded CET1 ratio was 11.34% in 2018, an increase of 26 basis points over the year. This has been achieved, despite the impact of market trends, particularly the depreciation of some currencies and the first implementation of the IFRS 9 standard.
The most notable impacts in the main business areas included the following:
- Banking activity in Spain: Net attributable profit grew 10.8% to €1,522 million driven by fees, significant costs reduction and lower impairments. In terms of asset quality, we saw a significant declining trend in our NPL ratio and the cost of risk, which were 4.6% and 0.21% respectively.
- In Non-Core Real Estate, the significant reduction of net real estate exposure stands out, as a result of the October close of the sale of BBVA’s real estate business in Spain to Cerberus, as well as other portfolio sales during the year. Net losses were significantly reduced to €78 million.
- In the United States, net attributable profit was €735 million, 56.9% higher than 2017 in real terms, primarily supported by the favorable performance of net interest income.
- In Mexico, net attributable profit for the area was €2,384 million, representing a year-over-year increase of 16.1% in real terms, supported by the net interest income and efficiency improvement. Risk indicators were strong, with all ratios showing improvements.
- In Turkey, the bank again demonstrated its capacity to generate high pre-provision profit that can absorb the increase in provisions derived from the deterioration in macroeconomic conditions. Net attributable profit was at €569 million, representing a year-over-year decrease of 4.5% in real terms.
- South America generated a net attributable profit of €591 million in 2018, which represents a year-over-year change of -16.5% mainly due to the accounting impact of hyperinflation in Argentina (-€266 million) and the change in the business unit composition derived from the sale of BBVA Chile, which closed in July 2018.
Finally, I want to heartily thank the more than 125,000 employees in the Group for their effort and enormous contribution to the Group’s performance. Also, thanks to you, the shareholders, for your constant support which drives us to fulfill our Purpose of bringing the age of opportunity to everyone.
History of BBVA
The history of BBVA is the history of the many different people who have been a part of the more than one hundred financial institutions that have joined our corporate endeavor since it originated in the mid-19th Century. Today at BBVA, we work to create a better future for people, seeking to build long-lasting relationships with our customers that change our way of looking at the business. As a result, BBVA has become a global leader and one of the world’s most renowned and award-winning banks.
BBVA is firmly committed to the future and is a pioneer in adapting to the needs of an increasingly global market and especially, to the banking industry of the 21st Century.
More than 160 years of experience support this commitment.
The history of BBVA dates back to 1857 in the city of Bilbao, in northern Spain, where the Board of Commerce promoted the founding of the Banco de Bilbao as an issuance and discount bank. This was a pioneering initiative that was driven by the economic growth in the region. Until the end of the 19th Century, it was the city’s only bank.
In the second half of the 19th Century, Banco de Bilbao financed several important infrastructure and steel industry projects. In 1878, it lost the right to issue its own banknotes and was restructured as a loan and discount bank. Banco de Vizcaya was founded in 1901; it carried out its first transactions in Bilbao and little by little, began to expand throughout the country. Apart from its activity as a commercial and depositary bank, Banco de Vizcaya took part in the creation and development of a large part of Spanish industry. In 1902, Banco de Bilbao and the Banco de Comercio merged, although both institutions maintained their status as legal entities.
In 1909, Caja Postal was created as a public-law entity and in 1916, it began to issue and administer savings account passbooks..
A consortium of bankers and industrialists founded the Banco de Crédito Industrial (BCI) in 1920, for the express purpose of promoting the installation and consolidation of industry by granting long-term credits. Banco de Bilbao and Banco de Vizcaya were part of that consortium.
In 1923, the National Agricultural Credit Service was created. A dependency of the Agriculture Ministry, it granted credits to agricultural and livestock associations, under the joint and several responsibility of its associates.
During the economic development of the 1960s, Banco de Bilbao expanded, acquiring other banks and starting to create a financial group. Meanwhile, Banco de Vizcaya continued to grow and establish itself as a modern, universal bank and an important financial group. More flexible rules on opening offices allowed it to expand its commercial network.
