20-F 1 d20f2018f.htm DOCUMENT 20-F

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

OR

[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-10110

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

Kingdom of Spain

(Jurisdiction of incorporation or organization)

Calle Azul, 4

28050 Madrid

Spain

(Address of principal executive offices)

Jaime Sáenz de Tejada Pulido

Calle Azul, 4

28050 Madrid

Spain

Telephone number +34 91 537 7000

(Name, Telephone, E-mail and /or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class |  | Name of Each Exchange on which Registered
American Depositary Shares, each representing the right to receive one ordinary share, par value €0.49 per share | New York Stock Exchange
Ordinary shares, par value €0.49 per share | New York Stock Exchange*
3.000% Fixed Rate Senior Notes due 2020 |  | New York Stock Exchange

* The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Title of Each Class |  | Name of Each Exchange on which Registered
Non-Step Non-Cumulative Contingent Convertible Perpetual Preferred Tier 1 Securities |  | Irish Stock Exchange

The number of outstanding shares of each class of stock of the Registrant as of December 31, 2018, was:

Ordinary shares, par value €0.49 per share—6,667,886,580

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X] | No [ ]

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes [ ] | No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] | No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] | No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer [X] | Accelerated filer [ ] | Non-accelerated filer [ ] | Emerging growth company [ ]

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP [ ] | International Financial Reporting Standards as Issued by the International Accounting Standards Board [X] | Other [ ]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [ ] | Item 18 [ ]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] | No [X]

#

# BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS

|  | PAGE
PART I |  |
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 5
A. | Directors and Senior Management | 5
B. | Advisers | 5
C. | Auditors | 5
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 5
ITEM 3. | KEY INFORMATION | 6
A. | Selected Consolidated Financial Data | 6
B. | Capitalization and Indebtedness | 8
C. | Reasons for the Offer and Use of Proceeds | 8
D. | Risk Factors | 8
ITEM 4. | INFORMATION ON THE COMPANY | 40
A. | History and Development of the Company | 40
B. | Business Overview | 43
C. | Organizational Structure | 80
D. | Property, Plants and Equipment | 82
E. | Selected Statistical Information | 82
F. | Competition | 111
G. | Cybersecurity and Fraud Management | 114
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 115
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 115
A. | Operating Results | 127
B. | Liquidity and Capital Resources | 191
C. | Research and Development, Patents and Licenses, etc. | 196
D. | Trend Information | 196
E. | Off-Balance Sheet Arrangements | 198
F. | Tabular Disclosure of Contractual Obligations | 199
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 200
A. | Directors and Senior Management | 200
B. | Compensation | 210
C. | Board Practices | 221
D. | Employees | 229
E. | Share Ownership | 232
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 233
A. | Major Shareholders | 233
B. | Related Party Transactions | 233
C. | Interests of Experts and Counsel | 234
ITEM 8. | FINANCIAL INFORMATION | 235
A. | Consolidated Statements and Other Financial Information | 235
B. | Significant Changes | 238
ITEM 9. | THE OFFER AND LISTING | 238
A. | Offer and Listing Details | 238
B. | Plan of Distribution | 244
C. | Markets | 244
D. | Selling Shareholders | 244
E. | Dilution | 244
F. | Expenses of the Issue | 245

|  | PAGE
ITEM 10. | ADDITIONAL INFORMATION | 245
A. | Share Capital | 245
B. | Memorandum and Articles of Association | 245
C. | Material Contracts | 248
D. | Exchange Controls | 249
E. | Taxation | 250
F. | Dividends and Paying Agents | 255
G. | Statement by Experts | 255
H. | Documents on Display | 255
I. | Subsidiary Information | 255
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 255
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 263
A. | Debt Securities | 263
B. | Warrants and Rights | 263
C. | Other Securities | 263
D. | American Depositary Shares | 263
PART II |  |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 264
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 264
ITEM 15. | CONTROLS AND PROCEDURES | 264
ITEM 16. | [RESERVED] | 267
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 267
ITEM 16B. | CODE OF ETHICS | 267
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 268
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 269
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 269
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 270
ITEM 16G. | CORPORATE GOVERNANCE | 270
ITEM 16H. | MINE SAFETY DISCLOSURE | 272
PART III |  |
ITEM 17. | FINANCIAL STATEMENTS | 272
ITEM 18. | FINANCIAL STATEMENTS | 272
ITEM 19. | EXHIBITS | 273

CERTAIN TERMS AND CONVENTIONS

The terms below are used as follows throughout this report:

· “BBVA”, the “Bank”, the “Company”, the “Group”, the “BBVA Group” or first person personal pronouns, such as “we”, “us”, or “our”, mean Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

· “BBVA Bancomer” means Grupo Financiero BBVA Bancomer, S.A. de C.V. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

· “BBVA Compass” means BBVA Compass Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

· “Consolidated Financial Statements” means our audited consolidated financial statements as of and for the years ended December 31, 2018, 2017 and 2016 prepared in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”) and in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017 (each as defined herein).

· “Garanti” means Türkiye Garanti Bankası A.Ş., and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

· “Latin America” refers to Mexico and the countries in which we operate in South America and Central America.

In this report, “$”, “U.S. dollars”, and “dollars” refer to United States Dollars and “€” and “euro” refer to Euro.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions and includes statements regarding future growth rates. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this Annual Report, including, without limitation, the information under the items listed below, identifies important factors that could cause such differences:

· “Item 3. Key Information—Risk Factors”;

· “Item 4. Information on the Company”;

· “Item 5. Operating and Financial Review and Prospects”; and

· “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:

· political, economic and business conditions in Spain, the European Union (“EU”), Latin America, Turkey, the United States and other regions, countries or territories in which we operate;

1

· our ability to comply with various legal and regulatory regimes and the impact of changes in applicable laws and regulations, including increased capital and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union;

· the monetary, interest rate and other policies of central banks in the EU, Spain, the United States, Mexico, Turkey and elsewhere;

· changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;

· the possible political, economic and regulatory impacts related to the United Kingdom’s proposed withdrawal from the European Union;

· market adjustments in the real estate sectors in Spain, Mexico and the United States;

· the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;

· changes in consumer spending and savings habits, including changes in government policies which may influence spending, saving and investment decisions;

· adverse developments in emerging countries, in particular Latin America and Turkey, including unfavorable political and economic developments, social instability and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest rate caps and tax policies;

· our ability to hedge certain risks economically;

· downgrades in our credit ratings or in the Kingdom of Spain’s credit ratings;

· the success of our acquisitions, divestitures, mergers and strategic alliances;

· our ability to make payments on certain substantial unfunded amounts relating to commitments with personnel;

· the performance of our international operations and our ability to manage such operations;

· weaknesses or failures in our Group’s internal or outsourced processes, systems (including information technology systems) and security;

· weaknesses or failures of our anti-money laundering or anti-terrorism programs, or of our internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations;

· security breaches, including cyber-attacks;

· the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations;

· actions that are incompatible with our ethics and compliance standards, and our failure to timely detect or remedy any such actions;

· our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that are not captured by the statistical models we use; and

· force majeure and other events beyond our control.

2

Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

PRESENTATION OF FINANCIAL INFORMATION

Accounting Principles

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2017 of November 27, 2017 (“Circular 4/2017”), which replaced Circular 4/2004 of December 22, 2004, on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) for financial statements relating to periods ended January 1, 2018 or thereafter.

There are no differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017 and IFRS-IASB for the years ended December 31, 2018, 2017 and 2016. The Consolidated Financial Statements included in this Annual Report have been prepared in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017.

The financial information as of and for the years ended December 31, 2017, 2016, 2015 and 2014 may differ from previously reported financial information as of such dates and for such periods in our respective annual reports on Form 20-F for certain prior years, as a result of the modifications referred to below (see “―Changes in Accounting Policies” and “—Changes in Operating Segments”) and certain retrospective adjustments made in prior years.

Changes in Accounting Policies

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies”. Set forth below are certain material changes to our accounting policies in 2018.

Application of IFRS 9

As of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and introduced changes in the requirements for the classification and measurement of financial assets and financial liabilities, the impairment of financial assets and hedge accounting. The impact of the first application of IFRS 9, which was significant, is presented in Note 2.4 to the Consolidated Financial Statements.

As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years. However, the financial information for 2017 and 2016 included in the Consolidated Financial Statements, which was prepared in accordance with the accounting policies and valuation criteria applicable under IAS 39, has been subject to the following non-significant modifications in order to improve its comparability with financial information for 2018:

· Financial assets recorded under “Available-for-sale financial assets” as of December 31, 2017 and 2016 in the consolidated financial statements included in the annual reports on Form 20-F for such years have been recorded under “Financial assets at fair value through other comprehensive income” (a new category introduced by IFRS 9) in the Consolidated Financial Statements.

· Financial assets recorded under “Loans and receivables” as of December 31, 2017 and 2016 in the consolidated financial statements included in the annual reports on Form 20-F for such years have been recorded under “Financial assets at amortized cost” (a new category introduced by IFRS 9) in the Consolidated Financial Statements.

3

· Financial assets recorded under “Held-to-maturity investments” as of December 31, 2017 and 2016 in the consolidated financial statements included in the annual reports on Form 20-F for such years have been recorded as “Debt securities” in the new “Financial assets at amortized cost” portfolio in the Consolidated Financial Statements.

· Expense recorded under “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss – Available-for-sale financial assets” for the years ended December 31, 2017 and 2016 in the consolidated financial statements included in the annual reports on Form 20-F for such years has been recorded under “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification - Financial assets at fair value through other comprehensive income” (a heading introduced following the implementation of IFRS 9) in the Consolidated Financial Statements.

· Expense recorded under “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss – Loans and receivables” for the years ended December 31, 2017 and 2016 in the consolidated financial statements included in the annual reports on Form 20-F for such years has been recorded under “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification - Financial assets at amortized cost” (a heading introduced following the implementation of IFRS 9) in the Consolidated Financial Statements.

Such modifications have not involved the revaluation of our financial assets as of December 31, 2017 and 2016 under IFRS 9 or the application of IFRS 9 in any other respect, and no other changes have been made in our consolidated financial statements for such years as a result thereof.

Hyperinflationary economies

As a result of the Group’s experience of applying IAS 29 “Financial information in hyperinflationary economies” in connection with its subsidiaries in Venezuela, we believe that there is significant complexity in recording the accounting impacts of inflation and changes in exchange rates in a way that allows financial information to be meaningful, especially where there is not a consistent evolution between inflation and exchange rates in a period.

With the aim of improving the reliability and relevance of the financial information presented, during 2018 the Group adopted a new accounting policy which involves recording in a single line item, “Shareholders’ funds – retained earnings”, both the revaluation of non-monetary items due to the effect of hyperinflation and the differences generated when translating the financial statements of the subsidiaries located in hyperinflationary economies into euros. Prior to the accounting policy change, translation differences were recorded under “Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign currency translation”. We believe that the accounting policy change, implemented in accordance with IAS 8, provides more reliable and relevant information with regards to operations in hyperinflationary economies.

In order to make the financial information of prior years comparable with the financial information of 2018, we have made the following modifications relating to the Group companies in Venezuela (an economy that was considered to be hyperinflationary in 2017 and 2016):

· we have reclassified €1,853 million, €1,836 million and €1,826 million from “Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign currency translation” to “Shareholders’ funds – retained earnings” as of December 31, 2017, December 31, 2016 and January 1, 2016, respectively; and

· we have reclassified €828 million, €817 million and €816 million from “Non-controlling interest –Accumulated other comprehensive income” to “Non-controlling interest – other” as of December 31, 2017, December 31, 2016 and January 1, 2016, respectively.

No reclassifications were necessary for Argentina since the Argentinian economy was considered to be hyperinflationary in 2018 for the first time.

4

The reclassification corresponding to January 1, 2018, 2017 and 2016 is recorded as “Effects of changes in accounting policies” in the consolidated statements of changes in equity corresponding to the years ended December 31, 2018, 2017 and 2016. In the consolidated balance sheets as of December 31, 2018, 2017 and 2016, the heading “Shareholders’ funds – retained earnings” includes both the translation differences and the effects of the restatement for inflation for the years 2018, 2017 and 2016.

For additional information see Notes 1.3 and 2.2.20 to our Consolidated Financial Statements.

Changes in Operating Segments

There have been no significant changes in the composition of the operating segments of the BBVA Group during 2018. Since 2018, our Mexico segment includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous years). In addition, there have been certain non-significant changes affecting the composition of our Banking Activity in Spain, Non Core Real Estate and Corporate Center segments. The financial information for 2017 relating to such segments included in the Consolidated Financial Statements and in this Annual Report has been revised accordingly to improve its comparability with financial information for 2018. However, financial information for 2016 has not been revised as a result thereof.

Statistical and Financial Information

The following principles should be noted in reviewing the statistical and financial information contained herein:

· Average balances, when used, are based on the beginning and the month-end balances during each year. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.

· Unless otherwise stated, any reference to loans refers to both loans and advances.

· Financial information with respect to segments or subsidiaries may not reflect consolidation adjustments.

Certain numerical information in this Annual Report may not compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

PART I

# ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

## A. Director and Senior Management

Not Applicable.

## B. Advisers

Not Applicable.

## C. Auditors

Not Applicable.

# ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

#

5

# ITEM 3. KEY INFORMATION

## A. Selected Consolidated Financial Data

The historical financial information set forth below for the years ended December 31, 2018, 2017 and 2016 has been selected from, and should be read together with, the Consolidated Financial Statements included herein. The audited consolidated financial statements for 2015 and 2014 are not included in this document, and the historical financial information set forth below for such years instead are derived from the respective financial statements included in annual reports on Form 20-F for certain prior years previously filed by us with retrospective adjustments made for the application of certain changes in accounting principles.

For information concerning the preparation and presentation of the financial information contained herein, see “Presentation of Financial Information”.

| Year Ended December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros, Except Per Share/ADS Data (In Euros))
Consolidated Statement of Income Data |  |  |  |  |
Interest and other income | 29,831 | 29,296 | 27,708 | 24,783 | 22,838
Interest expense | (12,239) | (11,537) | (10,648) | (8,761) | (8,456)
Net interest income | 17,591 | 17,758 | 17,059 | 16,022 | 14,382
Dividend income | 157 | 334 | 467 | 415 | 531
Share of profit or loss of entities accounted for using the equity method | (7) | 4 | 25 | 174 | 343
Fee and commission income | 7,132 | 7,150 | 6,804 | 6,340 | 5,530
Fee and commission expense | (2,253) | (2,229) | (2,086) | (1,729) | (1,356)
Net gains (losses) on financial assets and liabilities (1) | 1,234 | 938 | 1,661 | 865 | 1,435
Exchange differences, net | (9) | 1,030 | 472 | 1,165 | 699
Other operating income | 949 | 1,439 | 1,272 | 1,315 | 959
Other operating expense | (2,101) | (2,223) | (2,128) | (2,285) | (2,705)
Income on insurance and reinsurance contracts | 2,949 | 3,342 | 3,652 | 3,678 | 3,622
Expense on insurance and reinsurance contracts | (1,894) | (2,272) | (2,545) | (2,599) | (2,714)
Gross income | 23,747 | 25,270 | 24,653 | 23,362 | 20,725
Administration costs | (10,494) | (11,112) | (11,366) | (10,836) | (9,414)
Depreciation and amortization | (1,208) | (1,387) | (1,426) | (1,272) | (1,145)
Provisions or reversal of provisions | (373) | (745) | (1,186) | (731) | (1,142)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (3,981) | (4,803) | (3,801) | (4,272) | (4,340)
Net operating income | 7,691 | 7,222 | 6,874 | 6,251 | 4,684
Impairment or reversal of impairment on non-financial assets | (138) | (364) | (521) | (273) | (297)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net | 78 | 47 | 70 | (2,135) | 46
Negative goodwill recognized in profit or loss | - | - | - | 26 | -
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 815 | 26 | (31) | 734 | (453)
Operating profit before tax | 8,446 | 6,931 | 6,392 | 4,603 | 3,980
Tax (expense) or income related to profit or loss from continuing operations | (2,295) | (2,169) | (1,699) | (1,274) | (898)
Profit from continuing operations | 6,151 | 4,762 | 4,693 | 3,328 | 3,082
Profit | 6,151 | 4,762 | 4,693 | 3,328 | 3,082
Profit attributable to parent company | 5,324 | 3,519 | 3,475 | 2,642 | 2,618
Profit attributable to non-controlling interests | 827 | 1,243 | 1,218 | 686 | 464
Per share/ADS(2) Data |  |  |  |  |
Profit from continuing operations | 0.92 | 0.71 | 0.71 | 0.52 | 0.50
Diluted profit attributable to parent company (3) | 0.76 | 0.48 | 0.49 | 0.37 | 0.40
Basic profit attributable to parent company | 0.76 | 0.48 | 0.49 | 0.37 | 0.40
Dividends declared (In Euros) | 0.250 | 0.170 | 0.160 | 0.160 | 0.080
Dividends declared (In U.S. dollars) | 0.286 | 0.204 | 0.169 | 0.174 | 0.097
Number of shares outstanding (at period end) | 6,667,886,580 | 6,667,886,580 | 6,566,615,242 | 6,366,680,118 | 6,171,338,995
(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”. (2) Each American Depositary Share (“ADS”) represents the right to receive one ordinary share. (3) Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period including the average number of estimated shares to be converted and, for comparative purposes, a correction factor to account for the capital increases carried out in April 2014, October 2014, December 2014, April 2015, October 2015, December 2015, April 2016, October 2016 and April 2017, excluding the weighted average number of treasury shares during the period (6,668 million, 6,642 million, 6,468 million, 6,290 million and 5,905 million shares in 2018, 2017, 2016, 2015 and 2014, respectively).

6

| As of and for Year Ended December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros, Except Percentages)
Consolidated Balance Sheet Data |  |  |  |  |
Total assets | 676,689 | 690,059 | 731,856 | 749,855 | 631,942
Net assets | 52,874 | 53,323 | 55,428 | 55,282 | 51,609
Common stock | 3,267 | 3,267 | 3,218 | 3,120 | 3,024
Financial assets at amortized cost (1) | 419,660 | 445,275 | 483,672 | 471,828 | 376,086
Financial liabilities at amortized cost - Customer deposits | 375,970 | 376,379 | 401,465 | 403,362 | 319,334
Debt certificates | 63,970 | 63,915 | 76,375 | 81,980 | 71,917
Non-controlling interest | 5,764 | 6,979 | 8,064 | 7,992 | 2,511
Total equity | 52,874 | 53,323 | 55,428 | 55,282 | 51,609
Consolidated ratios |  |  |  |  |
Profitability ratios: |  |  |  |  |
Net interest margin (2) | 2.59% | 2.52% | 2.32% | 2.27% | 2.40%
Return on average total assets (3) | 0.9% | 0.7% | 0.6% | 0.5% | 0.5%
Return on average shareholders’ funds (4) | 10.1% | 6.7% | 6.7% | 5.3% | 5.6%
Credit quality data |  |  |  |  |
Loan loss reserve (5) | 12,217 | 12,784 | 16,016 | 18,742 | 14,273
Loan loss reserve as a percentage of financial assets at amortized cost (1) | 2.91% | 2.87% | 3.31% | 3.97% | 3.83%
Non-performing asset ratio (NPA ratio) (6) | 3.82% | 4.49% | 4.90% | 5.37% | 5.98%
Impaired loans and advances to customers at amortized cost | 16,349 | 19,390 | 22,915 | 25,333 | 22,703
Impaired contingent liabilities to customers (7) | 740 | 739 | 680 | 664 | 413
| 17,089 | 20,130 | 23,595 | 25,997 | 23,116
Loans and advances to customers (8) | 400,049 | 401,074 | 430,629 | 432,921 | 353,029
Contingent liabilities to customers | 47,575 | 47,671 | 50,540 | 49,876 | 33,741
| 447,624 | 448,745 | 481,169 | 482,797 | 386,770
(1) With respect to 2015 and 2014, consists exclusively of assets recorded under “Loans and receivables” as of December 31, 2015 and 2014, respectively, in the consolidated financial statements included in the annual reports on Form 20-F for such years. With respect to 2017 and 2016, see “Presentation of Financial Information—Application of IFRS 9”. (2) Represents net interest income as a percentage of average total assets. (3) Represents profit as a percentage of average total assets. (4) Represents profit attributable to parent company for the year as a percentage of average shareholders’ funds for the year, excluding “Non-controlling interest”. (5) Represents impairment losses on loans and advances at amortized cost. (6) Represents the sum of impaired loans and advances to customers and impaired contingent liabilities to customers divided by the sum of loans and advances to customers and contingent liabilities to customers. (7) We include contingent liabilities in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired contingent liabilities should be included in the calculation of our NPA ratio where we have reason to know, as of the reporting date, that they are impaired. The credit risk associated with contingent liabilities (consisting mainly of financial guarantees provided to third-parties on behalf of our customers) is evaluated and provisioned according to the probability of default of our customers’ obligations. If impaired contingent liabilities were not included in the calculation of our NPA ratio, such ratio would be higher for the periods covered, amounting to approximately 4.1%, 4.8%, 5.3%, 5.9% and 6.4% as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively. (8) Includes impaired loans and advances.

7

## B. Capitalization and Indebtedness

Not Applicable.

## C. Reasons for the Offer and Use of Proceeds

Not Applicable.

## D. Risk Factors

#### Macroeconomic Risks

Economic conditions in the countries where the Group operates could have a material adverse effect on the Group’s business, financial condition and results of operations

Despite the sustained recent growth of the global economy, uncertainty remains. The deterioration of economic conditions in the countries where the Group operates could adversely affect the cost and availability of funding for the Group, the quality of the Group’s loan and investment securities portfolios and levels of deposits and profitability, which may also require the Group to take impairments on its exposures or otherwise adversely affect the Group’s business, financial condition and results of operations. In addition, the process the Group uses to estimate losses inherent in its credit exposure requires complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of its borrowers to repay their loans.

8

The degree of uncertainty concerning economic conditions may adversely affect the accuracy of the Group’s estimates, which may, in turn, affect the reliability of the process to determine and the sufficiency of the Group’s loan loss provisions.

The Group faces, among others, the following economic risks:

· weak economic growth or recession in the countries where it operates;

· changes in the institutional environment in the countries where it operates could evolve into sudden and intense economic downturns and/or regulatory changes;

· a global trade war triggered by increasing tariffs and non-tariff barriers between the main economic blocks. The increase in trade barriers might adversely affect global trade flows both directly and indirectly, through the increase in financial volatility and the decrease in confidence levels of businesses and households, which could trigger an intense global economic slowdown or even a recession;

· deflation, mainly in Europe, or significant inflation, such as the significant inflation recently experienced by Venezuela and Argentina and, to a lesser extent, Turkey;

· changes in foreign exchange rates resulting in changes in the reported earnings of the Group’s subsidiaries, particularly in Venezuela and Argentina, together with the relevant impact on profits, assets (including risk-weighted assets) and liabilities;

· a lower interest rate environment, or even a prolonged period of negative interest rates in some areas where the Group operates, which could lead to decreased lending margins and lower returns on assets;

· a higher interest rate environment, including as a result of an increase in interest rates by the Federal Reserve or any further tightening of monetary policies, including to address potential inflationary pressures and currency devaluations in Latin America, which could endanger economic growth and make it more difficult for customers of the Group’s mortgage and consumer loan products to service their debts;

· adverse developments in the real estate market, especially in Spain, Mexico, the United States and Turkey, given the Group’s exposures to such markets;

· poor employment growth and structural challenges restricting employment growth, such as in Spain, where unemployment has remained relatively high, which may negatively affect household income levels of the Group’s retail customers and may adversely affect the recoverability of the Group’s retail loans, resulting in increased loan loss provisions;

· substantially lower oil prices, which could particularly affect producing areas, such as Venezuela, Mexico, Texas or Colombia, to which the Group is materially exposed or, conversely, substantially higher oil prices, which could have a negative impact on disposable income levels in oil consuming areas, such as Spain or Turkey, where the Group is also materially exposed;

· changes in laws, regulations and policies as a result of election processes in the different geographies in which the Group operates, which may negatively affect the Group’s business or customers in those geographies and other geographies in which the Group operates;

· the potential exit by an EU Member State from the European Monetary Union, which could materially adversely affect the European and global economy, cause a redenomination of financial instruments or other contractual obligations from the euro to a different currency and substantially disrupt capital, interbank, banking and other markets, among other effects;

· the possible political, economic and regulatory impacts related to the United Kingdom’s proposed withdrawal from the European Union; and

9

· an eventual government default on or restructuring of public debt, which could affect the Group primarily in two ways: directly, through portfolio losses, and indirectly, through instabilities that a default on or restructuring of public debt could cause to the banking system as a whole, particularly since commercial banks’ exposure to government debt is generally high in several countries in which the Group operates.

For additional information relating to certain risks that the Group faces in Spain, see “—Since the Group’s loan portfolio is highly concentrated in Spain, adverse changes affecting the Spanish economy could have a material adverse effect on its financial condition”. For additional information relating to certain risks that the Group faces in emerging market economies such as Latin America and Turkey, see “—The Group may be materially adversely affected by developments in the emerging markets where it operates”.

Any of the above risks could have a material adverse effect on the Group’s business, financial condition and results of operations.

Since the Group’s loan portfolio is highly concentrated in Spain, adverse changes affecting the Spanish economy could have a material adverse effect on its financial condition

The Group has historically developed its lending business in Spain, which continues to be one of the main focuses of its business. After rapid economic growth until 2007, Spanish gross domestic product (“GDP”) contracted in the period 2009-10 and 2012-13. The effects of the financial crisis were particularly pronounced in Spain given its heightened need for foreign financing as reflected by its high current account deficit, resulting from the gap between domestic investment and savings, and its public deficit. The current account imbalance has been corrected and the public deficit is in a downward trend, with GDP growth above 3% in 2015, 2016 and 2017, falling to 2.5% in 2018, and unemployment falling to 15.3% in 201 8. While GDP growth is expected to remain positive in the next years, there is uncertainty regarding the sustainability of external growth as well as doubts over Spain’s economic policy. R eal or perceived difficulties in servicing public or private debt, triggered by foreign or domestic factors such as an increase in global financial risk or a decrease in the rate of domestic growth, could increase Spain’s financing costs, hindering economic growth, employment and households’ gross disposable income.

The Spanish economy is particularly sensitive to economic conditions in the Eurozone, the main market for Spanish goods and services exports. Accordingly, adverse changes in economic conditions in the Eurozone might have an adverse effect on Spanish economic growth. Given the relevance of the Group’s loan portfolio in Spain, any adverse changes affecting the Spanish economy could have a material adverse effect on the Group’s business, financial condition and results of operations.

We may be adversely affected by political events in Catalonia

Our Spanish business includes extensive operations in Catalonia. Although actions carried out by the Spanish Government have helped diminish the level of uncertainty in the region resulting from its pro-independence movement, regional elections carried out in December 2017 resulted in pro-independence parties winning the majority of seats. As of the date of this Annual Report, there is still significant uncertainty regarding the outcome of political and social tensions in Catalonia, which could result in volatile capital markets and other financing conditions in Spain or otherwise adversely affect the environment in which we operate in Catalonia and the rest of Spain, any of which could have an adverse effect on our business, liquidity, financial condition and results of operations.

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Any decline in the Kingdom of Spain’s sovereign credit ratings could adversely affect the Group’s business, financial condition and results of operations

Since the Bank is a Spanish company with substantial operations in Spain, its credit ratings may be adversely affected by the assessment by rating agencies of the creditworthiness of the Kingdom of Spain. As a result, any decline in the Kingdom of Spain’s sovereign credit ratings could result in a decline in the Bank’s credit ratings. In addition, the Group holds a substantial amount of securities issued by the Kingdom of Spain, autonomous communities within Spain and other Spanish issuers. Any decline in the Kingdom of Spain’s credit ratings could adversely affect the value of the Kingdom of Spain’s and other public or private Spanish issuers’ respective securities held by the Group in its various portfolios or otherwise materially adversely affect the Group’s business, financial condition and results of operations. Furthermore, the counterparties to many of the Group’s loan agreements could be similarly affected by any decline in the Kingdom of Spain’s credit ratings, which could limit their ability to raise additional capital or otherwise adversely affect their ability to repay their outstanding commitments to the Group and, in turn, materially and adversely affect the Group’s business, financial condition and results of operations.

The Group may be materially adversely affected by developments in the emerging markets where it operates

The economies of some of the emerging markets where the Group operates, mainly Latin America and Turkey, experienced significant volatility in recent decades, characterized, in some cases, by slow or declining growth, declining investment, volatile interest rates, volatile currency values, hyperinflation and political tension.

Emerging markets are generally subject to greater risks than more developed markets. For example, there is typically a greater risk of loss in operating in emerging markets from unfavorable political and economic developments, both global and domestic, social and geopolitical instability, changes in economic policies (such as monetary, fiscal and macroprudential policies) or governmental decisions, including expropriation, nationalization, international ownership legislation, interest-rate caps, restrictions on business practices such as on commissions that can be charged, currency and exchange controls and tax policies and political unrest. In particular, Argentina, where the Bank operates through BBVA Banco Francés S.A. (“BBVA Banco Francés”), and Turkey, where the Bank operates through Garanti, have recently experienced significant exchange rate volatility (for example, the Argentine peso lost a significant portion of its value against the U.S. dollar during the course of 2018), rapidly-increasing interest rates and deteriorating economic conditions, adversely affecting our operations in such countries and the value of the related assets and liabilities when translated into euros.

In addition, emerging markets are affected by conditions in other related markets and in global financial markets generally (such as U.S. interest rates and the U.S. dollar exchange rate) and some are particularly affected by commodities price fluctuations, which in turn may affect financial market conditions through exchange rate fluctuations, interest rate volatility and deposits volatility. Despite sustained global economic growth, there are increasing risks of deterioration that might be triggered by a full-blown trade war, geopolitical events or changes in financial risk appetite. If global economic conditions deteriorate, the business, financial condition, operating results and cash flows of the Bank’s subsidiaries in emerging economies, mainly in Latin America and Turkey, may be materially adversely affected. Hyperinflation in Argentina had a negative impact of €266 million in the “Profit attributable to parent company” for 2018. For additional information, see Note 2.2.20 to the Consolidated Financial Statements.

Furthermore, financial turmoil in any particular emerging market could negatively affect other emerging markets or the global economy in general. Financial turmoil in a particular emerging market tends to adversely affect exchange rates, stock prices and debt securities prices of other emerging markets as investors move their money to more stable and developed markets, and may reduce liquidity to companies located in the affected markets. An increase in the perceived risks associated with investing in emerging economies in general, or the emerging markets where the Group operates in particular, could dampen capital flows to such economies and adversely affect such economies.

In addition, any changes in laws, regulations and policies pursued by the U.S. Government may adversely affect the emerging markets in which the Group operates, particularly Mexico due to the trade and other ties between Mexico and the United States. See “—Our business could be adversely affected by global political developments, particularly with regard to U.S. policies that affect Mexico”.

11

If economic conditions in the emerging market economies where the Group operates deteriorate, the Group’s business, financial condition and results of operations could be materially adversely affected.

We may be adversely affected by the United Kingdom’s planned exit from the European Union

In a referendum held in the United Kingdom on June 23, 2016, a majority of those voting voted for the United Kingdom to leave the European Union (referred to as “Brexit”). On March 29, 2017, the United Kingdom gave formal notice under Article 50 of the Treaty on European Union officially notifying the European Union of its decision to withdraw from the European Union, which began a statutory two-year period during which officials from the United Kingdom and the European Union have been negotiating the terms of the United Kingdom’s withdrawal from, and future relationship with, the European Union. No agreement has yet been reached and approved by the relevant parties as of the date of this Annual Report. Extensions of this period must be approved unanimously by all member states of the European Union. If no agreement is reached and approved by March 29, 2019, and no extension is agreed, the United Kingdom would automatically leave the European Union and EU laws and regulations would cease to apply to the United Kingdom on such date unless the United Kingdom revokes its formal notice under Article 50 of the Treaty on European Union.

As of the date of this Annual Report, the United Kingdom remains a member of the European Union. However, Brexit has already affected and could continue to adversely affect European and/or worldwide economic and market conditions and could continue to contribute to instability in the global financial markets. The long-term effects of Brexit will depend in part on whether the UK Parliament approves an agreement negotiated with the Council of the European Union, whether the United Kingdom leaves the European Union with no agreement in place (referred to as a “hard Brexit”), or whether the United Kingdom ultimately remains a member of the European Economic Area or the European Union, as a result of a second referendum, new UK elections or otherwise.

The Group currently maintains a branch in the United Kingdom, had 126 employees in the United Kingdom as of December 31, 2018, has significant cross-border outstandings with the United Kingdom, primarily with banks and other financial institutions, as well as sovereign risk exposure of €51 million as of December 31, 2018, and has a 39.06% stake in the UK digital bank Atom Bank plc. In addition to its effects on the European and global economy and financial markets, Brexit, and in particular a hard Brexit, could impair or otherwise limit our ability to transact business in the United Kingdom or elsewhere. In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. If the United Kingdom were to significantly alter its regulations affecting the banking industry, we could face significant new costs and compliance difficulties as it may be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations. In addition, we may face challenges in the recruitment and mobility of employees as well as adverse effects from fluctuations in the value of the pound sterling that may directly or indirectly affect the value of any assets of the Group, including those assets, and their respective risk-weighted assets, denominated in such currency. Moreover, it is possible that Brexit, particularly a hard Brexit, could cause a recession in the United Kingdom as well as in the European Union, including in Spain. Due to the ongoing political uncertainty as regards the terms of the United Kingdom’s possible withdrawal from the European Union and their future relationship, the precise impact on the business of the Group is difficult to determine. Any of the above or other effects of Brexit could have a material adverse effect on the Group’s business, financial condition and results of operations.

Our business could be adversely affected by global political developments, particularly with regard to U.S. policies that affect Mexico

Changes in economic, political and regulatory conditions in the United States or in U.S. laws and policies governing foreign trade and foreign relations could create uncertainty in the international markets and could have a negative impact on the Mexican economy and public finances. This correlation is due, in part, to the high level of economic activity between the two countries generally, including the trade facilitated by the North American Free Trade Agreement (“NAFTA”), as well as due to their physical proximity.

12

Following the U.S. elections in November 2016 and the change in the U.S. administration for the four-year period from 2017 to 2020, there is uncertainty regarding future U.S. policies with respect to matters of importance to Mexico and its economy, including trade and immigration. In particular, since August 16, 2017, the U.S. administration has been renegotiating the terms of NAFTA with its Mexican and Canadian counterparts, and on November 30, 2018 the United States, Mexico and Canada signed the United States-Mexico-Canada Agreement (the “USMCA”). While the United States, Mexico and Canada have agreed the terms of USMCA, NAFTA currently remains in effect. In the United States, USMCA can come into effect only following the completion of the procedures required by the U.S. Trade Promotion Authority, including a Congressional vote on an implementing bill. USMCA will also need to be approved by the legislatures of Canada and Mexico. As such, there remains significant uncertainty as to whether USMCA will be ratified in its current form, or at all.

Because the Mexican economy is heavily influenced by the U.S. economy, the re-negotiation or termination of NAFTA and/or the adoption of USMCA or other U.S. government policies may adversely affect economic conditions in Mexico. Any decision taken by the U.S. administration that has an impact on the Mexican economy, such as by reducing the levels of remittances, reducing commercial activity among the two countries or slowing direct foreign investment in Mexico, could adversely affect the Group’s business, financial condition and results of operations.

U.S. immigration policies could also affect trade and other relations between Mexico and the United States and have other consequences for Mexican government policies. These factors could have an impact on Mexico’s GDP growth, the exchange rate between the U.S. dollar or euro and the Mexican peso, levels of foreign direct investment and portfolio investment in Mexico, interest rates, inflation and the Mexican economy generally, which in turn, may have an impact on the Group’s business, financial condition and results of operations.

The Group’s earnings and financial condition have been, and its future earnings and financial condition may continue to be, materially affected by asset impairment

Regulatory, business, economic or political changes and other factors could lead to asset impairment. Severe market events such as the past sovereign debt crisis, rising risk premiums and falls in share market prices, have resulted in the Group recording large write-downs on its credit market exposures in recent years. Several factors could further depress the valuation of our assets or otherwise lead to the impairment of such assets (including goodwill and deferred tax assets). Current political processes such as the implementation of Brexit, which may result in the United Kingdom leaving the European Union, the surge of populist trends in several European countries, increased trade tensions or potential changes in U.S. economic policies implemented by the U.S. administration, could increase global financial volatility and lead to the reallocation of assets. Doubts regarding the asset quality of European banks also affected their evolution in the market in recent years. In addition, uncertainty about China’s growth expectations and its policymaking capability to address certain severe challenges has contributed to the deterioration of the valuation of global assets and further increased volatility in the global financial markets. Additionally, in dislocated markets, hedging and other risk management strategies may not be as effective as they are in more normal market conditions due in part to the decreasing credit quality of hedge counterparties. Any deterioration in economic and financial market conditions could lead to further impairment charges and write-downs. In addition, the Group may be required to derecognize deferred tax assets if it believes it is unable to use them over the period for which the deferred tax assets remain deductible.

Exposure to the real estate market makes the Group vulnerable to developments in this market

While the Group has recently taken several steps to reduce its exposure to the real estate market in Spain (see “Item 4. Information on the Company—Business Overview—Operating Segments—Non Core Real Estate”), it continues to be exposed to the real estate market due to the fact that real estate assets secure many of its outstanding loans and due to the significant amount of real estate assets held on its balance sheet and its stakes in real estate companies such as Metrovacesa, S.A. and Divarian Propiedad, S.A. Any deterioration of real estate prices could materially and adversely affect the Group’s business, financial condition and results of operations.

####

13

#### Legal, Regulatory and Compliance Risks

In addition to the risk factors set forth below, see “—Liquidity and Financial Risks—Implementation of internationally accepted liquidity ratios might require changes in business practices that affect the profitability of the Bank’s business activities”.

The Group is subject to substantial regulation and regulatory and governmental oversight. Changes in the regulatory framework could have a material adverse effect on its business, results of operations and financial condition

The financial services industry is among the most highly regulated industries in the world. In response to the global financial crisis and the European sovereign debt crisis, governments, regulatory authorities and others have made and continue to make proposals to reform the regulatory framework for the financial services industry to enhance its resilience against future crises. Legislation has already been enacted and regulations issued as a consequence of some of these proposals. The regulatory framework for financial institutions is likely to undergo further significant change. This creates significant uncertainty for the Group and the financial industry in general. The wide range of recent actions or current proposals includes, among other things, provisions for more stringent regulatory capital and liquidity standards, restrictions on compensation practices, special bank levies and financial transaction taxes, recovery and resolution powers to intervene in a crisis including “bail-in” of creditors, separation of certain businesses from deposit taking, stress testing and capital planning regimes, heightened reporting requirements and reforms of derivatives, other financial instruments, investment products and market infrastructures.

In addition, the supervisory framework has been intensified, in conjunction with the increased emphasis on the regulatory framework, such that the new institutional structure in Europe for supervision, with the creation of the single supervisory mechanism (the “SSM”), and for resolution, with the single resolution mechanism (the “SRM”), is changing the regulatory and supervisory framework (see “—Regulatory developments related to the EU fiscal and banking union may have a material adverse effect on the Bank’s business, financial condition and results of operations”). The specific effects of a number of new laws and regulations remain uncertain because the drafting and implementation of these laws and regulations are still ongoing. In addition, since some of these laws and regulations have been recently adopted, the manner in which they are applied to the operations of financial institutions is still evolving. No assurance can be given that laws or regulations will be enforced or interpreted in a manner that will not have a material adverse effect on the Group’s business, financial condition, results of operations and cash flows. In addition, regulatory scrutiny under existing laws and regulations has become more intense.

Furthermore, regulatory and supervisory authorities have substantial discretion in how to regulate and supervise banks, and this discretion, and the means available to regulators and supervisors, have been steadily increasing during recent years. Regulation may be imposed on an ad hoc basis by governments and regulators in response to a crisis, and these may especially affect financial institutions that are deemed to be systemically important (including global systemically important banks (“G-SIBs”) and institutions deemed to be of local systemic importance, domestic systemically important banks (“D-SIBs”), such as the Bank).

In addition, local regulations in certain jurisdictions where the Group operates differ in a number of material respects from equivalent regulations in Spain or the United States. Changes in regulations may have a material adverse effect on the Group’s business, results of operations and financial condition, particularly in Mexico, the United States, Turkey, Venezuela and Argentina. Furthermore, regulatory fragmentation, with some countries implementing new and more stringent standards or regulation, could adversely affect the Group’s ability to compete with financial institutions based in other jurisdictions which do not need to comply with such new standards or regulation. In addition, financial institutions which are based in other jurisdictions, including the United States, could benefit from any deregulation efforts implemented in such jurisdictions. Moreover, to the extent recently adopted regulations are implemented inconsistently in the various jurisdictions in which the Group operates, the Group may face higher compliance costs.

14

Any required changes to the Group’s business operations resulting from the legislation and regulations applicable to such business could result in significant loss of revenue, limit the Group’s ability to pursue business opportunities in which the Group might otherwise consider engaging, affect the value of assets that the Group holds, require the Group to increase its prices and therefore reduce demand for its products, impose additional costs on the Group or otherwise adversely affect the Group’s businesses. For example, the Group is subject to substantial regulation relating to liquidity. Future liquidity standards could require it to maintain a greater proportion of its assets in highly liquid but lower-yielding financial instruments, which would negatively affect its net interest margin. Moreover, the Group’s regulators, as part of their supervisory function, periodically review the Group’s allowance for loan losses. Such regulators may require the Group to increase its allowance for loan losses or to recognize further losses. Any such additional provisions for loan losses, as required by these regulators whose views may differ from those of the Group’s management, could have an adverse effect on the Group’s earnings and financial condition.

Adverse regulatory developments or changes in government policy relating to any of the foregoing or other matters could have a material adverse effect on the Group’s business, results of operations and financial condition.

Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations

As a Spanish credit institution, the Bank is subject to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (as amended, replaced or supplemented from time to time, the “CRD IV Directive” ), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (as amended, replaced or supplemented from time to time, the “CRR” and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or the CRR which may from time to time be applicable in Spain, the “CRD IV” ), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“Law 10/2014”), Royal Decree 84/2015, of February 13 (“RD 84/2015”), Bank of Spain Circular 2/2014, of January 31 and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016” ).

On November 23, 2016, the European Commission published a package of proposals with further reforms to CRD IV, Directive 2014/59/EU, of May 15 establishing a framework for the recovery and resolution of credit institutions and investment firms (as amended, replaced or supplemented from time to time, the “BRRD” ) and Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No. 1093/2010 (as amended, replaced or supplemented from time to time, the “SRM Regulation” ), including measures to increase the resilience of EU institutions and enhance financial stability. On May 25, 2018, the Council of the European Union published the Presidency compromise proposals relating to the European Commission’s package of proposals referred to above and on June 25 and 28, 2018, the European Parliament Committee on Economic and Monetary Affairs published reports containing its proposed amendments to the European Commission’s package of proposals. The final political agreement between the European Parliament and the Council on these reforms was published on February 15, 2019 (the European Commission’s package of proposals together with the Presidency compromise proposals, the proposed amendments of the European Parliament and such final political agreement, the “EU Banking Reforms” ). The timing for the final implementation of these reforms as at the date of this Annual Report is unclear.

15

CRD IV, among other things, established minimum “Pillar 1” capital requirements and increased the level of capital required by means of a “combined buffer requirement” that entities must comply with from 2016 onwards. The “combined buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific countercyclical buffer, (iv) the D-SIB buffer, and (v) the systemic risk buffer (a buffer to prevent systemic or macro prudential risks). The “combined buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and is required to be satisfied with common equity tier 1 (“CET1”) capital.

The G-SIB buffer applies to those institutions included on the list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB” ). The Bank was excluded from this list with effect from January 1, 2017 and so, unless otherwise indicated by the FSB (or the Bank of Spain) in the future, it will no longer be required to maintain a G-SIB buffer.

The Bank of Spain announced on November 21, 2018 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer of a CET1 capital ratio of 0.75% on a consolidated basis.

The Bank of Spain agreed in December 2015 to set the countercyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is revised each quarter. The Bank of Spain agreed in December 2018 to maintain the countercyclical capital buffer at 0% for the first quarter of 2019. As of the date of this Annual Report, the countercyclical capital buffer applicable to the Group stands at 0.01% and relates to the Group’s exposures in other jurisdictions.

The Bank of Spain has greater discretion in relation to the determination of the institution-specific countercyclical buffer, the buffer for D-SIBs and the systemic risk buffer. With the entry into force of the SSM on November 4, 2014, the European Central Bank (the “ECB”) has the ability to provide certain recommendations in this respect and potentially increase such buffers.

Moreover, Article 104 of the CRD IV Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, 2013 conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates that in addition to the minimum “Pillar 1” capital requirements and the combined buffer requirements, supervisory authorities may impose further “Pillar 2” capital requirements (above “Pillar 1” requirements and below the combined buffer requirements) to cover other risks, including those not considered to be fully captured by the minimum “own funds” “Pillar 1” requirements under CRD IV or to address macro-prudential considerations.

Furthermore, the ECB is required, under Regulation (EU) No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation” ), to carry out a supervisory review and evaluation process (the “SREP” ) of the Bank and the Group at least on an annual basis.

In addition to the above, the European Banking Authority (the “EBA” ) published on December 19, 2014 its final guidelines for common procedures and methodologies in respect of the SREP (the “EBA SREP Guidelines” ). Included in the EBA SREP Guidelines were the EBA’s proposed guidelines for a common approach to determining the amount and composition of additional “Pillar 2” own funds requirements to be implemented from January 1, 2016. In accordance with these guidelines, national supervisors should set the composition of the capital instruments required to comply with the “Pillar 2” requirement, so that at least 56% of the “Pillar 2” requirement is covered with CET1 capital and at least 75% with Tier 1 capital, as has also been provided in the EU Banking Reforms. The EBA SREP Guidelines and the EU Banking Reforms also contemplate that national supervisors should not set additional own funds requirements in respect of risks which are already covered by the “combined buffer requirement” and/or additional macro-prudential requirements. On July 19, 2018, the EBA published its final guidelines aimed at further enhancing institutions’ risk management and supervisory convergence in respect of SREP. These guidelines focus on stress testing, particularly its use in setting “Pillar 2” capital guidance and the level of interest rate risk.

Any additional “Pillar 2” own funds requirement that may be imposed on the Bank and/or the Group by the ECB pursuant to the SREP will require the Bank and/or the Group to hold capital levels above the minimum “Pillar 1” capital requirements.

16

As a result of the most recent SREP carried out by the ECB, we received a communication from the ECB pursuant to which we are required to maintain, as from March 1, 2019 on a consolidated basis, a CET1 capital ratio of 9.26% (8.53% on an individual basis) and a total capital ratio of 12.76% (12.03% on an individual basis). This total capital requirement (on a consolidated basis) includes: (i) the minimum CET1 requirement under Pillar 1 (4.5%); (ii) the Additional Tier 1 capital (AT1) requirement under Pillar 1 (1.5%); (iii) the tier 2 capital requirement under Pillar 1 (2%); (iv) the CET1 capital requirement under Pillar 2 (1.5%), which remains unchanged since the prior SREP; (v) the capital conservation buffer (2.5% of CET1); (vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and (vii) the countercyclical capital buffer (0.01% of CET1).

As of December 31, 2018, the Bank’s phased-in total capital ratio was 15.71% on a consolidated basis and 22.07% on an individual basis. As of December 31, 2018, the Bank’s CET1 phased-in capital ratio was 11.58% on a consolidated basis and 17.45% on an individual basis. Such ratios exceed the applicable regulatory requirements described above, but there can be no assurance that the total capital requirements imposed on the Bank and/or the Group from time to time may not be higher than the levels of capital available at such point in time. There can also be no assurance as to the result of any future SREP carried out by the ECB and whether this will impose any further “Pillar 2” additional own funds requirements on the Bank and/or the Group.

Additionally, on February 1, 2019, the Bank announced its new CET1 fully-loaded capital target, consisting of a CET1 ratio with in the range between 11.5% and 12.0% on a consolidated basis, and which the Bank expects to achieve b y 2019 year-end. No assurance can be given that the Bank will achieve this target. See “Cautionary Statement Regarding Forward-Looking Statements”. Any failure by the Bank to maintain a consolidated CET1 capital ratio in line with its CET1 fully-loaded capital target could adversely affect the market price or value or trading behavior of any securities issued by the Bank (and, in particular, any of its capital instruments) and ultimately lead to the imposition of further “Pillar 2” guidance or requirements.

On March 15, 2018, the ECB further published the ECB’s supervisory expectations for prudent levels of provisions for non-performing loans (“NPLs”). This was published as an addendum (the “Addendum”) to the ECB’s guidance to banks on non-performing loans published on March 20, 2017, which clarified the ECB’s supervisory expectations regarding the identification, management, measurement and write-off of NPLs. The ECB states that the Addendum sets out what it deems to be a prudent treatment of NPLs with the aim of avoiding an excessive build-up of non-covered aged NPLs on banks’ balance sheets in the future, which would require supervisory measures.

The ECB states that it will assess any differences between banks’ practices and the prudential provisioning expectations laid out in the Addendum at least annually and will link the supervisory expectations in the Addendum to new NPLs classified as such from April 1, 2018 onwards. Banks will be asked to inform the ECB of any differences between their practices and the ECB’s prudential provisioning expectations, as part of the SREP supervisory dialogue, from early 2021 onwards. Ultimately this could result in the ECB requiring banks to apply specific adjustments to own funds calculations where the accounting treatment applied by the bank is considered not prudent from a supervisory perspective, which could in turn impact on the capital position of the relevant bank. The supervisory expectations set out in the Addendum are expected to be reflected in the proposed amendments to the CRR as part of the EU Banking Reforms, which could impact the minimum coverage levels required for newly originated loans that become non-performing, requiring banks to increase their provisioning for future NPLs.

Furthermore, the EU Banking Reforms propose new requirements that capital instruments should meet in order to be considered as Additional Tier 1 instruments or Tier 2 instruments, including certain grandfathering measures. T o the extent any of these new requirements are not subject to a grandfathering or exemption regime for those Additional Tier 1 instruments and/or Tier 2 instruments already in issue at the time such new requirements are implemented, such instruments could be subject to regulatory uncertainties on their inclusion as capital. This may lead to regulatory capital shortfalls and ultimately a breach of the applicable minimum regulatory capital requirements.

Any failure by the Bank and/or the Group to comply with its “Pillar 1” minimum regulatory capital ratios, any “Pillar 2” additional own funds requirements and/or any “combined buffer requirement” could result in the imposition of restrictions or prohibitions on “discretionary payments” by the Bank as discussed below or administrative actions or sanctions, which, in turn, may have a material adverse effect on the Group’s results of operations.

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According to Article 48 of Law 10/2014, Article 73 of RD 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any entity not meeting its “combined buffer requirement” is required to determine its Maximum Distributable Amount (“MDA”) as described therein. Until the MDA has been calculated and communicated to the Bank of Spain, where applicable, the relevant entity shall not make any (i) distributions relating to CET1 capital, (ii) payments in respect of variable remuneration or discretionary pension revenues and (iii) distributions relating to Additional Tier 1 instruments (“discretionary payments”) and, once the MDA has been calculated and communicated to the Bank of Spain, any such discretionary payments by that entity will be subject to such MDA limit.

Furthermore, as set forth in Article 48 of Law 10/2014, the adoption by the Bank of Spain of the measures prescribed in Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds or limiting or prohibiting the distribution of dividends respectively will also result in a requirement to determine the MDA and restrict discretionary payments to such MDA. Pursuant to the EU Banking Reforms, the calculation of the MDA and the consequences thereof, as well as the restrictions specified in the paragraph above while such calculation is pending, could also be triggered by a breach of MREL (as defined herein) (see “—Any failure by the Bank and/or the Group to comply with its MREL could have a material adverse effect on the Bank’s business, financial condition and results of operations” below) or a breach of the minimum leverage ratio requirement.

As set out in the “Opinion of the European Banking Authority on the interaction of Pillar 1, Pillar 2 and combined buffer requirements and restrictions on distributions” published on December 16, 2015 (the “December 2015 EBA Opinion”), in the EBA’s opinion competent authorities should ensure that the CET1 capital to be taken into account in determining the CET1 capital available to meet the “combined buffer requirement” for the purposes of the MDA calculation is limited to the amount not used to meet the “Pillar 1” and, if applicable, “Pillar 2” own funds requirements of the institution. There can be no assurance as to how and when binding effect will be given to the December 2015 EBA Opinion in Spain, including as to the consequences for an institution of its capital levels falling below those necessary to meet these requirements. The EU Banking Reforms propose certain amendments in order to clarify, for the purposes of restrictions on distributions, the hierarchy between the “Pillar 2” additional own funds requirements, the minimum “own funds” “Pillar 1” requirements, the own funds and eligible liabilities requirement, MREL and the “combined buffer requirements” (which is referred to as “stacking order”). In particular, no distinction is proposed to be made where discretionary payments are restricted to the MDA between distributions relating to CET1 capital or payments in respect of variable remuneration or discretionary pension revenues, and payments due on Additional Tier 1 instruments.

On July 1, 2016, the EBA published additional information explaining how supervisors should use the results of the 2016 EU-wide stress test for SREP assessments. The EBA stated, among other things, that the incorporation of the quantitative results of the EU-wide stress test into SREP assessments may include setting additional supervisory monitoring metrics in the form of capital guidance. Such guidance will not be included in MDA calculations but competent authorities would expect banks to meet that guidance except when explicitly agreed. Competent authorities have remedial tools if an institution refuses to follow such guidance. The EU Banking Reforms also propose that a distinction be made between “Pillar 2” capital requirements and “Pillar 2” capital guidance, with only the former being mandatory requirements. Notwithstanding the foregoing, the EU Banking Reforms propose that, in addition to certain other measures, supervisory authorities be entitled to impose further “Pillar 2” capital requirements where an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

The ECB has also confirmed in its recommendation of January 7, 2019 on dividend distribution policies that credit institutions should establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements and the outcomes of the SREP.

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Any failure by the Bank and/or the Group to comply with its regulatory capital requirements could also result, among other things, in the imposition of further “Pillar 2” requirements and the adoption of any early intervention or, ultimately, resolution measures by resolution authorities pursuant to Law 11/2015 of June 18 on the Recovery and Resolution of Credit Institutions and Investment Firms (Ley 11/2015 de 18 de junio de recuperación y resolución de entidades de crédito y empresas de servicios de inversión), as amended, replaced or supplemented from time to time (“Law 11/2015”), which, together with Royal Decree 1012/2015 of November 16 by virtue of which Law 11/2015 is developed and Royal Decree 2606/1996 of December 20 on credit entities’ deposit guarantee fund is amended (as amended, replaced or supplemented from time to time, “RD 1012/2015”), has implemented the BRRD into Spanish law. See “—Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue” below.

On November 2, 2018, the EBA, in cooperation with the ECB and the European Systemic Risk Board (the “ESRB”), published the results of its 2018 EU-wide stress test of 48 European banks, including the Bank. This assessment was based on the participating banks’ consolidated balance sheets as of December 31, 2017. The stress test examined the resilience of banks against two separate scenarios – a baseline scenario and an adverse scenario during a three-year period beginning on December 31, 2017 and ending on December 31, 2020. Under both scenarios, the CET1 fully-loaded ratios, among other measures, of participating banks were analyzed over that period to understand bank sensitivities under prescribed stressed economic conditions. The baseline scenario was provided by the ECB and reflected macroeconomic forecasts prevailing as of December 31, 2017. The adverse scenario was prepared by the ESRB in collaboration with the ECB and the EBA and represented a severe economic downturn. As the stress test uses the Bank’s consolidated balance sheet as of December 31, 2017, it does not take into account subsequent business strategies and management actions, including the sale of the Bank’s 68.2% stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) to The Bank of Nova Scotia group (“Scotiabank”) on July 6, 2018 or the Cerberus Transaction (as defined herein). The stress test is not a forecast of the Bank’s profits and does not include a defined pass/fail threshold. Instead, it was utilized by the SREP carried out by the ECB in 2018. Under the stress test, the Bank’s starting CET1 fully-loaded ratio as of December 31, 2017 was restated from 11.04% to 10.73% as a result of the implementation of IFRS 9. Under the baseline scenario, the Bank’s CET1 fully-loaded ratio increases 1.99 basis points to 12.72% as of December 31, 2020, and under the adverse scenario the Bank’s CET1 fully-loaded ratio decreases 1.93 basis points to 8.80% as of December 31, 2020.

At its meeting of January 12, 2014, the oversight body of the Basel Committee on Banking Supervision (“BCBS”) endorsed the definition of the leverage ratio set forth in CRD IV, to promote consistent disclosure, which applied from January 1, 2015. As of the date of this Annual Report, there is no applicable regulation in Spain which establishes a specific leverage ratio requirement for credit institutions. However, the EU Banking Reforms propose a binding leverage ratio requirement of 3% of Tier 1 capital that is added to an institution’s own funds requirements and that an institution must meet in addition to its risk based requirements. In particular, any breach of this leverage ratio could also result in a requirement to determine the MDA and restrict discretionary payments to such MDA, as well as trigger the restrictions referred to above while such calculation is pending.

In addition, on December 7, 2017 the BCBS announced the finalized Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the risk sensitivity in such weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such ratings-based approaches and provide for greater comparability across banks where such internal ratings-based approaches are used. Revised capital floor requirements will also limit the regulatory capital benefit for banks in calculating total risk-weighted assets using internal risk models as compared to the standardized approach, with a minimum capital requirement of 50% of risk-weighted assets calculated using only the standardized approaches applying from January 1, 2022 and increasing to 72.5% from January 1, 2027. To the extent these reforms result in an increase in the total risk-weighted assets of the Bank they could also result in a corresponding decrease in the Bank’s capital ratio.

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The ECB has announced that it is conducting a targeted review of the internal models (“TRIM”) being used by banks subject to its supervision for their internal ratings-based approaches in applying risk weightings to assets. TRIM is being undertaken to assess the extent to which such internal models are considered to be in line with regulatory requirements, and the results of those internal models are reliable and comparable, in order to harmonize the approaches to internal models used by banks across the European Union. During 2016, the ECB launched preliminary questionnaires and data requests, and on-site investigations were conducted in 2017 and the first half of 2018. This first phase of TRIM involved a review of the models used to assess the credit risk for retail and small and medium-sized enterprise portfolios, as well as market risk and counterparty credit risk. Phase two, focusing on the models used to assess the credit risk for so-called low-default portfolios, started in the second half of 2018 and is expected to continue throughout 2019. Though the outcome of TRIM is at this stage unknown, the objective of the ECB in undertaking TRIM is to reduce unwarranted variability in risk-weighted assets across banks, not to increase risk-weighted assets in general. Nevertheless, TRIM could lead to increases or decreases in the capital needs of banks. To the extent TRIM results in any changes being required to the internal models used by banks and such changes result in an increase in the Bank’s risk-weighted assets, this could have a corresponding impact on the Bank’s capital position.

The implementation of Basel reforms differs across jurisdictions in terms of timing and applicable rules. This lack of uniformity among implemented rules may lead to an uneven playing field and to competition distortions. Moreover, the lack of regulatory coordination, with some countries bringing forward the application of Basel requirements or increasing such requirements, could adversely affect a bank with global operations such as the Bank and could affect its profitability.

There can be no assurance that the implementation of the above capital requirements will not adversely affect the Bank’s ability to make “discretionary payments”, or result in the cancellation of such payments (in whole or in part), or require the Bank to issue additional securities that qualify as regulatory capital, to liquidate assets, to curtail business or to take any other actions, any of which may have adverse effects on the Bank’s business, financial condition and results of operations. Furthermore, increased capital requirements may negatively affect the Bank’s return on equity and other financial performance indicators.

##### Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue

The BRRD (which has been implemented in Spain through Law 11/2015 and RD 1012/2015) and the SRM Regulation are designed to provide authorities with a credible set of tools to intervene sufficiently early and quickly in unsound or failing credit institutions or investment firms (each, an “institution”) so as to ensure the continuity of the institution’s critical financial and economic functions, while minimizing the impact of an institution’s failure on the economy and financial system. The BRRD further provides that any extraordinary public financial support through additional financial stabilization tools is only to be used by a Member State as a last resort, after having assessed and utilized the resolution tools set out below to the maximum extent possible while maintaining financial stability.

In accordance with Article 20 of Law 11/2015, an institution will be considered as failing or likely to fail in any of the following circumstances: (i) it is, or is likely in the near future to be, in significant breach of its solvency or any other requirements necessary for maintaining its authorization; (ii) its assets are, or are likely in the near future to be, less than its liabilities; (iii) it is, or is likely in the near future to be, unable to pay its debts as they fall due; or (iv) it requires extraordinary public financial support (except in limited circumstances). The determination that an institution is failing or likely to fail may depend on a number of factors which may be outside of that institution’s control.

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As provided in the BRRD, Law 11/2015 contains four resolution tools and powers which may be used alone or in combination where a Relevant Spanish Resolution Authority (as defined below) considers that (i) an institution is failing or likely to fail; (ii) there is no reasonable prospect that any other measure would prevent the failure of such institution within a reasonable timeframe; and (iii) a resolution action, instead of the winding up of the institution under normal insolvency proceedings, is in the public interest. The four resolution tools are (i) sale of business, which enables resolution authorities to direct the sale of the institution or the whole or part of its business on commercial terms; (ii) bridge institution, which enables resolution authorities to transfer all or part of the business of the institution to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control), which may limit the capacity of the institution to meet its repayment obligations; (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Spanish Bail-in Power (as defined below). Any exercise of the Spanish Bail-in Power by the Relevant Spanish Resolution Authority may include the write down and/or conversion into equity or other securities or obligations (which equity, securities and obligations could also be subject to any future application of the Spanish Bail-in Power) of certain unsecured debt claims of an institution.

“Relevant Spanish Resolution Authority” means the Spanish Fund for the Orderly Restructuring of Banks (Fondo de Restructuración Ordenada Bancaria) (“FROB”), the European Single Resolution Mechanism (“SRM”) and, as the case may be, according to Law 11/2015, the Bank of Spain and the CNMV (as defined herein), and any other entity with the authority to exercise the Spanish Bail-in Power from time to time. “Spanish Bail-in Power” means any write-down, conversion, transfer, modification, or suspension power existing from time to time under: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the transposition or development of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015; and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into shares, other securities, or other obligations of such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations may be deemed to have been exercised.

In accordance with Article 48 of Law 11/2015 (and subject to any exclusions that may be applied by the Relevant Spanish Resolution Authority under Article 43 of Law 11/2015), in the case of any application of the Spanish Bail-in Power, the sequence of any resulting write-down or conversion by the Relevant Spanish Resolution Authority shall be in the following order: (i) CET1 items; (ii) the principal amount of Additional Tier 1 instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims that are not Additional Tier 1 capital or Tier 2 capital; and (v) the principal or outstanding amount of the remaining eligible liabilities in the order of the hierarchy of claims in normal insolvency proceedings.

In addition to the Spanish Bail-in Power, the BRRD, Law 11/2015 and the SRM Regulation provide for resolution authorities to have the further power to permanently write-down or convert into equity capital instruments at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Spanish Bail-in Power, the “Spanish Statutory Loss-Absorption Powers”) of an institution or a group. The point of non-viability of an institution is the point at which the Relevant Spanish Resolution Authority determines that the institution meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or converted into equity or extraordinary public support is to be provided and without such support the Relevant Spanish Resolution Authority determines that the institution would no longer be viable. The point of non-viability of a group is the point at which the group infringes or there are objective elements to support a determination that the group, in the near future, will infringe its consolidated solvency requirements in a way that would justify action by the Relevant Spanish Resolution Authority in accordance with article 38.3 of Law 11/2015. Non-Viability Loss Absorption may be imposed prior to or in combination with any exercise of the Spanish Bail-in Power or any other resolution tool or power (where the conditions for resolution referred to above are met).

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To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Spanish Statutory Loss-Absorption Powers (except, as indicated below, with respect to a Non-Viability Loss Absorption) is less favorable than would have been the case under such hierarchy in normal insolvency proceedings, a holder of such affected securities would have a right to compensation under the BRRD and the SRM Regulation based on an independent valuation of the institution, in accordance with Article 10 of RD 1012/2015 and the SRM Regulation. Any such compensation, however, together with any other compensation provided by any Applicable Banking Regulations (including, among such other compensation, in accordance with article 36.5 of Law 11/2015) is unlikely to compensate that holder for the losses it has actually incurred and there is likely to be a considerable delay in the recovery of such compensation. “Applicable Banking Regulations” means at any time the laws, regulations, requirements, guidelines and policies relating to capital adequacy, resolution and/or solvency then applicable to the Bank and/or the Group including, without limitation to the generality of the foregoing, CRD IV, the BRRD and those laws, regulations, requirements, guidelines and policies relating to capital adequacy, resolution and/or solvency then in effect in Spain (whether or not such regulations, requirements, guidelines or policies have the force of law and whether or not they are applied generally or specifically to the Bank and/or the Group). Compensation payments (if any) are also likely to be made considerably later than when amounts may otherwise have been due under the affected securities. In addition, in the case of a Non-Viability Loss Absorption it is not clear that a holder of the affected securities would have a right to compensation under the BRRD and the SRM Regulation if any resulting treatment of such holder pursuant to the exercise of the Non-Viability Loss Absorption was less favorable than would have been the case under such hierarchy in normal insolvency proceedings.

The powers set out in the BRRD, as implemented through Law 11/2015 and RD 1012/2015, and the SRM Regulation impact how credit institutions and investment firms are managed, as well as, in certain circumstances, the rights of creditors. Pursuant to Law 11/2015, upon any application of the Spanish Bail-in Power and/or Non-Viability Loss Absorption, holders of, among others, unsecured debt securities, subordinated obligations and shares issued by us may be subject to, among other things, a write-down (including to zero) and/or conversion into equity or other securities or obligations on any application of the Spanish Bail-in Power. The exercise of any such powers (or any of the other resolution powers and tools) may result in such holders of such securities losing some or all of their investment or otherwise having their rights under such securities adversely affected, including by becoming holders of further subordinated instruments. Such exercise could also involve modifications to, or the disapplication of, provisions in the terms and conditions of certain securities including alteration of the principal amount or any interest payable on debt instruments, the maturity date or any other dates on which payments may be due, as well as the suspension of payments for a certain period. As a result, the exercise of the Spanish Bail-in Power and/or Non-Viability Loss Absorption with respect to such securities or the taking by an authority of any other action, or any suggestion that the exercise or taking of any such action may happen, could materially adversely affect the rights of holders of such securities, the market price or value or trading behavior of our securities and/or the ability of the Bank to satisfy its obligations under any such securities.

The exercise of the Spanish Bail-in Power and/or Non-Viability Loss Absorption by the Relevant Spanish Resolution Authority is likely to be inherently unpredictable and may depend on a number of factors which may also be outside of the Bank’s control. In addition, as the Relevant Spanish Resolution Authority will retain an element of discretion, holders of such securities may not be able to refer to publicly available criteria in order to anticipate any potential exercise of any such Spanish Bail-in Power and/or Non-Viability Loss Absorption. Because of this inherent uncertainty, it will be difficult to predict when, if at all, the exercise of any such powers by the Relevant Spanish Resolution Authority may occur.

This uncertainty may adversely affect the value of the unsecured debt securities, subordinated obligations and shares issued by us. The price and trading behavior of such securities may be affected by the threat of a possible exercise of any power under Law 11/2015 and/or the SRM Regulation (including any early intervention measure before any resolution) or any suggestion of such exercise, even if the likelihood of such exercise is remote. Moreover, the Relevant Spanish Resolution Authority may exercise any such powers without providing any advance notice to the holders of affected securities.

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In addition, the EBA has published certain regulatory technical standards and implementing technical standards to be adopted by the European Commission and certain other guidelines. These standards and guidelines could be potentially relevant to determining when or how a Relevant Spanish Resolution Authority may exercise the Spanish Bail-in Power and impose a Non-Viability Loss Absorption. Included in this are guidelines on the treatment of shareholders in bail-in or the write-down and conversion of capital instruments, and on the rate of conversion of debt to equity or other securities or obligations in any bail-in. No assurance can be given that these standards and guidelines will not be detrimental to the rights under, and the value of, unsecured debt securities, subordinated obligations and shares issued by us.

##### Any failure by the Bank and/or the Group to comply with its MREL could have a material adverse effect on the Bank’s business, financial condition and results of operations

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in relation to total liabilities known as the minimum requirement for own funds and eligible liabilities (“MREL”). According to Commission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (the “MREL Delegated Regulation”), the level of own funds and eligible liabilities required under MREL will be set by the resolution authority for each bank (and/or group) based on, among other things, the criteria set forth in Article 45.6 of the BRRD, including the systemic importance of the institution. Eligible liabilities may be senior or subordinated, provided that, among other requirements, they have a remaining maturity of at least one year and, if governed by a non-EU law, they must be able to be written down or converted by the resolution authority of a Member State under that law or through contractual provisions.

MREL came into force on January 1, 2016. However, the EBA has recognized the impact which this requirement may have on banks’ funding structures and costs, and the MREL Delegated Regulation states that the resolution authorities shall determine an appropriate transitional period but that this shall be as short as possible.

In addition, as a result of the EU Banking Reforms, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters (Real Decreto-ley 11/2017, de 23 de junio, de medidas urgentes en materia financiera) introduced into Spanish law the new class of “non-preferred” senior debt.

On November 9, 2015, the FSB published its final Total Loss-Absorbing Capacity (“TLAC”) Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of risk-weighted assets as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022. The Bank is no longer classified as a G-SIB by the FSB with effect from January 1, 2017. However, if the Bank were to be so classified in the future or if TLAC requirements as set out below are adopted and implemented in Spain and extended to non-G-SIBs through the imposition of requirements similar to MREL as set out below, then this could create additional minimum requirements for the Bank.

Following the publication of the Single Resolution Board’s (“SRB”) initial policy statement on MREL in November 2018, the SRB published on January 16, 2019 its policy statement on MREL applicable to the second wave of resolution plans (which are those applicable to the most complex banking groups, including BBVA). This policy is based on the current regulatory framework but is also perceived to be preparing the ground for the implementation of the EU Banking Reforms.

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In addition, the EU Banking Reforms establish some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how those regulations and exemptions are to be interpreted and applied. This uncertainty may impact upon the ability of BBVA to comply with its MREL (at both individual and consolidated levels (together, “MRELs”)) by the relevant deadline. In this regard, the EBA submitted on December 14, 2016 its final report on the implementation and design of the MREL framework (the “EBA MREL Report”), which contains a number of recommendations to amend the current MREL framework. Additionally, the EU Banking Reforms contain the legislative proposal of the European Commission for the amendment of the MREL framework and the implementation of the TLAC standards. The EU Banking Reforms propose the amendment of a number of aspects of the MREL framework to align it with the TLAC standards included in the TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the EU Banking Reforms also propose a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities in excess of the requisite levels for certain purposes.

Neither the BRRD nor the MREL Delegated Regulation provides details on the implications of a failure by an institution to comply with its MREL requirement. However, the EU Banking Reforms propose that this be addressed by the relevant authorities on the basis of their powers to address or remove impediments to resolution, the exercise of their supervisory powers under the CRD IV Directive, early intervention measures, and administrative penalties and other administrative measures.

Furthermore, in accordance with the EBA MREL Report, the EBA recommends that resolution authorities and competent authorities should engage in active monitoring of compliance with their respective requirements and considers that (i) the powers of resolution authorities to respond to a breach of MREL should be enhanced (which would require resolution authorities to be given the power to require the preparation and execution of an MREL restoration plan, to use their powers to address impediments to resolvability, to request that distribution restrictions be imposed on an institution by a competent authority and to request a joint restoration plan in cases where an institution breaches both MREL and minimum capital requirements); (ii) resolution authorities should assume a lead role in responding to a failure to issue or roll over MREL-eligible debt leading to a breach of MREL; and (iii) if there are both losses and a failure to roll over or issue MREL-eligible debt, both the relevant resolution authority and relevant competent authority should attempt to agree on a joint restoration plan (provided that both authorities believe that the institution is not failing or likely to fail). In addition, under the EBA Guidelines on triggers for use of early intervention measures of May 8, 2015 a significant deterioration in the amount of eligible liabilities and own funds held by an institution for the purposes of meeting its MRELs may put an institution in a situation where conditions for early intervention are met, which may result in the application by the competent authority of early intervention measures.

Further, as outlined in the EBA MREL Report, the EBA’s recommendation is that an institution will not be able to use the same CET 1 capital to meet both MREL and the combined buffer requirements. In addition, the EU Banking Reforms provide that, in the case of the own funds of an institution that may otherwise contribute to the combined buffer requirement where there is any shortfall in MREL, this will be considered as a failure to meet the combined buffer requirement such that those own funds will automatically be used instead to meet that institution’s MRELs and will no longer count towards its combined buffer requirement. Accordingly, this could trigger a limit on discretionary payments (see “—Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations”).

Additionally, if the FROB, the SRM or a Relevant Spanish Resolution Authority finds that there could exist any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

Moreover, with respect to the EU Banking Reforms, there are uncertainties concerning how the subsidiaries of the Group would be treated in determining the resolution group of the Bank and the applicable MRELs, which may lead to a situation where the consolidated MREL of the Bank would not fully reflect its multiple-point-of-entry resolution strategy.

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On May 23, 2018, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.08% of the total liabilities and own funds of the Bank’s resolution group at a sub-consolidated level as of December 31, 2016, which corresponds to 28.04% of the risk-weighted assets of the Bank’s resolution group as of December 31, 2016, and must be met by January 1, 2020. Pursuant to the Group’s multiple-point-of-entry resolution strategy as established by the SRB, the Bank’s resolution group consists of the Bank and its subsidiaries which belong to the same European resolution group. As of December 31, 2016, the total liabilities and own funds of the Bank’s resolution group amounted to €385,647 million, of which the total liabilities and own funds of the Bank comprised approximately 95%, and the risk-weighted assets of the Bank’s resolution group amounted to €207,362 million.

According to our own estimates, we believe that the current own funds and eligible liabilities structure of the Bank’s resolution group is in line with the above MREL. However, the Bank’s MREL is subject to change and no assurance can be given that the Bank may not be subject to a higher MREL at any time in the future.

The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement shall be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the higher of 13.5% of the bank’s risk weighted assets (“RWAs”) and 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Any failure or perceived failure by the Bank and/or the Group to comply with its MREL (including the subordination requirement) may have a material adverse effect on the Bank’s business, financial conditions and results of operations and could result in the imposition of restrictions or prohibitions on discretionary payments by the Bank, including the payment of dividends and interest or distributions on Additional Tier 1 instruments. There can also be no assurance as to the relationship between the “Pillar 2” additional own funds requirements, the “combined buffer requirement”, the MRELs once implemented in Spain and the restrictions or prohibitions on discretionary payments.

##### Increased taxation and other burdens imposed on the financial sector may have a material adverse effect on the Bank’s business, financial condition and results of operations

On February 14, 2013, the European Commission published a proposal (the “Commission’s Proposal”) for a Directive for a common financial transaction tax (“FTT”) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since stated that it will not participate.

The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in securities issued by the Group or other issuers (including secondary market transactions) in certain circumstances.

Under the Commission’s Proposal, the FTT could apply in certain circumstances to persons both within and outside the participating Member States. Generally, it would apply to certain dealings in securities where at least one party is a financial institution and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (i) by transacting with a person established in a participating Member State or (ii) where the financial instrument which is subject to the dealings is issued in a participating Member State.

However, the FTT proposal remains subject to negotiation among the participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate and participating Member States may decide not to participate.

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While the final outcome of the Commission’s Proposal continues to be uncertain, the Spanish council of ministers approved during a meeting held on January 18, 2019 the Bill on the Financial Transaction Tax (the “Spanish FTT Bill”), which is based in part on the Commission’s Proposal. The Spanish FTT Bill introduces a new indirect tax, amounting to 0.2%, to be charged on acquisitions of shares in Spanish companies, regardless of the tax residence of the participants in such transactions, provided that such companies are listed and their respective market capitalization is above €1,000 million. If the Spanish FTT Bill becomes law and subsequently the FTT is approved under a Directive, the Spanish FTT Law should be adapted to the Directive’s content.

Moreover, Law 18/2014, of October 15, introduced a 0.03% tax on bank deposits in Spain. This tax is payable annually by Spanish banks.

There can be no assurance that additional national or transnational bank levies or financial transaction taxes will not be adopted by the authorities of the jurisdictions where the Bank operates.

Any levies, taxes or funding requirements imposed on the Bank pursuant to the foregoing or otherwise in any of the jurisdictions where it operates could have a material adverse effect on the Bank′s business, financial condition and results of operations.

##### Contributions for assisting in the future recovery and resolution of the Spanish banking sector may have a material adverse effect on the Bank’s business, financial condition and results of operations

Law 11/2015 and RD 1012/2015 require Spanish credit institutions, including BBVA, to make at least an annual ordinary contribution to the National Resolution Fund (Fondo de Resolución Nacional), payable on request of the FROB. The total amount of contributions to be made to the National Resolution Fund by all Spanish banking entities must equal at least 1% of the aggregate amount of all deposits guaranteed by the Deposit Guarantee Fund (Fondo de Garantía de Depósitos de Entidades de Crédito) by December 31, 2024. The contribution will be adjusted to the risk profile of each institution in accordance with the criteria set out in Council Implementing Regulation (EU) 2015/81 of December 19, 2014 and RD 1012/2015. The FROB may, in addition, collect extraordinary contributions.

Furthermore, Law 11/2015 also provides for an additional charge (tasa) which shall be used to further fund the activities of the FROB, in its capacity as a resolution authority, which charge shall equal 2.5% of the above annual ordinary contribution to be made to the National Resolution Fund.

Moreover, Commission Delegated Regulation (EU) 2017/2361 of September 14, 2017 establishes the system of contributions to the administrative expenditures of the Single Resolution Board, to be paid by credit institutions in the EU. In addition, since 2016, the Bank has been required to make contributions directly to the EU Single Resolution Fund, once the National Resolution Fund has been integrated into it. See “—Regulatory developments related to the EU fiscal and banking union may have a material adverse effect on the Bank’s business, financial condition and results of operations”.

Any levies, taxes or funding requirements imposed on the Bank pursuant to the foregoing or otherwise in any of the jurisdictions where it operates could have a material adverse effect on the Bank’s business, financial condition and results of operations.

##### Regulatory developments related to the EU fiscal and banking union may have a material adverse effect on the Bank’s business, financial condition and results of operations

The project of achieving a European banking union was launched in the summer of 2012. Its main goal is to resume progress towards the European single market for financial services by restoring confidence in the European banking sector and ensuring the proper functioning of monetary policy in the Eurozone.

Banking union is expected to be achieved through new harmonized banking rules (the single rulebook) and a new institutional framework with stronger systems for both banking supervision and resolution that will be managed at the European level. Its two main pillars are the SSM and the SRM.

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The SSM is intended to assist in making the banking sector more transparent, unified and safer. In accordance with the SSM Framework Regulation, the ECB fully assumed its new supervisory responsibilities within the SSM, in particular the direct supervision of the largest European banks (including the Bank), on November 4, 2014.

The SSM represents a significant change in the approach to bank supervision at a European and global level, even if it is not expected to result in any radical change in bank supervisory practices in the short term. The SSM has resulted in the direct supervision by the ECB of the largest financial institutions, including the Bank, and indirect supervision of around 3,500 financial institutions. In the coming years, the SSM is expected to work to establish a new supervisory culture importing best practices from the 19 supervisory authorities that form part of the SSM. Several steps have already been taken in this regard, such as (i) the publication of the Supervisory Guidelines, (ii) the approval of the SSM Framework Regulation, (iii) the approval of Regulation (EU) 2016/445 of the ECB of March 14, 2016 on the exercise of options and discretions available in European Union law, and (iv) a set of guidelines on the application of CRR’s national options and discretions. In addition, the SSM represents an extra cost for the financial institutions that fund it through payment of supervisory fees.

The other main pillar of the EU banking union is the SRM, the main purpose of which is to ensure a prompt and coherent resolution of failing banks in Europe at minimum cost. The SRM Regulation establishes uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of the SRM and a Single Resolution Fund. The new SRB started operating on January 1, 2015 and fully assumed its resolution powers on January 1, 2016. The Single Resolution Fund has also been in place since January 1, 2016, funded by contributions from European banks in accordance with the methodology approved by the Council of the European Union. The Single Resolution Fund is intended to reach a total amount of €55 billion by 2024 and to be used as a separate backstop only after an 8% bail-in of a bank’s total liabilities including own funds has been applied to cover capital shortfalls (in line with the BRRD).

By allowing for the consistent application of EU banking rules through the SSM, the banking union is expected to help resume momentum toward economic and monetary union. In order to complete such union, a single deposit guarantee scheme is still needed, which may require a change to the existing European treaties. This is the subject of continued negotiation by European leaders to ensure further progress is made in European fiscal, economic and political integration.

Regulations adopted towards achieving banking and/or fiscal union in the EU and decisions adopted by the ECB in its capacity as the Bank’s main supervisory authority may have a material effect on the Bank’s business, financial condition and results of operations. In addition, on January 29, 2014, the European Commission released its proposal on the structural reforms of the European banking sector, which will impose new constraints on the structure of European banks. The proposal is aimed at ensuring the harmonization between the divergent national initiatives in Europe. It includes a prohibition on proprietary trading similar to that contained in Section 619 of the Dodd-Frank Act (also known as the Volcker Rule) and a mechanism to potentially require the separation of trading activities (including market-making), such as in the Financial Services (Banking Reform) Act 2013, complex securitizations and risky derivatives.

There can be no assurance that regulatory developments related to the EU fiscal and banking union, and initiatives undertaken at the EU level, will not have a material adverse effect on the Bank’s business, financial condition and results of operations.

#####

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##### The Group’s anti-money laundering and anti-terrorism programs may be circumvented or otherwise not be sufficient to prevent all money laundering or terrorism financing

Group companies are subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and pose significant technical problems. Although the Group believes that its current anti-money laundering program (which includes, among other elements, policies, procedures, technical infrastructure, independent reviews and training activities) is sufficient to comply with applicable rules and regulations, it cannot guarantee that its anti-money laundering and anti-terrorism financing programs will not be circumvented or otherwise be sufficient to prevent all money laundering or terrorism financing. Any of such events may have severe consequences, including sanctions, fines and, notably, reputational consequences, which could have a material adverse effect on the Group’s financial condition and results of operations. Further, the Group engages in investigations relating to alleged or suspected violations of anti-money laundering or anti-terrorism rules and regulations from time to time and any such investigations or any related proceedings could be time-consuming and costly.

##### The Group is exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs

The Group is required to comply with the laws and regulations of various jurisdictions where it conducts operations. In particular, its operations are subject to various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 and the United Kingdom Bribery Act of 2010, and economic sanction programs, including those administered by the United Nations, the EU and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of the Group’s business, the Group may directly or indirectly, through third parties, deal with entities the employees of which are considered government officials. In addition, economic sanctions programs restrict the Group’s business dealings with certain sanctioned countries, individuals and entities.

Although the Group has adopted internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies, procedures, systems and other mitigating measures will be sufficient or that its employees, directors, officers, partners, agents and service providers will not take actions in violation of the Group’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which it or they may be ultimately held responsible. The Group engages in investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations from time to time and such investigations or any related proceedings could be time-consuming and costly and their outcomes difficult to predict. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on the Group, limits being placed on the Group’s activities, the Group’s authorizations and licenses being revoked, damage to the Group’s reputation and other consequences that could have a material adverse effect on the Group’s business, results of operations and financial condition.

##### Local regulation may have a material effect on the Bank’s business, financial condition, results of operations and cash flows

The Bank’s operations are subject to regulatory risks, including the effects of changes in laws, regulations, policies and interpretations, in the various jurisdictions outside Spain where it operates. Regulations in certain jurisdictions where the Bank operates differ in a number of material respects from equivalent regulations in Spain. For example, local regulations may require the Bank’s subsidiaries and affiliates to meet capital requirements that are different from those applicable to the Bank as a Spanish bank, they may prohibit certain activities permitted to be undertaken by the Bank in Spain or they may require certain approvals to be obtained in connection with such subsidiaries and affiliates’ activities. Changes in regulations may have a material effect on the Group’s business and operations, particularly changes affecting Mexico, the United States or Turkey, which are the Group’s most significant jurisdictions by assets other than Spain.

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Furthermore, the governments in certain regions where the Group operates have exercised, and continue to exercise, significant influence over the local economy. Governmental actions, including changes in laws or regulations or in the interpretation of existing laws or regulations, concerning the economy and state-owned enterprises, or otherwise affecting the Group’s activity, could have a significant effect on the private sector entities in general and on the Bank’s subsidiaries and affiliates in particular. In addition, the Group’s activities in emerging economies, such as Venezuela, are subject to a heightened risk of changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps, exchange controls, government restrictions on dividends and tax policies. Any of these risks could have a material adverse effect on the Group’s business, financial condition and results of operations.

##### The Group is party to a number of legal and regulatory actions and proceedings

BBVA and its subsidiaries are involved in a number of legal and regulatory actions and proceedings, including legal claims and proceedings, civil and criminal regulatory proceedings, governmental investigations and proceedings, tax proceedings and other proceedings, in jurisdictions around the world, the final outcome of which is unpredictable, including in the case of legal proceedings where claimants seek unspecified or undeterminable damages, or where the cases argue novel legal theories, involve a large number of parties or are at early stages of discovery or investigation.

Legal and regulatory actions and proceedings against financial institutions have been on the rise in Spain and other jurisdictions where the Group operates over the last decade, fueled in part by certain recent consumer-friendly rulings. In certain instances, these rulings were as a result of appeals made to national or supranational courts (such as the European Court of Justice). Legal and regulatory actions and proceedings faced by the Group include legal proceedings brought by clients before Spanish and European courts in relation to mortgage loan agreements in which claimants seek that certain provisions of such agreements be declared null and void (including provisions concerning fees and other expenses, early termination, the use of certain interest rate indexes and the use of “floor” clauses limiting the interest rates in mortgages loans). Legal and regulatory actions and proceedings faced by other financial institutions regarding these or other matters, especially if such actions or proceedings result in consumer-friendly rulings, could also adversely affect the Group. The Group is also involved in antitrust proceedings and investigations in certain countries which could, among other matters, give rise to sanctions or lead to lawsuits from clients or other persons. For example, in April 2017, the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica or the “COFECE”) launched an antitrust investigation relating to alleged monopolistic practices of certain financial institutions, including BBVA’s subsidiary BBVA Bancomer, in connection with transactions in Mexican government bonds. The Mexican Banking and Securities Exchange Commission (Comisión Nacional Bancaria y de Valores) also initiated a separate investigation regarding this matter, which resulted in certain fines being initially imposed, insignificant in amount, which BBVA Bancomer has challenged. In March 2018, BBVA Bancomer and certain other affiliates of the Group were named as defendants in a putative class action lawsuit filed in the United States District Court for the Southern District of New York, alleging that the defendant banks and their named subsidiaries engaged in collusion with respect to the purchase and sale of Mexican government bonds. The plaintiffs seek unspecified monetary relief.

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The outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations, is difficult to predict. However, in connection with such matters the Group may incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Group to any of the following outcomes: substantial monetary damages, settlements and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution in certain circumstances; regulatory restrictions on the Group’s business operations including the withdrawal of authorizations; changes in business practices; increased regulatory compliance requirements; the suspension of operations; public reprimands; the loss of significant assets or business; a negative effect on the Group’s reputation; loss of confidence by investors, counterparties, customers, clients, supervisors and other stakeholders; risk of credit rating agency downgrades; a potential negative impact on the availability and cost of funding and liquidity; and the dismissal or resignation of key individuals. There is also a risk that the outcome of any legal or regulatory actions or proceedings in which the Group is involved may give rise to changes in laws or regulations as part of a wider response by relevant lawmakers and regulators. A decision in any matter, either against the Group or another financial institution facing similar claims, could lead to further claims against the Group. In addition, responding to the demands of litigation may divert management’s time and attention and the Group’s financial resources. Moreover, where provisions have already been taken in connection with an action or proceeding, such provisions could prove to be inadequate.

As a result of the above, legal and regulatory actions and proceedings currently faced by the Group or to which it may become subject in the future or otherwise affected by, individually or in the aggregate, if resolved in whole or in part adversely to the Group, could have a material adverse effect on the Group’s business, financial condition and results of operations.

##### We may be affected by actions that are incompatible with our ethics and compliance standards, and by our failure to timely detect or remedy any such actions

Some of our management and/or employees and/or persons doing business with us may engage in activities that are incompatible with our ethics and compliance standards. Although we have adopted measures designed to identify, monitor and mitigate such actions, and remediate them when we become aware of them, we are subject to the risk that our management and/or employees and/or persons doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal or business advantage to our detriment.

Our business, including relationships with third parties, is guided by ethical principles. We have adopted a Code of Conduct, applicable to all companies and persons which form part of the Group, and a number of internal policies designed to guide our management and employees and reinforce our values and rules for ethical behavior and professional conduct. For further information on our Code of Conduct, see “Item 16B.Code of Ethics”. However, we are unable to ensure that all of our management and employees, more than 125,000 people, or persons doing business with us comply at all times with our ethical principles. Acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the Group’s reputation among existing and potential clients and other stakeholders. Negative public opinion could result from actual or alleged conduct by Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the use and protection of data and systems, and the satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.

As of the date of this Annual Report, we are conducting an investigation, led by PricewaterhouseCoopers through the Bank’s external legal counsel Garrigues, along with Uría Menéndez, regarding allegations of improper activity related to our relationship with Grupo Cenyt which may have violated our ethical standards and applicable governance or regulatory obligations. Governmental authorities are also investigating this matter. We are carrying out our investigation to protect the Group’s interests and in connection therewith are cooperating with governmental authorities and our supervisors. It is not possible at this time to predict the scope or duration of our investigation or any investigations by governmental authorities, or their likely outcomes.

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Any failure, whether real or perceived, to follow our ethical principles or to comply with applicable governance or regulatory obligations could harm our reputation, subject us to additional regulatory scrutiny, or otherwise adversely affect the Group’s business, financial condition and results of operations.

#### Liquidity and Financial Risks

##### The Bank has a continuous demand for liquidity to fund its business activities. The Bank may suffer during periods of market-wide or firm-specific liquidity constraints, and liquidity may not be available to it even if its underlying business remains strong

Liquidity and funding continue to remain a key area of focus for the Group and the industry as a whole. Like all major banks, the Group is dependent on confidence in the short- and long-term wholesale funding markets. Should the Group, due to exceptional circumstances or otherwise, be unable to continue to source sustainable funding, its ability to fund its financial obligations could be affected.

The Bank’s profitability or solvency could be adversely affected if access to liquidity and funding is constrained or made more expensive for a prolonged period of time. Under extreme and unforeseen circumstances, such as the closure of financial markets and uncertainty as to the ability of a significant number of firms to ensure they can meet their liabilities as they fall due, the Group’s ability to meet its financial obligations as they fall due or to fulfil its commitments to lend could be affected through limited access to liquidity (including government and central bank facilities). In such extreme circumstances, the Group may not be in a position to continue to operate without additional funding support, which it may be unable to access. These factors may have a material adverse effect on the Group’s solvency, including its ability to meet its regulatory minimum liquidity requirements. These risks can be exacerbated by operational factors such as an over-reliance on a particular source of funding or changes in credit ratings, as well as market-wide phenomena such as market dislocation, regulatory change or major disasters.

In addition, corporate and institutional counterparties may seek to reduce aggregate credit exposures to the Bank (or to all banks), which could increase the Group’s cost of funding and limit its access to liquidity. The funding structure employed by the Group may also prove to be inefficient, thus giving rise to a level of funding cost where the cumulative costs are not sustainable over the longer term. The funding needs of the Group may increase and such increases may be material to the Group’s business, financial condition and results of operations.

##### Withdrawals of deposits or other sources of liquidity may make it more difficult or costly for the Group to fund its business on favorable terms, cause the Group to take other actions or even lead to the exercise of any Spanish Bail-in Power

Historically, one of the Group’s principal sources of funds has been savings and demand deposits. Large-denomination time deposits may, under some circumstances, such as during periods of significant interest-rate-based competition for these types of deposits, be a less stable source of deposits than savings and demand deposits. The level of wholesale and retail deposits may also fluctuate due to other factors outside the Group’s control, such as a loss of confidence (including as a result of administrative initiatives, including the exercise of any Spanish Bail-in Power and/or confiscation and/or taxation of creditors’ funds) or competition from investment funds or other products. The introduction of a national tax on outstanding deposits could adversely affect the Group’s activities, especially in Spain.

