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Balance sheet 31 Jul 2015

Results: BBVA earns €2.76 billion in the first half of the year

BBVA more than doubled its net attributable profit in the first half compared to the same period a year earlier, totaling €2.76 billion (+107.7%). Without including the results from corporate operations (CNCB and Catalunya Banc), net income grew 52.9% year-over-year between January and June to €2.03 billion thanks to strong recurring banking revenues.

“Robust activity and an excellent margin performance confirm the profit growth cycle continues,” pointed out BBVA President & COO Carlos Torres Vila.

As for the digital transformation, BBVA continued to increase its digital customer base. Customers who interact with the bank digitally totaled 13.5 million at the end of June, of which 7 million are banking through their cell phones.

In turn, this translates into greater digital sales. In the first six months of 2015, the number of new consumer loans through digital channels grew to 17.9% of the total, up from 9.3% in January.

BBVA’s digital transformation aims to improve the lives of customers through better solutions for their needs, more convenience in their relationship with the bank, and a simpler offer. In order to achieve this goal, Carlos Torres Vila underscored that the priorities for the management are as follows:

1.New standard in customer experience.
2.Drive digital sales.
3.New business models.
4.Optimize capital allocation.
5.Unrivaled efficiency.
6.Develop and inspire a first-class workforce.

Results

In order to properly address the second quarter figures, data will be explained without including Venezuela. The exchange rate –known as SIMADI– applied to the results this year for Venezuela (197 strong bolivars per dollar at the end of June) constitutes a 95% reduction compared to the exchange rate previously used and, therefore, it distorts the comparison with the previous year.

Quarterly net interest income (NII) rose 12.4% year-over-year at constant exchange rates to €3.81 billion. NII grew across the Group’s footprint –at constant exchange rates– thanks to a solid activity and despite the low-interest rate environment. On top of the outstanding trend in recurring revenue –NII plus net fees and commissions-, two more items added to the positive impact: the Telefónica dividend and the results of net trading income. All of this raised the quarterly gross income in the quarter by 10.6% year-over-year at constant exchange rates, to €5.9 billion.

The difference between costs and gross revenue allowed the bank to generate its highest operating income of the last ten quarters, €2.97 billion. The bank booked €1.18 billion for loan-loss and real-estate provisions. This figure is slightly lower than that of the previous quarter and virtually in line with that of the same quarter a year earlier. Loan-loss and real-estate provisions in Spain dropped while the rest of geographical regions saw a greater contribution as activity intensified.

At current exchange rates, net profit in the second quarter excluding Venezuela and corporate operations (CNCB and Catalunya Banc) increased 57.8% to €1.08 billion. Including corporate operations, earnings increased to €1.23 billion (+78.8% year-over-year). Lastly, if the contribution from Venezuela is added, the BBVA Group posted €1.22 billion in earnings between April and June (+73.5% year-over-year).

As for risk management, the indicators continued to show a positive trend. The BBVA Group’s NPL ratio ended June at 6.1% (vs. 6.4% a year ago), with coverage ratio of 72%. Excluding Catalunya Banc, the non-performing loan ratio stood at 5.5% in June, with stable coverage at 65%.

BBVA’s capital adequacy reflected a solid capital position, clearly above regulatory requirements. The CET1 ratio ended June at 12.3% according to current European regulations (CRD IV). Under fully-loaded criteria the ratio came in at 10.4%. BBVA’s capital also stands out for its excellent quality, with a leverage ratio of 5.9% (fully-loaded) as of June 30th.

On the balance sheet, gross customer lending in the BBVA Group increased 11% in the last year, up to €393.16 billion. On the other hand, customer deposits totaled €363.37 billion (+13.3%), with growth across the board, in line with previous quarters.

In the first half of the year, new loan production grew strongly in Spain from a year earlier, especially in segments such as SMEs (+30%), consumer (+35%) and mortgages (+36%).

Below we detail the main aspects of the accounts for each business unit.

The banking business in Spain benefited from the country’s improved economic growth outlook. The franchise registered considerable increases in new operations, leading to a stable performance of the loan book in the quarter if we exclude Catalunya Banc from the comparison. Between April and June, recurring revenue (net interest income plus net fees and commissions) increased 9.3% from a year earlier to €1.45 billion.

Gross income and operating income grew during the same period at a double-digit pace (18.0% and 22.8%, respectively). With Catalunya Banc integrated into the franchise, the NPL ratio came in at 6.8%, with coverage of 62%. Without taking into account this integration, NPL for June stood at 5.9%. Spain earned €809 million (+33.1% year-over-year) for the full half. Second-quarter profit (€462 million) more than doubled that of the same period a year ago.

As for real estate activity in Spain, BBVA continued to reduce its exposure, dropping 12.6% -or 4.7% less with Catalunya Banc- compared to a year ago. The bank’s strategy is still to maximize the value on real-estate sales and generate capital gains. In the first half, the bank managed to narrow losses from the unit 35% to €-300 million from €-465 million a year earlier.

To better explain the business performance of the regions that do not use the euro, the exchange rates described below refer to constant exchange rates.

The United States posted growth in lending (+12.9% year-over-year) and customer resources (+9.0%). Between April and June, the greater revenue and the good cost trend resulted in operating income that was 15.6% higher year-over-year. Risk indicators remained stable, with the same NPL ratio at the close of June (0.9%) as we saw a year ago. The U.S. unit posted a profit of €286 million (+18.8%) between January and June.

The robust activity in Mexico resulted in year-over-year growth of 13.0% in lending and 9.7% in customer resources. Recurring revenue totaled €1.71 billion in the second quarter, an increase of 9.4% from a year earlier. Mexico repeated in June the same NPL ratio (2.8%) and coverage (116%) as it did in March. Mexico posted a profit of €1.04 billion (+8.6%) in the first half.

South America –without Venezuela– registered lending growth of 12.2% and customer resources rose 14.5%. The higher activity volume had an impact on topline results, with year-over-year increases of nearly 10% for all margins. Risk indicators held steady, with an NPL ratio of 2.3% and coverage of 120%. Net attributable profit totaled €465 million (+8.4%) between January and June. Including Venezuela, profit totaled €474 million.

In Turkey, Garanti took advantage of its dynamic domestic market to widen the customer spread and generate a 23.6% increase in net interest income plus commissions in the first six months of the year. Turkey posted a profit of €174 million (+8.9% year-over-year). Furthermore, in July BBVA increased its stake in Garanti, Turkey’s best bank, to 39.9%, in a market with extraordinary growth potential.

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