Caja Postal added more customer services, including checking accounts, stock purchases/sales, and lending in certain areas. The 1962 Banking Law nationalized BCI, BHE and BCL and transformed the National Agricultural Credit Service into the Banco de Crédito Agrícola (BCA). All four banks became entities governed by public law. But in 1971, they became official credit institutions (under the Law Regulating Official Credit) as limited companies.
In the 1980s, Banco de Bilbao based its strategy on reaching a size that would allow it to access the financial business that was then emerging from the technological advances, deregulation, securitization and the interplay between national and international markets. Banco de Vizcaya contributed to the rescue of banks that were affected by the economic crisis and developed a policy of strong growth through acquisitions, which led it to create a large banking group. Its most significant operation was its purchase of Banca Catalana in 1984.
Meanwhile, the official credit institutions continue to expand their business with market operations. In 1982, BEX lost its exclusivity of export credit, redirecting its business to universal banking, and formed a financial group. It acquired Banco de Alicante (1983) during this process. In 1988, Banco de Bilbao and Banco de Vizcaya agreed to a merger to create BBV.
Corporación Bancaria de España was established in 1991 as a state-owned enterprise and credit institution with the status of a bank. Its history began with a federated banking model, but in 1988 Corporación Bancaria de España (now privatized through public offerings), BEX (merged with BCI), BHE and Caja Postal merged into a single bank under the brand Argentaria.
BBVA unified its network of offices in Catalonia in May 2013 after the acquisition of Unnim Banc was complete.
The merger of BBV and Argentaria
BBVA and Argentaria announced their merger on October 19, 1999 in an effort to continue adding value, creating the new bank (BBVA). It was of a substantial size, with strong solvency, a large financial structure, ample geographic diversification of business and risks, and as a result, greater potential for growing its profits.
Customers now had access to an extensive distribution network, a wider range of products, new channels and a strong international presence. Employees, meanwhile, had greater opportunities for professional development.
The integration of the two banks was exemplary because:
- Strategic decisions were made quickly. The organizational structure was defined immediately and a framework agreement was established with workers.
- Working groups were formed and plans for the different areas of activity were defined quickly.
- Ambitious deadlines were met, sometimes ahead of schedule.
- The effort benefitted from the excitement, participation and team spirit shown by everyone in BBVA.
The integration process received a major boost when a single BBVA brand was adopted in January 2000. This allowed the bank to create, in very little time, an image based on its own unique identity. BBVA’s integration process took place quickly and efficiently and concluded in February 2001.
The integration of the group’s retail businesses in Spain (BBV, Argentaria, Banca Catalana, Banco del Comercio and Banco de Alicante) allowed the bank to take advantage of the potential offered by an extensive network of branches with the BBVA image.
Prestigious financial publications recognized the efficiency of BBVA’s integration, naming it the best bank in the world (Forbes) and in Spain (The Banker) and in the year 2000, the best bank in Latin America (Forbes) and the best bank in Europe (Lafferty) in 2001.
The international group
BBVA in the world
BBVA is a customer-centric global financial services group founded in 1857. The Group has a strong leadership position in the Spanish market, is the largest financial institution in Mexico, it has leading franchises in South America and the Sunbelt Region of the United States. It is also the leading shareholder in Turkey’s BBVA Garanti. Its purpose is to bring the age of opportunities to everyone, based on our customers’ real needs: provide the best solutions, helping them make the best financial decisions, through an easy and convenient experience. The institution rests in solid values: Customer comes first, we think big and we are one team. Its responsible banking model aspires to achieve a more inclusive and sustainable society.
Relevant data of the BBVA Group (consolidated figures) at 31-03-2019. This section contains all the updated quarterly figures on the balance sheet and income statement, and other relevant data.
More financial information is available on the Shareholders and Investors website.