Moreover, there can be no assurance that, in the event of a sudden or unexpected withdrawal of deposits or shortage of funds in the banking systems or money markets in which the Group operates, or where such withdrawal specifically affects the Group, the Group will be able to maintain its current levels of funding without incurring higher funding costs or having to liquidate certain of its assets. Furthermore, in such an event, the Bank could be subject to the adoption of an early intervention or, ultimately, resolution measure by a Relevant Spanish Resolution Authority pursuant to Law 11/2015 (including, among others but without limitation, the Spanish Bail-in Power and/or Non-Viability Loss Absorption). See “—Legal, Regulatory and Compliance Risks—Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue” below.

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In addition, if public sources of liquidity, such as the ECB extraordinary measures adopted in response to the financial crisis since 2008, are removed from the market, there can be no assurance that the Group will be able to maintain its current levels of funding without incurring higher funding costs or having to liquidate certain of its assets or taking additional deleverage measures, and could be subject to the adoption of any early intervention or, ultimately, resolution measures by resolution authorities pursuant to Law 11/2015 (including, among others but without limitation, the Spanish Bail-in Power and/or Non-Viability Loss Absorption).

##### Implementation of internationally accepted liquidity ratios might require changes in business practices that affect the profitability of the Bank’s business activities

The liquidity coverage ratio (“LCR”) is a quantitative liquidity standard developed by the BCBS to ensure that those banking organizations to which this standard applies have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. The final standard was announced in January 2013 by the BCBS. The LCR has been progressively implemented since 2015 in accordance with the CRR, with banks having had to fully comply (100%) with such ratio since January 1, 2018. As of December 31, 2018, the LCR of the Group was 127%.

The BCBS’s net stable funding ratio (“NSFR”) has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities such that banks maintain a stable funding profile in relation to their on- and off-balance sheet activities that reduces the likelihood that disruptions to a bank’s regular sources of funding will erode its liquidity position in a way that could increase the risk of its failure. The BCBS contemplated that the NSFR, including any revisions, was to be implemented by member countries as a minimum standard by January 1, 2018, with no phase-in. While the NSFR has not yet been introduced, the EU Banking Reforms propose the introduction of a harmonized binding requirement for the NSFR across the EU.

Various elements of the LCR and the NSFR, as they are implemented by national banking regulators and complied with by the Bank, may cause changes that affect the profitability of business activities and require changes to certain business practices, which could expose the Bank to additional costs (including increased compliance costs) or have a material adverse effect on the Bank’s business, financial condition or results of operations. These changes may also cause the Bank to invest significant management attention and resources to make any necessary changes.

##### The Group’s businesses are subject to inherent risks concerning borrower and counterparty credit quality which have affected and are expected to continue to affect the recoverability and value of assets on the Group’s balance sheet

The Group has exposures to many different products, counterparties and obligors and the credit quality of its exposures can have a significant effect on the Group’s earnings. Adverse changes in the credit quality of the Group’s borrowers and counterparties or collateral, or in their behavior or businesses, may reduce the value of the Group’s assets, and materially increase the Group’s write-downs and provisions for impairment losses. Credit risk can be affected by a range of factors, including an adverse economic environment, reduced consumer and/or government spending, global economic slowdown, changes in the rating of individual counterparties, the debt levels of individual contractual counterparties and the economic environment they operate in, increased unemployment, reduced asset values, increased personal or corporate insolvency levels, reduced corporate profits, changes (and the timing, quantum and pace of these changes) in interest rates, counterparty challenges to the interpretation or validity of contractual arrangements and any external factors of a legislative or regulatory nature. In recent years, the global economic crisis has driven cyclically high bad debt charges.

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Non-performing or low credit quality loans have in the past and can continue to negatively affect the Bank’s results of operations. The Bank cannot assure that it will be able to effectively control the level of the impaired loans in its total loan portfolio. At present, default rates are partly cushioned by low rates of interest which have improved customer affordability, but the risk remains of increased default rates as interest rates start to rise. The timing, quantum and pace of any rise are key risk factors. All new lending is dependent on the Group’s assessment of each customer’s ability to pay, and there is an inherent risk that the Group has incorrectly assessed the credit quality or willingness of borrowers to pay, possibly as a result of incomplete or inaccurate disclosure by those borrowers or as a result of the inherent uncertainty that is involved in the exercise of constructing models to estimate the true risk of lending to counterparties. The Group estimates and establishes reserves for credit risks and potential credit losses inherent in its credit exposure. This process, which is critical to the Group’s results and financial condition, requires difficult, subjective and complex judgments, including forecasts of how macro-economic conditions might impair the ability of borrowers to repay their loans. As is the case with any such assessments, there is always a risk that the Group will fail to adequately identify the relevant factors or that it will fail to estimate accurately the effect of these identified factors, which could have a material adverse effect on the Group’s business, financial condition or results of operations.

##### The Group’s business is particularly vulnerable to volatility in interest rates

The Group’s results of operations are substantially dependent upon the level of its net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond the Group’s control, including fiscal and monetary policies of governments and central banks, regulation of the financial sectors in the markets in which it operates, domestic and international economic and political conditions and other factors. Changes in market interest rates, including cases of negative reference rates, can affect the interest rates that the Group receives on its interest-earning assets differently to the rates that it pays for its interest-bearing liabilities. This may, in turn, result in a reduction of the net interest income the Group receives, which could have a material adverse effect on its results of operations.

In addition, the high proportion of loans referenced to variable interest rates makes debt service on such loans more vulnerable to changes in interest rates. In addition, a rise in interest rates could reduce the demand for credit and the Group’s ability to generate credit for its clients, as well as contribute to an increase in the credit default rate. As a result of these and the above factors, significant changes or volatility in interest rates could have a material adverse effect on the Group’s business, financial condition or results of operations.

##### The Group has a substantial amount of commitments with personnel considered wholly unfunded due to the absence of qualifying plan assets

The Group’s commitments with personnel which are considered to be wholly unfunded are recognized under the heading “Provisions—Provisions for Pensions and Similar Obligations” in its consolidated balance sheets included in the Consolidated Financial Statements. For more information, please see Note 25 to our Consolidated Financial Statements.

The Group faces liquidity risk in connection with its ability to make payments on its unfunded commitments with personnel, which it seeks to mitigate, with respect to post-employment benefits, by maintaining insurance contracts which were contracted with insurance companies owned by the Group. The insurance companies have recorded in their balance sheets specific assets (fixed interest deposit and bonds) assigned to the funding of these commitments. The insurance companies also manage derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. The Group seeks to mitigate liquidity risk with respect to early retirements and post-employment welfare benefits through oversight by the Assets and Liabilities Committee (“ALCO”) of the Group. The Group’s ALCO manages a specific asset portfolio to mitigate the liquidity risk resulting from the payments of these commitments. These assets are government and covered bonds which are issued at fixed interest rates with maturities matching the aforementioned commitments. The Group’s ALCO also manages derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. Should BBVA fail to adequately manage liquidity risk and interest rate risk either as described above or otherwise, it could have a material adverse effect on the Group’s business, financial condition and results of operations.

#####

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##### The Bank and certain of its subsidiaries are dependent on their credit ratings and any reduction of their credit ratings could materially and adversely affect the Group’s business, financial condition and results of operations

The Bank and certain of its subsidiaries are rated by various credit rating agencies. The credit ratings of the Bank and such subsidiaries are an assessment by rating agencies of their ability to pay their obligations when due. Any actual or anticipated decline in the Bank’s or such subsidiaries’ credit ratings to below investment grade or otherwise may increase the cost of and decrease the Group’s ability to finance itself in the capital markets, secured funding markets (by affecting its ability to replace downgraded assets with better-rated ones), or interbank markets, through wholesale deposits or otherwise, harm its reputation, require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, and make third parties less willing to transact business with the Group or otherwise materially adversely affect its business, financial condition and results of operations. Furthermore, any decline in the Bank’s or such subsidiaries’ credit ratings to below investment grade or otherwise could breach certain agreements or trigger additional obligations under such agreements, such as a requirement to post additional collateral, which could materially adversely affect the Group’s business, financial condition and results of operations. See “—Macroeconomic Risks—Any decline in the Kingdom of Spain’s sovereign credit ratings could adversely affect the Group’s business, financial condition and results of operations”.

##### Highly-indebted households and corporations could endanger the Group’s asset quality and future revenues

In recent years, households and businesses have reached a high level of indebtedness, particularly in Spain, which has created increased risk in the Spanish banking system. In addition, the high proportion of loans referenced to variable interest rates makes debt service on such loans more vulnerable to upward movements in interest rates and the profitability of the loans more vulnerable to interest rate decreases. Highly indebted households and businesses are less likely to be able to service debt obligations as a result of adverse economic events, which could have an adverse effect on the Group’s loan portfolio and, as a result, on its financial condition and results of operations. Moreover, the increase in households’ and businesses’ indebtedness also limits their ability to incur additional debt, reducing the number of new products that the Group may otherwise be able to sell to them and limiting the Group’s ability to attract new customers who satisfy its credit standards, which could have an adverse effect on the Group’s ability to achieve its growth plans.

##### The Group depends in part upon dividends and other funds from subsidiaries

Some of the Group’s operations are conducted through its financial services subsidiaries. As a result, the Bank’s ability to pay dividends, to the extent the Bank decides to do so, depends in part on the ability of the Group’s subsidiaries to generate earnings and to pay dividends to BBVA. Payment of dividends, distributions and advances by the Group’s subsidiaries is contingent upon their earnings and business considerations and is or may be limited by legal, regulatory and contractual restrictions. For instance, the repatriation of dividends from the Group’s Venezuelan and Argentinean subsidiaries have been subject to certain restrictions and there is no assurance that further restrictions will not be imposed. Additionally, the Bank’s right to receive any assets of any of the Group’s subsidiaries as an equity holder of such subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of subsidiaries’ creditors, including trade creditors. The Group also has to comply with increased capital requirements, which could result in the imposition of restrictions or prohibitions on discretionary payments including the payment of dividends and other distributions to the Bank by its subsidiaries (see “—Legal, Regulatory and Compliance Risks—Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations”).

##### Business and Industry Risks

##### The Group faces increasing competition in its business lines

The markets in which the Group operates are highly competitive and this trend will likely continue with new business models likely to be developed in coming years whose impact is unforeseeable. In addition, the trend towards consolidation in the banking industry has created larger and stronger banks with which the Group must now compete.

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The Group also faces competition from non-bank competitors, such as payment platforms, e-commerce businesses, department stores (for some credit products), automotive finance corporations, leasing companies, factoring companies, mutual funds, pension funds, insurance companies, and public debt.

In recent y ears, the financial services sector has experienced a significant transformation, closely linked to the development of the i nternet and mobile technologies. Part of that transformation involves the entrance of new players, such as non-bank digital providers that compete (and cooperate) between them and with banks in most of the areas of financial services as well as large digital players such as Amazon, Google, Facebook or Apple, who have also started to offer financial services (mainly, payments and credit) ancillary to their core business. However, as of the date of this Annual Report, there is an uneven playing field between banks and such non-bank players. For example, banking groups are subject to prudential regulations that have implications for most of their businesses, including those in which they compete with non-bank players that are only subject to activity-specific regulations or benefit from regulatory uncertainty. In addition, fintech activities are generally subject to additional rules on internal governance when they are carried out within a banking group. For instance, the CRD IV Directive limits the ratio between the variable and the fixed salary that financial institutions can pay to certain staff members identified as risk takers. This places banking groups such as the Group at a competitive disadvantage for attracting and retaining digital talent and for retaining the founders and management teams of acquired start-ups.

Existing loopholes in the regulatory framework are another source of uneven playing fields between banks and non-bank players. Some new services or business models are not yet covered under existing regulations. In these cases, asymmetries between players arise since regulated providers often face obstacles to engage in unregulated activities. For instance, the EBA has recommended to competent authorities that they prevent credit institutions, payment institutions and e-money institutions from buying, holding or selling virtual currencies.

The Group’s future success may depend, in part, on its ability to use technology to provide products and services that provide convenience to customers. Despite the technological capabilities the Group has been developing and its commitment to digitalization, as a result of the uneven playing field referred to above or for other reasons, the Group may not be able to effectively implement new technology-driven products and services or be successful in marketing or delivering these products and services to its customers, which would adversely affect the Group’s business, financial condition and results of operations.

In addition, companies offering new applications and financial-related services based on artificial intelligence are becoming more competitive. The often lower cost and higher processing speed of these new applications and services can be especially attractive to technologically-adept purchasers. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, machine learning and other advances outside of the Group’s control. If the Group is not able to successfully keep pace with these technological advances, its business may be adversely affected.

In addition, the project of achieving a European capital markets union was launched by the European Commission as a plan to mobilize capital in Europe, being one of its main objectives to provide businesses with a greater choice of funding at lower costs and to offer new opportunities for savers and investors. These objectives are expected to be achieved by developing a more diversified financial system complementing bank financing with deep and developed capital markets, which may adversely affect the Group’s business, financial condition and results of operations.

##### The Group faces risks related to its acquisitions and divestitures

The Group’s mergers and acquisitions activity involves divesting its interests in some businesses and strengthening other business areas through acquisitions. The Group may not complete these transactions in a timely manner, on a cost-effective basis or at all. Even though the Group reviews the companies it plans to acquire, it is generally not feasible for these reviews to be complete in all respects. As a result, the Group may assume unanticipated liabilities, or an acquisition may not perform as well as expected. In addition, transactions such as these are inherently risky because of the difficulties of integrating people, operations and technologies that may arise. There can be no assurance that any of the businesses the Group acquires can be successfully integrated or that they will perform well once integrated. Acquisitions may also lead to potential write-downs due to unforeseen business developments that may adversely affect the Group’s results of operations.

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The Group’s results of operations could also be negatively affected by acquisition or divestiture-related charges, amortization of expenses related to intangibles and charges for impairment of long-term assets. The Group may be subject to litigation in connection with, or as a result of, acquisitions or divestitures, including claims from terminated employees, customers or third parties, and the Group may be liable for future or existing litigation and claims related to the acquired business because either the Group is not indemnified for such claims or the indemnification is insufficient. Further, in the case of a divestiture, the Group may be required to indemnify the buyer in respect of certain matters, including claims against the divested entity or business. Any of the foregoing, could cause the Group to incur significant expenses and could materially adversely affect its business, financial condition and results of operations.

##### The Group’s ability to maintain its competitive position depends significantly on its international operations, which expose the Group to foreign exchange, political and other risks in the countries in which it operates, which could cause an adverse effect on its business, financial condition and results of operations

The Group operates commercial banks and insurance and other financial services companies in various countries and its overall success as a global business depends upon its ability to succeed in differing economic, social and political conditions. The Group is particularly sensitive to developments in Mexico, the United States, Turkey and Argentina, which represented 14.3%, 12.1%, 9.8% and 1.2% of the Group’s assets as at December 31, 2018, respectively.

The Group is confronted with different legal and regulatory requirements in many of the jurisdictions in which it operates. See “―Legal, Regulatory and Compliance Risks―Local regulation may have a material effect on the Bank’s business, financial condition, results of operations and cash flows”. These include, but are not limited to, different tax regimes and laws relating to the repatriation of funds or nationalization or expropriation of assets. The Group’s international operations may also expose it to risks and challenges which its local competitors may not be required to face, such as exchange rate risk, difficulty in managing a local entity from abroad, political risk which may be particular to foreign investors and limitations on the distribution of dividends. As of December 31, 2018, approximately 45.4% of the Group’s assets and approximately 44.6% of its liabilities were denominated in currencies other than euro.

The Group’s presence in locations such as the Latin American markets or Turkey requires it to respond to rapid changes in market conditions in these countries and exposes the Group to increased risks relating to emerging markets. See “—Macroeconomic Risks—The Group may be materially adversely affected by developments in the emerging markets where it operates”. There can be no assurance that the Group will succeed in developing and implementing policies and strategies that are effective in each country in which it operates or that any of the foregoing factors will not have a material adverse effect on its business, financial condition and results of operations.

#####

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##### Reporting and Other Financial and Operational Risks

##### Weaknesses or failures in the Group’s internal or outsourced processes, systems and security could materially adversely affect its business, financial condition and results of operations and could result in reputational damage

Operational risks, through inadequate or failed internal processes, systems (including financial reporting and risk monitoring processes) or security, or from people-related or external events, including the risk of fraud and other criminal acts carried out by Group employees or against Group companies, are present in the Group’s businesses. These businesses are dependent on processing and reporting accurately and efficiently a high volume of complex transactions across numerous and diverse products and services, in different currencies and subject to a number of different legal and regulatory regimes. Any weakness in these internal processes, systems or security could have an adverse effect on the Group’s results, the reporting of such results, and on the ability to deliver appropriate customer outcomes during the affected period. In addition, any breach in security of the Group’s systems could disrupt its business, result in the disclosure of confidential information and create significant financial and legal exposure for the Group. Although the Group devotes significant resources to maintain and regularly update its processes and systems that are designed to protect the security of its systems, software, networks and other technology assets, there is no assurance that all of its security measures will provide absolute security. Furthermore, the Group has outsourced certain functions (such as the storage of certain information) to third parties and, as a result, it is dependent on the adequacy of the internal processes, systems and security measures of such third parties. Any actual or perceived inadequacies, weaknesses or failures in the Group’s systems, processes or security or the systems, processes or security of such third parties could damage the Group’s reputation (including harming customer confidence) or could otherwise have a material adverse effect on its business, financial condition and results of operations.

##### The financial industry is increasingly dependent on information technology systems, which may fail, may not be adequate for the tasks at hand or may no longer be available

Banks and their activities are increasingly dependent on highly sophisticated information technology (“IT”) systems. IT systems are vulnerable to a number of problems, such as software or hardware malfunctions, computer viruses, hacking and physical damage to vital IT centers. IT systems need regular upgrading and banks, including the Bank, may not be able to implement necessary upgrades on a timely basis or upgrades may fail to function as planned.

Furthermore, the Group is under continuous threat of loss due to cyber-attacks, especially as it continues to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that it faces are e-fraud and breach of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customers’ or the Group’s accounts. A breach of sensitive customer data, such as account numbers, could present significant reputational impact and significant legal and/or regulatory costs to the Group.

Over the past few years, there have been a series of distributed denial of service attacks on financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Generally, these attacks have not been conducted to steal financial data, but meant to interrupt or suspend a company’s internet service. While these events may not result in a breach of client data and account information, the attacks can adversely affect the performance of a company’s website and in some instances have prevented customers from accessing a company’s website. Distributed denial of service attacks, hacking and identity theft risks could cause serious reputational harm. Cyber threats are rapidly evolving and the Group may not be able to anticipate or prevent all such attacks. The Group’s risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, its plans to continue to provide internet banking and mobile banking channels, and its plans to develop additional remote connectivity solutions to serve its customers. The Group may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.

Additionally, fraud risk may increase as the Group offers more products online or through mobile channels.

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In addition to costs that may be incurred as a result of any failure of its IT systems, the Group could face fines from bank regulators if it fails to comply with applicable banking or reporting regulations as a result of any such IT failure or otherwise.

Any of the above risks could have a material adverse effect on the Group’s business, financial condition and results of operations.

##### The Group faces security risks, including denial of service attacks, hacking, social engineering attacks targeting its partners and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect its business or reputation, and create significant legal and financial exposure

The Group’s computer systems and network infrastructure and those of third parties, on which it is highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. The Group’s business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in its computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access the Group’s network, products and services, its customers and other third parties may use personal mobile devices or computing devices that are outside of its network environment and are subject to their own cybersecurity risks.

The Group, its customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in the Group’s systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the Group, its employees, its customers or of third parties, damage its systems or otherwise materially disrupt the Group’s or its customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, the Group may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of the Group’s systems and implement controls, processes, policies and other protective measures, the Group may not be able to anticipate all security breaches, nor may it be able to implement guaranteed preventive measures against such security breaches and the measures implemented by the Group may not be sufficient. Cyber threats are rapidly evolving and the Group may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as the Group continues to increase its mobile-payment and other internet-based product offerings and expand its internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and “spear phishing” attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of the Group’s systems to disclose sensitive information in order to gain access to its data or that of its clients. Persistent attackers may succeed in penetrating the Group’s defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to the Group’s data may not be disclosed to it in a timely manner.

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The Group also faces indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom it does business or upon whom it relies to facilitate or enable its business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including the Group. This consolidation, interconnectivity and complexity increase the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect the Group’s ability to effect transactions, service its clients, manage its exposure to risk or expand its business.

Cyber-attacks or other information or security breaches, whether directed at the Group or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on its systems has been successful, whether or not this perception is correct, may damage the Group’s reputation with customers and third parties with whom it does business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause the Group serious negative consequences, including loss of customers and business opportunities, significant business disruption to its operations and business, misappropriation or destruction of its confidential information and/or that of its customers, or damage to the Group’s or its customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in the Group’s security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact its results of operations, liquidity and financial condition.

##### The Group could be the subject of misinformation

The Group may be the subject of intentional misinformation and misrepresentations deliberately propagated to harm the Group’s reputation or for other deceitful purposes. Such misinformation could also be propagated by profiteering short sellers seeking to gain an illegal market advantage by spreading false information concerning the Group. The Group cannot assure that it will effectively neutralize and contain any false information that may be propagated regarding the Group, which could have an adverse effect on the Group’s business, financial condition and results of operations.

##### BBVA’s financial statements and periodic disclosure under securities laws may not give you the same information as financial statements prepared under U.S. accounting rules and periodic disclosures provided by domestic U.S. issuers

Publicly available information about public companies in Spain is generally less detailed and not as frequently updated as the information that is regularly published by or about listed companies in the United States. In addition, although BBVA is subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of foreign private issuers such as BBVA under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Finally, BBVA maintains its financial accounts and records and prepares its financial statements in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017, which replaced the Bank of Spain’s Circular 4/2004 for financial statements relating to periods ended January 1, 2018 and thereafter, which differs in certain respects from U.S. GAAP, the financial reporting standard to which many investors in the United States may be more accustomed.

#####

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##### BBVA’s financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of its operations and financial position

The preparation of financial statements in compliance with IFRS-IASB requires the use of estimates. It also requires management to exercise judgment in applying relevant accounting policies. The key areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the consolidated and individual financial statements, include the classification, measurement and impairment of financial assets, the assumptions used to quantify certain provisions and for the actuarial calculation of post-employment benefit liabilities and commitments, the useful life and impairment losses of tangible and intangible assets, the valuation of goodwill and purchase price allocation of business combinations, the fair value of certain unlisted financial assets and liabilities, the recoverability of deferred tax assets and the exchange and inflation rates of Venezuela. There is a risk that if the judgment exercised or the estimates or assumptions used subsequently turn out to be incorrect then this could result in significant loss to the Group beyond that anticipated or provided for, which could have an adverse effect on the Group’s business, financial condition and results of operations.

Observable market prices are not available for many of the financial assets and liabilities that the Group holds at fair value and a variety of techniques to estimate the fair value are used. Should the valuation of such financial assets or liabilities become observable, for example as a result of sales or trading in comparable assets or liabilities by third parties, this could result in a materially different valuation to the current carrying value in the Group’s financial statements.

The further development of standards and interpretations under IFRS-IASB could also significantly affect the results of operations, financial condition and prospects of the Group. See “—Our financial results, regulatory capital and ratios may be negatively affected by changes to accounting standards”.

##### Our financial results, regulatory capital and ratios may be negatively affected by changes to accounting standards

We report our results and financial position in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017, which replaced the Bank of Spain’s Circular 4/2004 for financial statements relating to periods ended January 1, 2018 and thereafter. Changes to IFRS or interpretations thereof may cause our future reported results and financial position to differ from current expectations, or historical results to differ from those previously reported due to the adoption of accounting standards on a retrospective basis. Such changes may also affect our regulatory capital and ratios. We monitor potential accounting changes and, when possible, we determine their potential impact and disclose significant future changes in our financial statements that we expect as a result of those changes. Currently, there are a number of issued but not yet effective IFRS changes, as well as potential IFRS changes, some of which could be expected to impact our reported results, financial position and regulatory capital in the future. For further information about developments in financial accounting and reporting standards, see Note 2.3 to our Consolidated Financial Statements (“Recent IFRS pronouncements”).

# ITEM 4. INFORMATION ON THE COMPANY

## A. History and Development of the Company

BBVA’s predecessor bank, BBV (Banco Bilbao Vizcaya), was incorporated as a public limited company (a “sociedad anónima” or S.A.) under the Spanish Corporations Law on October 1, 1988. BBVA was formed following the merger of Argentaria into BBV (Banco Bilbao Vizcaya), which was approved by the shareholders of each entity on December 18, 1999 and registered on January 28, 2000. It conducts its business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, and operates out of Calle Azul, 4, 28050, Madrid, Spain (Telephone: +34-91-374-6201). BBVA’s agent in the U.S. for U.S. federal securities law purposes is Banco Bilbao Vizcaya Argentaria, S.A. New York Branch (1345 Avenue of the Americas, 44th Floor, New York, New York 10105 (Telephone: +1-212-728-1660)). BBVA is incorporated for an unlimited term.

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Capital Expenditures

Our principal investments are financial investments in our subsidiaries and affiliates. The main capital expenditures from 2016 to the date of this Annual Report were the following:

2018

In 2018 there were no significant capital expenditures.

2017

Acquisition of an additional 9.95% of Garanti

On March 22, 2017, we acquired 41,790,000,000 shares (in the aggregate) of Garanti (amounting to 9.95% of the total issued share capital of Garanti) from Doğuş Holding A.Ş. and Doğuş Araştırma Geliştirme ve Müşavirlik Hizmetleri A.Ş., under certain agreements entered into on February 21, 2017, at a purchase price of 7.95 Turkish liras per share (approximately 3,322 million Turkish liras or €859 million in the aggregate).

2016

In 2016 there were no significant capital expenditures.

Capital Divestitures

Our principal divestitures are financial divestitures in our subsidiaries and affiliates. The main capital divestitures from 2016 to the date of this Annual Report were the following:

2018

Sale of BBVA’s stake in BBVA Chile

On November 28, 2017, BBVA received a binding offer (the “Offer”) from The Bank of Nova Scotia (“Scotiaban k”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the Offer and entered into a sale and purchase agreement and the sale was completed on July 6, 2018.

The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

Agreement for the creation of a joint venture and transfer of the real estate business in Spain

On November 28, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprises: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs, as further explained below) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

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Although the BBVA Group has agreed to contribute all of the Business to Divarian the effective transfer of several REOs remains subject to the fulfilment of certain conditions precedent. The final price payable by Promontoria will be adjusted depending on the volume of REOs ultimately contributed to Divarian. For additional information see “Item 10. Additional Information—Material Contracts—Joint Venture Agreement with Cerberus”.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or Common Equity Tier 1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the referred sale amounted to €478 million.

Sale of non-performing and in default mortgage credits

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership, an entity managed by Canada Pension Plan Investment Board, for the transfer of a portfolio of credit rights which is mainly composed by non-performing and in default mortgage credits, with an aggregate outstanding balance amounting to approximately €1,490 million. Completion of the transaction is subject to fulfilment of certain conditions and is expected to take place during the second quarter of 2019.

2017

In 2017 there were no significant capital divestitures.

2016

In 2016 there were no significant capital divestitures.

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report on Form 20-F.

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## B. Business Overview

BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have investments in some of Spain’s leading companies.

The Group is committed to offering a compelling digital proposition and is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2018, the number of digital and mobile customers and the volume of digital sales continued to increase.

Operating Segments

Set forth below are the Group’s current seven operating segments:

• Banking Activity in Spain;

• Non-Core Real Estate;

• The United States;

• Mexico;

• Turkey;

• South America; and

• Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. As of December 31, 2018, BBVA’s 20% stake in Divarian was included in this unit.

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The breakdown of the Group’s total assets by operating segments as of December 31, 2018, 2017 and 2016 is as follows:

| As of December 31,
| 2018 | 2017(1) | 2016(2)
| (In Millions of Euros)
Banking Activity in Spain | 335,294 | 319,417 | 335,847
Non-Core Real Estate | 4,163 | 9,714 | 13,713
The United States | 82,057 | 75,775 | 88,902
Mexico | 96,455 | 94,061 | 93,318
Turkey | 66,250 | 78,694 | 84,866
South America | 52,385 | 74,636 | 77,918
Rest of Eurasia | 18,000 | 17,265 | 19,106
Subtotal Assets by Operating Segment | 654,605 | 669,562 | 713,670
Corporate Center and other adjustments | 22,084 | 20,497 | 18,186
Total Assets BBVA Group | 676,689 | 690,059 | 731,856

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), total assets of the United States and the Mexico operating segments would have been €84,726 million and €97,492 million, respectively, as of December 31, 2016.

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The following table sets forth information relating to the profit (loss) attributable to parent company by each of BBVA’s operating segments and Corporate Center for the years ended December 31, 2018, 2017 and 2016:

| Profit/(Loss) Attributable to Parent Company | % of Profit/(Loss) Attributable to Parent Company
| For the Year Ended December 31,
| 2018 | 2017(1) | 2016(2) | 2018 | 2017(1) | 2016(2)
| (In Millions of Euros) | (In Percentage)
Banking Activity in Spain | 1,522 | 1,374 | 905 | 26 | 26 | 21
Non-Core Real Estate | (78) | (490) | (595) | (1) | (9) | (14)
The United States | 735 | 486 | 459 | 13 | 9 | 11
Mexico | 2,384 | 2,187 | 1,980 | 41 | 41 | 46
Turkey | 569 | 826 | 599 | 10 | 15 | 14
South America | 591 | 861 | 771 | 10 | 16 | 18
Rest of Eurasia | 93 | 125 | 151 | 2 | 2 | 4
Subtotal operating segments | 5,818 | 5,368 | 4,269 | 100 | 100 | 100
Corporate Center | (494) | (1,848) | (794) |  |  |
Profit attributable to parent company | 5,324 | 3,519 | 3,475 |  |  |

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), profit attributable to parent company for the United States and the Mexico operating segments would have been €442 million and €1,997 million, respectively, for the year ended December 31, 2016.

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The following table sets forth information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2018, 2017 and 2016:

| Operating Segments |
| Banking Activity in Spain | Non-Core Real Estate | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center | BBVA Group
| (In Millions of Euros) |
2018 |  |  |  |  |  |  |  |  |
Net interest income | 3,672 | 32 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (276) | 17,591
Gross income | 5,943 | 38 | 2,989 | 7,193 | 3,901 | 3,701 | 415 | (432) | 23,747
Net margin before provisions(1) | 2,680 | (28) | 1,127 | 4,825 | 2,658 | 2,011 | 124 | (1,352) | 12,045
Operating profit/(loss) before tax(2) | 2,017 | (129) | 919 | 3,294 | 1,448 | 1,307 | 144 | (1,420) | 7,580
Profit attributable to parent company | 1,522 | (78) | 735 | 2,384 | 569 | 591 | 93 | (494) | 5,324
2017(3) |  |  |  |  |  |  |  |  |
Net interest income | 3,738 | 71 | 2,119 | 5,476 | 3,331 | 3,200 | 180 | (357) | 17,758
Gross income | 6,180 | (17) | 2,876 | 7,122 | 4,115 | 4,451 | 468 | 73 | 25,270
Net margin before provisions(1) | 2,790 | (116) | 1,025 | 4,671 | 2,612 | 2,444 | 160 | (815) | 12,770
Operating profit/(loss) before tax | 1,854 | (656) | 748 | 2,984 | 2,147 | 1,691 | 177 | (2,013) | 6,931
Profit attributable to parent company | 1,374 | (490) | 486 | 2,187 | 826 | 861 | 125 | (1,848) | 3,519
2016 |  |  |  |  |  |  |  |  |
Net interest income | 3,877 | 60 | 1,953 | 5,126 | 3,404 | 2,930 | 166 | (455) | 17,059
Gross income | 6,416 | (6) | 2,706 | 6,766 | 4,257 | 4,054 | 491 | (31) | 24,653
Net margin before provisions(1) | 2,837 | (130) | 863 | 4,371 | 2,519 | 2,160 | 149 | (907) | 11,862
Operating profit/(loss) before tax | 1,268 | (743) | 612 | 2,678 | 1,906 | 1,552 | 203 | (1,084) | 6,392
Profit attributable to parent company | 905 | (595) | 459 | 1,980 | 599 | 771 | 151 | (794) | 3,475
(1) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”. (2) The information relating to our Corporate Center segment has been presented under management criteria pursuant to which “Operating profit/(loss) before tax” excludes the capital gain from the sale of our stake in BBVA Chile. For additional information on this adjustment, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. (3) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

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The following tables set forth information relating to the balance sheet of the main operating segments as of December 31, 2018, 2017 and 2016:

| As of December 31, 2018
| Banking Activity in Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia
| (In Millions of Euros)
Total Assets | 335,294 | 82,057 | 96,455 | 66,250 | 52,385 | 18,000
Cash, cash balances at central banks and other demand deposits | 27,841 | 4,835 | 8,274 | 7,853 | 8,987 | 273
Financial assets designated at fair value (1) | 100,094 | 10,481 | 26,022 | 5,506 | 5,634 | 504
Financial assets at amortized cost | 193,936 | 63,539 | 57,709 | 50,315 | 36,649 | 16,930
Loans and advances to customers | 169,856 | 60,808 | 51,101 | 41,478 | 34,469 | 15,731
Of which: |  |  |  |  |  |
Residential mortgages | 74,639 | 10,990 | 9,197 | 3,530 | 6,629 | 1,821
Consumer finance | 11,748 | 9,187 | 12,145 | 9,145 | 9,431 | 420
Loans | 9,665 | 8,467 | 7,347 | 5,265 | 7,374 | 410
Credit cards | 2,083 | 720 | 4,798 | 3,880 | 2,058 | 10
Loans to enterprises | 45,367 | 32,862 | 20,493 | 27,657 | 16,975 | 12,818
Loans to public sector | 15,327 | 5,400 | 5,726 | 95 | 1,078 | 414
Total Liabilities | 332,656 | 78,812 | 92,998 | 57,966 | 45,933 | 17,696
Financial liabilities held for trading and designated at fair value through profit or loss | 66,255 | 234 | 18,028 | 1,852 | 1,357 | 42
Financial liabilities at amortized cost - Customer deposits | 180,891 | 63,891 | 50,530 | 39,905 | 35,842 | 4,876
Of which: |  |  |  |  |  |
Current and savings accounts | 142,199 | 41,206 | 38,147 | 12,530 | 23,025 | 3,544
Time deposits | 38,263 | 16,857 | 11,593 | 27,367 | 12,817 | 1,333
Total Equity | 2,638 | 3,245 | 3,457 | 8,284 | 6,452 | 304
Assets Under Management | 62,557 | - | 20,647 | 2,894 | 11,662 | 388
Mutual funds | 39,249 | - | 17,733 | 669 | 3,741 | -
Pension funds | 23,274 | - | - | 2,225 | 7,921 | 388
Other placements | 35 | - | 2,914 | - | - | -
(1) Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

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| As of December 31, 2017(1)
| Banking Activity in Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia
| (In Millions of Euros)
Total Assets | 319,417 | 75,775 | 94,061 | 78,694 | 74,636 | 17,265
Cash, cash balances at central banks and other demand deposits | 13,463 | 7,138 | 8,833 | 4,036 | 9,039 | 877
Financial assets designated at fair value (2) | 79,501 | 11,068 | 28,627 | 6,419 | 11,627 | 991
Financial assets at amortized cost | 221,391 | 54,705 | 47,691 | 65,083 | 51,207 | 15,009
Loans and advances to customers | 183,172 | 53,718 | 45,768 | 51,378 | 48,272 | 14,864
Of which: |  |  |  |  |  |
Residential mortgages | 77,419 | 11,048 | 8,081 | 5,147 | 11,681 | 2,118
Consumer finance | 9,804 | 6,841 | 10,820 | 11,185 | 10,883 | 305
Loans | 7,845 | 6,312 | 6,422 | 6,760 | 8,168 | 282
Credit cards | 1,959 | 529 | 4,397 | 4,425 | 2,715 | 23
Loans to enterprises | 46,561 | 28,841 | 17,838 | 34,371 | 23,567 | 11,599
Loans to public sector | 16,131 | 5,133 | 5,262 | 148 | 1,114 | 514
Total Liabilities | 309,731 | 72,532 | 90,667 | 70,253 | 69,885 | 16,330
Financial liabilities held for trading and designated at fair value through profit or loss | 36,817 | 139 | 9,405 | 648 | 2,823 | 45
Financial liabilities at amortized cost - Customer deposits | 177,763 | 60,806 | 49,964 | 44,691 | 45,666 | 6,700
Of which: |  |  |  |  |  |
Current and savings accounts | 126,737 | 38,486 | 34,855 | 14,240 | 26,200 | 4,278
Time deposits | 48,085 | 16,767 | 10,237 | 30,300 | 20,099 | 2,422
Total Equity | 9,686 | 3,243 | 3,394 | 8,441 | 4,751 | 935
Assets Under Management | 62,054 | - | 19,472 | 3,902 | 12,197 | 376
Mutual funds | 37,992 | - | 16,430 | 1,265 | 5,248 | -
Pension funds | 24,022 | - | - | 2,637 | 6,949 | 376
Other placements | 40 | - | 3,041 | - | - | -
(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”. (2) Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

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| As of December 31, 2016
| Banking Activity in Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia
| (In Millions of Euros)
Total Assets | 335,847 | 88,902 | 93,318 | 84,866 | 77,918 | 19,106
Loans and advances to customers | 187,201 | 62,000 | 47,938 | 57,941 | 50,333 | 15,835
Of which: |  |  |  |  |  |
Residential mortgages | 81,659 | 12,893 | 8,410 | 5,801 | 11,441 | 2,432
Consumer finance | 7,141 | 7,413 | 11,286 | 15,819 | 10,527 | 231
Loans | 5,374 | 6,838 | 6,630 | 10,734 | 7,781 | 217
Credit cards | 1,767 | 575 | 4,656 | 5,085 | 2,745 | 15
Loans to enterprises | 43,472 | 33,084 | 18,684 | 33,836 | 21,495 | 12,340
Loans to public sector | 18,268 | 4,594 | 3,862 | - | 685 | 57
Total Liabilities | 325,230 | 84,719 | 89,244 | 75,798 | 73,425 | 17,705
Financial liabilities at amortized cost - Customer deposits | 180,544 | 65,760 | 50,571 | 47,244 | 47,684 | 9,396
Of which: |  |  |  |  |  |
Current and savings accounts | 98,989 | 49,430 | 31,112 | 12,237 | 23,369 | 4,442
Time deposits | 70,696 | 13,765 | 7,048 | 35,231 | 20,509 | 4,773
Other customer funds | 5,124 | - | 5,324 | 21 | 4,456 | 107
Total Equity | 10,617 | 4,183 | 4,074 | 9,068 | 4,493 | 1,401
Assets Under Management | 56,147 | - | 19,111 | 3,753 | 11,902 | 366
Mutual funds | 32,648 | - | 16,331 | 1,192 | 4,859 | -
Pension funds | 23,448 | - | - | 2,561 | 7,043 | 366
Other placements | 51 | - | 2,780 | - | - | -

Banking Activity in Spain

The Banking Activity in Spain operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center and Non-Core Real Estate. The main business units included in this operating segment are:

· Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

· Corporate and Business Banking (CBB): which manages small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments;

· Corporate and Investment Banking (C&IB): responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

· Other units: which includes the insurance business unit in Spain (BBVA Seguros) and the Asset Management unit, which manages Spanish mutual funds and pension funds, and includes new loan production to real estate developers or loans to real estate developers that are no longer in difficulties, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

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Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2018 amounted to €100,094 million, a 25.9% increase from the €79,501 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Loans and receivables” (and shown as “Financial assets at amortized cost” as of December 31, 2017 in this Annual Report (see “Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets held for trading”. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €193,936 million, a 12.4% decrease compared with the €221,391 million recorded as of December 31, 2017. Within this heading, loans and advances to customers amounted to €169,856 million as of December 31, 2018, a 7.3% decrease from the €183,172 million recorded as of December 31, 2017, mainly as a result of the decrease in the mortgage portfolio, and to a lesser extent, the decrease in other commercial and public sector portfolios. These decreases were partially offset by the increase in consumer loans, credit card balances and loans to small enterprises and self-employed individuals, as well as by the transfer, in 2018, of outstanding performing loans to developers in an aggregate amount of €260 million from the Non-Core Real Estate segment to the Banking Activity in Spain segment. As of December 31, 2018, the proportion of loans to individuals over total loans in this operating segment was significantly higher than in other operating segments.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2018 amounted to €66,255 million, an 80.0% increase compared with the €36,817 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain deposits previously accounted at amortized cost to the held for trading portfolio (see Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments).

Customer deposits at amortized cost of this operating segment as of December 31, 2018 amounted to €180,891 million, a 1.8% increase compared with the €177,763 million recorded as of December 31, 2017, mainly a result of the 12.2% increase in demand deposits, partially offset by the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain deposits previously accounted at amortized cost to the held for trading portfolio (see Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments) and the decrease in time deposits.

Mutual funds of this operating segment as of December 31, 2018 amounted to €39,249 million, a 3.3% increase from the €37,992 million recorded as of December 31, 2017, mainly due to new net contributions.

Pension funds of this operating segment as of December 31, 2018 amounted to €23,274 million, a 3.1% decrease compared with the €24,022 million recorded as of December 31, 2017, mainly due to the unfavorable evolution of the markets.

This operating segment’s non-performing loan ratio decreased to 4.6% as of December 31, 2018, from 5.5% as of December 31, 2017, mainly due to a 16.0% decrease in the balance of non-performing loans in the period (€9,101 million as of December 2018 and €10,833 million as of December 31, 2017). This operating segment’s non-performing loan coverage ratio increased to 57% as of December 31, 2018, from 50% as of December 31, 2017.

Non-Core Real Estate

This operating segment was set up with the aim of providing specialized and structured management of the real estate assets accumulated by the Group as a result of the economic crisis in Spain. It primarily includes lending to real estate developers (except for those new loans to developers that are included in the Banking Activity in Spain segment) and foreclosed real estate assets originated from both residential mortgages and loans to developers.

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In recent years BBVA has taken several steps to reduce its exposure to real estate assets in Spain. As part of such efforts, BBVA entered into the Cerberus Transaction. As of December 31, 2018, BBVA maintained a 20% stake in Divarian, which was recorded in the Corporate Center. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership, an entity managed by Canada Pension Plan Investment Board, for the transfer of a portfolio of credit rights which is mainly composed by non-performing and in default mortgage credits, with an aggregate outstanding balance amounting to approximately €1,490 million. Completion of the transaction is subject to fulfilment of certain conditions and is expected to take place during the second quarter of 2019. For additional information on these sales, see “—History and Development of the Company—Capital Divestitures—2018”.

In addition, outstanding performing loans to developers in an aggregate amount of €260 million were transferred from the Non-Core Real Estate segment to the Banking Activity in Spain segment in 2018.

As a result of the above, loans and advances to customers of this operating segment have significantly declined over recent years. As of December 31, 2018, loans and advances to customers amounted to €582 million, an 83.5% decrease compared with the €3,521 million recorded as of December 31, 2017, principally due to portfolio sales.

The non-performing loan ratio of this segment was 71.1% as of December 31, 2018. The coverage ratio of non-performing loan of this segment was 58% of the total amount of real estate assets in this operating segment as of December 31, 2018.

The number of real estate assets sold amounted to 18,808 units in 2018, 47.8% lower than in 2017. Additionally, during 2018, 43,900 units were transferred to Divarian.

The United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for 91.9% of this operating segment’s balance sheet as of December 31, 2018. Given the importance of BBVA Compass in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA branch in New York, which specializes in transactions with large corporations.

The U.S. dollar appreciated 4.7% against the euro as of December 31, 2018 compared with December 31, 2017, positively affecting the business activity of the United States operating segment as of December 31, 2018 expressed in euros.

Financial assets designated at fair value of this operating segment as of December 31, 2018 amounted to €10,481 million, a 5.3% decrease from the €11,068 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see “Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €63,539 million, a 16.1% increase compared with the €54,705 million recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €60,808 million, a 13.2% increase compared with the €53,718 million recorded as of December 31, 2017, mainly due to the appreciation of the U.S. dollar against the euro and to the increase in the other commercial portfolio (which was the most significant part of the total portfolio in 2018), and to a lesser extent, to increases in the consumer and corporate portfolios, partially offset by the weaker performance of mortgage loans and loans to real estate developers (which were adversely affected by the increase in interest rates).

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Customer deposits of this operating segment as of December 31, 2018 amounted to €63,891 million, a 5.1% increase compared with the €60,806 million recorded as of December 31, 2017, mainly due to the appreciation of the U.S. dollar against the euro and the increase in demand deposits, in a context of increased competition for deposits during the year.

The non-performing loan ratio of this operating segment as of December 31, 2018 was 1.3%, compared with 1.2% as of December 31, 2017. This operating segment’s non-performing loan coverage ratio decreased to 85% as of December 31, 2018, from 104% as of December 31, 2017, mainly due to the increase in non-performing loans and the release in 2018 of provisions associated with retail portfolios affected by hurricanes in 2017.

Mexico

The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by BBVA Bancomer. Since 2018, it also includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous years).

The Mexican peso appreciated 5.2% against the euro as of December 31, 2018 compared with December 31, 2017, positively affecting the business activity of the Mexico operating segment as of December 31, 2018 expressed in euros.

Financial assets designated at fair value of this operating segment as of December 31, 2018 amounted to €26,022 million, a 9.1% decrease from the €28,627 million recorded as of December 31, 2017, attributable in part to the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see “Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €57,709 million, a 21.0% increase compared with the €47,691 million recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €51,101 million, a 11.7% increase compared with the €45,768 million recorded as of December 31, 2017, primarily due to the appreciation of the Mexican peso against the euro and to the increase in loans to enterprises, and to a lesser extent, the increase in the consumer portfolios and residential mortgages.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2018 amounted to €18,028 million, a 91.7% increase compared with the €9,405 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain deposits at amortized cost to the held for trading portfolio.

Customer deposits of this operating segment as of December 31, 2018 amounted to €50,530 million, a 1.1% increase compared with the €49,964 million recorded as of December 31, 2017, primarily due to the appreciation of the Mexican peso against the euro.

Mutual funds of this operating segment as of December 31, 2018 amounted to €17,733 million, a 7.9% increase compared with the €16,430 million recorded as of December 31, 2017, primarily due to the appreciation of the Mexican peso against the euro.

This operating segment’s non-performing loan ratio was 2.1% as of December 31, 2018 and 2.3% as of December 31, 2017. This operating segment’s non-performing loan coverage ratio increased to 154% as of December 31, 2018, from 123% as of December 31, 2017 due to an increase of 26.6% in the provisions mainly as a result of the first implementation of IFRS 9.

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Turkey

This operating segment comprises the banking and insurance businesses conducted by Garanti and its consolidated subsidiaries.

The Turkish lira depreciated 25.0% against the euro as of December 31, 2018 compared to December 31, 2017, negatively affecting the business activity of the Turkey operating segment as of December 31, 2018 expressed in euros.

Financial assets designated at fair value of this operating segment as of December 31, 2018 amounted to €5,506 million, a 14.2% decrease from the €6,419 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €50,315, a 22.7% decrease compared with the €65,083 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €41,478 million, a 19.3% decrease compared with the €51,378 million recorded as of December 31, 2017 principally due to the depreciation of the Turkish lira and, to a lesser extent, the decrease in mortgage loans and loans to enterprises denominated in Turkish lira, offset in part by an increase in credit card lending and car loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2018 amounted to €1,852 million, a 185.9% increase compared with the €648 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018 (see Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments), which resulted in the reclassification of certain deposits at amortized cost to the held for trading portfolio, which more than offset the impact of the depreciation of the Turkish lira.

Customer deposits of this operating segment as of December 31, 2018 amounted to €39,905 million, a 10.7% decrease compared with the €44,691 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira, the increased relative weight of deposits held in Turkish lira and the decrease in deposits held in U.S. dollars, partially offset by the increase in deposits held in Turkish lira. The increase in deposits held in Turkish lira and the decrease in deposits held in U.S. dollars was mainly attributable to the higher interest rates paid on deposits held in Turkish lira.

Mutual funds in this operating segment as of December 31, 2018 amounted to €669 million, a 47.1% decrease compared with the €1,265 million as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira against the euro and the market evolution.

Pension funds in this operating segment as of December 31, 2018 amounted to €2,225 million, a 15.6% decrease compared with the €2,637 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira against the euro. Excluding the exchange rate effect, there was a 12.4% increase, mainly as a result of the increase in the number of participants to approximately 1.7 million from approximately 1.2 million as of December 31, 2017.

The non-performing loan ratio of this operating segment as of December 31, 2018 was 5.3% compared with 3.9% as of December 31, 2017 mainly as a result of increased impairments of wholesale loans affected by the deteriorating macroeconomic scenario. This operating segment’s non-performing loan coverage ratio decreased to 81% as of December 31, 2018, from 85% as of December 31, 2017, mainly due to the 12.7% increase in the balance of non-performing loans as of December 31, 2018 in comparison with the balance recorded as of December 31, 2017.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

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The business units included in the South America operating segment are:

· Retail and Corporate Banking: includes banks in Argentina, Colombia, Paraguay, Peru, Uruguay and Venezuela.

· Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

In November 2017, BBVA reached an agreement for the sale of BBVA’s 68.2% direct and indirect stake in BBVA Chile. The sale was completed on July 6, 2018. For additional information, see “—History and Development of the Company—Capital Divestitures—2018—Sale of BBVA’s stake in BBVA Chile.” The Group keeps an automobile financing business in Chile, mainly carried out by Forum Servicios Financieros, S.A. BBVA has decided to initiate a strategic review of alternatives for its automobile financing business in this country.

As of December 31, 2018, the currencies of certain of the countries in which BBVA operates in South America (mainly the Argentine peso, which depreciated significantly, and the Colombian peso) depreciated against the euro compared to December 31, 2017, negatively affecting the business activity of the South America operating segment expressed in euros.

Financial assets designated at fair value for this operating segment as of December 31, 2018 amounted to €5,634 million, a 51.5% decrease compared with the €11,627 million recorded as of December 31, 2017, mainly attributable to the depreciation of certain local currencies, the sale of BBVA Chile and the initial implementation of IFRS 9 as of January 1, 2018. The initial implementation of IFRS 9 resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see “Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €36,649 million, a 28.4% decrease compared with the €51,207 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €34,469 million, a 28.6% decrease compared with the €48,272 million recorded as of December 31, 2017, mainly as a result of the sale of BBVA Chile and, to a lesser extent, the impact of the depreciation of certain currencies in the region, in particular the Argentine peso. By country, financial assets at amortized cost increased in Argentina (excluding the impact of currency depreciation), Colombia and Peru. At constant exchange rates, there were increases in residential mortgages, consumer finance and loans to enterprises.

Customer deposits of this operating segment as of December 31, 2018 amounted to €35,842 million, a 21.5% decrease compared with the €45,666 million recorded as of December 31, 2017 mainly as a result of the sale of BBVA Chile and, to a lesser extent, the impact of the depreciation of certain currencies in the region, in particular the Argentine peso. By country, customer deposits increased in Argentina (excluding the impact of currency depreciation), Colombia and Peru.

Mutual funds in this operating segment as of December 31, 2018 amounted to €3,741 million, a 28.7% decrease compared with the €5,248 million as of December 31, 2017, mainly due to the sale of BBVA Chile, and, to a lesser extent, the depreciation of certain currencies in the region, in particular the Argentine peso.

Pension funds in this operating segment as of December 31, 2018 amounted to €7,921 million, a 14.0% increase compared with the €6,949 million recorded as of December 31, 2017, mainly as a result of an increase in pension funds in Bolivia.

The non-performing loan ratio of this operating segment as of December 31, 2018 increased to 4.3% compared with 3.4% as of December 31, 2017, primarily due to the sale of BBVA Chile, which had better risk indicators than the other the countries where the Group operates in the region. This operating segment’s non-performing loan coverage ratio increased to 97% as of December 31, 2018, from 89% as of December 31, 2017, mainly due to the 7.3% decrease in the balance of non-performing loans as of December 31, 2018 compared to the balance recorded as of December 31, 2017.

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Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe (primarily Portugal) and Asia, excluding Spain and Turkey.

Financial assets designated at fair value for this operating segment as of December 31, 2018 amounted to €504 million, a 49.1% decrease compared with the €991 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see “Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €16,930 million, a 12.8% increase compared with the €15,009 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €15,731 million, a 5.8% increase compared with the €14,864 million recorded as of December 31, 2017, mainly as a result of an increase in enterprise loans.

Customer deposits of this operating segment as of December 31, 2018 amounted to €4,876 million, a 27.2% decrease compared with the €6,700 million recorded as of December 31, 2017, mainly as a result of the decrease in time deposits, as the low interest rate environment has caused larger clients not to renew their deposit contracts.

Pension funds in this operating segment as of December 31, 2018 amounted to €388 million, a 3.2% increase compared with the €376 million recorded as of December 31, 2017.

The non-performing loan ratio of this operating segment as of December 31, 2018 was 1.7% compared with 2.4% as of December 31, 2017. This operating segment’s non-performing loan coverage ratio increased to 83% as of December 31, 2018, from 74% as of December 31, 2017, mainly due to the 23% decrease in the balance of non-performing loans as of December 31, 2018, compared to the balance recorded as of December 31, 2017.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

There are two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.

See Note 23 to our Consolidated Financial Statements for information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

· defining and implementing the single monetary policy of the EMU;

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· conducting foreign exchange operations in accordance with the set exchange policy;

· lending to national monetary financial institutions in collateralized operations;

· holding and managing the official foreign reserves of the member states; and

· promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below is information regarding supervision and regulatory matters applicable to us under U.S. law as a result of our banking activities in the United States. In addition, we are generally subject to comprehensive regulation as a bank, asset manager or insurer, as applicable, in the other countries where we operate, such as Mexico and Turkey.

Since September 2012, significant progress has been made toward the establishment of a European banking union. The banking union is expected to be achieved through new harmonized banking rules (the single rulebook) and a new institutional framework with stronger systems for both banking supervision and resolution that will be managed at the European level. Its two main pillars are the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). As a further step to a fully-fledged banking union, in November 2015, the European Commission put forward a proposal for a European Deposit Insurance Scheme (EDIS), which intends to provide a stronger and more uniform degree of insurance coverage for all retail depositors in the banking union. However, this element is still pending, with a high-level group being created (at a political, and not technical level), due to review its results in June 2019.

Pursuant to Article 127(6) of the Treaty on the Functioning of the EU and the SSM Framework Regulation, the ECB is responsible for specific tasks concerning the prudential supervision of credit institutions established in participating Member States. Since 2014, it carries out these supervisory tasks within the SSM framework, composed of the ECB and the relevant national authorities. The ECB is responsible for the effective and consistent functioning of the SSM, with a view to carrying out effective banking supervision, contributing to the safety and soundness of the banking system and the stability of the financial system.

Its main aims are to:

· ensure the safety and soundness of the European banking system;

· increase financial integration and stability; and

· ensure consistent supervision.

The ECB, in cooperation with the relevant national supervisors, is responsible for the effective and consistent functioning of the SSM.

It has the authority to:

· conduct supervisory reviews, on-site inspections and investigations;

· grant or withdraw banking licenses;

· assess banks’ acquisitions and disposals of qualifying holdings;

· ensure compliance with EU prudential rules; and

· set higher capital requirements (“buffers”) in order to counter any financial risks.

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In addition, since November 2014, it assumed the direct supervision of the most significant banks of the participating countries, including Banco Bilbao Vizcaya Argentaria, S.A. Ongoing supervision of the significant banks is carried out by Joint Supervisory Teams (“JSTs”). Each significant bank has a dedicated JST, comprising staff of the ECB and the relevant national supervisors (in our case, the Bank of Spain).

The criteria for determining whether a bank is considered significant (and therefore whether it falls under the ECB’s direct supervision) are set out in the SSM Framework Regulation and the SSM Framework Regulation. To qualify as significant, a bank must fulfill at least one of these criteria:

· size: the total value of its assets exceeds €30 billion;

· economic importance: for the specific country or the EU economy as a whole;

· cross border activities: the total value of its assets exceeds €5 billion and the ratio of its cross-border assets/liabilities in more than one other participating Member State to its total assets/liabilities is above 20%; or

· direct public financial assistance: it has requested or received funding from the European Stability Mechanism (the “ESM”) or the European Financial Stability Facility.

The ECB can decide at any time to classify a bank as significant to ensure that high supervisory standards are applied consistently.

The ECB indirectly supervises banks that are not considered significant (also known as “less significant” institutions), which continue to be supervised by their national supervisors, in close cooperation with the ECB. See “—Bank of Spain” below for an explanation of the tasks to be performed by the Bank of Spain.

Bank of Spain

The Bank of Spain was established in 1962 as a public law entity (entidad de derecho público) that operates as Spain’s autonomous central bank. In addition, it has the ability to function as a private bank. Except in its public functions, the Bank of Spain’s relations with third parties are governed by private law, and its actions are subject to the civil and business law codes and regulations.

Until January 1, 1999, the Bank of Spain was also the sole entity responsible for implementing Spanish monetary policy. For a description of monetary policy since the introduction of the euro, see “—Monetary Policy”.

Since January 1, 1999, the Bank of Spain has performed the following basic functions attributed to the Eurosystem:

· defining and implementing the Eurosystem’s monetary policy, with the principal aim of maintaining price stability across the Eurozone;

· conducting currency exchange operations consistent with the provisions of Article 219 of the EU Treaty, and holding and managing the Member States’ official currency reserves;

· promoting the sound working of payment systems in the Eurozone; and

· issuing legal tender banknotes.

Recognizing the foregoing functions as a fully-fledged member of the Eurosystem, the Bank of Spain Law of Autonomy (Ley de Autonomía del Banco de España) stipulates the performance of the following functions by the Bank of Spain:

· holding and managing currency and precious metal reserves not transferred to the ECB;

· promoting the proper working and stability of the financial system and, without prejudice to the functions of the ECB, the proper working of the national payment systems, providing emergency liquidity assistance (ELA);

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· promoting the sound working and stability of the financial system and, without prejudice to the functions of the ECB, of national payment systems;

· placing coins in circulation and the performance, on behalf of the State, of all such other functions entrusted to it in this connection;

· preparing and publishing statistics relating to its functions, and assisting the ECB in the compilation of the necessary statistical information;

· providing treasury services and acting as financial agent for government debt;

· advising the government, preparing the appropriate reports and studies; and

· exercising all other powers attributed to it by legislation.

As indicated above, on November 4, 2014 the ECB assumed responsibility for the supervision of Eurozone banks, following a year-long preparatory phase that included an in-depth examination of the resilience and balance sheets of the largest banks in the Eurozone. For all the banks not supervised directly by the ECB, around 3,500 banks, the ECB will also set and monitor the relevant supervisory standards and work closely with the national competent authorities in the supervision of these banks.

The ECB has set up homogenous criteria for all the supervised institutions under the SSM and has assumed decision-making power. National authorities, such as the Bank of Spain, provide their knowledge on their financial systems and the entities located in their jurisdictions. Therefore, the role of the Bank of Spain continues to be relevant for financial entities located in Spain. In particular, the Bank of Spain’s tasks include the following:

· it collaborates with the ECB in the supervision of significant entities through its participation in the JSTs of the relevant Spanish banks, and has a leading role in the on-site inspections;

· the Bank of Spain supervises directly the less significant Spanish banks. The ECB’s indirect supervision of these entities is focused on the homogenization of supervisory criteria and reception of information;

· there are several supervisory competencies over banking entities, for example money laundering and terrorist financing, customer protection and certain aspects of the monitoring of the financial markets that are out of the scope of the SSM and remain under the purview of the Bank of Spain;

· the Bank of Spain participates in certain administrative processes controlled by the ECB, such as the granting or withdrawal of licenses and the application of fit and proper tests to members of the board and senior management of Spanish banks, and supports the ECB in cross-border tasks such as the definition of policies, methodologies or crisis management;

· the Bank of Spain continues to supervise other institution such as appraisal companies or specialist credit institutions, e-money issuing entities, mutual guarantee and re-guarantee companies;

· the Bank of Spain participates in the governing bodies of the SSM contributing to the adoption of decisions affecting all credit institutions located in the Eurozone; and

· the Bank of Spain is also responsible for applying a number of macroprudential instruments, such as setting the countercyclical capital requirements and identifying and setting capital buffers for systemically important institutions.

Single Resolution Fund

The Single Resolution Fund (the “Fund”) was established pursuant to Regulation (EU) No 806/2014 as a single financing arrangement for all the Member States participating in the SSM.

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The Fund should be used in resolution procedures where the Single Resolution Board (“SRB”) considers it necessary to ensure the effective application of the resolution tools. The Fund should have adequate financial resources to allow for an effective functioning of the resolution framework by being able to intervene, where necessary, for the effective application of the resolution tools and to protect financial stability without recourse to taxpayers’ money.

The SRB should calculate the annual contributions to the Fund on the basis of a single target level established as 1% of the amount of covered deposits of all of the credit institutions authorized in all of the participating Member States. The SRB should ensure that the available financial means of the Fund reach at least the target level by the end of an initial period of eight years from January 1, 2016. The annual contribution to the Fund should be based on a flat contribution determined on the basis of an institution’s liabilities excluding own funds and covered deposits and a risk-adjusted contribution depending on the risk profile of that institution.

On the December 14, 2018 Euro Summit, participants endorsed the terms of reference of the common backstop to the Single Resolution Fund, which determine how it will be operationalized (subject to an assessment by 2020). Participants also endorsed the term sheet on the European Stability Mechanism (“ESM”) reform, which includes a role as the backstop for the Fund. The Euro Summit requested the Eurogroup to prepare the adequate amendments to the ESM Treaty by June 2019.

Deposit Guarantee Fund of Credit Institutions

The Deposit Guarantee Fund of Credit Institutions (Fondo de Garantía de Depósitos or “FGD”), which operates under the guidance of the Bank of Spain, was set up by virtue of Royal Decree-Law 16/2011, of October 14. It is an independent legal entity and enjoys full authority to fulfill its functions. Royal Decree-Law 16/2011 unified the three previous guarantee funds that existed in Spain: the Deposit Guarantee Fund of Saving Banks, the Deposit Guarantee Fund of Credit Entities and the Deposit Guarantee Fund of Banking Establishments.

The main objective of the FGD is to guarantee deposits and securities held by credit institutions, up to the limit of €100,000. It also has the authority to carry out any such actions necessary to reinforce the solvency and operation of credit institutions in difficulty, with the purpose of defending the interests of depositors and deposit guarantee funds.

In order to fulfill its purposes, the FGD receives annual contributions from member credit institutions. The current annual contribution requirement is €2 for every €1,000 guaranteed deposits held by the respective member institution as of year-end. The Minister of the Economy and Finance is authorized to reduce the contributions when the FGD’s equity is considered sufficient to meet its needs. Moreover, it may suspend contributions when the FGD’s total equity reaches 1% of the calculation base of the contributions of the member institutions as a whole. Under certain circumstances defined by law, there may be extraordinary contributions from the institutions, and the European Central Bank may also require exceptional contributions of an amount set by law.

As of December 31, 2018, 2017 and 2016 all of the Spanish banks belonging to the BBVA Group were members of the FGD and were thus obligated to make annual contributions to it.

Investment Guarantee Fund

Royal Decree 948/2001, of August 3, regulates investor guarantee schemes (Fondo de Garantía de Inversores) related to both investment firms and to credit institutions. These schemes are set up through an investment guarantee fund for securities broker and broker-dealer firms and the deposit guarantee funds already in place for credit institutions. A series of specific regulations have also been enacted, defining the system for contributing to the funds.

The General Investment Guarantee Fund Management Company was created in a relatively short period of time and is a business corporation with capital in which all the fund members hold an interest. Member firms must make a joint annual contribution to the fund equal to 0.06% over the 5% of the securities that they hold on their client’s behalf. However, it is foreseen that these contributions may be reduced if the fund reaches a level considered to be sufficient.

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Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt securities issued with maturity up to two years and money market paper is 1%. For deposits with agreed maturity or period of notice over two years, repos and debt securities issued with maturity over two years there is no required reserve coefficient.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission of October 10, 2014, the LCR ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, progressively increased (phased-in) up to 100% in 2018.

Investment Ratio

In the past, the government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Capital Requirements

In December 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”).

As a Spanish credit institution, we are subject to the CRD IV Directive, through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is the CRR, which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, Law 10/2014, RD 84/2015, Bank of Spain Circular 2/2014 and Bank of Spain Circular 2/2016. On November 23, 2016, the European Commission published a package of proposals, including, among others, proposed changes to the CRD IV Directive and CRR in order to increase the resilience of EU institutions and enhance financial stability. On May 25, 2018, the Council of the European Union published the Presidency compromise proposals relating to the European Commission’s package of proposals referred to above and on June 25 and 28, 2018, the European Parliament Committee on Economic and Monetary Affairs published reports containing its proposed amendments to the European Commission’s package of proposals. The final political agreement between the European Parliament and the Council on these reforms was published on February 15, 2019 (the European Commission’s package of proposals together with the Presidency compromise proposals, the proposed amendments of the European Parliament and such final political agreement, the “EU Banking Reforms”).

Among other things, CRD IV established minimum “Pillar 1” capital requirements both on a consolidated and individual basis (which includes a CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6% and a total capital ratio of 8% of risk-weighted assets). Additionally, CRD IV increased the level of capital required by means of a “combined buffer requirement” that entities must comply with from 2016 onwards. The “combined buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific countercyclical buffer, (iv) the D-SIB buffer, and (v) the systemic risk buffer.

The combination of the capital conservation buffer, the institution-specific countercyclical buffer and the higher of (depending on the institution) the systemic risk buffer, the G-SIB buffer and the D-SIB buffer, in each case (if applicable to the relevant institution—in the event that the systemic risk buffer only applies to local exposures, such buffer is added to the higher of the G-SIB buffer or the D-SIB buffer) is referred to as the “combined buffer requirement”. This “combined buffer requirement” is in addition to the minimum “Pillar 1” capital requirements and is required to be satisfied with CET1 capital.

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The G-SIB buffer applies to those institutions included on the list of G-SIBs, which is updated annually by the FSB. We have been excluded from this list with effect from January 1, 2017 and so, unless otherwise indicated by the FSB (or the Bank of Spain) in the future, we will not be required to maintain a G-SIB buffer any longer.

The Bank of Spain announced on November 21, 2018 that we continue to be considered a D-SIB, and consequently we are required to maintain a fully-loaded D-SIB buffer of a CET1 capital ratio of 0.75% on a consolidated basis.

The Bank of Spain agreed in December 2015 to set the countercyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is revised each quarter. The Bank of Spain agreed in December 2018 to maintain the countercyclical capital buffer at 0% for the first quarter of 2019. As of the date of this Annual Report, the countercyclical capital buffer applicable to the Group stands at 0.01% and relates to the Group’s exposures in other jurisdictions.

The Bank of Spain has greater discretion in relation to the determination of the institution-specific countercyclical buffer, the buffer for D-SIBs and the systemic risk buffer. With the entry into force of the SSM on November 4, 2014, the ECB has the ability to provide certain recommendations in this respect and potentially increase such buffers.

Moreover, Article 104 of the CRD IV Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of the SSM Regulation, also contemplates that in addition to the minimum “Pillar 1” capital requirements and the combined buffer requirements, supervisory authorities may impose further “Pillar 2” capital requirements (above “Pillar 1” requirements and below the combined buffer requirements) to cover other risks, including those not considered to be fully captured by the minimum “own funds” “Pillar 1” requirements under CRD IV or to address macro-prudential considerations.

Accordingly, any additional “Pillar 2” own funds requirement that may be imposed on us and/or the Group by the ECB pursuant to the SREP will require us and/or the Group to hold capital levels above the minimum “Pillar 1” capital requirements.

As a result of the most recent SREP carried out by the ECB, we received a communication from the ECB pursuant to which we are required to maintain, as from March 1, 2019, on a consolidated basis, a CET1 capital ratio of 9.26% (8.53% on an individual basis) and a total capital ratio of 12.76% (12.03% on an individual basis).

This total capital requirement (on a consolidated basis) includes: (i) the minimum CET1 requirement under Pillar 1 (4.5%); (ii) the Additional Tier 1 capital (AT1) requirement under Pillar 1 (1.5%); (iii) the tier 2 capital requirement under Pillar 1 (2.0%); (iv) the CET1 capital requirement under Pillar 2 (1.5%), which remains unchanged since the prior SREP; (v) the capital conservation buffer (2.5% of CET1); (vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and (vii) the countercyclical capital buffer (0.01% of CET1).

As of December 31, 2018, our phased-in total capital ratio was 15.71% on a consolidated basis and 22.07% on an individual basis. As of December 31, 2018, our CET1 phased-in capital ratio was 11.58% on a consolidated basis and 17.45% on an individual basis. Such ratios exceed the applicable regulatory requirements described above, but there can be no assurance that the total capital requirements imposed on us and/or the Group from time to time may not be higher than the levels of capital available at such point in time. There can also be no assurance as to the result of any future SREP carried out by the ECB and whether this will impose any further “Pillar 2” additional own funds requirements on us and/or the Group.

Additionally, on February 1, 2019, the Bank announced its new CET1 fully-loaded capital target, consisting of a CET1 ratio within the range between 11.5% and 12.0% on a consolidated basis, and which the Bank expects to achieve by 2019 year-end. No assurance can be given that the Bank will achieve this target. See “Cautionary Statement Regarding Forward-Looking Statements”. Any failure by the Bank to maintain a consolidated CET1 capital ratio in line with its CET1 fully-loaded capital target could adversely affect the market price or value or trading behavior of any securities issued by the Bank (and, in particular, any of its capital instruments) and ultimately lead to the imposition of further “Pillar 2” guidance or requirements.

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According to Article 48 of Law 10/2014, Article 73 of RD 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any entity not meeting its “combined buffer requirement” is required to determine its MDA as described therein. Until the MDA has been calculated and communicated to the Bank of Spain, where applicable, the relevant entity shall not make any (i) distributions relating to CET1 capital, (ii) payments in respect of variable remuneration or discretionary pension revenues and (iii) distributions relating to Additional Tier 1 instruments (“discretionary payments”) and, once the MDA has been calculated and communicated to the Bank of Spain, any such discretionary payments by that entity will be subject to such MDA limit. Furthermore, as set forth in Article 48 of Law 10/2014, the adoption by the Bank of Spain of the measures prescribed in Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds or limiting or prohibiting the distribution of dividends, respectively, will also result in a requirement to determine the MDA and restrict discretionary payments to such MDA. See “Item 3. Key Information―Risk Factors―Legal, Regulatory and Compliance Risks―Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations” and “Item 3. Key Information―Risk Factors―Legal, Regulatory and Compliance Risks―Any failure by the Bank and/or the Group to comply with its MREL could have a material adverse effect on the Bank’s business, financial condition and results of operations” for additional information.

Additionally, BRRD prescribes that we shall hold a minimum level of own funds and eligible liabilities in relation to total (MREL). On May 23, 2018, we announced that we had received notification from the Bank of Spain regarding our MREL, as determined by the SRB. Our MREL has been set at 15.08% of the total liabilities and own funds of our resolution group at a sub-consolidated level as of December 31, 2016, which corresponds to 28.04% of the risk-weighted assets of the resolution group as of December 31, 2016, and must be met by January 1, 2020. Pursuant to the Group’s multiple-point-of-entry resolution strategy as established by the SRB, our resolution group consists of us and our subsidiaries which belong to the same European resolution group. As of December 31, 2016, the total liabilities and own funds of our resolution group amounted to €385,647 million, of which our total liabilities and own funds comprised approximately 95%, and the risk-weighted assets of our resolution group amounted to €207,362 million.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels.

Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using Basel (“BIS”) and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. In recent years we have taken various actions in connection with our capital management and in order to comply with various capital requirements applicable to us. We may make securities issuances or undertake asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise.

The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation (“IRB”) concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation at the Group and at its different business units.

The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines lending risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk and fixed asset and technical risks in the case of insurance companies.

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Shareholders’ equity, as calculated under BIS rules, is an important metric for the Group. However, for the purpose of allocating capital to operating segments the Group prefers CER. It is risk-sensitive and thus better reflects management policies for the individual businesses and the business portfolio. These provide an equitable basis for assigning capital to businesses according to the risks incurred and make it easier to compare returns.

To internal effects of management and pursuit of the operating segments, the Group realizes a capital allocation to each operating segment.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where an institution is subject to Part Three, Title II, Chapter 3 of the CRR, its 20 largest exposures on a consolidated basis, excluding those exempted from the application of Article 395(1) of the CRR, shall be made available to the competent authorities. Additionally to the aforementioned exposures, an institution shall also report its 10 largest exposures on a consolidated basis to institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

The CRR also imposes certain limits to large exposures. In particular, an institution shall not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shall not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, shall not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of the CRD IV Directive, to address and control concentration risk. This limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment on Financial Assets

For a discussion of non-performing loan provisions and credit risk, see Note 2.2.1 to our Consolidated Financial Statements.

Regulation of the Disclosure of Fees and Interest Rates

Banks must publish their preferential rates, rates applied on overdrafts, and fees and commissions charged in connection with banking transactions. Banking clients must be provided with written disclosure adequate to permit customers to ascertain transaction costs. The foregoing regulations are enforced by the Bank of Spain in response to bank client complaints.

Law 44/2002, of November 22, concerning measures to reform the Spanish financial system, contained a rule concerning the calculation of variable interest applicable to loans and credit secured by mortgages, bails, pledges or any other equivalent guarantee.

Employee Pension Plans

Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish state. See Note 2.2.12 and Note 25 to our Consolidated Financial Statements.

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Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring interim dividends, we inform them on a voluntary basis upon the declaration of an interim dividend. It should be noted that the ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommends credit institutions to establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the supervisory review and evaluation process (SREP).

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA will be subject to restrictions on discretionary payments, which includes, among others, dividend payments. See “—Capital Requirements”.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

Scrip Dividend

As in 2014, 2015 and 2016, during 2017 a scrip dividend scheme called “Dividend Option” was approved by the annual general meeting of shareholders held on March 17, 2017, whereby a resolution for a capital increase to be charged to voluntary reserves for the implementation of a “Dividend Option” in 2017 was passed. This resolution allowed BBVA to implement one “Dividend Option” in April 2017 and, as a consequence of the execution of the related capital increase, 101,271,338 new ordinary shares were issued.

In connection therewith, BBVA shareholders were given the option to receive all or part of their remuneration in newly issued ordinary shares of BBVA or in cash.

On February 1, 2017 BBVA updated its shareholders’ remuneration policy in order to implement a fully in cash remuneration policy after the execution of the 2017 “Dividend Option”. This fully in cash remuneration is expected to be composed, for each financial year, of an interim dividend and a final dividend, subject to any applicable restrictions and authorizations.

Limitations on Types of Business

Spanish banks are subject to certain limitations on the types of businesses in which they may engage directly, but they are subject to few limitations on the types of businesses in which they may engage indirectly. Law 10/2014 and Royal Decree 84/2015 established the regulation for governance, authorization, supervision and solvency for credit institutions.

Mortgage Legislation

Law 2/1981, of March 25, on mortgage market, as amended by Law 41/2007, regulates the different aspects of the Spanish mortgage market and establishes additional rules for the mortgage and financial system.

Royal Decree 716/2009, of April 24, implemented several aspects of Law 2/1981. The most significant aspect implemented by Royal Decree 716/2009 was the modification on the loan-to-value ratio requirement intending to improve the quality of Spanish mortgage-backed securities.

Increasing social pressure for the reform of mortgage legislation in Spain has resulted in changes to such legislation, which are described below.

Royal Decree-Law 6/2012, of March 9, on urgent measures to protect mortgage debtors without financial resources introduced measures to enable the restructuring of mortgage debt and easing of collateral foreclosure aimed to protect especially vulnerable debtors.

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Such measures include the following:

· the moderation of interest rates charged on mortgage arrears;

· the improvement of extrajudicial procedures as an alternative to legal foreclosure;

· the introduction of a voluntary code of conduct among lenders for regulated mortgage debt restructuring affecting especially vulnerable debtors; and

· where restructuring is unviable, lenders may, where appropriate and on an optional basis, offer the debtor partial debt forgiveness.

In addition, Royal Decree-Law 27/2012, of November 15, on urgent measures to enhance the protection of mortgage debtors provided for a two-year moratorium, from the date of its adoption, on evictions applicable to debtor groups especially susceptible to social exclusion, which may remain at their homes for such period.

Law 1/2013, of May 14, on measures to protect mortgagees, debt restructuring and social rents, introduced important modifications to mortgage law and civil procedure law. The most relevant modifications are:

· extension of the two-year moratorium, established by Royal Decree 27/2012, until May 15, 2015;

· broadening the potential beneficiaries of the moratorium of Royal Decree 6/2012;

· limitation of the interest rates applied for delay or arrears;

· in the context of an auction, the base value of the property shall be the value set forth in the relevant mortgage deed and in no case shall it be less than 75% of the official appraisal value of the property;

· the possibility of suspension of enforcement proceedings when the loan or credit facility secured by the mortgage contains abusive clauses; and

· modification of the out-of-court notarial procedure.

Royal Decree-Law 11/2014, following the judgment of the EU Court of Justice of July 17, 2014 regarding Spanish foreclosure processes, allows debtors to appeal against a court’s resolution which rejects his or her opposition to the execution of a mortgage.

The Mortgage Credit Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property was adopted on February 4, 2014. This Directive aims to create a Union-wide mortgage credit market with a high level of consumer protection. It applies to both secured credit and home loans. Member States will have to transpose its provisions into their national law by March 2016.

The main purpose of Royal Decree-Law 1/2015 of February 27 on the “second chance” mechanism is to regulate such mechanism. This allows an individual who has been declared bankrupt to be discharged of outstanding obligations as long as he or she fulfills certain requirements: (i) the bankruptcy proceedings must have concluded, (ii) the debtor must have acted in good faith, the Royal Decree being restrictive as to when a debtor is considered to have acted in good faith, and (iii) the bankruptcy judge has to approve the terms of the discharge (and may revoke his or her approval under certain circumstances upon request of any creditor in the following five years). Discharge from mortgage obligations would only apply to the outstanding debts after the foreclosure, as long as such debts are considered ordinary or subordinate according to the Spanish Insolvency Law. Co-debtors and guarantors, if any, would remain liable.

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Law 25/2015, of July 28, on the “second chance” mechanism reducing the financial burden and other measures of a social nature, entered into force on July 30, 2015. The passage through parliament of Royal Decree-Law 1/2015 allowed some new changes to be added, such as introduction of a fee protection account for insolvency managers, limits on the remuneration of insolvency managers and the introduction of greater flexibility to a number of elements of the second chance mechanism.

Royal Decree-Law 1/2017 of January 20, on urgent measures on consumer protection on mortgage interest floor clauses, provides for an extrajudicial procedure pursuant to which consumers may claim from banks amounts that might have been wrongly charged pursuant to interest floor clauses that are deemed to be abusive and null (in light of the judgment of the Court of Justice of the European Union of December 21, 2016).

Royal Decree-Law 5/2017, of March 17, expanded the number of beneficiaries of the Code of Good Practice (established in Royal Decree 6/2012, as modified by Law 1/2013); provided the possibility to those beneficiaries of the suspension of evictions referenced in Law 1/2013 to automatically suspend evictions in certain homes until May 2020.

The law implementing the European Mortgage Credit Directive (2014/17/EU) will apply to credits and loans to individuals and self-employed workers in connection with residential real estate properties. The most relevant modifications are:

· the draft law covers credits and loans to individuals in connection with residential real estate properties (including land and the preservation of real estate properties), excluding reverse mortgages;

· establishes a period for consumers to evaluate the mortgage-related documents, supervised by a Notary Public (Notario Público);

· clarifies some controversial issues in which litigation has arisen in the past years (mainly, benchmark interest rates references, foreign currencies submission and default interests);

· establishes the possible fees that may be charged on borrowers;

· forbids linked sales; and

· settles rules regarding the early termination of mortgages based exclusively on the amount of defaulted payments by the borrower (in light of recent court decisions declaring null and void some early termination clauses for their abusive terms).

Consumer Alternative Dispute Resolution Systems For Consumer Disputes

Law 7/2017, of November 4, seeks to ensure access for Spanish and European consumers to independent, impartial, transparent and effective alternative dispute resolution systems. For financial institutions, a specific law shall be passed and financial institutions will be forced to participate in those alternative dispute resolution mechanism.

Payment Accounts

Royal Decree-Law 19/2017 of November 24, implements Directive 2014/92/EU on comparability of fees related to payment accounts, payment account switching and access to basic payment accounts. This Royal Decree-Law:

· regulates the right of access for legal residents in the EU and conditions for refusal;

· establishes the services linked to basic payment accounts and the maximum fees that may be charged by banks (which, in Spain, will be set by the Ministry of Economy);

· introduces changes to the information that should be provided to clients on features, costs, and conditions of services;

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· facilitates account switching;

· introduces the Fee Information Document (FID) and the Statement of Fees (SoF) which provide information on fees to clients; and

· establishes that the Bank of Spain may offer free access to websites that provide comparative information on the terms offered by financial entities with respect to payment accounts.

The limits on fees to be charged on basic payment accounts and the scope of individuals that can benefit from free basic payment accounts are pending approval. Regulation ECE/228/2018, of February 28, on basic payment accounts provides a maximum fee of €3 euro per month for basic payment accounts. In the following months, it is expected that a new regulation will establish the scope of individuals that can benefit from free basic payment accounts.

Payment Services

The second Payment Services Directive (EU) 2015/2366 (“PSD2”) allows authorized third parties (with consent) to access customer information that was previously only accessible to banks. PSD2 applies to payments within the European Economic Area (EEA) and has been implemented in Spain through Royal Decree-Law 19/2018, of November 23. This Royal Decree-Law expands the scope of the consumer protection provisions included in PSD2 (related to transparency and information sharing) to “microenterprises” and prohibits merchants from requesting additional charges for using specific payment methods, including credit cards.

Mutual Fund Regulation

Law 22/2014 of November 12, introduced a new legal regime for private investment entities in order to implement (i) Directive 2011/61/EU of the European Parliament and of the Council of June 8 on Alternative Investment Fund Managers, and (ii) Directive 2013/14/EU of the European Parliament and of the Council of May 21.

Asset Management Activities

Asset management activities in the EU are expected to be significantly impacted by the new regulation referred to below:

· Regulation (EU) 2017/1131 of the European Parliament and of the Council of June 14, 2017 on money market funds (“MMFs”), which (with the exception of certain articles which are in force since July 20, 2017) will apply from July 21, 2018. The Regulation introduces a broad set of new regulatory measures that apply to MMFs established, managed or marketed in the EU. In light of the perceived systemic risk presented by MMFs, the Regulation aims to make these investment products more resilient and resistant to contagion risks. It does this by imposing rules on eligible assets, portfolio diversification, portfolio maturity and valuation of assets and introduces new categories of MMFs that can offer a constant net asset value per share if they meet certain requirements. The Regulation is meant to be an important step in adopting a uniform set of rules that are designed to ensure that MMFs are, as far as possible, in a position to honor redemption requests from investors, especially during stressed market conditions, and therefore remain a reliable tool for investors’ cash management needs.

· Proposal for a Regulation (EU) on pan-European Personal Pension Product (“PEPP”). The PEPP is expected to constitute one of the key measures towards the Commission’s project to create a single market for capital in the EU. It aims to provide pension providers with the tools to offer PEPPs outside their national markets, thereby creating a large and competitive EU-level market for personal pensions which allows consumers to voluntarily complement their savings for retirement, while benefitting from solid consumer protection. PEPPs will have the same standard features wherever they are sold in the EU and can be offered by a broad range of providers, such as insurance companies, banks, occupational pension funds, investment firms and asset managers. They will complement existing state-based, occupational and national personal pensions, but not replace or harmonize national personal pension regimes. In accordance with the Proposal, PEPP providers will need to be authorized by the European Insurance and Occupational Pensions Authority (EIOPA).

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· Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories.

· Royal Decree 62/2018, of February 9, reduces the maximum fees which may be charged to investors in connection with pension funds and plans and allows them to withdraw their savings after ten years of having made them from 2025 onwards. This Royal Decree introduces other minor changes to the regulation of pension funds and plans in Spain, including:

· reducing fee limits;

· making the regulation of investments in closed-end funds more flexible;

· clarification of the net asset value reference date used to determine the value of payments;

· eliminating restrictions on delegation and related-party transactions; and

· modifying time limits for the receipt of vested rights, order of priority for garnishment orders, reporting regime for participants and the schedule for adapting documentation for pension plans.

· Draft Law implementing Directive (EU) 2016/2341 of the European Parliament and of the Council of December 14, 2016 on the activities and supervision of institutions for occupational retirement provisions. Based on its current draft, this Law will (i) clarify the access cross-border pension plans activities, (ii) articulate a governance system to protect investors, (iii) adapt the Spanish legislation to the Directive and (iv) regulate the terms and scope of the prudential supervision to be carried out by the competent authority and the exchange of information with other competent authorities.

· Law 11/2018 of December 28 modifying the Code of Commerce, Royal Decree-Law 1/2010 of July 2 and Law 22/2015 of July 20 in relation to non-financial information and diversity include the following amendments to Law 35/2003 on Collective Investment Schemes: (i) recognition of electronic communication with clients, and only requiring communication in paper when requested by a participant, (ii) extension of omnibus accounts to participants and preexistent positions, equalizing the distribution of national and foreign ICCs and (iii) inclusion of the sanctions system from UCITS (Undertakings for Collective Investments in Transferable Securities) V and reducing the penalties for serious and very serious infringements.

· Royal Decree-Law 19/2018 of November 23 on payment services and other urgent financial measures, also introduced a sanctions system for money market funds, modified the Stock Market Law to include some provisions applicable to asset management companies and introduced several European regulations into Spanish law (including regulations related to Benchmarks, MAR, PRIIPS and transparency in securities financing transactions).

· Commission Delegated Regulation (EU) 2018/1619 of July 12, 2018 amending Delegated Regulation (EU) 2016/438 regarding the safe-keeping duties of depositaries.

· Draft Directive and Regulation (EU) regarding the cross-border distribution of collective investment funds (UCITS, FIA, FECR and FESE) with the aim of reducing regulatory barriers for the cross-border distribution of funds, in relation to the European capital markets union.

Spanish Corporate Enterprises Act

The consolidated text of the Corporate Enterprises Act adopted under Legislative Royal Decree 1/2010, of July 2, repealed the former Companies Act, adopted under Legislative Royal Decree 1564/1989, of December 22. This royal legislative decree has consolidated the legislation for public limited companies (sociedades anónima s) and limited liability companies (sociedades de responsabilidad limitada) in a single text, bringing together the contents of the two aforementioned acts, as well as a part of the Securities Exchange Act.

This law defines certain rights of shareholders, regulates the transfer of shares and establishes corporate governance obligations, among other matters.

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Spanish Auditing Law

Law 22/2015, of July 20, on Auditing, adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Law 11/2015 of June 18, on the recovery and resolution of credit institutions and investment firms

Law 11/2015 transposes a very important part of EU Law into Spanish law in respect of the recovery and resolution mechanisms for credit institutions and investment firms (the “institutions”). It further assumes many of the provisions of Law 9/2012 of November 14, 2012 on the restructuring and resolution of credit institutions, which it partially repeals.

The regime set in place constitutes a special and full administrative procedure that seeks to ensure maximum speed in the intervention of an institution so as to provide for the continuity of its core functions, while minimizing the impact of its non-viability on the economic system and on public resources.

Compared to Law 9/2012, Law 11/2015 regulates internal recapitalization as a resolution instrument conceived as a “bail-in” arrangement (the absorption of losses by the shareholders and by the creditors of an institution under resolution).

Internal recapitalization is a new resolution instrument, since the loss-absorption mechanism makes it extensive to all the institution’s creditors, and not only to the shareholders and the subordinated creditors as envisaged under Law 9/2012 of November 14, 2012.

In this respect, liabilities eligible for bail-in are all the institution’s liabilities that are not expressly excluded or have not been excluded further to a decision by the FROB. These liabilities shall be susceptible to amortization or conversion into capital for the internal recapitalization of the institution concerned. Among the liabilities excluded are deposits guaranteed by the Deposit Guarantee Fund (up to €100,000) and liabilities incurred with employees, trade creditors and the tax or social security authorities.

Certain changes were made to the regime applicable in the event of the insolvency of an institution, in order to provide greater protection to the deposits of individuals and SMEs. In this respect, the following shall be considered as privileged credits: (i) deposits guaranteed by the Deposit Guarantee Fund (maximum of €100,000) and the rights to which they may have been subrogated should the guarantee have been made effective and (ii) the portion of the deposits of individuals and SMEs that exceeds the guaranteed level, and those deposits of those individuals and SMEs that would be guaranteed had they not been set up in branches located outside the EU.

For additional information on Law 11/2015, see “Item 3. Key Information―Risk Factors―Legal, Regulatory and Compliance Risks―Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue”.

In December 2017, Directive 2014/59/EU was amended by Directive 2017/2399/EU as regards the ranking of unsecured debt instruments in insolvency proceedings. In particular, this directive requires member states to create a new class of senior non-preferred debt that will rank in insolvency proceedings above own-funds instruments and subordinated liabilities that do not qualify as own-funds instruments, but below other senior liabilities (being senior preferred liabilities). This Directive has been implemented in Spain by Law 11/2015.

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Royal Decree 1012/2015 of November 6, on development of Law on recovery and resolution of credit entities and investment firms and modification of Royal Decree on deposit guarantee funds of credit entities

Royal Decree 1012/2015 partially transposes the BRRD and develops Law 11/2015 (described above). Royal Decree 1012/2015 includes a package of measures aimed at: (i) establishing the criteria for the application of the regulation for the resolution of credit entities, (ii) establishing the content of the recovery and resolution plans for credit entities, (iii) regulating the use of the resolution instruments set in Law 11/2015, and in particular, the actions to be carried out by the FROB, (iv) establishing the regime applicable to the FROB in connection with the managing of the funds addressed to finance the resolution procedures and to the contributions that credit entities must make to the National Resolution Fund and, (v) establishing the regime applicable to the resolution of cross border entities.

Law 5/2015 of April 27, on promoting corporate financing

Among other matters, Law 5/2015 establishes a number of changes to encourage bank financing to SMEs, sets out the new legal framework for financial credit entities and regulates crowd funding. Law 5/2015 has also introduced amendments on other matters, including securitizations and debt issuance. It consolidates into one piece of legislation what has, until now, been a dispersed legal framework on securitization.

Law 5/2015 imposes an obligation on credit institutions to provide SMEs at least three months prior notice in the event the funding flow to an SME is to be cancelled or reduced by at least 35%. In so doing, the law aims to provide SMEs sufficient time to find new funding sources or to adjust the management of their own funds to avoid sudden liquidity deficiencies.

The main novelties of this new regime are the following: (i) private limited liability companies (sociedades limitadas or S.L.s) can issue and guarantee standard debt securities issuances capped at twice their own funds, (ii) the quantitative limit on debt issuances by non-listed public limited liability companies (sociedades anónimas or S.A.s) is removed, (iii) the management body of an issuer is authorized to approve standard debt securities issuances which do not yield part of the profits, unless stated otherwise in the issuer’s articles of association and (iv) it is clarified that it is unnecessary to appoint a commissioner and set up a syndicate of bondholders in debt issuances governed by foreign law and aimed at international markets.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010 of April 28, has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions are subject to this law, which establishes applicable due diligence, internal controls and reporting obligations.

Royal Decree-Law 11/2018, of August 31, amended Law 10/2010 by establishing additional obligations for the purpose of preventing money laundering and terrorist financing, as well as modifying the sanctions regime and establishment of complaint channels. This law implemented Directive 2015/849 of May 20, 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation or “GDPR”) aims to achieve effective protection of personal data, provide natural persons in all member states with the same level of legally enforceable rights and obligations regarding personal data, and imposes responsibilities on data controllers and processors to ensure consistent monitoring of the processing of personal data.

Organic Law 3/2018 of December 5 on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.

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Markets in Financial Instruments (MiFID II)

Royal Decree-Law 14/2018, of September 28, modifies the Stock Markets Law to partially implement Directive 2014/65 relating to the markets of financial instruments (“MiFID II”), which process began under Royal Decree-Law 21/2017. This Royal Decree-Law aims to improve the soundness, transparency and regulation of the Spanish financial market’s trading activities, increase investor protection and harmonize Spanish financial markets regulations with those of other member states.