Business Units Business Units
Global Functions Global Functions
Legal and Control Legal and ControlReporting to the Board of Directors Reporting to the Board of Directors
1 Reporting channel to CEO for Argentina, Colombia, Peru, Venezuela, Uruguay and Paraguay, as well as monitoring of all countries, including Spain, Mexico, USA and Turkey
2 Reporting to the Board of Directors through its corresponding committees
The transformation of BBVA
BBVA has emerged as a global leading financial institution, especially after the recent economic crisis, during which it showcased some of its greatest strengths: recurrency in its results, structural resilience in any environment and value generation for our stakeholders, a strength that will keep growing, thanks to the technological capabilities the group has been building up, which will allow us to meet our goal of becoming the best bank of the digital era.
The new environment
The new environment poses a major challenge for the financial industry, for a number of reasons. In first place, it places more pressure on profitability, as a result of low interest rates, the activity slowdown and increased regulatory pressure.
Meanwhile, new specialized players are entering the financial industry, successfully taking on different segments of the value chain (payments, financing, asset management, insurance, etc). Their disruptive proposals are built mainly on better customer experiences and lower operating costs. These players include both fintech startups and tech giants (Google, Amazon, etc.), which are already competing against incumbents in this new environment.
Also, game-changing technologies and the use of data are creating unimaginable opportunities, thanks to automated data analysis and algorithms (risk profile, habits and preferences, financial needs and expectations, etc) and the reduction of unit costs thanks to process automation and scalability.
Finally, as their habits change, consumers are demanding a new type of banking relationship and innovative services that cater to their new needs. Customers today are hyperconnected (they expect to be able to operate anytime, anywhere), accustomed to digital experiences (they expect proactive and personalized help when managing their finances) and use multiple devices and applications (they want to be able to operate using whatever channel is more convenient for them.) Also, they demand a banking relationship built on higher levels of transparency and trust, as well as more personalized, accessible and convenient financial services that will help them achieve their goals in life.
Our Value Proposition
In this context, the main objective of BBVA Group’s transformation strategy is to strengthen our relationship with our customers, redefining our value proposition to focus on their real needs.
We want to help our clients make the best financial decisions, through a clear, straightforward and transparent product and service offering, subject to fair terms and to the principles of prudence and integrity, to earn their trust.
Also, our value proposition must be easy and convenient; in other words, a proposal that offers customers the possibility of accessing our services at all times, from any place and using their channel of choice, providing the functionalities required to allow them to do it autonomously, through digital channels, or through human interaction.
In addition, we must provide relevant help and advice. We have to help our clients make the best decisions (banking and non-banking), support them in managing their daily finances, offer them products and services in a proactive, innovative and personalized way, and make the best recommendations to help them choose among all the available financial alternatives.
In short, we need to move from being providers of infrastructures built around money to making a difference in the lives of people and businesses.
Our strategic roadmap: Purpose and Strategic Priorities
To guide the execution of our new strategy, we have defined a new corporate purpose: “To bring the age of opportunity to everyone.” We have six strategic priorities.
The best customer experience
New business models
Optimize capital allocation
The best team
1. The best customer experience
BBVA Group is focused on delivering the best customer experience – a simple, transparent and rapid experience – empowering its customers and offering them personalized advice.
Our customer-centric business model offers a differential treatment with a very ambitious goal: to become leaders in customer satisfaction across the different geographies that make up the Group’s footprint.
2. Digital sales
Digitization is the driver of BBVA’s transformation and an essential element for boosting its digital channel business. We are developing a digital product and service portfolio that will allow our customers to operate through their channel of choice.
3. New business models
To accomplish the Group’s transformation, BBVA is actively participating in the digital disruption of the financial industry, through its New Digital Business (NDB) unit. For this purpose, we are building our presence in the fintech ecosystem, in pursuit of new digital business models for the bank.
4. Optimize capital allocation
The purpose of this priority is to improve business profitability and sustainability, as well as to simplify and focus said business on the most relevant activities.
5. Efficiency leadership
In a low-profitability environment for the financial industry, efficiency becomes an essential priority in BBVA’s transformation plan. This priority entails building a new organizational model, as responsive, simple and automated as possible.