PRIIPs

Regulation (EU) 1286/2014 (The Packaged Retail and Insurance-Based Investment Products (“PRIIPs”) Regulation) was adopted on December 29, 2014 and came into force on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling PRIIPs to provide retail investors based in the European Economic Area (“EEA”) with KIDs to enable investors to better understand and compare products.

A PRIIP is defined as any investment where the amount repayable to the investor is subject to fluctuations because of exposure to reference values. In addition to insurance products, some examples of PRIIPs are options, futures, CFDs and structured products.

The main objectives of the PRIIPs Regulation are to: (i) ensure understanding and comparability between similar products in order to help the investors make investment decisions, (ii) improve transparency and increase confidence in the retail investment market and (iii) promote a single European insurance market.

EMIR

The European Commission has proposed various amendments to the European Market Infrastructure Regulation (“EMIR”), as part of its Regulatory Fitness and Performance Program. Some of those changes may affect the definition of non-financial counterparties and clearing obligations (including the elimination of the frontloading requirement, the introduction of an exemption for small financial counterparties from their clearing obligations and certain changes to reporting obligations). The proposed changes are not expected to significantly affect BBVA’s operations.

EPSV

On December 29, 2017, the Finance Direction of the Basque Government issued Instruction 1/2017 modifying obligations for certain types of pension funds (entidades de previsión social voluntaria). It establishes rules on corporate governance and deposits of these entities.

U.S. Regulation

BBVA is a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”). As such, BBVA is subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). BBVA has also elected to become a financial holding company. BBVA’s New York branch is supervised by the Federal Reserve through the Federal Reserve Bank of New York, as well as licensed and supervised by the New York State Department of Financial Services. BBVA Compass, including its main bank subsidiary Compass Bank, is regulated extensively under U.S. federal and state law. In addition, certain of BBVA Compass’ non-bank subsidiaries are subject to regulation under U.S. federal and state law.

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The legislative, regulatory and supervisory framework in the United States governing the financial services sector has undergone significant change since the financial crisis and the passage of the D odd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) . Moreover, the intensity of supervisory and regulatory scrutiny has also increased. In response President Donald J. Trump issued an executive order that sets forth principles for the reform of the federal financial regulatory framework, and there have been several statutory and regulatory initiatives aimed at providing relief for the financial services industry. In May 2018 the United States Congress passed, and President Trump signed into law, the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”). Under EGRRCPA, bank holding companies with less than $100 billion in total consolidated assets are exempt from certain enhanced prudential standards, while bank holding companies with $100 billion or more but less than $250 billion in total consolidated assets will become exempt from certain enhanced prudential standards in November 2019 unless the Federal Reserve determines that particular enhanced prudential standards should apply. EGRRCPA made clear that the Federal Reserve retained the right to apply enhanced prudential standards to foreign banking organizations with greater than $100 billion in global total consolidated assets, such as BBVA.

In October 2018 the Federal Reserve and other U.S. banking agencies issued proposed rules to adjust, consistent with EGRRCPA, the thresholds at which certain enhanced prudential standards and other capital and liquidity standards apply to U.S. banking organizations with $100 billion or more in total consolidated assets. The proposed rules would not apply to foreign banking organizations, such as BBVA, or the separately capitalized top-tier U.S. intermediate holding company (“IHC”) of foreign banking organizations, such as BBVA Compass Bancshares, Inc. The Federal Reserve indicated that it intends to develop a separate proposal that would implement EGRRCPA for foreign banking organizations. It is not clear whether, and to what extent, BBVA and BBVA Compass would be eligible for regulatory relief under the forthcoming proposal. For the time being, the enhanced prudential standards that applied to BBVA and BBVA Compass Bancshares, Inc. prior to the passage of EGRRCPA remain in effect. BBVA Compass expects few statutory changes to the financial regulatory framework during the current Congress and continues to expect that its business will remain subject to extensive regulation and supervision.

Financial Regulatory Authorities

Owing to its status as a bank holding company, BBVA’s direct and indirect activities and investments in the United States are limited to banking activities and certain non-banking activities that are “closely related to banking,” as determined by the Federal Reserve, and certain other activities permitted under the BHC Act. BBVA also is required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting securities of any U.S. bank or bank holding company. A bank holding company is required to act as a source of financial strength for its U.S. bank subsidiaries. Among other things, this source of strength obligation may result in a requirement for BBVA, as controlling shareholder, to inject capital into its U.S. bank subsidiary. BBVA’s U.S. branches and agencies are also subject to additional liquidity requirements, and in certain cases the entirety of BBVA’s U.S. operations are subject to additional risk management requirements. In addition, BBVA is subject to requirements related to the adequacy and reporting of its home country capital and stress testing standards.

The Federal Reserve’s Regulation YY requires foreign banking organizations with $50 billion or more in U.S. assets held outside of their U.S. branches and agencies to create an IHC. BBVA Compass Bancshares, Inc. is our designated IHC and holds all of BBVA’s U.S. bank and nonbank subsidiaries, including BBVA’s U.S. bank subsidiary, Compass Bank. BBVA Compass Bancshares, Inc. is a bank holding company within the meaning of the BHC Act, has elected to become a financial holding company, and is subject to supervision and regulation by the Federal Reserve through the Federal Reserve Bank of Atlanta. BBVA Compass Bancshares, Inc. is subject to U.S. risk-based and leverage capital requirements, liquidity requirements, capital planning and stress testing requirements, risk management requirements, single counterparty credit limits and other enhanced prudential standards on a consolidated basis. As a bank holding company, it must also act as a source of strength to its bank subsidiaries. BBVA Compass Bancshares, Inc. is also subject to the Alabama State Banking Department’s requirements for bank holding companies that hold Alabama state-chartered banks, like Compass Bank, under the bank holding company laws of the State of Alabama. BBVA Compass Bancshares, Inc. is also subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”).

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Compass Bank is subject to supervision and regulation by a variety of U.S. regulatory agencies. Compass Bank is an Alabama state-chartered bank, is a member of the Federal Reserve System, and has branches in Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas. Compass Bank is supervised and examined by the Federal Reserve, the Alabama State Banking Department and, with respect to consumer financial laws and regulations, the CFPB. In addition, certain aspects of Compass Bank’s branch operations in Arizona, California, Colorado, Florida, New Mexico, and Texas are subject to examination by the respective state banking regulators in such states. Compass Bank is a depository institution insured by, and subject to the regulation of, the Federal Deposit Insurance Corporation (the “FDIC”).

BBVA Bancomer, S.A.’s agency office in Houston, Texas is a non-FDIC insured agency office of BBVA Bancomer, S.A., an indirect subsidiary of BBVA, which is licensed under the laws of the State of Texas and supervised by the Texas Department of Banking and the Federal Reserve.

Bancomer Transfer Services, Inc., a non-banking affiliate of BBVA and a direct subsidiary of BBVA Bancomer USA, Inc., is licensed as a money transmitter by the State of California Department of Business Oversight, the Texas Department of Banking, and certain other state regulatory agencies. Bancomer Transfer Services, Inc. is also registered as a money services business with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury.

BBVA’s indirect U.S. broker-dealer subsidiary, BBVA Securities Inc. (“BSI”), is subject to regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) with respect to its securities activities, as well as various U.S. state regulatory authorities. Additionally, the securities underwriting and dealing activities of BSI are subject to regulation and supervision by the Federal Reserve.

The activities of BBVA’s U.S. investment adviser affiliates are regulated and supervised by the SEC. In addition, Compass Bank has registered with the SEC and the Municipal Securities Rulemaking Board as a municipal advisor pursuant to the Dodd-Frank Act’s municipal advisor registration requirements.

BBVA’s U.S. insurance agency affiliate is subject to regulation and supervision by various U.S. state insurance regulatory authorities.

BBVA is provisionally registered as a “swap dealer” as defined in the Commodity Exchange Act and the regulations promulgated thereunder with the U.S. Commodity Futures Trading Commission (the “CFTC”), which subjects BBVA to regulation and supervision by the CFTC. BBVA’s world-wide swap activities are also subject to regulations adopted by the European Commission pursuant to the European Market Infrastructure Regulation (“EMIR”) and the EU’s Markets in Financial Instruments Directive (“MiFID”) and other European regulations and directives. Compass Bank (and other entities of the BBVA Group) may register as a swap dealer if required by its swap activities or if it is determined to be beneficial to its business.

BBVA is currently assessing whether it will be required to register as a security-based swap dealer with the SEC, once such registration requirement comes into effect.

Enhanced Prudential Standards

In the past few years, The Federal Reserve has imposed greater risk-based and leverage capital requirements, liquidity requirements, capital planning and stress testing requirements, risk management requirements, single counterparty credit limits and other enhanced prudential standards for bank holding companies with $50 billion or more in total consolidated assets, which includes BBVA Compass.

Under the enhanced prudential standard regulations applicable to foreign banking organizations with $50 billion or more in U.S. assets held outside of their U.S. branches and agencies, BBVA designated BBVA Compass Bancshares, Inc. as its IHC. BBVA’s combined U.S. operations are also subject to U.S. risk-based and leverage capital requirements, liquidity requirements, capital planning and stress testing requirements, risk management requirements, and other enhanced prudential standards on a consolidated basis. BBVA’s U.S. branches and agencies (and in certain cases, the entire U.S. operations of BBVA) are also subject to liquidity buffer and risk management requirements. In addition, BBVA is subject to requirements related to the adequacy and reporting of its home country capital and stress testing standards.

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As noted in the “U.S. Regulation” section above, following the passage of EGRRCPA the federal banking agencies have begun to propose rules recalibrating the application of enhanced prudential standards to banking organizations with $100 billion or more in total consolidated assets. The Federal Reserve’s current proposals would not apply to foreign banking organizations, such as BBVA, or the U.S. IHCs of foreign banking organization s, such as BBVA Compass Bancshares, Inc. and it is currently unclear how foreign banking organizations or the U.S. IHCs of foreign banking organizations will be treated under forthcoming proposed rules. Enhanced prudential standards that applied to BBVA or BBVA Compass Bancshares, Inc. prior to the passage of EGRRCPA remain in effect for the time being.

Capital

BBVA Compass Bancshares, Inc. and Compass Bank are subject to the U.S. Basel III capital rule (“U.S. Basel III”), which is based on the Basel III regulatory capital standards established by the Basel Committee. Certain aspects of U.S. Basel III, such as the minimum capital ratios and the methodology for calculating risk-weighted assets, became effective on January 1, 2015 for BBVA Compass Bancshares, Inc. and Compass Bank. The minimum regulatory capital ratios under U.S. Basel III for bank holding companies are the following: Common Equity Tier 1 risk-based capital ratio of 4.5%; Tier 1 risk-based capital ratio of 6.0%; Total risk-based capital ratio of 8.0%; and Tier 1 leverage ratio of 4.0%.

Other aspects of the rule, such as the capital conservation buffer and certain regulatory deductions from and adjustments to capital were phased-in over several years while still others, such as the treatment of certain non-qualifying capital instruments, continue to be phased-in through 2021. As of January 1, 2019, BBVA Compass must maintain a capital conservation buffer of greater than 2.5% to avoid being subject to limitations on its ability to make capital distributions and certain discretionary bonus payments. The Federal Reserve has proposed replacing this 2.5% capital conservation buffer requirement with a dynamic stress capital buffer, as discussed below under “Proposed Stress Buffer Requirements”.

U.S. Basel III also revised the capital thresholds for the prompt corrective action framework for insured depository institutions. Under the prompt corrective action framework, U.S. federal banking regulators rate insured depository institutions on the basis of five capital categories: “well capitalized” (the highest rating), “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized” (the lowest rating). The federal banking regulators are required to take mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to insured depository institutions in the three undercapitalized categories. The severity of those actions would depend upon the capital category to which the insured depository institution is assigned. To qualify as “well capitalized,” Compass Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0%, a Total risk-based capital ratio of at least 10.0%, and a Tier 1 leverage ratio of at least 5.0%, and not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the U.S. Basel III capital rule. For purposes of the Federal Reserve’s Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as BBVA Compass Bancshares, Inc., must maintain a Tier 1 Risk-Based Capital Ratio of 6 percent or greater and a Total Risk-Based Capital Ratio of 10 percent or greater to be well-capitalized. If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to Compass Bank, BBVA Compass Bancshares Inc.’s capital ratios as of December 31, 2017 would exceed such revised well-capitalized standard.

Total Loss-Absorbing Capital and Long-Term Debt Requirements

The Federal Reserve’s final rule on the TLAC of U.S. G-SIBs and the IHCs of non-U.S. G-SIBs does not apply since neither the BBVA Compass nor BBVA are G-SIBs and are therefore not subject to the rule.

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Single Counterparty Credit Limits

In June 2018, the Federal Reserve issued a final rule implementing single counterparty credit limits applicable to the U.S. operations of major foreign banking organizations, such as BBVA, and to the consolidated operations of certain large U.S. IHCs of foreign banking organizations, such as BBVA Compass. The rule will impose percentage limitations on net credit exposures to individual counterparties (aggregated based on affiliation), generally as a percentage of tier 1 capital. These requirements will become effective in January 2020 for Compass Bank and in July 2020 for BBVA Compass, and could adversely affect the financial position of BBVA’s U.S. operations.

Periodic Capital Plans and Stress Testing

Under enhanced prudential standards currently applicable to U.S. IHCs with $50 billion or more of total consolidated assets, BBVA Compass is required to submit periodic capital plans to the Federal Reserve and generally may pay dividends and make other capital distributions only in accordance with a capital plan as to which the Federal Reserve has not objected. Under the Federal Reserve’s Comprehensive Capital Analysis and Review (“CCAR”) process, BBVA Compass’ capital plan must include an assessment of the expected uses and sources of capital over a forward-looking planning horizon of at least nine quarters, a detailed description of BBVA Compass’ process for assessing capital adequacy, BBVA Compass’ capital policy, and a discussion of any expected changes to BBVA Compass’ business plan that are likely to have a material impact on its capital adequacy or liquidity. Based on a quantitative assessment, including a supervisory stress test conducted as part of the CCAR process, the Federal Reserve will either object to BBVA Compass’ capital plan, in whole or in part, or provide a notice of non-objection to BBVA Compass. If the Federal Reserve objects to a capital plan, BBVA Compass may not make any capital distribution other than those with respect to which the Federal Reserve has indicated its non-objection.

Under revised CCAR rules that became effective on March 6, 2017, the Federal Reserve is no longer allowed to object to the capital plans of large and noncomplex bank holding companies, including BBVA Compass, on a qualitative, as opposed to quantitative, basis. Instead, the Federal Reserve may evaluate the strength of BBVA Compass’ qualitative capital planning process through the regular supervisory process and targeted horizontal reviews of particular aspects of capital planning.

In addition to capital planning requirements BBVA Compass and Compass Bank are subject to stress testing requirements under the Federal Reserve’s enhanced prudential standards rule and the Dodd-Frank Act. BBVA Compass must conduct periodic company-run stress tests and is subject to a periodic supervisory stress test conducted by the Federal Reserve.

For the capital plan and stress test cycle that began January 1, 2018, BBVA Compass submitted its capital plan to the Federal Reserve in April 2018 and the Federal Reserve published summary results on June 28, 2018. The Federal Reserve did not object to BBVA Compass’ 2018 capital plan. On February 5, 2019, the Federal Reserve announced that certain less-complex U.S. bank holding companies and U.S. IHCs with less than $250 billion in total consolidated assets, including BBVA Compass, would not be subject to supervisory stress testing, company-run stress testing or the CCAR process for the 2019 capital plan and stress test cycle. Although management believes that capital plans that BBVA Compass plans to submit will be reasonable and fiscally sound, BBVA Compass can make no assurances that the Federal Reserve will not object to BBVA Compass’ capital plans.

Proposed Stress Buffer Requirements

On April 10, 2018, the Federal Reserve issued a proposal to integrate its capital planning and stress testing requirements with certain ongoing regulatory capital requirements. The proposal, which would apply to the consolidated operations of U.S. IHCs, including BBVA Compass, would introduce a stress capital buffer and a stress leverage buffer, or stress buffer requirements, and related changes to the capital planning and stress testing processes.

For risk-based capital requirements, the stress capital buffer would replace the existing capital conservation buffer, which is now 2.5%. The stress capital buffer would equal the greater of (i) the maximum decline in our Common Equity Tier 1 Risk-Based Capital Ratio under the severely adverse scenario over the supervisory stress test measurement period, plus the sum of the ratios of the dollar amount of our planned common stock dividends to our projected risk-weighted assets for each of the fourth through seventh quarters of the supervisory stress test projection period, and (ii) 2.5%.

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Like the stress capital buffer, the stress leverage buffer would be calculated based on the results of our most recent supervisory stress tests. The stress leverage buffer would equal the maximum decline in our Tier 1 leverage ratio under the severely adverse scenario, plus the sum of the ratios of the dollar amount of our planned common stock dividends to our projected leverage ratio denominator for each of the fourth through seventh quarters of the supervisory stress test projection period. No floor would be established for the stress leverage buffer, which would apply in addition to the current minimum Tier 1 leverage ratio of 4%.

The proposal would make related changes to capital planning and stress testing processes for the consolidated operations of U.S. IHCs subject to the stress buffer requirements. In particular, the proposal would limit projected capital actions to planned common stock dividends in the fourth through seventh quarters of the supervisory stress test projection period and would assume that the consolidated operations of IHCs maintain a constant level of assets and risk-weighted assets throughout the supervisory stress test projection period.

In November 2018, the Federal Reserve’s Vice Chairman for Supervision stated that the Federal Reserve does not expect that the proposed stress buffer requirements will go into effect before 2020, and that, while the Federal Reserve expects to finalize certain elements of those requirements as proposed, other elements of the proposal will be re-proposed and again subject to public comment.

Liquidity

The Federal Reserve and other federal banking regulators have issued liquidity coverage ratio (“LCR”) requirements, which are based on the Basel Committee’s LCR standard and are designed to ensure that covered banking organizations have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. This standard’s objective is to promote the short-term resilience of the liquidity risk profile of banking organizations. As a consolidated U.S. bank holding company with total assets of $50 billion or more that is not an advanced approaches bank holding company, BBVA Compass is subject to a modified version of the LCR, pursuant to which, as of January 1, 2017, BBVA Compass has been required to maintain a minimum of 100% of the fully phased-in modified LCR. In addition, as of October 1, 2018, BBVA Compass is required to disclose certain quantitative and qualitative information related to its LCR calculation after each calendar quarter. Required disclosures include disclosure of the consolidated LCR, based on averages over the prior quarter, as well as consolidated HQLA amounts broken down by each HQLA category.

Under the federal banking agency proposals implementing EGRRCPA for U.S. banking organizations, BBVA Compass would no longer be subject to the LCR. Although these proposals are not yet final, the Federal Reserve has stated that it will not take action to require bank holding companies with less than $100 billion in total consolidated assets, including BBVA Compass, to comply with certain existing regulatory requirements, including the LCR requirements. It is unclear how the anticipated proposal implementing EGRRCPA for foreign banking organizations and U.S. IHCs of foreign banking organizations would affect the applicability of the LCR for BBVA Compass.

In April 2016, the Federal Reserve and other federal banking regulators proposed a rule to implement a net stable funding ratio (“NSFR”), which is based on additional quantitative liquidity standards developed by the Basel Committee and is designed to ensure that an institution maintains sufficiently stable funding over a one-year time horizon. The proposal includes a modified, less stringent version of the NSFR that would apply to consolidated U.S. bank holding companies with total assets of $50 billion or more that are not advanced approaches bank holding companies, such as BBVA Compass.

Resolution Planning

Under Title I of the Dodd-Frank Act and implementing regulations issued by the Federal Reserve and the FDIC, BBVA must prepare and submit annually a plan for the orderly resolution of its U.S. subsidiaries and U.S. operations in the event of future material financial distress or failure (the “Title I Resolution Plan”). For foreign-based companies subject to these resolution planning requirements, such as BBVA, the Title I Resolution Plan relates to subsidiaries, branches, agencies and businesses that are domiciled in, or whose activities are carried out in whole or in material part in, the United States. BBVA filed its most recent Title I Resolution Plan in December 2018. In addition, Compass Bank is subject to the FDIC rule requiring insured depository institutions with total assets of $50 billion or more to submit periodically to the FDIC a plan for resolution in the event of failure under the Federal Deposit Insurance Act. Compass Bank’s most recent plan under the FDIC rule was submitted on July 1, 2018.

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The deadline for the BBVA’s next Title I Resolution Plan submission is currently unclear, as senior representatives from the Federal Reserve and FDIC have recently indicated that the annual submission requirement may be relaxed under a forthcoming revised 165(d) rule. FDIC Chairman Jelena McWilliams has indicated that no firm will be required to submit another FDIC rule plan until the FDIC issues a revised FDIC rule.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as Compass Bank, and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, and permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of funds under certain conditions. In the case of non-U.S. banking entities, such as BBVA, there is also an exemption permitting activities conducted solely outside of the United States, provided that certain criteria are satisfied. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities.

In May 2018, the five regulatory agencies charged with implementing the Volcker Rule released proposed amendments to the current Volcker Rule regulations. The proposal would tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information that covered entities are required to provide to regulatory agencies. If adopted, the proposed changes regarding the definition of trading account would likely expand the scope of investing and trading activities subject to the Volcker Rule’s restrictions. BBVA Compass is of the view that the impact of the Volcker Rule or proposed amendments to the Volcker Rule is not material to its business operations.

Derivatives

Title VII of the Dodd-Frank Act amended the Commodity Exchange Act and the Securities Exchange Act of 1934 to establish a comprehensive framework for the regulation of over-the-counter (“OTC”) derivatives by the CFTC and the SEC, including by imposing mandatory clearing, exchange trading and transaction reporting requirements on such derivatives. In addition, Title VII required the CFTC and SEC to adopt rules regarding the registration of certain entities that deal or are major market participants in certain OTC derivatives, as well as rules imposing capital, margin, business conduct, record keeping and other requirements on such entities. While the CFTC has completed the majority of its regulations in this area, most of which are in effect, the SEC has not yet adopted a number of its Title VII regulations. In December 2016, the CFTC reproposed regulations to impose position limits on certain futures and option contracts in specified energy, metal and agricultural commodities and for economically equivalent swaps. This proposal has not yet been finalized. In addition, the Federal Reserve, FDIC, Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency adopted final rules establishing initial and variation margin requirements for non-cleared swaps and security-based swaps between certain entities, while the CFTC adopted final rules establishing initial and variation margin requirements for non-cleared swaps between certain entities. All swap dealers must currently comply with the variation margin requirements (to the extent applicable to a particular transaction); however, the initial margin requirements are still being phased in, generally based on the transactional volume of the parties and their affiliates.

In general, as a non-U.S. swap dealer, BBVA is not subject to all CFTC requirements, including certain business conduct standards, when entering into swaps with non-U.S. counterparties. In addition, subject to conditions, BBVA may comply with EU OTC derivatives requirements in lieu of some CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued by the CFTC.

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Deposit Insurance and Assessments

Deposits at Compass Bank are insured by the Deposit Insurance Fund (“DIF”) as administered by the FDIC, up to the applicable limits established by law. The DIF is funded through assessments on banks, such as Compass Bank. Changes in the methodology used to calculate these assessments resulting from the Dodd-Frank Act increased the assessments that Compass Bank is required to pay to the FDIC. In addition, in March 2016, the FDIC issued a final rule imposing a surcharge on the assessments of insured depository institutions with total consolidated assets of $10 billion or more, such as Compass Bank, to raise the DIF’s reserve ratio. These surcharges ceased, effective October 1, 2018, as a result of the FDIC’s reserve ration exceeding 1.35%. The FDIC also collects Financing Corporation deposit assessments, which are calculated off of the assessment base established by the Dodd-Frank Act. Compass Bank pays the DIF assessment as well as the Financing Corporation assessments.

Revised Supervisory Rating System and Corporate Governance Expectations for IHCs

In November 2018, the Federal Reserve issued a final rule to revise its supervisory rating system for “Large Financial Institutions”, the definition of which includes, among other entities, IHCs established pursuant to the Federal Reserve’s Regulation YY, including BBVA Compass. Under the rule, Large Financial Institutions will receive separate ratings from the Federal Reserve for (1) capital planning and positions, (2) liquidity risk management and positions and (3) governance and controls. Each of these component areas will receive one of the following four ratings: (i) Broadly Meets Expectations, (ii) Conditionally Meets Expectations, (iii) Deficient-1, and (iv) Deficient-2. A covered company will need to maintain a rating of “Broadly Meets Expectations” or “Conditionally Meets Expectations” for each of the three components to be considered “well managed.” Existing statutes and regulations provide benefits to firms considered to be “well managed,” such as the ability to engage in additional permitted activities. BBVA Compass is currently scheduled to receive its first ratings under the revised rating system in early 2020. Also in August 2017, the Federal Reserve issued proposed guidance intended to enhance the effectiveness of boards of directors and refocus the Federal Reserve’s supervisory expectations for boards of directors on their core responsibilities, and also to delineate between roles and responsibilities for boards of directors and for senior management. Although the proposed guidance would not directly apply to BBVA Compass, the Federal Reserve solicited comments on how the guidance could be adapted to apply to an IHC, signaling that BBVA Compass could fall within the scope of a related future proposal.

Transactions with Affiliates and Insiders

The Dodd-Frank Act broadened the application of Sections 23A and 23B of Federal Reserve Act, although the Federal Reserve has not yet implemented such changes in Regulation W (“Reg W”). Reg W places various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to borrowing or otherwise obtaining credit from their U.S. banking affiliates or engaging in certain other transactions involving those subsidiaries. Such transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral, and are subject to quantitative limitations. Under the Dodd-Frank Act changes, credit exposure arising from derivative transactions, securities borrowing and lending transactions, and repurchase/reverse repurchase agreements are subject to the collateral and quantitative limitations. The Reg W restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

Consumer Protection Regulations

The regulations that the CFPB may adopt could affect the nature of the consumer activities that BBVA Compass Bancshares, Inc., Compass Bank and BBVA’s New York branch may conduct, and may impose restrictions and limitations on the conduct of such activities. The CFPB has promulgated many mortgage-related rules since it was established under the Dodd-Frank Act, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements and appraisal and escrow standards for higher-priced mortgages. These rules have created operational and strategic challenges for Compass Bank, as it is both a mortgage originator and a servicer.

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Durbin Amendment’s Rules Affecting Debit Card Interchange Fees

Under the Durbin Amendment to the Dodd-Frank Act, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction, a 1 cent fraud prevention adjustment, and 5 basis points multiplied by the value of the transaction.

Incentive Compensation Regulations and Other Regulations Applicable to SEC-regulated Entities

The Dodd-Frank Act requires the SEC to cause issuers with listed securities, which may include foreign private issuers such as BBVA, to establish a “claw back” policy to recoup previously awarded employee compensation in the event of an accounting restatement. The SEC proposed rules in 2015 to implement this provision. In addition, the Dodd-Frank Act requires U.S. regulatory agencies to prescribe regulations with respect to incentive-based compensation at financial institutions in order to prevent inappropriate behavior that could lead to a material financial loss. In 2016, federal regulators reproposed a rule that would require, among other things, the deferral of a percentage of certain incentive-based compensation for senior executives and certain other employees and, under certain circumstances, clawback of incentive-based compensation.

The Dodd-Frank Act also grants the SEC discretionary rule-making authority to impose a new fiduciary standard on brokers, dealers and investment advisers, and expands the extraterritorial jurisdiction of U.S. courts over actions brought by the SEC or the United States with respect to violations of the antifraud provisions in the Securities Act, the Exchange Act and the Investment Advisers Act of 1940.

Anti-Money Laundering; Office of Foreign Assets Control

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to BBVA and certain of its affiliates impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering. In particular, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), as amended, requires financial institutions operating in the United States to, among other things, (i) give special attention to correspondent and payable-through bank accounts, (ii) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (iii) scrutinize the beneficial ownership and activity of certain non-U.S. and private banking customers (especially for so-called politically exposed persons), and (iv) develop and maintain anti-money laundering programs, customer identification procedures, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement compliance programs with respect to the sanctions programs administered by the Office of Foreign Assets Control. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

Cybersecurity

In October 2016, the federal banking regulators issued an advance notice of proposed rulemaking regarding enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers, including BBVA Compass and its U.S. bank subsidiaries. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management; management of internal and external dependencies; and incident response, cyber resilience and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.

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Cybersecurity is also an area of increasing state legislative focus. For example, in June of 2018, the Governor of California signed into law the California Consumer Protection Act (“CCPA”). The new law, which becomes effective on January 1, 2020, applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds. The CCPA will give consumers the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising their rights. The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed, sold or disclosed pursuant to the Gramm-Leach-Bliley Act (GLBA) if the GLBA is in conflict with the CCPA. The impact of the CCPA on BBVA Compass’ business is under review.

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

The BBVA Group discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.

The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure:

Legacy contractual obligations related to counter indemnities. Before 2007, the BBVA Group issued certain counter indemnities to its non-Iranian customers in Europe for various business activities relating to Iran in support of guarantees provided by Bank Melli, one of which remained outstanding as of January 1, 2018 and was executed on October 16, 2018, triggering a payment of €21,427.96. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.

Iranian embassy-related activity. The BBVA Group maintains bank accounts in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the year ended December 31, 2018, from embassy-related activity, which include fees and/or commissions, totaled €1,899.33. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.

## C. Organizational Structure

As of December 31, 2018, the BBVA Group was composed of 297 consolidated entities and 66 entities accounted for using the equity method.

The companies comprising the BBVA Group are principally domiciled in the following countries: Argentina, Belgium, Bolivia, Brazil, Cayman Islands, Chile, Colombia, France, Germany, Ireland, Italy, Luxembourg, Mexico, Netherlands, Peru, Poland, Portugal, Spain, Switzerland, Turkey, United Kingdom, United States of America, Uruguay and Venezuela. In addition, BBVA has an active presence in Asia.

Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2018.

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Subsidiary | Country of Incorporation | Activity | BBVA Voting Power | BBVA Ownership | Total Assets (1)
|  |  | (in Percentages) | (In Millions of Euros)
BBVA BANCOMER | Mexico | Bank | 100.00 | 100.00 | 85,624
COMPASS BANK | The United States | Bank | 100.00 | 100.00 | 68,737
GARANTI | Turkey | Bank | 49.85 | 49.85 | 57,999
BBVA BANCO CONTINENTAL, S.A. | Peru | Bank | 92.24 | 46.12 | 18,923
BBVA SEGUROS, S.A., DE SEGUROS Y REASEGUROS | Spain | Insurance | 99.96 | 99.96 | 17,343
BBVA COLOMBIA, S.A. | Colombia | Bank | 95.46 | 95.46 | 16,309
BBVA BANCO FRANCES, S.A. | Argentina | Bank | 66.55 | 66.55 | 8,161
PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER | Mexico | Insurance | 100.00 | 100.00 | 4,484
SEGUROS BBVA BANCOMER S.A. DE C.V. GRUPO FINANCIERO BBVA BANCOMER | Mexico | Insurance | 100.00 | 100.00 | 4,014
GARANTIBANK INTERNATIONAL NV | Netherlands | Bank | 100.00 | 100.00 | 4,141

(1) Information for non-EU subsidiaries has been calculated using the prevailing exchange rates on December 31, 2018.

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## D. Property, Plants and Equipment

We own and rent a substantial network of properties in Spain and abroad, including 2,840 branch offices in Spain and, principally through our various subsidiaries, 5,123 branch offices abroad as of December 31, 2018. As of December 31, 2018, approximately 67% of our branches in Spain and 63% of our branches abroad (58% excluding those branches relating to the Garanti group) were rented from third parties pursuant to short-term leases that may be renewed by mutual agreement.

## E. Selected Statistical Information

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our determination, where applicable, that our foreign operations are significant according to Rule 9-05 of Regulation S-X. The allocation of assets and liabilities is based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of the Group entities domiciled outside of Spain, which reflect our foreign activities.

Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.

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| Average Balance Sheet - Assets and Interest from Earning Assets
| Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016
| Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1)
| (In Millions of Euros, Except Percentages)
Assets |  |  |  |  |  |  |  |  |
Cash and balances with central banks and other demand deposits | 42,730 | 135 | 0.32% | 33,917 | 83 | 0.25% | 26,209 | 10 | 0.05%
Domestic | 19,883 | 43 | 0.22% | 12,150 | 34 | 0.28% | 7,769 | - | -
Foreign | 22,847 | 92 | 0.40% | 21,767 | 50 | 0.23% | 18,441 | 10 | 0.05%
Debt securities and derivatives | 179,672 | 5,707 | 3.18% | 177,164 | 4,724 | 2.67% | 202,388 | 5,072 | 2.51%
Domestic | 116,998 | 1,212 | 1.04% | 110,491 | 1,089 | 0.99% | 133,009 | 1,772 | 1.33%
Foreign | 62,674 | 4,495 | 7.17% | 66,673 | 3,636 | 5.45% | 69,379 | 3,300 | 4.76%
Financial assets | 410,149 | 23,719 | 5.78% | 444,518 | 24,003 | 5.40% | 454,299 | 22,301 | 4.91%
Loans and advances to central banks | 5,518 | 258 | 4.67% | 10,945 | 258 | 2.36% | 15,326 | 229 | 1.50%
Loans and advances to credit institutions | 25,634 | 657 | 2.56% | 26,420 | 485 | 1.83% | 28,078 | 218 | 0.78%
Loans and advances to customers | 378,996 | 22,804 | 6.02% | 407,153 | 23,261 | 5.71% | 410,895 | 21,853 | 5.32%
In euros | 181,668 | 3,381 | 1.86% | 196,893 | 3,449 | 1.75% | 201,967 | 3,750 | 1.86%
Domestic | 172,561 | 3,276 | 1.90% | 187,281 | 3,377 | 1.80% | 192,186 | 3,685 | 1.92%
Foreign | 9,107 | 105 | 1.16% | 9,612 | 72 | 0.75% | 9,781 | 65 | 0.66%
In other currency | 197,328 | 19,423 | 9.84% | 210,261 | 19,812 | 9.42% | 208,928 | 18,104 | 8.67%
Domestic | 14,825 | 511 | 3.45% | 15,329 | 403 | 2.63% | 15,355 | 348 | 2.27%
Foreign | 182,503 | 18,912 | 10.36% | 194,932 | 19,409 | 9.96% | 193,573 | 17,756 | 9.17%
Other assets(2) | 46,343 | 270 | 0.58% | 48,872 | 485 | 0.99% | 52,748 | 325 | 0.62%
Total average assets (3) | 678,893 | 29,831 | 4.39% | 704,471 | 29,296 | 4.16% | 735,645 | 27,708 | 3.77%

(1) Rates have been presented on a non-taxable equivalent basis.

(2) Includes “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures, associates and unconsolidated subsidiaries”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups held for sale”.

(3) Foreign activity represented 45.28% of the total average assets for the year ended December 31, 2018, 46.99% for the year ended December 31, 2017 and 49.84% for the year ended December 31, 2016.

83

| Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities
| Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016
| Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1) | Average Balance | Interest | Average Yield (1)
| (In Millions of Euros, Except Percentages)
Liabilities |  |  |  |  |  |  |  |  |
Deposits from central banks and credit institutions | 65,044 | 2,192 | 3.37% | 90,619 | 2,212 | 2.44% | 101,975 | 1,866 | 1.83%
Customer deposits | 370,078 | 6,559 | 1.77% | 392,057 | 7,007 | 1.79% | 398,851 | 5,944 | 1.49%
In euros | 178,370 | 337 | 0.19% | 186,261 | 461 | 0.25% | 195,310 | 766 | 0.39%
Domestic | 169,163 | 323 | 0.19% | 176,429 | 447 | 0.25% | 185,046 | 739 | 0.40%
Foreign | 9,206 | 14 | 0.16% | 9,832 | 14 | 0.14% | 10,264 | 26 | 0.26%
In other currency | 191,709 | 6,222 | 3.25% | 205,796 | 6,546 | 3.18% | 203,541 | 5,178 | 2.54%
Domestic | 10,738 | 130 | 1.21% | 12,076 | 95 | 0.78% | 11,543 | 39 | 0.34%
Foreign | 180,971 | 6,092 | 3.37% | 193,720 | 6,451 | 3.33% | 191,998 | 5,139 | 2.68%
Debt certificates | 75,927 | 1,753 | 2.31% | 84,221 | 1,631 | 1.94% | 89,876 | 1,738 | 1.93%
Other liabilities (2) | 115,638 | 1,735 | 1.50% | 82,699 | 687 | 0.83% | 89,328 | 1,101 | 1.23%
Total average liabilities | 626,688 | 12,239 | 1.95% | 649,597 | 11,537 | 1.78% | 680,029 | 10,648 | 1.57%
Shareholders’ equity | 52,206 | - | - | 54,874 | - | - | 55,616 | - | -
Total average liabilities and equity (3) | 678,893 | 12,239 | 1.80% | 704,471 | 11,537 | 1.64% | 735,645 | 10,648 | 1.45%

(1) Rates have been presented on a non-taxable equivalent basis.

(2) Includes “Financial liabilities held for trading”, “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3) Foreign activity represented 47.54% of the total average liabilities for the year ended December 31, 2018, 46.99% for the year ended December 31, 2017 and 45.62% for the year ended December 31, 2016.

84

Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the year ended December 31, 2018 compared with the year ended December 31, 2017 and the year ended December 31, 2017 compared with the year ended December 31, 2016. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period in which they are due. Loan fees were included in the computation of interest income.

| 2018 / 2017
| Increase (Decrease) Due to Changes in
| Volume (1) | Rate (2) | Net Change
| (In Millions of Euros)
Interest income |  |  |
Cash and balances with central banks | 22 | 30 | 51
Securities portfolio and derivatives | 67 | 916 | 983
Loans and advances to central banks | (128) | 128 | (0)
Loans and advances to credit institutions | (14) | 187 | 172
Loans and advances to customers | (1,609) | 1,152 | (456)
In euros | (267) | 199 | (68)
Domestic | (265) | 165 | (101)
Foreign | (1) | 34 | 33
In other currencies | (1,219) | 830 | (389)
Domestic | (13) | 121 | 108
Foreign | (1,205) | 708 | (497)
Other assets | (25) | (190) | (215)
Total income | - | - | 535
Interest expense |  |  |
Deposits from central banks and credit institutions | (624) | 604 | (20)
Customer deposits | (393) | (55) | (448)
In euros | (20) | (104) | (124)
Domestic | (18) | (106) | (125)
Foreign | (1) | 2 | 1
In other currencies | (448) | 124 | (324)
Domestic | (10) | 46 | 36
Foreign | (438) | 78 | (360)
Debt certificates | (161) | 282 | 122
Other liabilities | 274 | 774 | 1,048
Total expense | - | - | 702
Net interest income | - | - | (167)

(1) The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2) The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

85

| 2017 / 2016
| Increase (Decrease) Due to Changes in
| Volume (1) | Rate (2) | Net Change
| (In Millions of Euros)
Interest income |  |  |
Cash and balances with central banks | 3 | 71 | 74
Securities portfolio and derivatives | (632) | 285 | (347)
Loans and advances to central banks | (66) | 94 | 29
Loans and advances to credit institutions | (13) | 279 | 266
Loans and advances to customers | (199) | 1,606 | 1,408
In euros | (94) | (206) | (301)
Domestic | (94) | (214) | (308)
Foreign | (0) | 7 | 7
In other currencies | 115 | 1,593 | 1,708
Domestic | (1) | 56 | 55
Foreign | 116 | 1,537 | 1,653
Other assets | (24) | 184 | 160
Total income | - | - | 1,588
Interest expense |  |  |
Deposits from central banks and credit institutions | (208) | 554 | 346
Customer deposits | (101) | 1,164 | 1,063
In euros | (35) | (269) | (305)
Domestic | (34) | (258) | (292)
Foreign | (1) | (12) | (13)
In other currencies | 57 | 1,311 | 1,368
Domestic | 2 | 54 | 56
Foreign | 56 | 1,256 | 1,312
Debt certificates | (109) | 3 | (106)
Other liabilities | (82) | (332) | (414)
Total expense | - | - | 889
Net interest income | - | - | 699

(1) The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2) The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

86

Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the years indicated.

| December 31,
| 2018 | 2017 | 2016
| (In Millions of Euro, Except Percentages)
Average interest earning assets | 632,501 | 655,599 | 682,897
Gross yield(1) | 4.7% | 4.5% | 4.1%
Net yield(2) | 4.4% | 4.2% | 3.8%
Net interest margin(3) | 2.8% | 2.7% | 2.5%
Average effective rate paid on all interest-bearing liabilities | 2.4% | 2.0% | 1.8%
Spread(4) | 2.3% | 2.4% | 2.3%

(1) Gross yield represents total interest income divided by average interest earning assets.

(2) Net yield represents total interest income divided by total average assets.

(3) Net interest margin represents net interest income as percentage of average interest earning assets.

(4) Spread is the difference between gross yield and the average cost of interest-bearing liabilities.

87

ASSETS

Interest-Bearing Deposits in Other Banks

As of December 31, 2018, interbank deposits (excluding deposits with central banks) represented 3.5% of our total assets. Of such interbank deposits, 14.6% were held outside of Spain and 85.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of December 31, 2018, our total securities portfolio (consisting of investment securities and loans and advances) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of €115,918 million, representing 17.1% of our total assets. €24,370 million, or 21.0%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during 2018 on the investment securities that BBVA held was 4.4%, compared with an average yield of approximately 5.8% earned on loans and advances during 2018. See Notes 10 and 13 to our Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 16 to our Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to our Consolidated Financial Statements.

The following tables analyze the amortized cost and fair value, as of December 31, 2018, of debt securities recorded under “Financial assets at fair value through other comprehensive income” in our Consolidated Financial Statements and, as of December 31, 2017 and December 31, 2016, of debt securities recorded under “Available for sale financial assets” and “Held-to-maturity investments” in the consolidated financial statements included in the annual reports on Form 20-F for such years. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018. Financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss and financial assets designated at fair value through profit or loss are not included in the tables below because the amortized costs and fair values of these items are the same. See Notes 8 and 13 to our Consolidated Financial Statements.

88

| As of December 31, 2018
| Amortized cost | Fair Value (1) | Unrealized Gains | Unrealized Losses
| (In Millions of Euros)
DEBT SECURITIES |  |  |  |
AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO |  |  |  |
Domestic | 18,802 | 19,553 | 761 | (10)
Spanish Government and other government agencies debt securities | 17,205 | 17,857 | 661 | (9)
Other debt securities | 1,597 | 1,696 | 100 | (1)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 793 | 855 | 63 | -
Issued by other institutions | 804 | 841 | 37 | (1)
Foreign | 34,521 | 34,157 | 392 | (758)
The United States | 14,507 | 14,338 | 47 | (217)
U.S. Treasury and other U.S. Government agencies debt securities | 7,285 | 7,258 | 29 | (56)
States and political subdivisions debt securities | 3,942 | 3,872 | 8 | (79)
Other debt securities | 3,280 | 3,208 | 10 | (82)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 49 | 50 | 1 | -
Issued by other institutions | 3,231 | 3,158 | 9 | (82)
Mexico | 6,299 | 6,163 | 6 | (142)
Mexican Government and other government agencies debt securities | 5,286 | 5,169 | 4 | (121)
Other debt securities | 1,013 | 994 | 2 | (21)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 35 | 34 | - | (1)
Issued by other institutions | 978 | 961 | 2 | (20)
Turkey | 4,164 | 3,916 | 20 | (269)
Turkey Government and other government agencies debt securities | 4,007 | 3,771 | 20 | (256)
Other debt securities | 157 | 145 | - | (13)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 157 | 145 | - | (13)
Issued by other institutions | - | - | - | -
Other countries | 9,551 | 9,740 | 319 | (130)
Other foreign governments and other government agencies debt securities | 4,510 | 4,601 | 173 | (82)
Other debt securities | 5,041 | 5,139 | 146 | (48)
Issued by Central Banks | 987 | 986 | 2 | (4)
Issued by credit institutions | 1,856 | 1,947 | 111 | (20)
Issued by other institutions | 2,197 | 2,206 | 33 | (25)
AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO | 53,323 | 53,709 | 1,153 | (768)
(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

89

| As of December 31, 2017
| Amortized cost | Fair Value (1) | Unrealized Gains | Unrealized Losses
| (In Millions of Euros)
DEBT SECURITIES |  |  |  |
AVAILABLE FOR SALE PORTFOLIO |  |  |  |
Domestic | 24,716 | 25,605 | 906 | (17)
Spanish Government and other government agencies debt securities | 22,765 | 23,539 | 791 | (17)
Other debt securities | 1,951 | 2,066 | 114 | -
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 891 | 962 | 72 | -
Issued by other institutions | 1,061 | 1,103 | 43 | -
Foreign | 40,557 | 40,647 | 661 | (572)
The United States | 12,479 | 12,317 | 36 | (198)
U.S. Treasury and other U.S. Government agencies debt securities | 3,052 | 3,018 | - | (34)
States and political subdivisions debt securities | 5,573 | 5,482 | 8 | (99)
Other debt securities | 3,854 | 3,817 | 28 | (65)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 56 | 57 | 1 | -
Issued by other institutions | 3,798 | 3,759 | 26 | (65)
Mexico | 9,755 | 9,658 | 45 | (142)
Mexican Government and other government agencies debt securities | 8,101 | 8,015 | 34 | (120)
Other debt securities | 1,654 | 1,643 | 11 | (22)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 212 | 209 | 1 | (3)
Issued by other institutions | 1,442 | 1,434 | 10 | (19)
Turkey | 5,052 | 4,985 | 48 | (115)
Turkey Government and other government agencies debt securities | 5,033 | 4,967 | 48 | (114)
Other debt securities | 19 | 19 | 1 | (1)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 19 | 19 | - | (1)
Issued by other institutions | - | - | - | -
Other countries | 13,271 | 13,687 | 533 | (117)
Other foreign governments and other government agencies debt securities | 6,774 | 7,022 | 325 | (77)
Other debt securities | 6,497 | 6,664 | 208 | (40)
Issued by Central Banks | 1,330 | 1,331 | 2 | (1)
Issued by credit institutions | 2,535 | 2,654 | 139 | (19)
Issued by other institutions | 2,632 | 2,679 | 66 | (19)
TOTAL AVAILABLE FOR SALE PORTFOLIO | 65,273 | 66,251 | 1,567 | (588)
HELD TO MATURITY PORTFOLIO |  |  |  |
Domestic | 5,984 | 6,043 | 59 | -
Spanish Government and other government agencies debt securities | 5,754 | 5,812 | 58 | -
Other domestic debt securities | 230 | 231 | 1 | -
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 203 | 204 | 1 | -
Issued by other institutions | 27 | 27 |  | -
Foreign | 7,770 | 7,759 | 30 | (42)
Government and other government agencies debt securities | 6,864 | 6,844 | 18 | (39)
Other debt securities | 906 | 915 | 12 | (3)
TOTAL HELD TO MATURITY PORTFOLIO | 13,754 | 13,801 | 89 | (42)
TOTAL DEBT SECURITIES | 79,027 | 80,053 | 1,656 | (630)
(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

90

| As of December 31, 2016
| Amortized cost | Fair Value (1) | Unrealized Gains | Unrealized Losses
| (In Millions of Euros)
DEBT SECURITIES |  |  |  |
AVAILABLE FOR SALE PORTFOLIO |  |  |  |
Domestic | 24,731 | 25,540 | 828 | (19)
Spanish Government and other government agencies debt securities | 22,427 | 23,119 | 711 | (18)
Other debt securities | 2,305 | 2,421 | 117 | (1)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 986 | 1,067 | 82 | -
Issued by other institutions | 1,319 | 1,354 | 36 | (1)
Foreign | 49,253 | 49,040 | 773 | (987)
The United States | 14,256 | 14,043 | 48 | (261)
U.S. Treasury and other U.S. Government agencies debt securities | 1,702 | 1,683 | 1 | (19)
States and political subdivisions debt securities | 6,758 | 6,654 | 8 | (112)
Other debt securities | 5,797 | 5,706 | 39 | (130)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 95 | 97 | 2 | -
Issued by other institutions | 5,702 | 5,609 | 37 | (130)
Mexico | 11,525 | 11,200 | 19 | (343)
Mexican Government and other government agencies debt securities | 9,728 | 9,438 | 11 | (301)
Other debt securities | 1,797 | 1,763 | 8 | (42)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 86 | 87 | 2 | (1)
Issued by other institutions | 1,710 | 1,675 | 6 | (41)
Turkey | 5,550 | 5,443 | 73 | (180)
Turkey Government and other government agencies debt securities | 5,055 | 4,961 | 70 | (164)
Other debt securities | 495 | 482 | 2 | (16)
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 448 | 436 | 2 | (15)
Issued by other institutions | 47 | 46 | - | (1)
Other countries | 17,923 | 18,354 | 634 | (203)
Other foreign governments and other government agencies debt securities | 7,882 | 8,156 | 373 | (98)
Other debt securities | 10,041 | 10,197 | 261 | (105)
Issued by Central Banks | 1,657 | 1,659 | 4 | (2)
Issued by credit institutions | 3,269 | 3,311 | 96 | (54)
Issued by other institutions | 5,115 | 5,227 | 161 | (49)
TOTAL AVAILABLE FOR SALE PORTFOLIO | 73,985 | 74,580 | 1,601 | (1,006)
HELD TO MATURITY PORTFOLIO |  |  |  |
Domestic | 8,625 | 8,717 | 92 | -
Spanish Government and other government agencies debt securities | 8,063 | 8,153 | 90 | -
Other domestic debt securities | 562 | 564 | 2 | -
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 494 | 496 | 2 | -
Issued by other institutions | 68 | 68 | - | -
Foreign | 9,071 | 8,902 | 16 | (185)
Government and other government agencies debt securities | 7,982 | 7,830 | 13 | (165)
Other debt securities | 1,089 | 1,072 | 4 | (21)
TOTAL HELD TO MATURITY PORTFOLIO | 17,696 | 17,619 | 108 | (185)
TOTAL DEBT SECURITIES | 91,681 | 92,199 | 1,709 | (1,192)
(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

91

As of December 31, 2018, the carrying amount of debt securities classified within the fair value through other comprehensive income portfolio by rating categories defined by external rating agencies were as follows:

|  | As of December 31, 2018
|  | Debt Securities at Fair Value through Other Comprehensive Income
|  | Carrying Amount (In Millions of Euros) |  | Percentage of Total (%)
AAA |  | 531 |  | 1.0%
AA+ |  | 13,100 |  | 24.4%
AA |  | 222 |  | 0.4%
AA- |  | 409 |  | 0.8%
A+ |  | 632 |  | 1.2%
A |  | 687 |  | 1.3%
A- |  | 18,426 |  | 34.3%
BBB+ |  | 9,195 |  | 17.1%
BBB |  | 4,607 |  | 8.6%
BBB- |  | 1,003 |  | 1.9%
BB+ or below |  | 4,453 |  | 8.3%
Without rating |  | 445 |  | 0.8%
TOTAL |  | 53,709 |  | 100%

92

The following tables analyze the amortized cost and fair value, as of December 31, 2018, of our equity securities recorded under “Financial assets at fair value through other comprehensive income” in our Consolidated Financial Statements and, as of December 31, 2017 and December 31, 2016, of our equity securities recorded under “Available for sale financial assets” in the consolidated financial statements included in the annual reports on Form 20-F for such years. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.

| As of December 31, 2018
| Amortized cost | Fair Value (1) | Unrealized Gains | Unrealized Losses
| (In Millions of Euros)
EQUITY SECURITIES |  |  |  |
AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO |  |  |  |
Domestic | 2,178 | 1,969 | 1 | (210)
Equity listed | 2,172 | 1,962 | - | (210)
Equity unlisted | 6 | 7 | 1 | -
Foreign | 543 | 627 | 97 | (13)
United States | 408 | 448 | 40 | -
Equity listed | 20 | 37 | 17 | -
Equity unlisted | 388 | 411 | 23 | -
Other countries | 135 | 179 | 57 | (13)
Equity listed | 70 | 84 | 26 | (12)
Equity unlisted | 65 | 95 | 31 | (1)
TOTAL EQUITY SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO | 2,721 | 2,595 | 98 | (223)
TOTAL INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO | 56,044 | 56,304 | 1,251 | (991)
(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

93

| As of December 31, 2017
| Amortized cost | Fair Value (1) | Unrealized Gains | Unrealized Losses
| (In Millions of Euros)
EQUITY SECURITIES |  |  |  |
AVAILABLE FOR SALE PORTFOLIO |  |  |  |
Domestic | 2,222 | 2,250 | 29 | (1)
Equity listed | 2,189 | 2,188 | - | (1)
Equity unlisted | 33 | 62 | 29 | -
Foreign | 880 | 975 | 110 | (15)
United States | 509 | 543 | 40 | (6)
Equity listed | 11 | 11 | - | -
Equity unlisted | 498 | 532 | 40 | (6)
Other countries | 371 | 432 | 70 | (9)
Equity listed | 204 | 230 | 33 | (7)
Equity unlisted | 167 | 202 | 37 | (2)
TOTAL AVAILABLE FOR SALE PORTFOLIO | 3,102 | 3,224 | 139 | (16)
TOTAL INVESTMENT SECURITIES | 82,129 | 83,278 | 1,795 | (646)

(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

94

| As of December 31, 2016
| Amortized cost | Fair Value (1) | Unrealized Gains | Unrealized Losses
| (In Millions of Euros)
EQUITY SECURITIES |  |  |  |
AVAILABLE FOR SALE PORTFOLIO |  |  |  |
Domestic | 3,748 | 2,822 | 19 | (945)
Equity listed | 3,690 | 2,763 | 17 | (944)
Equity unlisted | 57 | 59 | 2 | (1)
Foreign | 1,501 | 1,820 | 336 | (17)
United States | 553 | 588 | 35 | -
Equity listed | 16 | 38 | 22 | -
Equity unlisted | 537 | 550 | 13 | -
Other countries | 948 | 1,231 | 301 | (17)
Equity listed | 777 | 1,028 | 268 | (15)
Equity unlisted | 171 | 203 | 33 | (2)
TOTAL AVAILABLE FOR SALE PORTFOLIO | 5,248 | 4,641 | 355 | (962)
TOTAL INVESTMENT SECURITIES | 96,930 | 96,839 | 2,064 | (2,154)

(1) Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

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The following table analyzes the maturities of our debt securities at fair value through other comprehensive income, by type and geographical area as of December 31, 2018:

| Maturity at One Year or Less | Maturity After One Year to Five Years | Maturity after Five Years to 10 Years | Maturity after 10 Years | Total
| Amount | Yield % (1) | Amount | Yield % (1) | Amount | Yield % (1) | Amount | Yield % (1) | Amount
| (Millions of Euros, Except Percentages)
DEBT SECURITIES |  |  |  |  |  |  |  |  |
AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |
Spanish government and other government agencies debt securities | 3,749 | 0.84 | 1,367 | 2.51 | 7,861 | 2.99 | 4,880 | 4.35 | 17,857
Other debt securities | 301 | 3.65 | 757 | 2.57 | 16 | 5.04 | 622 | 4.89 | 1,696
Total Domestic | 4,050 | 1.03 | 2,125 | 2.54 | 7,876 | 2.97 | 5,502 | 4.27 | 19,553
Foreign |  |  |  |  |  |  |  |  |
Mexico | 1,212 | 1.86 | 2,959 | 3.05 | 1,964 | 2.29 | 28 | 4.15 | 6,163
Mexican Government and other government agency debt securities | 1,117 | 1.67 | 2,281 | 2.75 | 1,771 | 2.08 | - | - | 5,169
Other debt securities | 95 | 4.11 | 678 | 4.04 | 193 | 4.10 | 28 | 4.15 | 994
United States | 549 | 1.30 | 6,645 | 2.04 | 1,620 | 2.88 | 5,524 | 2.67 | 14,338
U.S. Treasury and other government agency debt securities | 264 | 0.44 | 5,841 | 1.98 | 1,153 | 2.59 | - | - | 7,258
States and political subdivisions debt securities | - | - | 1 | 3.26 | 45 | 2.65 | 3,826 | 2.55 | 3,872
Other debt securities | 285 | 2.08 | 803 | 2.49 | 422 | 3.69 | 1,698 | 2.95 | 3,208
Turkey | 402 | 17.00 | 2,489 | 18.00 | 946 | 17.54 | 79 | 6.70 | 3,916
Turkey Government and other government agencies debt securities | 387 | 16.96 | 2,359 | 19.96 | 946 | 17.54 | 79 | 6.70 | 3,771
Other debt securities | 15 | 5.13 | 130 | 5.15 | - | - | - | - | 145
Other countries | 2,927 | 1.84 | 2,650 | 2.62 | 2,295 | 3.42 | 1,868 | 4.07 | 9,740
Securities of other foreign governments(2) | 1,201 | 1.14 | 797 | 2.46 | 1,528 | 2.48 | 1,075 | 4.20 | 4,601
Other debt securities of other countries | 1,726 | 2.36 | 1,853 | 2.69 | 767 | 5.37 | 793 | 3.88 | 5,139
Total Foreign | 5,090 | 3.05 | 14,743 | 5.14 | 6,825 | 6.20 | 7,499 | 3.06 | 34,157
TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 9,140 | 2.09 | 16,868 | 4.68 | 14,701 | 4.38 | 13,001 | 3.51 | 53,709

(1) Rates have been presented on a non-taxable equivalent basis.

(2) Securities of other foreign governments mainly include investments made by our subsidiaries in securities issued by the governments of the countries where they operate.

Loans and Advances to Credit Institutions and Central Banks

As of December 31, 2018, our total loans and advances to credit institutions and central banks amounted to 29,866 million, or 4.4% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €13,122 million, or 1.9% of total assets. Net of our impairment losses, total loans and advances to credit institutions and central banks at amortized cost amounted to €13,104 million as of December 31, 2018, or 1.9% of total assets.

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Loans and Advances to Customers

As of December 31, 2018, our total loans and advances to customers amounted to €400,049 million, or 59.12% of total assets. Net of our impairment losses, total loans and advances to customers amounted to €387,850 million as of December 31, 2018, or 57.32% of our total assets. As of December 31, 2018 our total loans and advances to customers in Spain amounted to €171,361 million. Our total loans and advances to customers outside Spain amounted to €228,688 million as of December 31, 2018.

Loans by Geographic Area

The following table shows, by domicile of the customer, our net loans and advances to customers as of the dates indicated:

| As of December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros)
Domestic | 171,361 | 180,033 | 182,492 | 192,227 | 178,410
Foreign |  |  |  |  |
Western Europe | 29,322 | 25,308 | 25,763 | 23,327 | 19,696
The United States | 61,497 | 53,526 | 60,388 | 58,677 | 47,819
Mexico | 53,772 | 48,463 | 50,242 | 51,842 | 49,904
Turkey | 40,641 | 49,690 | 54,174 | 54,252 | -
South America | 38,680 | 39,814 | 53,512 | 47,862 | 53,616
Other | 4,777 | 4,240 | 4,058 | 4,735 | 3,586
Total foreign | 228,688 | 221,041 | 248,137 | 240,695 | 174,620
Total loans and advances (1) | 400,049 | 401,074 | 430,629 | 432,921 | 353,030
Impairment losses | (12,199) | (12,748) | (15,974) | (18,691) | (14,244)
Total net lending | 387,850 | 388,326 | 414,655 | 414,231 | 338,785

(1) As of December 31, 2018, includes loans and advances to customers included in the following headings: financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss, financial assets designated at fair value through profit or loss and financial assets at amortized cost. As of December 31, 2017, 2016, 2015 and 2014, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.

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Loans by Type of Customer

The following table shows, by domicile and type of customer, our net loans and advances to customers at each of the dates indicated. The classification by type of customer is based principally on regulatory authority requirements in each country:

| As of December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros)
Domestic |  |  |  |  |
Government | 16,671 | 18,116 | 20,741 | 23,549 | 23,421
Agriculture | 1,118 | 1,231 | 1,076 | 1,064 | 1,221
Industrial | 14,683 | 14,707 | 13,670 | 15,079 | 13,507
Real estate and construction | 10,671 | 11,786 | 15,179 | 18,621 | 20,170
Commercial and financial | 17,131 | 16,075 | 13,111 | 11,557 | 18,439
Loans to individuals(1) | 98,131 | 99,780 | 102,299 | 105,157 | 86,362
Other | 12,955 | 18,338 | 16,415 | 17,200 | 15,289
Total Domestic | 171,361 | 180,033 | 182,492 | 192,227 | 178,410
Foreign |  |  |  |  |
Government | 13,900 | 14,289 | 14,132 | 15,062 | 13,691
Agriculture | 2,566 | 2,646 | 3,236 | 3,251 | 3,127
Industrial | 41,954 | 37,319 | 43,402 | 41,834 | 24,072
Real estate and construction | 18,499 | 17,885 | 21,822 | 20,343 | 12,982
Commercial and financial | 36,571 | 31,584 | 33,933 | 32,019 | 25,441
Loans to individuals(1) | 80,224 | 78,162 | 89,981 | 89,132 | 72,223
Other | 34,973 | 39,156 | 41,630 | 39,054 | 23,082
Total Foreign | 228,688 | 221,040 | 248,137 | 240,695 | 174,620
Total Loans and Advances (2) | 400,049 | 401,074 | 430,629 | 432,921 | 353,030
Impairment losses | (12,199) | (12,748) | (15,974) | (18,691) | (14,244)
Total net lending | 387,850 | 388,326 | 414,655 | 414,231 | 338,785

(1) Includes mortgage loans to households for the acquisition of housing.

(2) As of December 31, 2018, includes loans and advances to customers included in the following headings: financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss, financial assets designated at fair value through profit or loss and financial assets at amortized cost. As of December 31, 2017, 2016, 2015 and 2014, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.

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The following table sets forth a breakdown, by currency, of our net loan portfolio as of December 31, 2018, 2017, 2016, 2015 and 2014:

| As of December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros)
In euros | 193,702 | 199,399 | 199,289 | 204,549 | 182,903
In other currencies | 194,148 | 188,926 | 215,366 | 209,681 | 155,882
Total net lending (1) | 387,850 | 388,326 | 414,655 | 414,231 | 338,785

(1) As of December 31, 2018, includes loans and advances to customers included in the following headings: financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss, financial assets designated at fair value through profit or loss and financial assets at amortized cost. As of December 31, 2017, 2016, 2015 and 2014, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.

As of December 31, 2018, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,866 million, compared with €510 million as of December 31, 2017. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,671 million, or 4.2% of our total loans and advances to customers as of December 31, 2018 compared with €18,116 million, or 4.5% of our total loans and advances to customers as of December 31, 2017. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of December 31, 2018, excluding government-related loans, amounted to €17,425 million or approximately 4.4% of our total outstanding loans and advances. As of December 31, 2018 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

Maturity and Interest Sensitivity

The following table sets forth an analysis by maturity of our total loans and advances to customers by domicile of the branch office that issued the loan and the type of customer as of December 31, 2018. The determination of maturities is based on contract terms.

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| Maturity
| Due in One Year or Less | Due After One Year Through Five Years | Due After Five Years | Total
| (in Millions of Euros)
Domestic |  |  |  |
Government | 5,595 | 4,486 | 6,590 | 16,671
Agriculture | 307 | 414 | 398 | 1,118
Industrial | 5,644 | 4,892 | 4,147 | 14,683
Real estate and construction | 1,902 | 3,539 | 5,231 | 10,671
Commercial and financial | 10,531 | 4,246 | 2,354 | 17,131
Loans to individuals | 5,513 | 8,903 | 83,716 | 98,131
Other | 3,805 | 5,197 | 3,954 | 12,955
Total Domestic | 33,296 | 31,677 | 106,389 | 171,361
Foreign |  |  |  |
Government | 3,352 | 1,732 | 8,816 | 13,900
Agriculture | 1,489 | 769 | 308 | 2,566
Industrial | 17,147 | 16,867 | 7,939 | 41,954
Real estate and construction | 5,225 | 9,075 | 4,199 | 18,499
Commercial and financial | 21,213 | 12,033 | 3,325 | 36,571
Loans to individuals | 11,720 | 27,113 | 41,391 | 80,224
Other | 10,940 | 16,179 | 7,854 | 34,973
Total Foreign | 71,086 | 83,769 | 73,832 | 228,688
Total loans and advances (1) | 104,382 | 115,446 | 180,221 | 400,049

(1) Includes loans and advances to customers included in the following headings: financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss, financial assets designated at fair value through profit or loss and financial assets at amortized cost.

The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of December 31, 2018.

| Interest Sensitivity of Outstanding Loans and Advances Maturing in More Than One Year
| Domestic | Foreign | Total
| (In Millions of Euros)
Fixed rate | 52,559 | 59,995 | 112,554
Variable rate | 85,507 | 97,606 | 183,113
Total loans and advances (1) | 138,066 | 157,601 | 295,667

(1) Includes loans and advances to customers included in the following headings: financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss, financial assets designated at fair value through profit or loss and financial assets at amortized cost.

Impairment Losses on Loans and Advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment losses on financial assets” and Note 2.2.1 to our Consolidated Financial Statements.

The following table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries with respect to customers and credit institutions for the periods indicated, based on their respective domicile.

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|  | As of and for the year ended December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros)
Loan loss reserve at beginning of period: |  |  |  |  |
Domestic | 7,234 | 9,113 | 12,357 | 9,832 | 10,510
Foreign | 5,550 | 6,903 | 6,385 | 4,441 | 4,480
First implementation of IFRS 9 (1) | 1,171 | - | - | - | -
Total Loan loss reserve at beginning of period | 13,955 | 16,016 | 18,742 | 14,273 | 14,990
Loans charged off: (2) |  |  |  |  |
Total domestic | (2,818) | (3,709) | (3,298) | (3,340) | (2,628)
Total foreign | (1,956) | (2,330) | (2,400) | (1,933) | (1,836)
Total Loans charged off: | (4,774) | (6,039) | (5,698) | (5,273) | (4,464)
Provision for loan losses: |  |  |  |  |
Domestic | 910 | 1,155 | 1,095 | 1,933 | 2,308
Foreign | 3,659 | 3,078 | 3,046 | 2,804 | 2,439
Total Provision for loan losses | 4,569 | 4,233 | 4,141 | 4,737 | 4,747
Acquisition and disposition of subsidiaries (3) | - | (5) | - | 6,572 | -
Effect of foreign currency translation | (239) | (926) | (601) | (862) | (119)
Other | (1,301) | (495) | (567) | (705) | (881)
Acquisition, foreign currency and others | (1,539) | (1,426) | (1,168) | 5,005 | (1,000)
Loan loss reserve at end of period: |  |  |  |  |
Domestic | 5,774 | 7,234 | 9,113 | 12,357 | 9,832
Foreign | 6,437 | 5,550 | 6,903 | 6,385 | 4,441
Total Loan loss reserve at end of period | 12,211 | 12,784 | 16,016 | 18,742 | 14,273
Loan loss reserve as a percentage of loans and advances at amortized cost at end of period | 3.19% | 3.09% | 3.44% | 3.97% | 3.83%
Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period | 1.25% | 1.46% | 1.22% | 1.12% | 1.19%

(1) For additional information on the implementation of IFRS 9, see note 2.4 to our Consolidated Financial Statement.

(2) Domestic loans charged off in 2018, 2017, 2016, 2015 and 2014 were mainly related to the real estate sector.

(3) In 2015, includes amounts related to Garanti (in which we acquired a further 14.89% stake in such year, following which we started to fully consolidate Garanti’s results in our consolidated financial statements) and Catalunya Banc (which we fully acquired in such year).

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

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The loans charged off amounted to €4,774 million during the year ended December 31, 2018 compared with €6,039 million during the year ended December 31, 2017.

Our loan loss reserves as a percentage of total loans and advances to customers and credit institutions increased to 3.19% as of December 31, 2018 from 3.09% as of December 31, 2017.

Impaired Loans

As described in Note 2.2.1 to the Consolidated Financial Statements, loans are considered to be credit-impaired under IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the loan.

Amounts collected in relation to impaired financial assets at amortized cost are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal. The approximate amount of interest income on our impaired loans which was included in profit attributable to parent company in 2018, 2017, 2016, 2015 and 2014 was €412.5 million, €347.4 million, €264.2 million, €253.9 million, €231.2 million, respectively.

The following table provides information regarding our impaired loans of customers and credit institutions, by their respective domicile and type, as of the dates indicated:

| As of December 31,
| 2018 | 2017 | 2016 | 2015 | 2014
| (In Millions of Euros)
Impaired loans |  |  |  |  |
Domestic | 9,436 | 12,730 | 16,360 | 19,481 | 18,563
Public sector | 112 | 158 | 270 | 191 | 172
Other resident sector | 9,324 | 12,572 | 16,090 | 19,290 | 18,391
Foreign | 6,923 | 6,671 | 6,565 | 5,882 | 4,167
Public sector | 16 | 13 | 42 | 21 | 8
Other non-resident sector | 6,906 | 6,658 | 6,523 | 5,860 | 4,159
Total impaired loans | 16,359 | 19,401 | 22,925 | 25,363 | 22,730
Total loan loss reserve | (12,211) | (12,784) | (16,016) | (18,742) | (14,273)
Impaired loans net of reserves | 4,148 | 6,617 | 6,909 | 6,621 | 8,457
Impaired loans as a percentage of loans and advances at amortized cost | 4.27% | 4.69% | 4.92% | 5.38% | 6.10%
Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost | 1.08% | 1.60% | 1.48% | 1.40% | 2.27%

Our total impaired loans to customers and credit institutions amounted to €16,359 million as of December 31, 2018, a 15.7% decrease compared with €19,401 million as of December 31, 2017. This decrease was mainly attributable to the reduction of the Group’s exposure to loans to individuals and the real estate sector in Spain.

As mentioned in Note 2.2.1 to the Consolidated Financial Statements, our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets but which present an inherent loss. As of December 31, 2018, the loan loss reserve amounted to €12,211 million, a 4.5% decrease compared with €12,784 million as of December 31, 2017.

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The following tables provide information regarding impaired loans to customers and credit institutions recorded under “Financial assets at amortized cost” and accumulated impairment taken for each loan category, as of December 31, 2018 and 2017, by their respective domicile and type:

2018 | Impaired Loans | Loan Loss Reserve (1) | Impaired Loans as a Percentage of Loans by Category
| (In Millions of Euros)
Domestic: |  |  |
Government | 112 | (59) | 0.67%
Credit institutions | - | - |
Other sectors | 9,324 | (5,396) | 6.03%
Agriculture | 57 | (37) | 5.07%
Industrial | 712 | (502) | 4.85%
Real estate and construction | 1,624 | (1,060) | 15.22%
Commercial and other financial | 1,104 | (770) | 6.46%
Loans to individuals | 5,065 | (2,461) | 5.16%
Other | 763 | (566) | 5.87%
Total Domestic | 9,436 | (5,455) | 5.51%
Foreign: |  |  |
Government | 16 | (24) | 0.12%
Credit institutions | 10 | (12) | 0.41%
Other sectors | 6,896 | (6,719) | 3.21%
Agriculture | 66 | (70) | 2.56%
Industrial | 1,682 | (1,163) | 4.01%
Real estate and construction | 697 | (571) | 3.77%
Commercial and other financial | 667 | (638) | 1.85%
Loans to individuals | 2,773 | (3,372) | 3.46%
Other | 1,011 | (905) | 2.87%
Total Foreign | 6,923 | (6,755) | 3.03%
Total | 16,359 | (12,211) | 4.09%

(1) Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

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2017 | Impaired Loans | Loan Loss Reserve | Impaired Loans as a Percentage of Loans by Category
| (In Millions of Euros)
Domestic: |  |  |
Government | 158 | (34) | 0.87%
Credit institutions | - | - |
Other sectors | 12,572 | (5,204) | 7.76%
Agriculture | 95 | (43) | 7.75%
Industrial | 902 | (449) | 6.13%
Real estate and construction | 3,647 | (2,037) | 30.94%
Commercial and other financial | 1,055 | (557) | 6.56%
Loans to individuals | 5,911 | (1,676) | 5.92%
Other | 961 | (442) | 5.24%
Total Domestic | 12,730 | (5,238) | 7.07%
Foreign: |  |  |
Government | 13 | (8) | 0.09%
Credit institutions | 11 | (6) | 0.40%
Other sectors | 6,647 | (3,424) | 3.22%
Agriculture | 70 | (41) | 2.65%
Industrial | 756 | (434) | 2.02%
Real estate and construction | 517 | (214) | 2.89%
Commercial and other financial | 651 | (390) | 2.06%
Loans to individuals | 2,505 | (1,345) | 3.21%
Other | 2,148 | (999) | 5.49%
Total Foreign | 6,671 | (3,437) | 3.02%
Collective allowance for incurred but not reported losses | - | (4,109) |
Total | 19,401 | (12,784) | 4.85%

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Troubled Debt Restructurings

As of December 31, 2018, of the total troubled debt restructurings of €17,169 million, as described in Note 7.3 and Appendix VIII to our Consolidated Financial Statements, €7,166 million were not considered impaired loans.

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical non-performing asset ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratio higher than our average non-performing asset ratio. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio.

The non-performing asset ratio in our domestic real estate and construction portfolio was 15.2% as of December 31, 2018 (compared with 30.9% as of December 31, 2017), substantially higher than the average non-performing asset ratio for all of our domestic activities (5.5% as of December 31, 2018 and 7.1% as of December 31, 2017) and the average non-performing asset ratio for all of our consolidated activities (3.8% as of December 31, 2018 and 4.4% as of December 31, 2017). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 17.2% as of December 31, 2018 (compared with 26.2% as of December 31, 2017).

Foreign Country Outstandings

The following table sets forth, as of the end of the years indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of December 31, 2018, December 31, 2017 and December 31, 2016. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico, Turkey and the United States or other regions which are not listed below.

| 2018 | 2017 | 2016
| Amount | % of Total Assets | Amount | % of Total Assets | Amount | % of Total Assets
| (In Millions of Euros, Except Percentages)
United Kingdom | 7,114 | 1.1% | 8,444 | 1.2% | 5,854 | 0.8%
Mexico | 2,217 | 0.3% | 2,635 | 0.4% | 1,947 | 0.3%
Turkey | 5,060 | 0.7% | 7,754 | 1.1% | 1,665 | 0.2%
Other OECD | 7,779 | 1.1% | 7,885 | 1.1% | 7,745 | 1.1%
Total OECD | 22,170 | 3.3% | 26,718 | 3.9% | 17,211 | 2.4%
Central and South America | 2,720 | 0.4% | 3,980 | 0.6% | 4,001 | 0.6%
Other | 4,739 | 0.7% | 3,787 | 0.5% | 4,056 | 0.6%
Total | 29,629 | 4.4% | 34,485 | 5.0% | 25,268 | 3.5%

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The following table sets forth the amounts of our cross-border outstandings as of December 31, 2018, 2017 and 2016 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.

| Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total
| (In Millions of Euros)
As of December 31, 2018 |  |  |  |
Mexico | 133 | 7 | 2,078 | 2,217
Turkey | 1,250 | 505 | 3,304 | 5,060
United Kingdom | 22 | 6,215 | 876 | 7,114
Total | 1,405 | 6,727 | 6,258 | 14,391
As of December 31, 2017 |  |  |  |
Mexico | 280 | 61 | 2,295 | 2,635
Turkey | 3,211 | 1,488 | 3,055 | 8,444
United Kingdom | - | 7,003 | 1,441 | 7,754
Total | 3,491 | 8,552 | 6,791 | 18,833
As of December 31, 2016 |  |  |  |
Mexico | 160 | 5 | 1,781 | 1,947
Turkey | 105 | 439 | 1,120 | 1,665
United Kingdom | - | 3,732 | 2,122 | 5,854
Total | 266 | 4,176 | 5,024 | 9,466

The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

Our exposure to borrowers in countries with difficulties as defined by the OECD, excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €100 million, €130 million and €104 million as of December 31, 2018, 2017 and 2016 respectively. These figures do not reflect loan loss reserves of 38.0%, 19.1% and 35.6% respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 2018 did not in the aggregate exceed 0.01% of our total assets.

The country-risk exposures described in the preceding paragraph as of December 31, 2018, 2017 and 2016 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of December 31, 2018, 2017 and 2016 amounted to $90 million, $124 million and $90 million, respectively (approximately €78 million, €104 million and €85 million, respectively, based on a euro/dollar exchange rate on December 31, 2018 of $1.00 = €0.87, on December 31, 2017 of $1.00 = €0.83, and on December 31, 2016 of $1.00 = €0.95).

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LIABILITIES

Deposits

The principal components of our customer deposits recorded under “Financial liabilities at amortized cost” are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits recorded under “Financial liabilities at amortized cost” by principal geographic area for the dates indicated.

| As of December 31, 2018
| Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total
| (In Millions of Euros)
Total Domestic | 166,403 | 26,544 | 4,563 | 197,510
Foreign |  |  |  |
Western Europe | 22,077 | - | 14,545 | 36,621
The United States | 62,539 | 61 | 4,379 | 66,979
Mexico | 50,991 | 133 | 566 | 51,690
Turkey | 33,427 | 212 | 1,323 | 34,963
South America | 37,970 | 330 | 2,335 | 40,635
Other | 2,563 | - | 4,268 | 6,831
Total Foreign | 209,567 | 737 | 27,415 | 237,719
Total | 375,970 | 27,281 | 31,978 | 435,229

| As of December 31, 2017
| Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total
| (In Millions of Euros)
Total Domestic | 165,559 | 28,044 | 5,518 | 199,121
Foreign |  |  |  |
Western Europe | 22,177 | 101 | 34,849 | 57,128
The United States | 58,164 | 87 | 3,961 | 62,212
Mexico | 52,387 | 3,316 | 2,429 | 58,132
Turkey | 36,815 | 3,713 | 953 | 41,482
South America | 38,764 | 1,792 | 2,999 | 43,555
Other | 2,511 | - | 3,806 | 6,317
Total Foreign | 210,819 | 9,010 | 48,998 | 268,826
Total | 376,379 | 37,054 | 54,516 | 467,949

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| As of December 31, 2016
| Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total
| (In Millions of Euros)
Total Domestic | 161,022 | 26,602 | 6,768 | 194,392
Foreign |  |  |  |
Western Europe | 30,949 | 101 | 38,338 | 69,388
The United States | 62,311 | 38 | 5,040 | 67,388
Mexico | 54,117 | 2,400 | 3,663 | 60,180
Turkey | 38,211 | 3,191 | 1,463 | 42,865
South America | 50,282 | 2,407 | 4,035 | 56,724
Other | 4,572 | - | 4,194 | 8,766
Total Foreign | 240,442 | 8,138 | 56,733 | 305,312
Total | 401,465 | 34,740 | 63,501 | 499,706

For an analysis of our deposits recorded under “Financial liabilities at amortized cost”, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 22 to our Consolidated Financial Statements.

As of December 31, 2018, the maturity of our time deposits recorded under “Financial liabilities at amortized cost” (excluding interbank deposits) in denominations of $100,000 or greater was as follows:

| As of December 31, 2018
| Domestic | Foreign | Total
| (In Millions of Euros)
3 months or under | 5,361 | 40,513 | 45,873
Over 3 to 6 months | 2,575 | 4,744 | 7,319
Over 6 to 12 months | 4,083 | 7,320 | 11,403
Over 12 months | 4,281 | 8,447 | 12,729
Total | 16,300 | 61,025 | 77,324

Time deposits at amortized cost from Spanish and foreign financial institutions amounted to €19,015 million as of December 31, 2018, substantially all of which were in excess of $100,000.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of December 31, 2018, 2017 and 2016 see Note 22 to our Consolidated Financial Statements.

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Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of December 31, 2018, 2017 and 2016.

The following table provides information about our total short-term borrowings recorded under “Financial liabilities at amortized cost” for the years ended December 31, 2018, 2017 and 2016:

| As of and for the Year Ended December 31, 2018 (1) |  | As of and for the Year Ended December 31, 2017 |  | As of and for the Year Ended December 31, 2016
| Amount | Average rate |  | Amount | Average rate |  | Amount | Average rate
| (In Millions of Euro, Except Percentages)
Securities sold under agreements to repurchase: |  |  |  |  |  |  |  |
As of end of period | 16,524 | 4.3% |  | 33,208 | 1.7% |  | 39,682 | 1.6%
Average during period | 16,836 | 4.7% |  | 32,475 | 2.4% |  | 39,589 | 1.4%
Maximum quarter-end balance | 17,155 | - |  | 33,863 | - |  | 41,399 | -
Bank promissory notes: |  |  |  |  |  |  |  |
As of end of period | 449 | 3.1% |  | 1,462 | 0.7% |  | 1,033 | 0.2%
Average during period | 580 | 1.6% |  | 704 | 1.0% |  | 883 | 0.7%
Maximum quarter-end balance | 1,036 | - |  | 1,462 | - |  | 1,079 | -
Bonds and subordinated debt: |  |  |  |  |  |  |  |
As of end of period | 5,633 | 3.6% |  | 4,321 | 5.8% |  | 14,708 | 3.7%
Average during period | 4,775 | 4.6% |  | 7,717 | 5.4% |  | 15,092 | 3.5%
Maximum quarter-end balance | 5,633 | - |  | 10,848 | - |  | 16,016 | -
Total short-term borrowings as of end of period | 22,606 | 4.1% |  | 38,991 | 2.1% |  | 55,423 | 2.1%

(1) Following the implementation of IFRS 9 on January 1, 2018, certain securities sold under agreements to repurchase which were accounted for as “Financial liabilities at amortized cost” as of December 31, 2017 were reclassified to “Financial liabilities held for trading” and are not shown in the table.

As of December 31, 2018, the securities sold under agreements to repurchase were mainly Mexican and Spanish treasury bills. As of December 31, 2017 and 2016, the securities sold under agreements to repurchase were mainly Spanish treasury bills.

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Return Ratios

The following table sets out our return ratios for the years ended December 31, 2018, 2017 and 2016:

| As of or for the Year Ended December 31,
| 2018 | 2017 | 2016
| (In Percentages)
Return on equity (1) | 10.1% | 6.7% | 6.7%
Return on assets (2) | 0.9% | 0.7% | 0.6%
Dividend pay-out ratio (3) | 31.3% | 32.0% | 36.1%
Equity to assets ratio (4) | 7.8% | 7.7% | 7.6%

(1) Represents profit attributable to parent company for the year as a percentage of average stockholders’ funds for the year.

(2) Represents profit attributable to parent company as a percentage of average total assets for the year.

(3) Represents dividends declared by BBVA (including the cash remuneration paid under the “Dividend Option” scheme) as a percentage of profit attributable to parent company. This ratio does not take into account the non-cash remuneration paid by BBVA under the “Dividend Option” scheme (in the form of BBVA shares or ADSs). See “—Business Overview—Supervision and Regulation—Scrip Dividend” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

(4) Represents average total equity over average total assets.

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EQUITY

Accumulated other comprehensive income (loss)

As of December 31, 2018, the accumulated other comprehensive loss amounted to €7,215 million, a 4.0% increase compared to the €6,939 million recorded as of December 31, 2017. As of December 31, 2016, the accumulated other comprehensive loss amounted to €3,622 million.

The majority of the balance is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not the euro.

## F. Competition

The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, the Banco Santander Group is our largest competitor, but the restructuring processes that have been underway for several years have increased the size of certain banks, such as Bankia (an integration of seven regional saving banks, led by Caja Madrid), Caixabank (which acquired Banco de Valencia, Banca Cívica and Barclays’s Spanish operations) and Banco Sabadell. Furthermore, in June 2017, Banco Santander announced the acquisition of 100% of the share capital of Banco Popular as part of the resolution strategy adopted by the Single Resolution Board (SRB) for the latter. This has further increased the market share of Banco Santander in Spain.

We face strong competition in all of our principal areas of operations. The low interest rate environment which depresses interest income and the ongoing de-leveraging process makes competition quite fierce in the Spanish market. In particular, competition is particularly intense in the credit market for lending to small and medium enterprises (SMEs), where new credit interest rates have fallen from an average of 5.5% between January 2012 and May 2014 to around 2.5% in December 2018, barely exceeding credit costs.

In addition, in the aftermath of the financial crisis, the need for a more balanced funding structure led to increased competition for deposits in Spain. While the low interest rate environment has depressed deposits’ remuneration, there seems to be a zero interest rate floor as deposit rates are not entering negative territory. Former Spanish savings banks, many of which have become commercial banks and received financial or other forms of support from the Spanish government and the European Stability Mechanism, and money market mutual funds provide strong competition for savings deposits and, in the case of savings banks, for other retail banking services.

Credit cooperatives, which are active principally in rural areas where they provide savings and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition. The entry of “fintech companies” and online banks into the Spanish banking system has also increased competition, especially in payment services. Insurance companies and other financial service firms also compete for customer funds. Like commercial banks, former savings banks, insurance companies and other financial service firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from savings banks and, to a lesser extent, cooperatives.

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In Spain and in Europe, changes in banking regulation could have a significant potential impact on competition in the near future. The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the EU to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain. Several initiatives have also been implemented in order to facilitate the creation of a Pan-European financial market, including the SEPA (Single Euro Payments Area), which is a payment-integration initiative for simplification of bank transfers, direct debits and payment cards mainly within the EU, and MiFID (Markets in Financial Instruments Directive), complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, decisive steps are being taken towards achieving a banking union in Europe. The ECB started to work as a single supervisor in November 2014, supervising more than 120 entities (including BBVA) in the Eurozone. Moreover, the foundations of a single resolution mechanism were set with the agreement on the regulation and contributions to the Single Resolution Fund and the appointment of the SRB which is operational since January 1, 2015. A new instrument of bank direct recapitalization was created within the ESM. The bail-in tool included in the BRRD entered into force on January 1, 2016. In November 2015, the European Commission put forward a proposal for a European Deposit Insurance Scheme (EDIS), which intends to provide a stronger and more uniform degree of insurance coverage for all retail depositors in the banking union, as a further step to a fully operational European banking union.

Following recent periods of financial turmoil, a number of banks have disappeared or have been absorbed by other banks. We believe this trend will likely continue in the future, with a number of mergers and acquisitions between financial entities both in Spain and at the European level. In Spain, the recapitalization of several entities with public funds and their subsequent privatization, with the purpose of achieving a stronger banking sector, has intensified this process. In this vein, Bankia and BMN merged in December 2017 and Unicaja Banco and Liberbank are currently discussing the terms of their merger. In the United States, the government has facilitated the purchase of troubled banks by other competitors in the context of the financial crisis, and European governments, including the Spanish government, have also expressed their willingness to facilitate these types of operations.

In the United States we operate primarily through BBVA Compass. The performance and health of the U.S. banking system continued to improve in 2018, supported by strong job creation, higher real incomes, solid private investment and higher interest rates. In addition, financial institutions benefited from lower corporate tax rates enacted at the end of 2017. As a result, during the first three quarters of 2018, net interest income for all FDIC-insured institutions reached an all-time high of $401.7 billion, while provisions for loan and lease losses declined 4% year-on-year to $36 billion. Meanwhile, applicable income taxes for these institutions declined $14.8 billion or 23.6% year-over-year. These trends boosted net income for these institutions by almost $40 billion, an increase of 27.4% year-over-year. In fact, in the third quarter of 2018, average return on assets for these institutions reached 1.41%, the highest ratio since 1986. We expect commercial banks in the United States to continue benefiting from a favorable environment in the short-term, albeit without the one-off effect from lower corporate taxes. Going forward, U.S. banks will be operating in an environment that becomes gradually more challenging as the credit cycle matures further, cost of funds increase and competition from online banks and non-banks intensifies.

In Turkey, where we operate through Garanti, the three public banks that operate in the country accounted for 39% of the total assets of financial institutions as of December 31, 2018, whereas private banks (including Garanti) accounted for 61%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 12% of the total. 2018 was a year of significant macroeconomic slow-down, particularly following the financial shock during the summer of 2018. TL lending (i.e., loans denominated in Turkish lira) growth decelerated to as low as 2% by the end of 2018 after the strong growth rate of 25% in 2017. TL lending to corporations grew by only 1%, while consumer loans registered a 3% growth and credit cards grew by 15%, mainly as a result of the higher inflation. Consequently, credit growth adjusted for the exchange rate depreciation slowed-down to 3% in 2018 from its solid 20% growth in 2017. Total customer deposits grew by 19% during the year. The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) surpassed the weak TL lending growth, and increased by 10% year-on-year. In contrast, foreign currency denominated customer deposits shrank by 6% in U.S. dollars terms. Thus, TL loan-to-deposit ratio diminished to 137% in 2018 from 148% in 2017, while the same ratio in foreign currency rose to 96% from 90%.

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In Mexico, where we operate through BBVA Bancomer, the banking industry remained solvent. Total bank lending to the private sector decreased from an annual average growth of 12.8% in 2017 to 12.0% in 2018. This nominal decrease was due to a lower inflation rate, since total lending showed a moderate annual increase in real terms from an average of 6.4% in 2017 to 6.7% in 2018. The moderate performance of economic activity, employment and income in 2018 restricted the dynamism of household lending. Credit to consumption decreased its annual average real growth rate from 3.7% in 2017 to 2.1% in 2018 while mortgages showed a slight recovery (from an average real growth rate of 3.6% in 2017 to a real growth rate of 3.7% in 2018). Corporate lending was the main source of growth in total credit to the private sector, because of the substitution of external financing sources for internal credit granted by commercial banks. The growth rate for traditional bank deposits decreased from 2017 to 2018 (11.5% compared to 10.0%, respectively, in nominal terms and 5.2% compared to 4.8%, respectively, in real terms), despite the higher dynamism observed in term deposits (which was fueled by higher interest rates). Concerning solvency, the overall capitalization level of the Mexican banking system reached 15.7% as of November 30, 2018, well above the minimum regulatory requirement.

At December 31, 2018, the Mexican banking sector had 50 operating banks, three more than the previous year. Those that started operations were Banco Shinan (January 2018), Banco S3 (March 2018) and Bank of China (July 2018). In addition, Banorte and Banco Interacciones ended their merger process (July 2018). This merger put Banorte as the second larger bank in the system (by total assets), just below BBVA Bancomer, while Santander kept the third position and Citi-Banamex fell to the fourth. As a market leader, we face strong competition in all of our principal business lines. The most relevant change in 2018 was the loss of our market leader position in the credit card segment to Banamex.

In Mexico, changes in banking regulation could have a significant potential impact on competition in the near future. The most relevant regulatory developments in 2018 and early 2019 include the following:

● On March 9, 2018 the Fintech Law was passed. The law creates and regulates Financial Technology Institutions, which may engage in either crowdfunding or the issue of e-money. The law also tasks the Bank of Mexico with regulating the recognition and use of virtual assets. The law also introduces a regime of “innovative models for the provision of financial services” that will enable financial institutions (including fintechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox.

● On September 10, 2018, the CNBV (National Banking and Securities Commission) issued the secondary regulation of the Fintech Law (Fintech Circular). The regulation establishes accounting principles, financial reporting and disclosure requirements and prudential standards relating to minimum capital, cash deposit limits and international transfers by Electronic Payment Funds Institutions, as well as limits for projects that can be published on Collective Finance Institutions’ platforms and diversification requirements for their investors. It also establishes requirements for the methodologies to be used in the evaluation, selection and classification of crowdfunding applicants and projects. On the same day, the Bank of Mexico published rules limiting transactions in foreign currencies by Electronic Payment Funds Institutions. These rules establish a regime for prompt refund of clients’ unrecognized charges and requires such institutions to participate in a payment system when warranted by the scale of their operations. Lastly, the Secretariat of Finance (SHCP) extended to the fintech system the anti-money laundering and control of terrorism financing regime that already applied to the rest of the financial system.

● On October 29, 2018, the Bank of Mexico published Circular 15/2018 regarding the use of wages and salaries in support of financial services contracted by workers. This reform aims to ensure that employees can use their payroll deposits as a source of repayment of loans contracted with any bank on the same terms as those of the bank that administers the payroll account. This regulation seeks to cover the risk associated with the movement of salary accounts to other banks after a loan has been granted. It also seeks to facilitate the procedures required to allow employees to make such movements.

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● On November 8, 2018, the ruling-party’s majority leader in the Senate presented a bill to severely restrict banks’ fees. Although the bill was unexpected, its momentum appears to have faded and now seems on hold. In its place there is now a new coordinated effort between banks, the Secretaría de Hacienda y Crédito Público (SHCP) and the Bank of Mexico, which includes a broader and more comprehensive approach, and that aims to deal with banks’ fee structure, along with Mexico’s deficit on financial inclusion and the country’s excessive use of cash. The results of this effort, which should be made public in the short term, are expected to benefit consumers without the significant consequences to the provision of banking services as the outright banning of fees would have had.

● Early in 2019, CoDi (Digital Charge), a new digital payment system was unveiled by the Bank of Mexico which is intended to enable secure, immediate and free payments through mobile devices to its members. CoDi is intended to allow currently-unacquired merchants to access a modern payment system, and consumers to reduce their reliance on cash for everyday transactions. CoDi has significant potential for financial inclusion and opens-up a new space for bank competition for the benefit of consumers.

In recent years, the global financial services sector has undergone significant transformation in relation to the development of the Internet and mobile and other exponential technologies and the entrance of new players into activities previously provided in the main by financial institutions. Whereas commercial banks were previously almost the sole providers of the whole range of financial products, from credit to deposits, or payments and investment services, today, a set of non-bank digital providers compete (and cooperate) among each other and with banks in the provision of financial services. These new fintech providers can be startup firms that are specialized in a specific service or niche of the financial services market, or large digital players (known as BigTechs). BigTech companies such as Amazon, Facebook and Apple have also started to offer financial services (mainly, in relation to payments and credit) ancillary to their core business.

In this new competitive environment, banks and other players are calling for a level playing field that ensures fair competition among the different financial services providers. Regulations on consumer protection and the integrity of the financial system (such as anti-money laundering regulations or regulations for combating the financing of terrorism) are generally activity-specific and, therefore, meet the principle of a level playing field, except for some exemptions based on the size of the firm. However, with regards to financial stability, banking groups are subject to prudential regulations that have implications for most of their activities, including those in which they compete with non-bank players that are only subject to activity-specific regulations, at best, or not regulated at all. Therefore, the scope of the perimeter of prudential consolidation to which the prudential regulation and supervision in the EU applies compromises the level playing field principle by requiring banking groups to apply banking-level controls to all subsidiaries, no matter their activities and actual risks involved. Restrictions on the activity of bank players, for instance as regards remuneration rules or internal governance requirements, leave EU banks at a competitive disadvantage as regards cost, time-to-market or talent attraction compared to their competitors.

Existing loopholes in the regulatory framework are another cause of an uneven playing field between banks and non-bank players. Some new services or business models are not yet subject to existing regulations. In such cases, not only are potential risks to financial stability, consumer protection and the integrity of the financial system unaddressed, but asymmetries may arise between players since regulated providers often face obstacles that unregulated providers do not.

## G. Cybersecurity and Fraud Management

Our Corporate Security & Engineering Risk (CS&ER) Operations team handles the main operational cybersecurity policies and measures regarding the Group’s global infrastructures, digital channels and payments methods with a holistic and threat intelligence-led approach.

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The Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks aimed to global users and the Group’s infrastructures, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, is made up of approximately 100 people and provides services in all countries where the Group operates. We are currently in the process of harmonizing the catalogue of services that the Global CERT provides to our subsidiaries worldwide and we expect to complete such process by the end of 2019. The Global CERT operates 24x7, with operation lines dedicated to fraud and cybersecurity.

During 2018, the Group detected an increase in cyberattack attempts across the entire Group, especially phishing attacks, none of which were considered to be material. As cyberattacks evolve and become more sophisticated, the Group has had to strengthen its prevention and monitorization efforts. As part of such efforts, BBVA routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. The outcome of such exercise is a fundamental part of a feedback process designed to improve the Group’s cybersecurity strategies.

The Group also tests its continuity plans in order to improve disaster recovery in instances where an incident or vulnerability threatens the continuity of one or several critical processes, services or platforms.

Other lines of action also include the adequate training of BBVA’s board members in the area of security and incident management. Each year BBVA carries out simulation exercises in order to raise the level of awareness and preparedness of certain key personnel.

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of our efforts to monitor fraud evolution and to actively support the deployment of adequate anti-fraud policies and measures, we have a Corporate Fraud Committee that oversees the evolution of all external and internal fraud types in all countries where the Group operates. Its functions include: (i) actively monitoring fraud risks and mitigation plans; (ii) evaluating the impact thereof on the Group’s business and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring accrued fraud cases and losses; (v) carrying out internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

Our Corporate Fraud Committee is chaired by the Global Head of Engineering. The composition of this committee is quite broad and includes representatives from various units (in particular, Global Risk Management - Retail Credit, Global Risk Management - Non-Financial Risk, Finance, Internal Audit, Corporate Security, Client Solutions – Payments, Country Monitoring and Engineering Deployment). The Corporate Fraud Committee is convened three times per year.

We maintain cybersecurity and fraud insurance policies in respect of each of our subsidiaries. These insurance policies are subject to certain loss limits, deductions and exclusions and we can provide no assurance that all losses related to a cybersecurity or fraud incident will be covered under our policies.

# ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

# ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

## Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. It has a solid leadership position in the Spanish market, it is the largest financial institution in Mexico in terms of assets, it has leading franchises in South America and the Sunbelt Region of the United States and it is the leading shareholder in Garanti, Turkey’s biggest bank in terms of market capitalization. Its diversified business is focused on high-growth markets and it relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture.

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The BBVA Group operates in Spain through Banco Bilbao Vizcaya Argentaria, S.A., a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad. In addition to the transactions it carries out directly, Banco Bilbao Vizcaya Argentaria, S.A. is the parent company of the BBVA Group, which includes a group of subsidiaries, joint ventures and associates performing a wide range of activities.

As of December 31, 2018, the BBVA Group had 125,627 employees, 74.5 million customers, 7,963 branches and 32,029 ATMs and was present in more than 30 countries. As of such date the BBVA Group was composed of 297 consolidated entities and 66 entities accounted for using the equity method.

Critical Accounting Policies

The Consolidated Financial Statements as of and for the years ended December 31, 2018, 2017 and 2016 were prepared by the Bank’s directors in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017 and Circular 4/2004, and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2 to the Consolidated Financial Statements, so that they present fairly the Group’s total equity and financial position as of December 31, 2018, 2017 and 2016, and its results of operations and consolidated cash flows for the years ended December 31, 2018, 2017 and 2016. The Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group. See Note 2.2 to our Consolidated Financial Statements.

In preparing the Consolidated Financial Statements, estimates were made by the Group and the consolidated companies in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:

· The impairment on certain financial assets.

· The assumptions used to quantify other provisions and for the actuarial calculation of the post- employment benefit liabilities and commitments.

· The useful life and impairment losses of tangible and intangible assets.

· The valuation of goodwill and price allocation of business combinations.

· The fair value of certain unlisted financial assets and liabilities.

· The recoverability of deferred tax assets.

Although these estimates were made on the basis of the best information available as of December 31, 2018, 2017 and 2016, respectively, events that take place in the future might make it necessary to revise these estimates (upwards or downwards) in coming years.

Note 2 to our Consolidated Financial Statements contains a summary of our significant accounting policies. We consider certain of these policies to be particularly important due to their effect on the financial reporting of our financial condition and results of operations and because they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our Consolidated Financial Statements. The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our Consolidated Financial Statements and the discussion below.

We have identified the accounting policies enumerated below as critical to the understanding of our financial condition and results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if the assumptions used or underlying circumstances were to change.

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See Note 2.3 to our Consolidated Financial Statements for information on changes to IFRS or their interpretation that will become effective after the date of this Annual Report.

Financial instruments

As we describe in Note 1.3 to our Consolidated Financial Statements, IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regarding the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting. As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years and financial information relating to 2017 and 2016 is presented in accordance with IAS 39 except for certain non-significant modifications in order to improve its comparability with financial information for 2018. See “Presentation of Financial Information—Application of IFRS 9”. The explanations included in this section refer to IFRS 9. For information regarding the classification and measurement of financial instruments under IAS 39, see Note 2.2.1 to our Consolidated Financial Statements.

Classification and measurement of financial assets

Classification of financial assets

IFRS 9 contains three main categories for the classification of financial assets: measured at amortized cost, measured at fair value through other comprehensive income, and measured at fair value through profit or loss.

The classification of financial assets must be carried out on the basis of two tests: the entity’s business model and the assessment of the contractual cash flow, commonly known as the “solely payments of principle and interest” criterion (the “SPPI”). A debt instrument will be classified in the amortized cost portfolio if the two following conditions are fulfilled:

· the financial asset is managed with a business model, the purpose of which is to maintain financial assets to receive contractual cash flows; and

· in accordance with the contractual characteristics of the instrument, the cash flows it generates represent the return on the principal and interest only, as consideration for the time value of money and the debtor’s credit risk.

A debt instrument will be classified in the portfolio of financial assets at fair value through other comprehensive income if the two following conditions are fulfilled:

· the financial asset is managed with a business model, the purpose of which combines the collection of contractual cash flows and the sale of assets, and

· the contractual characteristics of the instrument generate, at specific dates, cash flows which only represent the return of the principal and interest.

A debt instrument will be classified at fair value through profit or loss when the business model used for its management or the contractual characteristics relating to its cash flows do not require classification into one of the portfolios described above.

In general, equity instruments will be measured at fair value through profit or loss. However the Group may make an irrevocable election at their initial recognition to present subsequent changes in their fair value through other comprehensive income.

Financial assets will only be reclassified when BBVA Group decides to change the relevant business model. In such a case, all of the financial assets assigned to the relevant business model will be reclassified. The change of the objective of the business model should occur before the date of the reclassification.

Valuation of financial assets

All financial instruments are initially recognized at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the instrument.

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Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the consolidated income statement in the period in which the change occurred (see Note 37 to our Consolidated Financial Statements). The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding sentence, are treated as described below, according to the categories of financial assets.

“Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss” and “Financial assets designated at fair value through profit or loss”

Financial assets are recorded under the heading “Financial assets held for trading” if the objective of the business model is to generate gains by buying and selling these financial instruments or generate short-term results. Financial assets recorded under the heading “Non-trading financial assets mandatorily at fair value through profit or loss” are assigned to a business model which objective is to obtain the contractual cash flows and / or to sell those instruments but their contractual cash flows do not comply with the requirements of the SPPI test. The Group only classifies financial assets in “Financial assets designated at fair value through profit or loss” if such classification results in the elimination or significant reduction of a measurement or recognition inconsistency (an ‘accounting mismatch’) that would otherwise arise from measuring financial assets or financial liabilities, or recognizing gains or losses on them, on different bases.

The assets recognized under these headings of the consolidated balance sheet are measured upon acquisition at fair value and changes in their fair value (gains or losses) are recognized at their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the consolidated income statement (see Note 41 of our Consolidated Financial Statements). Interest from derivatives designated as economic hedges on interest rates are recognized in “Interest and other income” or “Interest expense” (see Note 37 to our Consolidated Financial Statements), depending on the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

“Financial assets at fair value through other comprehensive income”

Debt instruments

Assets recognized under this heading in the consolidated balance sheet are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily net of tax effect, under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss – Fair value changes of debt instruments measured at fair value through other comprehensive income” in the consolidated balance sheet (see Note 30 to the Consolidated Financial Statements).

The amounts recognized under the headings “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Fair value changes of financial assets measured at fair value through other comprehensive income” and “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group’s consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairment loss is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” or “Exchange differences, net”, as appropriate, in the consolidated income statement for the period in which they are derecognized (see Note 41 to the Consolidated Financial Statements).

The net impairment losses in “Financial assets at fair value through other comprehensive income” over the reported year are recognized under the heading “Impairment losses on financial assets, net – Financial assets at fair value through other comprehensive income” (see Note 47 to our Consolidated Financial Statements) in the consolidated income statement for that period.

Changes in foreign exchange rates which affect monetary items are recognized under the heading “Exchange differences, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

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Equity instruments

The BBVA Group may, at the time of initial recognition, elect to present changes in the fair value of an investment in an equity instrument that is not held for trading in other comprehensive income. The election is irrevocable and can be made on an instrument-by-instrument basis. Subsequent changes in fair value (gains or losses) are recognized, under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of equity instruments measured at fair value through other comprehensive income”.

“Financial assets at amortized cost”

Subsequently after acquisition, a financial asset is classified and measured at amortized cost if it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and it meets the SPPI test.

The assets under this category are subsequently measured at amortized cost, using the effective interest rate method.

Net impairment losses of assets recorded under this heading arising in each period are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification – Financial assets measured at amortized cost” (see Note 47 to our Consolidated Financial Statements) in the consolidated income statement for that period.

Classification and measurement of financial liabilities

Classification of financial liabilities

Under IFRS 9, financial liabilities are classified in the following categories:

· Financial liabilities at amortized cost;

· Financial liabilities held for trading: financial instruments are recorded in this category when the Group’s objective is to generate gains by buying and selling these financial instruments; and

· Financial liabilities designated at fair value through profit or loss on initial recognition under the fair value option. The Group has the option to designate irrevocably on initial recognition a financial liability as at fair value through profit or loss provided that doing so results in the elimination or significant reduction of a measurement or recognition inconsistency, or if a group of financial liabilities, or a group of financial assets and financial liabilities, has to be managed, and its performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy.

Valuation of financial liabilities

All financial instruments are initially recognized at fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial liability. Unless there is evidence to the contrary, the best evidence of the fair value of a financial instrument at initial recognition shall be the transaction price.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the consolidated income statement for the period in which the change occurred (see Note 37 to our Consolidated Financial Statements).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial liabilities.

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“Financial liabilities held for trading” and “Financial liabilities designated at fair value through profit or loss”

The subsequent changes in the fair value (gains or losses) of the liabilities recognized under these headings of the consolidated balance sheet are recognized at their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements), except with respect to the financial liabilities designated at fair value through profit or loss under the fair value option With respect to such financial liabilities, the amount of change in the fair value that is attributable to changes in their related credit risk is presented under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk”. Interest from derivatives designated as economic hedges on interest rates are recognized in “Interest and other income” or “Interest expense” (see Note 37 to our Consolidated Financial Statements), depending on the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

“Financial liabilities at amortized cost”

The liabilities under this category are subsequently measured at amortized cost, using the effective interest rate method.

“Derivatives-hedge accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk”

The below description describes hedge accounting under the IFRS 9 standard. However, as permitted by IFRS 9, the Group has elected to continue applying IAS 39 to its hedge accounting in 2018. For information on hedge accounting under IAS 39, see Note 2.2.1 to our Consolidated Financial Statements.

Assets and liabilities recognized under these headings in the consolidated balance sheet are measured at fair value.

Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:

· In fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized under the heading “Gains or losses from hedge accounting, net” in the consolidated income statement, with a corresponding offset under the headings where hedging items (“Hedging derivatives”) and the hedged items are recognized, as applicable. Almost all of the hedges used by the Group are for interest-rate risks. Therefore, the valuation changes are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the consolidated income statement (see Note 37 to our Consolidated Financial Statements).

· In fair value hedges of interest rate risk relating to a portfolio of financial instruments (portfolio-hedges), the gains or losses that arise in the measurement of the hedging instrument are recognized in the consolidated income statement, and the gains or losses that arise from the change in the fair value of the hedged item (attributable to the hedged risk) are also recognized in the consolidated income statement (in both cases under the heading “Gains or losses from hedge accounting, net”, using, as a balancing item, the heading “Fair value changes of the hedged items in portfolio hedges of interest rate risk” in the consolidated balance sheet, as applicable).

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· In cash flow hedges, the gain or loss on the hedging instruments relating to the effective portion of such hedges are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges” in the consolidated balance sheet, with a balancing entry under the heading “Hedging derivatives” of the assets or liabilities of the consolidated balance sheet, as applicable. These differences are recognized in the consolidated income statement under the headings “Interest and other income” or “Interest expense” at the time when the gain or loss in the hedged instrument affects profit or loss, when the forecast transaction is executed or at the maturity date of the hedged item (see Note 37 to our Consolidated Financial Statements).

· Differences in the measurement of the hedging items corresponding to the ineffective portions of cash flow hedges are recognized directly under the heading “Gains or losses from hedge accounting, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

· In the hedges of net investments in foreign operations, the differences attributable to the effective portions of hedging items are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss – Hedging of net investments in foreign transactions” in the consolidated balance sheet with a balancing entry under the heading “Hedging derivatives” of the assets or liabilities of the consolidated balance sheet, as applicable. These differences in valuation are recognized under the heading “Exchange differences, net” in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized (see Note 41 to our Consolidated Financial Statements).

Impairment losses on financial assets

Definition of impaired financial assets under IFRS 9

IFRS 9 replaced the “incurred loss” model in IAS 39 with one of “expected credit loss”. The IFRS 9 impairment model is applied to financial assets valued at amortized cost and to financial assets valued at fair value through other comprehensive income, except for investments in equity instruments and contracts for financial guarantees and loan commitments unilaterally revocable by BBVA. All the financial instruments at fair value through profit or loss are excluded from the impairment model.

The new standard classifies financial instruments into three categories, based on the evolution of their related credit risk from the time of their initial recognition. As further explained at the end of this section, the first category includes transactions when they are initially recognized (Stage 1); the second category comprises financial assets in respect of which a significant increase in credit risk has been identified since their respective initial recognition (Stage 2); and the third category comprises impaired financial assets (Stage 3).

The calculation of provisions for credit risk in each of these three categories must be done differently. With respect to financial assets classified in the first of the aforementioned categories, the expected losses for the next 12 months must be recorded. With respect to financial assets classified in the other two categories, the expected losses for the remaining life of such financial assets must be recorded. Thus, IFRS 9 differentiates between the following concepts of “expected loss”:

· Expected loss for the next 12 months: this is the expected credit loss that arises from possible default events within 12 months following the date of the financial statements; and

· Expected loss during the life of the transaction: this is the expected credit loss that arises from all possible default events over the remaining life of the financial instrument.

Estimating the expected loss for a financial asset requires considerable judgment, both with respect to the expected losses estimation model and the making of forecasts as to how economic factors may affect such losses, which must be carried out on a weighted probability basis.

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The BBVA Group has applied the following definitions in accordance with IFRS 9:

Default

BBVA has applied a definition of default for financial instruments which is consistent with the definition used in internal credit risk management, as well as with the indicators under applicable regulation at the date of the implementation of IFRS 9. Both qualitative and quantitative indicators have been considered.

The Group considers there is a default when one of the following situations occurs:

· payment is past-due for more than 90 days; or

· there are reasonable doubts regarding the full reimbursement of the instrument.

In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the Group considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2018, the Group has not considered periods longer than 90 days for any of its significant portfolios.

Credit impaired asset

According to IFRS 9, an asset is credit impaired if one or more events having a detrimental impact on the estimated future cash flows of the asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:

· significant financial difficulty of the issuer or the borrower;

· a breach of contract (e.g. a default or past due event);

· a lender having granted a concession to the borrower – for economic or contractual reasons relating to financial difficulties faced by the borrower – that the lender would not otherwise consider;

· it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

· the disappearance of an active market for that financial asset because of financial difficulties; and

· the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

The Group’s definition of impaired financial assets is aligned with that set forth in the above paragraphs.

Significant increase in credit risk

The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there have been significant increases in credit risk since initial recognition considering all reasonable and supportable information, including that which is forward looking.

The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally, although there are certain peculiarities for each geographic region:

· Quantitative criterion: the Group carries out a quantitative analysis based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default, so that both values are comparable in terms of expected default probability for its residual life. The thresholds used for considering an increase in risk as significant vary depending on the geographic area and portfolio. Depending on how old transactions were at the time the new standard was implemented, some simplifications were made to compare the original and current probabilities of default, based on the best information available at that time.

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· Qualitative criterion: since most indicators for detecting significant increase in risk are included in the Group’s systems through rating/scoring systems or macroeconomic scenarios, the quantitative analysis covers the majority of circumstances. The Group will only use additional qualitative criteria when it considers it necessary to include circumstances that may not be reflected in the rating/score systems or in the macroeconomic scenarios used.

Instruments meeting one of the following conditions are considered to be “Stage 2” instruments:

· More than 30 days past due. According to IFRS 9, default of more than 30 days is a presumption of impairment that can be rebutted in those cases in which the entity considers, based on reasonable and documented information, that such non-payment does not represent a significant increase in risk. As of December 31, 2018, the Group has not considered periods of more than 30 days for assessing impairment in any of its significant portfolios.

· Watch list: These instruments are subject to special watch by the relevant Risks unit because there are negative signs relating to their credit quality, even though there may be no objective evidence of impairment.

· Refinancing or restructuring that does not result in the evidence of impairment.

Although IFRS 9 introduces a series of operational simplifications or practical solutions for analyzing the increase in significant risk, the Group does not use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly just because they have a low credit risk at the date of the financial statements.

As indicated above, the classification of financial instruments subject to impairment under the new IFRS 9 is as follows:

Stage 1– without significant increase in credit risk: Loss allowances in respect of financial assets which are not considered to have experienced a significant increase in credit risk are measured at an amount equal to the expected credit losses for the next 12 months.

Stage 2– significant increases in credit risk: When the credit risk of a financial asset has increased significantly since its initial recognition, the impairment losses of that financial asset are calculated as the expected credit loss during the entire life of the asset.

Stage 3 – Impaired: When there is objective evidence that the instrument is credit impaired, the financial asset is transferred to this category in which the provision for losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

Method for calculating expected loss

In accordance with IFRS 9, the measurement of expected losses must reflect:

· a considered and unbiased amount, determined by evaluating a range of possible results;

· the time value of money; and

· reasonable and supportable information that is available without undue cost or effort and that reflects current conditions and forecasts of future economic conditions.

The Group measures expected losses both individually and collectively. The purpose of the Group’s individual measurement is to estimate expected losses for significant impaired instruments, or instruments classified in Stage 2. In these cases, the amount of credit losses is calculated as the difference between the expected discounted cash flows at the effective interest rate of the transaction and the carrying amount of the instrument.

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For the collective measurement of expected losses the instruments are grouped into groups of assets based on their risk characteristics. Exposure within each group is segmented according to shared credit risk characteristics, which may be indicative of the payment capacity of the borrower in accordance with the relevant contractual conditions. Characteristics taken into account must be considered to be relevant in estimating future flows of each group. Among others, we may consider the following factors:

· type of instrument;

· rating or scoring tools;

· credit risk scoring or rating;

· type of collateral;

· amount of time at default for stage 3;

· segment;

· qualitative criteria which can have a significant increase in risk; and

· collateral value if it has an impact on the probability of a default event.

The estimated losses are derived from the following parameters:

· PD: estimate of the probability of default in each period;

· EAD: estimate of the exposure in case of default at each future period, taking into account the changes in exposure after the date of the financial statements; and

· LGD: estimate of the loss in case of default, calculated as the difference between the contractual cash flows and receivables, including guarantees.

In the case of debt securities, the Group supervises the changes in credit risk through monitoring the external published credit ratings.

To determine whether there is a significant increase in credit risk that is not reflected in published ratings, the Group also revises the changes in bond yields, and when they are available, the prices of Credit Quality Swap (CDS), together with the news and regulatory information available on the issuers.

Use of present, past and future information

IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss.

The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability it will not occur have to be considered, even though the possibility of a loss may be very small. Also, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.

The approach used by the Group consists of using first the most probable scenario (baseline scenario) consistent with that used in the Group’s internal management processes, and then applying an additional adjustment, calculated by considering the weighted average of expected losses in two economic scenarios (one more positive and the other more negative). The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are Gross Domestic Product (GDP), tax rates, unemployment rate and loan to value (LTV).

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Fair value of financial instruments

The fair value of an asset or a liability on a given date is taken to be the price that would be received upon the sale of an asset, or paid, upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organized, transparent and deep market (“quoted price” or “market price”).

If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thus estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.

See Notes 2.2.1 and 8 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies.

Derivatives and other future transactions

These instruments include outstanding foreign currency purchase and sale transactions, outstanding securities purchase and sale transactions, futures transactions relating to securities, exchange rates or interest rates, forward interest rate agreements, options relating to exchange rates, securities or interest rates and various types of financial swaps.

All derivatives are recognized on the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and if it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the derivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognized in the heading “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” in the consolidated income statement.

Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.

The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instruments discounted at the measurement date (“present value” or “theoretical value”). These derivatives are measured using methods recognized by the financial markets, including the net present value method and option price calculation models.

Financial derivatives that have equity instruments as their underlying, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost.

Financial derivatives designated as hedging items are included in the heading of the balance sheet “Hedging derivatives”. These financial derivatives are valued at fair value.

See Note 2.2.1 to our Consolidated Financial Statements, which contains a summary of our significant accounting policies with respect to these instruments.

Goodwill in consolidation

Pursuant to IFRS 3, if the difference on the date of a business combination between the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of equity interest previously held in the acquired entity, on one hand, and the fair value of the assets acquired and liabilities assumed, on the other hand, is positive, it is recorded as goodwill on the asset side of the balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized.

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Goodwill is not amortized and is subject periodically to an impairment analysis. Any impaired goodwill is written off.

If the difference is negative, it is recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.

Goodwill is allocated to one or more cash-generating units, or CGUs, expected to benefit from the synergies arising from business combinations. See Note 2.2.8 to our Consolidated Financial Statements for the definition of CGU.

The CGUs to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.

For the purpose of determining the impairment of a CGU to which a part or all of goodwill has been allocated, the carrying amount of that CGU, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, shall be compared to its recoverable amount (except where they are not valued at fair value). The resulting difference shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining difference in proportion to the carrying amount of each of the assets in the CGU. In any case, impairment losses on goodwill can never be reversed.

See Notes 2.2.7 and 2.2.8 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies related to goodwill.

The results from each of these tests on the dates mentioned were as follows:

As of December 31, 2018, 2017 and 2016, no impairment had been identified in any of the main CGUs.

The Group’s most significant goodwill corresponds to the CGU in the United States. The calculation of the impairment loss used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2018, the Group used a steady growth rate of 4.0% (the same rate was considered as of December 31, 2017 and 2016) to extrapolate the cash flows in perpetuity starting on the fifth year (2023), based on the real GDP growth rate of the United States and expected inflation. The rate used to discount cash flows is the cost of capital assigned to the CGU, 10.5% as of December 31, 2018 (10.0% as of December 31, 2017 and 2016, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2018 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €1,009 million and €1,176 million respectively (€1,159 million and €1,371 million respectively as of December 31, 2017). If, as of December 31, 2018, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €526 million and €451 million respectively (€661 million and €559 million respectively as of December 31, 2017).

Part of the Group’s goodwill balance corresponds to the CGU in Turkey. The calculation of the impairment loss used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2018, the Group used a steady growth rate of 7.0% (the same rate was considered as of December 31, 2017 and 2016) to extrapolate the cash flows in perpetuity starting on the fifth year (2023), based on the real GDP growth rate of Turkey and expected inflation. The rate used to discount cash flows is the cost of capital assigned to the CGU, 24.3% as of December 31, 2018 (18.0% and 17.7% as of December 31, 2017 and 2016, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2018 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €149 million and €158 million, respectively. If, as of December 31, 2018, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €40 million and €37 million, respectively.

As of December 31, 2018 the recoverable amounts of our main CGUs were in excess of their carrying value and, as such, were not at risk of impairment.

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Insurance contracts

The methods and techniques used to calculate the mathematical reserves for insurance contracts mainly involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each contract. Changes in insurance mathematical reserves may occur in the future as a consequence of changes in interest rates and other key assumptions. See Notes 2.2.9 and 23 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies and assumptions about our most significant insurance contracts.

Post-employment benefits and other long term commitments to employees

Pension and post-retirement benefit costs and credits are based on actuarial calculations. Inherent in these calculations are assumptions including discount rates, rate of salary increase and expected return on plan assets. Changes in pension and post-retirement costs may occur in the future as a consequence of changes in interest rates, expected return on assets or other assumptions. See Notes 2.2.12 and 25 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies about pension and post-retirement benefit costs and credits.

## A. Operating Results

Factors Affecting the Comparability of our Results of Operations and Financial Condition

Trends in Exchange Rates

We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Colombian pesos and Peruvian new soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our consolidated financial statements. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.

Except with respect to hyperinflationary economies (Venezuela and Argentina), the assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates for inclusion in our Consolidated Financial Statements, and income statement items have been converted at the average exchange rates for the period. See Note 2.2.20 to our Consolidated Financial Statements for information on the application of IAS 29 to hyperinflationary economies. The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar and the Turkish lira against the euro, expressed in local currency per €1.00 as averages for 2018, 2017 and 2016 and as of December 31, 2018, 2017 and 2016 according to the ECB.

| Average Exchange Rates | Period-End Exchange Rates
| Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | As of December 31, 2018 | As of December 31, 2017 | As of December 31, 2016
Mexican peso | 22.7046 | 21.3297 | 20.6637 | 22.4921 | 23.6614 | 21.7718
U.S. dollar | 1.1810 | 1.1296 | 1.1069 | 1.1450 | 1.1993 | 1.0541
Argentine peso | 43.2900 | 18.7375 | 16.3348 | 43.2900 | 22.5830 | 16.5846
Colombian peso | 3,484.3206 | 3,333.3333 | 3,378.3784 | 3,745.3184 | 3,584.2294 | 3,164.5570
Peruvian new sol | 3.8787 | 3.6813 | 3.7333 | 3.8621 | 3.8813 | 3.5310
Turkish lira | 5.7058 | 4.1213 | 3.3427 | 6.0588 | 4.5464 | 3.7072

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During 2018, the Mexican peso, the U.S. dollar, the Argentine peso, the Colombian peso, the Peruvian new sol and the Turkish lira depreciated against the euro in average terms. With respect to period-end exchange rates, the Argentine peso, the Colombian peso and the Turkish lira depreciated against the euro. On the other hand, the Mexican peso, the U.S. dollar, and the Peruvian new sol appreciated against the euro in terms of period-end exchange rates. The overall effect of changes in exchange rates was negative for the period-on-period comparison of the Group’s income statement and positive for the period-on-period comparison of the Group’s balance sheet.

During 2017, the Mexican peso, the U.S. dollar, the Argentine peso, the Venezuelan bolivar and the Turkish lira depreciated against the euro in average terms. In particular, the Venezuelan bolivar depreciated significantly. On the other hand, the Chilean peso, the Colombian peso and the Peruvian new sol appreciated against the euro in average terms. With respect to period-end exchange rates, all of the above currencies depreciated against the euro. The overall effect of changes in exchange rates was negative both for the period-on-period comparison of the Group’s income statement and the period-on-period comparison of the Group’s balance sheet.

When comparing two dates or periods in this Annual Report we have sometimes excluded, where specifically indicated, the impact of changes in exchange rates by assuming constant exchange rates. In doing this, with respect to income statement amounts, we have used the average exchange rate for the more recent period for both periods and, with respect to balance sheet amounts, we have used the closing exchange rate of such more recent period.

Application of IFRS 9

As of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and introduced changes in the requirements for the classification and measurement of financial assets and financial liabilities, the impairment of financial assets and hedge accounting. The impact of the first application of IFRS 9, which was significant, is presented in Note 2.4 to the Consolidated Financial Statements.

As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years. However, the financial information for 2017 and 2016 included in the Consolidated Financial Statements, which was prepared in accordance with the accounting policies and valuation criteria applicable under IAS 39, has been subject to certain non-significant modifications in order to improve its comparability with financial information for 2018. See “Presentation of Financial Information—Application of IFRS 9”.

The implementation of IFRS 9 has mainly affected the following line items of our consolidated income statement:

· “Dividend income” – since January 1, 2018, dividends from “Financial assets held for trading” are recognized under “Net gains (losses) in financial assets and liabilities”, whereas in the prior year they were recognized under “Dividend income”. This has adversely affected the evolution of “Dividend income” in 2018 compared to 2017.

· “Net gains (losses) on financial assets and liabilities” – The following three headings have been affected:

· “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net” was affected in 2018 due to the reclassification of the underlying portfolios as a result of the implementation of IFRS 9.

· “Gains (losses) on financial assets and liabilities held for trading, net” was affected in 2018 as a result of the implementation of IFRS 9, pursuant to which, since January 1, 2018, dividends from “Financial assets held for trading” are recognized under this heading. In addition, the heading was affected in 2018 by the reclassification of the underlying portfolios also as a result of the implementation of IFRS 9.

· “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net” was first introduced in 2018 as a result of the implementation of IFRS 9. Previously, this category did not exist under IAS 39.

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Sale of BBVA Chile

On July 6, 2018, we completed the sale of our 68.19% stake in BBVA Chile to Scotiabank for $2,200 million in cash. The transaction resulted in a capital gain, net of taxes, of €633 million. BBVA Chile was part of our South America segment. For additional information on this sale, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018”.

Transfer of Business and sale of stake in Divarian

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs) to Divarian and the sale of an 80% stake in Divarian to Promontoria. Prior to its contribution to Divarian, the Business was part of our Non-Core Real Estate segment. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian, which is accounted for under the Corporate Center. For additional information on the Cerberus Transaction, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” and “Item 10. Additional Information—Material Contracts—Joint Venture Agreement with Cerberus”.

Hyperinflationary economies

Argentina, which is part of the South America segment, was considered to be a hyperinflationary country in 2018 for the first time. Hyperinflation in Argentina had a negative impact of €266 million in the “Profit attributable to parent company” for 2018. For additional information, see Note 2.2.20 of the Consolidated Financial Statements.

Changes in operating segments

Since 2018, our Mexico segment includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous years). In addition, there have been certain non-significant changes affecting the composition of our Banking Activity in Spain, Non Core Real Estate and Corporate Center segments. The financial information for 2017 relating to such segments included in the Consolidated Financial Statements and in this Annual Report has been revised accordingly to improve its comparability with financial information for 2018. However, financial information for 2016 has not been revised as a result thereof. As a result, the consolidated financial information relating to such segments for 2016 is not fully comparable with such information for 2017 and 2018.

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Operating Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products and services (primarily loans and deposits but also intermediation of financial products such as sovereign or corporate debt) in the countries in which we operate. Demand for our products and services in those countries is affected by the performance of their respective economies in terms of gross domestic product (GDP), as well as prevailing levels of employment, inflation and, particularly, interest rates. The demand for loans and saving products correlates positively with income, which correlates in turn with the GDP, employment and corporate profits evolution. Regarding interest rates, they have a direct impact on banking results as the banking activity mainly relies on the generation of positive interest margins by paying lower interest on liabilities, primarily deposits, than the interest received on assets, primarily loans. However, it should be noted that higher interest rates, all else being equal, also reduce the demand for banking loans and increase the cost of funding of the banking business.

The global environment has deteriorated during the second half of 2018, with a more evident effect of the increase in protectionism in global trade and the industrial sector together with the signs of a slowdown in China, the Eurozone and the United States. Faced with this scenario of global uncertainty, the main central banks have shown signs of caution in their normalization plans, and have been key to containing the sharp rise in financial tensions. BBVA Research’s forecast is for a smooth deceleration of the growth in the global economy, from 3.6% in 2018 to 3.5% in 2019 and 3.4% in 2020. This is based on the scenario referred to above and the assumption that financial volatility may continue during the first half of 2019 and that some of the uncertainties weighing on the global economy may not dissipate (as a result, for example, of the lack of an agreement between the United States and China to curb trade disputes and avoid a new tariff hike, or of a solution that avoids a no-deal Brexit).

Regarding the evolution of key economic areas for the Group, after growing above 3% in each of 2017 and 2016, the Spanish economy slowed slightly in 2018 but is still expanding at a positive rate. The positive inertia of the economy along with supportive monetary and fiscal policies is supporting the dynamism of Spanish domestic demand and offsetting some headwinds created by increasing oil prices and higher uncertainty. According to BBVA Research’s current estimates, growth is expected to slow to slightly below 2.5% in 2019. Elections taking place this year are being held in an environment of increased political fragmentation, which may result in an outcome that may hinder the implementation of necessary structural reforms, thus adding new uncertainty.

Mexico’s GDP grew at an annualized rate of 2.0% in 2018 (2.3% in 2017) driven by robust private consumption, and throughout most of the year, the manufacturing sector. At the beginning of 2019, BBVA Research’s GDP growth forecast was slightly revised downwards to of 2% due to delays in investment works and less dynamic U.S. industrial manufacturing production, combined with increased uncertainty related to the economic policies of the new government. PEMEX’s business model and the decline in its rating increases risk in the Mexican economy. On the other hand, we believe the declining trend in inflation is likely to continue to improve the purchasing power of households and underpin private consumption in 2019. Sound fiscal and monetary policy oriented to maintaining price stability are likely to be crucial to limiting any potential negative impacts upon, or any uncertainties with regards to, the Mexican economy.

South American GDP grew by 0.2% in 2018 after having grown by 0.7% in 2017. Low regional growth was mainly as a result of the weak macroeconomic performance of some Mercosur countries, such as Argentina, where GDP declined by 2.4% in 2018, largely due to the effects of the foreign exchange crisis triggered by concerns about the funding of the current account deficit in an environment of declining global liquidity. Moving forward, according to BBVA Research, the global slowdown will likely limit the recovery of economic activity in South America, with weaker growth in developed countries, higher global financial volatility and worse prospects for commodity prices, in addition to certain idiosyncratic factors that are likely to negatively affect the region. BBVA Research expects average GDP growth to be around 0.7% in 2019, with higher growth, around 3.5%, in Peru, Chile, Colombia and Paraguay, and approximately 2% growth in Mexico, Brazil and Uruguay. In Argentina, BBVA Research expects that GDP will decline again in 2019 as a whole, although positive quarterly growth may return from the middle of the year onwards. In a context where there is scarce room for expansionary fiscal policies, most of the region will likely continue to benefit from lax monetary policies. However, the strengthening of domestic demand and/or the exchange rate pass-through depreciation will likely gradually lead to the elimination of monetary stimuli in the coming years. In contrast, with respect to Argentina, BBVA Research expects that monetary policy is likely to become gradually less restrictive once inflation moderates after the recent rebound. The main risks in the region are related to political and fiscal issues and possible delays in investment projects, in addition to more general risks in the context of the global environment.

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In the United States, GDP growth accelerated strongly in 2018, by half a percentage point to 2.9%, buoyed by the fiscal stimulus, but in the second half of the year there were certain signs of moderation, such as the flagging performance of external demand, the appreciation of the dollar and the figures for private sector investment, which appear not to have responded greatly to the government’s fiscal package. In a context of greater uncertainty both at home and abroad and doubt regarding the fiscal stimulus measures, BBVA Research believes growth may slow to 2.5% in 2019 and 2% in 2020. Despite the strength of domestic demand, and an unemployment rate below 4%, inflationary pressures remain contained, and BBVA Research expects the declining trend in oil prices will bring inflation down from 2.5% in 2018 to 2.2% in 2019 and 2.1% in 2020. In such a scenario of slowing growth, and with inflation tending towards 2%, the increase in downside risks may make the Federal Reserve more cautious.

As regards Turkey, in 2018 GDP growth slowed notably to 2.6% from 7.4% in 2017, as tightening financial conditions and increasing geopolitical stress weighed on domestic demand, while the sharp depreciation of the lira lead to a positive adjustment in the current account (although at the expense of a sharp rise in inflation). The tightening of monetary and fiscal policy designed to correct imbalances generated in prior years will likely continue to slow down growth to around 1% in 2019, before starting to gain some momentum in 2020 with a 2.5% expected growth.

BBVA Group results of operations for 2018 compared to 2017

The table below shows the Group’s consolidated income statements for 2018 and 2017:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Interest and other income | 29,831 | 29,296 | 1.8
Interest expense | (12,239) | (11,537) | 6.1
Net interest income | 17,591 | 17,758 | (0.9)
Dividend income | 157 | 334 | (53.0)
Share of profit or loss of entities accounted for using the equity method | (7) | 4 | n.m. (1)
Fee and commission income | 7,132 | 7,150 | (0.3)
Fee and commission expense | (2,253) | (2,229) | 1.1
Net gains (losses) on financial assets and liabilities (2) | 1,234 | 938 | 31.6
Exchange differences, net | (9) | 1,030 | n.m. (1)
Other operating income | 949 | 1,439 | (34.1)
Other operating expense | (2,101) | (2,223) | (5.5)
Income on insurance and reinsurance contracts | 2,949 | 3,342 | (11.8)
Expense on insurance and reinsurance contracts | (1,894) | (2,272) | (16.6)
Gross income | 23,747 | 25,270 | (6.0)
Administration costs | (10,494) | (11,112) | (5.6)
Personnel expense | (6,120) | (6,571) | (6.9)
Other administrative expense | (4,374) | (4,541) | (3.7)
Depreciation and amortization | (1,208) | (1,387) | (12.9)
Net margin before provisions (3) | 12,045 | 12,771 | (5.7)
Provisions or reversal of provisions | (373) | (745) | (49.9)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (3,981) | (4,803) | (17.1)
Impairment or reversal of impairment on non-financial assets | (138) | (364) | (62.1)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net | 78 | 47 | 66.0
Negative goodwill recognized in profit or loss | - | - | 0.0
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 815 | 26 | n.m. (1)
Operating profit/(loss) before tax | 8,446 | 6,931 | 21.9
Tax expense or income related to profit or loss from continuing operations | (2,295) | (2,169) | 5.8
Profit from continuing operations | 6,151 | 4,762 | 29.2
Profit from discontinued operations, net | - | - | 0.0
Profit | 6,151 | 4,762 | 29.2
Profit attributable to parent company | 5,324 | 3,519 | 51.3
Profit attributable to non-controlling interests | 827 | 1,243 | (33.5)
(1) Not meaningful. (2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”. (3) Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

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The changes in our consolidated income statements for 2018 and 2017 were as follows:

Net interest income

The following table summarizes net interest income for 2018 and 2017.

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Interest and other income | 29,831 | 29,296 | 1.8
Interest expense | (12,239) | (11,537) | 6.1
Net interest income | 17,591 | 17,758 | (0.9)

Net interest income for the year ended December 31, 2018 amounted to €17,591 million, a 0.9% decrease compared with the €17,758 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the main countries where BBVA operates (in average terms) and, to a lesser extent, the evolution in Spain (described below). Excluding the impact of the depreciation of these currencies, net interest income increased by 10.8% mainly as a result of the growth in loans. The following factors, set out by region, were the main contributors toward the 0.9% decrease in net interest income:

· Spain: there was a 1.8% year-on-year decrease in net interest income mainly as a result of the decrease in the average volume of interest-earning assets and the increase in the costs of wholesale funding due to the fact that targeted longer-term refinancing operations (TLTRO) were partially replaced by other types of funding which bear higher interest rates.

· Turkey: there was a 5.9% year-on-year decrease in net interest income as a result of the depreciation of the Turkish lira against the euro. Excluding this effect, net interest income grew by 30.3%, despite the pressure on customer spreads, mainly due to significant income from inflation-linked bonds, whose contribution in 2018, compared to 2017, more than doubled.

· South America: there was a 6.0% year-on-year decrease in net interest income as a result of the depreciation of the currencies in the region against the euro as well as the sale of BBVA Chile.

The decrease in net interest income was partially offset by:

· United States: there was a 7.4% year-on-year increase in net interest income due mainly to higher interest rates (as a result of the Federal Reserve Board benchmark interest rate increases) and to measures adopted by BBVA Compass to improve loan yields and contain the increase in the cost of deposits (including an improved deposit mix and wholesale funding).

· Mexico: there was a 1.7% year-on-year increase in net interest income mainly as a result of an increase in the average volume of loans and advances to customers.

Dividend income

Dividend income for the year ended December 31, 2018 amounted to €157 million, a 53% decrease compared with the €334 million recorded for the year ended December 31, 2017, mainly as a result of the implementation of IFRS 9, pursuant to which, since January 1, 2018, dividends from “Financial assets held for trading” are recognized under “Net gains (losses) in financial assets and liabilities”, whereas in the prior year they were recognized under “Dividend income”.

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Share of profit or loss of entities accounted for using the equity method

Share of profit or loss of entities accounted for using the equity method for the year ended December 31, 2018 amounted to a €7 million loss, compared with the €4 million profit recorded for the year ended December 31, 2017.

Fee and commission income

The breakdown of fee and commission income for the years ended December 31, 2018 and 2017 is as follows:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Bills receivables | 39 | 46 | (15.2)
Current accounts | 451 | 507 | (11.0)
Credit and debit cards | 2,900 | 2,834 | 2.3
Checks | 194 | 212 | (8.5)
Transfers and others payment orders | 605 | 601 | 0.7
Insurance product commissions | 171 | 192 | (10.9)
Commitment fees | 223 | 231 | (3.5)
Contingent risks | 390 | 396 | (1.5)
Asset Management | 1,023 | 923 | 10.8
Securities fees | 325 | 385 | (15.6)
Custody securities | 122 | 122 | 0.0
Other | 689 | 700 | (1.6)
Fee and commission income | 7,132 | 7,150 | (0.3)

Fee and commission income decreased by 0.3% to €7,132 million for the year ended December 31, 2018 from €7,150 million for the year ended December 31, 2017 mainly as a result of the depreciation of the currencies of the main countries where BBVA operates against the euro, which more than offset the increase in asset management fees.

Fee and commission expense

The breakdown of fee and commission expense for 2018 and 2017 is as follows:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Credit and debit cards | 1,502 | 1,458 | 3.0
Transfers and others payment orders | 96 | 102 | (5.9)
Commissions for selling insurance | 48 | 60 | (20.0)
Other fees and commissions | 607 | 610 | (0.5)
Fee and commission expense | 2,253 | 2,229 | 1.1

Fee and commission expense increased by 1.1% to €2,253 million for the year ended December 31, 2018 from €2,229 million for the year ended December 31, 2017, primarily due to an increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards, particularly in Spain and Mexico, which more than offset the impact of the depreciation of the currencies of the main countries where BBVA operates against the euro.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities increased by 31.6% to €1,234 million for the year ended December 31, 2018 compared to a net gain of €938 million for the year ended December 31, 2017.

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 2018 and 2017:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 216 | 985 | (78.1)
Financial assets at amortized cost | 51 | 133 | (61.7)
Other financial assets and liabilities | 164 | 852 | (80.8)
Gains (losses) on financial assets and liabilities held for trading, net | 707 | 218 | 224.3
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 96 | - | n.m. (1)
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 143 | (56) | n.m. (1)
Gains (losses) from hedge accounting, net | 72 | (209) | n.m. (1)
Net gains (losses) on financial assets and liabilities | 1,234 | 938 | 31.6
(1) Not meaningful.

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Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss decreased to €216 million in the year ended December 31, 2018 from €985 million in the year ended December 31, 2017 mainly due to lower ALCO portfolio sales and reclassifications of the underlying portfolios caused by the implementation of IFRS 9.

Gains on financial assets and liabilities held for trading increased to €707 million in the year ended December 31, 2018 from €218 million in the year ended December 31, 2017 mainly as a result of the implementation of IFRS 9, which led to the reclassification of the underlying portfolios and the recording, since January 1, 2018, of dividends from “Financial assets and liabilities held for trading” under this heading.

Gains on non-trading financial assets mandatorily at fair value through profit or loss amounted to €96 million. This heading was first introduced in 2018 as a result of the implementation of IFRS 9 on January 1, 2018. Previously, this category did not exist under IAS 39.

Exchange differences, net

Exchange differences decreased to a €9 million loss for the year ended December 31, 2018 from a €1,030 million gain for the year ended December 31, 2017. Exchange differences were €1,030 million for the year ended December 31, 2017 mainly as a result of certain financial transactions particularly in Turkey.

Other operating income and expense, net

Other operating income for the year ended December 31, 2018 decreased 34.1% to €949 million, compared with the €1,439 million recorded for the year ended December 31, 2017, mainly as a result of lower income from real-estate related services in Spain and the depreciation of the currencies of the main countries where BBVA operates against the euro.

Other operating expense for the year ended December 31, 2018 amounted to €2,101 million, a 5.5% decrease compared with the €2,223 million recorded for the year ended December 31, 2017, mainly as a result of lower expense from real-estate related services in Spain and the depreciation of the currencies of the main countries where BBVA operates against the euro, partially offset by the impact of hyperinflation in Argentina and the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund.

Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 2018 was €2,949 million, a 11.8% decrease compared with the €3,342 million of income recorded for the for the year ended December 31, 2017, mainly as a result of lower insurance premiums related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the currencies of the main countries where BBVA operates against the euro.

Expense on insurance and reinsurance contracts for the year ended December 31, 2018 was €1,894 million, a 16.6% decrease compared with the €2,272 million expense recorded for the year ended December 31, 2017, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the currencies of the main countries where BBVA operates against the euro.

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Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 2018 amounted to €10,494 million, a 5.6% decrease compared with the €11,112 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the main countries where BBVA operates against the euro, which was offset in part by a 63.7% increase in technology and systems expense.

The table below provides a breakdown of personnel expense for the years ended December 31, 2018 and 2017:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Wages and salaries | 4,786 | 5,163 | (7.3)
Social security costs | 722 | 761 | (5.1)
Defined contribution plan expense | 89 | 87 | 2.3
Defined benefit plan expense | 58 | 62 | (6.5)
Other personnel expense | 465 | 497 | (6.4)
Personnel expense | 6,120 | 6,571 | (6.9)

The table below provides a breakdown of other administrative expense for the years ended December 31, 2018 and 2017:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Technology and systems | 1,133 | 692 | 63.7
Communications | 235 | 269 | (12.6)
Advertising | 336 | 352 | (4.5)
Property, fixtures and materials | 982 | 1,033 | (4.9)
Of which: |  |  |
Rent expense | 552 | 581 | (5.0)
Taxes other than income tax | 417 | 456 | (8.6)
Other expense | 1,271 | 1,738 | (26.9)
Other administrative expense | 4,374 | 4,541 | (3.7)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2018 was €1,208 million, a 12.9% decrease compared with the €1,387 million recorded for the year ended December 31, 2017, mainly as a result of lower expense from amortization of intangible assets, particularly related to software in Spain, and the depreciation of the currencies of the main countries where BBVA operates against the euro.

Provisions or reversal of provisions

Provisions or reversal of provisions for the year ended December 31, 2018 amounted to an expense of €373 million, a 49.9% decrease compared with the €745 million expense recorded for the year ended December 31, 2017, mainly as a result of a decrease in the provisions related to early retirements and contributions to pension funds in Spain, as a result in part to the transfer of certain employees to Divarian (as part of the Cerberus Transaction).

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the year ended December 31, 2018 was an expense of €3,981 million, a 17.1% decrease compared with the €4,803 million expense recorded for the year ended December 31, 2017. In 2017, we recognized impairment losses of €1,123 million relating to our stake in Telefónica, S.A.

The table below provides the breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss for the years ended December 31, 2018 and 2017:

| Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Financial assets at fair value through other comprehensive income | 1 | 1,127 | (99.9)
Financial assets at amortized cost | 3,980 | 3,676 | 8.3
Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss | 3,981 | 4,803 | (17.1)

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Gains (losses) on derecognition of non-financial assets and subsidiaries, net

Gains on derecognition of non-financial assets and subsidiaries, for the year ended December 31, 2018 amounted to €78 million, a 66% increase compared with the € 47 million gain recorded for December 31, 2017, mainly as a result of capital gains from the sale of portfolios in the Mexico and Non-Core Real Estate segments.

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the year ended December 31, 2018 was €815 million, compared with the €26 million profit recorded for the year ended December 31, 2017, mainly as a result of the sale of BBVA Chile and the Cerberus Transaction.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 2018 amounted to €8,446 million, a 21.9% increase compared with the €6,931 million operating profit before tax recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations for the year ended December 31, 2018 amounted to €2,295 million, a 5.8% increase compared with the €2,169 million expense recorded for the year ended December 31, 2017, attributable in part to the higher operating profit before tax. Tax expense related to profit from continuing operations for the year ended December 31, 2017 was adversely affected by the recognition of the impairment losses relating to our stake in Telefónica, S.A., which adversely affected our operating profit before tax but had no impact on taxable income for such year.

Profit

As a result of the foregoing, profit for the year ended December 31, 2018 amounted to €6,151 million, a 29.2% increase compared with the €4,762 million recorded for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 2018 amounted to €5,324 million, a 51.3% increase compared with the €3,519 million recorded for the year ended December 31, 2017.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 2018 amounted to €827 million, a 33.5% decrease compared with the €1,243 million profit attributable to non-controlling interests recorded for the year ended December 31, 2017, mainly as a result of the decrease in the profit attributable to non-controlling interests in Turkey and Argentina.

###

136

### BBVA Group results of operations for 2017 compared with 2016

The table below shows the Group’s consolidated income statements for 2017 and 2016:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Interest and other income | 29,296 | 27,708 | 5.7
Interest expense | (11,537) | (10,648) | 8.3
Net interest income | 17,758 | 17,059 | 4.1
Dividend income | 334 | 467 | (28.5)
Share of profit or loss of entities accounted for using the equity method | 4 | 25 | (84.0)
Fee and commission income | 7,150 | 6,804 | 5.1
Fee and commission expense | (2,229) | (2,086) | 6.9
Net gains (losses) on financial assets and liabilities (1) | 938 | 1,661 | (43.5)
Exchange differences, net | 1,030 | 472 | 118.2
Other operating income | 1,439 | 1,272 | 13.1
Other operating expense | (2,223) | (2,128) | 4.5
Income on insurance and reinsurance contracts | 3,342 | 3,652 | (8.5)
Expense on insurance and reinsurance contracts | (2,272) | (2,545) | (10.7)
Gross income | 25,270 | 24,653 | 2.5
Administration costs | (11,112) | (11,366) | (2.2)
Personnel expense | (6,571) | (6,722) | (2.2)
Other administrative expense | (4,541) | (4,644) | (2.2)
Depreciation and amortization | (1,387) | (1,426) | (2.7)
Net margin before provisions (2) | 12,771 | 11,861 | 7.7
Provisions or reversal of provisions | (745) | (1,186) | (37.2)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (4,803) | (3,801) | 26.4
Impairment or reversal of impairment on non-financial assets | (364) | (521) | (30.1)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net | 47 | 70 | (32.9)
Negative goodwill recognized in profit or loss | - | - | -
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 26 | (31) | n.m. (3)
Operating profit/(loss) before tax | 6,931 | 6,392 | 8.4
Tax expense or income related to profit or loss from continuing operations | (2,169) | (1,699) | 27.7
Profit from continuing operations | 4,762 | 4,693 | 1.5
Profit from discontinued operations, net | - | - | -
Profit | 4,762 | 4,693 | 1.5
Profit attributable to parent company | 3,519 | 3,475 | 1.3
Profit attributable to non-controlling interests | 1,243 | 1,218 | 2.1

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(2) Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

137

The changes in our consolidated income statements for 2017 and 2016 were as follows:

Net interest income

The following table summarizes net interest income for 2017 and 2016:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Interest and other income | 29,296 | 27,708 | 5.7
Interest expense | (11,537) | (10,648) | 8.3
Net interest income | 17,758 | 17,059 | 4.1

Net interest income for the year ended December 31, 2017 amounted to €17,758 million, a 4.1% increase compared with the €17,059 million recorded for the year ended December 31, 2016, mainly as a result of higher interest rates of interest-earning assets, particularly foreign loans and advances to customers, which more than offset the higher growth in interest and similar expenses. By segment, the increase in net interest income was driven mainly by net interest income increases in the following regions:

· in the United States, mainly as a result of the impact of Federal Reserve Board benchmark interest rate increases;

· in Mexico, mainly as a result of higher interest rates applicable to loans and advances to customers and, to a lesser extent, an increase in the average volume of loans and advances to customers; and

· in South America, generally due to increases in the average volume of interest-earning assets, particularly loans and advances to customers, in the countries in the region where BBVA operates;

and which was partially offset by:

· the performance of the Banking Activity in Spain operating segment, which was adversely affected by the lower average volumes of interest-earning assets (mainly securities, derivatives and loans); and

· the performance of the Turkey operating segment, as a result of the negative impact of the depreciation of the Turkish lira which more than offset the higher interest rates of interest-earning assets, particularly loans and advances to customers, and growth in activity, particularly in cash and cash balances with central banks.

Dividend income

Dividend income for the year ended December 31, 2017 amounted to €334 million, a 28.5% decrease compared with the €467 million recorded for the year ended December 31, 2016, mainly as a result of our divestment in China CITIC Bank Corporation Limited (“CNCB”), a 2.14% stake of which we sold in 2017, and lower dividends from Telefónica, S.A.

Share of profit or loss of entities accounted for using the equity method

Share of profit of entities accounted for using the equity method for the year ended December 31, 2017 amounted to €4 million, an 84% decrease compared with the €25 million recorded for the year ended December 31, 2016.

Fee and commission income

The breakdown of fee and commission income for the years ended December 31, 2017 and 2016 is as follows:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Bills receivables | 46 | 52 | (11.5)
Current accounts | 507 | 469 | 8.1
Credit and debit cards | 2,834 | 2,679 | 5.8
Checks | 212 | 207 | 2.4
Transfers and others payment orders | 601 | 578 | 4.0
Insurance product commissions | 192 | 178 | 7.9
Commitment fees | 231 | 237 | (2.5)
Contingent risks | 396 | 406 | (2.5)
Asset Management | 923 | 839 | 10.0
Securities fees | 385 | 335 | 14.9
Custody securities | 122 | 122 | 0.0
Other | 700 | 701 | (0.1)
Fee and commission income | 7,150 | 6,804 | 5.1

138

Fee and commission income increased by 5.1% to €7,150 million for the year ended December 31, 2017 from €6,804 million for the year ended December 31, 2016, mainly as a result of an increase in fees and commissions from the use of credit cards in South America, Mexico, Spain and the United States, and an increase in securities fees and asset management fees in Spain.

Fee and commission expense

The breakdown of fee and commission expense for 2017 and 2016 is as follows:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Credit and debit cards | 1,458 | 1,334 | 9.3
Transfers and others payment orders | 102 | 102 | -
Commissions for selling insurance | 60 | 63 | (4.8)
Other fees and commissions | 610 | 587 | 3.9
Fee and commission expense | 2,229 | 2,086 | 6.9

Fee and commission expense increased by 6.9% to €2,229 million for the year ended December 31, 2017 from €2,086 million for the year ended December 31, 2016, primarily due to an increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards in South America, Mexico and Spain.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities decreased 43.5% to €938 million for the year ended December 31, 2017, compared with a gain of €1,661 million for the year ended December 31, 2016, primarily as result of lower sales of ALCO (Assets and Liabilities Committee) portfolios in Spain. In addition, the gain in the prior period was partially due to the sale of our stake in VISA Europe, Ltd. recorded in the second quarter of 2016, which resulted in a €225 million gain.

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 2017 and 2016:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 985 | 1,375 | (28.4)
Available-for-sale financial assets | 843 | 1,271 | (33.7)
Loans and receivables | 133 | 95 | 40.6
Other | 9 | 10 | (7.1)
Gains (losses) on financial assets and liabilities held for trading, net | 218 | 248 | (12.1)
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | (56) | 114 | n.m. (1)
Gains (losses) from hedge accounting, net | (209) | (76) | 175.0
Net gains (losses) on financial assets and liabilities | 938 | 1,661 | (43.5)
(1) Not meaningful.

139

Exchange differences, net

Exchange differences increased to €1,030 million for the year ended December 31, 2017 from €472 million for the year ended December 31, 2016 mainly as a result of certain financial operations particularly in Turkey.

Other operating income and expense, net

Other operating income for the year ended December 31, 2017 increased 13.1% to €1,439 million, compared with the €1,272 million recorded for the year ended December 31, 2016, mainly as a result of higher income from real estate-related services in Spain.

Other operating expense for the year ended December 31, 2017 amounted to €2,223 million, a 4.5% increase compared with the €2,128 million recorded for the year ended December 31, 2016, mainly as a result of higher expense from real estate-related services in Spain.

Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 2017 was €3,342 million, an 8.5% decrease compared with the €3,652 million of income recorded for the year ended December 31, 2016, mainly as a result of lower insurance activity in Spain and the impact of the depreciation of certain currencies against the euro.

Expense on insurance and reinsurance contracts for the year ended December 31, 2017 were €2,272 million, a 10.7% decrease compared with the €2,545 million expense recorded for the year ended December 31, 2016, mainly as a result of the lower insurance activity in Spain and the impact of the depreciation of certain currencies against the euro mentioned above, which had a corresponding impact on expenses on insurance and reinsurance contracts.

Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 2017 amounted to an expense of €11,112 million, a 2.2% decrease compared with the €11,366 million recorded for the year ended December 31, 2016, driven by declines in both personnel expense and other administrative expense, mainly as a result of some synergies in Spain (following the integration of Catalunya Banc) and the impact of the depreciation of certain currencies, particularly the Turkish Lira.

The table below provides a breakdown of personnel expense for the years ended December 31, 2017 and 2016:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Wages and salaries | 5,163 | 5,267 | (2.0)
Social security costs | 761 | 784 | (2.9)
Defined contribution plan expense | 87 | 87 | 0.0
Defined benefit plan expense | 62 | 67 | (7.5)
Other personnel expense | 497 | 516 | (3.7)
Personnel expense | 6,571 | 6,722 | (2.2)

140

The table below provides a breakdown of other administrative expense for the years ended December 31, 2017 and 2016:

| Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Technology and systems | 692 | 673 | 2.8
Communications | 269 | 294 | (8.5)
Advertising | 352 | 398 | (11.6)
Property, fixtures and materials | 1,033 | 1,080 | (4.4)
Of which: |  |  |
Rent expense | 581 | 616 | (5.7)
Taxes other than income tax | 456 | 433 | 5.3
Other expense | 1,738 | 1,766 | (1.6)
Other administrative expense | 4,541 | 4,644 | (2.2)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2017 was €1,387 million, a 2.7% decrease compared with the €1,426 million recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of some currencies against the euro.

Provisions or reversal of provisions

Provisions or reversal of provisions for the year ended December 31, 2017 amounted to an expense of €745 million, a 37.2% decrease compared with the €1,186 million expense recorded for the year ended December 31, 2016, mainly attributable to provisions recorded in 2016 related to the invalidity of clauses limiting interest rates in certain mortgage loans with customers (referred to as ”floor” clauses) in Spain. BBVA has made additional provisions during 2017 to cover possible contingencies and claims that may arise in connection with this matter in amounts that BBVA considers not significant.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the year ended December 31, 2017 was an expense of €4,803 million, a 26.4% increase compared with the €3,801 million expense recorded for the year ended December 31, 2016, mainly as a result of the recognition of impairment losses of €1,123 million relating to our slightly above 5% stake in Telefónica, S.A. resulting from the fact that its stock price fell below our acquisition cost for a prolonged period

The Group’s non-performing asset ratio was 4.4% as of December 31, 2017, compared with 4.9% as of December 31, 2016.

Impairment or reversal of impairment on non-financial assets

Impairment losses on non-financial assets for the year ended December 31, 2017 amounted to €364 million, a 30.1% decrease compared with the €521 million loss recorded for the year ended December 31, 2016, mainly due to lower impairment losses on real estate investment properties in Spain.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

Gains on derecognition of non-financial assets and subsidiaries, for the year ended December 31, 2017 amounted to €47 million, a 32.9% decrease compared with the €70 million gain recorded for the year ended December 31, 2016.

141

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the year ended December 31, 2017 was €26 million, compared with the €31 million loss recorded for the year ended December 31, 2016.

Operating profit/(loss)before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 2017 amounted to €6,931 million, an 8.4% increase compared with the €6,392 million recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations for the year ended December 31, 2017 was an expense of €2,169 million, a 27.7% increase compared with the €1,699 million expense recorded for the year ended December 31, 2016, mainly as a result of the higher operating profit before tax, and the recognition of the impairment losses relating to our stake in Telefónica, S.A. which adversely affected our operating profit before tax but had no impact on taxable income.

Profit

As a result of the foregoing, profit for the year ended December 31, 2017 amounted to €4,762 million, a 1.5% increase compared with the €4,693 million recorded for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 2017 amounted to €3,519 million, a 1.3% increase compared with the €3,475 million recorded for the year ended December 31, 2016.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 2017 amounted to €1,243 million, a 2.1% increase compared with the €1,218 million recorded for the year ended December 31, 2016, mainly as a result of the stronger performance of our Peruvian and Argentinian operations which have minority shareholders, as well as the reduction of our stake in our Argentinian operations during the year, which more than offset the effect of the completion of the acquisition of an additional 9.95% stake in Garanti in March 2017 (which resulted in a reduction in the stake held by others in Garanti).

142

Results of Operations by Operating Segment

The information contained in this section is presented under management criteria.

The tables set forth below reconcile the income statement of our operating segments presented in this section to the consolidated income statement of the Group. The “Adjustments” column reflects the differences between the Group income statement and the income statement calculated in accordance with the management operating segment reporting criteria for 2018, which is set forth in the immediately succeeding paragraph.

On July 6, 2018, we completed the sale of our 68.19% stake in BBVA Chile, whose results were consolidated in our South America operating segment for the period from January 1 until its sale. For additional information on this sale, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018”. This transaction resulted in a capital gain, net of taxes, of €633 million, which was recorded in our Corporate Center segment. In this section, information relating to our Corporate Center segment for 2018 has been presented under management criteria pursuant to which the capital gain resulting from the sale of our stake in BBVA Chile has been recorded under “Profit from corporate operations, net”. However, for purposes of the Group financial statements, the capital gain from such sale has been recorded under the heading “Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations”.

143

|  | For the year ended December 31, 2018
| Banking Activity in Spain | Non-Core Real Estate | United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center |  | Total | Adjustments (1) |  | Group Income
| (In Millions of Euros)
Net interest income | 3,672 | 32 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (276) |  | 17,591 | - |  | 17,591
Net fees and commissions | 1,681 | 1 | 596 | 1,205 | 686 | 631 | 138 | (59) |  | 4,879 | - |  | 4,879
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 466 | 64 | 109 | 223 | 11 | 405 | 101 | (155) |  | 1,223 | - |  | 1,223
Other operating income and expense, net (3) | 124 | (59) | 9 | 197 | 70 | (344) | - | 57 |  | 54 | - |  | 54
Gross income | 5,943 | 38 | 2,989 | 7,193 | 3,901 | 3,701 | 415 | (432) |  | 23,747 | - |  | 23,747
Administration costs | (2,974) | (60) | (1,684) | (2,115) | (1,105) | (1,565) | (285) | (706) |  | (10,494) | - |  | (10,494)
Depreciation and amortization | (288) | (5) | (178) | (253) | (138) | (125) | (6) | (214) |  | (1,208) | - |  | (1,208)
Net margin before provisions (4) | 2,680 | (28) | 1,127 | 4,825 | 2,658 | 2,011 | 124 | (1,352) |  | 12,045 | - |  | 12,045
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (371) | (12) | (225) | (1,555) | (1,202) | (638) | 24 | (2) |  | (3,981) | - |  | (3,981)
Provisions or reversal of provisions and other results | (292) | (89) | 16 | 24 | (8) | (65) | (3) | (65) |  | (483) | 866 |  | 382
Operating profit/ (loss) before tax | 2,017 | (129) | 919 | 3,294 | 1,448 | 1,307 | 144 | (1,420) |  | 7,580 | 866 |  | 8,446
Tax expense or income related to profit or loss from continuing operations | (492) | 52 | (184) | (909) | (294) | (475) | (51) | 290 |  | (2,062) | (233) |  | (2,295)
Profit from continuing operations excluding corporate operations | 1,525 | (78) | 735 | 2,385 | 1,154 | 833 | 93 | (1,130) |  | 5,518 |  |  | 6,151
Profit from corporate operations, net | - | - | - | - | - | - | - | 633 |  | 633 | (633) |  | -
Profit | 1,525 | (78) | 735 | 2,385 | 1,154 | 833 | 93 | (497) |  | 6,151 | - |  | 6,151
Profit attributable to non-controlling interests | (3) | - | - | (1) | (585) | (241) | - | 3 |  | (827) | - |  | (827)
Profit attributable to parent company | 1,522 | (78) | 735 | 2,384 | 569 | 591 | 93 | (494) |  | 5,324 | - |  | 5,324

(1) Adjustments in 2018 relate to the treatment of the capital gain derived from the sale of our 68.19% stake in BBVA Chile. In particular, information relating to our Corporate Center segment for 2018 has been presented under management criteria pursuant to which such capital gain has been recorded under “Profit from corporate operations, net”. However, for purposes of the Group Income, the capital gain from the sale of our stake in BBVA Chile has been recorded under the heading “Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” (which is included in “Provisions or reversal of provisions and other results” in the table above).

(2) Includes the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Includes the following income statement line items contained in the Consolidated Financial Statements: “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

144

| For the Year Ended December 31, 2017 (1) |  |
| Banking Activity in Spain | Non-Core Real Estate | United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center |  | Group Income
| (In Millions of Euros) |  |
Net interest income | 3,738 | 71 | 2,119 | 5,476 | 3,331 | 3,200 | 180 | (357) |  | 17,758
Net fees and commissions | 1,561 | 3 | 644 | 1,219 | 703 | 713 | 164 | (86) |  | 4,921
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 555 | - | 111 | 249 | 14 | 480 | 123 | 436 |  | 1,968
Other operating income and expense, net (3) | 327 | (91) | 2 | 177 | 67 | 59 | 1 | 80 |  | 622
Gross income | 6,180 | (17) | 2,876 | 7,122 | 4,115 | 4,451 | 468 | 73 |  | 25,270
Administration costs | (3,071) | (81) | (1,665) | (2,195) | (1,325) | (1,886) | (297) | (592) |  | (11,112)
Depreciation and amortization | (319) | (18) | (187) | (256) | (178) | (121) | (11) | (297) |  | (1,387)
Net margin before provisions(4) | 2,790 | (116) | 1,025 | 4,671 | 2,612 | 2,444 | 160 | (815) |  | 12,770
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (567) | (138) | (241) | (1,651) | (453) | (650) | 23 | (1,125) |  | (4,803)
Provisions or reversal of provisions and other results | (369) | (403) | (36) | (35) | (12) | (103) | (6) | (73) |  | (1,036)
Operating profit/ (loss) before tax | 1,854 | (657) | 748 | 2,984 | 2,147 | 1,691 | 177 | (2,013) |  | 6,931
Tax expense or income related to profit or loss from continuing operations | (477) | 166 | (262) | (797) | (426) | (486) | (52) | 166 |  | (2,169)
Profit from continuing operations | 1,377 | (491) | 486 | 2,187 | 1,720 | 1,205 | 125 | (1,847) |  | 4,762
Profit from discontinued operations /Profit from corporate operations, net | - | - | - | - | - | - | - | - |  | -
Profit | 1,377 | (491) | 486 | 2,187 | 1,720 | 1,205 | 125 | (1,847) |  | 4,762
Profit attributable to non-controlling interests | (3) | 1 | - | - | (895) | (345) | - | (1) |  | (1,243)
Profit attributable to parent company | 1,374 | (490) | 486 | 2,187 | 826 | 861 | 125 | (1,848) |  | 3,519

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

145

| For the Year Ended December 31, 2016
| Banking Activity in Spain | Non-Core Real Estate | United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center |  | Group Income
| (In Millions of Euros)
Net interest income | 3,877 | 60 | 1,953 | 5,126 | 3,404 | 2,930 | 166 | (455) |  | 17,059
Net fees and commissions | 1,477 | 6 | 638 | 1,149 | 731 | 634 | 194 | (110) |  | 4,718
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 786 | (3) | 142 | 222 | 77 | 464 | 87 | 357 |  | 2,133
Other operating income and expense, net (2) | 277 | (68) | (27) | 270 | 46 | 25 | 45 | 177 |  | 744
Gross income | 6,416 | (6) | 2,706 | 6,766 | 4,257 | 4,054 | 491 | (31) |  | 24,653
Administration costs | (3,252) | (96) | (1,652) | (2,149) | (1,524) | (1,793) | (330) | (569) |  | (11,366)
Depreciation and amortization | (327) | (27) | (190) | (247) | (214) | (100) | (12) | (307) |  | (1,426)
Net margin before provisions(3) | 2,837 | (130) | 863 | 4,371 | 2,519 | 2,160 | 149 | (907) |  | 11,862
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (763) | (138) | (221) | (1,626) | (520) | (526) | 30 | (37) |  | (3,801)
Provisions or reversal of provisions and other results | (807) | (475) | (30) | (67) | (93) | (82) | 23 | (139) |  | (1,668)
Operating profit/ (loss) before tax | 1,268 | (743) | 612 | 2,678 | 1,906 | 1,552 | 203 | (1,084) |  | 6,392
Tax expense or income related to profit or loss from continuing operations | (360) | 148 | (153) | (697) | (390) | (487) | (52) | 293 |  | (1,699)
Profit from continuing operations | 908 | (595) | 459 | 1,981 | 1,515 | 1,065 | 151 | (791) |  | 4,693
Profit from discontinued operations /Profit from corporate operations, net | - | - | - | - | - | - | - | - |  | -
Profit | 908 | (595) | 459 | 1,981 | 1,515 | 1,065 | 151 | (791) |  | 4,693
Profit attributable to non-controlling interests | (3) | - | - | (1) | (917) | (294) | - | (3) |  | (1,218)
Profit attributable to parent company | 905 | (595) | 459 | 1,980 | 599 | 771 | 151 | (794) |  | 3,475

(1) Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

###

146

### Results of operations by operating segment for 2018 Compared with 2017

#### BANKING ACTIVITY IN SPAIN

| For the Year Ended December 31, |
| 2018 | 2017 (1) | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,672 | 3,738 | (1.8)
Net fees and commissions | 1,681 | 1,561 | 7.7
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 466 | 555 | (16.1)
Other operating income and expense, net | (361) | (106) | 239.4
Income and expense on insurance and reinsurance contracts | 485 | 433 | 12.0
Gross income | 5,943 | 6,180 | (3.8)
Administration costs | (2,974) | (3,071) | (3.1)
Depreciation and amortization | (288) | (319) | (9.8)
Net margin before provisions (3) | 2,680 | 2,790 | (3.9)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (371) | (567) | (34.6)
Provisions or reversal of provisions and other results | (292) | (369) | (20.9)
Operating profit/(loss) before tax | 2,017 | 1,854 | 8.8
Tax expense or income related to profit or loss from continuing operations | (492) | (477) | 3.1
Profit from continuing operations | 1,525 | 1,377 | 10.8
Profit from corporate operations, net | - | - | -
Profit | 1,525 | 1,377 | 10.8
Profit attributable to non-controlling interests | (3) | (3) | 7.1
Profit attributable to parent company | 1,522 | 1,374 | 10.8

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

147

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €3,672 million, a 1.8% decrease compared with the €3,738 million recorded for the year ended December 31, 2017, mainly as a result of the decrease in the average volume of interest-earning assets and the increase in the costs of wholesale funding due to the fact that targeted longer-term refinancing operations (TLTRO) were partially replaced by other types of funding which bear higher interest rates. The net interest margin over total average assets of this operating segment amounted to 1.13% for the year ended December 31, 2018 compared with 1.18% for the year ended December 31, 2017.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €1,681 million, a 7.7% increase compared with the €1,561 million recorded for the year ended December 31, 2017, mainly as a result of the significant contribution from asset management fees and banking commissions, particularly those associated with account maintenance.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 was a net gain of €466 million, a 16.1% decrease compared with the €555 million net gain recorded for the year ended December 31, 2017, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) portfolios.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2018 amounted to €361 million, compared with the €106 million recorded for the year ended December 31, 2017, mainly as a result of the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund as compared with 2017.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2018 was €485 million, a 12.0% increase compared with the €433 million recorded for the year ended December 31, 2017, mainly as a result of a lower claims ratio and new contract origination.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €2,974 million, a 3.1% decrease compared with the €3,071 million recorded for the year ended December 31, 2017, mainly as a result of a decline in both personnel expense and other administrative expense driven by the evolution of efficiency plans (which generated savings of €19 million on communications, rent and legal expense).

148

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 amounted to a €371 million expense, a 34.6% decrease compared with the €567 million expense recorded for the year ended December 31, 2017, mainly as a result of lower gross additions to non-performing loans and loan-loss provisions for large customers.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 were a €292 million expense, a 20.9% decrease compared with the €369 million expense recorded for the year ended December 31, 2017, mainly as a result of the decrease in provisions related to early retirements and contributions to pension funds.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €2,017 million, an 8.8% increase compared with the €1,854 million recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was an expense of €492 million, a 3.1% increase compared with the €477 million expense recorded for the year ended December 31, 2017 mainly as a result of the higher operating profit before tax. Tax expense amounted to 24.4% of operating profit before tax for the year ended December 31, 2018 and 25.7% for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €1,522 million, a 10.8% increase compared with the €1,374 million recorded for the year ended December 31, 2017.

####

149

#### NON-CORE REAL ESTATE

| For the Year Ended December 31, |
| 2018 | 2017 (1) | Change
| (In Millions of Euros) | (In %)
Net interest income | 32 | 71 | (55.8)
Net fees and commissions | 1 | 3 | (56.7)
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 64 | - | n.m. (3)
Other operating income and expenses, net | (59) | (91) | (35.7)
Income and expenses on insurance and reinsurance contracts | - | - | 0.0
Gross income | 38 | (17) | n.m. (3)
Administration costs | (60) | (81) | (25.1)
Depreciation and amortization | (5) | (18) | (73.3)
Net margin before provisions (4) | (28) | (116) | (76.1)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (12) | (138) | (91.0)
Provisions or reversal of provisions and other results | (89) | (403) | (77.8)
Operating profit/(loss) before tax | (129) | (657) | (80.3)
Tax expense or income related to profit or loss from continuing operations | 52 | 166 | (68.8)
Profit from continuing operations | (78) | (491) | (84.2)
Profit from corporate operations, net | - | - | -
Profit | (78) | (491) | (84.2)
Profit attributable to non-controlling interests | - | 1 | n.m. (3)
Profit attributable to parent company | (78) | (490) | (84.2)

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Not meaningful.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

150

Net real estate exposure (which includes loans to developers, foreclosed real estate assets and other real estate assets, net of provisions) amounted to €2,498 million as of December 31, 2018, a 61.1% reduction in year-on-year terms compared to net real estate exposure of €6,416 million as of December 31, 2017 as a result mainly of the Cerberus Transaction. In addition, outstanding performing loans to developers in an aggregate amount of €260 million were transferred from the Non-Core Real Estate segment to the Banking Activity in Spain segment in 2018.

In recent years BBVA has taken several steps to reduce its exposure to real estate assets in Spain. As part of such efforts, BBVA entered into the Cerberus Transaction. As of December 31, 2018, BBVA maintained a 20% stake in Divarian, which was recorded in the Corporate Center. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership, an entity managed by Canada Pension Plan Investment Board, for the transfer of a portfolio of credit rights which is mainly composed by non-performing and in default mortgage credits, with an aggregate outstanding balance amounting to approximately €1,490 million. Completion of the transaction is subject to fulfilment of certain conditions and is expected to take place during the second quarter of 2019. For additional information on these sales, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €32 million, a 55.8% decrease compared with the €71 million recorded for the year ended December 31, 2017 mainly as a result of the transfer of certain loan portfolios, including as a result of the Cerberus Transaction.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences, net of this operating segment for the year ended December 31, 2018 amounted to €64 million, compared with nil for the year ended December 31, 2017 mainly due to the payment received from the Deposit Guarantee Fund of Credit Institutions in relation to an impairment recorded in 2017.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2018 was €59 million, a 35.7% decrease compared with the €91 million recorded for the year ended December 31, 2017.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €60 million, a 25.1% decrease compared with the €81 million recorded for the year ended December 31, 2017, mainly as a result of the Cerberus Transaction which resulted in the transfer of certain employees to Divarian.

151

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was an expense of €12 million, a 91.0% decrease compared with the €138 million expense recorded for the year ended December 31, 2017, mainly as a result of decreased impaired assets due to the reduction of the portfolio size.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 amounted to an €89 million expense, a 77.8% decrease compared with the €403 million expense recorded for the year ended December 31, 2017, mainly as a result of lower provisions due to the Cerberus Transaction, including the transfer of certain employees to Divarian.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the year ended December 31, 2018 was €129 million, an 80.3% decrease compared with the €657 million loss recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the year ended December 31, 2018 amounted to €52 million, a 68.8% decrease compared with the €166 million income recorded for the year ended December 31, 2017. Consequently, tax income amounted to 40.0% of the operating loss before tax for the year ended December 31, 2018, and 25.2% for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 was a loss of €78 million, an 84.2% decrease compared with the €490 million loss recorded for the year ended December 31, 2017.

####

152

#### UNITED STATES

| For the Year Ended December 31, |
| 2018 | 2017 (1) | Change
| (In Millions of Euros) | (In %)
Net interest income | 2,276 | 2,119 | 7.4
Net fees and commissions | 596 | 644 | (7.5)
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 109 | 111 | (1.9)
Other operating income and expense, net | 9 | 2 | n.m. (3)
Income and expense on insurance and reinsurance contracts | - | - | -
Gross income | 2,989 | 2,876 | 3.9
Administration costs | (1,684) | (1,665) | 1.2
Depreciation and amortization | (178) | (187) | (4.6)
Net margin before provisions (4) | 1,127 | 1,025 | 10.0
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (225) | (241) | (6.8)
Provisions or reversal of provisions and other results | 16 | (36) | n.m. (3)
Operating profit/(loss) before tax | 919 | 748 | 22.9
Tax expense or income related to profit or loss from continuing operations | (184) | (262) | (29.8)
Profit from continuing operations | 735 | 486 | 51.3
Profit from corporate operations, net | - | - | -
Profit | 735 | 486 | 51.3
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 735 | 486 | 51.3

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Not meaningful.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

153

In the year ended December 31, 2018 the U.S. dollar depreciated 4.3% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2017 and in the results of operations of the United States operating segment for such period expressed in euros.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €2,276 million, a 7.4% increase compared with the €2,119 million recorded for the year ended December 31, 2017, due mainly to higher interest rates (as a result of the Federal Reserve Board benchmark interest rate increases) and to measures adopted by BBVA Compass to improve loan yields and contain the increase in the cost of deposits (including an improved deposit mix and wholesale funding), partially offset by the depreciation of the U.S. dollar against the euro and the higher levels of interest on deposits and interest on FHLB and other borrowings. The net interest margin over total average assets of this operating segment amounted to 2.91% for the year ended December 31, 2018 compared with 2.68% for the year ended December 31, 2017.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €596 million, a 7.5% decrease compared with the €644 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the U.S. dollar against the euro and the decrease in investment banking and advisory fees.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 was a net gain of €109 million, a 1.9% decrease compared with the €111 million gain recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the U.S. dollar against the euro, which was partially offset by trading gains from bonds and foreign exchange transactions.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2018 was €9 million, compared with the €2 million net expense recorded for the year ended December 31, 2017.

154

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €1,684 million, a 1.2% increase compared with the €1,665 million recorded for the year ended December 31, 2017, mainly due to an increase in technology and systems expense and advertising expense, partially offset by the depreciation of the U.S. dollar against the euro.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was a €225 million expense, a 6.8% decrease compared with the €241 million expense recorded for the year ended December 31, 2017, mainly as a result of the lower allowances for loan losses in those portfolios affected by the 2017 hurricanes and, to a lesser extent, the depreciation of the U.S. dollar against the euro.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €919 million, a 22.9% increase compared with the €748 million of operating profit recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was €184 million, a 29.8% decrease compared with the €262 million expense recorded for the year ended December 31, 2017. Tax expense amounted to 20.0% of operating profit before tax for the year ended December 31, 2018, compared with 35.1% for the year ended December 31, 2017, due to the reduction in the effective tax rate following the tax reform approved in 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €735 million, a 51.3% increase compared with the €486 million recorded for the year ended December 31, 2017.

####

155

#### MEXICO

| For the Year Ended December 31, |
| 2018 | 2017 (1) | Change
| (In Millions of Euros) | (In %)
Net interest income | 5,568 | 5,476 | 1.7
Net fees and commissions | 1,205 | 1,219 | (1.2)
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 223 | 249 | (10.4)
Other operating income and expense, net | (236) | (239) | (1.3)
Income and expense on insurance and reinsurance contracts | 433 | 416 | 4.1
Gross income | 7,193 | 7,122 | 1.0
Administration costs | (2,115) | (2,195) | (3.7)
Depreciation and amortization | (253) | (256) | (1.3)
Net margin before provisions (3) | 4,825 | 4,671 | 3.3
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (1,555) | (1,651) | (5.8)
Provisions or reversal of provisions and other results | 24 | (35) | n.m. (4)
Operating profit/(loss) before tax | 3,294 | 2,984 | 10.4
Tax expense or income related to profit or loss from continuing operations | (909) | (797) | 14.0
Profit from continuing operations | 2,385 | 2,187 | 9.0
Profit from corporate operations, net | - | - | -
Profit | 2,385 | 2,187 | 9.0
Profit attributable to non-controlling interests | (1) | - | n.m. (4)
Profit attributable to parent company | 2,384 | 2,187 | 9.0

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(4) Not meaningful.

156

In the year ended December 31, 2018, the Mexican peso depreciated 6.1% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2018 and in the results of operations of the Mexico operating segment for such period expressed in euros.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €5,568 million, a 1.7% increase compared with the €5,476 million recorded for the year ended December 31, 2017, and an 8.2% increase excluding the negative exchange rate effect, which was mainly as a result of an increase in the average volume of loans and advances to customers. The net interest margin over total average assets of this operating segment amounted to 5.78% for 2018 (5.63% for 2017).

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €1,205 million, a 1.2% decrease compared with the €1,219 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Mexican peso against the euro. At a constant exchange rate, there was a 5.1% increase mainly as a result of increased activity in mutual funds, as well as a higher volume of transactions with on-line banking and credit card customers.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €223 million, a 10.4% decrease compared with the €249 million gain recorded for the year ended December 31, 2017, mainly as a result of the weaker performance of the Global Markets unit during 2018.

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2018 was a net expense of €236 million, a 1.3% decrease compared with the €239 million net expense recorded for the year ended December 31, 2017.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2018 was €433 million, a 4.1% increase compared with the €416 million net income recorded for the year ended December 31, 2017, mainly as a result of the income derived from collective insurance policies.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 were €2,115 million, a 3.7% decrease compared with the €2,195 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Mexican peso against the euro. At a constant exchange rate, administration costs increased by 2.5%, which was below Mexico’s inflation rate for the period.

157

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was a €1,555 million expense, a 5.8% decrease compared with the €1,651 million expense recorded for the year ended December 31, 2017. At a constant exchange rate, there was a 0.2% increase in impairment losses on financial assets.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €3,294 million, a 10.4% increase compared with the €2,984 million of operating profit recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was €909 million, a 14.0% increase compared with the €797 million expense recorded for the year ended December 31, 2017, mainly as a result of the higher operating profit before tax. Consequently, the tax expense amounted to 27.6% of operating profit before tax for the year ended December 31, 2018, and 26.7% for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €2,384 million, a 9.0% increase compared with the €2,187 million recorded for the year ended December 31, 2017.

####

158

#### TURKEY

From July 2015 to March 2017, we held 39.90% of Garanti’s share capital and, on March 22, 2017, we completed the acquisition of an additional 9.95% stake in Garanti, increasing our total holding of Garanti’s share capital to 49.85%. See “Item 4. Information on the Company—History and Development of the Company—Capital expenditures—2017”.

| For the Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,135 | 3,331 | (5.9)
Net fees and commissions | 686 | 703 | (2.4)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 11 | 14 | (24.2)
Other operating income and expense, net | 23 | 5 | n.m. (2)
Income and expense on insurance and reinsurance contracts | 46 | 62 | (25.9)
Gross income | 3,901 | 4,115 | (5.2)
Administration costs | (1,105) | (1,325) | (16.6)
Depreciation and amortization | (138) | (178) | (22.4)
Net margin before provisions (3) | 2,658 | 2,612 | 1.8
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (1,202) | (453) | 165.3
Provisions or reversal of provisions and other results | (8) | (12) | (33.7)
Operating profit/(loss) before tax | 1,448 | 2,147 | (32.5)
Tax expense or income related to profit or loss from continuing operations | (294) | (426) | (31.0)
Profit from continuing operations | 1,154 | 1,720 | (32.9)
Profit from corporate operations, net | - | - | -
Profit | 1,154 | 1,720 | (32.9)
Profit attributable to non-controlling interests | (585) | (895) | (34.6)
Profit attributable to parent company | 569 | 826 | (31.0)

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) Not meaningful.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

159

The Turkish lira depreciated 27.8% against the euro in average terms the year ended December 31, 2018, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2018 and in the results of operations of the Turkey operating segment for such period expressed in euros.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €3,135 million, a 5.9% decrease compared with the €3,331 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 30.3% increase in net interest income, mainly as a result of higher income from inflation-linked bonds. The net interest margin over total average assets of this operating segment amounted to 4.36% for the year ended December 31, 2018 (4.05% for 2017).

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €686 million, a 2.4% decrease compared with the €703 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira which more than offset the overall growth in net fees and commissions, on a constant exchange rate basis, mainly related to payment systems, advances, money transfers and other commissions.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €11 million, a 24.2% decrease compared with the €14 million gain recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira against the euro, which offset the positive performance of global markets, asset and liabilities management and derivatives.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2018 was €23 million, compared with the €5 million of net expense recorded for the year ended December 31, 2017, mainly as a result of the lower contribution to the Deposit Guarantee Fund.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2018 was €46 million, a 25.9% decrease compared with the €62 million income recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €1,105 million, a 16.6% decrease compared with the €1,325 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, administration costs increased by 15.4%, mainly as a result of the 20.3% average inflation rate in 2018.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was a €1,202 million expense, a 165.3% increase compared with the €453 million expense recorded for the year ended December 31, 2017, mainly as a result of the deterioration of the wholesale-customer portfolio and the adverse macroeconomic scenario.

160

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €1,448 million, a 32.5% decrease compared with the €2,147 million of operating profit recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was €294 million, a 31.0% decrease compared with the €426 million expense recorded for the year ended December 31, 2017. Consequently, the effective tax rate amounted to 20.3% of operating profit before tax for the year ended December 31, 2018, and 19.9% for the year ended December 31, 2017.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2018 amounted to €585 million, a 34.6% decrease compared with the €895 million recorded for the or the year ended December 31, 2017 mainly as a result of the depreciation of the Turkish lira against the euro and our acquisition of an additional 9.95% stake in Garanti on March 22, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €569 million, a 31.0% decrease compared with the €826 million recorded for the year ended December 31, 2017 mainly as a result of the depreciation of the Turkish lira against the euro, offset in part by our acquisition of an additional 9.95% stake in Garanti on March 22, 2017.

####

161

#### SOUTH AMERICA

| For the Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,009 | 3,200 | (6.0)
Net fees and commissions | 631 | 713 | (11.4)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 405 | 480 | (15.7)
Other operating income and expense, net | (454) | (113) | n.m. (2)
Income and expense on insurance and reinsurance contracts | 110 | 172 | (36.0)
Gross income | 3,701 | 4,451 | (16.9)
Administration costs | (1,565) | (1,886) | (17.1)
Depreciation and amortization | (125) | (121) | 3.2
Net margin before provisions (3) | 2,011 | 2,444 | (17.7)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (638) | (650) | (1.9)
Provisions or reversal of provisions and other results | (65) | (103) | (36.3)
Operating profit/(loss) before tax | 1,307 | 1,691 | (22.7)
Tax expense or income related to profit or loss from continuing operations | (475) | (486) | (2.2)
Profit from continuing operations | 833 | 1,205 | (30.9)
Profit from corporate operations, net | - | - | -
Profit | 833 | 1,205 | (30.9)
Profit attributable to non-controlling interests | (241) | (345) | (30.1)
Profit attributable to parent company | 591 | 861 | (31.3)

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) Not meaningful.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

In the year ended December 31, 2018, the Argentine peso depreciated 56.7% against the euro in average terms, compared with the year ended December 31, 2017. In addition, the Chilean peso, Colombian peso and Peruvian new sol also depreciated in average terms against the euro compared with the year ended December 31, 2017, by 3.2%, 4.3% and 5.1%, respectively. As a result, changes in exchange rates resulted in a negative impact on the results of operations of the South America operating segment for the year ended December 31, 2018 expressed in euros.

At the year-end 2018, the Argentinian economy was considered to be hyperinflationary as defined by IAS 29 (see Note 2.2.20 to our Consolidated Financial Statements). The negative impact of accounting for hyperinflation in Argentina in the net attributable profit of this operating segment was €266 million.

In addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018”.

162

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €3,009 million, a 6.0% decrease compared with the €3,200 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the region against the euro. At constant exchange rates, there was a 12.8% increase mainly as a result of the growth in the average volume of and in the yield on interest-earning assets, which more than offset the impact of the sale of BBVA Chile. The net interest margin over total average assets of this operating segment amounted to 4.64% for the year ended December 31, 2018 (4.22% for 2017).