6. The best team
BBVA prioritizes attracting, developing, motivating and retaining the best team, delivering the best employee experience and taking corporate culture to the next stage, to align it with the Group’s transformation process and its purpose.
BBVA is a forward-looking, honest and innovative financial institution, which was born with the mission of financing people’s dreams. Today, this spirit still inspires the company and encourages us to transform their lives, helping them to make the best decisions to achieve their dreams. For us, that’s what “bringing the age of opportunity to everyone” is about.
The customer comes first
At BBVA, we put ourselves in our customers’ shoes, taking their point of view into account in all our decisions and putting their interests first, always.
We tend to our customer’s needs proactively and efficiently, overcoming any difficulty we may run into.
We think big
We want to surprise our customers with the best solutions, delivering amazing experiences.
That’s why we set ambitious and aspirational goals for ourselves, questioning everything we do and proposing new ways of doing things.
We are one team
We work as a single team, trusting our co-workers, removing obstacles between areas and tearing down hierarchical barriers.
At BBVA we are committed to both our personal role and the Group’s common goals, which we pursue as if they were our own.
Code of Conduct
The Code of Conduct was approved by BBVA’s Board of Directors on May 28, 2015.
BBVA’s tax strategy
BBVA’s corporate principles for tax issues and fiscal strategy, approved by the Board of Directors on July 1, 2015
U.S. Patriot Act
The USA Patriot Act is a U.S. law approved in 2001 following the September 11th terrorist attacks. Its main purpose is to increase government control to fight terrorism and improve different U.S. security agencies’ capacities through coordination and granting the agencies greater monitoring power.
One of the ways in which the USA Patriot Act combats terrorism is by the monitoring banks in order to prevent money laundering, a source of funding for terrorist groups.
In accordance to the requirements of the USA Patriot Act, all banks located outside the U.S. that wish to engage in or maintain international relations with a U.S. bank or broker/dealer are required to provide certain information about the nature of their business and their supervision.
That’s how the USA Patriot Act applies to BBVA.
Global USA PATRIOT ACT Certificate – PDF Document / (2745 KB)
Global USA PATRIOT ACT Certificate for use by any financial institution that provides, or could provide services to any institution in the BBVA Group or the entire BBVA Group.
The Foreign Account Tax Compliance Act (FATCA) is a law introduced by the U.S. Department of Treasury and Internal Revenue Service (IRS) to encourage enhanced tax compliance and transparency with respect to U.S. citizens or residents. FATCA requires financial institutions around the world to identify U.S. persons that have foreign bank accounts, among others, and report them to the U.S. tax authorities. To ensure compliance, a 30% withholding tax will be imposed on certain payments to non-compliant institutions and individuals.
BBVA, along with its subsidiaries and branches, is committed to help ensure international tax compliance while maintaining high standards of customer data security. BBVA is therefore proactively implementing changes in its current business practices to ensure compliance with FATCA.
BBVA institutions affected by FATCA have already been registered with the IRS and will appeal in the next official IRS list of participating financial institutions.
FATCA requires financial institutions across the globe to fulfill certain requirements:
- Identify the following customers with a BBVA account:
- U.S. citizens or residents
- U.S. corporations
- Certain legal institutions, mainly private equity entities owned by U.S. citizens
- Report information on account holders listed above to the IRS or local tax authorities. This information includes:
- Personal information: name, address and U.S. Tax Identification Number (US TIN)
- Account information: account number, account balance and payments made or received in the account
- Withhold 30% from account holders on certain payments from the U.S. (mainly interest and dividends) that fail to comply with FATCA .
However, It is not expected that FATCA will affect most of BBVA’s customers. FATCA entered into force on July 1, 2014. Reporting began in 2015.
Please note that BBVA does not provide tax advice. If required, we recommend our customers seek independent advice on FATCA from a professional tax advisor. BBVA and its subsidiaries are not liable for any errors, omissions or opinions contained within this document.
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