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €631 million, a 11.4% decrease compared with the €713 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the region against the euro. At a constant exchange rate, there was a 10.9% increase mainly as a result of an increase in credit and debit card commissions, which more than offset the impact of the sale of BBVA Chile.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €405 million, a 15.7% decrease compared with the €480 million gain recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the region against the euro. At a constant exchange rate, there was a 5.2% increase mainly as a result of foreign-currency operations.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2018 was €454 million, compared with the €113 million expense recorded for the year ended December 31, 2017, mainly as a result of the recording of the adjustment for hyperinflation in Argentina.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2018 was €110 million, a 36.0% decrease compared with the €172 million net income recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the region against the euro. At constant exchange rates, there was a 5.4% decrease mainly as a result of the sale of the insurance business in Chile.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €1,565 million, a 17.1% decrease compared with the €1,886 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the currencies of the region against the euro. At constant exchange rates, there was a 6.6% increase mainly as a result of the high inflation registered in some countries of the region, which more than offset the impact of the sale of BBVA Chile.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2018 was €125 million, a 3.2% increase compared with the €121 million recorded for the year ended December 31, 2017 mainly as a result of higher expense related to software in Peru.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was a €638 million expense, a 1.9% decrease compared with the €650 million expense recorded for the year ended December 31, 2017, mainly as a result of the depreciation of currencies in the region against the euro, which more than offset the increase in impaired assets due to the increase in the size of the loan portfolio and the deterioration in credit quality.

163

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 were a €65 million expense, a 36.3% decrease compared with the €103 million expense recorded for the year ended December 31, 2017, mainly as a result of the depreciation of currencies in the region against the euro.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €1,307 million, a 22.7% decrease compared with the €1,691 million of operating profit recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was €475 million, a 2.2% decrease compared with the €486 million expense recorded for the year ended December 31, 2017, mainly as a result of the lower operating profit before tax. Consequently, the effective tax rate amounted to 36.3% of operating profit before tax for the year ended December 31, 2018, and 28.7% for the year ended December 31, 2017.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2018 amounted to €241 million, a 30.1% decrease compared with the €345 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of currencies in the region against the euro and the sale of BBVA Chile (which had minority interests), offset in part by the impact of accounting for hyperinflation in Argentina.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €591 million, a 31.1% decrease compared with the €861 million recorded for the year ended December 31, 2017 affected by the accounting of hyperinflation in Argentina (which detracted €266 million from profit attributable to parent company), the depreciation of currencies in the region against the euro and the sale of BBVA Chile.

####

164

#### REST OF EURASIA

| For the Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Net interest income | 175 | 180 | (2.5)
Net fees and commissions | 138 | 164 | (15.9)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 101 | 123 | (17.3)
Other operating income and expense, net | - | 1 | n.m. (2)
Income and expense on insurance and reinsurance contracts | - | - | -
Gross income | 415 | 468 | (11.4)
Administration costs | (285) | (297) | (4.1)
Depreciation and amortization | (6) | (11) | (44.2)
Net margin before provisions (3) | 124 | 160 | (22.5)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | 24 | 23 | 4.0
Provisions or reversal of provisions and other results | (3) | (6) | (40.4)
Operating profit/(loss) before tax | 144 | 177 | (18.5)
Tax expense or income related to profit or loss from continuing operations | (51) | (52) | (2.6)
Profit from continuing operations | 93 | 125 | (25.2)
Profit from corporate operations, net | - | - | -
Profit | 93 | 125 | (25.2)
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 93 | 125 | (25.2)

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) Not meaningful.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

165

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €175 million, a 2.5% decrease compared with the €180 million recorded for the year ended December 31, 2017, mainly as a result of a weaker performance of the Global Finance unit in Asia, particularly Corporate and Investment Banking (C&IB), partially offset by the performance of the Global Trade unit in Asia.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €138 million, a 15.9% decrease compared with the €164 million recorded for the year ended December 31, 2017, mainly as a result of lower commissions in the branch network in Europe.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €101 million, a 17.3% decrease compared with the €123 million net gain recorded for the year ended December 31, 2017, mainly as a result of the weaker performance of the Global Markets unit in Europe.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €285 million, a 4.1% decrease compared with the €297 million recorded for the year ended December 31, 2017, mainly as a result of the expense reduction efforts in the Corporate and Investment Banking (C&IB) unit and the Global Markets unit in Europe.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 amounted to income of €24 million, a 4.0% increase compared with the €23 million income recorded for the year ended December 31, 2017, mainly as a result of the lower loan loss provisions in Europe.

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €144 million, an 18.5% decrease compared with the €177 million of operating profit recorded for the year ended December 31, 2017

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was €51 million, a 2.6% decrease compared with the €52 million expense recorded for the year ended December 31, 2017. Consequently, the effective tax rate amounted to 35.2% of operating profit before tax for the year ended December 31, 2018, and 29.5% for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €93 million, a 25.2% decrease compared with the €125 million recorded for the year ended December 31, 2017.

####

166

#### CORPORATE CENTER

| For the Year Ended December 31, |
| 2018 | 2017 (1) | Change
| (In Millions of Euros) | (In %)
Net interest income | (276) | (357) | (22.8)
Net fees and commissions | (59) | (86) | (32.1)
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | (155) | 436 | n.m. (3)
Other operating income and expense, net | 76 | 99 | (23.8)
Income and expense on insurance and reinsurance contracts | (19) | (19) | (1.1)
Gross income | (432) | 73 | n.m. (3)
Administration costs | (706) | (592) | 19.3
Depreciation and amortization | (214) | (297) | (27.8)
Net margin before provisions (4) | (1,352) | (815) | 65.9
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (2) | (1,125) | (99.8)
Provisions or reversal of provisions and other results | (65) | (73) | (10.8)
Operating profit/(loss) before tax | (1,420) | (2,013) | (29.5)
Tax expense or income related to profit or loss from continuing operations | 290 | 166 | 75.0
Profit from continuing operations excluding corporate operations | (1,130) | (1,847) | (38.8)
Profit from corporate operations, net | 633 | - | n.m. (3)
Profit | (497) | (1,847) | (73.1)
Profit attributable to non-controlling interests | 3 | (1) | n.m. (3)
Profit attributable to parent company | (494) | (1,848) | (73.3)

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Not meaningful.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

167

Net interest income / (expense)

Net interest expense of this operating segment for the year ended December 31, 2018 was €276 million, a 22.8% decrease compared with the €357 million net expense recorded for the year ended December 31, 2017, mainly as a result of the lower cost of funding and the evolution of interest rates.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 was an expense of €59 million, a 32.1% decrease compared with an expense of €86 million expense recorded for the year ended December 31, 2017, mainly as a result of the lower commissions paid in 2018 for cross-selling agreements.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net losses on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €155 million, compared with the €436 million gain recorded for the year ended December 31, 2017, which was principally due to the sale of a 2.14% stake in CNCB in 2017.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €706 million, a 19.3% increase compared with the €592 million recorded for the year ended December 31, 2017, mainly as a result of an increase in IT for the development of new capabilities, cybersecurity and process reengineering.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 amounted to a €2 million expense, a 99.8% decrease compared with the €1,125 million expense recorded for the year ended December 31, 2017, which related mainly to the recognition of impairment losses of €1,123 million in connection with BBVA’s stake in Telefónica, S.A. in such year.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 were a €65 million expense, a 10.8% decrease compared with the €73 million expense recorded for the year ended December 31, 2017.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the year ended December 31, 2018 was €1,420 million, a 29.5% decrease compared with the €2,013 million loss recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the year ended December 31, 2018 amounted to €290 million, compared with the €166 million income recorded for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 was a loss of €494 million, compared with the €1,848 million loss recorded for the year ended December 31, 2017, mainly as a result of capital gains (net of taxes) originated by the sale of BBVA Chile, which amounted to €633 million.

###

168

### Results of Operations by Operating Segment for 2017 Compared with 2016

#### BANKING ACTIVITY IN SPAIN

| For the Year Ended December 31, |
| 2017 (1) | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,738 | 3,877 | (3.6)
Net fees and commissions | 1,561 | 1,477 | 5.7
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 555 | 786 | (29.4)
Other operating income and expense, net | (106) | (123) | (13.3)
Income and expense on insurance and reinsurance contracts | 433 | 400 | 8.3
Gross income | 6,180 | 6,416 | (3.7)
Administration costs | (3,071) | (3,252) | (5.6)
Depreciation and amortization | (319) | (327) | (2.4)
Net margin before provisions (3) | 2,790 | 2,837 | (1.7)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (567) | (763) | (25.7)
Provisions or reversal of provisions and other results | (369) | (807) | (54.3)
Operating profit/(loss) before tax | 1,854 | 1,268 | 46.3
Tax expense or income related to profit or loss from continuing operations | (477) | (360) | 32.5
Profit from continuing operations | 1,377 | 908 | 51.7
Profit from corporate operations, net | - | - | -
Profit | 1,377 | 908 | 51.7
Profit attributable to non-controlling interests | (3) | (3) | 3.2
Profit attributable to parent company | 1,374 | 905 | 51.9

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €3,738 million, a 3.6% decrease compared with the €3,877 million recorded for the year ended December 31, 2016, mainly as a result of a decrease in the average volume of interest-earning assets, particularly in the securities portfolio and derivatives as a result of the sale of certain wholesales portfolios and, to a lesser extent, lower average loans and advances to customers, partially offset by the lower funding cost of interest-bearing liabilities. The net interest margin over this operating segment’s total average assets amounted to 1.18% for the year ended December 31, 2017 compared with 1.15% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €1,561 million, a 5.7% increase compared with the €1,477 million recorded for the year ended December 31, 2016, mainly as a result of an increase in securities fees due to increased activity in our wholesale businesses and growth in mutual funds driven primarily by higher share prices.

169

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 was a net gain of €555 million, a 29.4% decrease compared with the €786 million recorded for the year ended December 31, 2016, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) portfolios. The gain in the prior period was also partially due to the gains from the sale of our stake in VISA Europe, Ltd. recorded in the second quarter of 2016.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2017 were €106 million, a 13.3% decrease compared with the €123 million of net expense recorded for the year ended December 31, 2016, mainly as a result of a reduced annual contribution to the Single Resolution Fund and increased income from insurance activities.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €433 million, an 8.3% increase compared with the €400 million net income recorded for the year ended December 31, 2016, mainly as a result of the lower claims ratio and new contract origination.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to an expense of €3,071 million, a 5.6% decrease compared with the €3,252 million recorded for the year ended December 31, 2016, mainly as a result of a €66 million decrease in wages and salaries, a €38 million decrease in rent expense due to a reduction in the number of branches, a €20 million decrease in IT expense and a €23 million decrease in third-party services expense. Administration costs decreased for the six consecutive quarters ended December 31, 2017 due to the synergies related to the integration of Catalunya Bank and the implementation of efficiency plans.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 amounted to a €567 million expense, a 25.7% decrease compared with the €763 million expense recorded for the year ended December 31, 2016, mainly as a result of decreased impaired assets due to the improvement of credit quality, partially offset by the increase in the size of the loan portfolio by year-end. The non-performing asset ratio of this operating segment as of December 31, 2017 was 5.2% compared with 5.8% as of December 31, 2016.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €369 million expense, a 54.3% decrease compared with the €807 million expense recorded for the year ended December 31, 2016. Provisions recorded in 2016 were adversely affected by provisioning related to the invalidity of clauses limiting interest rates in certain mortgage loans with customers (referred to as “floor” clauses). BBVA made additional provisions during 2017 to cover possible contingencies and claims in connection with this matter in amounts that BBVA considers not significant.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €1,854 million, a 46.3% increase compared with the €1,268 million recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was an expense of €477 million, a 32.5% increase compared with the €360 million expense recorded for the year ended December 31, 2016 mainly as a result of the higher operating profit before tax. The tax expense amounted to 25.8% of operating profit before tax for the year ended December 31, 2017, and 28.4% for the year ended December 31, 2016.

170

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €1,374 million, a 51.9% increase compared with the €905 million recorded for the year ended December 31, 2016.

#### NON-CORE REAL ESTATE

| For the Year Ended December 31, |
| 2017 (1) | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 71 | 60 | 19.5
Net fees and commissions | 3 | 6 | (50.7)
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | - | (3) | (100.0)
Other operating income and expense, net | (91) | (68) | 33.2
Income and expense on insurance and reinsurance contracts | - | - | -
Gross income | (17) | (6) | 160.2
Administration costs | (81) | (96) | (16.4)
Depreciation and amortization | (18) | (27) | (33.8)
Net margin before provisions (3) | (116) | (130) | (11.2)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (138) | (138) | 0.4
Provisions or reversal of provisions and other results | (403) | (475) | (15.2)
Operating profit/(loss) before tax | (657) | (743) | (11.6)
Tax expense or income related to profit or loss from continuing operations | 166 | 148 | 12.1
Profit from continuing operations | (491) | (595) | (17.5)
Profit from corporate operations, net | - | - | -
Profit | (491) | (595) | (17.5)
Profit attributable to non-controlling interests | 1 | - | n.m. (4)
Profit attributable to parent company | (490) | (595) | (17.7)

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(4) Not meaningful.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €71 million, a 19.5% increase compared with the €60 million recorded for the year ended December 31, 2016, mainly as a result of higher interest income from construction sector loans.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €3 million, a 50.7% decrease compared with the €6 million recorded for the year ended December 31, 2016, mainly as a result of a decrease in insurance product commissions.

171

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2017 were €91 million, compared with the €68 million of net expense recorded for the year ended December 31, 2016, mainly as a result of a €32 million decrease in income from non-financial services.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €81 million, a 16.4% decrease compared with the €96 million recorded for the year ended December 31, 2016.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 amounted to an expense of €138 million, a 0.4% increase compared with the €138 million expense recorded for the year ended December 31, 2016. The non-performing asset ratio of this operating segment as of December 31, 2017 was 52.8% compared with 56.1% as of December 31, 2016.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €403 million expense, a 15.2% decrease compared with the €475 million expense recorded for the year ended December 31, 2016, mainly as a result of portfolio sales.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the year ended December 31, 2017 was €657 million, an 11.6% decrease compared with the €743 million loss recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the year ended December 31, 2017 amounted to €166 million, a 12.1% increase compared with the €148 million gain recorded for the year ended December 31, 2016. Consequently, tax income amounted to 25.3% of the operating loss before tax for the year ended December 31, 2017, and 19.9% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 was a loss of €490 million, a 17.7% decrease compared with the €595 million loss recorded for the year ended December 31, 2016.

####

172

#### UNITED STATES

| For the Year Ended December 31, |
| 2017 (1) | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 2,119 | 1,953 | 8.5
Net fees and commissions | 644 | 638 | 1.1
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 111 | 142 | (22.2)
Other operating income and expense, net | 2 | (27) | n.m. (3)
Income and expense on insurance and reinsurance contracts | - | - | -
Gross income | 2,876 | 2,706 | 6.3
Administration costs | (1,665) | (1,652) | 0.7
Depreciation and amortization | (187) | (190) | (2.0)
Net margin before provisions (4) | 1,025 | 863 | 18.8
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (241) | (221) | 9.0
Provisions or reversal of provisions and other results | (36) | (30) | 21.4
Operating profit/(loss) before tax | 748 | 612 | 22.2
Tax expense or income related to profit or loss from continuing operations | (262) | (153) | 71.3
Profit from continuing operations | 486 | 459 | 5.9
Profit from corporate operations, net | - | - | -
Profit | 486 | 459 | 5.9
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 486 | 459 | 5.9

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Not meaningful.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

173

In 2017 the U.S. dollar depreciated 2.0% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement and in the results of operations of the United States operating segment for the year ended December 31, 2017 expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €2,119 million, an 8.5% increase compared with the €1,953 million recorded for the year ended December 31, 2016, mainly as a result of higher interest rates (including as a result of the impact of the Federal Reserve Board benchmark interest rate increases), particularly related to loans and advances to customers, and, to a lesser extent, securities portfolio and derivatives, partially offset by the effect of higher interests on deposits, particularly from Federal Home Loan Banks. The net interest margin over total average assets of this operating segment amounted to 2.68% for the year ended December 31, 2017 compared with 2.26% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €644 million, a 1.1% increase compared with the €638 million recorded for the year ended December 31, 2016, mainly as a result of an increase in commissions, particularly in credit and debit card commissions.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 amounted to €111 million, a 22.2% decrease compared with the €142 million gain recorded for the year ended December 31, 2016, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) securities and mortgage portfolios.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €2 million, compared with the €27 million of net expense recorded for the year ended December 31, 2016, mainly as a result of the lower contribution made to the Deposit Guarantee Fund.

174

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €1,665 million, a 0.7% increase compared with the €1,652 million recorded for the year ended December 31, 2016, mainly as a result of increases in general and administrative expense, particularly IT, consulting and marketing expense, and, to a lesser extent, an increase in personnel expense.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was a €241 million expense, an 9.0% increase compared with the €221 million expense recorded for the year ended December 31, 2016, mainly as a result of the impact of additional allowances for loan losses related to the impact of hurricanes Harvey and Irma, and higher loan-loss provisioning related to consumer portfolios, partially offset by decreased impaired assets due to an improvement in the credit quality indicators of energy loans during 2017. The non-performing asset ratio of this operating segment as of December 31, 2017 was 1.2%, compared with 1.5% as of December 31, 2016.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €748 million, a 22.2% increase compared with the €612 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €262 million, a 71.3% increase compared with the €153 million expense recorded for the year ended December 31, 2016, mainly as a result of the higher operating profit before tax and the impact of the remeasurement of deferred tax assets and liabilities due to the impact of the Tax Cuts and Jobs Act signed into law on December 22, 2017 (pursuant to which the corporate tax rate was also reduced). Consequently, tax expense amounted to 34.9% of operating profit before tax for the year ended December 31, 2017, compared with 25.0% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €486 million, a 5.9% increase compared with the €459 million recorded for the year ended December 31, 2016.

####

175

#### MEXICO

| For the Year Ended December 31, |
| 2017 (1) | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 5,476 | 5,126 | 6.8
Net fees and commissions | 1,219 | 1,149 | 6.1
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 249 | 222 | 12.3
Other operating income and expense, net | (239) | (237) | 1.0
Income and expense on insurance and reinsurance contracts | 416 | 507 | (17.8)
Gross income | 7,122 | 6,766 | 5.3
Administration costs | (2,195) | (2,149) | 2.2
Depreciation and amortization | (256) | (247) | 3.8
Net margin before provisions (3) | 4,671 | 4,371 | 6.9
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (1,651) | (1,626) | 1.6
Provisions or reversal of provisions and other results | (35) | (67) | (47.8)
Operating profit/(loss) before tax | 2,984 | 2,678 | 11.4
Tax expense or income related to profit or loss from continuing operations | (797) | (697) | 14.4
Profit from continuing operations | 2,187 | 1,981 | 10.4
Profit from corporate operations, net | - | - | -
Profit | 2,187 | 1,981 | 10.4
Profit attributable to non-controlling interests | - | (1) | (100.0)
Profit attributable to parent company | 2,187 | 1,980 | 10.5

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

176

In 2017, the Mexican peso depreciated 3.1% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement and in the results of operations of the Mexico operating segment for the year ended December 31, 2017 expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €5,476 million, a 6.8% increase compared with the €5,126 million recorded for the year ended December 31, 2016, and a 9.5% increase excluding the negative exchange rate effect. The increase was mainly the result of higher interest rates, particularly due to the effect of higher interest rates on the securities portfolio and loans and advances to customers, and to a lesser extent, an increase in the average volume of loans and advances to customers. Net interest margin over total average assets of this operating segment amounted to 5.63% for the year ended December 31, 2017 compared with 5.47% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €1,219 million, a 6.1% increase compared with the €1,149 million recorded for the year ended December 31, 2016, mainly as a result of an overall increase in commissions, particularly in credit and debit card commissions and fees from online and investment banking, partially offset by a decrease in commissions for selling insurance and the impact of the depreciation of the Mexican peso against the euro.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €249 million, a 12.3% increase compared with the €222 million gain recorded for the year ended December 31, 2016, mainly as a result of portfolio sales.

Other operating income and expense, net

Other net operating income and expense of this operating segment for the year ended December 31, 2017 amounted to a net expense of €239 million, compared with the €237 million of net expense recorded for the year ended December 31, 2016.

177

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €416 million, a 17.8% decrease compared with the €507 million net income recorded for the year ended December 31, 2016, mainly as a result of the higher rate of claims brought by customers (particularly in the last quarter of 2017) as a result of the impact of natural disasters that took place during 2017.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 were €2,195 million, a 2.2% increase compared with the €2,149 million recorded for the year ended December 31, 2016, mainly as a result of an increase in general and administrative expense, particularly IT expense, and, to a lesser extent, an increase in personnel expense. The increase was below Mexico’s inflation rate for 2017.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was a €1,651 million expense, a 1.6% increase compared with the €1,626 million expense recorded for the year ended December 31, 2016. Excluding the impact of the depreciation of the Mexican peso, the increase in impairment losses on financial assets (4.9%) was in line with the increase recorded in loans and advances to customers (5.3%). The non-performing asset ratio of this operating segment was 2.3% for both years ended December 31, 2017 and 2016.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €2,984 million, an 11.4% increase compared with the €2,678 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €797 million, a 14.4% increase compared with the €697 million expense recorded for the year ended December 31, 2016, mainly as a result of higher operating profit before tax. Consequently, tax expense amounted to 26.7% of operating profit before tax for the year ended December 31, 2017, and 26.0% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €2,187 million, a 10.5% increase compared with the €1,980 million recorded for the year ended December 31, 2016.

####

178

#### TURKEY

Since July 2015 we have fully consolidated Garanti’s results in our consolidated financial statements. From July 2015 to March 2017, we held 39.90% of Garanti’s share capital and, on March 22, 2017, we completed the acquisition of an additional 9.95% stake in Garanti, increasing our total holding of Garanti’s share capital to 49.85%. See “Item 4. Information on the Company—History and Development of the Company—Capital Expenditures—2017”.

| For the Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,331 | 3,404 | (2.1)
Net fees and commissions | 703 | 731 | (3.9)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 14 | 77 | (81.2)
Other operating income and expense, net | 5 | (18) | n.m. (2)
Income and expense on insurance and reinsurance contracts | 62 | 64 | (2.6)
Gross income | 4,115 | 4,257 | (3.3)
Administration costs | (1,325) | (1,524) | (13.1)
Depreciation and amortization | (178) | (214) | (16.7)
Net margin before provisions (3) | 2,612 | 2,519 | 3.7
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (453) | (520) | (13.0)
Provisions or reversal of provisions and other results | (12) | (93) | (87.2)
Operating profit/(loss) before tax | 2,147 | 1,906 | 12.7
Tax expense or income related to profit or loss from continuing operations | (426) | (390) | 9.2
Profit from continuing operations | 1,720 | 1,515 | 13.5
Profit from corporate operations, net | - | - | -
Profit | 1,720 | 1,515 | 13.5
Profit attributable to non-controlling interests | (895) | (917) | (2.4)
Profit attributable to parent company | 826 | 599 | 37.9

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) Not meaningful.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

179

The Turkish lira depreciated 18.9% against the euro in average terms during 2017, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2017 and in the results of operations of the Turkey operating segment for such year expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €3,331 million, a 2.1% decrease compared with the €3,404 million recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira. Excluding this impact, there was a 20.6% increase in net interest income, mainly as a result of higher interest rates, particularly in loans and advances to customers and inflation-linked bonds, and the growth in activity, particularly in cash and cash balances with central banks, in line with the growth of the Turkish financial sector. The net interest margin over total average assets of this operating segment amounted to 4.05% for the year ended December 31, 2017 compared to 3.81% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €703 million, a 3.9% decrease compared with the €731 million recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira. Excluding this impact, there was an 18.5% increase in net fees and commissions, mainly as a result of an increase in credit and debit card commissions, which amounted to €51 million, and, to a lesser extent, due to an increase in checks and bills receivables commissions, which increased by €32 million.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €14 million, an 81.2% decrease compared with the €77 million gain recorded for the year ended December 31, 2016. The gain in 2016 was partially due to the sale of Garanti’s stake in VISA Europe, Ltd. recorded in the second quarter of 2016.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €5 million, compared with the €18 million of net expense recorded for the year ended December 31, 2016, mainly as a result of a €13 million increase in financial income from real estate-related services.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €62 million, a 2.6% decrease compared with the €64 million in net income recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira.

180

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €1,325 million, a 13.1% decrease compared with the €1,524 million recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira. Excluding this impact, administration costs increased by 7.2%, mainly as a result of the 11.9% inflation rate, which led to a €78 million increase in personnel expense and an €11 million increase in general and administrative expense.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was a €453 million expense, a 13.0% decrease compared with the €520 million expense recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of the Turkish lira. Excluding this impact, impairment losses on financial assets increased by 7.3%, mainly as a result of deterioration in credit quality and an increase in the size of the loan portfolio. The non-performing asset ratio of this operating segment as of December 31, 2017 was 3.9% compared with 2.7% as of December 31, 2016. This increase was mainly the result of increased impairments of wholesale loans, the majority of which had already been fully provisioned.

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €2,147 million, a 12.7% increase compared with the €1,906 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €426 million, a 9.2% increase compared with the €390 million expense recorded for the year ended December 31, 2016, mainly as a result of the higher operating profit before tax. Consequently, the tax expense amounted to 19.9% of operating profit before tax for the year ended December 31, 2017, and 20.5% for the year ended December 31, 2016.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2017 amounted to €895 million, a 2.4% decrease compared with the €917 million recorded for the year ended December 31, 2016 mainly as a result of the completion of our acquisition of an additional 9.95% stake in Garanti on March 22, 2017, which more than offset the effect of the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €826 million, a 37.9% increase compared with the €599 million recorded for the year ended December 31, 2016 mainly as a result of the higher operating profit before tax and our acquisition of an additional 9.95% stake in Garanti during the year.

####

181

#### SOUTH AMERICA

| For the Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,200 | 2,930 | 9.2
Net fees and commissions | 713 | 634 | 12.4
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 480 | 464 | 3.4
Other operating income and expense, net | (113) | (133) | (15.0)
Income and expense on insurance and reinsurance contracts | 172 | 158 | 8.8
Gross income | 4,451 | 4,054 | 9.8
Administration costs | (1,886) | (1,793) | 5.2
Depreciation and amortization | (121) | (100) | 20.8
Net margin before provisions (2) | 2,444 | 2,160 | 13.1
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (650) | (526) | 23.6
Provisions or reversal of provisions and other results | (103) | (82) | 26.2
Operating profit/(loss) before tax | 1,691 | 1,552 | 8.9
Tax expense or income related to profit or loss from continuing operations | (486) | (487) | (0.3)
Profit from continuing operations | 1,205 | 1,065 | 13.1
Profit from corporate operations, net | - | - | -
Profit | 1,205 | 1,065 | 13.1
Profit attributable to non-controlling interests | (345) | (294) | 17.0
Profit attributable to parent company | 861 | 771 | 11.6

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

182

In 2017, the Venezuelan bolivar depreciated significantly against the euro in average terms compared with the year ended December 31, 2016. In the year ended December 31, 2017 the Group used an estimated exchange rate of 18,182 Venezuelan bolivars per euro. In addition, the Argentine peso depreciated 12.8% against the euro in average terms. On the other hand, the Chilean peso, Colombian peso and Peruvian new sol appreciated in average terms against the euro compared with the year ended December 31, 2016, by 2.1%, 1.4% and 1.4%, respectively. In the aggregate, changes in exchange rates resulted in a negative impact on most of the headings of the results of operations of the South America operating segment for the year ended December 31, 2017 expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €3,200 million, a 9.2% increase compared with the €2,930 million recorded for the year ended December 31, 2016, mainly as a result of growth in the average volume of interest-earning assets, particularly loans and advances to customers, and, to a lesser extent, in the securities portfolio and derivatives, partially offset by the depreciation of the Venezuelan bolivar and the Argentine peso. Assuming constant exchange rates, net interest income increased by 15.1%. The net interest margin over total average assets of this operating segment amounted to 4.22% for the year ended December 31, 2017 compared with 4.09% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €713 million, a 12.4% increase compared with the €634 million recorded for the year ended December 31, 2016, mainly as a result of an increase in credit and debit card commissions, which amounted to €33 million, and, to a lesser extent, due to an increase in checks and bills receivables commissions which increased by €13 million, partially offset by the depreciation of local currencies against the euro. By country, the main variation was registered in Argentina where net fees and commissions, at a constant exchange rate, increased by €65 million.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €480 million, a 3.4% increase compared with the €464 million gain recorded for the year ended December 31, 2016, mainly as a result of foreign-currency operations.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2017 were €113 million, a 15.0% decrease compared with the €133 million recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of the Venezuelan bolivar and the Argentine peso.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €172 million, an 8.8% increase compared with the €158 million in net income recorded for the year ended December 31, 2016, mainly as a result of the performance in Colombia where income on insurance and reinsurance contracts, at a constant exchange rate, increased by €14 million.

183

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €1,886 million, a 5.2% increase compared with the €1,793 million recorded for the year ended December 31, 2016, in line with the average inflation rate in most countries and partially offset by the impact of the depreciation of the Venezuelan bolivar and the Argentine peso.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was an expense of €650 million, a 23.6% increase compared with the €526 million expense recorded for the year ended December 31, 2016, mainly as a result of increased impaired assets due to the deterioration of credit quality with certain customers, partially offset by a decrease in the volume of the loan portfolio, higher recovery of written-off assets and depreciation of the Venezuelan bolivar and the Argentine peso. The non-performing asset ratio of this operating segment as of December 31, 2017 was 3.4% compared with 2.9% as of December 31, 2016.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €103 million expense, a 26.2% increase compared with the €82 million expense recorded for the year ended December 31, 2016, mainly as a result of an increase in contingent liabilities.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €1,691 million, an 8.9% increase compared with the €1,552 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €486 million, a 0.3% decrease compared with the €487 million expense recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of the Venezuelan bolivar and the Argentine peso. Assuming constant exchange rates, tax expense increased by 10.1%, in line with the 8.9% increase in operating profit before tax. Consequently, tax expense amounted to 28.7% of operating profit before tax for the year ended December 31, 2017, and 31.4% for the year ended December 31, 2016.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2017 amounted to €345 million, a 17.2% increase compared with the €294 million recorded for the year ended December 31, 2016 mainly as a result of the stronger performance of our Peruvian and Argentinian operations, where there are minority shareholders, as well as the reduction of our stake in our Argentinian operations during 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €861 million, an 11.6% increase compared with the €771 million recorded for the year ended December 31, 2016.

####

184

#### REST OF EURASIA

| For the Year Ended December 31, |
| 2017 | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | 180 | 166 | 8.7
Net fees and commissions | 164 | 194 | (15.2)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 123 | 87 | 40.4
Other operating income and expense, net | 1 | 45 | (97.3)
Gross income | 468 | 491 | (4.8)
Administration costs | (297) | (330) | (9.9)
Depreciation and amortization | (11) | (12) | (10.4)
Net margin before provisions (2) | 160 | 149 | 7.0
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | 23 | 30 | (24.3)
Provisions or reversal of provisions and other results | (6) | 23 | n.m.(3)
Operating profit/(loss) before tax | 177 | 203 | (12.9)
Tax expense or income related to profit or loss from continuing operations | (52) | (52) | 0.3
Profit from continuing operations | 125 | 151 | (17.4)
Profit from corporate operations, net | - | - | -
Profit | 125 | 151 | (17.4)
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 125 | 151 | (17.4)

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

185

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €180 million, an 8.7% increase compared with the €166 million recorded for the year ended December 31, 2016, mainly as a result of the performance of the Global Finance unit in Europe, particularly in retail businesses and Corporate and Investment Banking (C&IB), and, to a lesser extent the performance of the Global Markets unit in Europe, partially offset by performance of the Global Markets unit in Asia.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €164 million, a 15.2% decrease compared with the €194 million recorded for the year ended December 31, 2016, mainly as a result of a decrease in securities fees.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €123 million, a 40.4% increase compared with the €87 million net gain recorded for the year ended December 31, 2016, mainly as a result of a €21 million increase in the gains on financial assets in retail businesses, particularly in Portugal (€13 million increase) and a €28 million increase of the Global Markets unit in Europe, partially offset by a €25 million decrease of the Global Markets unit in Asia.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €1 million, compared with €45 million in other net operating income recorded for the year ended December 31, 2016, mainly as a result of our divestment in CNCB, a 2.14% stake of which we sold in 2017, which resulted in lower dividends from CNCB.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €297 million, a 9.9% decrease compared with the €330 million recorded for the year ended December 31, 2016, mainly as a result of expense reduction efforts in the Corporate and Investment Banking (C&IB) unit in Asia and the retail business in Europe.

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Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 amounted to income of €23 million a 24.3% decrease compared with the €30 million income recorded for the year ended December 31, 2016, mainly as a result of the release of provisions, particularly in Portugal. The non-performing asset ratio of this operating segment as of December 31, 2017 was 1.2% compared with 1.5% as of December 31, 2016.

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €177 million, a 12.9% decrease compared with the €203 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €52 million, a 0.3% increase compared with the €52 million expense recorded for the year ended December 31, 2016, mainly as a result of a higher effective tax rate attributable in part to lower dividends received in 2017. Consequently, tax expense amounted to 29.5% of operating profit before tax for the year ended December 31, 2017, and 25.6% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €125 million, a 17.4% decrease compared with the €151 million recorded for the year ended December 31, 2016.

####

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#### CORPORATE CENTER

| For the Year Ended December 31, |
| 2017 (1) | 2016 | Change
| (In Millions of Euros) | (In %)
Net interest income | (357) | (455) | (21.6)
Net fees and commissions | (86) | (110) | (21.2)
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 436 | 357 | 22.2
Other operating income and expense, net | 99 | 197 | (49.7)
Income and expense on insurance and reinsurance contracts | (19) | (21) | (9.8)
Gross income | 73 | (31) | n.m. (3)
Administration costs | (592) | (569) | 4.1
Depreciation and amortization | (297) | (307) | (3.5)
Net margin before provisions (4) | (815) | (907) | (10.2)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (1,125) | (37) | n.m. (3)
Provisions or reversal of provisions and other results | (73) | (139) | (47.3)
Operating profit/(loss) before tax | (2,013) | (1,084) | 85.8
Tax expense or income related to profit or loss from continuing operations | 166 | 293 | (43.3)
Profit from continuing operations | (1,847) | (791) | 133.6
Profit from corporate operations, net | - | - | -
Profit | (1,847) | (791) | 133.6
Profit attributable to non-controlling interests | (1) | (3) | (60.0)
Profit attributable to parent company | (1,848) | (794) | 132.9

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3) Not meaningful.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

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Net interest income / (expense)

Net interest expense of this operating segment for the year ended December 31, 2017 was €357 million, a 21.6% decrease compared with the €455 million expense recorded for the year ended December 31, 2016, mainly as a result of lower funding costs of the Group’s investments.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 were an expense of €86 million, a 21.2% decrease compared with an expense of €110 million loss recorded for the year ended December 31, 2016, mainly as a result of an increase in funds commissions income.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €436 million, a 22.2% increase compared with the €357 million gain recorded for the year ended December 31, 2016, mainly as a result of the sale of a 2.14% stake in CNCB in 2017.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €99 million, a 49.7% decrease compared with the €197 million net income recorded for the year ended December 31, 2016, mainly as a result of decreased dividends from Telefónica, S.A. as it lowered its dividends from €0.55 per share to €0.4 per share, and from CNCB, which also lowered its dividends and also due to the smaller stake held by the Group in CNCB (following the sale of a 2.14% stake in 2017).

Income and expense on insurance and reinsurance contracts

Income and expense on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 amounted to an expense of €19 million, a 9.8% decrease compared with the €21 million expense recorded for the year ended December 31, 2016.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €592 million, a 4.1% increase compared with the €569 million recorded for the year ended December 31, 2016, mainly as a result of the €15 million increase in fixed remuneration and also due to a €11 million increase in general and administrative expense, particularly IT expense.

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Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was a €1,125 million expense, compared with the €37 million expense recorded for the year ended December 31, 2016, mainly as a result of the recognition of impairment losses of €1,123 million relating to our slightly above 5% stake in Telefónica, S.A. resulting from the fact that its stock price fell below our acquisition cost for a prolonged period.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €73 million expense, a 47.3% decrease compared with the €139 million expense recorded for the year ended December 31, 2016, mainly due to lower provisions for early retirements.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the year ended December 31, 2017 was €2,013 million, an 85.8% increase compared with the €1,084 million loss recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the year ended December 31, 2017 amounted to €166 million, a 43.3% decrease compared with the €293 million tax income recorded for the year ended December 31, 2016, despite an increase in operating loss before tax since the recognition of impairment losses relating to our stake in Telefónica, S.A. had no impact on taxable income. Consequently, tax income amounted to 8.3% of operating loss before tax for the year ended December 31, 2017, and 27.0% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 was a loss of €1,848 million, compared with the €794 million loss recorded for the year ended December 31, 2016.

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## B. Liquidity and Capital Resources

Liquidity risk management and controls are explained in Note 7.5.1 to the Consolidated Financial Statements. In addition, information on encumbered assets is provided in Note 7.5.2 to the Consolidated Financial Statements. For information concerning our short-term borrowing, see “Item 4. Information on the Company—Selected Statistical Information—Liabilities—Short-term Borrowings”.

The BBVA Group’s goals for liquidity and finance management are to fund the growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance.

A core principle in the BBVA Group’s liquidity and finance management is the financial independence of its banking subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price formation. Accordingly, we maintain liquidity pools at individual Liquidity Management Units (“LMUs”) at each of Banco Bilbao Vizcaya Argentaria, S.A. and our banking subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti and our Latin American subsidiaries.

The table below shows the composition of the liquidity pools of Banco Bilbao Vizcaya Argentaria, S.A. and each of our significant subsidiaries as of December 31, 2018 based on the categories set forth by the European Banking Authority:

| BBVA Eurozone (1) | BBVA Bancomer | BBVA Compass | Garanti | Others
| (In Millions of Euros)
Cash and withdrawable central bank reserves | 26,506 | 7,666 | 1,667 | 7,633 | 6,677
Level 1 tradable assets | 29,938 | 4,995 | 10,490 | 6,502 | 3,652
Level 2A tradable assets | 449 | 409 | 510 | - | -
Level 2B tradable assets | 4,040 | 33 | - | - | -
Other tradable assets | 5,661 | 1,372 | 1,043 | 499 | 617
Non-tradable assets eligible for central banks | - | - | 2,314 | - | -
Accumulated available balance | 66,594 | 14,475 | 16,024 | 14,634 | 10,946

(1) Includes Spain, Portugal and Rest of Eurasia.

Management of liquidity and structural finance within the BBVA Group is based on the principle of the financial autonomy of the entities comprising the Group. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability in periods of high risk. This decentralized management also helps avoid possible contagion due to a crisis that could affect only one or several BBVA Group entities, which must cover their liquidity needs independently in the markets where they operate. LMUs have been set up for this reason in the geographical areas where the Group’s main foreign subsidiaries operate, and also for the parent company of the Group (Banco Bilbao Vizcaya Argentaria S.A.), within the Euro currency scope, which LMU also includes BBVA Portugal and the Rest of Eurasia.

The Finance Division, through the Global Assets and Liabilities Management unit manages the BBVA Group’s liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMU and proposes to the Assets and Liabilities Committee (“ALCO”) the actions to adopt in this regard in accordance with the policies and limits established by the Executive Committee.

As a first core element, the Bank’s targets in terms of liquidity and funding risk are centered on the Liquidity Coverage Ratio (“LCR”) and the Loan-to-Stable-Customer-Deposits (“LtSCD”) ratio. LCR is a regulatory measurement aimed at ensuring entities’ resilience in a scenario of liquidity stress within a time horizon of 30 days. BBVA, within its risk appetite framework and its limits and alerts schemes, has established a requirement for compliance with the LCR ratio both for the Group as a whole and for each of the LMUs individually. The internal levels required were designed to comply in advance with the implementation of the regulatory requirements of 2018, at a level above 100%.

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LCR came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, progressively increased (phased-in) up to 100% in 2018. Throughout 2018, the LCR level at the BBVA Group remained above 100%. As of December 31, 2018, the LCR ratio at Group level was 127%.

Although this regulatory requirement is mandatory for the Group on a consolidated basis as a Eurozone bank, all of the Group’s subsidiaries are also above this minimum. Liquidity excesses in subsidiaries are not deemed transferable when calculating the consolidated LCR ratio. Taking into account the impact of High Quality Liquid Assets that are otherwise excluded, the Group’s LCR ratio would be 154%, which is +27% higher than the Group’s LCR.

For the purpose of establishing the (maximum) target levels for LtSCD in each LMU and providing an optimal funding structure reference in terms of risk appetite, the Global Risk Management (“GRM”) Structural Risk unit identifies and assesses the economic and financial variables that condition the funding structures in the various geographical areas. The behavior of the indicators reflects that the funding structure remained robust in 2018 and 2017, in the sense that all the LMUs maintained levels of self-funding with stable customer funds which were higher than the required levels.

The second core element in liquidity and funding risk management is the achievement of proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term borrowing comprising both wholesale funding as well as less stable funds from non-retail customers. Regarding long-term funding, its maturity profile does not show significant concentrations, which contributes to the adaptation of the anticipated securities issuance schedule to financial conditions of the markets. Moreover, concentration risk is monitored at the LMU level, with a view to ensuring appropriate diversification both by counterparty and by instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, helping ensure that each LMU has sufficient collateral to address the risk of wholesale markets closing. Basic Capacity is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets, such as collaterals for central banks, and the maturities of wholesale liabilities and volatile funds, at different terms, with special relevance being given to 30-day maturities.

BBVA’s principal source of funds is its customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on customer deposits, BBVA also accesses the interbank market (overnight and time deposits) and domestic and international capital markets for its additional liquidity requirements. To access the capital markets, BBVA has in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. Another source of liquidity is the generation of cash flow from operations. Finally, BBVA supplements its funding requirements with borrowings from the Bank of Spain and from the ECB or the respective central banks of the countries where its subsidiaries are located (s ee Note 9 to the Consolidated Financial Statements for information on our borrowings from central banks).

The following table shows the balances as of December 31, 2018, 2017 and 2016 of our principal sources of funds (including accrued interest, hedge transactions and issue expenses):

|  | As of December 31, |
| 2018 | 2017 | 2016
| (In Millions of Euros)
Deposits from central banks | 37,792 | 37,054 | 34,740
Deposits from credit institutions | 47,665 | 54,516 | 63,501
Customer deposits | 388,682 | 376,379 | 401,465
Debt certificates | 63,970 | 63,915 | 76,375
Other financial liabilities | 16,003 | 14,072 | 13,129
Total | 554,112 | 545,936 | 589,210

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Customer deposits

Customer deposits (including “Financial liabilities at amortized cost - Customer deposits”, “Financial liabilities designated at fair value through profit or loss – Customer deposits” and “Financial liabilities held for trading – Customer deposits”) amounted to €388,682 million as of December 31, 2018 compared with €376,379 million as of December 31, 2017 and €401,465 million as of December 31, 2016. The increase was mainly a result of the 12.7% increase in demand deposits in Banking Activity in Spain.

Our customer deposits, excluding assets sold under repurchase agreements, amounted to €374,763 million as of December 31, 2018 compared with €367,300 million as of December 31, 2017 and €387,974 million as of December 31, 2016.

Deposits from credit institutions and central banks

The following table shows amounts due to credit institutions and central banks as of December 31, 2018, 2017 and 2016:

|  | As of December 31, |
| 2018 | 2017 | 2016
| (In Millions of Euros)
Deposits from credit institutions | 47,665 | 54,516 | 63,501
Deposits from central banks | 37,792 | 37,054 | 34,740
Total | 85,457 | 91,570 | 98,241

Deposits from credit institutions and central banks amounted to €85,457 million as of December 31, 2018 compared with €91,570 million as of December 31, 2017 and €98,241 million as of December 31, 2016. The decrease as of December 31, 2018 compared with December 31, 2017 was mainly attributable to the decrease in the amount of deposits in Turkey as well as to the depreciation of certain local currencies, including the Turkish lira.

Capital markets

We make debt issuances in the domestic and international capital markets in order to finance our activities. As of December 31, 2018 we had €43,477 million of senior debt outstanding, comprising €39,973 million in bonds and debentures and €3,504 million in promissory notes and other securities, compared with €47,027 million, €42,561 million and €4,466 million outstanding, respectively, as of December 31, 2017 and €59,390 million, €58,173 million and €1,217 million outstanding, respectively, as of December 31, 2016 (see Note 22.4 to the Consolidated Financial Statements).

In addition, we had a total of €17,866 million in subordinated debt and €181 million in preferred securities outstanding as of December 31, 2018 compared with €17,153 million and €163 million, respectively, as of December 31, 2017 (€15,718 million and €987 million, respectively, as of December 31, 2016).

The breakdown of the outstanding subordinated debt and preferred securities by issuer, maturity, interest rate and currency is disclosed in Appendix VI of the Consolidated Financial Statements.

The following is a breakdown as of December 31, 2018 of the maturities of our debt securities (including bonds) from credit institutions and subordinated liabilities recorded under “Financial liabilities at amortized cost”. Regulatory equity instruments have been classified according to their contractual maturity:

| Demand | Up to 1 Month | 1 to 3 Months | 3 to 12 Months | 1 to 5 Years | Over 5 Years | Total
| (In Millions of Euros)
Senior debt | 21 | 2,601 | 672 | 2,923 | 27,912 | 9,346 | 43,476
Subordinated debt and preferred securities | - |  | 1 | 44 | 4,214 | 13,789 | 18,047
Total | 21 | 2,601 | 673 | 2,967 | 32,126 | 23,135 | 61,523

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Generation of Cash Flow

We operate in Spain, Mexico, Turkey, the United States and over 30 other countries, mainly in Europe, Latin America, and Asia. Our banking subsidiaries around the world, including BBVA Compass, are subject to supervision and regulation by a variety of regulatory bodies relating to, among other things, the satisfaction of different solvency, resolution and/or governance requirements. The obligation to satisfy such requirements may affect the ability of our banking subsidiaries, including BBVA Compass, to transfer funds to us in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where our subsidiaries, including BBVA Compass, are incorporated, dividends may only be paid out of funds legally available and, in certain cases, subject to the prior approval of the competent regulatory or supervisory authorities. For example, BBVA Compass is incorporated in Alabama and under Alabama law it is not able to pay any dividends without the prior approval of the Superintendent of Banking of Alabama if the dividend would exceed the total net earnings for the year combined with the bank’s retained net earnings of the preceding two years.

Even where any applicable requirements are met and funds are legally available, the relevant regulator could advise against the transfer of funds to us in the form of cash dividends, loans or advances, for prudence reasons or otherwise.

There is no assurance that in the future other similar restrictions will not be adopted or that, if adopted, they will not negatively affect our liquidity. The geographic diversification of our businesses, however, may help to limit the effect on the Group of any restrictions that could be adopted in any given country.

We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.

See Note 51 of the Consolidated Financial Statements for additional information on our consolidated statements of cash flows.

Capital

As of December 31, 2018 and 2017, equity is calculated in accordance with current regulations on minimum capital base requirements for Spanish credit institutions on both an individual and consolidated basis. These regulations dictate how to calculate equity levels, as well as the various internal capital adequacy assessment processes they should have in place and the information such institutions should disclose to the market.

The minimum capital base requirements established by the current regulations are calculated according to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in these regulations and internal corporate governance obligations.

As of February 14, 2019 BBVA received a communication of the ECB about the results of the supervisory review and evaluation process (SREP). Taking into account the full application of capital buffers since January 1, 2019 and considering the latest capital requirement communicated from the ECB, BBVA is required to maintain from March 1, 2019:

1. A CET1 ratio of 9.26% at the consolidated level; and

2. A total capital ratio of 12.76% at the consolidated level. This total consolidated capital ratio includes i) the minimum CET1 requirement under Pillar 1 (4.5%); ii) the additional tier 1 capital (AT1) requirement under Pillar 1 (1.5%); iii) the tier 2 capital requirement under Pillar 1 (2%); iv) the CET1 capital requirement under Pillar 2 (1.5%); v) the capital conservation buffer (2.5% of CET1); vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and vii) the countercyclical capital buffer (0.01% of CET1).

Our consolidated ratios as of December 31, 2018 and December 31, 2017 were as follows:

| As of December 31, | As of December 31, | % Change
| 2018 | 2017 | 2018-2017
| (In Millions of Euros)
Ordinary Tier 1 Capital | 50,887 | 50,935 | (0.1)
Adjustments | (10,573) | (8,594) | 23.0
Mandatory convertible bonds | - | - | -
CORE CAPITAL (a) | 40,313 | 42,341 | (4.8)
Preferred securities | 5,634 | 6,296 | (10.5)
Adjustments | - | (1,657) | (100.0)
CAPITAL (TIER 1) (b) | 45,947 | 46,980 | (2.2)
OTHER ELIGIBLE CAPITAL (TIER 2) (c) | 8,756 | 8,798 | (0.5)
CAPITAL BASE (TIER 1 + TIER 2) (d) | 54,703 | 55,778 | (1.9)
Minimum capital requirement | 41,619 | 40,370 | 3.1
CAPITAL SURPLUS | 13,085 | 15,408 | (15.1)
RISK WEIGHTED ASSETS (RWA) (e) | 348,264 | 362,875 | (4.0)
BIS RATIO (d)/(e) | 15.71% | 15.37% |
CORE CAPITAL (a)/(e) | 11.58% | 11.67% |
TIER 1 (b)/(e) | 13.19% | 12.95% |
TIER 2 (c)/(e) | 2.51% | 2.42% |

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As of December 31, 2018, the Group’s CET1 phased-in ratio was 11.6% (in fully-loaded terms, the Group’s CET1 phased-in ratio was 11.3%). Excluding the effect of the phased-in calendar in minority interests and deductions that goes from 80% in 2017 to 100% in 2018, and including the positive impact of the sale of the stake in BBVA Chile (+50 bps), the CET1 phased-in ratio increased by +48 bps. This increase is mainly explained by the generation of profit net of dividend payments and remunerations of AT1 instruments and the contained evolution of risk-weighted assets.

The Group’s CET1 phased-in ratio includes the impact of the initial implementation of IFRS 9. In this context, the European Commission and Parliament have established temporary arrangements that are voluntary for banking institutions, adapting the impact of IFRS 9 on capital adequacy ratios. BBVA has informed the supervisory board of its adherence to these arrangements.

Additionally, the transfer of a significant portion of BBVA’s real estate business in Spain to Divarian had no material impact on the ratio.

The Group’s Tier 1 phased-in ratio stood at 13.2% as of December 31, 2018. This included two new issuances of contingent convertible preferred shares (CoCos), rated as Additional Tier 1 instruments for an aggregate amount of $1,000 million and €1,000 million, respectively. In addition, the Group no longer includes a $1.500 million issuance of Additional Tier 1 instruments which was redeemed in early May 2018 and another €1,500 million issuance which the Group announced it would redeem in January 2019. The net impact of the two new emissions and the two exclusions referred to above on the phased-in Tier 1 capital ratio was -26 basis points.

With respect to the Group’s Tier 2 ratio, the Group received authorization from the ECB in the third quarter of 2018 to include a subordinated issuance of $300 million which was completed in May. Following the sale of the Group’s stake in BBVA Chile, the Group’s Tier 2 ratio no longer includes BBVA Chile’s issuances.

As a result of the above, the Group’s total capital phased-in ratio as of December 31, 2018 was 15.7%.

In addition, the Group has continued to meet applicable MREL requirements by carrying out two senior non-preferred issuances amounting to €2,500 million in the aggregate. Considering BBVA’s Multiple Point of Entry (MPE) resolution strategy, the Single Resolution Board (SRB) determined that BBVA must meet, starting on January 1, 2020, a MREL requirement of 15.08% of the total liabilities and own funds of its European resolution group (including BBVA and its subsidiaries), based on its consolidated financial information as of December 31, 2016 (28.04% expressed in terms of risk-weighted assets). According to our estimates, the current own funds and eligible liabilities structure of BBVA’s European resolution group is in line with the applicable MREL requirement.

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Risk-weighted assets decreased during the year ended December 31, 2018, largely due to the sale of BBVA Chile, the Cerberus Transaction and the depreciation of currencies in countries where the Group operates against the euro. In addition, the Group completed three securitization transactions in 2018: (a) a traditional securitization transaction in June 2018 of a consumer automobile loan portfolio amounting to €800 million, and (b) two synthetic securitization transactions in March and December 2018, respectively, in respect of which the European Investment Fund (a subsidiary of the European Investment Bank) provided a financial guarantee. These three securitization transactions have resulted in a positive impact on capital of €971 million through a reduction of risk-weighted assets. During the first half of 2018, BBVA received an authorization from the ECB to update the calculation of its risk-weighted assets on structural exchange risk under the standard model.

## C. Research and Development, Patents and Licenses, etc.

In 2018, we continued to foster the use of new technologies as a key component of our global development strategy. We explored new business and growth opportunities, focusing on three major areas: emerging technologies; digital banking; and data driven initiatives, in each case with the customer as the focal point of our banking business.

The BBVA Group is not materially dependent on the issuance of patents, licenses and industrial, mercantile or financial contracts or on new manufacturing processes in carrying out its business purpose.

## D. Trend Information

The European financial services sector is expected to remain competitive in the current challenging environment. Further consolidation in the sector through mergers, acquisitions or alliances, might be possible. Some banks have exited some lines of their non-core businesses and activities.

There are four main trends that are expected to shape the sector profitability in the future: the slow economic recovery, the low (or even negative) interest rate environment (especially in Spain), the surge of alternative finance providers and the completion and the implementation of the already existing financial regulatory reforms. At the same time there are new and evolving risks, such as market based and asset management activities, misconduct risks and the decline of correspondent banking, among others.

For a discussion on the slow economic recovery trend, see “―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Operating Environment”. Regarding the second trend, the impact of the ultra-expansionary monetary policy is significant in the sector’s results, where the reductions of credit interest rates cannot be compensated by a similar contraction of the deposit rates as customers are not accustomed to negative deposit rates and that funding source is crucial for banks. This is particularly important in a country like Spain, where mortgages account for a significant proportion of credit (more than 40%) and nine out of 10 mortgages are estimated to be on variable rates. Further, alternative finance providers are growing very fast in line with technological advances and becoming a very important competitor for the banking industry (see also “Item 4. Information on the Company―Competition”). These entities, which form part of the shadow banking sector, do not have to comply with a regulation scheme as strict as that applicable to banks. Finally, regarding the fourth trend, it is possible that, in the framework of the banking union and in the capital markets union, regulatory changes and enhanced institutional architecture might contribute to a more competitive and less fragmented landscape.

There are still some challenges to be addressed, such as the banking conduct and culture and their implications on consumer and investor protection issues. An ethical behavior is of the utmost importance for the banking business to recover the trust that was lost during the last financial crisis.

Financial stability and consumer protection are the final goals of the global financial regulatory reform that started ten years ago. However, if such reform is applied locally, inconsistently and heterogeneously, it can lead to divergences, regulatory inconsistencies and regulatory arbitrages with unintended consequences. In addition to that, the lack of homogeneity at the European level makes it difficult for investors to evaluate financial institutions and often impose additional burdens on financial institutions. This could reduce the potential synergies for the Group, as it might not be allowed to sell the same products across all the jurisdictions in which it carries out its activities.

196

Regarding consumer protection rules, the European Commission proposed on February 10, 2016 the application of the revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) of the European Parliament and of the European Council be delayed by one year until January 3, 2018. Six days later, the European Parliament also proposed the deferral of its transposition into national legislation for one year, until July 3, 2017. This decision responded to concerns expressed by the European Securities and Markets Authority (the “ESMA”) regarding the fact that neither the competent authorities, nor market participants, would have the necessary information technology systems ready in time for earlier implementation.

Broadly, MiFID II / MiFIR goals are fostering investor protection, enhancing market transparency, multilateral trading (instead of bilateral or OTC trading) and competition and improving corporate governance and compliance, all at the same time. It represents a significant overhaul of MiFID -that came into force in 2007- and will have a significant impact in European markets and all types of financial instruments, both equity and non-equity. It represents a significant effort in terms of costs for regulators, supervisors and financial entities to adapt their systems to the new requirements.

For fostering investor protection, MiFID II / MiFIR establish (i) stricter requirements for product design, distribution and follow-up; (ii) tougher conditions for the provision of independent services; (iii) the prohibition, subject to certain exceptions, of any remuneration, discount or non-monetary benefit in exchange for advisory services, including research and (iv) a detailed cost disclosure.

The greater pre-trade transparency and multilateral trading in markets might result in narrower margins due to a compression of spreads and in a change of paradigm in the competitive landscape. In addition, the higher post-trade transparency may have unintended consequences as a result of the availability of public information related to transactions closed on book positions.

Another key regulation for consumer protection in Europe is the Packaged Retail and Insurance-based Investment Products (“PRIIPs”). The original proposal from the European Commission was released on July 3, 2012 and the regulation on Key Information Documents (“KIDs”) for PRIIPS was passed and published in the Official Journal of the EU on November 26, 2014 and was expected to become effective on January 1, 2017. However, the Commission decided to extend by one year the implementation of the PRIIPS regulation in order to align its implementation with MiFID II and assure a smooth implementation for European consumers and ensure legal certainty for the sector.

The PRIIPs regulation aims at increasing transparency and comparability among investment products. As such, financial institutions have to provide consumers with the most relevant information to make their investment decisions with a clear understanding of all the risks, costs and possible performance scenarios involved. The European Supervisory Authorities (“ESAs”) launched a Joint Consultation Paper on November 10, 2015 with the proposed Regulatory Technical Standards (RTS) that define the Level 2 requirements of the PRIIPs Regulation, including both presentation and content of the KIDs. On June 30, 2016 the Commission adopted a delegated act setting the RTS specifying the content and underlying methodology of the KIDs. However, on September 14, 2016 the European Parliament voted down the delegated act and called for certain modifications. The final version of the RTS was published in the Official Journal of the EU on April 8, 2017 and is in effect from January 1, 2018.

The Bank Recovery and Resolution Directive (BRRD) has been binding in Spain since June 2015 when it was implemented by Law 11/2015. The BRRD sets a common framework for all EU countries with the intention to pre-empt bank crises and resolve financial institutions in an orderly manner in the event of failure, while preserving essential bank operations and minimizing taxpayer costs, thus helping to restore confidence in Europe’s financial sector. The bail-in tool, in effect in Spain since 2016, implies that a large part of a bank’s creditors will be written-down or converted into equity in a resolution scenario, thereby helping to recapitalize a failing bank without recourse to taxpayers. For that to be effective, the BRRD requires banks to have enough loss-absorbing liabilities by forcing them to comply with a new requisite: the Minimum Requirement of own funds and Eligible Liabilities (MREL). Despite the impact on banks’ liability structure, we believe the introduction of the bail-in tool and the MREL enhances banks’ fundamentals, encourages positive discrimination between issuers, breaks down the sovereign-banking link, increases market discipline, and, importantly, minimizes the possibility of bail-outs in the future.

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On December 14, 2016, the EBA submitted its final report on the implementation and design of the MREL framework, which contains a number of recommendations to amend the current MREL framework. In parallel, the EU Commission launched a legislative proposal known as the EU Banking Reform Package in order to amend current banking prudential and resolution frameworks by, among other things, improving the MREL framework and implementing the international loss absorption requirement for G-SIBS known as Total Loss Absorption Capacity (TLAC).

After more than two years, the negotiations in the EU Council and the EU Parliament are coming to an end. A political agreement was reached in December 2018 and the subsequent phase of technical amendments ended in February 2019. The final text is expected to be published by June 2019 and will enter into force in between one and a half to two years after the date of their publication in the Official Journal of the EU. The revision includes the implementation of several international standards into EU law (including some regulatory pieces adopted by the Basel Committee after 2010 and the TLAC standard). The revision also includes a legislative proposal to partially harmonize bank creditor hierarchies across the EU and to create a new bank debt class known as senior non-preferred, ranking below traditional senior debt but above subordinated creditors. This specific proposal was approved through a fast track process at the end of 2017 and all EU Member States were required to transpose it into their national law by the end of 2018. Spain chose to anticipate this proposal by transposing this proposal in the summer of 2017. Since then, many Spanish banks including BBVA have issued senior non-preferred bonds.

In 2018, the SRB communicated the MREL requirement to BBVA on the basis of the current legislation, including the SRB MREL policies. As of today, BBVA is already complying with MREL and its funding plan is aimed at the fulfillment of MREL by 2020, the date when it will become binding for the Group.

## E. Off-Balance Sheet Arrangements

In addition to loans, the following amounts of off-balance sheet arrangements were outstanding as of the dates indicated:

| As of December 31,
| 2018 | 2017 | 2016
| (In Millions of Euros)
Bank guarantees | 40,227 | 38,889 | 39,722
Letters of credit | 7,347 | 8,781 | 10,210
Total financial guarantees given (contingent risks) | 47,575 | 47,671 | 49,932

In addition to the off-balance sheet arrangements described above, the following tables provide information regarding commitments to extend credit and assets under management as of the dates indicated:

| As of December 31,
| 2018 | 2017 | 2016
| (In Millions of Euros)
Credit institutions | 9,635 | 946 | 859
Government and other government agencies | 2,318 | 2,198 | 3,110
Other resident sectors | 48,600 | 32,990 | 28,323
Non-resident sector | 58,405 | 58,133 | 74,961
Total contingent liabilities | 118,959 | 94,268 | 107,253
Total contingent risks and contingent liabilities | 166,534 | 141,939 | 157,185

| As of December 31,
| 2018 | 2017 | 2016
| (In Millions of Euros)
Mutual funds | 61,393 | 60,939 | 55,037
Pension funds | 33,807 | 33,985 | 33,418
Customer portfolios | 29,953 | 36,901 | 40,805
Other resources | 2,949 | 3,081 | 2,831
Total assets under management | 128,102 | 134,906 | 132,091

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See Notes 33 and 36 to the Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.

## F. Tabular Disclosure of Contractual Obligations

Our consolidated contractual obligations as of December 31, 2018 based on when they are due, were as follows:

| Less Than One Year | One to Three Years | Three to Five Years | Over Five Years | Total
| (In Millions of Euros)
Senior debt (1) | 6,218 | 12,252 | 15,661 | 9,346 | 43,476
Subordinated debt and preferred securities (1) | 44 | 2,493 | 1,721 | 13,789 | 18,047
Customer deposits (1) | 345,449 | 15,368 | 3,251 | 11,901 | 375,970
Capital lease obligations | - | - | - | - | -
Operating lease obligations | 251 | 253 | 554 | 1,879 | 2,937
Purchase obligations | 28 | - | - | - | 28
Post-employment benefits (2) | 815 | 1,386 | 1,052 | 1,979 | 5,232
Insurance commitments (3) | 1,686 | 1,041 | 1,822 | 5,285 | 9,834
Total (4) | 354,491 | 32,794 | 24,060 | 44,180 | 455,524

(1) Refers to liabilities recorded under “Financial liabilities at amortized cost”.

(2) Represents the Group’s estimated aggregate amounts for pension commitments in defined-benefit plans and other post-employment commitments (such as early retirement and welfare benefits), based on certain actuarial assumptions. Post-employment benefits are detailed in Note 25 to the Consolidated Financial Statements.

(3) Liabilities under insurance and reinsurance contracts.

(4) The majority of senior and subordinated debt was issued at fixed rates (see Note 22.4 to the Consolidated Financial Statements). Floating-rate amounts were calculated based on the conditions prevailing as of December 31, 2018. The financial cost of such issuances for 2018, 2017 and 2016 is detailed in Note 37.2 to the Consolidated Financial Statements.

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# ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Our Board of Directors is committed to a good corporate governance system in the design and operation of our corporate bodies in the best interests of the Company and our shareholders.

Our Board of Directors is subject to Board Regulations that reflect and implement the principles and elements of BBVA’s concept of corporate governance. These Board Regulations comprise standards for the internal management and operation of the Board and its Committees, as well as the rights and obligations of directors in the performance of their duties, which are contained in the directors’ charter.

General shareholders’ meetings are subject to their own set of regulations on issues such as how they operate and what rights shareholders enjoy regarding such meetings. These establish the possibility of exercising or delegating votes over remote communication media.

Our Board of Directors has approved a report on corporate governance and a report on directors’ remuneration for 2018, according to the forms set forth under Spanish regulation for listed companies.

Shareholders and investors may find the documents referred to above on our website (www.bbva.com).

Our website was created as an instrument to facilitate information and communication with shareholders. It provides special direct access to all information considered relevant to BBVA’s corporate governance system in a user-friendly manner. In addition, all the information required by article 539 of the Corporate Enterprises Act can be accessed on BBVA’s website (www.bbva.com).

## A. Directors and Senior Management

We are managed by a Board of Directors that is currently composed of 15 members.

Pursuant to article 1 of the Board Regulations, Bank directorships may be executive or non-executive. Executive directors are those who perform management functions in the Company or its Group entities, regardless of the legal relationship they have with such companies. All other Board members will be considered non-executives and they may be proprietary, independent or other external directors.

Independent directors are those non-executive directors who have been appointed in view of their personal and professional background who can perform their duties without being constrained by their relations with the Company or its Group, its significant shareholders or its executives. Under the Board Regulations, directors cannot be deemed independent if they:

(a) have been employees or executive directors in Group companies, unless three or five years have elapsed, respectively since they ceased as employees or executive directors, as the case may be;

(b) receive from the Company or its Group entities, any amount or benefit for an item other than remuneration for their directorship, except where the sum is insignificant. This does not include either dividends or pension supplements that a director may receive due to a former professional or employment relationship, provided these are unconditional and, consequently, the company paying them may not at its own discretion, suspend, amend or revoke their accrual unless there has been a breach of duty;

(c) are partners of the external auditor or in charge of the audit report or have been so in the last three years, whether the audit in question was carried out on the Company or any other Group entity;

(d) are executive directors or senior managers of another company in which a Company’s executive director or senior manager is an external director;

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(e) maintain any significant business relationship with the Company or with any Group company or have done so over the last year, either in their own name or as a significant shareholder, director or senior manager of a company that maintains or has maintained such a relationship. Business relationship here means any relationship as supplier of goods or services, including financial goods or services, and as advisor or consultant;

(f) are significant shareholders, executive directors or senior managers of any entity that receives, or has received over the last three years, donations from the Company or its Group. Those persons who are merely trustees in a foundation receiving donations shall not be deemed to be included under this letter;

(g) are spouses, or spousal equivalents or related up to second degree of kinship to an executive director or senior manager of the Company;

(h) have not been proposed by the Appointments Committee for appointment or renewal;

(i) have held a directorship for a continuous period of more than 12 years; or

(j) are related to any significant shareholder or shareholder represented on the Board of Directors under any of the circumstances described under letters (a), (e), (f) or (g) above. In the event of kinship relationships mentioned in letter (g), the limitation will apply not only with respect to the shareholder, but also with respect to their proprietary directors in the company in which the shareholder holds an interest.

Directors who hold shares in the Bank may be considered independent provided they comply with the above conditions and their shareholding is not legally considered to be significant.

Regulations of the Board of Directors

The principles and elements comprising our corporate governance are set forth in our Board Regulations, which govern the internal procedures and the operation of the Board and its Committees and directors’ rights and duties as described in their charter.

The full text of the Board Regulations can be found on the Bank’s corporate website (www.bbva.com).

The following provides a brief description of several significant matters covered in the Regulations of the Board of Directors.

Performance of Directors’ Duties

Directors must comply with their duties as defined by legislation and by our Bylaws in a manner that is faithful to the interests of the Company.

They will participate in the deliberations, discussions and debates on matters submitted for their consideration, expressing their opposition when they consider that a draft resolution submitted to the Board may be contrary to the Company’s interests and will be appraised of the necessary information to be able to form their own opinions regarding questions corresponding to our corporate bodies. They may request any additional information and advice they require to comply with their duties. They must devote to their duties the time and effort which is necessary to perform them efficiently and they are obliged to attend the meetings of corporate bodies and of the Board Committees on which they sit, unless they can justify the reason for their absence.

The directors may also request the Board of Directors for assistance from external experts on matters subject to their consideration whose special complexity or importance so requires.

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Conflicts of Interest

The rules comprising the BBVA directors’ charter detail different situations in which conflicts of interest could arise between directors, their family members and/or organizations with which they are linked, and the BBVA Group. They set out procedures for such cases, in order to avoid conduct contrary to our best interests. The rules contained in the BBVA Board of Directors’ charter are in line with the specific regulation established on the Spanish Corporate Enterprises Act.

These rules help ensure directors’ conduct reflects stringent ethical codes, in keeping with applicable standards and according to core values of the BBVA Group.

Incompatibilities

Directors are also subject to the rules on limitations and incompatibilities established under the applicable regulations at any time and, in particular, to the provisions of Spanish Law 10/2014 and Circular 2/2016, of the Bank of Spain, for credit institutions on supervision and solvency. A director of BBVA may not be a director in companies in which the Group or any of the Group companies hold a stake, subject to the exceptions set forth below. Non-executive directors may hold a directorship in the Bank’s associated companies or in any other Group company provided the directorship is not related to the Group’s holding in such companies. As an exception and when proposed by the Bank, executive directors are able to hold directorships in companies directly or indirectly controlled by the Bank with the approval of the Executive Committee, and in other associated companies with the approval of the Board of Directors.

Directors may not provide professional services to enterprises competing with the Bank or any of the Group entities, unless they have received express prior authorization from the Board of Directors or the general shareholders’ meeting, as the case may be, or unless such services or activities were provided or performed before they became directors of the Bank, they do not involve effective competition with the Bank and they were reported to the Bank at the time of appointment.

Term of Directorships and Director Age Limit

Directors will stay in office for the term set out in our Bylaws (three years). If they have been co-opted, they will stay in office until the first general shareholders’ meeting is held. The general shareholders’ meeting may then ratify their appointment for the term of office established under our Bylaws.

BBVA’s Board of Directors Regulations establishes an age limit for sitting on the Bank’s Board. Directors must present their resignation at the first meeting of the Bank’s Board of Directors to be held after the general shareholders’ meeting that approves the accounts for the year in which they reach the age of seventy-five years.

Appointment and Re-election of Directors

The proposals that the Board submits to the Company’s general shareholders’ meeting for the appointment or re-election of directors and the appointments the Board makes directly to cover vacancies, exercising its powers of co-option will be approved at the proposal of the Appointments Committee in the case of independent directors, and following a report from said Committee for all other directors.

In all such cases the proposal must be accompanied by a report of the Board explaining the grounds on which the Board of Directors has assessed the competence, experience and merits of the candidate proposed, which will be attached to the minutes of the general shareholders’ meeting or of the Board of Directors.

To such end, the Appointments Committee will evaluate the balance of skills, knowledge and expertise on the Board of Directors, as well as the conditions that candidates should display to fill the vacancies arising, assessing the dedication necessary to be able to suitably perform their duties in view of the needs that the Company’s governing bodies may have at any time.

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Directors’ Resignation and Dismissal

Furthermore, in the following circumstances, reflected in the Board Regulations, directors must place their office at the disposal of the Board of Directors and accept its decision regarding their continuity or non-continuity in office. Should the Board resolve they do not continue in office, they will be obliged to tender their resignation:

· when they are affected by circumstances of incompatibility or prohibition as defined under prevailing legislation, in our Bylaws or in the Board Regulations;

· when significant changes occur in their professional or personal situation that may affect the condition by virtue of which they were appointed to the Board of Directors;

· when they are in serious dereliction of their duties as directors;

· when for reasons attributable to the director in his or her condition as such, serious damage has been done to the Company’s net worth, credit or reputation; or

· when they lose their suitability to hold the position of director of the Bank.

Evaluation

Article 17 of the Board Regulations indicates that the Board of Directors will assess the quality and efficiency of the Board’s operation and will assess the performance of the duties of the Chairman of the Board (process which will be led by the Lead Director). Such assessment will always begin with the report submitted by the Appointments Committee. Likewise, the Board will carry out the evaluation of the operation of its Committees, on the basis of the report that each Committee submits to the Board of Directors.

Moreover, article 5 of the Board Regulations establishes that the Chairman, who is responsible for the efficient running of the Board of Directors, will organize and coordinate the periodic assessment of the Board’s performance with the Chairs of the relevant Committees. Pursuant to the provisions of the Board Regulations, during the evaluation process conducted for 2018, the Board of Directors evaluated: (i) the quality and efficiency of the operation of the Board of Directors and the Executive Committee; (ii) the performance of the different roles of the Board of Directors; and (iii) the quality and efficiency of the operation of the different Committees of the Board of Directors.

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The Board of Directors

Our Board of Directors is currently comprised of 15 members.

The following table sets forth the names of the members of the Board of Directors as of that date of this Annual Report on Form 20-F, their date of appointment and, if applicable, re-election, their current positions and their present principal outside occupation and main employment history.

Name | Birth Year | Current Position | Date Nominated | Date Re-elected | Present Principal Outside Occupation and Employment History(*)
Carlos Torres Vila(1)(6) | 1966 | Group Executive Chairman | May 4, 2015 | March 15, 2019 | Chairman of the Board of Directors and Group Executive Chairman of BBVA since December 2018. Chairman of the Technology and Cybersecurity Committee. Director of BBVA Bancomer and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 until his appointment as Chairman. He started at BBVA in September 2008 holding senior management posts such as Head of Digital Banking from March 2014 to May 2015 and BBVA Strategy & Corporate Development Director from January 2009 to March 2014.
Onur Genç (1) | 1974 | Chief Executive Officer | December 20, 2018 | March 15, 2019 | Chief Executive Officer of BBVA and member of the Executive Committee since December 2018. Director of BBVA Compass Bancshares, BBVA Bancomer and BBVA Bancomer S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chairman and CEO of BBVA Compass and BBVA’s Country Manager in the USA from 2017 to December 2018. Deputy CEO at Garanti between 2015 and 2017 and Executive Vice President at Garanti between 2012 and 2015.
Tomás Alfaro Drake(4)(6) | 1951 | External Director | March 18, 2006 | March 17, 2017 | Director of Internal Development and Professor in the Finance department of Universidad Francisco de Vitoria.
José Miguel Andrés Torrecillas(2)(3)(5)(7) | 1955 | Independent Director | March 13, 2015 | March 16, 2018 | Chairman of the Audit and Compliance Committee and of the Appointments Committee. Director of Zardoya Otis. Chairman of Ernst & Young Spain from 2004 to 2014, where he was a partner since 1987 and also held a series of senior offices, including Director of the Banking Group from 1989 to 2004 and Managing Director of the Audit and Advisory practices at Ernst & Young Italy and Portugal from 2008 to 2013.

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Jaime Félix Caruana Lacorte(1)(5)(6) | 1952 | Independent Director | March 16, 2018 | Not applicable | General Director of the Bank of International Settlements (BIS) between 2009 and 2017. Between 2006 and 2009 he was Head of the Monetary, Capital Markets Department and Financial Counselor and General Manager at the International Monetary Fund (IMF), between 2003 and 2006 he was Chair of the Basel’s Banking Supervision Committee, between 2000 and 2006 he was Governor of the Bank of Spain, and between 1999 and 2000 he was General Manager of Banking Supervision at the Bank of Spain.
Belén Garijo López(2)(3)(4) | 1960 | Independent Director | March 16, 2012 | March 16, 2018 | Chair of the Remuneration Committee. Member of the Executive Board of Merck Group and CEO of Merck Healthcare, member of the Board of Directors of L’Oréal and Chair of the International Executive Committee of PhRMA, ISEC (Pharmaceutical Research and Manufacturers of America).
José Manuel González-Páramo Martínez-Murillo | 1958 | Executive Director | May 29, 2013 | March 17, 2017 | Executive Director of BBVA since May 2013. Chairman of European DataWarehouse GmbH. Head of BBVA’s Global Economics & Public Affairs Area. Member of the European Central Bank (ECB) Governing Council and Executive Committee from 2004 to 2012.
Sunir Kumar Kapoor(6) | 1963 | Independent Director | March 11, 2016 | March 15, 2019 | President and CEO of UBmatrix Inc from 2005 to 2011. Executive Vice President and CMO of Cassatt Corporation from 2004 to 2005. Oracle Corporation, Vice President Collaboration Suite from 2002 to 2004. Founder and CEO of Tsola Inc from 1999 to 2001. President and CEO of E-Stamp Corporation from 1996 to 1999. Vice President of Strategy, Marketing and Planning of Oracle Corporation from 1994 to 1996. Currently, he is an independent consultant to various leading companies in the technology sector, such as cloud infrastructures or data analysis.
Carlos Loring Martínez de Irujo(1)(4)(5) | 1947 | External Director | February 28, 2004 | March 17, 2017 | Partner of J&A Garrigues from 1977 to 2004, where he has also held a series of senior offices, including Director of M&A Department, Director of Banking and Capital Markets Department and member of its Management Committee.
Lourdes Máiz Carro(2)(3)(4) | 1959 | Independent Director | March 14, 2014 | March 17, 2017 | Secretary of the Board of Directors and Director of Legal Services at Iberia, Líneas Aéreas de España from 2001 until 2016. Joined the Spanish State Counsel Corps (Cuerpo de Abogados del Estado) and from 1992 until 1993 she was Deputy to the Director in the Ministry of Public Administration. From 1993 to 2001 held various senior positions in the Public Administration.

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José Maldonado Ramos(1)(3) | 1952 | External Director | January 28, 2000 | March 16, 2018 | Appointed Director and General Secretary of BBVA in January 2000. Took early retirement as Bank executive in December 2009.
Ana Cristina Peralta Moreno(2)(4) | 1961 | Independent Director | March 16, 2018 | Not applicable | Independent member of the Board of Directors of Grenergy Renovables. General Director of Risks and Member of the Management Committee of Banco Pastor, between 2008 and 2011. Before that, she held several positions at Bankinter, including Chief Risk Officer and was a member of the Management Committee between 2004 and 2008. She was also an independent member of the Board of Directors of Deutsche Bank SAE (2014-2018) and Banco Etcheverría (2013-2014).
Juan Pi Llorens(2)(5)(6) | 1950 | Independent Director | July 27, 2011 | March 16, 2018 | Chairman of the Risk Committee. Chairman of the Board of Directors of Ecolumber. Had a professional career at IBM holding various senior posts at a national and international level including Vice President for Sales at IBM Europe, Vice President of Technology & Systems Group at IBM Europe and Vice President of the Finance Services Sector at GMU (Growth Markets Units) in China. He was executive President of IBM Spain.
Susana Rodríguez Vidarte(1)(3)(5) | 1955 | External Director | May 28, 2002 | March 17, 2017 | Professor of Strategy at the Faculty of Economics and Business Sciences at Universidad de Deusto. Doctor in Economic and Business Sciences from Universidad de Deusto.
Jan Paul Marie Francis Verplancke(6) | 1963 | Independent Director | March 16, 2018 | Not applicable | Director, Chief Information Officer, Group Head of Technology and Banking Operations, of Standard Chartered Bank, between 2004 and 2015. Before that, he held several positions in multinational companies, such as Vice President of Technology and Chief Information Officer, in the EMEA region of Dell (1999-2004) and Vice President of Information of the Youth Category (USA) of Levi Strauss (1998-1999).

(*) Where no date is provided, the position is currently held.

(1) Member of the Executive Committee.

(2) Member of the Audit and Compliance Committee.

(3) Member of the Appointments Committee.

(4) Member of the Remuneration Committee.

(5) Member of the Risk Committee.

(6) Member of the Technology and Cybersecurity Committee.

(7) Lead Director.

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Senior Management

Our senior managers were each appointed for an indefinite term. Their positions as of the date of this Annual Report on Form 20-F are as follows:

Name | Current Position | Present Principal Outside Occupation and Employment History(*)
Carlos Torres Vila | Group Executive Chairman | Chairman of the Board of Directors and Group Executive Chairman of BBVA since December 2018. Chairman of the Technology and Cybersecurity Committee. Director of BBVA Bancomer and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 until his appointment as Chairman. He started at BBVA in September 2008 holding senior management posts such as Head of Digital Banking from March 2014 to May 2015 and BBVA Strategy & Corporate Development Director from January 2009 to March 2014.
Onur Genç | Chief Executive Officer | Chief Executive Officer of BBVA and member of the Executive Committee since December 2018. Director of BBVA Compass Bancshares, BBVA Bancomer and BBVA Bancomer S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chairman and CEO of BBVA Compass and BBVA’s Country Manager in the USA from 2017 to December 2018. Deputy CEO at Garanti between 2015 and 2017 and Executive Vice President at Garanti between 2012 and 2015.
José Manuel González-Páramo Martínez-Murillo | Head of Global Economics & Public Affairs | Executive Director of BBVA since May 2013. Chairman of European DataWarehouse GmbH. Head of BBVA’s Global Economics & Public Affairs Area. Member of the European Central Bank (ECB) Governing Council and Executive Committee from 2004 to 2012.
Eduardo Arbizu Lostao | Head of Regulation & Internal Control | Head of the Supervisors, Regulation & Compliance Area since December 2018, which in March 2019 integrated the non-financial risks and internal risk control areas, therefore changing its name to Regulation & Internal Control. Head of Legal & Compliance area of BBVA from 2002 to December 2018; Chief Executive Officer and Managing Director of Retail Operations in Continental Europe (France, Spain, Portugal, Italy and Greece) from 1997 to 2002 at Barclays.
Domingo Armengol Calvo | General Secretary | General Secretary of BBVA since 2009. Deputy Secretary of the Board from 2005 to 2009 and Head of the Institutional Legal Department of BBVA from 2000 to 2009.
María Jesús Arribas de Paz | Head of Legal | Head of Legal since December 2018. Director of BBVA OP3N. She held the position of Head of Corporate Legal Services between 2002 and 2018. Before that, she was head of Legal services and board secretary at Finanzia Banco de Crédito S.A. (1996-2002).
Carlos Casas Moreno | Head of Talent & Culture | Head of Talent & Culture since December 2018. He was Head of Compensation, Benefits & Key Roles from 2016 to December 2018, and was responsible for Organization Matters and Global Talent Management Policies in the Talent & Culture area between 2015 and 2016. He worked at McKinsey & Company between 2000 and 2010, where he was an Associated Partner prior to leaving.

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Victoria del Castillo Marchese | Head of Strategy & M&A | Head of Strategy & M&A since December 2018. Before that she held several relevant positions within the BBVA Group, such as Head of M&A for Europe and Turkey (2014 to December 2018), Director of Strategic Projects of the Finance Area (2009 to 2014) and Head of M&A for the USA (2006 to 2009).
Ricardo Forcano García | Head of Engineering & Organization | Head of Engineering & Organization since December 2018. Head of Talent & Culture from July 2016 to December 2018. Previously, he held other posts at BBVA such as Head of Business Development of Growth Markets from 2015 to 2016, Head of Strategy and Finance – Digital Banking from 2014 to 2015, Director of Corporate Strategy from 2012 to 2014 and Head of New Business Models from 2011 to 2012. Prior to joining BBVA he was Deputy Director of Corporate Strategy of Endesa from 2003 to 2007.
María Luisa Gómez Bravo | Head of Corporate & Investment Banking | Head of Corporate & Investment Banking since December 2018. She has held several relevant positions within the BBVA Group such as Head of Investment & Cost Management (between 2017 and December 2018), Head of Investors & Shareholders Relations (between 2014 and 2017), Head of Transformation & Operations at BBVA Spain and Portugal (between 2012 and 2014), and Head of Asset Management (between 2008 and 2012), among others.
Joaquín Manuel Gortari Díez | Head of Internal Audit | Head of Internal Audit since December 2018. Before that he held several relevant positions within the BBVA Group, such as Chief of Staff to the Chairman (from 2010 to 2018), CFO in the Area of Technology and Operations (from 2008 to 2010), CFO of BBVA in the USA (from 2004 to 2008) and Deputy CFO of BBVA (from 2003 to 2004).
Eduardo Osuna Osuna | Mexico Country Manager | Mexico Country Manager since May 2015 and General Manager of BBVA Bancomer. Previously he was Head of Government and Corporate Banking of BBVA Bancomer from 2012 to 2015 and Head of Commercial Banking of BBVA Bancomer from 2010 to 2012.
Cristina de Parias Halcón | Spain Country Manager | Spain Country Manager since May 2015. Director of BBVA Seguros, S.A. Compañía de Seguros y Reaseguros. Head of Spain and Portugal from 2014 to 2015 and Head of the Central Area in Spain from 2011 to 2014. She joined BBVA in 1998 and has held positions in digital business development, payment systems, Uno-e and consumer finance from 1998 to 2011.
David Puente Vicente | Head of Data | Head of Data since March 2017 and Director of BBVA Seguros, S.A., Compañía de Seguros y Reaseguros and of BBVA Data & Analytics. Previously, he was Head of Business Development Spain since May 2015. Previously, he held others posts at BBVA such as Head of CEO’s Office from 2009 to 2012 and Head of New Business Models from 2004 to 2006. He was Senior Associate at Mckinsey & Company from 2002 to 2004.

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Jaime Sáenz de Tejada Pulido | Chief Financial Officer | Head of the Finance & Accounting Area since December 2018. Director of Garanti. Head of Finance from May 2015 to December 2018. Head of Strategy and Finance from 2014 to 2015 and Head of Spain and Portugal from 2012 to 2014. Business Development Manager of Spain and Portugal at BBVA from 2011 to 2012. Central Area Manager of Madrid and Castilla La Mancha from 2007 to 2010.
Jorge Sáenz-Azcúnaga Carranza | Head of Country Monitoring | Head of Country Monitoring since July 2016. Director of BBVA Bancomer, S.A., Institución de Banca Múltiple, of BBVA Bancomer and of BBVA Compass Bancshares, and Vice President of Garanti. He joined BBVA in 1993 and he has held various senior posts such as Country Networks - Head of Business Monitoring Spain, USA and Turkey from 2015 to 2016, Head of Strategy and Planning, Spain & Portugal from 2008 to 2013 and Head of CEO Office from 2002 to 2005.
Rafael Salinas Martínez de Lecea | Head of Global Risk Management | Head of Global Risk Management since May 2015 and Director of Garanti. Prior to this post, he was Head of Risk and Portfolio Management from 2006 to 2015 and CFO of Banco de Crédito Local de España from 2003 to 2005.
Derek Jensen White | Head of Client Solutions | Head of Client Solutions since 2016. Director of 4D Internet Solutions and of Dallas Creation Center. Prior to joining BBVA he held various senior posts at Barclays such as Chief Design & Digital Officer from 2013 to 2016 and Chief Customer Experience Officer, Global Retail & Business Banking from 2011 to 2013.

(*) Where no date is provided, positions are currently held.

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B. Compensation

The provisions of BBVA’s Bylaws that relate to compensation of directors are in accordance with the relevant provisions of Spanish law. Furthermore, BBVA has a remuneration policy for BBVA directors (the “Directors’ Remuneration Policy”), which is aligned with the specific regulations applicable to credit institutions and best market practices.

Directors’ Remuneration Policy

The Directors’ Remuneration Policy for 2017, 2018 and 2019 was approved by the general shareholders’ meeting held on March 17, 2017, by a majority of 96.54%. This policy is available at our website (www.bbva.com).

BBVA has defined its Directors’ Remuneration Policy on the basis of the general principles of the Group’s remuneration policy, taking into consideration compliance with legal requirements applicable to credit institutions and those applicable in the different sectors in which it operates, as well as alignment with best market practices, while including items devised to reduce exposure to excessive risks and to adjust remuneration to the targets, values and long-term interests of the Group.

On the basis of the principles of the Group’s remuneration policy, and pursuant to the statutory requirements established by applicable regulations, BBVA has devised a specific incentives system for staff whose professional activities have a significant impact on the Group’s risk profile (the “Identified Staff”), which includes BBVA executive directors and BBVA Senior Management, that is aligned with the regulations and recommendations applicable to the remuneration schemes of this staff. The result is a remuneration scheme based, inter alia, on the following basic characteristics applicable to executive directors and Senior Management:

· Adequate balance between the fixed and variable components of total remuneration, in line with applicable regulations, designed to provide flexibility with regard to payment and amounts of the variable components, allowing for such components to be reduced, in part or in full, where appropriate. The proportion between the two components is established in accordance with the type of functions carried out by each beneficiary.

· The variable remuneration shall be based on effective risk management and linked to the level of achievement of financial and non-financial targets previously established and defined at the Group, area and individual level, that take into account present and future risks assumed and the Group’s long-term interests.

· The variable remuneration for each year will not accrue, or will accrue in a reduced amount, should a certain level of profit and capital ratio not be achieved, and it shall be subject to ex ante adjustments, so that it shall be reduced at the time of the performance assessment in the event of a downturn in the Group’s results or other parameters such as the level of achievement of budgeted targets.

· The annual variable remuneration shall be calculated on the basis of: (i) annual performance indicators (financial and non-financial); (ii) scales of achievement, as per the weightings allocated to each indicator; and (iii) a target annual variable remuneration, representing the amount of annual variable remuneration if 100% of the pre-established targets are met. The resulting amount shall constitute the annual variable remuneration of each beneficiary.

· The annual variable remuneration shall be subject to a specific settlement and payment system, which includes the following rules as regards executive directors:

- 60% of the annual variable remuneration shall be deferred over a period of five years.

- The upfront portion of the annual variable remuneration shall be paid 50% in cash and 50% in BBVA shares, whereas the deferred portion shall be paid 60% in BBVA shares and 40% in cash.

- Shares vested as annual variable remuneration shall be withheld for a one-year lock-up period after delivery, except for the transfer of those shares required to honor the payment of taxes.

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- The deferred component of annual variable remuneration may be reduced, in part or in full, but never increased, based on the result of multi-year performance indicators aligned with the Group’s core risk management and control metrics, related to the solvency, capital, liquidity, funding or profitability, or to the share performance and recurring results of the Group, measured over a period of three years.

- The deferred component of annual variable remuneration, subject to the multi-year performance indicators, shall be delivered, if conditions are met, under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and 20% after the fifth year of deferral.

- Resulting cash portions of the deferred annual variable remuneration to be vested, after assessment of multi-year performance indicators, shall be updated according to the criteria established by the Board of Directors.

- No personal hedging strategies or insurance may be used in connection with remuneration or liability that may undermine the effects of alignment with sound risk management.

- The variable component of remuneration for a year shall be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the general shareholders’ meeting resolves to increase this percentage up to a maximum of 200%.

- The entire annual variable remuneration shall be subject to “malus” and “clawback” arrangements during the whole deferral and lock-up period, in the same terms as for the rest of the Identified Staff, as follows:

Up to 100% of the annual variable remuneration of each executive director corresponding to each year shall be subject to “malus” and “clawback” arrangements, both linked to a downturn in financial performance of the Bank as a whole, or of a specific unit or area, or of exposures generated by such executive director, when such downturn in financial performance arises from any of the following circumstances:

a) misconduct, fraud or serious infringement of the Code of Conduct and other applicable internal rules by such executive director;

b) regulatory sanctions or judicial convictions due to events that could be attributed to such executive director;

c) significant failure of risk management committed by the Bank or by a business or risk control unit, to which the willful misconduct or gross negligence of such executive director contributed; or

d) restatement of the Bank’s annual accounts, except where such restatement is due to a change in applicable accounting legislation.

For these purposes, the Bank will compare the performance assessment carried out for the relevant executive director with the ex post evolution of some of the criteria that contributed to achieve the targets. Both “malus” and “clawback” will apply to the annual variable remuneration of the year in which the event giving rise to application of the “malus” and/or “clawback” arrangements occurred, and they may be applied during the entire deferral and lock-up period applicable to the annual variable remuneration.

Notwithstanding the foregoing, in the event that these scenarios give rise to a dismissal or termination of contract of the executive director due to serious and guilty breach of duties, malus arrangements may apply to the entire deferred annual variable remuneration pending payment at the date of the dismissal or termination of contract, in light of the extent of the damage caused.

In any case, the variable remuneration will be paid or vest only if it is sustainable considering the situation of the BBVA Group as a whole, and if justified on the basis of the Bank’s results, the business unit and of the executive director concerned.

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Additionally, upon vesting of the shares, executive directors will not be allowed to transfer a number of shares equivalent to twice their annual fixed remuneration for at least three years after their delivery.

As regards non-executive directors, their remuneration system, in accordance with the Bank’s Bylaws and Directors’ Remuneration Policy, is based on the criteria of responsibility, dedication and incompatibilities inherent to their role, and consists entirely of fixed remuneration.

During 2019, following a proposal of the Remuneration Committee, the Board of Directors decided to submit to the general shareholders’ meeting an update of the Remuneration Policy for BBVA Directors approved in 2017, which will be applicable for 2019, 2020 and 2021. The new Remuneration Policy maintains the same remuneration scheme as established in the policy approved in 2017 (which has been explained above) and introduces certain adjustments in the contractual conditions of the new Group Executive Chairman and Chief Executive Officer (CEO) as a result of their new roles and functions, as well as some technical improvements. This update is aimed at providing shareholders and the market with the utmost transparency and clarity about the Bank’s remuneration scheme for directors. This Directors’ Remuneration Policy was approved by the general shareholders’ meeting held on March 15, 2019, by a majority of 95.03%. This policy is available at our website (www.bbva.com).

Remuneration for non-executive directors received in 2018

Remuneration paid to the non-executive members of the Board of Directors during 2018 is indicated below, individually and itemized for each non-executive director. The table shows the non-executive members of the Board of Directors as of December 31, 2018.

| Board of Directors | Executive Committee | Audit and Compliance Committee | Risk Committee | Remuneration Committee | Appointments Committee | Technology and Cybersecurity Committee | Total
Tomás Alfaro Drake | 129 | - | 18 | - | 43 | 25 | 43 | 258
José Miguel Andrés Torrecillas | 129 | - | 179 | 107 | - | 71 | - | 485
Jaime Félix Caruana Lacorte (1) | 75 | 83 | - | 53 | - | - | 25 | 237
Belén Garijo López | 129 | - | 71 | - | 107 | 20 | - | 328
Sunir Kumar Kapoor | 129 | - | - | - | - | - | 43 | 172
Carlos Loring Martínez de Irujo | 129 | 167 | - | 107 | 43 | - | - | 445
Lourdes Máiz Carro | 129 | - | 71 | - | 43 | 41 | - | 284
José Maldonado Ramos | 129 | 167 | - | 53 | - | 41 | - | 390
Ana Peralta Moreno (1) | 86 | - | 36 | - | 21 | - | - | 143
Juan Pi Llorens | 129 | - | 71 | 214 | - | - | 43 | 457
Susana Rodríguez Vidarte | 129 | 167 | - | 107 | - | 41 | - | 443
Jan Verplancke (1) | 107 | - | - | - | - | - | - | 132
Total (2) | 1,427 | 584 | 446 | 642 | 257 | 239 | 179 | 3,773

(1) Directors appointed by the general shareholders’ meeting held on March 16, 2018. This includes remuneration paid for membership on Board Committees in 2018. The composition of these Committees was modified on June 27, 2018. Remuneration was paid in accordance with the date of acceptance of the relevant appointment.

(2) In addition, José Antonio Fernández Rivero, who stepped down as director on March 16, 2018, received a total of €95 thousand in 2018, for his membership on the Board and Board Committees.

Also, during 2018, €107 thousand was paid in healthcare and casualty insurance premiums for non-executive members of the Board of Directors.

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Remuneration for executive directors received in 2018

During 2018, the executive directors received the amount of the annual fixed remuneration corresponding to that year, established in the Directors’ Remuneration Policy applicable in 2018, which was approved by the general shareholders’ meeting held on March 17, 2017.

In addition, the executive directors received the annual variable remuneration corresponding to 2017 which payment vested during the first quarter of 2018, in accordance with the settlement and payment system established in said Directors’ Remuneration Policy.

In accordance with that settlement and payment system:

· 40% of the 2017 annual variable remuneration for executive directors was paid in 2018, with the applicable conditions having been met (hereinafter, the “Upfront Portion”), 50% in cash and 50% in shares.

· The remaining 60% of the annual variable remuneration, both in cash and in shares, has been deferred in its entirety for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators (hereinafter, the “Deferred Portion”). The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion, even in its entirety, but in no event will the Deferred Portion be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid (40% in cash and 60% in shares), according to the following schedule: 60% in 2021, 20% in 2022 and the remaining 20% in 2023.

· All of the shares delivered to the executive directors as annual variable remuneration, including both the Upfront Portion and the Deferred Portion, will be withheld for a period of one year after delivery, except for shares transferred to honor the payment of taxes accruing on the shares received.

· The Deferred Portion of the annual variable remuneration in cash will be subject to updating under the terms established by the Board of Directors.

· Executive directors may not use personal hedging strategies or insurance in connection with their remuneration and/or responsibility if such personal hedging strategies or insurance may undermine their incentives to align with prudent risk management.

· The variable component of the remuneration for executive directors corresponding to 2017 is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the general shareholders’ meeting.

· Over the entire deferral and withholding period, the entire annual variable remuneration for the executive directors will be subject to reduction and recovery (“malus” and “clawback”) arrangements.

Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number of shares equivalent to twice their annual fixed remuneration for at least three years after their delivery.

Similarly, in application of the settlement and payment system applicable to the annual variable remuneration for 2014, pursuant to the remuneration policy applicable at that time, the executive directors received in 2018 the last third of the deferred annual variable remuneration for 2014, thus concluding payment of the deferred variable remuneration for 2014.

In accordance with the above, the remunerations paid to executive directors during 2018 are indicated below, individually and itemized:

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Annual fixed remuneration (thousands of euro), received in 2018
Carlos Torres Vila | 1,965
José Manuel González-Páramo Martínez-Murillo | 834
Total | 2,799

Variable remuneration for 2017, received in 2018
| In cash (1) (thousands of euros) | In shares (1)
Carlos Torres Vila | 562 | 77,493
José Manuel González-Páramo Martínez-Murillo | 87 | 12,029
Total | 649 | 89,522

(1) Remuneration corresponding to the Upfront Portion (40%) of the annual variable remuneration for 2017, 50% in cash and 50% in shares.

Deferred variable remuneration for 2014, received in 2018
| In cash (1) (thousands of euro) | In shares (1)
Carlos Torres Vila | 105 | 11,766
José Manuel González-Páramo Martínez-Murillo | 33 | 3,678
Total | 137 | 15,444

(1) Remuneration corresponding to the last third of the Deferred Portion of the annual variable remuneration for 2014, 50% in cash and 50% in shares, along with its update in cash.

During 2018, the executive directors also received remuneration in kind, including insurance premiums and others, amounting to a total of €236 thousand, of which €154 thousand related to payments on behalf of Carlos Torres Vila and €82 thousand of which related to payments on behalf of José Manuel González-Páramo Martínez-Murillo.

Former Group Executive Chairman, Francisco González Rodríguez, who stepped down from this position on December 21, 2018, received in 2018: €2,475 thousand as annual fixed remuneration; €660 thousand and 90,933 BBVA shares corresponding to the Upfront Portion (40%) of the annual variable remuneration for 2017; and €332 thousand and 37,390 BBVA shares as settlement of the last third of the Deferred Portion of variable remuneration for 2014, including the corresponding update; as well as €20 thousand in remuneration in kind.

CEO Onur Genç, who was appointed by BBVA’s Board of Directors on December 20, 2018, did not receive any remuneration for his current role in 2018, having received fixed and variable remuneration in accordance with his previous position as President and CEO of BBVA Compass. This remuneration is subject to the settlement and payment system applicable to his former position. Thus, over the course of 2018, he received €2,240 thousand as annual fixed remuneration; €191 thousand and 26,531 BBVA ADSs corresponding to the Upfront Portion (40%) of the annual variable remuneration for 2017; and €376 thousand as remuneration in kind, which includes certain benefits for his expatriate status in the United States. In each case, cash remuneration was paid in U.S. dollars.

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Annual variable remuneration for executive directors for 2018

Following year-end, the annual variable remuneration for executive directors for 2018 was determined, applying the conditions established at the beginning of the year, as set forth in the Directors’ Remuneration Policy approved by the general shareholders’ meeting on March 17, 2017. This remuneration has the following settlement and payment schedule:

· The Upfront Portion (40%) of the annual variable remuneration of the executive directors for 2018 is to be paid, if conditions are met, in equal parts in cash and shares. These amounts to €479 thousand and 100,436 BBVA shares in the case of Carlos Torres Vila; and €79 thousand and 16,641 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo.

· The Deferred Portion (60%) is deferred for a five-year period, subject to compliance with the multi-year performance indicators determined by the Board of Directors at the start of 2018, calculated over the first three-year deferral period. Provided that the relevant conditions are met, the resulting amount will vest (40% in cash and 60% in shares), under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and the remaining 20% after the fifth year of deferral. In accordance with the aforementioned, the maximum amount corresponding to the total deferred component that could be received by executive directors is as follows: €574 thousand and 180,785 BBVA shares in the case of Carlos Torres Vila and €95 thousand and 29,954 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo. All the above is subject to the settlement and payment system conditions set out in the Directors’ Remuneration Policy, which includes “malus” and “clawback” arrangements and lock-up periods for the shares.

As regards former Group Executive Chairman, Francisco González Rodríguez, his annual variable remuneration for 2018 was determined. This annual variable remuneration for 2018 is to be paid, if applicable conditions are met, in accordance with the settlement and payment system applicable to executive directors which includes deferral rules, “malus” and “clawback” arrangements and lock-up periods for the shares. Thus, the Upfront Portion (40%) was determined to amount to €528 thousand and 110,814 BBVA shares. Accrual and payment of the Deferred Portion (60%), 40% in cash and 60% in shares, will be subject to compliance with multi-year performance indicators approved by the Board of Directors. In accordance with the aforementioned, the maximum amount corresponding to the total deferred component that could be received by Francisco González Rodríguez is €634 thousand and 199,468 BBVA shares.

As regards CEO Onur Genç and as aforementioned, his annual variable remuneration for 2018 is linked to his previous position as President and CEO of BBVA Compass and has been determined in accordance with the settlement and payment system applicable for such position. Thus, if applicable conditions are met, 40% of the annual variable remuneration for 2018 is to be paid, amounting to a total of €196 thousand (to be paid in U.S. dollars) and 41,267 BBVA shares. Accrual and payment of the remaining 60% of the annual variable remuneration for 2018, 50% in cash and 50% in shares, will be deferred for a three-year period and will be subject to compliance with multi-year performance indicators set by the Board of Directors for the whole Identified Staff at the beginning of 2018 and measured over the course of the three-year period.

Deferred annual variable remuneration of executive directors for 2015

Following year-end, the deferred annual variable remuneration of executive directors for 2015 was determined, with delivery to occur, if applicable conditions are met, subject to the conditions established for this purpose in the Remuneration Policy for BBVA Directors approved by the general shareholders’ meeting on March 13, 2015.

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Thus, based on the result of each of the multi-year performance indicators set by the Board in 2015 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings likewise approved by the Board, the deferred portion of the annual variable remuneration for 2015 was adjusted downwards in light of the result of the total shareholder return (TSR) indicator, which scale led to a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the annual variable remuneration for 2015, after the corresponding adjustment in light of the result of the TSR indicator, was determined in an amount of €612 thousand and 79,157 BBVA shares, in the case of Carlos Torres Vila, and €113 thousand and 14,667 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo, which includes the corresponding update.

As regards the former Group Executive Chairman, Francisco González Rodríguez, his deferred annual variable remuneration for 2015 was determined to amount to a total of €1,035 thousand and 133,947 BBVA shares, which includes the corresponding update, to be received, if applicable conditions are met, in accordance with the settlement and payment system applicable to executive directors.

Last, in accordance with the conditions established in the remuneration policies applicable to the corresponding years, 50% and 60% of the annual variable remuneration of the executive directors for 2016 and 2017, respectively, was deferred, to be received in future years, if applicable conditions are met.

The remaining rules applicable to the settlement and payment of 2018 annual variable remuneration have been detailed under the subheading “—Directors’ Remuneration Policy” above.

Remuneration for Senior Management received in 2018

The members of Senior Management, excluding executive directors, who held their positions when the Bank approved organizational changes on December 20, 2018 (15 members) have, over the course of 2018, received the amount of the fixed remuneration for 2018 and the annual variable remuneration for 2017, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to Senior Management in 2017, was paid during the first quarter of 2018.

In application of this settlement and payment system:

· The Upfront Portion (40%) of the annual variable remuneration due to members of the Senior Management for 2017 was paid, as the conditions had been met, in the first quarter of 2018, 50% in cash and 50% in shares.

· The Deferred Portion (60%) of the annual variable remuneration, in both cash and shares, has been deferred in its entirety for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators. The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion, even in its entirety, but in no event may the Deferred Portion be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid (40% in cash and 60% in shares), according to the following payment schedule: 60% in 2021, 20% in 2022 and the remaining 20% in 2023.

· The shares received as annual variable remuneration will be withheld for a period of one year after their delivery, with the exception of those transferred to honor the payment of taxes arising from their delivery.

· The deferred portion of the annual variable remuneration in cash will be subject to updating under the terms established by the Board of Directors.

· No personal hedging strategies or insurance may be used in connection with the remuneration and/or responsibility if such personal hedging strategies or insurance may undermine the relevant person’s incentives to align with prudent risk management.

· The variable component of the remuneration corresponding to 2017 will be limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the general shareholders’ meeting.

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· Over the entire deferral and withholding period, the total annual variable remuneration will be subject to variable “malus” and “clawback” arrangements.

Similarly, in application of the settlement and payment system of the annual variable remuneration for 2014, pursuant to the remuneration policy applicable at that time, the Senior Management who were beneficiaries of such remuneration, have received the last third of the deferred annual variable remuneration for that year, which delivery occurred in the first quarter of 2018, thus concluding payment of the deferred variable remuneration for 2014.

In accordance with the above, the remuneration paid to members of the Senior Management as a whole, who held that position as at December 20, 2018, excluding executive directors, during 2018 is indicated below and itemized:

Annual fixed remuneration (thousands of euro) received in 2018
Senior Management total | 16,129

Annual variable remuneration for 2017, received in 2018
| In cash (thousands of euro) | In shares
Senior Management total | 1,489 | 205,104

Deferred variable remuneration for 2014, received in 2018
| In cash (thousands of euro) | In shares
Senior Management total | 573 | 64,853

In addition, during 2018, all members of Senior Management who held that position as at December 20, 2018, excluding executive directors, received remuneration in kind, including insurance premiums and others, amounting to an aggregate of €875 thousand.

In accordance with the conditions established in the remuneration policies applicable to the corresponding year, components of the annual variable remuneration of members of the Senior Management who are entitled to remuneration in connection with 2016 and 2017, were deferred at year-end, to be received in future years, if applicable conditions are met.

The members of the Senior Management who were appointed by BBVA’s Board of Directors on December 20, 2018 (five members) have not received any remuneration in 2018 for their current roles, having received fixed and variable remuneration for their former roles amounting to an aggregate of €1,757 thousand as annual fixed remuneration; €337 thousand and 24,293 BBVA shares for the Upfront Portion of the annual variable remuneration for 2017; and €33 thousand and 3,684 BBVA shares for the deferred last third of the annual variable remuneration for 2014 corresponding to the members of the Senior Management who were beneficiaries of such remuneration, including the corresponding update, as well as remuneration in kind and others for an amount of €158 thousand, all in application of the remuneration policy to which they were entitled in their condition as members of the Identified Staff.

Annual variable remuneration for Senior Management for 2018

Following year-end, the annual variable remuneration for 2018 of Senior Management, excluding executive directors, who held that position as at December 20, 2018 (15 members), was determined.

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The 2018 annual variable remuneration to all of the Senior Management, excluding executive directors, was determined to total €7,074 thousand, in application of the settlement and payment system for this group. The Upfront Portion (40%) of the annual variable remuneration is to be paid, in 50% cash and 50% shares, if applicable conditions are met. The Deferred Portion (60%) of the annual variable remuneration (40% in cash and 60% in shares) will be subject to compliance with a series of multi-year indicators and to the rest of the settlement and payment system conditions set out in the remuneration policy applicable to Senior Management, which includes “malus” and “clawback” arrangements and lock-up periods for the shares.

As regards those members of the Senior Management who were appointed by resolution of BBVA’s Board of Directors on December 20, 2018 (five members), their annual variable remuneration for 2018 was calculated in line with their former roles, amounting to an aggregate of €633 thousand, being subject to the conditions set out in the remuneration policy to which they were entitled in their condition as members of the Identified Staff.

Deferred annual variable remuneration of Senior Management for 2015

Following year-end, the deferred annual variable remuneration for 2015 of Senior Management, excluding executive directors, who held that position as at December 20, 2018 (15 members), was determined.

Based on the result of each of the multi-year performance indicators set by the Board in 2015 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the annual variable remuneration for 2015 was adjusted downwards in light of the TSR indicator, which scale led to a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the annual variable remuneration for 2015 to be paid to Senior Management beneficiaries of such remuneration, if applicable conditions are met, after the corresponding adjustment in light of the result of the TSR indicator, has been determined in an amount of €2,936 thousand and 382,407 BBVA shares, which includes the corresponding update.

As regards those members of the Senior Management who were appointed by resolution of BBVA’s Board of Directors on December 20, 2018 (five members) who were entitled to such deferred remuneration, their annual variable remuneration for 2015 was calculated in line with their former positions and functions, amounting to an aggregate of €110 thousand and 14,203 BBVA shares, which includes the corresponding update, all in application of the remuneration policy to which they were entitled in their condition as members of the Identified Staff.

Remuneration system in shares with deferred delivery for non-executive directors

BBVA has a remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the general shareholders’ meeting held on March 18, 2006 and extended by resolutions of the general shareholders’ meetings held on March 11, 2011 and on March 11, 2016, respectively, for a further five-year period in each case.

This system is based on the annual allocation to non-executive directors of a number of “theoretical shares”, equivalent to 20% of the total remuneration in cash received by each director in the previous year, calculated according to the average closing prices of BBVA shares during the sixty trading sessions prior to the annual general shareholders’ meetings approving the corresponding financial statements for each year.

These shares will vest, where applicable, to each beneficiary after they leave directorship for any reason other than serious breach of their duties.

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The number of “theoretical shares” allocated in 2018 to each non-executive director beneficiary of the remuneration system in shares with deferred delivery, corresponding to 20% of the total remuneration received in cash by said directors in 2017, was as follows:

| Theoretical shares allocated in 2018 | Theoretical shares accumulated as of December 31, 2018
Tomás Alfaro Drake | 10,367 | 83,449
José Miguel Andrés Torrecillas | 12,755 | 36,565
Belén Garijo López | 7,865 | 34,641
Sunir Kumar Kapoor | 4,811 | 8,976
Carlos Loring Martínez de Irujo | 11,985 | 98,876
Lourdes Máiz Carro | 7,454 | 23,160
José Maldonado Ramos | 11,176 | 78,995
Juan Pi Llorens | 11,562 | 54,171
Susana Rodríguez Vidarte | 12,425 | 104,983
Total (1) | 90,400 | 523,816

(1) In addition, in 2018, 10,188 “theoretical shares” were allocated to José Antonio Fernández Rivero, who ceased as a director on March 16, 2018.

Pension commitments

At year-end, the Bank has undertaken pension commitments in favor of executive directors Carlos Torres Vila and José Manuel González-Páramo Martínez-Murillo to cover contingencies for retirement, disability and death, in accordance with the Bylaws, the Remuneration Policy for BBVA Directors and their respective contracts entered into with the Bank.

With regard to Carlos Torres Vila, the Directors’ Remuneration Policy provides for a benefits framework according to which he is entitled, provided that he does not leave his position due to serious breach of duties, to receive a retirement pension when he reaches the legally established retirement age, as a lump sum or as income. The amount of this pension shall result from the funds accumulated by the Bank up to December 2016 to cover the commitments under his previous benefits scheme and the sum of the annual contributions made by the Bank from January 1, 2017 to cover said pension, as well as the corresponding accumulated yields.

The amount set out in the Directors’ Remuneration Policy as the annual contribution to cover retirement benefit under the defined-contribution scheme for Carlos Torres Vila is €1,642 thousand.

Of the agreed annual contribution, 15% will be based on variable components and considered “discretionary pension benefits” subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the Directors’ Remuneration Policy.

Should the contractual relationship be terminated before he reaches the retirement age for reasons other than serious breach of duties, the retirement benefit due to Carlos Torres Vila when he reaches the legally established retirement age will be calculated based on the total contributions made by the Bank under the terms set out, up to that date, plus the corresponding accumulated yield, with no additional contributions to be made by the Bank from the time of termination.

With respect to the commitments to cover the contingencies for death and disability for Carlos Torres Vila, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up coverage for the death and disability contingencies included in his benefits scheme.

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During 2018, in line with the foregoing, €1,896 thousand was recorded to meet the benefits commitments for Carlos Torres Vila, amount which includes the contribution relating to retirement (€1,642 thousand) and to death and disability (€212 thousand), as well as €42 thousand corresponding to the adjustments made to the amount of “discretionary pension benefits” for 2017, as declared at 2017 year-end and which had to be registered in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with Carlos Torres Vila amounted to €18,581 thousand as at December 31, 2018.

Of the agreed annual contribution to his retirement, 15% (€246 thousand) was registered in 2018 as “discretionary pension benefits”. Following year-end, this amount was adjusted according to the criteria established to determine Carlos Torres Vila’s annual variable remuneration for 2018. Accordingly, the “discretionary pension benefits” for 2018 amounted to €245 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Portion of his annual variable remuneration for 2018, as well as the remaining conditions established for these benefits in the Directors’ Remuneration Policy.

In the case of José Manuel González-Páramo Martínez-Murillo, the pension scheme provided for in the Directors’ Remuneration Policy establishes an annual contribution of 30% of his annual fixed remuneration, to cover the contingency of his retirement, as well as the payment of the corresponding insurance premiums in order to top up the coverage of the death and disability contingencies.

Of the aforementioned agreed annual contribution, 15% will be based on variable components and be considered “discretionary pension benefits”, therefore subject to the conditions of delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions of variable remuneration that may be applicable in accordance with the Directors’ Remuneration Policy.

José Manuel González-Páramo Martínez-Murillo, upon reaching retirement age, will be entitled to receive, as a lump sum or as income, the benefits arising from contributions made by the Bank to cover pension commitments, plus the corresponding yield accumulated up to that date, provided he does not leave his position due to serious breach of duties. In the event that he voluntarily terminates his employment relationship with the Bank before retirement, the benefits will be limited to 50% of the contributions made by the Bank up to that date, as well as the corresponding accumulated yield, with no additional contributions to be made by the Bank upon termination.

With respect to the commitments to cover the contingencies for death and disability for José Manuel González-Páramo Martínez-Murillo, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage for the death and disability contingencies of his pension system.

In line with the above, during 2018, €405 thousand was recorded to meet the benefits commitments for José Manuel González-Páramo Martínez-Murillo, which amount includes both the contribution relating to retirement (€250 thousand) and death and disability (€147 thousand), as well as €8 thousand corresponding to the adjustments made to the amount of “discretionary pension benefits” for 2017, as declared at 2017 year-end and which had to be registered in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with José Manuel González-Páramo amounted to €1,067 thousand as at December 31, 2018.

Of the agreed annual contribution to retirement, 15% (€38 thousand) was registered in 2018 as “discretionary pension benefits”. Following year-end, this amount was adjusted according to the criteria established to determine José Manuel González-Páramo Martínez-Murillo’s annual variable remuneration for 2018. Accordingly, the “discretionary pension benefits” for the year amounted to €42 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Portion of his annual variable remuneration for 2018, as well as the remaining conditions established for these benefits in the Directors’ Remuneration Policy.

As of December 31, 2018 there were no other pension commitments undertaken in favor of other executive directors.

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During 2018, €4,754 thousand was recorded to meet the benefits commitments undertaken with members of the Senior Management, excluding executive directors, who held their positions as at December 20, 2018 (15 members), which amount includes the contribution relating to retirement (€3,883 thousand) and to death and disability (€831 thousand), as well as €40 thousand corresponding to the adjustments made to the amount of “discretionary pension benefits” for 2017, as declared at 2017 year-end and which had to be registered in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with Senior Management amounted to €57,429 thousand as at December 31, 2018.

Of the agreed annual contributions for members of Senior Management who held that position as at December 20, 2018, 15% will be based on variable components and considered “discretionary pension benefits”, therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the remuneration policy applicable to members of Senior Management.

Of the agreed annual contribution to retirement, an amount of €571 thousand was registered in 2018 as “discretionary pension benefits”. Following year-end, this amount was adjusted according to the criteria established to determine the annual variable remuneration of the Senior Management for 2018. Accordingly, the “discretionary pension benefits” for the year, corresponding to members of the Senior Management who held that position as at December 20, 2018, amounted to €555 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Portion of the annual variable remuneration for 2018, as well as the remaining conditions established for these benefits in the remuneration policy applicable to members of the Senior Management.

During 2018, €146 thousand was recorded to meet the benefits commitments undertaken with the members of the Senior Management, excluding executive directors, who were appointed by BBVA’s Board of Directors on December 20, 2018 (five members), pursuant to the commitments made by the Bank with each of them in relation to their previous positions and functions, with such amount including both the contribution to retirement (€97 thousand) as well as to death and disability (€49 thousand), with the fund accumulated to meet retirement commitments for this group amounting to a total of €1,713 thousand.

Extinction of contractual relationship

In accordance with the Directors’ Remuneration Policy, the Bank has no commitments to pay severance indemnity to any executive directors.

The contractual framework defined in the Directors’ Remuneration Policy for Carlos Torres Vila and for the executive director José Manuel González-Páramo Martínez-Murillo, includes a post-contractual non-compete agreement for a period of two years after they cease as BBVA executive directors, in accordance with which they will receive remuneration from the Bank for an amount equivalent to one annual fixed remuneration for each year of duration of the non-compete arrangement, which shall be paid periodically over the course of the two years, provided that they leave their positions as executive directors for reasons other than retirement, disability or serious breach of duties.

## C. Board Practices

Committees

Our corporate governance system is based on the distribution of functions between the Board, the Executive Committee and the following other specialized Board Committees: the Audit and Compliance Committee; the Appointments Committee; the Remuneration Committee; the Risk Committee; and the Technology and Cybersecurity Committee.

Additional information on our Board Committees, including their current composition, is provided below.

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Executive Committee

Our Board of Directors is assisted in fulfilling its responsibilities by the Executive Committee (Comisión Delegada Permanente) of the Board of Directors.

As of the date of this Annual Report, BBVA’s Executive Committee is comprised of two executive directors and four non-executive directors, who are the following:

Position | Name
Chairman | Mr. Carlos Torres Vila
Members | Mr. Onur Genç Mr. Jaime Félix Caruana Lacorte Mr. Carlos Loring Martínez de Irujo Mr. José Maldonado Ramos Mrs. Susana Rodríguez Vidarte

According to our Board Regulations, the Executive Committee will be apprised of such business as the Board of Directors resolves to confer on it, in accordance with prevailing legislation, our Bylaws or our Board Regulations.

The Executive Committee shall meet on the dates indicated in the annual calendar of scheduled meetings and when the chairman or acting chairman so decides. During 2018, the Executive Committee met nineteen (19) times.

Audit and Compliance Committee

The Audit and Compliance Committee shall perform the duties required under applicable laws, regulations and our Bylaws. Essentially, its mission is to assist the Board in overseeing the financial information and the exercise of the Group control duties.

The Board Regulations establish that the Audit and Compliance Committee shall have a minimum of four members, one of which shall be appointed by the Board taking into account his/her knowledge and background in accounting, auditing or both. In accordance with the Board Regulation, they shall all be independent directors, one of whom shall act as Chairman, also appointed by the Board. See “Item 16.A. Audit Committee Financial Expert”.

As of the date of this Annual Report, the Audit and Compliance Committee is comprised of five independent directors, who are the following:

Position | Name
Chairman | Mr. José Miguel Andrés Torrecillas
Members | Mrs. Belén Garijo López Mrs. Lourdes Máiz Carro Mrs. Ana Cristina Peralta Moreno Mr. Juan Pi Llorens

Under the Board Regulations and the charter of the Audit and Compliance Committee, the scope of its functions is as follows (for purposes of the below, “entity” refers to BBVA):

· report to the general shareholders’ meeting on questions raised with respect to those matters falling within the Committee’s competence and, in particular, on the result of the audit explaining how it has contributed to the completeness of the financial information and the function performed by the Committee in this process;

· oversee the efficacy of the internal control of the Company, the internal audit and the risk-management systems in the process of drawing up and reporting the regulatory financial information, including tax risks. Also to discuss with the financial auditor any significant weaknesses in the internal control system detected when the audit is conducted without undermining its independence. For such purposes, and where appropriate, the Committee may submit recommendations or proposals to the Board of Directors, and the corresponding period for monitoring;

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· oversee the process of drawing up and reporting financial information and submit recommendations or proposals to the Board of Directors aimed at safeguarding its completeness;

· submit to the Board of Directors proposals on the selection, appointment, re-election and replacement of the external auditor, taking responsibility for the selection process in accordance with applicable regulations, as well as their contractual conditions, and regularly collect information from the external auditor regarding the audit plan and its implementation, as well as preserving the auditor’s independence in the performance of their duties;

· establish correct relations with the external auditor in order to receive information on any matters that may jeopardize their independence, for examination by the Committee, and any others relating to the process of the financial auditing; as well as those other communications provided for by law and by the auditing regulations. Each year it must unfailingly receive the external auditors’ declaration of their independence with regard to the Company or entities directly or indirectly related to it, as well as detailed and individualized information on additional services provided of any kind and the corresponding fees received by the external auditor or by persons or entities linked to them as provided for under the legislation on financial auditing;

· each year before the external financial auditor issues their report on the financial statements, to issue a report expressing an opinion on whether the independence of the external financial auditor has been compromised. This report must unfailingly contain the reasoned valuation of the provision of each of the additional services referred to in the previous subsection, considered individually and as a whole, other than the legally-required audit and with respect to the regime of independence or to the standards regulating the audit activity;

· report, prior to the Board of Directors adopting resolutions, on all those matters established by law, by our Bylaws and by the Board Regulations, and in particular on:

· the financial information that the Company must periodically publish;

· the creation or acquisition of a holding in special-purpose entities or entities domiciled in countries or territories considered tax havens; and

· related-party transactions;

· oversee compliance with applicable domestic and international regulations on matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to anti-trust regulations. Also to ensure that any requests for action or information made by official authorities with competence in these matters are dealt with in due time and in due form;

· ensure that the codes of ethics and of internal conduct on the securities market, as they apply to Group personnel, comply with regulatory requirements and are adequate;

· especially to oversee compliance with the provisions applicable to directors contained in the Board Regulations, as well as their compliance with the applicable standards of conduct on the securities markets;

· any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution; and

· the Committee shall also monitor the independence of external auditors. This entails the following two duties:

· preventing any influence over the auditor’s warnings, opinions or recommendations. To this end, ensure that compensation for the auditor’s work does not compromise either its quality or independence, in compliance with current legislation on auditing at all times; and

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· stipulating as incompatible the provision of audit and consulting services unless they are works required by supervisors or whose provision by the auditor is allowed by applicable legislation, and there are not available in the market alternatives as regards content, quality or efficiency of equal value to those which the auditor could provide; in this case approval by the Committee shall be required, but this decision can be delegated in advance to its Chairman. The auditor shall be prohibited from providing prohibited services outside the audit, in compliance with what is set out at all times by audit legislation.

The Committee leads the selection process of the external auditor for the Bank and its Group. It must verify that the audit schedule is being carried out under the service agreement and that it satisfies the requirements of the competent authorities and the Bank’s governing bodies. The Committee will also require the auditors, at least once each year, to assess the quality of the Group’s internal oversight procedures.

The Audit and Compliance Committee meets as often as necessary to comply with its functions, although an annual calendar of meetings will be drawn up in accordance with its duties. During 2018, the Audit and Compliance Committee met twelve (12) times.

Executives heading areas that manage matters within the scope of its competence, especially the Accounting, Internal Audit and Compliance departments, may be called to attend the Audit and Compliance Committee’s meetings and, at the request of these executives, other staff from these departments who have particular knowledge or responsibility in the matters contained in the agenda, when their presence at the meeting is deemed advisable. However, only the Committee members and the secretary will be present when the results and conclusions of the meeting are assessed.

The Committee may engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialization or independence.

Likewise, the Committee may call on the personal cooperation and reports of any employee or member of the management team when it considers it necessary to comply with its functions in relevant issues.

The Committee has its own specific regulations, approved by the Board of Directors. These are available on our website and, among other things, regulate its operation.

Appointments Committee

The Appointments Committee is tasked with assisting the Board on issues related to the selection and appointment of Board members and other matters contained in the Board Regulations.

In compliance with the Board Regulations, this Committee shall comprise a minimum of three members who must be non-executive directors appointed by the Board of Directors, which will also appoint its Chairman. The Chairman and the majority of its members must be independent directors.

As of the date of this Annual Report, the Appointments Committee is comprised of three independent directors, including its Chair, and of two external directors, who are the following:

Position | Name
Chairman | Mr. José Miguel Andrés Torrecillas
Members | Mrs. Belén Garijo López Mrs. Lourdes Máiz Carro Mr. José Maldonado Ramos Mrs. Susana Rodríguez Vidarte

The duties of the Appointments Committee under the Board Regulations are as follows:

· submit proposals to the Board of Directors on the appointment, reelection or separation of independent directors and report on proposals for the appointment, re-election or separation of the other directors.

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To such end, the Committee will evaluate the balance of skills, knowledge and expertise on the Board of Directors, as well as the conditions that candidates should display to fill the vacancies arising, assessing the dedication necessary to be able to suitably perform their duties in view of the needs that the Company’s governing bodies may have at any time.

The Committee will ensure that when filling new vacancies, the selection procedures are not marred by implicit biases that may entail any discrimination and in particular discrimination that may hinder the selection of female directors, trying to ensure that women who display the professional profile being sought are included on the shortlists.

Likewise, when drawing up proposals within its scope of competence for the appointment of directors the Committee will take into account in case they may be considered suitable, any applications that may be made by any member of the Board of Directors for potential candidates to fill the vacancies;

· submit proposals to the Board of Directors for policies on the selection and diversity of members of the Board of Directors;

· establish a target for representation of the underrepresented gender in the Board of Directors and draw up guidelines on how to reach that target;

· analyze the structure, size and composition of the Board of Directors, at least once a year when carrying out its operational assessment;

· analyze the suitability of the various members of the Board of Directors;

· perform an annual review of the status of each director, so that this may be reflected in the annual corporate governance report;

· report the proposals for the appointment of the Chairman and the Secretary and, where applicable, the Deputy Chairman and the Deputy Secretary;

· report on the performance of the duties of the Chairman of the Board, for the purposes of the periodic assessment by the Board of Directors, under the terms established in the Board Regulations;

· examine and organize the succession of the Chairman in conjunction with the Lead Director and, as applicable, file proposals with the Board of Directors so that the succession takes place in a planned and orderly manner;

· review the Board of Directors’ policy on the selection and appointment of members of senior management, and file recommendations with the Board when applicable;

· report on proposals for appointment and separation of senior managers; and

· any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution or by applicable legislation.

In the performance of its duties, the Appointments Committee will consult with the Chairman of the Board via the Committee chair, especially with respect to matters related to executive directors and senior managers.

In accordance with our Board Regulations, the Committee may request the attendance at its sessions of persons with tasks in the Group that are related to the Committee’s duties. It may also obtain such advice as may be necessary to establish an informed opinion on matters related to its business.

The chair of the Appointments Committee will convene it as often as necessary to perform its functions. During 2018, the Appointments Committee met ten (10) times.

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Remuneration Committee

The Remuneration Committee is the body that assists the Board in matters related to remuneration, as set out in the Board Regulations. It seeks to ensure that the remuneration policy established by the Company is duly observed.

Under the Board Regulations, the Committee will comprise a minimum of three members appointed by the Board. All the members must be non-executive directors, with a majority of independent directors, including the Committee Chair.

As of the date of this Annual Report, the Remuneration Committee is comprised of three independent directors, including its Chair, and of two external directors, who are the following:

Position | Name
Chairman | Mrs. Belén Garijo López
Members | Mr. Tomás Alfaro Drake Mr. Carlos Loring Martínez de Irujo Mrs. Lourdes Máiz Carro Mrs. Ana Cristina Peralta Moreno

In accordance with the Board Regulations, the scope of the functions of the Remuneration Committee is as follows:

· propose to the Board of Directors, for its submission to the general shareholders’ meeting, the directors’ remuneration policy, with respect to its items, amounts, and parameters for its determination and its vesting. Also to submit the corresponding report, in the terms established by applicable law at any time;

· determine the extent and amount of the individual remunerations, entitlements and other economic compensations and other contractual conditions for the executive directors, so that these can be reflected in their contracts. The Committee’s proposals on such matters will be submitted to the Board of Directors;

· propose the annual report on the remuneration of the Bank’s directors to the Board of Directors each year, which will then be submitted to the annual general shareholders’ meeting, in compliance with the applicable legislation;

· propose the remuneration policy to the Board of Directors for senior managers and employees whose professional activities have a significant impact on the Company’s risk profile;

· propose the basic conditions of the senior management contracts to the Board of Directors, and directly supervise the remuneration of the senior managers in charge of risk management and compliance functions within the Company;

· oversee observance of the remuneration policy established by the Company and periodically review the remuneration policy applied to directors, senior managers and employees whose professional activities have a significant impact on the Company’s risk profile;

· verify the information on directors and senior managers remunerations contained in the different corporate documents, including the annual report on directors’ remuneration; and

· any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution or by applicable legislation.

In the performance of its duties, the Remuneration Committee will consult with the Chairman of the Board via the Committee Chair, especially with respect to matters related to executive directors and senior managers.

Pursuant to our Board Regulations, the Committee may request the attendance at its meetings of persons with tasks in the Group that are related to the Committee’s duties. It may also obtain such advice as may be necessary to establish an informed opinion on matters related to its business.

The Remuneration Committee will meet as often as necessary to perform its duties, convened by its Chair. During 2018, the Remuneration Committee met on five (5) occasions.

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Risk Committee

The Board’s Risk Committee’s essential function is to assist the Board of Directors in the determination and monitoring of the Group risk management and control policy and its strategy within this scope.

The Risk Committee will comprise a minimum of three members, appointed by the Board of Directors, which will also appoint its Chairman. All Committee members must be non-executive directors, of whom at least one third must be independent directors. Its Chairman must also be an independent director.

As of the date of this Annual Report, the Risk Committee is comprised of three independent directors, including its Chair, and of two external directors, who are the following:

Position | Name
Chairman | Mr. Juan Pi Llorens
Members | Mr. José Miguel Andrés Torrecillas Mr. Jaime Félix Caruana Lacorte Mr. Carlos Loring Martínez de Irujo Mrs. Susana Rodríguez Vidarte

Under the Board Regulations, it has the following duties:

· analyze and assess proposals related to the Group’s risk management, control and strategy. In particular, these will identify:

· the Group’s risk appetite; and

· establishment of the level of risk considered acceptable according to the risk profile and capital at risk, broken down by the Group’s businesses and areas of activity;

· analyze and assess the control and management policies for the Group’s different risks and information and internal control systems;

· the measures established to mitigate the impact of the risks identified, should they materialize;

· monitor the performance of the Group’s risks and their fit with the strategies and policies defined and the Group’s risk appetite;

· analyze, prior to submitting them to the Board of Directors or the Executive Committee, those risk transactions that must be put to its consideration;

· review whether the prices of assets and liabilities offered to customers take fully into account the Bank’s business model and risk strategy and, if not, present a remedy plan to the Board of Directors;

· participate in the process of establishing the remuneration policy, checking that it is consistent with sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the Company;

· check that the Company and its Group has the means, systems, structures and resources in line with best practices that enable it to implement its risk-management strategy, ensuring that the entity’s risk management mechanisms are matched to its strategy; and

· any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution or by applicable legislation.

Pursuant to our Board Regulations, the Committee may request the attendance of the Head of the Global Risk Management Area at its meetings and also of other executives heading different risks areas or the persons who, within the Group organization, have missions related to its functions. It may also obtain such advice as may be necessary to establish an informed opinion on matters related to its business.

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The Committee meets as often as necessary to comply with its duties, usually fortnightly. In 2018, it held twenty-one (21) meetings.

The Committee has its own specific regulations, approved by the Board of Directors. These are available on our website and, among other things, regulate its operation.

Technology and Cybersecurity Committee

The Technology and Cybersecurity Committee’s essential functions are to assist the Board of Directors in the understanding of the risks associated to technology and information systems related to the Group’s activity and the oversight of its management and control and in the supervision of the infrastructure and technology strategy of the Group.

The Technology and Cybersecurity Committee will have a minimum of three members appointed by the Board among its directors, which will nominate the chairman of this Committee. For this purpose, the Board will take into consideration the knowledge and experience in technology, information systems and cyber-security matters of its members.

As of the date of this Annual Report, the Technology and Cybersecurity Committee is comprised of one executive director and five non-executive directors, who are the following:

Position | Name
Chairman | Mr. Carlos Torres Vila
Members | Mr. Tomás Alfaro Drake Mr. Jaime Félix Caruana Lacorte Mr. Sunir Kumar Kapoor Mr. Juan Pi Llorens Mr. Jan Paul Marie Francis Verplancke

Under its regulations, the Technology and Cybersecurity Committee has the following responsibilities:

- Oversight of technology-related risks and cyber-security management, which include the following:

· Assess the main technology-related risks to which the Bank is exposed, including information security and cyber-security risks, and the steps management has taken to monitor and control its exposure to such risks.

· Review policies and systems in place for the assessment, control and management of the Group’s technology-related risks and its infrastructure, including responses to cyber-attacks and recovery plans.

· Obtain business continuity planning reports on technology and infrastructure matters from management.

· Obtain reports from management, as and when appropriate, on:

· IT-related compliance risks; and

· The steps taken to identify, assess, monitor, manage and mitigate those risks.

· Additionally, the Technology and Cybersecurity Committee will be informed of any relevant event that may occur regarding cyber-security issues. These are deemed to be those which, individually or in the aggregate, may have a material impact on the Group’s equity, results of operation or reputation. In any case, such events shall be informed to the chair of the Committee as soon as possible.

- Keeping abreast about the technology strategy of the Group, which include the following:

· Obtaining reports from management, as and when appropriate, on technology strategy and trends that may affect the Company’s strategic plans, including the monitoring of overall industry trends.

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· Obtaining reports from management, as and when appropriate, on the metrics established by the Group for the management and control of IT-related matters, including the progress of the developments and investments carried out by the Group in this field.

· Obtaining reports from management, as and when appropriate, on matters related to new technologies, applications, information systems and best practices that affect the Group’s IT strategy or plans.

· Obtaining reports from management on the core policies, strategic projects and plans defined by the engineering area of the Bank.

· Informing the Board of Directors and, if applicable, the Executive Committee, on any IT-related matters falling within the scope of their functions.

For a better performance of its functions, channels for an appropriate coordination between the Technology and Cybersecurity Committee and the Audit and Compliance Committee will be established to ensure:

(i) the Technology and Cybersecurity Committee has access to the conclusions of the work performed by the Internal Audit Department in technology and cybersecurity matters; and

(ii) the Audit and Compliance Committee is informed on IT-related systems and processes that are related to or affect the Bank’s internal control systems and other matters falling within the scope of its functions.

The Committee meets as often as necessary to comply with its functions. In 2018 it held seven (7) meetings.

The Committee has its own specific regulations, approved by the Board of Directors. These are available on our website and, among other things, they regulate the Committee’s operation.

## D. Employees

As of December 31, 2018, we had 125,627 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

| As of December 31, 2018
Country | BBVA | Bank Subsidiaries | Non-bank Subsidiaries | Total
Spain | 25,419 | - | 4,919 | 30,338
United Kingdom | 126 | - | - | 126
France | 72 | - | - | 72
Italy | 50 | - | 2 | 52
Germany | 41 | - | - | 41
Switzerland | - | 122 | - | 122
Portugal | 469 | - | - | 469
Belgium | 24 | - | - | 24
The Netherlands (Holland) | - | 256 | - | 256
Russia | 3 | - | - | 3
Romania | - | 1,313 | - | 1,313
Ireland | - | 4 | - | 4
Luxembourg | - | - | - | -
Turkey | - | 20,425 | - | 20,425
Finland | - | - | 83 | 83
Total Europe | 26,204 | 22,120 | 5,004 | 53,328
The United States | 141 | 10,843 | - | 10,984
Argentina | - | 6,262 | - | 6,262
Brazil | - | - | 6 | 6
Colombia | - | 6,803 | - | 6,803
Venezuela | - | 3,384 | - | 3,384
Mexico | - | 36,123 | - | 36,123
Uruguay | - | 578 | - | 578
Paraguay | - | 430 | - | 430
Bolivia | - | - | 396 | 396
Chile | - | 923 | - | 923
Cuba | 1 | - | - | 1
Peru | - | 6,267 | - | 6,267
Total Latin America | 1 | 60,770 | 402 | 61,173
Hong Kong | 89 | - | - | 89
Japan | 3 | - | - | 3
China | 23 | - | 2 | 25
Singapore | 8 | - | - | 8
India | 2 | - | - | 2
South Korea | 2 | - | - | 2
United Arab Emirates | 2 | - | - | 2
Taiwan | 9 | - | - | 9
Indonesia | 2 | - | - | 2
Total Asia | 140 | - | 2 | 142
Total | 26,017 | 94,202 | 5,408 | 125,627

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As of December 31, 2017, we had 131,856 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

| As of December 31, 2017
Country | BBVA | Bank Subsidiaries | Non-bank Subsidiaries | Total
Spain | 26,048 | - | 4,536 | 30,584
United Kingdom | 125 | - | - | 125
France | 72 | - | - | 72
Italy | 51 | - | 5 | 56
Germany | 44 | - | - | 44
Switzerland | - | 121 | - | 121
Portugal | - | 472 | - | 472
Belgium | 27 | - | - | 27
The Netherlands (Holland) | - | 242 | - | 242
Russia | 3 | - | - | 3
Romania | - | 1,255 | - | 1,255
Ireland | - | 4 | - | 4
Luxembourg | - | - | 3 | 3
Turkey | - | 21,118 | - | 21,118
Finland | - | - | 39 | 39
Total Europe | 26,370 | 23,212 | 4,583 | 54,165
The United States | 131 | 10,797 | - | 10,928
Argentina | - | 6,264 | - | 6,264
Brazil | - | - | 6 | 6
Colombia | - | 6,769 | - | 6,769
Venezuela | - | 4,159 | - | 4,159
Mexico | - | 37,207 | - | 37,207
Uruguay | - | 592 | - | 592
Paraguay | - | 446 | - | 446
Bolivia | - | - | 379 | 379
Chile | - | 4,852 | - | 4,852
Cuba | 1 | - | - | 1
Peru | - | 5,955 | - | 5,955
Total Latin America | 1 | 66,244 | 385 | 66,630
Hong Kong | 85 | - | - | 85
Japan | 3 | - | - | 3
China | 18 | - | 2 | 20
Singapore | 8 | - | - | 8
India | 2 | - | - | 2
South Korea | 2 | - | - | 2
United Arab Emirates | 2 | - | - | 2
Taiwan | 9 | - | - | 9
Indonesia | 2 | - | - | 2
Total Asia | 131 | - | 2 | 133
Total | 26,633 | 100,253 | 4,970 | 131,856

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As of December 31, 2016, we had 134,792 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

| As of December 31, 2016
Country | BBVA | Bank Subsidiaries | Non-bank Subsidiaries | Total
Spain | 26,884 | - | 4,567 | 31,451
United Kingdom | 150 | - | - | 150
France | 78 | - | - | 78
Italy | 53 | - | 8 | 61
Germany | 45 | - | - | 45
Switzerland | - | 125 | - | 125
Portugal | - | 490 | - | 490
Belgium | 32 | - | - | 32
The Netherlands (Holland) | - | 248 | - | 248
Russia | 3 | - | - | 3
Romania | - | 1,290 | - | 1,290
Ireland | - | 4 | - | 4
Luxembourg | - | - | 3 | 3
Turkey | - | 22,140 | - | 22,140
Finland | - | - | 39 | 39
Total Europe | 27,245 | 24,297 | 4,617 | 56,159
The United States | 128 | 10,416 | - | 10,544
Argentina | - | 6,439 | - | 6,439
Brazil | 1 | - | 7 | 8
Colombia | - | 7,228 | - | 7,228
Venezuela | - | 4,888 | - | 4,888
Mexico | - | 37,378 | - | 37,378
Uruguay | - | 618 | - | 618
Paraguay | - | 463 | - | 463
Bolivia | - | - | 366 | 366
Chile | - | 4,522 | - | 4,522
Cuba | 1 | - | - | 1
Peru | - | 6,010 | - | 6,010
Total Latin America | 2 | 67,546 | 373 | 67,921
Hong Kong | 89 | - | - | 89
Japan | 10 | - | - | 10
China | 18 | - | 8 | 26
Singapore | 10 | - | - | 10
India | 2 | - | - | 2
South Korea | 17 | - | - | 17
United Arab Emirates | 3 | - | - | 3
Taiwan | 7 | - | - | 7
Indonesia | 2 | - | - | 2
Total Asia | 158 | - | 8 | 166
Australia | 2 | - | - | 2
Total Oceania | 2 | - | - | 2
Total | 27,535 | 102,259 | 4,998 | 134,792

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The reduction in the number of employees in the last two years is mainly attributable to divestitures and restructuring plans. See Notes 2.2.12, 3 and 25 to the Consolidated Financial Statements.

The terms and basic conditions of employment in private sector banks in Spain are negotiated with trade unions representing sector bank employees. Wage negotiations take place on an industry-wide basis. This process has historically produced collective bargaining agreements binding upon all Spanish banks and their employees. On June 15, 2016, the XXIII collective bargaining agreement was signed. This agreement became effective as of January 1, 2015 and expired on December 31, 2018. As of the date of this Annual Report, the collective bargaining agreement is being reviewed and updated.

As of December 31, 2018, 2017 and 2016, we had 1,305, 1,300 and 1,598 temporary employees in our Spanish offices, respectively.

## E. Share Ownership

As of March 25, 2019, the members of the Board of Directors owned an aggregate of BBVA shares as shown in the table below:

Name | Directly owned shares | Indirectly owned shares | Total shares | % Capital Stock
Carlos Torres Vila | 380,138 | - | 380,138 | 0.006%
Onur Genç * | 51,057 | - | 51,057 | 0.001%
Tomás Alfaro Drake | 18,459 | - | 18,459 | 0.000%
José Miguel Andrés Torrecillas | 10,828 | - | 10,828 | 0.000%
Jaime Félix Caruana Lacorte | - | - | - | -
Belén Garijo López | - | - | - | -
José Manuel González-Páramo Martínez-Murillo | 88,225 | - | 88,225 | 0.001%
Sunir Kumar Kapoor * | 10,000 | - | 10,000 | 0.000%
Carlos Loring Martínez de Irujo | 59,390 | - | 59,390 | 0.001%
Lourdes Máiz Carro | - | - | - | -
José Maldonado Ramos | 38,761 | - | 38,761 | 0.001%
Ana Cristina Peralta Moreno | - | - | - | -
Juan Pi Llorens | - | - | - | -
Susana Rodríguez Vidarte | 26,980 | - | 26,980 | 0.000%
Jan P. M. F. Verplancke | - | - | - | -
TOTAL | 683,838 | 0.000% | 683,838 | 0.010%

* Onur Genç and Sunir Kumar Kapoor owned 106 and 10,000 shares in the form of ADSs, respectively.

BBVA has not granted options on its shares to any members of its administrative, supervisory or management bodies.

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As of March 25, 2019 the Senior Management (excluding executive directors) owned an aggregate of BBVA shares as shown in the table below:

Name | Directly owned shares | Indirectly owned shares | Total shares | % Capital Stock
Eduardo Arbizu Lostao | 326,634 | - | 326,634 | 0.005
Domingo Armengol Calvo | 102,798 | - | 102,798 | 0.002
María Jesús Arribas de Paz | 73,181 | - | 73,181 | 0.001
Carlos Casas Moreno | 21,000 | - | 21,000 | 0.000
Cristina de Parias Halcón | 171,804 | - | 171,804 | 0.003
Victoria del Castillo Marchese | 12,033 | - | 12,033 | 0.000
Ricardo Forcano García | 34,087 | - | 34,087 | 0.001
María Luisa Gómez Bravo | 129,100 | - | 129,100 | 0.002
Joaquín M. Gortari Díez | 48,712 | - | 48,712 | 0.001
Eduardo Osuna Osuna | 16,853 | - | 16,853 | 0.000
David Puente Vicente | 65,218 | - | 65,218 | 0.001
Jorge Sáenz-Azcúnaga Carranza | 94,682 | - | 94,682 | 0.001
Jaime Sáenz de Tejada Pulido | 332,160 | 211 | 332,371 | 0.005
Rafael Salinas Martínez de Lecea | 185,936 | 19,530 | 205,466 | 0.003
Derek Jensen White | 47,761 | - | 47,761 | 0.001
TOTAL | 1,661,959 | 19,741 | 1,681,700 | 0.025

As of March 22, 2019 a total of 19,638 employees (excluding the members of the Senior Management and executive directors) owned 62,097,627 shares, which represented 0.93% of our capital stock.

# ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

On February 4, 2019, Blackrock, Inc. reported to the SEC that, as of December 31, 2018, it beneficially owned 6.6% of BBVA’s common stock.

As of March 22, 2019, no other person, corporation or government beneficially owned, directly or indirectly, five percent or more of BBVA’s shares. BBVA’s major shareholders do not have voting rights which are different from those held by the rest of its shareholders. To the extent known to us, BBVA is not controlled, directly or indirectly, by any other corporation, government or any other natural or legal person. As of March 22, 2019, there were 891,978 registered holders of BBVA’s shares, with an aggregate of 6,667,886,580 shares, of which 658 shareholders with registered addresses in the United States held a total of 1,338,586,920 shares (including shares represented by American Depositary Shares evidenced by American Depositary Receipts (“ADRs”)). Since certain of such shares and ADRs are held by nominees, the foregoing figures are not representative of the number of beneficial holders.

B. Related Party Transactions

Loans to Directors, Senior Management and Other Related Parties

As of December 31, 2018, 2017 and 2016, there were no loans granted by the Group’s entities to the members of the Board of Directors. The amount availed against the loans by the Group’s entities to the members of Senior Management (excluding the executive directors) amounted to €3,783 thousand, €4,049 thousand and €5,573 thousand as of December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018, 2017 and 2016, there were no loans granted to parties related to the members of the Board of Directors. As of December 31, 2018, 2017 and 2016 the amount availed against the loans to parties related to members of the Senior Management amounted to €69 thousand, €85 thousand and €98 thousand, respectively.

As of December 31, 2018, 2017 and 2016, no guarantees had been granted to any member of the Board of Directors.

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As of December 31, 2018, 2017 and 2016, the amount availed against guarantees arranged with members of the Senior Management amounted to €38 thousand, €28 thousand and €28 thousand, respectively.

As of December 31, 2018, no guarantees had been granted with parties related to the members of the Bank’s Board of Directors and the Senior Management. As of December 31, 2017 and 2016, the amount availed against guarantees arranged with parties related to the members of the Bank’s Board of Directors and the Senior Management totaled €8 thousand and €8 thousand, respectively.

Related Party Transactions in the Ordinary Course of Business

Loans extended to related parties (including guarantees) were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features.

BBVA subsidiaries engage, on a regular and routine basis, in a number of customary transactions with other BBVA subsidiaries, including:

· overnight call deposits;

· time deposits;

· foreign exchange purchases and sales;

· derivative transactions, such as forward purchases and sales;

· money market fund transfers;

· letters of credit for imports and exports;

· financial guarantees;

· service level agreements;

and other similar transactions within the scope of the ordinary course of the banking business, such as loans and other banking services to our shareholders, to employees of all levels, to associates and to family members of all the above and to other BBVA non-banking subsidiaries or affiliates. All these transactions have been made:

· in the ordinary course of business;

· on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; and

· did not involve more than the normal risk of collectability or present other unfavorable features.

C. Interests of Experts and Counsel

Not Applicable.

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# ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Information

See Item 18.

Dividends

The table below sets forth the gross amount of interim, final and total cash dividends paid by BBVA on its shares for the years 2014 to 2018. The rate used to convert euro amounts to U.S. dollars was the noon buying rate at the end of each year.

| Per Share
| First Interim | Second Interim | Third Interim | Final | Total
| € | $ | € | $ | € | $ | € | $ | € | $
2014 | € 0.080 | $ 0.097 | (*) | (*) | - | - | (*) | (*) | € 0.080 | $ 0.097
2015 | € 0.080 | $ 0.087 | (*) | (*) | € 0.080 | $ 0.087 | (*) | (*) | € 0.160 | $ 0.174
2016 | € 0.080 | $ 0.084 | (*) | (*) | € 0.080 | $ 0.084 | (*) | (*) | € 0.160 | $ 0.169
2017 | € 0.090 | $ 0.108 | - | - | - | - | € 0.150 | $ 0.185 | € 0.240 | $ 0.293
2018 | € 0.100 | $ 0.115 | - | - | - | - | € 0.160 | $ 0.183 | € 0.260 | $ 0.298

(*) In execution of the 2014, 2015, 2016, 2017 and 2018 “Dividend Option” schemes described under “Item 4. Information on the Company—Business Overview —Supervision and Regulation—Dividends” approved by the shareholders in the respective general shareholders’ meetings, BBVA shareholders were given the option to receive their remuneration in newly issued ordinary shares or in cash.

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On February 1, 2017 BBVA updated its shareholders’ remuneration policy in order to implement a fully in cash remuneration policy after the execution of the 2017 “Dividend Option”, which took place during April 2017 (see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”). This fully in cash shareholders’ remuneration policy is expected to be composed, for each financial year, of an interim dividend and a final dividend, subject to any applicable restrictions and authorizations. On April 10, 2019, the final dividend for 2018 will be paid. The rate used to convert euro amounts to U.S. dollars was 1.130 as of March 22, 2019.

We have paid annual dividends to our shareholders since the date we were founded. The cash dividend for a year is proposed by the Board of Directors to be approved by the annual general shareholders’ meeting following the end of the year to which it relates and includes any interim dividend that may be passed by the Board of Directors during that period. The scrip dividends, if applicable, are proposed for approval of our shareholders in the annual general shareholders’ meeting, for being implemented during a period of one year from their approval. Interim and final dividends are payable to holders of record on the record date for the dividend payment date. Unclaimed cash dividends revert to BBVA five years after declaration. For additional information see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”.

While we expect to declare and pay dividends on our shares in the future, the payment of dividends will depend upon the results of BBVA, market conditions, the regulatory framework, the recommendations or restrictions regarding dividends that may be adopted by domestic or European regulatory bodies or authorities and other factors.

Subject to the terms of the deposit agreement entered into with the Bank of New York Mellon, holders of ADSs are entitled to receive dividends (in cash or scrip, as applicable) attributable to the shares represented by the ADSs evidenced by ADRs to the same extent as if they were holders of such shares.

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BBVA may not pay dividends except out of its annual results and its distributable reserves, after taking into account the applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction, if applicable. Capital adequacy requirements are applied on both a consolidated and individual basis. See “Item 4. Information on the Company— Business Overview—Supervision and Regulation—Capital Requirements” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”. Under applicable capital adequacy requirements, we estimate that as of December 31, 2018, BBVA had approximately €13.1 billion of reserves in excess of applicable capital and reserve requirements (based on an 11.95% phased-in total capital minimum requirement).

Legal Proceedings

BBVA and its subsidiaries are involved in a number of legal and regulatory actions and proceedings, including legal claims and proceedings, civil and criminal regulatory proceedings, governmental investigations and proceedings, tax proceedings and other proceedings, in jurisdictions around the world. Legal and regulatory actions and proceedings are subject to many uncertainties, and their outcomes, including the timing thereof, the amount of fines or settlements or the form of any settlements, or changes in business practices we may need to introduce as a result thereof, any of which may be material, are often difficult to predict, particularly in the early stages of a particular legal or regulatory matter.

As of the date hereof, the Group is involved in a number of legal and regulatory actions and proceedings in various jurisdictions around the world (including, among others, Spain, Mexico and the United States), the adverse resolution of which may also adversely impact the Group. See “Item 3. Key Information—Risk Factors—Legal, Regulatory and Compliance Risks—The Group is party to a number of legal and regulatory actions and proceedings” and “Item 3. Key Information—Risk Factors—Legal, Regulatory and Compliance Risks—We may be affected by actions that are incompatible with our ethics and compliance standards, and by our failure to timely detect or remedy any such actions”.

BBVA can provide no assurance that the legal and regulatory actions and proceedings to which it is subject, or to which it may become subject in the future or otherwise affected by, will not, if resolved adversely, result in a material adverse effect on the Group’s financial position, results of operations or liquidity.

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B. Significant Changes

No significant change has occurred since the date of the Consolidated Financial Statements other than those mentioned in this Annual Report or our Consolidated Financial Statements.

# ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

BBVA’s shares are listed on the Madrid, Bilbao, Barcelona and Valencia stock exchanges (the “Spanish Stock Exchanges”) and on the computerized trading system of the Spanish Stock Exchanges (the “Automated Quotation System”) under the symbol “BBVA”. BBVA’s shares are also listed on the Mexican and London stock exchanges as well as quoted on SEAQ International in London. BBVA’s shares are listed on the New York Stock Exchange as American Depositary Shares (ADSs) under the symbol “BBVA”.

ADSs are listed on the New York Stock Exchange and are also traded on the Lima (Peru) Stock Exchange, by virtue of an exchange agreement entered into between these two exchanges. Each ADS represents the right to receive one share.

Fluctuations in the exchange rate between the euro and the dollar will affect the dollar equivalent of the euro price of BBVA’s shares on the Spanish Stock Exchanges and the price of BBVA’s ADSs on the New York Stock Exchange. Cash dividends are paid by BBVA in euro, and exchange rate fluctuations between the euro and the dollar will affect the dollar amounts received by holders of ADRs on conversion by The Bank of New York Mellon (acting as depositary) of cash dividends on the shares underlying the ADSs evidenced by such ADRs.

As of December 31, 2018, State Street Bank and Trust Co., The Bank of New York Mellon, SA NV and Chase Nominees Ltd in their capacity as international custodian/depositary banks, held 10.69%, 2.31% and 6.33% of BBVA’s common stock, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding. See also “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”.

From January 1, 2018 through December 31, 2018 the percentage of outstanding shares held by BBVA and its affiliates ranged between 0.200% and 0.850%, calculated on a daily basis. As of February 28, 2019, the percentage of outstanding shares held by BBVA and its affiliates was 0.500%.

Securities Trading in Spain

The Spanish securities market for equity securities consists of the Automated Quotation System and the four stock exchanges located in Madrid, Bilbao, Barcelona and Valencia. During 2018, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish Stock Exchanges.

Automated Quotation System. The Automated Quotation System (Sistema de Interconexión Bursátil) links the four local exchanges, providing those securities listed on it with a uniform continuous market that eliminates certain of the differences among the local exchanges. The principal feature of the system is the computerized matching of buy and sell orders at the time of entry of the order. Each order is executed as soon as a matching order is entered, but can be modified or canceled until executed. The activity of the market can be continuously monitored by investors and brokers. The Automated Quotation System is operated and regulated by Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”), a corporation owned by the companies that manage the local exchanges. All trades on the Automated Quotation System must be placed through a bank, brokerage firm, an official stock broker or a dealer firm member of a Spanish Stock Exchange directly. Since January 1, 2000, Spanish banks have been allowed to place trades on the Automated Quotation System and have been allowed to become members of the Spanish Stock Exchanges. We are currently a member of the four Spanish Stock Exchanges and can trade through the Automated Quotation System.

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Sociedad de Bolsas reinstated the Operating Rules of the Spanish Automated Quotation System by means of Sociedad de Bolsas Circular 1/2017, of December 18, which came into effect January 3, 2018. Changes introduced in such Operating Rules include changes to the way trading is technically undertaken (e.g. by introducing new types of orders such as “hidden orders” and “combined blocks”, VWAP trades and midpoint orders), the suppression of the New Market segment and the introduction of a Market Making scheme as per MiFID II standards. BBVA, as an active market member in the Spanish market has adapted its technical means and procedures to such changes.

In a pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day, an opening price is established for each security traded on the Automated Quotation System based on orders placed at that time. The regime concerning opening prices was changed by an internal rule issued by the Sociedad de Bolsas. In this new regime all references to maximum changes in share prices are substituted by static and dynamic price ranges for each listed share, calculated on the basis of the most recent historical volatility of each share, and made publicly available and updated on a regular basis by the Sociedad de Bolsas. The computerized trading hours are from 9:00 a.m. to 5:30 p.m., during which time the trading price of a security is permitted to vary by up to the stated levels. If, during the open session, the quoted price of a share exceeds these static or dynamic price ranges, Volatility Auctions are triggered, resulting in new static or dynamic price ranges being set for the share object of the same. Between 5:30 p.m. and 5:35 p.m. a closing price is established for each security through an auction system similar to the one held for the pre-opening early in the morning.

Trading hours for block trades (i.e., operations involving a large number of shares) are also from 9:00 a.m. to 5:30 p.m.

Between 5:30 p.m. and 8:00 p.m., special operations, whether “authorized” or “communicated”, can take place outside the computerized matching system of the Sociedad de Bolsas if they fulfill certain requirements. In such respect “communicated” special operations (those that do not need the prior authorization of the Sociedad de Bolsas) can be traded if all of the following requirements are met: (i) the trade price of the share must be within the range of 5% above the higher of the average price and closing price for the day and 5% below the lower of the average price and closing price for the day; (ii) the market member executing the trade must have previously covered certain positions in securities and cash before executing the trade; and (iii) the size of the trade must involve at least €300,000 and represent at least a 20% of the average daily trading volume of the shares in the Automated Quotation System during the preceding three months. If any of the aforementioned requirements is not met, a special operation may still take place, but it will need to take the form of “authorized” special operation (i.e., those needing the prior authorization of the Sociedad de Bolsas). Such authorization will only be upheld if any of the following requirements are met:

· the trade involves more than €1.5 million and more than 40% of the average daily volume of the stock during the preceding three months;

· the transaction derives from a merger or spin-off process or from the reorganization of a group of companies;

· the transaction is executed for the purposes of settling a litigation or completing a complex group of contracts; or

· the Sociedad de Bolsas finds other justifiable cause.

Information with respect to the computerized trades between 9:00 a.m. and 5:30 p.m. is made public immediately, and information with respect to trades outside the computerized matching system is reported to the Sociedad de Bolsas by the end of the trading day and published in the Boletín de Cotización and in the computer system by the beginning of the next trading day.

Sociedad de Bolsas is also the manager of the IBEX 35® Index. This index is made up by the 35 most liquid securities traded on the Spanish Market and, technically, it is a price index that is weighted by capitalization and adjusted according to the free float of each company comprised in the index. Apart from its quotation on the four Spanish Exchanges, BBVA is also currently included in the IBEX 35® Index.

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Clearing and Settlement System

On April 1, 2003, by virtue of Law 44/2002 and of Order ECO 689/2003 of March 27, 2003 approved by the Spanish Ministry of Economy, the integration of the two main existing book-entry settlement systems existing in Spain at the time (the equity settlement system Servicio de Compensación y Liquidación de Valores (“SCLV”) and the Public Debt settlement system Central de Anotaciones de Deuda del Estado (“CADE”)) took place. As a result of this integration, a single entity, known as Sociedad de Gestión de los Sistemas de Registro Compensación y Liquidación de Valores (“Iberclear”) assumed the functions formerly performed by SCLV and CADE according to the legal regime then stated in article 44 bis of the Spanish Securities Market Act (Law 24/1988).

Notwithstanding the above, rules concerning the book-entry settlement systems enacted before this date by SCLV and the Bank of Spain, as former manager of CADE, continued in force, but any reference to the SCLV or CADE was deemed to be substituted by Iberclear.

In addition, and according to Law 41/1999, Iberclear currently manages the ARCO Securities settlement system (the “ARCO System”) for securities in book-entry form listed on the four Spanish Stock Exchanges, on the Spanish Public Debt Book-Entry Market, on “AIAF Mercado de Renta Fija”, or on other Multilateral Trading Facilities that have appointed Iberclear for such purposes. Cash settlement for all systems is managed through the TARGET2-Banco de España payment system.

Laws 32/2011 and 11/2015 amended the Spanish Securities Market Act and Royal Decree 878/2015 replaced Royal Decree 116/1992 from February 3, 2016, introducing changes to the Spanish clearing, settlement and book-entry registry procedures applicable to securities transactions to allow post-trading Spanish systems to integrate into the TARGET2 Securities System (T2S). The project to reform Spain’s clearing, settlement and registry system and connect it to the T2S (the “Reform”) introduced significant changes that affected all classes of securities and all post-trade activities.

The Reform was implemented in two phases:

The first phase took place from April 27, 2016 and involved setting up a new system for equities including all the changes envisaged in the Reform, encompassing the incorporation of central counterparty clearing (performed by, among others, BME Clearing, S.A.U.) in a post-trading scheme compatible with the T2S (including with respect to messages, account structure, definition of operations, etc.). Accordingly, the SCLV (Servicio de Compensación y Liquidación de Valores) platform was discontinued.

The T+3 settlement cycle for trades executed in trading venues, affecting mainly equities, was reduced to T+2 from October 2016, in line with what is set forth in European Regulation 909/2014, of July 23 on improving securities settlement in the European Union and on Central Securities Depositories (“CSDR”).

The CADE platform continued to operate unchanged until the last quarter of 2017, and cash settlements in the new system continue to be made through the TARGET2-Bank of Spain cash accounts.

The second phase started on September 18, 2017, when Iberclear successfully connected itself to T2S. At this time, fixed-income securities were transferred to the new system (being the CADE discontinued), as well as equity securities, with both types of securities beginning to be also settled in accordance with the procedures, formats and time periods of the T2S and under the ARCO System. The Reform culminated with the successful migration to T2S.

The latest amendments to Iberclear’s Rulebook reflecting the Reform were officially published in the Spanish Official Gazette (May 3 and August 18, 2016 and September 14, 2017) while each Spanish Stock Exchange has approved its respective new rulebook between April 2016 and December 2017.

During the last quarter of 2017, Iberclear filed for authorization as Central Securities Depository pursuant to CSDR.

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Under Law 41/1999 and Royal Decree 878/2015 (which replaced Royal Decree 116/1992 on February 3, 2016), transactions carried out on the Spanish Stock Exchanges are cleared and settled through Iberclear and its participants (each an entidad participante), through the ARCO System. Only Iberclear participants to this ARCO System are entitled to use it, with participation restricted to credit entities, investment firms authorized to render custody services, certain public bodies, and Central Securities Depositories and Central Counterparties authorized under their respective European Union Regulations. BBVA is currently a participant in Iberclear. Iberclear and its participants are responsible for maintaining records of purchases and sales under the book-entry system. In order to be listed, shares of Spanish companies must be held in book-entry form. Iberclear, maintains a “two-step” book-entry registry reflecting the number of shares held by each of its participants as well as the amount of such shares held on behalf of beneficial owners. Each participant, in turn, maintains a registry of the owners of such shares. Spanish law considers the legal owner of the shares to be:

· the participant appearing in the records of Iberclear as holding the relevant shares in its own name, or

· the investor appearing in the records of the participant as holding the shares.

Obtaining legal title to shares of a company listed on a Spanish Stock Exchange requires the participation of an investment firm, bank or other entity authorized under Spanish law to record the transfer of shares in book-entry form in its capacity as Iberclear participant for the equity securities settlement system. To evidence title to shares, at the owner’s request the relevant participant entity must issue a certificate of ownership. In the event the owner is a participant entity, Iberclear is in charge of the issuance of the certificate with respect to the shares held in the participant entity’s own name.

According to the Securities Market Act, brokerage commissions are not regulated. Brokers’ fees, to the extent charged, will apply upon transfer of title of our shares from the depositary to a holder of ADSs, and upon any later sale of such shares by such holder. Transfers of ADSs do not require the participation of a member of a Spanish Stock Exchange. The deposit agreement provides that holders depositing our shares with the depositary in exchange for ADSs or withdrawing our shares in exchange for ADSs will pay the fees of the official stockbroker or other person or entity authorized under Spanish law applicable both to such holder and to the depositary.

Securities Market Legislation

The Securities Markets Act was enacted in 1988 with the purpose of reforming the organization and supervision of the Spanish securities markets. This legislation and the regulation implementing it:

· established an independent regulatory authority, the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores or “CNMV”), to supervise the securities markets;

· established a framework for the regulation of trading practices, tender offers and insider trading;

· required stock exchange members to be corporate entities;

· required companies listed on a Spanish Stock Exchange to file annual audited financial statements and to make public quarterly financial information;

· established the legal framework for the Automated Quotation System;

· exempted the sale of securities from transfer and value added taxes;

· deregulated brokerage commissions; and

· provided for transfer of shares by book-entry or by delivery of evidence of title.

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On February 14, 1992, Royal Decree No. 116/92 established the clearance and settlement system and the book-entry system, and required that all companies listed on a Spanish Stock Exchange adopt the book-entry system. On February 3, 2016 Royal Decree 878/2015 came into force and replaced Royal Decree 116/1992 (Royal Decree 827/2017, of September 1 and Royal Decree 1464/2018, of December 21, amended Royal Decree 878/2015 by reflecting certain aspects of the Reform and of MiFID II).

On April 12, 2007, the Spanish Congress approved Law 6/2007, which amends the Securities Markets Act in order to adapt it to Directive 2004/25/EC on takeover bids, and Directive 2004/109/EC on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (amending Directive 2001/34/EC). Regarding the transparency of listed companies, Law 6/2007 amended the reporting requirements and the disclosure regime, and established changes in the supervision system. On the takeover bids side, Law 6/2007 has established the cases in which a company must launch a takeover bid and the ownership thresholds at which a takeover bid must be launched. It also regulates conduct rules for the board of directors of target companies and the squeeze-out and sell-out when a 90% of the share capital is held after a takeover bid. Additionally, Law 6/2007 was further developed by Royal Decree 1362/2007, on transparency requirements for issuers of listed securities, which was subsequently amended. See “—Trading by the Bank and its Affiliates in the Shares”.

On December 19, 2007, the Spanish Congress approved Law 47/2007, which amends the Securities Markets Act in order to adapt it to Directive 2004/37/EC on markets in financial instruments (MiFID), Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions, and Directive 2006/73/EC implementing Directive 2004/39/EC with respect to organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive. Further MiFID implementation was introduced by Royal Decree 217/2008. Royal Decree 217/2008 has been amended from time to time, including in 2018 by Royal Decree 1464/2018, of December 21, in order to adapt it to MiFID II rules.

The Regulation of the European Parliament and of the Council on short selling and certain aspects of credit default swaps (EU) No 236/2012 (Regulation) has been in force since March 25, 2012 and became directly effective in EU countries from November 1, 2012. This Regulation introduced a pan-European regulatory framework for dealing with short selling and requires persons to disclose short positions in relation to shares of EU listed companies and EU sovereign debt. For significant net short positions in shares of EU listed companies, these regulations create a two-tier reporting model: (i) when a net short position reaches 0.20% of an issuer’s share capital (and at every 0.1% thereafter), such position must be privately reported to the relevant regulator; and (ii) when such position reaches 0.50% (and at every 0.1% thereafter) of an issuer’s share capital, apart from being disclosed to the regulators, such position must be publicly reported to the market.

Law 9/2012 and Royal Decree 1698/2012 implemented European Directive 2010/73/EU (which amended Directive 2003/71/EC, on the prospectus to be published when securities are offered to the public or admitted to trading and Directive 2004/109/EC, on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market). The main changes to requirements applicable to prospectuses introduced by Regulation (EU) 2017/1129 of the European Parliament and of the Council, of October 14, will come into effect on July 21, 2019.

Directive 2014/65/EU (MiFID II) of the European Parliament and of the Council of May 15, 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, and Regulation (EU) 600/2014 of the European Parliament and Council of May 15, 2014 on markets in financial instruments and amending Regulation (EU) 648/2012 (MiFIR), were published on June 12, 2014 and, when fully implemented and in force. will affect the Spanish securities market legislation, markets and infrastructures, implying higher compliance costs for financial institutions. MiFID II has been implemented into Spanish Law by Royal Decree-Law 21/2017, of December 29, by Royal Decree-Law 14/2018, of September 28, and by Royal Decree 1464/2018, of December 21.

Royal Legislative Decree 4/2015, of October 23, approved the reinstated text of the Securities Markets Act and it has also been affected and amended by the aforementioned MiFID II implementation rules.

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Trading by the Bank and its Affiliates in the Shares

Trading by subsidiaries in their parent companies shares is restricted by the Corporate Enterprises Act.

Neither BBVA nor its affiliates may purchase BBVA’s shares unless the making of such purchases is authorized at a meeting of BBVA’s shareholders by means of a resolution establishing, among other matters, the maximum number of shares to be acquired and the authorization term, which cannot exceed five years. Restricted reserves equal to the purchase price of any shares that are purchased by BBVA or its subsidiaries must be made by the purchasing entity. The total number of shares held by BBVA and its subsidiaries may not exceed 10% of BBVA’s total share capital, as per the treasury stock limits set forth in the Corporate Enterprises Act (Royal Legislative Decree 1/2010). It is the practice of Spanish banking groups, including the BBVA Group, to establish subsidiaries to trade in their parent company’s shares in order to meet imbalances of supply and demand, to provide liquidity (especially for trades by their customers) and to modulate swings in the market price of their parent company’s shares.

Spanish Financial Transaction Tax Bill

During a meeting held on January 18, 2019, the Spanish council of ministers approved the Bill on the Financial Transaction Tax, which is based in part on the Commission’s Proposal. The Spanish FTT Bill introduces a new indirect tax, amounting to 0.2%, to be charged on acquisitions of shares in Spanish companies, regardless of the tax residence of the participants in such transactions, provided that such companies are listed and their respective market capitalization is above €1,000 million. The bill is currently under discussion in the Spanish Parliament, and while there is no assurance it will be approved due to the forthcoming general elections, if it did, it would affect any purchaser of BBVA’s shares not falling under an exemption, and likely, BBVA itself as purchaser of its treasury stock.

Reporting Requirements

Royal Decree 1362/2007, as amended, requires that any person or entity which acquires or transfers shares and as a consequence the number of voting rights held exceeds, reaches or is below the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% and 90% of the capital stock of a company listed on a Spanish Stock Exchange must, within four stock exchange business days after that acquisition or transfer, report it to such company, and to the CNMV. This duty to report the holding of a significant stake is applicable not only to the acquisitions and transfers in the terms described above, but also to those cases in which in the absence of an acquisition or transfer of shares, the ratio of an individual’s voting rights exceeds, reaches or is below the thresholds that trigger the duty to report, as a consequence of an alteration in the total number of voting rights of an issuer.

In addition, any company listed on a Spanish Stock Exchange must report on a non-public basis to the CNMV, within four Stock Exchange business days, any acquisition by such company (or an affiliate) of the company’s own shares if such acquisition, together with any previous one from the date of the last communication, exceeds 1% of its capital stock, regardless of the balance retained. Members of the board of directors must report the ratio of voting rights held at the time of their appointment as members of the board, when they are ceased as members, and each time they transfer or acquire share capital of a company listed on the Spanish Stock Exchanges, regardless of the size of the transaction. Additionally, since we are a credit entity, any individual or company who intends to acquire a significant participation in BBVA’s share capital must obtain prior approval from the Bank of Spain in order to carry out the transaction. See “Item 10. Additional Information—Exchange Controls—Restrictions on Acquisitions of Shares”.

Royal Decree 1362/2007 also establishes reporting requirements in connection with any entity acting from a tax haven or a country where no securities regulatory commission exists, in which case the threshold of three percent is reduced to one percent.

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Royal Decree 1362/2007 was amended in 2015 in order to, among other matters, include some changes to the reporting requirements applicable to major shareholdings. In particular, cash settled instruments creating long positions on underlying listed shares shall be disclosed if the specified shareholding threshold is reached or exceeded; cash holdings and holdings as a result of financial instruments shall be aggregated for disclosure purposes and a disclosure exemption for shareholding positions held by financial entities in their trading books is available.

Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse (“MAR”) and its implementing regulations entered into force on July 3, 2016, involving a number of changes for BBVA as a listed issuer, including in relation to areas such as disclosure of inside information to the market, maintenance of insider lists and disclosure of restrictions on dealings by directors and persons discharging managerial responsibilities.

Through Royal Decree-Law 19/2018 of November 23, on payment services and other urgent financial measures, the consolidated text of the Securities Market Act has been completely adapted to the European MAR framework, including the following changes:

· the Spanish legislator has opted for certain solutions among those permitted by the European MAR framework in certain specific cases;

· several amendments have been introduced in the sanctioning regime on market abuse (inside information and market manipulation); and

· some special provisions applicable to listed companies in this area which were not compatible with this European regulatory framework or not consistent with the objective of MAR of achieving full harmonization throughout the European Union have been expressly repealed.

Each Spanish bank is required to provide to the Bank of Spain, within one month following each natural quarter, a list of all the bank’s shareholders that are financial institutions and other non-financial institution shareholders owning at least 0.25% of a bank’s total share capital. Furthermore, the banks are required to inform the Bank of Spain, as soon as they become aware, of any acquisitions or disposals of holdings in their capital that cross any of the levels indicated in Articles 16 (at least 10% of the capital or of the voting rights of the credit institution), 17 (either the percentage of voting rights or capital held is equal to or greater than 20%, 30% or 50%, or the acquisition entails acquiring control of the credit institution) and 21 (the percentage of voting rights or of capital held falls below 20%, 30% or 50% or the disposal entails the loss of control of the credit institution) of Law 10/2014, of June 26, 2014.

Tax Requirements

According to Law 10/2014, an issuer’s parent company (credit entity or listed company) is required, on an annual basis, to provide the Spanish tax authorities with the following: (i) disclosure of information regarding those investors with Spanish Tax residency obtaining income from securities and (ii) the amount of income obtained by them in each period.

B. Plan of distribution

Not Applicable.

C. Markets

See “Item 9. The Offer and Listing”.

D. Selling Shareholders

Not Applicable.

E. Dilution

Not Applicable.

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F. Expenses of the Issue

Not Applicable.

# ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not Applicable.

B. Memorandum and Articles of Association

Spanish law and BBVA’s Bylaws are the main sources of regulation affecting the Company. All rights and obligations of BBVA’s shareholders are contained in BBVA’s Bylaws and in Spanish law. Pursuant to Royal Decree 84/2015 of February 13, implementing Law 10/2014, amendments of the Bylaws of a bank are subject to notice or prior authorization of the Bank of Spain.

Registry and Company’s Objects and Purposes

BBVA is registered with the Commercial Registry of Bizkaia (Spain). Its registration number at the Commercial Registry of Bizkaia is volume 2,083, Company section folio 1, sheet BI-17-1, 1st entry. Its corporate purpose is to engage in all kinds of activities, operations, acts, contracts and services within the banking business or directly or indirectly related to it that are permitted or not prohibited by prevailing provisions and ancillary activities. Its corporate purpose also includes the acquisition, holding, utilization and divestment of securities, public offerings to buy and sell securities, and any kind of holdings in any company or enterprise. BBVA’s corporate purpose is contained in Article 3 of BBVA’s Bylaws.

Certain Powers of the Board of Directors

In general, provisions regarding directors are contained in our Bylaws. Also, our Board Regulations govern the internal procedures and the operation of the Board of Directors and its Committees and directors’ rights and duties as described in their charter. The referred Board Regulations limit a director’s right to vote on a proposal, arrangement or contract in which the director is materially interested and require retirement of directors at a certain age. Directors are not required to hold shares of BBVA in order to be appointed as such. As regards compensation in shares for executive directors, please see “Item 6. Directors, Senior Management and Employees—Compensation”.

Lastly, the Board Regulations contain a series of ethical standards. For more information please see “Item 6. Directors, Senior Management and Employees”.

Certain Provisions Regarding Privileged Shares

Our Bylaws authorize us to issue ordinary, non-voting, redeemable and privileged shares. As of the date of the filing of this Annual Report, we have no non-voting, redeemable or privileged shares outstanding.

The Company may issue shares that confer some privilege over ordinary shares under the legally established terms and conditions, complying with the formalities prescribed for amending our Bylaws.

Redemption of shares may only occur according to the terms set forth when they are issued. Redeemable shares must be fully paid-up at the time of their subscription. If the redemption right was attributed exclusively to the issuer, it may not be enforced until three years have elapsed since the issue. Redemption of redeemable shares must be charged to earnings or to free reserves or be made with the proceeds of a new share issue made under a resolution from the general shareholders’ meeting or, as the case may be, from the Board of Directors, for the purpose of financing the redemption transaction. If the redemption of these shares is charged to earnings or to free reserves, the Company must set up a reserve for the amount of the nominal value of the shares redeemed. If the redemption is not charged to earnings or free reserves or made with the proceeds of the issuance of new shares, it may only be carried out under the requirements established for the reduction of share capital by refunding contributions.

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Holders of non-voting shares, if issued, are entitled to receive a minimum fixed or variable annual dividend, as resolved by the general shareholders’ meeting and/or the Board of Directors at the time of deciding to issue the shares. The right of non-voting shares to accumulate unpaid dividends whenever funds to pay dividends are not available, any preemptive subscription rights associated with non-voting shares, and the ability of holders of non-voting shares to recover voting rights also must be established at the time of deciding to issue the shares. Once the minimum dividend has been agreed upon, holders of non-voting shares will be entitled to the same dividend as holders of ordinary shares.

Certain Provisions Regarding Shareholders Rights

As of the date of the filing of this Annual Report, our capital is comprised of one class of ordinary shares, all of which have the same rights.

Once the allocation requirements established by law and in our Bylaws have been covered, dividends may be paid out to shareholders and charged to the year’s profit or to unrestricted reserves, in proportion to the capital they may have paid up, provided the value of the total net assets is not, or as a result of such distribution would not be, less than the share capital. Shareholders will participate in the distribution of earnings in proportion to their capital paid-up. The right to collect a dividend lapses after five years as of the date in which it was first available to the shareholders. Shareholders also have the right to participate in proportion to their capital paid-up in any distribution of net assets resulting from our liquidation. For more information regarding dividends see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”.

Each voting share will confer the right to one vote on the holder present or represented at the general shareholders’ meeting. However, unpaid shares with respect to which a shareholder is in default of the resolutions of the Board of Directors relating to their payment will not be entitled to vote. Our Bylaws contain no provisions regarding cumulative voting.

Our Bylaws do not contain any provisions relating to sinking funds or potential liability of shareholders to further capital calls by us.

Our Bylaws do not establish that special quorums are required to change the rights of shareholders. Under Spanish law, the rights of shareholders may only be changed by an amendment to the Bylaws that complies with the requirements explained below under “—Shareholders’ Meetings”, plus the affirmative vote of the majority of the shares of the class that will be affected by the amendment.

Shareholders’ Meetings

The annual general shareholders’ meeting has its own set of regulations on issues such as how it operates and what rights shareholders enjoy regarding general meetings. These establish the possibility of voting or delegating votes over remote communication media.

General shareholders’ meetings may be annual or extraordinary. The annual general shareholders’ meeting is held within the first six months of each year. It will give approval, among other things and where applicable, to the corporate management of the Company and the financial statements for the previous year and resolve as to the allocation of profits or losses. Extraordinary general shareholders’ meetings are those meetings that are not ordinary. In any case, the requirements mentioned below for constitution and adoption of resolutions are applicable to both categories of general shareholders’ meetings.

General shareholders’ meetings will be called at the initiative of and according to the agenda determined by the Board of Directors, whenever it deems necessary or advisable for the Company’s interests, and in any case on the dates or in the periods determined by law and the Company Bylaws, or upon the request of one or several shareholders representing at least three percent of our share capital.

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Our general shareholders’ meeting Regulations establish that annual and extraordinary general shareholders’ meetings must be called within the notice period required by law. This will be done by means of an announcement published by the Board of Directors or its proxy in the Official Gazette of the Companies Registry (“BORME”) or one of the most widely disseminated daily newspapers in Spain, as well as being disseminated on the CNMV (the Spanish Securities Market Commission) website and the Company website, except when legal provisions establish other media for disseminating the notice.

The Company’s general shareholders’ meetings may be attended by anyone owning the minimum number of shares established in our Bylaws (500), provided that their holding is registered in the corresponding accounting records five days before the meeting is scheduled and that they keep at least that same number of shares until the meeting is held. Holders of fewer shares may group together until they make up at least that number, appointing a representative.

General shareholders’ meetings will be validly constituted at first summons with the presence of at least 25% of our voting capital, either in person or by proxy. No minimum quorum is required to hold a general shareholders’ meeting at second summons. In either case, resolutions will be agreed by the majority of the votes. However, a general shareholders’ meeting will only be validly held with the presence of 50% of our voting capital at first summons or of 25% of the voting capital at second summons, in the case of resolutions concerning the following matters:

– debt issuances;

– share capital increases or decreases;

– the exclusion or limitation of the pre-emptive subscription rights over new shares;

– transformation, merger of BBVA or spin-off and global assignment of assets and liabilities;

– the off-shoring of domicile, and

– any other amendment to the Bylaws.

In these cases, resolutions may only be approved with the vote of the absolute majority of the shares if at least 50% of the voting capital is present or represented at the general shareholders’ meeting. If the voting capital present or represented at the meeting at second summons is less than 50% (but over 25%), then resolutions may only be adopted by two-thirds of the shares present or represented.

Additionally, our Bylaws state that, in order to adopt resolutions approving the replacement of the corporate purpose, the transformation, total spin-off, the winding up of BBVA and amending that paragraph of the relevant article of our Bylaws, two-thirds of the subscribed voting capital must attend the general shareholders’ meeting at first summons, or 60% of that capital at second summons.

Restrictions on the Ownership of Shares

Our Bylaws do not provide for any restrictions on the ownership of our ordinary shares. Spanish law, however, provides for certain restrictions which are described below under “—Exchange Controls—Restrictions on Acquisitions of Shares”.

Restrictions on Foreign Investments

The Spanish Stock Exchanges are open to foreign investors. Investments in shares of Spanish companies by foreign entities or individuals may be freely executed but require the notification to the Spanish Foreign Investment Authorities for administrative statistical and economical purposes. See “—Exchange Controls”. In addition, they are subject to certain restrictions and requirements which are also applicable to investments by domestic entities or individuals.

Current Spanish regulations provide that foreign investors may freely transfer out of Spain any amounts of invested capital, capital gains and dividends subject to applicable taxes. See “—Exchange Controls”.

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C. Material Contracts

Joint Venture Agreement with Cerberus

On November 28, 2017, BBVA and various BBVA Group companies entered into a joint venture agreement (the “Joint Venture Agreement”) with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was contributed. The Business comprises: (i) REOs held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction, the Business was valued at approximately €5,000 million. The final price will be determined based on the volume of REOs effectively contributed.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the contribution of the Business (except for part of the agreed REOs, as further explained below) to a company called Divarian Propiedad, S.A. (“Divarian”), and the sale of an 80% stake in Divarian to Promontoria.

The Joint Venture Agreement governs the main terms and conditions of the contribution of the Business and the sale of the 80% stake in Divarian to Promontoria (including the granting by BBVA of certain representation and warranties in favor of Promontoria in relation to the Joint Venture Agreement and its assets and REOs).

As of the date of this Annual Report, the transfer of several REOs remains subject to the fulfilment of certain conditions:

(i) failure by the Public Administration to exercise the preferential acquisition right over the REOs located in Catalonia (this condition has to be fulfilled by June 30, 2019);

(ii) authorization by the Public Administration of the transfer of the REOs subject to a special public protection scheme (viviendas de protección pública) (this condition has to be fulfilled by April 10, 2020); and

(iii) recording of REOs in the Land Registry in favor of BBVA (this condition has to be fulfilled by April 10, 2020).

On October 10, 2018 the parties executed the following agreements (among others):

(i) a loan agreement by virtue of which BBVA granted a loan to Promontoria Holding 208 B.V., a Dutch entity and the sole shareholder of Promontoria, for the payment of 20% of the purchase price;

(ii) a shareholders’ agreement for Divarian entered into between BBVA and Promontoria, in which the rights and obligations of the parties are regulated. According to this shareholders’ agreement, Divarian will be primarily managed by Promontoria and BBVA will have no representation in the board of directors. However, BBVA will have certain veto rights at the general shareholders’ meeting over material decisions. The shareholders’ agreement also provides for a lock-up period of two years for Promontoria and BBVA, and sets forth drag-along, first refusal and the tag-along rights (the first two in favor of Promontoria and the third one in favor of BBVA). In addition, Promontoria has granted to BBVA an option to require Promontoria to acquire BBVA’s stake in the share capital of Divarian, which may be exercised within 12 months from the third anniversary of the closing date (October 10, 2018).

(iii) a services agreement entered into between BBVA and Haya Real Estate, S.L.U. (“Haya”), a company managed by Cerberus, by virtue of which Haya has agreed to provide management services for most of the real estate portfolio held by BBVA in Spain which was not contributed to Divarian (and for real estate assets in Spain that come into BBVA’s possession after June 26, 2017) for a term of 10 years as from October 10, 2018; and

(iv) a transition services agreement entered into between BBVA and Divarian by virtue of which BBVA has agreed to provide support services for a transitional term which duration varies depending on the particular service.

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D. Exchange Controls

In 1991, Spain adopted the EU Standards for free movement of capital and services. As a result, foreign investors may transfer invested capital, capital gains and dividends out of Spain without limitation as to amount, subject to applicable taxes. See “—Taxation”.

Pursuant to Spanish Law 18/1992 on Foreign Investments and Royal Decree 664/1999 on the Applicable rules to Foreign Investments, foreign investors may freely invest in shares of Spanish companies except in the case of certain strategic industries.

Notwithstanding this, Royal Decree 664/1999 and Law 19/2003, on exchange controls and foreign transactions, require notification of all foreign investments in Spain and liquidations of such investments upon completion of such investments to the Investments Registry of the Ministry of Economy and Competitiveness for administrative statistical and economical purposes. Shares in listed Spanish companies acquired or held by foreign investors must be reported to the Spanish Registry of Foreign Investments by the depositary bank or relevant Iberclear member. When a foreign investor acquires shares that are subject to the reporting requirements of the CNMV regarding significant stakes, notice must be given directly by the foreign investor to the relevant authorities.

Moreover, investments by foreigners domiciled in enumerated tax haven jurisdictions, under Royal Decree 1080/1991, are subject to special reporting requirements.

In certain circumstances and following a specific procedure, the Council of Ministers may agree to suspend the application of Royal Decree 664/1999, if the investments, due to their nature, form or condition, affect or may potentially affect activities relating to the exercise of public powers, national security or public health. Law 19/2003 authorizes the Spanish Government to take measures to impose specific limits or prohibitions, related to third countries, when such measures have been previously approved by the European Union or by an international organization to which Spain is member. Should such regimes be suspended, the affected investor shall obtain prior administrative authorization.

Restrictions on Acquisitions of Shares

Pursuant to Spanish Law 10/2014, any individual or corporation, acting alone or in concert with others, intending to directly or indirectly acquire a significant holding in a Spanish financial institution (as defined in article 16 of the aforementioned Law 10/2014) or to directly or indirectly increase its holding in one in such a way that either the percentage of voting rights or of capital owned were equal to or exceed 20%, 30% or 50%, or by virtue of the acquisition, might take control over the financial institution, must first notify the Bank of Spain.

For the purpose of this Law, a significant participation is considered 10% of the outstanding share capital of a financial institution or a lower percentage if such holding allows for the exercise of a significant influence.

The Bank of Spain will be responsible for evaluating the proposed transaction, in accordance with the terms established by Royal Decree 84/2015, of February 13 (as stated in Article 25.1 of said Royal Decree 84/2015) in order to guarantee the sound and prudent operation on the target financial institution. The Bank of Spain will submit a proposition before the European Central Bank, which will be in charge of deciding upon the proposed transaction in the term of 60 working days after the date on which the notification was received.

Any acquisition without such prior notification, or before the period established in the Royal Decree 84/2015 has elapsed or against the objection of the Bank of Spain, will produce the following results:

- the acquired shares will have no voting rights;

- if considered appropriate, the target bank may be taken over or its directors replaced; and

- the sanctions established in Title IV of Law 10/2014.

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Regarding the transparency of listed companies, such matter is mainly regulated in Spain in Royal Decree 4/2015, of October 23, approving the restated text of the Securities Market Act. The transparency requirements set out in such Act are further developed by Royal Decree 1362/2007 developing the Securities Market Act on transparency requirement for issuers of listed securities, which stipulates among other matters a communication threshold of 3% for significant stakes and extends the disclosure obligations to the acquisition or transfer of financial instruments that grant rights to acquire shares with voting rights. For more information see “Item 9. The Offer and Listing—Offer and Listing Details — Reporting Requirements”.

Tender Offers

The Spanish legal regime concerning takeover bids, which reflects the related EU regulation (mainly Directive 2004/25/EC), is set forth in Royal Decree 4/2015, of October 23, approving the restated text of the Securities Market Act, and Royal Decree 1066/2007, of July 29, on takeover bids.

E. Taxation

Spanish Tax Considerations

The following is a summary of the material Spanish tax consequences to U.S. Residents (as defined below) of the acquisition, ownership and disposition of BBVA’s ADSs or ordinary shares as of the date of the filing of this Annual Report. This summary does not address all tax considerations that may be relevant to all categories of potential purchasers, some of whom (such as life insurance companies, tax-exempt entities, dealers in securities or financial institutions) may be subject to special rules. In particular, the summary deals only with U.S. Holders (as defined below) that will hold ADSs or ordinary shares as capital assets and who do not at any time own individually, and are not treated as owning, 25% or more of BBVA’s shares, including ADSs.

As used in this particular section, the following terms have the following meanings:

(1) “U.S. Holder” means a beneficial owner of BBVA’s ADSs or ordinary shares that is for U.S. federal income tax purposes:

· a citizen or an individual resident of the United States,

· a corporation or other entity treated as a corporation, created or organized under the laws of the United States, any state therein or the District of Columbia, or

· an estate or trust the income of which is subject to U.S. federal income tax without regard to its source.

(2) “Treaty” means the Convention between the United States and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol.

(3) “U.S. Resident” means a U.S. Holder that is a resident of the United States for the purposes of the Treaty and entitled to the benefits of the Treaty, whose holding is not effectively connected with (1) a permanent establishment in Spain through which such holder carries on or has carried on business, or (2) a fixed base in Spain from which such holder performs or has performed independent personal services.

Holders of ADSs or ordinary shares should consult their tax advisors, particularly as to the applicability of any tax treaty. The statements regarding Spanish tax laws set out below are based on interpretations of those laws in force as of the date of this Annual Report. Such statements also assume that each obligation in the Deposit Agreement and any related agreement will be performed in full accordance with the terms of those agreements.

Taxation of Dividends

Under Spanish law, cash dividends paid by BBVA to a holder of ordinary shares or ADSs who is not resident in Spain for tax purposes and does not operate through a permanent establishment in Spain, are subject to Spanish Non-Resident Income Tax, withheld at source at a 19% tax rate. For these purposes, upon distribution of the dividend, BBVA or its paying agent will withhold an amount equal to the tax due according to the rules set forth above (applying a withholding tax rate of 19%), transferring the resulting net amount to the depositary.

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However, under the Treaty, if you are a U.S. Resident, you are entitled to a reduced withholding tax rate of 15%. To benefit from the Treaty-reduced rate of 15%, if you are a U.S. Resident, you must provide to BBVA through our paying agent depositary, before the tenth day following the end of the month in which the dividends were payable, a certificate from the U.S. Internal Revenue Service (“IRS”) stating that, to the best knowledge of the IRS, you are a resident of the United States within the meaning of the Treaty and entitled to its benefits.

If the paying agent depositary provides timely evidence (i.e., by means of the IRS certificate) of your right to apply the Treaty-reduced rate it will immediately receive the surplus amount withheld, which will be credited to you. The IRS certificate is valid for a period of one year from issuance.

To help shareholders obtain such certificates, BBVA has set up an online procedure to make this as easy as possible.

If the certificate referred to in the above paragraph is not provided to us through our paying agent depositary within said term, you may afterwards obtain a refund of the amount withheld in excess of the rate provided for in the Treaty.

Spanish Refund Procedure

According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004 dated July 30, 2004, as amended, a refund for the amount withheld in excess of the Treaty-reduced rate can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a U.S. Resident, you are required to file:

· the corresponding Spanish tax form,

· the certificate referred to in the preceding section, and

· evidence of the Spanish Non-Resident Income Tax that was withheld with respect to you.

The refund claim must be filed within four years from the date in which the withheld tax was collected by the Spanish tax authorities, but not before February 1 of the following year.

U.S. Residents are urged to consult their own tax advisors regarding refund procedures and any U.S. tax implications thereof.

U.S. Holders should consult their tax advisors regarding the availability of, and the procedures to be followed in connection with, this exemption.

Taxation of Rights

Distribution of preemptive rights to subscribe for new shares made with respect to shares in BBVA will not be treated as income under Spanish law and, therefore, will not be subject to Spanish Non-Resident Income Tax. The exercise of such preemptive rights is not considered a taxable event under Spanish law and thus is not subject to Spanish tax. Capital gains derived from the disposition of preemptive rights received by U.S. Residents are generally not taxed in Spain provided that certain conditions are met (see “—Taxation of Capital Gains” below).

Taxation of Capital Gains

Under Spanish law, any capital gains derived from securities issued by persons residing in Spain for tax purposes are considered to be Spanish-source income and, therefore, are taxable in Spain. For Spanish tax purposes, gain recognized by U.S. Residents from the sale of BBVA’s ADSs or ordinary shares will be treated as capital gains. Spanish Non-Resident Income Tax is currently levied at a 19% tax rate, on capital gains recognized by persons who are not residents of Spain for tax purposes, who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation and who do not operate through a fixed base or a permanent establishment in Spain.

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Notwithstanding the discussion above, capital gains derived from the transfer of shares on an official Spanish secondary stock market by any holder who is resident in a country that has entered into a treaty for the avoidance of double taxation with an “exchange of information” clause (the Treaty contains such a clause) will be exempt from taxation in Spain. Additionally, capital gains realized by non-residents of Spain who are entitled to the benefit of an applicable treaty for the avoidance of double taxation will, in the majority of cases, not be taxed in Spain (since most tax treaties provide for taxation only in the taxpayer’s country of residence). Under the Treaty, U.S. Residents’ capital gains arising from the disposition of ordinary shares or ADSs will not be taxed in Spain. U.S. Residents will be required to establish that they are entitled to this exemption by providing to the relevant Spanish tax authorities a certificate of residence in the United States from the IRS (discussed above in “—Taxation of Dividends”), together with the corresponding Spanish tax form.

Spanish Inheritance and Gift Taxes

Transfers of BBVA’s shares or ADSs upon death or by gift to individuals are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987), if the transferee is a resident in Spain for tax purposes, or if BBVA’s shares or ADSs are located in Spain, regardless of the residence of the transferee. In this regard, the Spanish tax authorities may argue that all shares of a Spanish corporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate for individuals, after applying all relevant factors, ranges between approximately 7.65% and 81.6% under Spanish Law 29/1987. After determining the tax rate, multipliers that range from 1.0 to 2.4, are applied in order to assess the tax due. Those multipliers take into account the preexisting wealth of the inheritor / donee, and the kinship with the deceased / donor.

Corporations that are non-residents of Spain that receive BBVA’s shares or ADSs as a gift are subject to Spanish Non-Resident Income Tax at a 19% tax rate on the fair market value of such ordinary shares or ADSs as a capital gain tax. If the donee is a U.S. resident corporation, the exclusions available under the Treaty described in “—Taxation of Capital Gains” above will be applicable.

Spanish Transfer Tax

Transfers of BBVA’s ordinary shares or ADSs will be exempt from Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) or Value-Added Tax. Additionally, no stamp duty will be levied on such transfers.

U.S. Tax Considerations

The following summary describes material U.S. federal income tax consequences of the ownership and disposition of ADSs or ordinary shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold the securities. The summary applies only to U.S. Holders that are eligible for the benefits of the Treaty (in each case, as defined under “Spanish Tax Considerations” above) and that hold ADSs or ordinary shares as capital assets for tax purposes. This discussion does not address all of the tax consequences that may be relevant to any particular U.S. Holder, including the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, and tax consequences that may be relevant to holders subject to special rules, such as:

• certain financial institutions;

• dealers or traders in securities who use a mark-to-market method of accounting;

• persons holding ADSs or ordinary shares as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the ADSs or ordinary shares;

• persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;

• persons liable for the alternative minimum tax;

• tax-exempt entities;

• partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

• persons holding ADSs or ordinary shares in connection with a trade or business conducted outside of the United States;

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• persons who acquired our ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise as compensation; or

• persons who own or are deemed to own 10% or more of our stock, by vote or value.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds ADSs or ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding ADSs or ordinary shares and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of the ADSs or ordinary shares.

The summary is based upon the tax laws of the United States, including the Code, the Treaty, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect. In addition, the summary is based in part on representations by the depositary and assumes that each obligation provided for in or otherwise contemplated by BBVA’s deposit agreement and any other related document will be performed in accordance with its terms. Prospective purchasers or owners of the ADSs or ordinary shares are urged to consult their tax advisors as to the U.S., Spanish or other tax consequences of the ownership and disposition of ADSs or ordinary shares in their particular circumstances, including the effect of any U.S. state or local tax laws.

In general, for United States federal income tax purposes, a U.S. Holder who owns ADSs will be treated as the owner of the underlying ordinary shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of American depositary shares. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, as described below. Accordingly, the analysis of the creditability of Spanish taxes and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, each described below, could be affected by future actions that may be taken by such parties.

This discussion assumes that BBVA has not been, and will not become, a passive foreign investment company (“PFIC”) (as discussed below).

Taxation of Distributions

Distributions, before reduction for any Spanish income tax withheld by BBVA or its paying agent, made with respect to ADSs or ordinary shares (other than certain pro rata distributions of ordinary shares or rights to subscribe for ordinary shares of BBVA’s capital stock) will be includible in the income of a U.S. Holder as ordinary income, to the extent paid out of BBVA’s current or accumulated earnings and profits as determined in accordance with U.S. federal income tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. The amount of such dividends will generally be treated as foreign-source dividend income and will not be eligible for the “dividends-received deduction” generally allowed to U.S. corporations under the Code. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid to certain non-corporate U.S. Holders of ADSs will be taxable as “qualified dividend income” and therefore will be taxable at favorable rates applicable to long-term capital gains. U.S. Holders should consult their own tax advisors to determine the availability of these favorable rates in their particular circumstances.

The amount of dividend income will equal the U.S. dollar value of the euro received, calculated by reference to the exchange rate in effect on the date of receipt (which, for U.S. Holders of ADSs, will be the date such distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any euro received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.

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Subject to applicable limitations that vary depending upon a U.S. Holder’s circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Spanish income taxes withheld by BBVA or its paying agent at a rate not exceeding the rate the U.S. Holder is entitled to under the Treaty. Spanish taxes withheld in excess of the rate applicable under the Treaty will not be eligible for credit against the U.S. Holder’s U.S. federal income tax liability. See “Spanish Tax Considerations—Taxation of Dividends” for a discussion of how to obtain the Treaty rate. The rules governing foreign tax credits are complex and, therefore, U.S. Holders should consult their tax advisors regarding the availability of foreign tax credits in their particular circumstances. Instead of claiming a credit, the U.S. Holder may, at its election, deduct such Spanish taxes in computing its U.S. federal taxable income. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

Sale or Other Disposition of ADSs or Shares

For U.S. federal income tax purposes, gain or loss realized by a U.S. Holder on the sale or other disposition of ADSs or ordinary shares will be capital gain or loss in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or ordinary shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year at the time of disposition. Gain or loss, if any, will generally be U.S. source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

Based upon certain proposed Treasury regulations which are proposed to be effective for taxable years beginning after December 31, 1994 (“Proposed Regulations”), we believe that we were not a PFIC for U.S. federal income tax purposes for our 2018 taxable year. However, since our PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25% owned equity investments) from time to time and since there is no guarantee that the Proposed Regulations will be adopted in their current form and because the manner of the application of the Proposed Regulations is not entirely clear, there can be no assurance that we will not be considered a PFIC for any taxable year.

If we were treated as a PFIC for any taxable year during which a U.S. Holder held ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of an ADS or an ordinary share would be allocated ratably over the U.S. Holder’s holding period for the ADS or the ordinary share. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable for that taxable year, and an interest charge would be imposed on the amount of tax allocated to such taxable year. The same treatment would apply to any distribution received by a U.S. Holder on its ordinary shares or ADSs to the extent that such distribution exceeds 125% of the average of the annual distributions on the ordinary shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable year, the favorable tax rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. Certain elections may be available (including a mark-to-market election) that may provide alternative tax treatments. U.S. Holders should consult their tax advisors regarding whether we are or were a PFIC, the potential application of the PFIC rules to their ownership and disposition of ordinary shares or ADSs, whether any of these elections for alternative treatment would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances. If we were a PFIC for any taxable year during which a U.S. Holder owned our shares, the U.S. Holder would generally be required to file IRS Form 8621 with their annual U.S. federal income tax returns, subject to certain exceptions.

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Information Reporting and Backup Withholding

Information returns may be filed with the IRS in connection with payments of dividends on, and the proceeds from a sale or other disposition of, ADSs or ordinary shares. A U.S. Holder may be subject to U.S. backup withholding on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

Certain U.S. Holders who are individuals or specified entities may be required to report information relating to securities of non-U.S. companies, or non-U.S. accounts through which they are held. U.S. Holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership or disposition of ordinary shares or ADSs.

F. Dividends and Paying Agents

Not Applicable.

G. Statement by Experts

Not Applicable.

H. Documents on Display

We are subject to the information requirements of the Exchange Act, except that as a foreign private issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by BBVA with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which BBVA’s ADSs are listed. In addition, the SEC maintains a web site that contains information filed or furnished electronically with the SEC, which can be accessed over the internet at http://www.sec.gov. Except as otherwise expressly indicated herein, any such information does not form part of this Annual Report on Form 20-F.

I. Subsidiary Information

Not Applicable.

# ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Trading Portfolio Activities

Market risk originates as a result of movements in the market variables that impact the valuation of traded financial products and assets. The main risks can be classified as follows:

· Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.

· Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.

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· Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.

· Credit-spread risk: Credit spread is an indicator of an issuer’s credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.

· Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.

We believe the metrics developed to control and monitor market risk in the BBVA Group are aligned with best practices in the market, and they are implemented consistently across all the local market risk units.

Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group’s Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used by the Group to measure market risk in the trading portfolio is Value at Risk (“VaR”), which indicates the maximum loss expected to occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and credit spreads. The market risk analysis considers various market risks, such as credit-spread risk, basis risk, volatility risk and correlation risk, among others.

Headings of the balance sheet subject to VaR measurement

We rely on VaR to measure market risk in our trading portfolio. The table below shows the aggregate amount of our traded financial products and assets, by accounting line of the consolidated balance sheet, as of December 31, 2018, in respect of which there is a market risk and therefore is subject to a VaR measurement:

|  | As of December 31, 2018
|  | VaR
|  | (In Millions of Euros)
Assets subject to market risk |  |
Financial assets held for trading |  | 57,486
Financial assets at fair value through other comprehensive income |  | 5,652
Of which: Equity instruments |  | -
Hedging derivatives |  | 688
Liabilities subject to market risk |  |
Financial liabilities held for trading |  | 38,844
Hedging derivatives |  | 550

Although the table above provides information on the financial positions in our trading portfolio subject to market risk and therefore VaR measurement, such information is provided for information purposes only and does not reflect how market risk in trading activity is managed.

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With respect to the risk measurement models used by the BBVA Group, the Bank of Spain has authorized the use of the internal market risk model to determine bank capital requirements deriving from risk positions on the Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer trading book, which jointly accounted for around 76% and 70% of the Group’s trading book market risk as of December 31, 2018 and 2017, respectively. For the rest of the geographical areas where the Group operates (applicable mainly to the Group’s South America subsidiaries, Garanti and BBVA Compass), bank capital for the risk positions in the trading book is calculated using the Standardised Approach defined by the Basel Committee on Banking Supervision (which is referred to herein as the “standard model”).

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the “historical simulation” methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it predicts the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years. The historical simulation method is used by Banco Bilbao Vizcaya Argentaria, S.A., BBVA Bancomer, BBVA Colombia, S.A., Compass Bank and Garanti.

VaR figures are estimated following two methodologies:

· VaR without smoothing, which awards equal weight to the daily information for the previous two years. This is currently the official methodology for measuring market risks for the purpose of monitoring compliance with risk limits.

· VaR with smoothing, which gives a greater weight to more recent market information. This metric supplements the previous one.

In the case of the Global Markets units of Argentina and Peru, a parametric methodology is used to measure risk in terms of VaR.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain’s regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

· VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed VaR) is calculated. This quantifies the losses associated with the movements of the risk factors inherent to market operations (including interest-rate risk, exchange-rate risk, equity risk and credit risk, among others). Both VaR and stressed VaR are rescaled by a regulatory multiplier set at three and by the square root of ten to calculate the capital charge.

· Specific Risk - Incremental Risk Capital (“IRC”) Quantification of the risks of default and downgrading of the credit ratings of the bond and credit derivative positions in the portfolio. The IRC charge is exclusively applied in entities in respect of which the internal market risk model is used (i.e., Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer). The IRC charge is determined based on the associated losses (calculated at 99.9% confidence level over a one year horizon under the hypothesis of constant risk) due to a rating change and/or default of the issuer with respect to an asset. In addition, the price risk is included in sovereign positions for the specified items.

· Specific Risk - Securitization and correlation portfolios. Capital charges for securitizations and correlation portfolios are assessed based on the potential losses associated with the rating level of a specific credit structure. They are calculated by the standard model. The scope of the correlation portfolios refers to the First To Default (FTD)-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity.

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Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the assessed positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at a trading desk level in order to enable more specific monitoring of the validity of the measurement models.

Market risk in 2018

The Group’s market risk related to its trading portfolio remains at low levels compared with other risks managed by BBVA, particularly credit risk. This is due to the nature of the business. During 2018 the average VaR was €21 million, below the average and highest figures for 2017. VaR reached a high on March 16, 2018 of €26 million. The evolution in the Group’s market risk during 2018, measured as VaR without smoothing with a 99% confidence level and a one-day horizon (shown in millions of euros) was as follows:

By type of market risk assumed by the Group’s trading portfolio, the main risk factor for the Group continued to be that linked to interest rates, with a weight of 55% of the total at December 31, 2018 (this figure includes the spread risk). The relative weight of this risk increased compared with its relative weight at December 31, 2017 (48%). Exchange-rate risk had a relative weight of 14%, the same as in 2017, while the relative weight of equity, volatility and correlation risk decreased from 38% at December 31, 2017 to 31% at December 31, 2018.

The VaR average in 2018, 2017 and 2016 was €21 million, €27 million and €29 million, respectively. The total VaR figures for 2018, 2017 and 2016 can be broken down as follows:

Risk | 2018 | 2017 | 2016
| (In Millions of Euros)
At December 31 |  |  |
Interest/Spread risk | 19 | 23 | 29
Currency risk | 5 | 7 | 7
Stock-market risk | 3 | 4 | 2
Vega/Correlation risk | 7 | 14 | 12
Diversification effect(*) | (17) | (26) | (24)
For period | 17 | 22 | 26
VaR average in the period | 21 | 27 | 29
VaR max in the period | 26 | 34 | 38
VaR min in the period | 16 | 22 | 23
(*) The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.

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VaR and other measures of the risk of loss used by the Group involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements”.

Validation of the internal market risk model

The internal market risk model is validated on a regular basis by backtesting in both Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer. The aim of backtesting is to validate the quality and precision of the internal market risk model used by the Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group’s results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer is adequate and precise.

Two types of backtesting were carried out during the years ended December 31, 2018, 2017 and 2016:

“Hypothetical” backtesting: the daily VaR is compared with the results obtained, not taking into account the intraday results or the changes in the portfolio positions. This validates the appropriateness of the market risk metrics for the end-of-day position.

“Real” backtesting: the daily VaR is compared with the total results, including intraday transactions, but discounting the possible minimum charges or fees involved. This type of backtesting includes the intraday risk in portfolios.

In addition, each of these two types of backtesting was carried out at a risk factor or business type level, thus making a deeper comparison of the results with respect to risk measurements.

During the year ended December 31, 2018, we carried out the backtesting of the internal VaR calculation model, comparing the daily results obtained with the risk level estimated by the internal VaR calculation model. At the end of 2018, the comparison showed the internal VaR calculation model was working correctly, within the “green” zone (0-4 exceptions), thus validating the internal VaR calculation model, as has occurred each year since the internal market risk model was approved for the Group.

Stress test analysis

A number of stress tests are carried out on the Group’s trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the “Tequilazo” crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions.

Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

· Credit shock: reflected mainly in the increase of credit spreads and downgrades in credit ratings.

· Increased volatility in most of the financial markets (giving rise to a great deal of variation in the prices of different assets (currency, equity, debt).

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· Liquidity shock in the financial systems, reflected by a major movement in interbank curves, particularly in the shortest sections of the euro and dollar curves.

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on a resampling methodology. This methodology is based on the use of dynamic scenarios that are recalculated periodically depending on the main risks affecting the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from January 1, 2008 until the date of the assessment), a simulation is performed by resampling of historic observations, generating a distribution of losses and gains that serve to analyze the most extreme of births in the selected historical window. The advantage of this resampling methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a greater richness of information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) there is flexibility in the inclusion of new risk factors and c) it allows the introduction of a lot of variability in the simulations (desirable for considering extreme events).

Structural Risk — Non-Trading Activities

Structural interest-rate risk

The structural interest-rate risk (“SIRR”) is related to the potential impact that variations in market interest rates have on an entity’s net interest income and equity. In order to measure SIRR, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed from two complementary points of view: net interest income (short term) and economic value (long term).

ALCO monitors the interest-rate risk metrics and the Assets and Liabilities Management unit carries out the management proposals for the structural balance sheet. The management objective is to ensure the stability of net interest income and book value in the face of changes in market interest rates, while respecting the internal solvency and other limits in the different balance sheets and for the Group as a whole, and complying with current and future regulatory requirements.

BBVA’s structural interest-rate risk management control and monitoring is based on a set of metrics and tools aimed at enabling the entity’s risk profile to be monitored correctly. A wide range of scenarios are measured on a regular basis, including sensitivities to parallel movements in the event of different shocks, changes in slope and curve, as well as delayed movements. Other probabilistic metrics based on statistical scenario-simulating methods are also assessed, such as earnings at risk (“EaR”) and economic capital (“EC”), which are defined as the maximum adverse deviations in net interest income and economic value, respectively, for a given confidence level and time horizon. Impact thresholds are established on these management metrics both in terms of deviations in net interest income and in terms of the impact on economic value. The process is carried out separately for each currency to which the Group is exposed, and the diversification effect between currencies and business units is considered after this.

In order to evaluate its effectiveness, the model is subjected to regular internal validation, which includes backtesting. In addition, the banking book’s interest-rate risk exposures are subjected to different stress tests in order to reveal balance sheet vulnerabilities under extreme scenarios. This testing includes an analysis of adverse macroeconomic scenarios designed specifically by BBVA Research, together with a wide range of potential scenarios that aim to identify interest-rate environments that are particularly damaging for the entity. This is done by generating extreme scenarios of a breakthrough in interest rate levels and historical correlations, giving rise to sudden changes in the slopes and even to inverted curves.

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The model is necessarily underpinned by an elaborate set of assumptions that aim to reproduce the behavior of the balance sheet as closely as possible to reality. Especially relevant among these assumptions are those related to the behavior of deposits with no explicit maturity, for which stability and remuneration assumptions are established, consistent with an adequate segmentation by type of product and customer, and prepayment estimates (implicit optionality). The assumptions are reviewed and adapted, at least on an annual basis, to signs of changes in behavior, kept properly documented and reviewed on a regular basis in the internal validation processes.

The impacts on the metrics are assessed both from a point of view of economic value with a static model (gone concern) and from the perspective of net interest income, for which a dynamic model (going concern) consistent with the corporate assumptions of earnings forecasts is used.

The table below shows the estimated impact on net interest income and economic value as of December 31, 2018, for the next succeeding year, of the main entities in the BBVA Group in 2018 of 100 basis points increases/decreases in interest rates (while certain information in this table is provisional, the distributions should not be significantly affected):

| Impact on Net Interest Income (*) | Impact on Economic Value(**)
| 100 Basis-Point Increase | 100 Basis-Point Decrease | 100 Basis-Point Increase | 100 Basis-Point Decrease
Europe (***) | + (5% - 10%) | - (5% - 10%) | + (0% - 5%) | - (0% - 5%)
USA | + (5% - 10%) | - (5% - 10%) | - (5% - 10%) | + (0% - 5%)
Mexico | + (0% - 5%) | - (0% - 5%) | + (0% - 5%) | - (0% - 5%)
Turkey | + (0% - 5%) | - (0% - 5%) | - (0% - 5%) | + (0% - 5%)
South America | + (0% - 5%) | - (0% - 5%) | - (0% - 5%) | + (0% - 5%)
BBVA Group | + (0% - 5%) | - (0% - 5%) | - (0% - 5%) | - (0% - 5%)

(*) Percentage impact of “one year” net interest income forecast for each unit.

(**) Percentage impact of core capital for each unit.

(***) In Europe falling interest rates at more negative levels than the current interest rates.

In 2018, European monetary policy has remained expansionary, maintaining interest rates at 0% and the deposit rate at (0.4)%. In the United States, the rising rate cycle initiated by the Federal Reserve in 2015 has continued. In Mexico and Turkey, the upward cycle has continued as a result of volatility in their currencies and inflation prospects. In South America, monetary policy has continued to be expansive in most of the economies where the Group operates, with the exception of Argentina, where rates increased and actions were taken to slow inflation.

The Group overall maintains a positive and moderate sensitivity in its net interest income to an increase in interest rates. Higher relative net interest income sensitivities are particularly observed in markets using the euro and U.S. dollar. In Europe, however, the possible decrease in interest rates is limited by the very low or even negative prevailing interest rates, which prevent that very adverse scenarios may occur. The Group maintains a moderate risk profile, according to its target risk, through effective management of its balance sheet structural risk.

Structural exchange-rate risk

In the Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint handling of permanent foreign currency exposures, taking into account diversification.

The corporate Assets and Liabilities Management unit, through ALCO, designs and executes hedging strategies with the main purpose of controlling the potential negative effect of exchange-rate fluctuations on capital ratios and on the equivalent value in euros of the foreign-currency earnings of the Group’s subsidiaries, considering transactions according to market expectations and their cost.

The risk monitoring metrics included in the framework of limits are integrated into management and supplemented with additional assessment indicators. At the corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

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The suitability of these risk assessment metrics is reviewed on a regular basis through backtesting exercises. The final element of structural exchange-rate risk control is the analysis of scenarios and stress with the aim of identifying in advance possible threats to future compliance with the risk appetite levels set, so that any necessary preventive management actions can be taken. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

In 2018, emerging markets experienced higher volatility levels in exchange rates. As for the main currencies of the countries where the Group operates, the Mexican peso and U.S. dollar appreciated against the euro in terms of period-end exchange rates (around 5% in both cases), while the Turkish lira and Argentine peso have strongly depreciated against the euro (25% and 48%, respectively) affected by idiosyncratic factors at period-end.

The Group’s structural exchange-rate risk exposure level has remained fairly stable since the end of 2017. The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging currencies against the euro and focuses on the Mexican peso and the Turkish lira. The risk mitigation level in BBVA’s capital ratio due to the book value of the Group’s holdings in foreign emerging markets currencies stood at around 70% and, as of the end of 2018, the CET1 ratio sensitivity to the appreciation of 1% in the euro exchange rate for each currency was as follows: U.S. dollar +1.1 bps; Mexican peso -0.2 bps; Turkish lira -0.2 bps; and other currencies -0.2 bps. Hedging of emerging markets-currency denominated earnings in 2018 increased to 82% (from 61% in 2017), concentrated in the Mexican peso, Turkish lira and other main Latin American currencies.

Structural equity risk

The Group’s exposure to structural equity risk stems mainly from minority shareholdings in industrial and financial companies held with long or medium-term investment horizons. This exposure is modulated in some portfolios with positions held in derivative instruments on the same underlying assets, in order to adjust the portfolio sensitivity to potential changes in equity prices.

The management of structural equity portfolios is the responsibility of the Group’s units specialized in this area. Their activity is subject to the risk management corporate policy on structural equity risk management, which complies with the defined management principles of BBVA and its Risk Appetite Framework.

The Group’s risk management systems also make it possible to anticipate potential negative impacts and take appropriate measures to prevent damage being caused to the entity. The risk control and limitation mechanisms are focused on the exposure, annual performance and economic capital estimated for each portfolio. Economic capital is estimated in accordance with a corporate model based on Monte Carlo simulations, taking into account the statistical performance of asset prices and the diversification existing among the different exposures.

Stress tests and analyses of sensitivity to different simulated scenarios are carried out periodically to analyze the risk profile in more depth. They are based on both past crisis situations and forecasts made by BBVA Research. This aims to check that the risks are limited and that the tolerance levels set by the Group are not at risk.

Backtesting is carried out on a regular basis on the risk measurement model used.

With regards to equity markets, the world indexes at the end of 2018 experienced generalized falls and volatility surges in a scenario of global growth slowdown, increase of political uncertainty and normalization of monetary policies.

Structural equity risk, measured in terms of economic capital, decreased in 2018 mainly due to lower exposure. The aggregate sensitivity of the Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio was around €(28) million as of December 31, 2018 and €(32) million as of December 31, 2017. This estimate takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (excluding the positions in the Treasury Area portfolios) and the net delta-equivalent positions in derivatives on the same underlyings.

See Note 7 of the Consolidated Financial Statements for additional information on risks faced by BBVA.

#

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# ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not Applicable.

B. Warrants and Rights

Not Applicable.

C. Other Securities

Not Applicable.

D. American Depositary Shares

Our ADSs are listed on the New York Stock Exchange under the symbol “BBVA”. The Bank of New York Mellon is the depositary (the “Depositary”) issuing ADSs pursuant to an amended and restated deposit agreement dated June 29, 2007 among BBVA, the Depositary and the holders from time to time of ADSs (the “Deposit Agreement”). Each ADS represents the right to receive one share. The table below sets forth the fees payable, either directly or indirectly, by a holder of ADSs as of the date of this Annual Report.

Category | Depositary Actions | Associated Fee / By Whom Paid
(a) Depositing or substituting the underlying shares | Issuance of ADSs | Up to $5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADSs delivered (charged to person depositing the shares or receiving the ADSs)
(b) Receiving or distributing dividends | Distribution of cash dividends or other cash distributions; distribution of share dividends or other free share distributions; distribution of securities other than ADSs or rights to purchase additional ADSs | Not applicable
(c) Selling or exercising rights | Distribution or sale of securities | Not applicable
(d) Withdrawing an underlying security | Acceptance of ADSs surrendered for withdrawal of deposited securities | Up to $5.00 for each 100 ADSs (or portion thereof) evidenced by the ADSs surrendered (charged to person surrendering or to person to whom withdrawn securities are being delivered)
(e) Transferring, splitting or grouping receipts | Transfers, combining or grouping of depositary receipts | Not applicable
(f) General depositary services, particularly those charged on an annual basis | Other services performed by the Depositary in administering the ADSs | Not applicable
(g) Expenses of the Depositary | Expenses incurred on behalf of holders in connection with · stock transfer or other taxes (including Spanish income taxes) and other governmental charges; · cable, telex and facsimile transmission and delivery charges incurred at request of holder of ADS or person depositing shares for the issuance of ADSs; · transfer, brokerage or registration fees for the registration of shares or other deposited securities on the share register and applicable to transfers of shares or other deposited securities to or from the name of the custodian; · reasonable and customary expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars | Expenses payable by holders of ADSs or persons depositing shares for the issuance of ADSs; expenses payable in connection with the conversion of foreign currency into U.S. dollars are payable out of such foreign currency

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The Depositary may remit to us all or a portion of the Depositary fees charged for the reimbursement of certain of the expenses we incur in respect of the ADS program established pursuant to the Deposit Agreement upon such terms and conditions as we may agree from time to time. In the year ended December 31, 2018, the Depositary reimbursed us $897,129 with respect to certain fees and expenses. The table below sets forth the types of expenses that the Depositary has agreed to reimburse and the amounts reimbursed in 2018.

Category of Expenses | Amount Reimbursed in the Year Ended December 31, 2018
| (In Dollars)
NYSE Listing Fees | 359,262
Investor Relations Marketing | 260,693
Professional Services | 103,714
Annual General Shareholders’ Meeting Expenses | 167,552
Other | 5,908

PART II

# ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

# ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not Applicable.

# ITEM 15. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2018, BBVA, under the supervision and with the participation of BBVA’s management, including our Group Executive Chairman, Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

Based upon their evaluation, BBVA’s Group Executive Chairman, Chief Executive Officer and Chief Financial Officer concluded that BBVA’s disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information relating to BBVA, including its consolidated subsidiaries, required to be disclosed in reports that it files under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to the management, including principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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Management’s Report on Internal Control Over Financial Reporting

The management of BBVA is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. BBVA’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

· pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of BBVA;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of BBVA’s management and directors; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of BBVA’s management, including our Group Executive Chairman, Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management concluded that, as of December 31, 2018, our internal control over financial reporting was effective based on those criteria.

Changes in Internal Control Over Financial Reporting

There have been no changes in BBVA’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) which have materially affected or are reasonably likely to materially affect BBVA’s internal control over financial reporting during the year ended December 31, 2018. BBVA adopted IFRS 9 on January 1, 2018 and has updated and modified certain controls over financial reporting as a result of the new accounting standard, embedding them into the existing control environment.

Our internal control over financial reporting as of December 31, 2018 has been audited by KPMG Auditores S.L., an independent registered public accounting firm, as stated in their report which follows below.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Banco Bilbao Vizcaya Argentaria, S.A.:

Opinion on Internal Control Over Financial Reporting

We have audited Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income, recognized income and expenses, changes in equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements), and our report dated March 28, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG Auditores, S.L.

Madrid, Spain

March 28, 2019

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ITEM 16. [RESERVED]

# ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The charter for our Audit and Compliance Committee provides that the members of the Audit and Compliance Committee, and particularly its Chairman, shall be appointed with regard to their knowledge and background in accounting, auditing and risk management, and we have determined that Mr. José Miguel Andrés Torrecillas, the Chairman of the Audit and Compliance Committee has such experience and knowledge and is an “audit committee financial expert” as such term is defined by the regulations of the Securities and Exchange Commission issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. Mr. Andrés is independent within the meaning of the New York Stock Exchange listing standards.

In addition, we believe that the remaining members of the Audit and Compliance Committee have an understanding of applicable generally accepted accounting principles, experience analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our Consolidated Financial Statements, an understanding of internal controls over financial reporting, and an understanding of audit committee functions. Our Audit and Compliance Committee has experience overseeing and assessing the performance of BBVA and its consolidated subsidiaries and our external auditors with respect to the preparation, auditing and evaluation of our Consolidated Financial Statements.

# ITEM 16B. CODE OF ETHICS

The BBVA Group Code of Conduct, which was updated by the Board of Directors on May 28, 2015, applies to all companies and persons which form part of the BBVA Group. This Code sets out the standards of behavior that should be adhered to so that the Group’s conduct towards its customers, colleagues and the society be consistent with BBVA’s values. The BBVA Group Code of Conduct can be found on BBVA’s website at www.bbva.com.

#

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# ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table provides information on the aggregate fees paid and payable by our principal accountants KPMG Auditores S.L. and its worldwide affiliates, by type of service rendered for the periods indicated.

| Year ended December 31,
Services Rendered | 2018 | 2017
| (In Millions of Euros)
Audit Fees(1) | 22.7 | 23.3
Audit-Related Fees(2) | 5.2 | 6.1
Tax Fees(3) | - | -
All Other Fees(4) | - | 0.2
Total | 27.9 | 29.6

(1) Aggregate fees paid and payable for each of the last two fiscal years for professional services rendered by our principal accountants and its worldwide affiliates for the audit of BBVA’s annual financial statements or services that are normally provided by our principal accountants and its worldwide affiliates in connection with statutory and regulatory filings or engagements for those fiscal years.

(2) Aggregate fees paid and payable in each of the last two fiscal years for assurance and related services by our principal accountants and its worldwide affiliates that are reasonably related to the performance of the audit or review of BBVA’s financial statements and are not reported under (1) above.

(3) Aggregate fees paid and payable in each of the last two fiscal years for professional services rendered by our principal accountants and its worldwide affiliates for tax compliance, tax advice, and tax planning.

(4) Aggregate fees paid and payable in each of the last two fiscal years for products and services provided by our principal accountants and its worldwide affiliates other than the services reported in (1), (2) and (3) above. Services in this category consisted primarily of consultancy and implementation of new regulation.

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The Audit and Compliance Committee’s Pre-Approval Policies and Procedures

In order to assist in ensuring the independence of our external auditor, the regulations of our Audit and Compliance Committee provides that our external auditor is generally prohibited from providing us with non-audit services, other than under the specific circumstance described below. For this reason, our Audit and Compliance Committee has developed a pre-approval policy regarding the contracting of BBVA’s external auditor, or any affiliate of the external auditor, for professional services. The professional services covered by such policy include audit and non-audit services provided to BBVA or any of its subsidiaries reflected in agreements dated on or after May 6, 2003.

The pre-approval policy is as follows:

1. The hiring of BBVA’s external auditor or any of its affiliates is prohibited, unless there is no other firm available to provide the needed services at a comparable cost and that could deliver a similar level of quality.

2. In the event that there is no other firm available to provide needed services at a comparable cost and delivering a similar level of quality, the external auditor (or any of its affiliates) may be hired to perform such services, but only with the pre-approval of the Audit and Compliance Committee.

3. The Chairman of the Audit and Compliance Committee has been delegated the authority to approve the hiring of BBVA’s external auditor (or any of its affiliates). In such an event, however, the Chairman would be required to inform the Audit and Compliance Committee of such decision at the Committee’s next meeting.

4. The hiring of the external auditor for any of BBVA’s subsidiaries must also be pre-approved by the Audit and Compliance Committee.

# ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

# ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

2018 | Total Number of Ordinary Shares Purchased | Average Price Paid per Share (or Unit) in Euros | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
January 1 to January 31 | 10,576,152 | 7.37 | — | — |
February 1 to February 28 | 34,678,539 | 7.06 | — | — |
March 1 to March 31 | 24,133,223 | 6.60 | — | — |
April 1 to April 30 | 21,355,583 | 6.45 | — | — |
May 1 to May 31 | 22,620,981 | 6.39 | — | — |
June 1 to June 30 | 29,272,628 | 6.14 | — | — |
July 1 to July 31 | 16,255,315 | 6.08 | — | — |
August 1 to August 31 | 20,605,698 | 5.64 | — | — |
September 1 to September 30 | 24,846,251 | 5.58 | — | — |
October 1 to October 31 | 32,025,964 | 5.13 | — | — |
November 1 to November 30 | 22,330,170 | 4.95 | — | — |
December 1 to December 31 | 21,203,340 | 5.24 | — | — |
Total | 279,903,844 | 6.01 | — | — |

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During 2018, we sold a total of 245,985,735 shares for an average price of €6.13 per share.

# ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

# ITEM 16G. CORPORATE GOVERNANCE

Compliance with NYSE Listing Standards on Corporate Governance

On November 4, 2003, the SEC approved rules proposed by the New York Stock Exchange (the “NYSE”) intended to strengthen corporate governance standards for listed companies. In compliance therewith, the following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the NYSE listing standards.

Independence of the Directors on the Board of Directors and Board Committees

Under the NYSE corporate governance rules, (i) a majority of a U.S. company’s board of directors must be composed of independent directors, (ii) all members of the audit committee must be independent and (iii) all U.S. companies listed on the NYSE must have a compensation committee and a nominations committee and all members of such committees must be independent. In each case, the independence of directors must be established pursuant to highly detailed rules promulgated by the NYSE and, in the case of the audit committee, the NYSE and the SEC.

Spanish Corporate Enterprises Act sets out a definition of what constitutes independence for the purpose of board or committee membership. Such definition is in line with the definition provided by our Board Regulations.

In addition, pursuant to the Spanish Corporate Enterprises Act, listed companies shall have, at least, an audit committee and an appointments and remuneration committee. This Law also establishes that such committees (i) shall be composed exclusively by non-executive directors, (ii) shall have a majority of independent directors (in the case of the audit committee) or at least two of their members shall be independent directors (in the case of the appointments and remuneration committee) and (iii) they shall be chaired by an independent director.

Likewise, Law 10/2014, which completes the transposition of CRD IV into Spanish legislation, includes rules on corporate governance, among others, as regards board committees and their membership, establishing that the remuneration committee, the appointments committee and risk committee shall be composed of non-executive directors and at least one third of their members shall be independent and, in any event, the Chairman of these committees shall also be an independent director.

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Moreover, pursuant to the Good Governance Code for Listed Companies of the CNMV, which includes non-binding recommendations applicable to listed companies in Spain, under the comply or explain principle: (i) independent directors must represent, at least, half of the total board members; (ii) the majority of the members of the audit committee and the appointments and remuneration committee must be independent; and (iii) companies with high market capitalization must have two separate committees, an appointments committee and a remuneration committee.

Pursuant to article 1 of our Board Regulations, BBVA considers that independent directors are non-executive directors appointed for their personal and professional background who can perform their duties without being constrained by their relations with the Company or its Group, its significant shareholders or its executives. Directors cannot be deemed independent if they:

a) have been employees or executive directors in Group companies, unless three or five years have elapsed, respectively since they ceased as employees or executive directors, as the case may be;

b) receive from the Company or its Group entities, any amount or benefit for an item other than remuneration for their directorship, except where the sum is insignificant and expect further for dividends or pension supplements that a director may receive due to a former professional or employment relationship, provided these are unconditional and, consequently, the company paying them may not at its own discretion, suspend, amend or revoke their accrual unless there has been a breach of duty;

c) are partners of the external auditor or in charge of the audit report or have been so in the last three years, whether the audit in question was carried out on the Company or any other Group entity;

d) are executive directors or senior managers of another company in which a Company’s executive director or senior manager is an external director;

e) maintain any significant business relationship with the Company or with any Group company or have done so over the last year, either in their own name or as a significant shareholder, director or senior manager of a company that maintains or has maintained such a relationship. Business relationship here means any relationship as supplier of goods or services, including financial goods or services, and as advisor or consultant;

f) are significant shareholders, executive directors or senior managers of any entity that receives, or has received over the last three years, donations from the Company or its Group. Those persons who are merely trustees in a foundation receiving donations shall not be deemed to be included under this letter;

g) are spouses, or spousal equivalents or related up to second degree of kinship to an executive director or senior manager of the Company;

h) have not been proposed by the Appointments Committee for appointment or renewal;

i) have held a directorship for a continuous period of more than 12 years; or

j) are related to any significant shareholder or shareholder represented on the Board of Directors under any of the circumstances described under letters (a), (e), (f) or (g) above. In the event of kinship relationships mentioned in letter (g), the limitation will apply not only with respect to the shareholder, but also with respect to their proprietary directors in the company in which the shareholder holds an interest.

Directors who hold shares in the Bank may be considered independent provided they comply with the above conditions and their shareholding is not legally considered to be significant.

As of the date of this Annual Report, our Board of Directors has a large number of non-executive directors and eight out of the 15 members of our Board are independent under the definition of independence described above, which is in line with the definition provided by the Spanish Corporate Enterprises Act.

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In addition, our Audit and Compliance Committee is composed exclusively of independent directors, who are not members of the Bank’s Executive Committee and the Committee chairman has experience in accounting, auditing and risk management, in accordance with the specific regulations of the Audit and Compliance Committee. Our Risk Committee is composed exclusively of non-executive directors, the majority of whom (including its chairman) are independent directors. Also, in accordance with the Corporate Enterprises Act and with corporate governance non-binding recommendations, our Board of Directors has two separate committees: an Appointments Committee and a Remuneration Committee, which are composed exclusively of non-executive directors, the majority of whom (including their chairman) are independent directors.

Separate Meetings for Independent Directors

In accordance with the NYSE corporate governance rules, independent directors must meet periodically outside of the presence of the executive directors. Under Spanish law, this requirement is not contemplated as such. We note, however, that our non-executive directors meet periodically outside the presence of our executive directors every time a Committee with oversight functions meets, since these Committees are comprised solely of non- executive directors. Furthermore, the Board of Directors has appointed a Lead Director with powers to coordinate and meet with the non-executive directors, among other faculties conferred by the law and in Article 5 ter of our Board of Directors Regulations. In addition, our independent directors meet outside the presence of our executive directors as often as they deem fit, and usually prior to meetings of the Board of Directors or its Committees.

Code of Ethics

The NYSE listing standards require U.S. companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. For information with respect to BBVA’s code of business conduct and ethics see “Item 16 B. Code of Ethics”.

# ITEM 16H. MINE SAFETY DISCLOSURE

Not Applicable.

PART III

# ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item.

# ITEM 18. FINANCIAL STATEMENTS

Please see pages F-1 through F-319.

#

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# ITEM 19 EXHIBITS

Exhibit Number | Description
1.1 | Amended and Restated Bylaws (Estatutos) of the Registrant (English translation) (*)
8.1 | Consolidated Companies Composing Registrant (see Appendix I to IX to our Consolidated Financial Statements included herein)
10.1 | Information on Compensation Plans (**)
12.1 | Section 302 Group Executive Chairman Certification
12.2 | Section 302 Chief Executive Officer Certification
12.3 | Section 302 Chief Financial Officer Certification
13.1 | Section 906 Certification
15.1 | Consent of Independent Registered Public Accounting Firm
15.2 | Consent of Independent Registered Public Accounting Firm
101 | Interactive Data File
(*) Incorporated by reference to BBVA’s Annual Report on Form 20-F for the year ended December 31, 2017 (**) Incorporated by reference to BBVA’s report on Form 6-K submitted on February 14, 2019 (SEC Accession No. 0001193125-19-039617). We will furnish to the Commission, upon request, copies of any unfiled instruments that define the rights of holders of our long-term debt.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and had duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
By: | /s/ Jaime Sáenz de Tejada Pulido
Name: | Jaime Sáenz de Tejada Pulido
Title: | Chief Financial Officer

Date: March 28, 2019

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Consolidated Financial Statements and Reports of Independent Registered Public Accounting Firms for the years 2018, 2017, and 2016

Contents

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheets | F-3
Consolidated income statements | F-6
Consolidated statements of recognized income and expenses | F-7
Consolidated statements of changes in equity | F-8
Consolidated statements of cash flows | F-11

NOTES TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS

1. | Introduction, basis for the presentation of the Consolidated Financial Statements, internal control over financial information and other information | F-12
2. | Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements | F-16
3. | BBVA Group | F-63
4. | Shareholder remuneration system | F-66
5. | Earnings per share | F-69
6. | Operating segment reporting | F-70
7. | Risk management | F-73
8. | Fair Value of financial instruments | F-140
9. | Cash, cash balances at central banks and other demands deposits | F-153
10. | Financial assets and liabilities held for trading | F-154
11. | Non-trading financial assets mandatorily at fair value through profit or loss | F-160
12. | Financial assets and liabilities designated at fair value through profit or loss | F-160
13. | Financial assets at fair value through other comprehensive income | F-161
14. | Financial assets at amortized cost | F-168
15. | Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk | F-170
16. | Investments in joint ventures, associates | F-172
17. | Tangible assets | F-174
18. | Intangible assets | F-177
19. | Tax assets and liabilities | F-181
20. | Other assets and liabilities | F-185
21. | Non-current assets and disposal groups held for sale | F-186
22. | Financial liabilities at amortized cost | F-189
23. | Assets and Liabilities under insurance and reinsurance contracts | F-194
24. | Provisions | F-196
25. | Post-employment and other employee benefit commitments | F-198
26. | Common stock | F-207
27. | Share premium | F-210
28. | Retained earnings, revaluation reserves and other reserves | F-210
29. | Treasury shares | F-213
30. | Accumulated other comprehensive income (loss) | F-214
31. | Minority interest | F-215
32. | Capital base and capital management | F-216
33. | Commitments and guarantees given | F-219
34. | Other contingent assets and liabilities | F-219
35. | Purchase and sale commitments and future payment obligations | F-220
36. | Transactions on behalf of third parties | F-221
37. | Net interest income | F-222
38. | Dividend income | F-224
39. | Share of profit or loss of entities accounted for using the equity method | F-224
40. | Fee and commission income and expense | F-225
41. | Gains (losses) on financial assets and liabilities, net and Exchange differences | F-226
42. | Other operating income and expense | F-228
43. | Income and expense from insurance and reinsurance contracts | F-229
44. | Administration costs | F-230
45. | Depreciation and amortization | F-233
46. | Provisions or (reversal) of provisions | F-233
47. | Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss | F-234
48. | Impairment or (reversal) of impairment on non-financial assets | F-234
49. | Gains (losses) on derecognition of non - financial assets and subsidiaries, net | F-234
50. | Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | F-235
51. | Consolidated statements of cash flows | F-236
52. | Accountant fees and services | F-237
53. | Related-party transactions | F-238
54. | Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management | F-240
55. | Other information | F-252
56. | Subsequent events | F-254

| APPENDICES |
| APPENDIX I Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group | F-256
| APPENDIX II Additional information on investments joint ventures and associates in the BBVA Group | F-264
| APPENDIX III Changes and notification of participations in the BBVA Group in 2018 | F-265
| APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2018 | F-268
| APPENDIX V BBVA Group’s structured entities. Securitization funds | F-269
| APPENDIX VI Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of December 31, 2018, 2017 and 2016 | F-271
| APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2018, 2017 and 2016 | F-275
| APPENDIX VIII. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012 | F-278
| APPENDIX IX Additional information on Risk Concentration | F-294

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Banco Bilbao Vizcaya Argentaria, S.A.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income, recognized income and expenses, changes in equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 28, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting Principles

As discussed in Note 1.3 to the consolidated financial statements, in 2018 the Company has changed its method of accounting for financial instruments due to the adoption of International Financial Reporting Standard 9, Financial Instruments, and the Company has elected to change its method of accounting for hyperinflationary economies under International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG Auditores, S.L.

We have served as the Company’s auditor since 2017.

Madrid, Spain

March 28, 2019

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Banco Bilbao Vizcaya Argentaria, S.A.:

We have audited the accompanying consolidated balance sheet of BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (the “Company”) and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group (the “Group” - Note 3) as of December 31, 2016 and the related consolidated income statement, statement of recognized income and expenses, statement of changes in equity and statement of cash flows for the year then ended. These consolidated financial statements are the responsibility of the Group’s Directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of BANCO BILBAO VIZCAYA ARGENTARIA, S.A. and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group as of December 31, 2016 and the consolidated results of their operations and their cash flows for the year then ended in conformity with the International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS – IASB”).

/s/ DELOITTE, S.L.

Madrid, Spain

March 31, 2017

F-2

Consolidated balance sheets as of December 31, 2018, 2017 and 2016

ASSETS (Millions of Euros)
| Notes | 2018 | 2017 | 2016
CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS | 9 | 58,196 | 42,680 | 40,039
FINANCIAL ASSETS HELD FOR TRADING | 10 | 90,117 | 64,695 | 74,950
Derivatives |  | 30,536 | 35,265 | 42,955
Equity instruments |  | 5,254 | 6,801 | 4,675
Debt securities |  | 25,577 | 22,573 | 27,166
Loans and advances to central banks |  | 2,163 | - | -
Loans and advances to credit institutions |  | 14,566 | - | -
Loans and advances to customers |  | 12,021 | 56 | 154
NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS | 11 | 5,135 |  |
Equity instruments |  | 3,095 |  |
Debt securities |  | 237 |  |
Loans and advances to central banks |  | - |  |
Loans and advances to credit institutions |  | - |  |
Loans and advances to customers |  | 1,803 |  |
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 12 | 1,313 | 2,709 | 2,062
Equity instruments |  | - | 1,888 | 1,920
Debt securities |  | 1,313 | 174 | 142
Loans and advances to central banks |  | - | - | -
Loans and advances to credit institutions |  | - | - | -
Loans and advances to customers |  | - | 648 | -
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 13 | 56,337 | 69,476 | 79,221
Equity instruments |  | 2,595 | 3,224 | 4,641
Debt securities |  | 53,709 | 66,251 | 74,580
Loans and advances to central banks |  | - | - | -
Loans and advances to credit institutions |  | 33 | - | -
Loans and advances to customers |  | - | - | -
FINANCIAL ASSETS AT AMORTIZED COST | 14 | 419,660 | 445,275 | 483,672
Debt securities |  | 32,530 | 24,093 | 28,905
Loans and advances to central banks |  | 3,941 | 7,300 | 8,894
Loans and advances to credit institutions |  | 9,163 | 26,261 | 31,373
Loans and advances to customers |  | 374,027 | 387,621 | 414,500
HEDGING DERIVATIVES | 15 | 2,892 | 2,485 | 2,833
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK |  | (21) | (25) | 17
JOINT VENTURES AND ASSOCIATES | 16 | 1,578 | 1,588 | 765
Joint ventures |  | 173 | 256 | 229
Associates |  | 1,405 | 1,332 | 536
INSURANCE AND REINSURANCE ASSETS | 23 | 366 | 421 | 447
TANGIBLE ASSETS | 17 | 7,229 | 7,191 | 8,941
Property, plants and equipment |  | 7,066 | 6,996 | 8,250
For own use |  | 6,756 | 6,581 | 7,519
Other assets leased out under an operating lease |  | 310 | 415 | 732
Investment properties |  | 163 | 195 | 691
INTANGIBLE ASSETS | 18 | 8,314 | 8,464 | 9,786
Goodwill |  | 6,180 | 6,062 | 6,937
Other intangible assets |  | 2,134 | 2,402 | 2,849
TAX ASSETS | 19 | 18,100 | 16,888 | 18,245
Current |  | 2,784 | 2,163 | 1,853
Deferred |  | 15,316 | 14,725 | 16,391
OTHER ASSETS | 20 | 5,472 | 4,359 | 7,274
Insurance contracts linked to pensions |  | - | - | -
Inventories |  | 635 | 229 | 3,298
Other |  | 4,837 | 4,130 | 3,976
NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE | 21 | 2,001 | 23,853 | 3,603
TOTAL ASSETS |  | 676,689 | 690,059 | 731,856

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-3

Consolidated balance sheets as of December 31, 2018, 2017 and 2016

LIABILITIES AND EQUITY (Millions of Euros)
| Notes | 2018 | 2017 | 2016
FINANCIAL LIABILITIES HELD FOR TRADING | 10 | 80,774 | 46,182 | 54,675
Trading derivatives |  | 31,815 | 36,169 | 43,118
Short positions |  | 11,025 | 10,013 | 11,556
Deposits from central banks |  | 10,511 | - | -
Deposits from credit institutions |  | 15,687 | - | -
Customer deposits |  | 11,736 | - | -
Debt certificates |  | - | - | -
Other financial liabilities |  | - | - | -
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 12 | 6,993 | 2,222 | 2,338
Deposits from central banks |  | - | - | -
Deposits from credit institutions |  | - | - | -
Customer deposits |  | 976 | - | -
Debt certificates |  | 2,858 | - | -
Other financial liabilities |  | 3,159 | 2,222 | 2,338
Of which: Subordinated liabilities |  | - | - | -
FINANCIAL LIABILITIES AT AMORTIZED COST | 22 | 509,185 | 543,713 | 589,210
Deposits from central banks |  | 27,281 | 37,054 | 34,740
Deposits from credit institutions |  | 31,978 | 54,516 | 63,501
Customer Deposits |  | 375,970 | 376,379 | 401,465
Debt certificates |  | 61,112 | 63,915 | 76,375
Other financial liabilities |  | 12,844 | 11,850 | 13,129
Of which: Subordinated liabilities |  | 18,047 | 17,316 | 17,230
HEDGING DERIVATIVES | 15 | 2,680 | 2,880 | 2,347
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK |  | - | (7) | -
LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS | 23 | 9,834 | 9,223 | 9,139
PROVISIONS | 24 | 6,772 | 7,477 | 9,071
Provisions for pensions and similar obligations |  | 4,787 | 5,407 | 6,025
Other long term employee benefits |  | 62 | 67 | 69
Provisions for taxes and other legal contingencies |  | 686 | 756 | 418
Provisions for contingent risks and commitments |  | 636 | 578 | 950
Other provisions |  | 601 | 669 | 1,609
TAX LIABILITIES | 19 | 3,276 | 3,298 | 4,668
Current |  | 1,230 | 1,114 | 1,276
Deferred |  | 2,046 | 2,184 | 3,392
OTHER LIABILITIES | 20 | 4,301 | 4,550 | 4,979
LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE |  | - | 17,197 | -
TOTAL LIABILITIES |  | 623,814 | 636,736 | 676,428

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-4

Consolidated balance sheets as of December 31, 2018, 2017 and 2016

LIABILITIES AND EQUITY (Continued) (Millions of Euros)
| Notes | 2018 | 2017 | 2016
SHAREHOLDERS’ FUNDS |  | 54,326 | 53,283 | 50,985
Capital | 26 | 3,267 | 3,267 | 3,218
Paid up capital |  | 3,267 | 3,267 | 3,218
Unpaid capital which has been called up |  | - | - | -
Share premium | 27 | 23,992 | 23,992 | 23,992
Equity instruments issued other than capital |  | - | - | -
Other equity instruments |  | 50 | 54 | 54
Retained earnings | 28 | 23,018 | 23,612 | 21,844
Revaluation reserves | 28 | 3 | 12 | 20
Other reserves | 28 | (58) | (35) | (59)
Reserves or accumulated losses of investments in subsidiaries, joint ventures and associates |  | (58) | (35) | (59)
Other |  | - | - | -
Less: Treasury shares | 29 | (296) | (96) | (48)
Profit or loss attributable to owners of the parent |  | 5,324 | 3,519 | 3,475
Less: Interim dividends |  | (975) | (1,043) | (1,510)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | 30 | (7,215) | (6,939) | (3,622)
Items that will not be reclassified to profit or loss |  | (1,284) | (1,183) | (1,095)
Actuarial gains or losses on defined benefit pension plans |  | (1,245) | (1,183) | (1,095)
Non-current assets and disposal groups classified as held for sale |  | - | - | -
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates |  | - | - | -
Fair value changes of equity instruments measured at fair value through other comprehensive income |  | (155) | - | -
Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income |  | - |  |
Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item) |  | - |  |
Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument) |  | - |  |
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk |  | 116 |  |
Items that may be reclassified to profit or loss |  | (5,932) | (5,755) | (2,527)
Hedge of net investments in foreign operations (effective portion) |  | (218) | 1 | (118)
Foreign currency translation |  | (6,643) | (7,297) | (3,341)
Hedging derivatives. Cash flow hedges (effective portion) |  | (6) | (34) | 16
Financial assets available for sale |  |  | 1,641 | 947
Fair value changes of debt instruments measured at fair value through other comprehensive income |  | 943 |  |
Hedging instruments (non-designated items) |  | - |  |
Non-current assets and disposal groups classified as held for sale |  | 1 | (26) | -
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates |  | (9) | (40) | (31)
MINORITY INTERESTS (NON-CONTROLLING INTEREST) | 31 | 5,764 | 6,979 | 8,064
Accumulated other comprehensive income (loss) |  | (3,236) | (2,550) | (1,430)
Other |  | 9,000 | 9,530 | 9,494
TOTAL EQUITY |  | 52,874 | 53,323 | 55,428
TOTAL EQUITY AND TOTAL LIABILITIES |  | 676,689 | 690,059 | 731,856
MEMORANDUM ITEM (OFF-BALANCE SHEET EXPOSURES) (Millions of Euros) |  |  |  |
0 | Notes | 2018 | 2017 | 2016
Loan commitments given | 33 | 118,959 | 94,268 | 107,254
Financial guarantees given | 33 | 16,454 | 16,545 | 18,267
Other commitments given | 33 | 35,098 | 45,738 | 42,592

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-5

Consolidated income statements for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED INCOME STATEMENTS (Millions of Euros)
| Notes | 2018 | 2017 | 2016
Interest and other income | 37.1 | 29,831 | 29,296 | 27,708
Interest expense | 37.2 | (12,239) | (11,537) | (10,648)
NET INTEREST INCOME |  | 17,591 | 17,758 | 17,059
Dividend income | 38 | 157 | 334 | 467
Share of profit or loss of entities accounted for using the equity method | 39 | (7) | 4 | 25
Fee and commission income | 40 | 7,132 | 7,150 | 6,804
Fee and commission expense | 40 | (2,253) | (2,229) | (2,086)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 41 | 216 | 985 | 1,375
Gains (losses) on financial assets and liabilities held for trading, net | 41 | 707 | 218 | 248
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 41 | 96 |  |
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 41 | 143 | (56) | 114
Gains (losses) from hedge accounting, net | 41 | 72 | (209) | (76)
Exchange differences, net | 41 | (9) | 1,030 | 472
Other operating income | 42 | 949 | 1,439 | 1,272
Other operating expense | 42 | (2,101) | (2,223) | (2,128)
Income from insurance and reinsurance contracts | 43 | 2,949 | 3,342 | 3,652
Expense from insurance and reinsurance contracts | 43 | (1,894) | (2,272) | (2,545)
GROSS INCOME |  | 23,747 | 25,270 | 24,653
Administration costs |  | (10,494) | (11,112) | (11,366)
Personnel expenses | 44.1 | (6,120) | (6,571) | (6,722)
Other administrative expenses | 44.2 | (4,374) | (4,541) | (4,644)
Depreciation and amortization | 45 | (1,208) | (1,387) | (1,426)
Provisions or reversal of provisions | 46 | (373) | (745) | (1,186)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | 47 | (3,981) | (4,803) | (3,801)
Financial assets measured at amortized cost |  | (3,980) | (3,676) | (3,598)
Financial assets at fair value through other comprehensive income |  | (1) | (1,127) | (202)
NET OPERATING INCOME |  | 7,691 | 7,222 | 6,874
Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates |  | - | - | -
Impairment or reversal of impairment on non-financial assets | 48 | (138) | (364) | (521)
Tangible assets |  | (5) | (42) | (143)
Intangible assets |  | (83) | (16) | (3)
Other assets |  | (51) | (306) | (375)
Gains (losses) on derecognition of non - financial assets and subsidiaries, net | 49 | 78 | 47 | 70
Negative goodwill recognized in profit or loss |  | - | - | -
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 50 | 815 | 26 | (31)
PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS | 55.2 | 8,446 | 6,931 | 6,392
Tax expense or income related to profit or loss from continuing operations |  | (2,295) | (2,169) | (1,699)
PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS |  | 6,151 | 4,762 | 4,693
Profit or loss after tax from discontinued operations, net |  | - | - | -
PROFIT FOR THE YEAR |  | 6,151 | 4,762 | 4,693
Attributable to minority interest [non-controlling interest] | 31 | 827 | 1,243 | 1,218
Attributable to owners of the parent | 55.2 | 5,324 | 3,519 | 3,475
|  | 2018 | 2017 | 2016
EARNINGS PER SHARE (Euros) |  | 0.76 | 0.48 | 0.49
Basic earnings per share from continued operations |  | 0.76 | 0.48 | 0.49
Diluted earnings per share from continued operations |  | 0.76 | 0.48 | 0.49
Basic earnings per share from discontinued operations |  | - | - | -
Diluted earnings per share from discontinued operations |  | - | - | -

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-6

Consolidated statements of recognized income and expenses for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSES (MILLIONS OF EUROS)
| 2018 | 2017 | 2016
PROFIT RECOGNIZED IN INCOME STATEMENT | 6,151 | 4,762 | 4,693
OTHER RECOGNIZED INCOME (EXPENSES) | (2,523) | (4,439) | (3,012)
ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT | (141) | (91) | (240)
Actuarial gains and losses from defined benefit pension plans | (79) | (96) | (303)
Non-current assets and disposal groups held for sale | - | - | -
Fair value changes of equity instruments measured at fair value through other comprehensive income | (172) |  |
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk | 166 |  |
Income tax related to items not subject to reclassification to income statement | (56) | 5 | 63
ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT | (2,382) | (4,348) | (2,772)
Hedge of net investments in foreign operations (effective portion) | (244) | 80 | 166
Valuation gains or losses taken to equity | (244) | 112 | 166
Transferred to profit or loss | - | - | -
Other reclassifications | - | (32) | -
Foreign currency translation | (1,537) | (5,080) | (2,157)
Valuation gains or losses taken to equity | (1,542) | (5,089) | (2,110)
Transferred to profit or loss | 5 | (22) | (47)
Other reclassifications | - | 31 | -
Cash flow hedges (effective portion) | 27 | (67) | 80
Valuation gains or losses taken to equity | (32) | (122) | 134
Transferred to profit or loss | 58 | 55 | (54)
Transferred to initial carrying amount of hedged items | - | - | -
Other reclassifications | - | - | -
Available-for-sale financial assets |  | 719 | (694)
Valuation gains or losses taken to equity |  | 384 | 438
Transferred to profit or loss |  | 347 | (1,248)
Other reclassifications |  | (12) | 116
Debt securities at fair value through other comprehensive income | (901) |  |
Valuation gains or losses taken to equity | (766) |  |
Transferred to profit or loss | (135) |  |
Other reclassifications | - |  |
Non-current assets and disposal groups held for sale | 20 | (20) | -
Valuation gains or losses taken to equity | - | - | -
Transferred to profit or loss | 20 | - | -
Other reclassifications | - | (20) | -
Entities accounted for using the equity method | 9 | (14) | (89)
Income tax relating to items subject to reclassification to income statements | 244 | 35 | (78)
TOTAL RECOGNIZED INCOME/EXPENSES | 3,628 | 323 | 1,681
Attributable to minority interest (non-controlling interests) | (420) | 127 | 305
Attributable to the parent company | 4,048 | 196 | 1,376

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-7

Consolidated statements of changes in equity for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (MILLIONS OF EUROS)
| Capital (Note 26) | Share Premium | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (Note 30) | Non-controlling interest | Total
2018 | Valuation adjustments (Note 31) | Other (Note 31)
Balances as of January 1, 2018 | 3,267 | 23,992 | - | 54 | 25,474 | 12 | (44) | (96) | 3,519 | (1,043) | (8,792) | (3,378) | 10,358 | 53,323
Effect of changes in accounting policies ( Note 1.3) | - | - | - | - | (2,713) | - | 9 | - | - | - | 1,756 | 850 | (822) | (919)
Adjusted initial balance | 3,267 | 23,992 | - | 54 | 22,761 | 12 | (34) | (96) | 3,519 | (1,043) | (7,036) | (2,528) | 9,536 | 52,404
Total income/expense recognized | - | - | - | - | - | - | - | - | 5,324 | - | (1,276) | (1,247) | 827 | 3,628
Other changes in equity | - | - | - | (4) | 256 | (10) | (23) | (199) | (3,519) | 68 | 1,096 | 540 | (1,364) | (3,158)
Issuances of common shares | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Dividend distribution | - | - | - | - | (992) | - | (4) | - | - | (975) | - | - | (378) | (2,349)
Purchase of treasury shares | - | - | - | - | - | - | - | (1,684) | - | - | - | - | - | (1,684)
Sale or cancellation of treasury shares | - | - | - | - | (24) | - | - | 1,484 | - | - | - | - | - | 1,460
Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Transfers within total equity (see Note 2.2.20) | - | - | - | - | 1,408 | (10) | (19) | - | (3,519) | 1,043 | 1,096 | 540 | (540) | -
Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Share based payments | - | - | - | (19) | - | - | - | - | - | - | - | - | - | (19)
Other increases or (-) decreases in equity | - | - | - | 15 | (135) | - | - | - | - | - | - | - | (446) | (566)
Balances as of December 31, 2018 | 3,267 | 23,992 | - | 50 | 23,018 | 3 | (58) | (296) | 5,324 | (975) | (7,215) | (3,236) | 9,000 | 52,874

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-8

Consolidated statements of changes in equity for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (MILLIONS OF EUROS)
| Capital (Note 26) | Share Premium | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (Note 30) | Non-controlling interest | Total
2017 | Valuation adjustments (Note 31) | Other (Note 31)
Balances as of January 1, 2017 | 3,218 | 23,992 | - | 54 | 23,688 | 20 | (67) | (48) | 3,475 | (1,510) | (5,458) | (2,246) | 10,310 | 55,428
Effect of changes in accounting policies ( Note 1.3) | - | - | - | - | (1,843) | - | 7 | - | - | - | 1,836 | 817 | (817) | -
Adjusted initial balance | 3,218 | 23,992 | - | 54 | 21,845 | 20 | (60) | (48) | 3,475 | (1,510) | (3,622) | (1,429) | 9,493 | 55,428
Total income/expense recognized | - | - | - | - | - | - | - | - | 3,519 | - | (3,317) | (1,122) | 1,243 | 323
Other changes in equity | 50 | - | - | - | 1,768 | (8) | 25 | (48) | (3,475) | 467 | - | - | (1,207) | (2,428)
Issuances of common shares | 50 | - | - | - | (50) | - | - | - | - | - | - | - | - | -
Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Dividend distribution | - | - | - | - | 9 | - | (9) | - | - | (900) | - | - | (290) | (1,189)
Purchase of treasury shares | - | - | - | - | - | - | - | (1,674) | - | - | - | - | - | (1,674)
Sale or cancellation of treasury shares | - | - | - | - | 1 | - | - | 1,626 | - | - | - | - | - | 1,627
Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Transfers within total equity | - | - | - | - | 1,932 | (8) | 41 | - | (3,475) | 1,510 | - | - | - | -
Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Share based payments | - | - | - | (22) | - | - | - | - | - | - | - | - | - | (22)
Other increases or (-) decreases in equity | - | - | - | 22 | (125) | - | (6) | - | - | (144) | - | - | (917) | (1,169)
Balances as of December 31, 2017 | 3,267 | 23,992 | - | 54 | 23,612 | 12 | (34) | (96) | 3,519 | (1,043) | (6,939) | (2,551) | 9,529 | 53,323

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-9

Consolidated statements of changes in equity for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (MILLIONS OF EUROS)
| Capital (Note 26) | Share Premium | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (Note 30) | Non-controlling interest | Total
2016 | Valuation adjustments (Note 31) | Other (Note 31)
Balances as of January 1, 2016 | 3,120 | 23,992 | - | 35 | 22,588 | 22 | (98) | (309) | 2,642 | (1,352) | (3,349) | (1,333) | 9,325 | 55,281
Effect of changes in accounting policies ( Note 1.3) | - | - | - | - | (1,834) | - | 7 | - | - | - | 1,826 | 816 | (816) | -
Adjusted initial balance | 3,120 | 23,992 | - | 35 | 20,754 | 22 | (91) | (309) | 2,642 | (1,352) | (1,523) | (517) | 8,509 | 55,282
Total income/expense recognized | - | - | - | - | - | - | - | - | 3,475 | - | (2,099) | (913) | 1,218 | 1,681
Other changes in equity | 98 | - | - | 19 | 1,090 | (2) | 31 | 260 | (2,642) | (158) | - | - | (233) | (1,535)
Issuances of common shares | 98 | - | - | - | (98) | - | - | - | - | - | - | - | - | -
Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Dividend distribution | - | - | - | - | 93 | - | (93) | - | - | (1,301) | - | - | (234) | (1,535)
Purchase of treasury shares | - | - | - | - | - | - | - | (2,004) | - | - | - | - | - | (2,004)
Sale or cancellation of treasury shares | - | - | - | - | (30) | - | - | 2,264 | - | - | - | - | - | 2,234
Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Transfers within total equity | - | - | - | - | 1,166 | (2) | 126 | - | (2,642) | 1,352 | - | - | - | -
Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Share based payments | - | - | - | (16) | 3 | - | - | - | - | - | - | - | - | (12)
Other increases or (-) decreases in equity | - | - | - | 35 | (44) | - | (2) | - | - | (210) | - | - | 2 | (219)
Balances as of December 31, 2016 | 3,218 | 23,992 | - | 54 | 21,845 | 20 | (60) | (48) | 3,475 | (1,510) | (3,622) | (1,429) | 9,494 | 55,428

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-10

Consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (MILLIONS OF EUROS)
| Notes | 2018 | 2017 | 2016
A) CASH FLOWS FROM OPERATING ACTIVITIES (1 + 2 + 3 + 4 + 5) | 51 | 8,664 | 2,055 | 6,623
1. Profit for the year |  | 6,151 | 4,762 | 4,693
2. Adjustments to obtain the cash flow from operating activities: |  | 7,695 | 8,526 | 6,784
Depreciation and amortization |  | 1,208 | 1,387 | 1,426
Other adjustments |  | 6,487 | 7,139 | 5,358
3. Net increase/decrease in operating assets |  | (12,679) | (4,894) | (4,428)
Financial assets held for trading |  | 1,379 | 5,662 | 1,289
Non-trading financial assets mandatorily at fair value through profit or loss |  | (643) |  |
Other financial assets designated at fair value through profit or loss |  | 349 | (783) | (2)
Financial assets at fair value through other comprehensive income |  | (206) | 5,032 | 14,445
Loans and receivables |  | (12,652) | (14,503) | (21,075)
Other operating assets |  | (906) | (302) | 915
4. Net increase/decrease in operating liabilities |  | 10,286 | (3,916) | 1,273
Financial liabilities held for trading |  | (466) | (6,057) | 361
Other financial liabilities designated at fair value through profit or loss |  | 1,338 | 19 | (53)
Financial liabilities at amortized cost |  | 10,481 | 2,111 | (7)
Other operating liabilities |  | (1,067) | 11 | 972
5. Collection/Payments for income tax |  | (2,789) | (2,423) | (1,699)
B) CASH FLOWS FROM INVESTING ACTIVITIES (1 + 2) | 51 | 7,516 | 2,902 | (560)
1. Investment |  | (2,154) | (2,339) | (3,978)
Tangible assets |  | (943) | (777) | (1,312)
Intangible assets |  | (552) | (564) | (645)
Investments in joint ventures and associates |  | (150) | (101) | (76)
Subsidiaries and other business units |  | (20) | (897) | (95)
Non-current assets held for sale and associated liabilities |  | (489) | - | -
Held-to-maturity investments |  |  | - | (1,850)
Other settlements related to investing activities |  | - | - | -
2. Divestments |  | 9,670 | 5,241 | 3,418
Tangible assets |  | 731 | 518 | 795
Intangible assets |  | - | 47 | 20
Investments in joint ventures and associates |  | 558 | 18 | 322
Subsidiaries and other business units |  | 4,268 | 936 | 73
Non-current assets held for sale and associated liabilities |  | 3,917 | 1,002 | 900
Held-to-maturity investments |  |  | 2,711 | 1,215
Other collections related to investing activities |  | 196 | 9 | 93
C) CASH FLOWS FROM FINANCING ACTIVITIES (1 + 2) | 51 | (5,092) | (98) | (1,113)
1. Payments |  | (8,995) | (5,763) | (4,335)
Dividends |  | (2,107) | (1,698) | (1,599)
Subordinated liabilities |  | (4,825) | (2,098) | (502)
Treasury stock amortization |  | - | - | -
Treasury stock acquisition |  | (1,686) | (1,674) | (2,004)
Other items relating to financing activities |  | (377) | (293) | (230)
2. Collections |  | 3,903 | 5,665 | 3,222
Subordinated liabilities |  | 2,451 | 4,038 | 1,000
Treasury shares increase |  | - | - | -
Treasury shares disposal |  | 1,452 | 1,627 | 2,222
Other items relating to financing activities |  | - | - | -
D) EFFECT OF EXCHANGE RATE CHANGES |  | (2,498) | (4,266) | (3,463)
E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A+B+C+D) |  | 8,590 | 594 | 1,489
F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR |  | 45,549 | 44,955 | 43,466
G) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (E+F) | 51 | 54,138 | 45,549 | 44,955
COMPONENTS OF CASH AND EQUIVALENT AT END OF THE YEAR (Millions of Euros) |  |  |  |
|  | 2018 | 2017 | 2016
Cash |  | 6,346 | 6,416 | 7,413
Balance of cash equivalent in central banks |  | 47,792 | 39,132 | 37,542
Other financial assets |  | - | - | -
Less: Bank overdraft refundable on demand |  | - | - | -
TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR | 51 | 54,138 | 45,549 | 44,955

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-11

Notes to the Consolidated Financial Statements

1. Introduction, basis for the presentation of the Consolidated Financial Statements, internal control over financial reporting and other information

1.1 Introduction

Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank” or “BBVA") is a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad.

The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 Bilbao) as noted on its web site (www.bbva.com).

In addition to the activities it carries out directly, the Bank heads a group of subsidiaries, joint ventures and associates which perform a wide range of activities and which together with the Bank constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, “the Group” or “the BBVA Group”). In addition to its own separate Financial Statements, the Bank is required to prepare Consolidated Financial Statements comprising all consolidated subsidiaries of the Group.

As of December 31, 2018, the BBVA Group had 297 consolidated entities and 66 entities accounted for using the equity method (see Notes 3 and 16 and Appendix I to V).

The Consolidated Financial Statements of the BBVA Group for the year ended December 31, 2018 have been authorized for issue on March 28, 2019.

1.2 Basis for the presentation of the Consolidated Financial Statements

The BBVA Group’s Consolidated Financial Statements are presented in compliance with IFRS-IASB (International Financial Reporting Standards as issued by the International Accounting Standards Board), as well as in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”) applicable as of December 31, 2018, considering the Bank of Spain Circular 4/2017, and with any other legislation governing financial reporting applicable to the Group in Spain.

The BBVA Group’s accompanying Consolidated Financial Statements for the year ended December 31, 2018 were prepared by the Group’s Directors (through the Board of Directors meeting held on February 11, 2019) by applying the principles of consolidation, accounting policies and valuation criteria described in Note 2, so that they present fairly the Group’s total consolidated equity and financial position as of December 31, 2018, together with the consolidated results of its operations and cash flows generated during the year ended December 31, 2018.

These Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and each of the other entities in the Group. Moreover, they include the adjustments and reclassifications required to harmonize the accounting policies and valuation criteria used by the Group (see Note 2.2).

All effective accounting standards and valuation criteria with a significant effect in the Consolidated Financial Statements were applied in their preparation.

F-12

The amounts reflected in the accompanying Consolidated Financial Statements are presented in millions of euros, unless it is more appropriate to use smaller units. Some items that appear without a balance in these Consolidated Financial Statements are due to how the units are expressed. Also, in presenting amounts in millions of euros, the accounting balances have been rounded up or down. It is therefore possible that the totals appearing in some tables are not the exact arithmetical sum of their component figures.

The percentage changes in amounts have been calculated using figures expressed in thousands of euros.

1.3 Comparative information

Changes in accounting policies

Application of IFRS 9

As of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and includes changes in the requirements for the classification and measurement of financial assets and financial liabilities, the impairment of financial assets and hedge accounting (see Note 2.2.1). As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years. The impact of the first application of IFRS 9 is presented in Note 2.4.

As a consequence of the application of IFRS 9, the comparative information for the financial years 2017 and 2016 included in these Consolidated Financial Statements has been subject to some non-significant modifications in order to improve the comparability with the figures of the financial year 2018.

Hyperinflationary economies

The Group’s experience applying IAS 29 "Financial information in hyperinflationary economies" in its subsidiaries in Venezuela allows us to confirm the complexity of applying the accounting mechanism of inflation together with the historical movements of the exchange rates in a way that results are economically understandable, especially when there is not a consistent evolution between inflation and exchange rate in each period.

In this context, with the aim of improving the faithful representation of the financial statements, during 2018 the Group made an accounting policy change which involves recording in a single account of "Shareholders’ funds – retained earnings", both the revaluation of non-monetary items due to the effect of hyperinflation and the differences generated when translating the restated financial statements of the subsidiaries in hyperinflationary economies into euros. Translation differences, prior to the accounting policy change were recorded in the item “Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign currency translation” (see Notes 2.2.16 and 2.2.20). The accounting policy change, in accordance with IAS 8, offers and provides more reliable and relevant information of operations in hyperinflationary economies.

In order to make the information comparable, we have restated the information of the previous years, in such a way that €1,853, €1,836 and €1,826 million have been reclassified from "Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign currency translation" to "Shareholders’ funds – retained earnings" as of December 31, 2017, December 31, 2016 and January 1, 2016, respectively, relating to the Group companies registered in Venezuela (an economy that was also considered hyperinflationary in 2017 and 2016). Additionally, €828, €817 and €816 million have been reclassified from “Non-controlling interest –Accumulated other comprehensive income” to “Non-controlling interest – other” as of December 31, 2017, December 31, 2016 and January 1, 2016, respectively.

F-13

The reclassification corresponding to January 1, 2018, 2017 and 2016 is recorded as "Effects of changes in accounting policies" in the Consolidated Statement of Changes in Equity corresponding to the years ended December 31, 2018, 2017 and 2016. In the consolidated balance sheet as of December 31, 2018, 2017 and 2016, the heading " Shareholders’ funds – retained earnings” includes both the translation differences and the effects of restatement for inflation.

Operating segments

During 2018, there were no significant changes to the existing structure of the BBVA Group’s operating segments in comparison to 2017 (see Note 6). Certain prior year balances have been reclassified to conform to current year presentation.

1.4 Seasonal nature of income and expenses

The nature of the most significant activities carried out by the BBVA Group’s entities is mainly related to typical activities carried out by financial institutions, which are not significantly affected by seasonal factors within the same year.

1.5 Responsibility for the information and for the estimates made

The information contained in the BBVA Group’s Consolidated Financial Statements is the responsibility of the Group’s Directors.

Estimates were required to be made at times when preparing these Consolidated Financial Statements in order to calculate the recorded or disclosed amount of some assets, liabilities, income, expenses and commitments. These estimates relate mainly to the following:

· Impairment on certain financial assets (see Notes 7, 13, 14 and 16).

· The assumptions used to quantify certain provisions (see Note 24) and for the actuarial calculation of post-employment benefit liabilities and commitments (see Note 25).

· The useful life and impairment losses of tangible and intangible assets (see Notes 17, 18, 20 and 21).

· The valuation of goodwill and price allocation of business combinations (see Note 18).

· The fair value of certain unlisted financial assets and liabilities (see Notes 7, 8, 10, 11, 12 and 13).

· The recoverability of deferred tax assets (See Note 19).

Although these estimates were made on the basis of the best information available as of the end of the reporting period, future events may make it necessary to modify them (either up or down) over the coming years. This would be done prospectively in accordance with applicable standards, recognizing the effects of changes in the estimates in the corresponding consolidated income statement.

During 2018, 2017 and 2016 there were no significant changes to the assumptions and estimations, except as indicated in these Consolidated Financial Statements.

1.6 BBVA Group’s Internal Control over Financial Reporting

BBVA Group’s Consolidated Financial Statements are prepared under an Internal Control over Financial Reporting Model (hereinafter “ICFR"). It provides reasonable assurance with respect to the reliability and the integrity of the consolidated financial statements. It is also aimed to ensure that the transactions are processed in accordance with the applicable laws and regulations.

F-14

The ICFR is in accordance with the control framework established in 2013 by the “Committee of Sponsoring Organizations of the Treadway Commission” (hereinafter, "COSO"). The COSO 2013 framework sets five components that constitute the basis of the effectiveness and efficiency of the internal control systems:

· The establishment of an appropriate control framework.

· The assessment of the risks that could arise during the preparation of the financial information.

· The design of the necessary controls to mitigate the identified risks.

· The establishment of an appropriate system of information to detect and report system weaknesses.

· The monitoring activities over the controls to ensure they perform correctly and are effective over time.

The ICFR is a dynamic model that evolves continuously over time to reflect the reality of the BBVA Group’s businesses and processes, as well as the risks and controls designed to mitigate them. It is subject to a continuous evaluation by the internal control units located in the different entities of BBVA Group.

These internal control units are integrated within the BBVA internal control model which is based in two pillars:

· A control system organized into three lines of defense:

- The first line is located within the business and support units, which are responsible for identifying risks associated with their processes and to execute the controls established to mitigate them.

- The second line comprises the specialized control units (Compliance, Internal Financial Control, Internal Risk Control, Engineering Risk, Fraud & Security, and Operations Control among others). This second line defines the models and controls under their areas of responsibility and monitors the design, correct implementation and effectiveness of the controls

- The third line is the Internal Audit unit, which conducts an independent review of the model, verifying the compliance and effectiveness of the model.

· A set of committees called Corporate Assurance that helps to escalate the internal control issues to the management at a Group level and also in each of the countries where the Group operates.

The internal control units comply with a common and standard methodology established at Group level, as set out in the following diagram:

The ICFR Model is subject to annual evaluations by the Group’s Internal Audit Unit. It is also supervised by the Audit and Compliance Committee of the Bank’s Board of Directors.

The BBVA Group is also required to comply with Sarbanes-Oxley Act (hereafter “SOX”) for Consolidated Financial Statements as a listed company with the U.S. Securities and Exchange Commission (“SEC”). The main senior executives of the Group are involved in the design, compliance and implementation of the internal control model to make it effective and to ensure the quality and accuracy of the financial information.

F-15

2. Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

The Glossary includes the definition of some of the financial and economic terms used in Note 2 and subsequent Notes.

2.1 Principles of consolidation

In terms of its consolidation, in accordance with the criteria established by IFRS, the BBVA Group is made up of four types of entities: subsidiaries, joint ventures, associates and structured entities, defined as follows:

· Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of the subsidiaries are fully consolidated with those of the Bank. The share of non-controlling interests from subsidiaries in the Group’s consolidated total equity is presented under the heading “Minority interests (Non-controlling interests)” in the consolidated balance sheet. Their share in the profit or loss for the period or year is presented under the heading “Attributable to minority interest (non-controlling interests)” in the accompanying consolidated income statement (see Note 31).

Note 3 includes information related to the main subsidiaries in the Group as of December 31, 2018. Appendix I includes other significant information on these entities.

· Joint ventures

Joint ventures are those entities over which there is a joint arrangement to joint control with third parties other than the Group (for definitions of joint arrangement, joint control and joint venture, refer to Glossary).

The investments in joint ventures are accounted for using the equity method (see Note 16). Appendix II shows the main figures for joint ventures accounted for using the equity method.

· Associates

Associates are entities in which the Group is able to exercise significant influence (for definition of significant influence, see Glossary). Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly, unless it can be clearly demonstrated that this is not the case.

However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since the Group does not have the ability to exercise significant influence over these entities. Investments in these entities, which do not represent material amounts for the Group, are classified as “Financial assets at fair value through other comprehensive income”.

In contrast, some investments in entities in which the Group holds less than 20% of the voting rights are accounted for as Group associates, as the Group is considered to have the ability to exercise significant influence over these entities. As of December 31, 2018, 2017 and 2016 these entities are not significant in the Group.

Appendix II shows the most significant information related to the associates (see Note 16), which are accounted for using the equity method.

· Structured Entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when the voting rights relate to administrative matters only and the relevant activities are directed by means of contractual arrangements (see Glossary).

F-16

In those cases where the Group sets up entities or has a holding in such entities, in order to allow its customers access to certain investments, to transfer risks or for other purposes, in accordance with internal criteria and procedures and with applicable regulations, the Group determines whether control over the entity in question actually exists and therefore whether it should be subject to consolidation.

Such methods and procedures determine whether there is control by the Group, considering how the decisions are made about the relevant activities, assesses whether the Group has all power over the relevant elements, exposure, or rights, to variable returns from involvement with the investee and the ability to use power over the investee to affect the amount of the investor’s returns.

· Structured entities subject to consolidation

To determine if a structured entity is controlled by the Group, and therefore should be consolidated into the Group, the existing contractual rights (different from the voting rights) are analyzed. For this reason, an analysis of the structure and purpose of each investee is performed and, among others, the following factors will be considered:

- Evidence of the current ability to manage the relevant activities of the investee according to the specific business needs (including any decisions that may arise only in particular circumstances).

- Potential existence of a special relationship with the investee.

- Implicit or explicit Group commitments to support the investee.

- The ability to use the Group´s power over the investee to affect the amount of the Group’s returns.

There are cases where the Group has a high exposure to variable returns and retains decision-making power over the investee, either directly or through an agent.

The main structured entities of the Group are the asset securitization funds, to which the BBVA Group transfers loans and receivables portfolios, and other vehicles, which allow the Group’s customers to gain access to certain investments or to allow for the transfer of risks or for other purposes (see Appendices I and V). The BBVA Group maintains the decision-making power over the relevant activities of these vehicles and financial support through securitized market standard contracts. The most common ones are: investment positions in equity note tranches, funding through subordinated debt, credit enhancements through derivative instruments or liquidity lines, management rights of defaulted securitized assets, “clean-up” call derivatives, and asset repurchase clauses by the grantor.

For these reasons, the loans and receivable portfolios related to the vast majority of the securitizations carried out by the Bank or Group subsidiaries are not derecognized in the books of said entity and the issuances of the related debt securities are recorded as liabilities within the Group’s consolidated balance sheet.

· Non-consolidated structured entities

The Group owns other vehicles also for the purpose of allowing customers access to certain investments, to transfer risks, and for other purposes, but without the Group having control of the vehicles, which are not consolidated in accordance with “IFRS 10 - Consolidated Financial Statements”. The balance of assets and liabilities of these vehicles is not material in relation to the Group’s Consolidated Financial Statements.

As of December 31, 2018, 2017 and 2016 there was no material financial support from the Bank or its subsidiaries to unconsolidated structured entities.

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The Group does not consolidate any of the mutual funds it manages since the necessary control conditions are not met (see definition of control in the Glossary). Particularly, the BBVA Group does not act as arranger but as agent since it operates the mutual funds on behalf and for the benefit of investors or parties (arranger or arrangers) and, for this reason it does not control the mutual funds when exercising its authority for decision making.

The mutual funds managed by the Group are not considered structured entities (generally, retail funds without corporate identity over which investors have participations which gives them ownership of said managed equity). These funds are not dependent on a capital structure that could prevent them from carry out activities without additional financial support, being in any case insufficient as far as the activities themselves are concerned. Additionally, the risk of the investment is absorbed by the fund participants, and the Group is only exposed when it becomes a participant, and as such, there is no other risk for the Group.

In all cases, the operating results of equity method investees acquired by the BBVA Group in a particular period only include the period from the date of acquisition to the financial statements date. Similarly, the results of entities disposed of during any only include year the period from the start of the year to the date of disposal.

The consolidated financial statements of subsidiaries, associates and joint ventures used in the preparation of the Consolidated Financial Statements of the Group have the same presentation date as the Consolidated Financial Statements. If financial statements at those same dates are not available, the most recent will be used, as long as these are not older than three months, and adjusted to take into account the most significant transactions. As of December 31, 2018, except for the case of the consolidated financial statements of two subsidiaries and six associates and joint-ventures deemed non-significant for which financial statements as of November 30, 2018 were used, the December 31, 2018 financial statements for of all Group entities were utilized.

BBVA banking subsidiaries, associates and joint ventures worldwide, are subject to supervision and regulation from a variety of regulatory bodies in relation to, among other aspects, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of such entities to transfer funds in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where such entities are incorporated, dividends may only be paid out through funds legally available for such purpose. Even when the minimum capital requirements are met and funds are legally available, the relevant regulators or other public administrations could discourage or delay the transfer of funds to the Group in the form of cash, dividends, loans or advances for prudential reasons.

2.2 Accounting policies and valuation criteria applied

The accounting standards and policies and the valuation criteria applied in preparing these Consolidated Financial Statements may differ from those used by some of the entities within the BBVA Group. For this reason, necessary adjustments and reclassifications have been made in the consolidation process to standardize these principles and criteria and comply with the IFRS-IASB.

The accounting standards and policies and valuation criteria used in preparing the accompanying Consolidated Financial Statements are as follows:

2.2.1 Financial instruments

As mentioned in Note 1.3, IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regarding the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting.

The disclosures related to the financial years 2017 and 2016 are based on the accounting policies and valuation criteria applicable under IAS 39.

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Classification and measurement of financial assets under IFRS 9

Classification of financial assets

IFRS 9 contains three main categories for financial assets classification: measured at amortized cost, measured at fair value with changes through other comprehensive income, and measured at fair value through profit or loss.

The classification of financial assets measured at amortized cost or fair value must be carried out on the basis of two tests: the entity's business model and the assessment of the contractual cash flow, commonly known as the "solely payments of principle and interest" criterion (hereinafter, the SPPI).

A debt instrument will be classified in the amortized cost portfolio if the two following conditions are fulfilled:

· The financial asset is managed within a business model whose purpose is to maintain the financial assets to receive contractual cash flows; and

· In accordance with the contractual characteristics of the instrument its cash flows only represent the return of the principal and interest, basically understood as consideration for the time value of money and the debtor's credit risk.

A debt instrument will be classified in the portfolio of financial assets at fair value with changes through other comprehensive income if the two following conditions are fulfilled:

· The financial asset is managed with a business model whose purpose combines collection of the contractual cash flows and sale of the assets, and

· The contractual characteristics of the instrument generate, at specific dates, cash flows which only represent the return of the principal and interest.

A debt instrument will be classified at fair value with changes in profit and loss provided that the entity's business model for their management or the contractual characteristics of its cash flows do not require classification into one of the portfolios described above.

In general, equity instruments will be measured at fair value through profit or loss. However the Group may make an irrevocable election at initial recognition to present subsequent changes in the fair value through other comprehensive income.

Financial assets will only be reclassified when BBVA Group decides to change the business model. In this case, all of the financial assets assigned to this business model will be reclassified. The change of the objective of the business model should occur before the date of the reclassification.

Valuation of financial assets

All financial instruments are initially recognized at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the instrument.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement in the period in which the change occurred (see Note 37). The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial assets.

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“Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit and loss” and “Financial assets designated at fair value through profit or loss”

Financial assets are recorded under the heading “Financial assets held for trading” if the objective of the business model is to generate gains by buying and selling these financial instruments or generate short-term results. The financial assets recorded in the heading “Non-trading financial assets mandatorily at fair value through profit and loss” are assigned to a business model which objective is to obtain the contractual cash flows and / or to sell those instruments but its contractual cash flows do not comply with the requirements of the SPPI test. In “Financial assets designated at fair value through profit or loss” the Group classifies financial assets only if it eliminates or significantly reduces a measurement or recognition inconsistency (an ‘accounting mismatch’) that would otherwise arise from measuring financial assets or financial liabilities, or recognizing gains or losses on them, on different bases.

The assets recognized under these headings of the consolidated balance sheets are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (see Note 41). Interests from derivatives designated as economic hedges on interest rate are recognized in “Interest and other income” or “Interest expense” (see Note 37), depending on the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (Note 41).

”Financial assets at fair value through other comprehensive income”

· Debt instruments

Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily net of tax effect, under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Fair value changes of debt instruments measured at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).

The amounts recognized under the headings “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Fair value changes of financial assets measured at fair value through other comprehensive income” and “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group's consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairment loss is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” or “Exchange differences, net", as appropriate, in the consolidated income statement for the year in which they are derecognized (see Note 41).

The net impairment losses in “Financial assets at fair value through other comprehensive income” over the year are recognized under the heading “Impairment losses on financial assets, net – Financial assets at fair value through other comprehensive income” (see Note 47) in the consolidated income statements for that period.

Changes in foreign exchange rates which affect monetary items are recognized under the heading “Exchange differences, net" in the accompanying consolidated income statements (see Note 41).

· Equity instruments

The BBVA Group, at the time of the initial recognition, may elect to present changes in the fair value in other comprehensive income of an investment in an equity instrument that is not held for trading. The election is irrevocable and can be made on an instrument-by-instrument basis. Subsequent changes in fair value (gains or losses) are recognized, under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of equity instruments measured at fair value through other comprehensive income”.

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“Financial assets at amortized cost”

A financial asset is classified as subsequently measured at amortized cost if it is held within a business model whose objective is to hold financial assets in order to collect and it meets the SPPI Criterion.

The assets under this category are subsequently measured at amortized cost, using the effective interest rate method.

Net impairment losses of assets recorded under these headings arising in each period are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss – financial assets measured at cost” (see Note 47) in the consolidated income statement for that period.

Classification and measurement of financial liabilities under IFRS 9

Classification of financial liabilities

Under IFRS 9, financial liabilities are classified in the following categories:

· Financial liabilities at amortized cost;

· Financial liabilities that are held for trading including derivatives are financial instruments which are recorded in this category when the Group’s objective is to generate gains by buying and selling these financial instruments;

· Financial liabilities that are designated at fair value through profit or loss on initial recognition under the Fair Value Option. The Group has the option to designate irrevocably on initial recognition a financial liability as at fair value through profit or loss provided that doing so results in the elimination or significant reduction of measurement or recognition inconsistency, or if a group of financial liabilities, or a group of financial assets and financial liabilities, has to be managed, and its performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy.

Valuation of financial liabilities

All financial instruments are initially recognized at fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial liability. Unless there is evidence to the contrary, the best evidence of the fair value of a financial instrument at initial recognition shall be the transaction price.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement in the period in which the change occurred (see Note 37).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial liabilities.

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“Financial liabilities held for trading” and “Financial liabilities designated at fair value through profit or loss“

The subsequent changes in the fair value (gains or losses) of the liabilities recognized under these headings of the consolidated balance sheets are recognized as their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (see Note 41), except for the financial liabilities designated at fair value through profit and loss under the fair value option for which the amount of change in the fair value that is attributable to changes in the own credit risk which is presented in under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk”. Interests from derivatives designated as economic hedges on interest rate are recognized in “Interest and other income” or “Interest expense” (Note 37), depending on the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (Note 41).

“Financial liabilities at amortized cost”

The liabilities under this category are subsequently measured at amortized cost, using the effective interest rate method.

Measurement of financial assets and liabilities under IAS 39 applicable in the financial years 2017 and 2016

Measurement of financial instruments and recognition of changes in subsequent fair value

All financial instruments are initially accounted for at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Unless there is evidence to the contrary, the best evidence of the fair value of a financial instrument at initial recognition shall be the transaction price.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement the year in which the change occurred (see Note 37). The dividends received from other entities, other than associated entities and joint venture entities, are recognized under the heading “Dividend income” in the accompanying consolidated income statement in the year in which the right to receive them arises (see Note 38).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial assets and liabilities.

“Financial assets and liabilities held for trading” and “Financial assets and liabilities designated at fair value through profit or loss”

The assets and liabilities recognized under these headings of the consolidated balance sheets are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (see Note 41). Interests from derivatives designated as economic or accounting hedges on interest rate are recognized under the heading “Interest and other income” or “Interest expense” (Note 37), depending on the result of the hedging instrument. Changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (Note 41).

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“Financial assets at fair value through other comprehensive income”

Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily net of tax effect, under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).

The amounts recognized under the headings “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income” and “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group's consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairment loss is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” or “Exchange differences, net", as appropriate, in the consolidated income statement for the year in which they are derecognized (see Note 41).

The net impairment losses in “Financial assets at fair value through other comprehensive income” over the year are recognized under the heading “Impairment losses on financial assets, net – Other financial instruments not at fair value through profit or loss” (see Note 47) in the consolidated income statements for that year.

Changes in the value of non-monetary items resulting from changes in foreign exchange rates are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” in the accompanying consolidated balance sheets. Changes in foreign exchange rates which affect monetary items are recognized under the heading “Exchange differences, net" in the accompanying consolidated income statements (see Note 41).

“Financial assets and liabilities at amortized cost”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are subsequently measured at “amortized cost” using the “effective interest rate” method. This is because the consolidated entities generally intend to hold such financial instruments to maturity.

Net impairment losses of assets recognized under these headings arising in each year are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss – financial assets measured at cost” (see Note 47) in the consolidated income statement for that year.

“Derivatives-Hedge Accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk” applicable in the financial years 2018, 2017 and 2016

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are measured at fair value.

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Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:

· In fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized under the heading “Gains or losses from hedge accounting, net” in the consolidated income statement, with a corresponding offset under the headings where hedging items ("Hedging derivatives") and the hedged items are recognized, as applicable. Almost all of the hedges used by the Group are for interest-rate risks. Therefore, the valuation changes are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement (see Note 37).

· In fair value hedges of interest rate risk of a portfolio of financial instruments (portfolio-hedges), the gains or losses that arise in the measurement of the hedging instrument are recognized in the consolidated income statement, and the gains or losses that arise from the change in the fair value of the hedged item (attributable to the hedged risk) are also recognized in the consolidated income statement (in both cases under the heading “Gains or losses from hedge accounting, net”, using, as a balancing item, the headings "Fair value changes of the hedged items in portfolio hedges of interest rate risk" in the consolidated balance sheets, as applicable).

· In cash flow hedges, the gain or loss on the hedging instruments relating to the effective portion are recognized temporarily under the heading ”Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges” in the consolidated balance sheets, with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the consolidated balance sheets as applicable. These differences are recognized in the accompanying consolidated income statement under the headings “Interest and other income” or “Interest expense” at the time when the gain or loss in the hedged instrument affects profit or loss, when the forecast transaction is executed or at the maturity date of the hedged item (see Note 37).

· Differences in the measurement of the hedging items corresponding to the ineffective portions of cash flow hedges are recognized directly in the heading “Gains or losses from hedge accounting, net” in the consolidated income statement (see Note 41).

· In the hedges of net investments in foreign operations, the differences attributable to the effective portions of hedging items are recognized temporarily under the heading "Accumulated other comprehensive income - Items that may be reclassified to profit or loss – Hedging of net investments in foreign transactions" in the consolidated balance sheets with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the consolidated balance sheets as applicable. These differences in valuation are recognized under the heading “Exchange differences, net" in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized (see Note 41).

Other financial instruments under IAS 39 applicable in the financial years 2017 and 2016

The following exceptions are applicable with respect to the above general criteria:

· Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying asset and are settled by delivery of those instruments are recorded in the consolidated balance sheet at acquisition cost; this may be adjusted, where appropriate, for any impairment loss (see Note 8).

· Accumulated other comprehensive income arising from financial instruments classified at the consolidated balance sheet date as “Non-current assets and disposal groups classified as held for sale” are recognized with the corresponding entry under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss – Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets (see note 30).

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Impairment losses on financial assets

Definition of impaired financial assets under IFRS 9

IFRS 9 replaced the "incurred loss" model in IAS 39 with one of "expected credit loss". The IFRS 9 impairment model is applied to financial assets valued at amortized cost and to financial assets valued at fair value with changes in accumulated other comprehensive income, except for investments in equity instruments and contracts for financial guarantees and loan commitments unilaterally revocable by BBVA. Likewise, all the financial instruments valued at fair value with change through profit and loss are excluded from the impairment model.

The new standard classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized (Stage 1); the second comprises the financial assets for which a significant increase in credit risk has been identified since its initial recognition (Stage 2) and the third one, the impaired financial assets (Stage 3).

The calculation of the provisions for credit risk in each of these three categories must be done differently. In this way, expected loss up to 12 months for the financial assets classified in the first of the aforementioned categories must be recorded, while expected losses estimated for the remaining life of the financial assets classified in the other two categories must be recorded. Thus, IFRS 9 differentiates between the following concepts of expected loss:

· Expected loss at 12 months: expected credit loss that arises from possible default events within 12 months following the presentation date of the financial statements; and

· Expected loss during the life of the transaction: this is the expected credit loss that arises from all possible default events over the remaining life of the financial instrument.

All this requires considerable judgment, both in the modeling for the estimation of the expected losses and in the forecasts, on how the economic factors affect such losses, which must be carried out on a weighted probability basis.

The BBVA Group has applied the following definitions in accordance with IFRS 9:

Default

BBVA has applied a definition of default for financial instruments that is consistent with that used in internal credit risk management, as well as the indicators under applicable regulation at the date of implementation of IFRS 9. Both qualitative and quantitative indicators have been considered.

The Group has considered there is a default when one of the following situations occurs:

· Payment past-due for more than 90 days; or

· There are reasonable doubts regarding the full reimbursement of the instrument.

In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the entity considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2018, the Group has not considered periods higher than 90 days for any of the significant portfolios.

Credit impaired asset

An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:

· Significant financial difficulty of the issuer or the borrower.

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· A breach of contract (e.g. a default or past due event).

· A lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider.

· It becoming probable that the borrower will enter bankruptcy or other financial reorganization.

· The disappearance of an active market for that financial asset because of financial difficulties.

· The purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

The definition of impaired financial assets in the Group is aligned with the definition of default explained in the above paragraphs.

Significant increase in credit risk

The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there have been significant increases in credit risk since initial recognition considering all reasonable and supportable information, including that which is forward-looking.

The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally, although the specific characteristics of each geographic area are respected:

· Quantitative criterion: the Group uses a quantitative analysis based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default, so that both values are comparable in terms of expected default probability for their residual life. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios. Depending on how old current transactions are at the time implementation of the standard, some simplifications were made to compare the probabilities of default between the current and the initial moment, based on the best information available at that moment.

· Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/scoring systems or macroeconomic scenarios, so the quantitative analysis covers the majority of circumstances. The Group will use additional qualitative criteria when it considers it necessary to include circumstances that are not reflected in the rating/score systems or macroeconomic scenarios used.

Additionally, instruments under one of the following circumstances are considered Stage 2:

· More than 30 days past due. According to IFRS 9, default of more than 30 days is a presumption that can be rebutted in those cases in which the entity considers, based on reasonable and documented information, that such non-payment does not represent a significant increase in risk. As of December 31, 2018, the Group has not considered periods higher than 30 days for any of the significant portfolios.

· Watch list: They are subject to special watch by the Risks units because they show negative signs in their credit quality, even though there may be no objective evidence of impairment.

· Refinance or restructuring that does not show evidence of impairment.

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Although the standard introduces a series of operational simplifications or practical solutions for analyzing the increase in significant risk, the Group does not use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly because they have a low credit risk at the presentation date.

Thus the classification of financial instruments subject to impairment under the new IFRS 9 is as follows:

· Stage 1– without significant increase in credit risk

Financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an amount equal to 12 months expected credit losses.

· Stage 2– significant increases in credit risk

When the credit risk of a financial asset has increased significantly since the initial recognition, the impairment losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

· Stage 3 – Impaired

When there is objective evidence that the instrument is credit impaired, the financial asset is transferred to this category in which the provision for losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

Definition of impaired financial assets under IAS 39 applicable in the financial years 2017 and 2016

A financial asset is considered impaired – and therefore its carrying amount is adjusted to reflect the effect of impairment – when there is objective evidence that events have occurred, which:

· In the case of debt instruments (loans and advances and debt securities), reduce the future cash flows that were estimated at the time the instruments were acquired. So they are considered impaired when there are reasonable doubts that the carrying amounts will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed.

· In the case of equity instruments, it means that their carrying amount may not be fully recovered.

As a general rule, the carrying amount of impaired financial assets is adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known. The recoveries of previously recognized impairment losses are reflected, if appropriate, in the consolidated income statement for the year in which the impairment is reversed or reduced, with an exception: any recovery of previously recognized impairment losses for an investment in an equity instrument classified as financial assets at fair value through other comprehensive income is not recognized in the consolidated income statement, but under the heading " Accumulated other comprehensive income - Items that may be reclassified to profit or loss - financial assets at fair value through other comprehensive income" in the consolidated balance sheet (see Note 30).

In general, amounts collected on impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal.

When the recovery of any recognized amount is considered remote, such amount is written-off on the consolidated balance sheet, without prejudice to any actions that may be taken in order to collect the amount until the rights extinguish in full either because it is time-barred debt, the debt is forgiven, or other reasons.

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Method for calculating expected credit loss under IFRS 9

Method for calculating expected loss

In accordance with IFRS 9, the measurement of expected losses must reflect:

· A considered and unbiased amount, determined by evaluating a range of possible results.

· The time value of money.

· Reasonable and supportable information that is available without undue cost or effort and that reflects current conditions and forecasts of future economic conditions.

The Group measures the expected losses both individually and collectively. The purpose of the Group's individual measurement is to estimate expected losses for significant impaired instruments, or instruments classified in Stage 2. In these cases, the amount of credit losses is calculated as the difference between expected discounted cash flows at the effective interest rate of the transaction and the carrying amount of the instrument.

For the collective measurement of expected losses the instruments are grouped into groups of assets based on their risk characteristics. Exposure within each group is segmented according to the common credit risk characteristics, similar characteristics of the credit risk, indicative of the payment capacity of the borrower in accordance with their contractual conditions. These risk characteristics have to be relevant in estimating the future flows of each group. The characteristics of credit risk may consider, among others, the following factors:

· Type of instrument.

· Rating or scoring tools.

· Credit risk scoring or rating.

· Type of collateral.

· Amount of time at default for stage 3.

· Segment.

· Qualitative criteria which can have a significant increase in risk.

· Collateral value if it has an impact on the probability of a default event.

The estimated losses are derived from the following parameters:

· PD: estimate of the probability of default in each period.

· EAD: estimate of the exposure in case of default at each future period, taking into account the changes in exposure after the presentation date of the financial statements.

· LGD: estimate of the loss in case of default, calculated as the difference between the contractual cash flows and receivables, including guarantees.

In the case of debt securities, the Group supervises the changes in credit risk through monitoring the external published credit ratings.

To determine whether there is a significant increase in credit risk that is not reflected in the published ratings, the Group also revises the changes in bond yields, and when they are available, the prices of CDS, together with the news and regulatory information available on the issuers.

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Use of present, past and future information

IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss.

The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability it will not occur have to be considered, even though the possibility of a loss may be very small. Also, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.

The approach used by the Group consists of using first the most probable scenario (baseline scenario) consistent with that used in the Group's internal management processes, and then applying an additional adjustment, calculated by considering the weighted average of expected losses in other economic scenarios (one more positive and the other more negative). The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are Gross Domestic Product (GDP), tax rates, unemployment rate and loan to value (LTV).

Method for calculating the impairment on financial assets under IAS 39 applicable in the financial years 2017 and 2016

The impairment on financial assets is determined by type of instrument and other circumstances that could affect it, taking into account the guarantees received to assure (in part or in full) the performance of the financial assets. The BBVA Group recognizes impairment charges directly against the impaired financial asset when the likelihood of recovery is deemed remote, and uses an offsetting or allowance account when it recognizes non-performing loan provisions for the estimated losses.

Impairment of debt instruments measured at amortized cost

With regard to impairment losses arising from insolvency risk of the obligors (credit risk), a debt instrument, mainly Loans and receivables, is impaired due to insolvency when a deterioration in the ability to pay by the obligor is evidenced, either due to past due status or for other reasons.

The BBVA Group has developed policies, methods and procedures to estimate incurred losses on outstanding credit risk. These policies, methods and procedures are applied in the due diligence, approval and execution of debt instruments and commitments and guarantees given; as well as in identifying the impairment and, where appropriate, in calculating the amounts necessary to cover estimated losses.

The amount of impairment losses on debt instruments measured at amortized cost is calculated based on whether the impairment losses are determined individually or collectively. First it is determined whether there is objective evidence of impairment individually for individually significant debt instrument, and collectively for debt instrument that are not individually significant. If the Group determines that there is no objective evidence of impairment, the assets are classified in groups of debt instrument based on similar risk characteristics and impairment is assessed collectively.

In determining whether there is objective evidence of impairment the Group uses observable data in the following aspects:

· Significant financial difficulties of the obligors.

· Ongoing delays in the payment of interest or principal.

· Refinancing of credit due to financial difficulties by the counterparty.

· Bankruptcy or reorganization / liquidation are considered likely.

· Disappearance of the active market for a financial asset because of financial difficulties.

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· Observable data indicating a reduction in future cash flows from the initial recognition such as adverse changes in the payment status of the counterparty (delays in payments, reaching credit cards limits, etc.).

· National or local economic conditions that are linked to "defaults" in the financial assets (unemployment rate, falling property prices, etc.).

Impairment losses on financial assets individually evaluated for impairment

The amount of the impairment losses incurred on financial assets represents the excess of their respective carrying amounts over the present values of their expected future cash flows. These cash flows are discounted using the original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.

As an exception to the rule described above, the market value of listed debt instruments is deemed to be a fair estimate of the present value of their expected future cash flows.

The following is to be taken into consideration when estimating the future cash flows of debt instruments:

· All amounts that are expected to be recovered over the remaining life of the debt instrument; including, where appropriate, those which may result from the collateral and other credit enhancements provided for the debt instrument (after deducting the costs required for foreclosure and subsequent sale). Impairment losses include an estimate for the possibility of collecting accrued, past-due and uncollected interest.

· The various types of risk to which each debt instrument is subject.

· The circumstances in which collections will foreseeably be made.

Impairment losses on financial assets collectively evaluated for impairment

With regard to the collective impairment analysis, financial assets are grouped by risk type considering the debtor's capacity to pay based on the contractual terms. As part of this analysis, the BBVA Group estimates the impairment loan losses that are not individually significant, distinguishing between those that show objective evidence of impairment, and those that do not show objective evidence of impairment, as well as the impairment of significant loans that the BBVA Group has deemed as not showing an objective evidence of impairment.

With respect to financial assets that have no objective evidence of impairment, the Group applies statistical methods using historical experience and other specific information to estimate the losses that the Group has incurred as a result of events that have occurred as of the date of preparation of the Consolidated Financial Statements but have not been known and will be apparent, individually after the date of submission of the information. This calculation is an intermediate step until these losses are identified on an individual level, at which time these financial instruments will be segregated from the portfolio of financial assets without objective evidence of impairment.

The incurred loss is calculated taking into account three key factors: exposure at default, probability of default and loss given default.

· Exposure at default (EAD) is the amount of risk exposure at the date of default by the counterparty.

· Probability of default (PD) is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.

· Loss given default (LGD) is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.

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In order to calculate the LGD at each balance sheet date, the Group evaluates the whole amount expected to be obtained over the remaining life of the financial asset. The recoverable amount from executable secured collateral is estimated based on the property valuation, discounting the necessary adjustments to adequately account for the potential fall in value until its execution and sale, as well as execution costs, maintenance costs and sale costs.

In addition, to identify the possible incurred but not reported losses (IBNR) in the unimpaired portfolio, an additional parameter called "LIP" (loss identification period) has to be introduced. The LIP parameter is the period between the time at which the event that generates a given loss occurs and the time when the loss is identified at an individual level.

When the property right is contractually acquired at the end of the foreclosure process or when the assets of distressed borrowers are purchased, the asset is recognized in the consolidated balance sheets (see Note 2.2.4).

Impairment of other debt instruments classified as financial assets available for sale

The impairment losses on other debt instruments included in the “Available-for-sale financial asset” portfolio are equal to the excess of their acquisition cost (net of any principal repayment), after deducting any impairment loss previously recognized in the consolidated income statement over their fair value.

When there is objective evidence that the negative differences arising on measurement of these debt instruments are due to impairment, they are no longer considered as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - financial assets at fair value through other comprehensive income” and are recognized in the consolidated income statement.

If all, or part of the impairment losses are subsequently recovered, the amount is recognized in the consolidated income statement for the year in which the recovery occurred, up to the amount previously recognized in the income statement.

Impairment of equity instruments

The amount of the impairment in the equity instruments is determined by the category where they are recognized:

· Equity instruments classified at available for sale at fair value:

When there is objective evidence that the negative differences arising on measurement of these equity instruments are due to impairment, they are no longer recorded as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Financial assets available for sale” and are recognized in the consolidated income statement. In general, the Group considers that there is objective evidence of impairment on equity instruments classified as available-for-sale when significant unrealized losses have existed over a sustained period of time due to a price reduction of at least 40% or over a period of more than 18 months.

When applying this evidence of impairment, the Group takes into account the volatility in the price of each individual equity instrument to determine whether it is a percentage that can be recovered through its sale in the market; other different thresholds may exist for certain equity instruments or specific sectors.

In addition, for individually significant investments, the Group compares the valuation of the most significant equity instruments against valuations performed by independent experts.

Any recovery of previously recognized impairment losses for an investment in an equity instrument classified at fair value through other comprehensive income is not recognized in the consolidated income statement, but under the heading " Accumulated other comprehensive income - Items that may be reclassified to profit or loss - financial assets available for sale" in the consolidated balance sheet (see Note 30).

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· Equity instruments measured at cost:

The impairment losses on equity instruments measured at acquisition cost are equal to the excess of their carrying amount over the present value of expected future cash flows discounted at the market rate of return for similar equity instruments. In order to determine these impairment losses, unless there is better evidence, an assessment of the equity of the investee is carried out (excluding Accumulated other comprehensive income due to cash flow hedges) based on the last approved (consolidated) balance sheet, adjusted by the unrealized gains at measurement date.

Impairment losses are recognized in the consolidated income statement in the year in which they arise as a direct reduction of the cost of the instrument. These impairment losses may only be recovered subsequently in the event of the sale of these assets.

2.2.2 Transfers and derecognition of financial assets and liabilities

The accounting treatment of transfers of financial assets is determined by the form in which risks and benefits associated with the financial assets involved are transferred to third parties. Thus the financial assets are only derecognized from the consolidated balance sheet when the cash flows that they generate are extinguished, when their implicit risks and benefits have been substantially transferred to third parties or when the control of financial asset is transferred even in case of no physical transfer or substantial retention of such assets. In the latter case, the financial asset transferred is derecognized from the consolidated balance sheet, and any right or obligation retained or created as a result of the transfer is simultaneously recognized.

Similarly, financial liabilities are derecognized from the consolidated balance sheet only if their obligations are extinguished or acquired (with a view to subsequent cancellation or renewed placement).

The Group is considered to have transferred substantially all the risks and benefits if such risks and benefits account for the majority of the risks and benefits involved in ownership of the transferred financial assets. If substantially all the risks and benefits associated with the transferred financial asset are retained:

· The transferred financial asset is not derecognized from the consolidated balance sheet and continues to be measured using the same criteria as those used before the transfer.

· A financial liability is recognized at the amount equal to the amount received, which is subsequently measured at amortized cost or fair value with changes in the income statement, whichever the case.

· Both the income generated on the transferred (but not derecognized) financial asset and the expenses of the new financial liability continue to be recognized.

2.2.3 Financial guarantees

Financial guarantees are considered to be those contracts that require their issuer to make specific payments to reimburse the holder of the financial guarantee for a loss incurred when a specific borrower breaches its payment obligations on the terms – whether original or subsequently modified – of a debt instrument, irrespective of the legal form it may take. Financial guarantees may take the form of a deposit, bank guarantee, insurance contract or credit derivative, among others.

In their initial recognition, financial guarantees are recognized as liabilities in the consolidated balance sheet at fair value, which is generally the present value of the fees, commissions and interest receivable from these contracts over the term thereof, and the Group simultaneously recognize a corresponding asset in the consolidated balance sheet for the amount of the fees and commissions received at the inception of the transactions and the amounts receivable at the present value of the fees, commissions and interest outstanding.

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Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required for them. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost (see Note 2.2.1).

The provisions recognized for financial guarantees considered impaired are recognized under the heading “Provisions - Provisions for contingent risks and commitments” on the liability side in the consolidated balance sheets (see Note 24). These provisions are recognized and reversed with a charge or credit, respectively; to “Provisions or reversal of provision” in the consolidated income statements (see Note 46).

Income from financial guarantees is recorded under the heading “Fee and commission income” in the consolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee (see Note 40).

2.2.4 Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale and Liabilities included in disposal groups classified as held for sale

The headings “Non-current assets and disposal groups held for sale” and “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets includes the carrying amount of assets that are not part of the BBVA Group’s operating activities. The recovery of this carrying amount is expected to take place through the price obtained on its disposal (see Note 21).

These headings include individual items and groups of items (“disposal groups”) and disposal groups that form part of a major operating segment and are being held for sale as part of a disposal plan (“discontinued operations”). The heading “Non-current assets and disposal groups held for sale” include the assets received by the subsidiaries from their debtors, in full or partial settlement of the debtors’ payment obligations (assets foreclosed or received in payment of debt and recovery of lease finance transactions), unless the Group has decided to make continued use of these assets. The BBVA Group has units that specialize in real estate management and the sale of this type of asset.

Symmetrically, the heading “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets reflects the balances payable arising from disposal groups and discontinued operations.

Non-current assets and disposal groups classified as held for sale are generally measured, at the acquisition date and at any later date deemed necessary, at either their carrying amount or the fair value of the property (less costs to sell), whichever is lower.

In the case of real estate assets foreclosed or received in payment of debts, they are initially recognized at the lower of: the restated carrying amount of the financial asset and the fair value at the time of the foreclosure or receipt of the asset less estimated sales costs. The carrying amount of the financial asset is updated at the time of the foreclosure, treating the real property received as a secured collateral and taking into account the credit risk coverage that would correspond to it according to its classification prior to the delivery. For these purposes, the collateral will be valued at its current fair value (less sale costs) at the time of foreclosure. This carrying amount will be compared with the previous carrying amount and the difference will be recognized as a provision increase, if applicable. On the other hand, the fair value of the foreclosed asset is obtained by appraisal, evaluating the need to apply a discount on the asset derived from the specific conditions of the asset or the market situation for these assets, and in any case, deducting the company’s estimated sale costs.

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At the time of the initial recognition, these real estate assets foreclosed or received in payment of debts, classified as “Non-current assets and disposal groups held for sale” and “Liabilities included in disposal groups classified as held for sale” are valued at the lower of: their restated fair value less estimated sale costs and their carrying amount; a deterioration or impairment reversal can be recognized for the difference if applicable.

Non-current assets and disposal groups held for sale groups classified as held for sale are not depreciated while included under the heading “Non-current assets and disposal groups held for sale”.

Fair value of non-current assets held for sale from foreclosures or recoveries is based, mainly, in appraisals or valuations made by independent experts on an annual basis or more frequently, should there be indicators of impairment.

Gains and losses generated on the disposal of assets and liabilities classified as non-current held for sale, and liabilities included in disposal groups classified as held for sale as well as impairment losses and, where pertinent, the related recoveries, are recognized in “Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” in the consolidated income statement (see Note 50). The remaining income and expense items associated with these assets and liabilities are classified within the relevant consolidated income statement headings.

Income and expenses for discontinued operations, whatever their nature, generated during the year, even if they have occurred before their classification as discontinued operations, are presented net of the tax effect as a single amount under the heading “Profit from discontinued operations” in the consolidated income statement, whether the business remains on the consolidated balance sheet or is derecognized from the consolidated balance sheet. As long as an asset remains in this category, it will not be amortized. This heading includes the earnings from their sale or other disposal.

2.2.5 Tangible assets

Property, plant and equipment for own use

This heading includes the assets under ownership or acquired under finance lease, intended for future or current use by the BBVA Group and that it expects to hold for more than one year. It also includes tangible assets received by the consolidated entities in full or partial settlement of financial assets representing receivables from third parties and those assets expected to be held for continuing use.

Property, plant and equipment for own use are presented in the consolidated balance sheets at acquisition cost, less any accumulated depreciation and, where appropriate, any estimated impairment losses resulting from comparing this net carrying amount of each item with its corresponding recoverable amount (see Note 17).

Depreciation is calculated using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land is considered to have an indefinite life and is therefore not depreciated.

The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading "Depreciation and Amortization" (see Note 45) and are based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):

Depreciation Rates for Tangible Assets
Type of Assets | Annual Percentage
Buildings for own use | 1% - 4%
Furniture | 8% - 10%
Fixtures | 6% - 12%
Office supplies and hardware | 8% - 25%

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At each reporting date, the Group entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the Group analyzes whether this impairment actually exists by comparing the asset’s net carrying amount with its recoverable amount (as the higher between its recoverable amount less disposal costs and its value in use). When the carrying amount exceeds the recoverable amount, the carrying amount is written down to the recoverable amount and depreciation charges going forward are adjusted to reflect the asset’s remaining useful life.

Similarly, if there is any indication that the value of a tangible asset is now recoverable, the consolidated entities will estimate the recoverable amounts of the asset and recognize it in the consolidated income statement, recording the reversal of the impairment loss recognized in previous years and thus adjusting future depreciation charges. Under no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior years.

In the BBVA Group, most of the buildings held for own use are assigned to the different Cash-Generating-Units (CGU) to which they belong. The corresponding impairment analysis are performed for these CGUs to check whether sufficient cash flows are generated to support the value of the assets comprised within.

Running and maintenance expenses relating to tangible assets held for own use are recognized as an expense in the year they are incurred and recognized in the consolidated income statements under the heading "Administration costs - Other administrative expenses - Property, fixtures and equipment" (see Note 44.2).

Other assets leased out under an operating lease

The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognize the impairment losses on them, are the same as those described in relation to tangible assets for own use.

Investment properties

The heading “Tangible assets - Investment properties” in the consolidated balance sheets reflects the net values (purchase cost minus the corresponding accumulated depreciation and, if appropriate, estimated impairment losses) of the land, buildings and other structures that are held either to earn rentals or for capital appreciation through sale and that are neither expected to be sold off in the ordinary course of business nor are destined for own use (see Note 17).

The criteria used to recognize the acquisition cost of investment properties, calculate their depreciation and their respective estimated useful lives and recognize the impairment losses on them, are the same as those described in relation to tangible assets held for own use.

The BBVA Group determines periodically the fair value of its investment properties in such a way that, at the end of the financial year, the fair value reflects the market conditions of investment property assets’ market at this date. This fair value will be determined taking as references the valuations performed by independent experts.

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2.2.6 Inventories

The balance under the heading “Other assets - Inventories” in the consolidated balance sheets mainly includes the land and other properties that the BBVA Group’s real estate entities hold for development and sale as part of their real estate development activities (see Note 20).

The cost of inventories includes those costs incurred in their acquisition and development, as well as other direct and indirect costs incurred in getting them to their current condition and location.

In the case of the cost of real estate assets accounted for as inventories, the cost is comprised of: the acquisition cost of the land, the cost of urban planning and construction, non-recoverable taxes and costs corresponding to construction supervision, coordination and management. Financing cost incurred during the year form part of cost, provided that the inventories require more than a year to be in a condition to be sold.

Properties purchased from customers in distress, which the Group manages for sale, are measured at the acquisition date and any subsequent time, at either their related carrying amount or the fair value of the property (less costs to sell), whichever is lower. The carrying amount at acquisition date of these properties is defined as the balance pending collection on those assets that originated said purchases (net of provisions).

Impairment

The amount of any subsequent adjustment due to inventory valuation for reasons such as damage, obsolescence, reduction in sale price to its net realizable value, as well as losses for other reasons and, if appropriate, subsequent recoveries of value up to the limit of the initial cost value, are recognized under the heading "Impairment or reversal of impairment on non-financial assets” in the accompanying consolidated income statements (see Note 48) for the year in which they are incurred.

In the case of the above mentioned real-estate assets, if the fair value less costs to sell is lower than the carrying amount of the loan recognized in the consolidated balance sheet, a loss is recognized under the heading "Impairment or reversal of impairment on non-financial assets" in the consolidated income statement for the year. In the case of real-estate assets accounted for as inventories, the BBVA Group’s criterion for determining their net realizable value is mainly based on independent appraisals no more than one year old, or less if there are indications of impairment.

Inventory sales

In sale transactions, the carrying amount of inventories is derecognized from the consolidated balance sheet and recognized as an expense under the income statement heading "Other operating expenses – Changes in inventories” in the year in which the income from its sale is recognized. This income is recognized under the heading “Other operating income – Financial income from non-financial services” in the consolidated income statements (see Note 42).

2.2.7 Business combinations

A business combination is a transaction, or any other deal, by which the Group obtains control of one or more businesses. It is accounted for by applying the acquisition method.

According to this method, the acquirer has to recognize the assets acquired and the liabilities and contingent liabilities assumed, including those that the acquired entity had not recognized in the accounts. The method involves the measurement of the consideration received for the business combination and its allocation to the assets, liabilities and contingent liabilities measured according to their fair value, at the purchase date, as well as the recognition of any non-controlling participation (minority interests) that may arise from the transaction.

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In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss under the heading “Gains (losses) on derecognition of non-financial assets and subsidiaries, net” of the consolidated income statements. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.

In addition, the acquirer shall recognize an asset in the consolidated balance sheet under the heading “Intangible asset - Goodwill” if on the acquisition date there is a positive difference between:

· the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of stock previously held in the acquired business; and

· the net fair value of the assets acquired and liabilities assumed.

If this difference is negative, it shall be recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.

Non-controlling interests in the acquired entity may be measured in two ways: either at their fair value; or at the proportional percentage of net assets identified in the acquired entity. The method of valuing non-controlling interest may be elected in each business combination. BBVA Group has always elected for the second method.

2.2.8 Intangible assets

Goodwill

Goodwill represents a portion of consideration transferred in advance by the acquiring entity for the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is never amortized. It is subject periodically to an impairment analysis, and is written off if there has been impairment (see Note 18).

Goodwill is assigned to one or more cash-generating units that expect to be the beneficiaries of the synergies derived from the business combinations. The cash-generating units represent the Group’s smallest identifiable asset groups that generate cash flows for the Group and that are largely independent of the flows generated from the Group’s other assets or groups of assets. Each unit or units to which goodwill is allocated:

· Is the lowest level at which the entity manages goodwill internally.

· Is not larger than an operating segment.

The cash-generating units to which goodwill has been allocated are tested for impairment (including the allocated goodwill in their carrying amount). This analysis is performed at least annually or more frequently if there is any indication of impairment.

For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that cash-generating unit, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, in the event they are not valued at fair value, is compared with its recoverable amount.

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The recoverable amount of a cash-generating unit is equal to the fair value less sale costs or its value in use, whichever is greater. Value in use is calculated as the discounted value of the cash flow projections that the unit’s management estimates and is based on the latest budgets approved for the coming years. The main assumptions used in its calculation are: a sustainable growth rate to extrapolate the cash flows indefinitely, and the discount rate used to discount the cash flows, which is equal to the cost of the capital assigned to each cash-generating unit, and equivalent to the sum of the risk-free rate plus a risk premium inherent to the cash-generating unit being evaluated for impairment.

If the carrying amount of the cash-generating unit exceeds the related recoverable amount, the Group recognizes an impairment loss; the resulting loss is apportioned by reducing, first, the carrying amount of the goodwill allocated to that unit and, second, if there are still impairment losses remaining to be recognized, the carrying amount of the remainder of the assets. This is done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. In the event the non-controlling interests are measured at fair value, the deterioration of goodwill attributable to non-controlling interests will be recognized. In any case, an impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Goodwill impairment losses are recognized under the heading "Impairment or reversal of impairment on non-financial assets – Intangible assets” in the consolidated income statements (see Note 48).

Other intangible assets

These assets may have an indefinite useful life if, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the consolidated entities. In all other cases they have a finite useful life (see Note 18).

Intangible assets with a finite useful life are amortized according to the duration of this useful life, using methods similar to those used to depreciate tangible assets. The defined useful life intangible asset is made up mainly of IT applications acquisition costs which have a useful life of 3 to 5 years. The depreciation charge of these assets is recognized in the accompanying consolidated income statements under the heading "Depreciation and amortization" (see Note 45).

The consolidated entities recognize any impairment loss on the carrying amount of these assets with charge to the heading “Impairment or reversal of impairment on non - financial assets- Intangible assets” in the accompanying consolidated income statements (see Note 48). The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior years, are similar to those used for tangible assets.

2.2.9 Insurance and reinsurance contracts

The assets and liabilities of the BBVA Group’s insurance subsidiaries are recognized according to their nature under the corresponding headings of the consolidated balance sheets, and the initial recognition and valuation is carried out according to the criteria set out in IFRS 4.

The heading “Insurance and reinsurance assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance subsidiaries are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the reinsurer´s share of the technical provisions recognized by the consolidated insurance subsidiaries.

The heading “Liabilities under insurance and reinsurance contracts” in the accompanying consolidated balance sheets includes the technical provisions for direct insurance and inward reinsurance recognized by the consolidated insurance subsidiaries to cover claims arising from insurance contracts open at period-end (see Note 23).

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The income or expenses reported by the BBVA Group’s consolidated insurance subsidiaries on their insurance activities is recognized, in accordance with their nature, in the corresponding items of the consolidated income statements.

The consolidated insurance entities of the BBVA Group recognize the amounts of the premiums written and a charge for the estimated cost of the claims that will be incurred at their final settlement to their consolidated income statements. At the close of each year the amounts collected and unearned, as well as the costs incurred and unpaid, are accrued.

The most significant provisions recorded by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 23.

According to the type of product, the provisions may be as follows:

Life insurance provisions:

Represents the value of the net obligations undertaken with the life insurance policyholder. These provisions include:

· Provisions for unearned premiums. These are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums received until the closing date that has to be allocated to the period from year-end to the end of the insurance policy period.

· Mathematical reserves: Represents the value of the life insurance obligations of the insurance entities at year-end, net of the policyholder’s obligations, arising from life insurance contracted.

Non-life insurance provisions:

· Provisions for unearned premiums. These provisions are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums received until the closing date that has to be allocated to the period between the year-end and the end of the policy period.

· Provisions for unexpired risks: The provision for unexpired risks supplements the provision for unearned premiums by the amount by which that provision is not sufficient to reflect the assessed risks and expenses to be covered by the consolidated insurance subsidiaries in the policy period not elapsed at year-end.

Provision for claims:

This reflects the total amount of the outstanding obligations arising from claims incurred prior to year-end. Insurance subsidiaries calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in relation to these claims.

Provision for bonuses and rebates:

This provision includes the amount of the bonuses accruing to policyholders, insurees or beneficiaries and the premiums to be returned to policyholders or insurees, as the case may be, based on the behavior of the risk insured, to the extent that such amounts have not been individually assigned to each of them.

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Technical provisions for reinsurance ceded:

Calculated by applying the criteria indicated above for direct insurance, taking account of the assignment conditions established in the open reinsurance contracts.

Other technical provisions:

Insurance entities have recognized provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used in the valuation of the technical provisions.

The BBVA Group controls and monitors the exposure of the insurance subsidiaries to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.

2.2.10 Tax assets and liabilities

Expenses on corporate income tax applicable to the BBVA Group’s Spanish entities and on similar income taxes applicable to consolidated foreign entities are recognized in the consolidated income statement, except when they result from transactions on which the profits or losses are recognized directly in equity, in which case the related tax effect is also recognized in equity.

The total corporate income tax expense is calculated by aggregating the current tax arising from the application of the corresponding tax rate as per the tax base for the year (after deducting the tax credits or discounts allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the consolidated income statement.

Deferred tax assets and liabilities include temporary differences, defined as the amounts to be payable or recoverable in future years arising from the differences between the carrying amount of assets and liabilities and their tax bases (the “tax value”), and tax loss and tax credit or discount carry forwards (see Note 19).

The "Tax Assets" line item in the accompanying consolidated balance sheets includes the amount of all the assets of a tax nature, broken down into: "Current” (amounts of tax recoverable in the next twelve months) and "Deferred" (which includes the amount of tax to be recovered in future years, including those arising from tax losses or credits for deductions or rebates that can be compensated). The "Tax Liabilities" line item in the accompanying consolidated balance sheets includes the amount of all the liabilities of a tax nature, except for provisions for taxes, broken down into: "Current” (income tax payable on taxable profit for the year and other taxes payable in the next twelve months) and "Deferred" (the amount of corporate tax payable in subsequent years).

Deferred tax liabilities attributable to taxable temporary differences associated with investments in subsidiaries, associates or joint venture entities are recognized as such, except where the Group can control the timing of the reversal of the temporary difference and it is unlikely that it will reverse in the future. Deferred tax assets are recognized to the extent that it is considered probable that the consolidated entities will have sufficient taxable profits in the future against which the deferred tax assets can be utilized and are not from the initial recognition (except in the case of a business combination) of other assets or liabilities in a transaction that does not affect the fiscal outcome or the accounting result.

The deferred tax assets and liabilities recognized are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they still qualify as deferred tax assets and liabilities, and the appropriate adjustments are made on the basis of the findings of the analyses performed. In those circumstances in which it is unclear how a specific requirement of the tax law applies to a particular transaction or circumstance, and the acceptability of the definitive tax treatment depends on the decisions taken by the relevant taxation authority in future, the entity recognizes current and deferred tax liabilities and assets considering whether it is probable or not that a taxation authority will accept an uncertain tax treatment.

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Thus, if the entity concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, the entity uses the amount expected to be paid to (recovered from) the taxation authorities.

The income and expenses directly recognized in consolidated equity that do not increase or decrease taxable income are accounted for as temporary differences.

2.2.11 Provisions, contingent assets and contingent liabilities

The heading “Provisions” in the consolidated balance sheets includes amounts recognized to cover the BBVA Group’s current obligations arising as a result of past events. These are certain in terms of nature but uncertain in terms of amount and/or settlement date. The settlement of these obligations is deemed likely to entail an outflow of resources embodying economic benefits (see Note 24). The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Group entities relative to third parties in relation to the assumption of certain responsibilities or through virtually certain developments of particular aspects of the regulations applicable to the operation of the entities; and, specifically, future legislation to which the Group will certainly be subject. The provisions are recognized in the consolidated balance sheets when each and every one of the following requirements is met:

· They represent a current obligation that has arisen from a past event. At the date of the Consolidated Financial Statements, there is more probability that the obligation will have to be met than that it will not.

· It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

· The amount of the obligation can be reasonably estimated.

Among other items, these provisions include the commitments made to employees by some of the Group entities (mentioned in Note 2.2.12), as well as provisions for tax and legal litigation.

Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement; however, they will be disclosed, should they exist, in the Notes to the Consolidated Financial Statements, provided that it is probable will give rise to an increase in resources embodying economic benefits.

Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the Group. They also include the existing obligations of the Group when it is not probable that an outflow of resources embodying economic benefits will be required to settle them; or when, in extremely rare cases, their amount cannot be measured with sufficient reliability.

Contingent liabilities are not recognized in the consolidated balance sheet or the income statement (excluding contingent liabilities from business combination) but are disclosed in the Notes to the Consolidated Financial Statements, unless the possibility of an outflow of resources embodying economic benefits is remote.

2.2.12 Pensions and other post-employment commitments

Below we provide a description of the most significant accounting policies relating to post-employment and other employee benefit commitments assumed by BBVA Group entities (see Note 25).

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Short-term employee benefits

Benefits for current active employees which are accrued and settled during the year and for which a provision is not required in the entity´s accounts. These include wages and salaries, social security charges and other personnel expenses.

Costs are charged and recognized under the heading “Administration costs – Personnel expenses – Other personnel expenses” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-contribution plans

The Group sponsors defined-contribution plans for the majority of its active employees. The amount of these benefits is established as a percentage of remuneration and/or as a fixed amount.

The contributions made to these plans in each year by BBVA Group entities are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-contribution plan expense” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-benefit plans

Some Group entities maintain pension commitments with employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. These commitments are covered by insurance contracts, pension funds and internal provisions.

In addition, some of the Spanish entities have offered certain employees the option to retire before their normal retirement age, recognizing the necessary provisions to cover the costs of the associated benefit commitments, which include both the liability for the benefit payments due as well as the contributions payable to external pension funds during the early retirement period.

Furthermore, certain Group entities provide welfare and medical benefits which extend beyond the date of retirement of the employees entitled to the benefits.

All of these commitments are quantified based on actuarial valuations, with the amounts recorded under the heading “Provisions – Provisions for pensions and similar obligations” in the consolidated balance sheet and determined as the difference between the value of the defined-benefit commitments and the fair value of plan assets at the date of the Consolidated Financial Statements (see Note 25).

Current service cost are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-benefit plan expense” of the consolidated income statement (see Note 44.1).

Interest credits/charges relating to these commitments are charged and recognized under the headings “Interest and other income” and “Interest expense” of the consolidated income statement (see Note 37).

Past service costs arising from benefit plan changes as well as early retirements granted during the year are recognized under the heading “Provisions or reversals of provisions” of the consolidated income statement (see Note 46).

Other long-term employee benefits

In addition to the above commitments, certain Group entities provide long-term service awards to their employees, consisting of monetary amounts or periods of vacation granted upon completion of a number of years of qualifying service.

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These commitments are quantified based on actuarial valuations and the amounts recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet (see Note 24).

Valuation of commitments: actuarial assumptions and recognition of gains/losses

The present value of these commitments is determined based on individual member data. Active employee costs are determined using the “projected unit credit” method, which treats each period of service as giving rise to an additional unit of benefit and values each unit separately.

In establishing the actuarial assumptions we take into account that:

· They should be unbiased, i.e. neither unduly optimistic nor excessively conservative.

· Each assumption does not contradict the others and adequately reflect the existing relationship between economic variables such as price inflation, expected wage increases, discount rates and the expected return on plan assets, etc. Future wage and benefit levels should be based on market expectations, at the balance sheet date, for the period over which the obligations are to be settled.

· The interest rate used to discount benefit commitments is determined by reference to market yields, at the balance sheet date, on high quality bonds.

The BBVA Group recognizes actuarial gains/losses relating to early retirement benefits, long service awards and other similar items under the heading “Provisions or reversal of provisions” of the consolidated income statement for the period in which they arise (see Note 46). Actuarial gains/losses relating to pension and medical benefits are directly charged and recognized under the heading "Accumulated other comprehensive income – Items that will not be reclassified to profit or loss – Actuarial gains or losses on defined benefit pension plans" of equity in the consolidated balance sheet (see Note 30).

2.2.13 Equity-settled share-based payment transactions

Provided they constitute the delivery of such equity instruments following the completion of a specific period of services, equity-settled share-based payment transactions are recognized as an expense for services being provided by employees, by way of a balancing entry under the heading “Shareholders’ funds – Other equity instruments” in the consolidated balance sheet. These services are measured at fair value for the employees services received, unless such fair value cannot be calculated reliably. In such case, they are measured by reference to the fair value of the equity instruments granted, taking into account the date on which the commitments were granted and the terms and other conditions included in the commitments.

When the initial compensation agreement includes what may be considered market conditions among its terms, any changes in these conditions will not be reflected in the consolidated income statement, as these have already been accounted for in calculating the initial fair value of the equity instruments. Non-market vesting conditions are not taken into account when estimating the initial fair value of equity instruments, but they are taken into account when determining the number of equity instruments to be issued. This will be recognized on the consolidated income statement with the corresponding increase in total consolidated equity.

2.2.14 Termination benefits

Termination benefits are recognized in the financial statements when the BBVA Group agrees to terminate employment contracts with its employees and has established a detailed plan.

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2.2.15 Treasury shares

The value of common stock issued by the BBVA Group’s entities and held by them - basically, shares and derivatives on the Bank’s shares held by some consolidated entities that comply with the requirements to be recognized as equity instruments - are recognized as a decrease to net equity, under the heading "Shareholders’ funds - Treasury stock" in the consolidated balance sheets (see Note 29).

These financial assets are recognized at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Shareholders’ funds - Retained earnings” in the consolidated balance sheets (see Note 28).

2.2.16 Foreign-currency transactions and exchange differences

The BBVA Group’s functional currency, and thus the currency in which the Consolidated Financial Statements are presented, is the euro. As such, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”.

Conversion to euros of the balances held in foreign currency is performed in two consecutive stages:

· Conversion of the foreign currency to the entity’s functional currency (currency of the main economic environment in which the entity operates); and

· Conversion to euros of the balances held in the functional currencies of the entities whose functional currency is not the euro.

Conversion of the foreign currency to the entity’s functional currency

Transactions denominated in foreign currencies carried out by the consolidated entities (or entities accounted for using the equity method) are initially accounted for in their respective currencies. Subsequently, the monetary balances in foreign currencies are converted to their respective functional currencies using the exchange rate at the close of the financial year. In addition,

· Non-monetary items valued at their historical cost are converted to the functional currency at the exchange rate applicable on the purchase date.

· Non-monetary items valued at their fair value are converted at the exchange rate in force on the date on which such fair value was determined.

· Income and expenses are converted at the period’s average exchange rates for all the operations carried out during the year. When applying this criterion the BBVA Group considers whether significant variations have taken place in exchange rates during the year which, owing to their impact on the statements as a whole, may require the application of exchange rates as of the date of the transaction instead of such average exchange rates.

The exchange differences produced when converting the balances in foreign currency to the functional currency of the consolidated entities are generally recognized under the heading "Exchange differences, net" in the consolidated income statements (see Note 41). However, the exchange differences in non-monetary items, measured at fair value, are recognized temporarily in consolidated equity under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” in the consolidated balance sheets (see Note 30).

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Conversion of functional currencies to euros

The balances in the financial statements of consolidated entities whose functional currency is not the euro are converted to euros as follows:

· Assets and liabilities: at the closing spot exchange rates as of the date of each of the consolidated balance sheets.

· Income and expenses and cash flows are converted by applying the exchange rate applicable on the date of the transaction, and the average exchange rate for the financial year may be used, unless it has undergone significant variations.

· Equity items: at the historical exchange rates.

The exchange differences arising from the conversion to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recognized under the heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Exchange differences” in the consolidated balance sheets (Notes 30 and 31 respectively). Meanwhile, the differences arising from the conversion to euros of the financial statements of entities accounted for by the equity method are recognized under the heading " Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Entities accounted for using the equity method" (Note 30) until the item to which they relate is derecognized, at which time they are recognized in the income statement.

The financial statements of companies of hyperinflationary economies are restated for the effects of changes in prices before their conversion to euros following the provisions of IAS 29 "Financial information in hyperinflationary economies" (see note 2.2.20). Both these adjustments for inflation and the exchange differences that arise when converting the financial statements of companies into hyperinflationary economies are accounted for in Reserves.

The breakdown of the main consolidated balances in foreign currencies, with reference to the most significant foreign currencies, is set forth in Appendix VII.

Venezuela

Local financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan Bolivar, and converted into euros for the consolidated financial statements. As Venezuela is a country with strong exchange restrictions and has different rates officially published, since December 31, 2015, the Board of Directors considers that the use of the Venezuelan official exchanges rates for converting bolivars into euros in preparing the Consolidated Financial Statements does not reflect the true picture of the financial statements of the Group and the financial position of the Group subsidiaries in Venezuela. Therefore, since the year ended December 31, 2015, the exchange rate for converting bolivars into euros is an estimation taking into account the lack of official data and the evolution of the estimated inflation in Venezuela.

As of December 31, 2018, 2017 and 2016, the impact on the financial statements that would have resulted by applying the last published official exchange rate instead of the exchange rate estimated by BBVA Group was not significant.

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2.2.17 Recognition of income and expenses

The most significant policies used by the BBVA Group to recognize its income and expenses are as follows.

Interest income and expenses and similar items:

As a general rule, interest income and expenses and similar items are recognized on the basis of their period of accrual using the effective interest rate method.

They shall be recognized within the consolidated income statement according to the following criteria, independently from the financial instruments’ portfolio which generates the income or expenses:

· The interest income past-due before the initial recognition and pending to be received will form part of the gross carrying amount of the debt instrument.

· The interest income accrued after the initial recognition will form part of the gross carrying amount of the debt instrument until it will be received.

The financial fees and commissions that arise on the arrangement of loans and advances (basically origination and analysis fees) are deferred and recognized in the income statement over the expected life of the loan. From that amount, the transaction costs identified as directly attributable to the arrangement of the loans and advances will be deducted. These fees are part of the effective interest rate for the loans and advances.

Once a debt instrument has been impaired, interest income is recognized applying the effective interest rate used to discount the estimated recoverable cash flows on the carrying amount of the asset.

Income from dividends received:

Dividends shall be recognized within the consolidated income statement according to the following criteria, independently from the financial instruments’ portfolio which generates this income:

· When the right to receive payment has been declared before the initial recognition and when the payment is pending to be received, the dividends will not form part of the gross carrying amount of the equity instrument and will not be recognized as income. Those dividends are accounted for as financial assets separately from the net equity instrument.

· If the right to receive payment is received after the initial recognition, the dividends from the net equity instruments will be recognized within the consolidated income statement. If the dividends correspond indubitable to the profits of the issuer before the date of initial recognition, they will not be recognized as income but as reduction of the gross carrying amount of the equity instrument because it represents a partly recuperation of the investment. Amongst other circumstances, the generation date can be considered to be prior to the date of initial recognition if the amounts distributed by the issuer as from the initial recognition are higher than its profits during the same period.

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Commissions, fees and similar items:

· Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to the nature of such items. The most significant items in this connection are:

· Those relating to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected/paid.

· Those arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services.

· Those relating to a singular transaction, which are recognized when this singular transaction is carried out.

Non-financial income and expenses:

These are recognized for accounting purposes on an accrual basis.

Deferred collections and payments:

These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

2.2.18 Sales of assets and income from the provision of non-financial services

The heading “Other operating income” in the consolidated income statements includes the proceeds of the sales of assets and income from the services provided by the Group entities that are not financial institutions. In the case of the Group, these entities are mainly real estate and service entities (see Note 42).

2.2.19 Leases

Lease contracts are classified as finance leases from the inception of the transaction if they substantially transfer all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. Leases other than finance leases are classified as operating leases.

When the consolidated entities act as the lessor of an asset under finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recognized as financing provided to third parties and, therefore, are included under the heading “Loans and receivables” in the accompanying consolidated balance sheets (see Note 14).

When the consolidated entities act as lessors of an asset in operating leases, the acquisition cost of the leased assets is recognized under "Tangible assets – Property, plant and equipment – Other assets leased out under an operating lease" in the consolidated balance sheets (see Note 17). These assets are depreciated in line with the criteria adopted for items of tangible assets for own use, while the income arising from the lease arrangements is recognized in the consolidated income statements on a straight-line basis within "Other operating expenses" (see Note 42).

If a fair value sale and leaseback results in an operating lease, the profit or loss generated from the sale is recognized in the consolidated income statement at the time of sale. If such a transaction gives rise to a finance lease, the corresponding gains or losses are accrued over the lease period.

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The assets leased out under operating lease contracts to other entities in the Group are treated in the Consolidated Financial Statements as for own use, and thus rental expense and income is eliminated in consolidation and the corresponding depreciation is recognized.

2.2.20 Entities and branches located in countries with hyperinflationary economies

In accordance with the IFRS criteria, to determine whether an economy has a high inflation rate, the country's economic situation is examined, analyzing whether certain circumstances are fulfilled, such as whether the population prefers to keep its wealth or savings in non-monetary assets or in a relatively stable foreign currency, whether prices can be set in that currency, whether interest rates, wages and prices are pegged to a price index or whether the accumulated inflation rate over three years reaches or exceeds 100%. The fact that any of these circumstances is fulfilled will not be a decisive factor in considering an economy hyperinflationary, but it does provide some reasons to consider it as such.

Argentina

In 2018, the Argentinian economy was considered to be hyperinflationary as defined by the aforementioned criteria. Accordingly, as of December 31, 2018, it was necessary to adjust the financial statements of the Group's subsidiaries based in Argentina to correct for the effect of inflation.

Pursuant to the requirements of IAS 29, the monetary headings (mainly loans and deposits) have not been re-expressed, while the non-monetary headings (mainly tangible fixed assets and equity) have been re- expressed in accordance with the change in the country's Consumer Price Index.

The accumulated historical differences between the re-expressed costs and the previous costs in the non-monetary headings as of December 31, 2017 were credited to “Equity” in the balance sheet, effective on January 1, 2018, while the differences corresponding to 2018, and the re-expression of results were recognized in the consolidated income statement for 2018 in accordance with the nature of the income and expenses.

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During the year ended December 31, 2018 there was a reclassification in “Transfers within total equity” of the Consolidated Statements of Changes in Equity between “Accumulated other comprehensive income” and “Shareholders’ funds – Retained earnings” for €1,096 million, and from “Non-controlling interest – Accumulated other comprehensive income (loss)” to “Non-controlling interest – Other” for €540 million in accordance with IAS 29 and the accounting policy approved by the Group in relation to the hyperinflation (see Note 1.3).

During 2018, the increase in the reserves of Group entities located in Argentina derived from the re-expression for hyperinflation (IAS 29) amounted to €703 million, of which €463 million have been recorded within “Shareholders’ funds - Retained earnings” and €240 million within “Minority interests – Other”. Furthermore, during 2018 the decrease in the reserves of Group entities located in Argentina derived from conversion (IAS 21) amounts to €-773 million, of which €-515 million have been recorded within “Shareholders’ funds - Retained earnings”, and €-258 million within “Minority interests – Other”. The net impact of both effects is presented under the caption “Other increases or (-) decreases in equity” in the consolidated Statement of Changes in Equity for the year ended December 31, 2018. The net loss in the profit attributable to the parent company of the Group in 2018 derived from the application of IAS 29 amounted to €209 million. In addition, there is a net loss in the profit attributable to the parent company of the Group in 2018 derived from the application of IAS 21 which amounted to €57 million.

The breakdown of the General Price Index (“GPI”) and the inflation index used as of December 31, 2018 for the inflation restatement of the financial statements of the Group companies located in Argentina is as follows:

General Price Index
| 2018
GPI | 184
Average GPI | 152
Inflation of the period | 48%

Venezuela

Since 2009, the economy of Venezuela can be considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Venezuela have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “Financial Reporting in Hyperinflationary Economies“. As stated in Note 1.3, BBVA has restated prior year information in relation to a change in the accounting policy for applying IAS 29.

The losses recognized under the heading “Profit attributable to the parent company” in the accompanying consolidated income statement as a result of the adjustment for inflation on net monetary position of the Group entities in Venezuela amounted to €12, €13 and €28 million in 2018, 2017 and 2016 respectively (see Note 2.2.16).

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2.3 Recent IFRS pronouncements

Changes introduced in 2018

The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) became effective on or after January 1, 2018.

IFRS 9 - “Financial instruments”

IFRS 9 replaced IAS 39 for financial statements from January 1, 2018 onwards and includes new classification and measurement requirements for financial assets and liabilities and impairment requirements for financial assets (see Note 2.2.1).

Regarding the hedge accounting, the Group has elected to continue applying IAS 39 to its hedge accounting as permitted by IFRS 9.

Amended IFRS 9 – Prepayment Features with Negative Compensation

The amendments to IFRS 9 allow entities to measure certain prepayable financial assets with negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met, instead of at fair value through profit or loss. The condition is that the financial asset would otherwise meet the criteria of having contractual cash flows that are solely payments of principal and interest but do not meet that condition only as a result of that prepayment feature.

The amendments should be applied to the accounting periods beginning on or after January 1, 2019, although early application is permitted. The Group has applied this amendment to the accounting period beginning on January 1, 2018 and it has not had a significant impact on the Group´s financial statements.

Amended IFRS 7 - “Financial instruments: Disclosures”

The IASB modified IFRS 7 in December 2011 to include new disclosures on financial instruments that entities have to provide in the period that they apply IFRS 9 for the first time.

IFRS 15 - “Revenue from contracts with customers”

IFRS 15 contains the principles that an entity shall apply to account for revenue and cash flows arising from a contract with a customer (see Note 2.2.17).

The core principle of IFRS 15 is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services, in accordance with contractual agreements (either over time or at a certain time). It is considered that the good or service is transferred when the customer obtains control over it.

The new Standard replaces IAS 18 – Revenue, IAS 11 - Construction Contracts, IFRIC 13 - Customer Loyalty Programmes, IFRIC 15 - Agreements for the Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC 31 – Revenue-Transactions Involving Advertising Services.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

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IFRS 2 – “Classification and Measurement of Share-based Payment Transactions”

The amendments made to IFRS 2 provide requirements on three different aspects:

· When measuring the fair value of a cash-settled share-based payment vesting conditions, other than market conditions, the conditions for the irrevocability shall be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction.

· A transaction in which an entity settles a share-base payment arrangement net by withholding a specified portion of the equity instruments to meet a statutory tax withholding obligation will be classified as equity settled in its entirety if, without the net settlement feature, the entire share-based payment would otherwise be classified as equity-settled.

· In case of modification of a share-based payment from cash-settled to equity-settled, the modification will be accounted for derecognizing the original liability and recognizing in equity the fair value of the equity instruments granted to the extent that services have been rendered up to the modification date; any difference will be recognized immediately in profit or loss.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

Amended IFRS 4 – “Insurance Contracts”

The amendments made to IFRS 4 address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming insurance contracts standard, by introducing two optional solutions:

· The deferral approach or temporary exemption, that gives entities whose predominant activities are connected with insurance the option to defer the application of IFRS 9 and continue applying IAS 39 until 2021.

· The overlay approach, that gives all issuers of insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the additional accounting volatility that may arise from applying IFRS 9 compared to applying IAS 39 before applying the forthcoming insurance contracts standard.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

Annual improvements cycle to IFRSs 2014-2016 – Minor amendments to IFRS 1 and IAS 28

The annual improvements cycle to IFRSs 2014-2016 includes minor changes and clarifications to IFRS 1- First-time Adoption of International Financial Reporting Standards and IAS 28 – Investments in Associates and Joint Ventures, which should be applied to the accounting periods beginning on or after January 1, 2018, although early application was permitted for modifications to IAS 28.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

IFRIC 22 – Foreign Currency Transactions and Advance Consideration

The Interpretation addresses how to determine the date of the transaction, and thus, the exchange rate to use to translate the related asset, expense or income on initial recognition, in circumstances in which a non-monetary prepayment asset or a non-monetary deferred income liability arising from the payment or receipt of advance consideration is recognized in advance of the related asset, income or expense. It requires that the date of the transaction will be the date on which an entity initially recognizes the non-monetary asset or non-monetary liability.

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If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.

This standard has not had a significant impact on the Group's consolidated financial statements.

Amended IAS 40 – Investment Property

The amendment states that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property.

This standard has not had a significant impact on the Group's financial statements.

Standards and interpretations issued but not yet effective as of December 31, 2018

The following new International Financial Reporting Standards together with their interpretations had been published at the date of preparation of the accompanying consolidated financial statements, but are not mandatory as of December 31, 2018. Although in some cases the IASB allows early adoption before their effective date, the BBVA Group has not proceeded with this option for any such new standards.

Amended IFRS 10 – “Consolidated financial statements” and IAS 28 amended

The amendments to IFRS 10 and IAS 28 establish that when an entity sells or transfers assets which are considered a business (including its consolidated subsidiaries) to an associate or joint venture of the entity, the latter will have to recognize any gains or losses derived from such transaction in its entirety. Notwithstanding, if the assets sold or transferred are not considered a business, the entity will have to recognize the gains or losses derived only to the extent of the interests in the associate or joint venture with unrelated investors.

These changes will be applicable to accounting periods beginning on the effective date, still to be determined, although early adoption is allowed.

IFRS 16 – “Leases”

On January 13, 2016, the IASB issued IFRS 16 which will replace IAS 17 “Leases” for financial statements from January 1, 2019 onwards. The new standard introduces a single lessee accounting model and will require a lessee to recognize assets and liabilities for all leases. The only exceptions are short-term contracts and those in which the underlying assets have low value. A lessee will be required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and account for those two types of leases differently.

During the financial years 2017 and 2018 the Group has carried out a project to implement IFRS 16 with the participation of all affected areas. The standard will mainly affect the accounting of operating leases of the Group.

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With regard to the estimated impact on the Consolidated Financial Statements, at the transition date, the Group has decided to apply the modified retrospective approach which requires recognition of a lease liability equal to the present value of the future payments committed on January 1, 2019. Regarding the measurement of the right-of-use asset, the Group has elected to record an amount equal to the lease liability. As a result of this approach, the Group expects to recognize assets for the right-of-use and lease liabilities for an approximate amount of 3,600 million euros mainly coming from the Group’s activity in Spain as well as from bank branches leases. The estimated impact in terms of capital (CET1) for the Group amounts to -12 basis points.

The final impact of adopting the standard as of January 1, 2019 may change because:

· the Group has not concluded the tests;

· the new accounting policies, methodologies and parameters may be subject to changes until the Group presents its financial statements that include the final impact as of the date of initial application.

IFRS 17 – Insurance Contracts

IFRS 17 establishes the principles for the accounting for insurance contracts and supersedes IFRS 4. The new standard introduces a single accounting model for all insurance contracts and requires the entities to use updated assumptions.

An entity shall divide the contracts into groups and recognize and measure groups of insurance contracts at the total of:

· the fulfilment cash flows, that comprises the estimate of future cash flows, an adjustment to reflect the time value of money and the financial risk associated with the future cash flows and a risk adjustment for non-financial risk; and

· the contractual service margin that represents the unearned profit.

The amounts recognized in the consolidated income statement shall be disaggregated into insurance revenue, insurance service expenses and insurance finance income or expenses. Insurance revenue and insurance service expenses shall exclude any investment components. Insurance revenue shall be recognized over the period the entity provides insurance coverage and in proportion to the value of the provision of coverage that the insurer provides in the period.

This Standard will be applied to the accounting years starting on or after January 1, 2021.

IFRIC 23 - Uncertainty over Income Tax Treatments

IFRIC 23 provides guidance on how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.

If the entity considers that it is probable that the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings.

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If the entity considers that it is not probable that the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to use the most likely amount or the expected value (sum of the probability. weighted amounts in a range of possible outcomes) in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The method used should be the method that the entity expects to provide the better prediction of the resolution of the uncertainty.

The interpretation will be applied to the accounting periods beginning on or after January 1, 2019.

Amended IAS 28 – Long-term Interests in Associates and Joint Ventures

The amendments to IAS 28 clarify that an entity is required to apply IFRS 9 to long term interests in an associate or joint venture that, in substance, form part of the net investment in the associate or joint venture but to which the equity method is not applied.

The amendments will be applied to the accounting periods beginning on or after January 1, 2019.

Annual improvements cycle to IFRSs 2015-2017

The annual improvements cycle to IFRSs 2015-2017 includes minor changes and clarifications to IFRS 3- Business Combinations, IFRS 11 – Joint Arrangements, IAS 12 – Income Taxes and IAS 23 – Borrowing Costs, which will be applied to the accounting periods beginning on or after January 1, 2019, although early application is permitted.

Amended IAS 19 – Plan Amendment, Curtailment or Settlement

The small amendments in IAS 19 concern the cases if a plan is amended, curtailed or settled during the period. In these cases, an entity should ensure that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement. In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

The amendments will be applied to the accounting periods beginning on or after January 1, 2019.

Amended IFRS 3 – Definition of a business

The amendments clarify the difference between the acquisition of a business or the acquisition of a set of assets. To determine whether a transaction is an acquisition of a business, an entity should evaluate and conclude if the two following conditions are fulfilled:

· the fair value of the acquired assets is not concentrated in one single asset or group of similar assets.

· the entirety of acquired activities and assets includes, as a minimum, an input and a substantial process which, together, contribute to the capacity to create products.

The amendments will be applied to the accounting periods beginning on or after January 1, 2020, although early application is permitted.

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Amended IAS 1 and IAS 8 – Definition of material

The amendments clarify the definition of material in the elaboration of the financial statements by aligning the definition of the conceptual framework, IAS 1 and IAS 8 (which, before the amendments, included similar but not identical definitions). The new definition of material is the following: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity”.

The amendments will be applied to the accounting periods beginning on or after January 1, 2020, although early application is permitted.

2.4 Transition to IFRS 9 and condensed consolidated opening balance sheet as of January 1, 2018

2.4.1 Transition to IFRS 9

As mentioned in the Notes 1.3, 2.2.1 and 2.3, IFRS 9 replaced IAS 39 for financial statements from January 1, 2018 onwards and includes new classification and measurement requirements for financial assets and liabilities, impairment requirements for financial assets and hedge accounting policy.

The application of this standard on January 1, 2018, had a significant impact on the consolidated financial statements of the Group at that date.

Classification and measurement of financial instruments

Financial assets

IFRS 9 has a new approach to classification and measurement of financial assets which is a mirror of the business model used for asset management purposes and its cash flow characteristics.

IFRS 9 contains three main categories for financial assets classification: valued at amortized cost, valued at fair value with changes in other accumulated comprehensive income, and valued at fair value through profit or loss. The standard eliminates the IAS 39 categories of held-to-maturity investments, loans and receivables, and available-for-sale financial assets.

The classification of financial instruments measured at amortized cost or fair value must be carried out on the basis of: the entity's business model and the assessment of the contractual cash flow, commonly known as the "solely payments of principle and interest" criterion (hereinafter, the SPPI). The purpose of the SPPI test is to determine whether in accordance with the contractual characteristics of the instrument its cash flows only represent the return of the principal and interest, basically understood as consideration for the time value of money and the debtor's credit risk.

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A financial instrument will be classified in the amortized cost portfolio when it is managed with a business model whose purpose is to maintain the financial assets to receive contractual cash flows, and passes the SPPI test. They will be classified in the portfolio of financial assets at fair value with changes in other comprehensive income if they are managed with a business model whose purpose combines collection of the contractual cash flows and sale of the assets, and meets the SPPI test. They will be classified at fair value with changes in profit and loss provided that the entity's business model for their management or the contractual characteristics of its cash flows do not require classification into one of the portfolios described above.

The Group reviewed the existing business models in the geographic areas where it operates to establish classification in accordance with IFRS 9, taking into account the special characteristics of the local structures and organizations, as well as the type of products.

The Group has defined criteria to determine the acceptable frequency and reasons for sales so that the instrument can remain in the category of held to collect contractual cash flows.

Regardless of the frequency and importance of the sales, some types of sales are not incompatible with the category of held to collect contractual flows: sales due to reduction in credit quality; sales close to the maturity of transactions so that variations in market prices will not have a significant effect on the cash flows of the financial asset; sales in response to a change in regulations or in taxation; sales in response to an internal restructuring or significant business combination; sales derived from the execution of a liquidity crisis plan when the crisis event is not reasonably foreseeable.

The Group segmented the portfolio of instruments for carrying out the SPPI test by differentiating products with standard contracts (all the instruments have identical contractual characteristics and are broadly used), for which the Group has carried out the SPPI test by reviewing the standard framework contract. For those products with similar, but not identical characteristics compliance has been assessed through a sampling exercise of contracts. All the financial instruments with specific contractual characteristics have been analyzed individually.

As a result of the analyses carried out on both the business model and the contractual characteristics, certain accounting reclassifications resulted affecting both financial assets and, as the case may be, financial liabilities related to those assets. In general, there is a greater volume of assets valued at fair value with changes in the income statement and the valuation method of some instruments has also been changed according to the one that best reflects the business model to which they belong. Changes in the valuation model to avoid exceeding the criterion of solely payment of principal and interest are not significant.

As of December 31, 2017, the Group had certain investments in financial instruments classified as available-for-sale which, in accordance with IFRS 9, the Group designated as financial assets at fair value through other comprehensive income. As a result, all the gains and losses at fair value of these instruments are now reported in accumulated other comprehensive income. Impairment losses would not be recognized to profit and loss, and gains or losses would not be reclassified to the income statement in the case of divestment. The remaining investments held by the Group as of December 31, 2017 in equity instruments classified as available-for-sale are now accounted for as fair value through changes in profit or loss.

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Financial liabilities

IFRS 9 largely maintains the requirements under IAS 39 for classifying financial liabilities. However, a new aspect introduced by IFRS 9 is the recognition of changes in the fair value of the financial liabilities to which the fair value option is applied. In this case, the changes in the fair value attributable to the credit risk itself are recognized as other comprehensive income, while the rest of the variation is recognized in the income statement. In any case, the variation of credit risk itself may be recognized in the income statement if the treatment described above generates accounting asymmetry.

Financial assets impairments

IFRS 9 replaced the "incurred loss" model in IAS 39 with one of "expected credit loss". The IFRS 9 impairment model is applied to financial assets valued at amortized cost and to financial assets valued at fair value through other comprehensive income, except for investments in equity instruments and contracts for financial guarantees and loan commitments unilaterally revocable by BBVA. Likewise, all the financial instruments valued at fair value with change through profit and loss are excluded from the impairment model.

The new standard classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized (Stage 1); the second comprises the financial assets for which a significant increase in credit risk has been identified since its initial recognition (Stage 2) and the third one, the impaired financial assets (Stage 3).

The calculation of the provisions for credit risk in each of these three categories must be done differently. In this way, expected loss up to 12 months for the financial assets classified in the first of the aforementioned categories must be recorded, while expected losses estimated for the remaining life of the financial assets classified in the other two categories must be recorded. Thus, IFRS 9 differentiates between the following concepts of expected loss:

· Expected loss at 12 months: expected credit loss that arises from possible default events within 12 months following the presentation date of the financial statements; and

· Expected loss during the life of the transaction: this is the expected credit loss that arises from all possible default events over the remaining life of the financial instrument.

All this requires considerable judgment, both in the modeling for the estimation of the expected losses and in the forecasts, on how the economic factors affect such losses, which must be carried out on a weighted probability basis.

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The BBVA Group has applied the following definitions in accordance with IFRS 9:

· Default

BBVA has applied a definition of default for financial instruments that is consistent with that used in internal credit risk management, as well as the indicators under applicable regulation at the date of implementation of IFRS 9. Both qualitative and quantitative indicators have been considered.

The Group has considered there is a default when one of the following situations occurs:

- payment past-due for more than 90 days; or

- there are reasonable doubts regarding the full reimbursement of the instrument.

In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the entity considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2018, the Group has not considered periods higher than 90 days for any of the significant portfolios.

· Credit impaired asset

An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:

- Significant financial difficulty of the issuer or the borrower.

- A breach of contract (e.g. a default or past due event).

- A lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider.

- It becoming probable that the borrower will enter bankruptcy or other financial reorganization.

- The disappearance of an active market for that financial asset because of financial difficulties.

- The purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

The definition of impaired financial assets in the Group is aligned with the definition of default explained in the above paragraphs.

· Significant increase in credit risk

The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there have been significant increases in credit risk since initial recognition considering all reasonable and supportable information, including that which is forward-looking.

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The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally, although the specific characteristics of each geographic area are respected:

- Quantitative criterion: the Group uses a quantitative analysis based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default, so that both values are comparable in terms of expected default probability for their residual life. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios. Depending on how old current financial assets are, at the time implementation of the standard, some simplification has been made to compare the probabilities of default between the current and the original moment, based on the best information available at that moment.

- Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/scoring systems or macroeconomic scenarios, so quantitative analysis covers the majority of circumstances. The Group will use additional qualitative criteria when it considers it necessary to include circumstances that are not reflected in the rating/score systems or macroeconomic scenarios used.

Additionally, instruments under one of the following circumstances are considered Stage 2:

- More than 30 days past due. According to IFRS 9, default of more than 30 days is a presumption that can be rebutted in those cases in which the entity considers, based on reasonable and documented information, that such non-payment does not represent a significant increase in risk. As of December 31, 2018, the Group has not considered periods superior to 30 days for any of the significant portfolios.

- Watch list: They are subject to special watch by the Risks units because they show negative signs in their credit quality, even though there may be no objective evidence of impairment.

- Refinance or restructuring that does not show evidence of impairment.

Although the standard introduces a series of operational simplifications or practical solutions for analyzing the increase in significant risk, the Group does not expect to use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly because they have a low credit risk at the presentation date.

Thus the classification of financial instruments subject to impairment under the new IFRS 9 is as follows:

· Stage 1– without significant increase in credit risk

Financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an amount equal to 12 months expected credit losses.

· Stage 2– significant increases in credit risk

When the credit risk of a financial asset has increased significantly since the initial recognition, the impairment losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

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· Stage 3 - Impaired

When there is objective evidence that the instrument is credit impaired, the financial asset is transferred to this category in which the provision for losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

Method for calculating expected loss

In accordance with IFRS 9, the measurement of expected losses must reflect:

· A considered and unbiased amount, determined by evaluating a range of possible results.

· The time value of money.

· Reasonable and supportable information that is available without undue cost or effort and that reflects current conditions and forecasts of future economic conditions.

The Group measures the expected losses both individually and collectively. The purpose of the Group's individual measurement is to estimate expected losses for significant impaired instruments, or instruments classified in Stage 2. In these cases, the amount of credit losses is calculated as the difference between expected discounted cash flows at the effective interest rate of the transaction and the carrying amount of the instrument.

For the collective measurement of expected losses the instruments are grouped into groups of assets based on their risk characteristics. Exposure within each group is segmented according to the common credit risk characteristics, similar characteristics of the credit risk, indicative of the payment capacity of the borrower in accordance with their contractual conditions. These risk characteristics have to be relevant in estimating the future flows of each group. The characteristics of credit risk may consider, among others, the following factors:

· Type of instrument.

· Rating or scoring tools.

· Credit risk scoring or rating.

· Type of collateral.

· Amount of time at default for stage 3.

· Segment.

· Qualitative criteria which can have a significant increase in risk.

Collateral value if it has an impact on the probability of a default event.

· The estimated losses are derived from the following parameters:

· PD: estimate of the probability of default in each period.

· EAD: estimate of the exposure in case of default at each future period, taking into account the changes in exposure after the presentation date of the financial statements.

· LGD: estimate of the loss in case of default, calculated as the difference between the contractual cash flows and receivables, including guarantees.

In the case of debt securities, the Group supervises the changes in credit risk through monitoring the external published credit ratings.

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To determine whether there is a significant increase in credit risk that is not reflected in the published ratings, the Group has also revised the changes in bond yields, and when they are available, the prices of CDS, together with the news and regulatory information available on the issuers.

Use of present, past and future information

IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss.

The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability it will not occur will also have to be considered, even though the possibility of a loss may be very small. Also, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.

The approach used by the Group consists of using first the most probable scenario (baseline scenario) consistent with that used in the Group's internal management processes, and then applying an additional adjustment, calculated by considering the weighted average of expected losses in other economic scenarios (one more positive and the other more negative). The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are GDP, tax rates, unemployment rate and LTV.

2.4.2 Condensed consolidated opening balance sheet as of January 1, 2018

Condensed Consolidated balance sheets (Millions of Euros) |  |  |  |
ASSETS | December 2017 IAS 39 | Classification and measurement of financial instruments | Impairment | Opening balance sheet 2018
Cash, cash balances at central banks and other demand deposits | 42,680 | - | - | 42,680
Financial assets held for trading | 64,695 | 27,159 | - | 91,854
Derivatives | 35,265 | - | - | 35,265
Equity instruments | 6,801 | 48 | - | 6,849
Debt securities | 22,573 | - | - | 22,573
Loans and advances to central banks | - | 245 | - | 245
Loans and advances to credit institutions | - | 14,895 | - | 14,895
Loans and advances to customers | 56 | 11,970 | - | 12,026
Non-trading financial assets mandatorily at fair value through profit or loss |  | 4,451 | - | 4,451
Financial assets designated at fair value through profit or loss | 2,709 | (1,690) | - | 1,019
Financial assets at fair value through other comprehensive income |  | 62,107 | 8 | 62,115
Equity instruments |  | 2,761 | - | 2,761
Debt securities |  | 59,293 | 8 | 59,301
Loans and advances |  | 140 | - | 140
Available for sale financial assets | 69,476 | (69,476) | - |
Financial assets at amortized cost | 431,521 | (8,680) | (1,158) | 421,685
Debt securities | 10,339 | 19,623 | (3) | 29,959
Loans and advances to central banks | 7,300 | (245) | - | 7,055
Loans and advances to credit institutions | 26,261 | (15,622) | 22 | 10,661
Loans and advances to customers | 387,621 | (12,435) | (1,177) | 374,009
Held to maturity investments | 13,754 | (13,754) | - |
Hedging derivatives | 2,485 | - | - | 2,485
Fair value changes of the hedged items in portfolio hedges of interest rate risk | (25) | - | - | (25)
Joint ventures, associates and unconsolidated subsidiaries | 1,588 | 1 | - | 1,589
Insurance and reinsurance assets | 421 | - | - | 421
Tangible assets | 7,191 | - | - | 7,191
Intangible assets | 8,464 | - | - | 8,464
Tax assets | 16,888 | 8 | 400 | 17,296
Other assets | 4,359 | - | - | 4,359
Non-current assets and disposal groups held for sale | 23,853 | (1) | (21) | 23,832
TOTAL ASSETS | 690,059 | 125 | (770) | 689,414

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The change registered in the heading “Financial assets held for trading” is mainly due to financial assets affected by the activity of Global Markets, which are reclassified from "Financial assets at amortized cost".

The change registered in the heading "Available for sale financial assets" are mainly due to the reclassification to the new heading "Financial assets at fair value through other comprehensive income".

The change registered in the heading “Financial assets at amortized cost” is mainly due to the reclassification to the item "Financial assets held for trading".

LIABILITIES AND EQUITY | December 2017 IAS 39 | Classification and measurement of financial instruments | Impairment | Opening balance sheet 2018
Financial liabilities held for trading | 46,182 | 34,601 | - | 80,783
Financial liabilities designated at fair value through profit or loss | 2,222 | 3,273 | - | 5,495
Financial liabilities at amortized cost | 543,713 | (37,595) | - | 506,118
Deposits from central banks | 37,054 | (3,261) | - | 33,793
Deposits from credit institutions | 54,516 | (19,381) | - | 35,135
Customer Deposits | 376,379 | (12,690) | - | 363,689
Debt certificates | 63,915 | (2,266) | - | 61,649
Other financial liabilities | 11,850 | 1 | - | 11,851
Hedging derivatives | 2,880 | (112) | - | 2,768
Fair value changes of the hedged items in portfolio hedges of interest rate risk | (7) | - | - | (7)
Liabilities under insurance and reinsurance contracts | 9,223 | - | - | 9,223
Provisions | 7,477 | - | 125 | 7,602
Tax liabilities | 3,298 | (24) | 17 | 3,291
Share capital repayable on demand | - | - | - | -
Other liabilities | 4,550 | - | - | 4,550
Liabilities included in disposal groups classified as held for sale | 17,197 | 1 | (10) | 17,188
TOTAL LIABILITIES | 636,736 | 142 | 132 | 637,010
SHAREHOLDERS’ FUNDS | 53,283 | 71 | (923) | 52,432
Capital | 3,267 | - | - | 3,267
Share premium | 23,992 | - | - | 23,992
Equity instruments issued other than capital | - | - | - | -
Other equity | 54 | - | - | 54
Retained earnings | 23,612 | 71 | (923) | 22,760
Revaluation reserves | 12 | - | - | 12
Other reserves | (35) | - | - | (35)
Less: Treasury shares | (96) | - | - | (96)
Profit or loss attributable to owners of the parent | 3,519 | - | - | 3,519
Less: Interim dividends | (1,043) | - | - | (1,043)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | (6,939) | (109) | 13 | (7,036)
MINORITY INTERESTS (NON-CONTROLLING INTEREST) | 6,979 | 21 | 8 | 7,008
TOTAL EQUITY | 53,323 | (17) | (902) | 52,404
TOTAL EQUITY AND TOTAL LIABILITIES | 690,059 | 125 | (770) | 689,414

The change registered in the heading “Financial liabilities held for trading” is mainly due to financial liabilities affected by the activity of Global Markets, which are reclassified from "Financial liabilities at amortized cost".

The change registered in the heading “Financial liabilities at amortized cost” is mainly due to the reclassification to "Liabilities held for trading".

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3. BBVA Group

The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking, asset management and private banking. The Group also operates in other sectors such as insurance, real estate, operational leasing, etc.

The following information is detailed in the Appendices of the Consolidated Financial Statements of the Group:

· Appendix I shows relevant information related to the consolidated subsidiaries and structured entities.

· Appendix II shows relevant information related to investments in subsidiaries, joint ventures and associates accounted for using the equity method.

· Appendix III shows the main changes and notification of investments and divestments in the BBVA Group.

· Appendix IV shows fully consolidated subsidiaries with more than 10% owned by non-Group shareholders.

The following table sets forth information related to the Group’s total assets as of December 31, 2018, 2017 and 2016, broken down by the Group’s entities according to their activity:

Contribution to Consolidated Group Total Assets. Entities by Main Activities (Millions of euros)
|  | 2018 | 2017 | 2016
Banks and other financial services |  | 647,164 | 659,414 | 699,592
Insurance and pension fund managing companies |  | 26,732 | 26,134 | 26,831
Other non-financial services |  | 2,793 | 4,511 | 5,433
Total |  | 676,689 | 690,059 | 731,856

The total assets and results of operations broken down by the geographical areas, in which the BBVA Group operates, are included in Note 6.

The BBVA Group’s activities are mainly located in Spain, Mexico, South America, the United States and

Turkey, with active presence in other countries, as shown below:

· Spain

The Group’s activity in Spain is mainly through Banco Bilbao Vizcaya Argentaria, S.A., which is the parent company of the BBVA Group. The Group also has other entities that operate in Spain’s banking sector, insurance sector, real estate sector, services and as operational leasing entities.

· México

The BBVA Group operates in Mexico, not only in the banking sector, but also in the insurance sector through Grupo Financiero Bancomer.

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· South America

The BBVA Group’s activities in South America are mainly focused on the banking, financial and insurance sectors, in the following countries: Argentina, Chile, Colombia, Peru, Paraguay, Uruguay and Venezuela. It has a representative office in Sao Paulo (Brazil).

The Group owns more than 50% of most of the entities based in these countries. Appendix I shows a list of the entities which, although less than 50% owned by the BBVA Group as of December 31, 2018, are consolidated (see Note 2.1).

· The United States

The Group’s activity in the United States is mainly carried out through a group of entities with BBVA Compass Bancshares, Inc. at their head, as well as, the New York BBVA branch and a representative office in Silicon Valley (California).

· Turkey

The Group’s activity in Turkey is mainly carried out through the Garanti Group.

· Rest of Europe

The Group’s activity in Europe is carried out through banks and financial institutions in Ireland, Switzerland, Italy, Netherlands, Finland and Romania, branches in Germany, Belgium, France, Italy Portugal and the United Kingdom, and a representative office in Moscow.

· Asia-Pacific

The Group’s activity in this region is carried out through branches (in Taipei, Tokyo, Hong Kong Singapore and Shanghai) and representative offices (in Beijing, Seoul, Mumbai, Abu Dhabi and Jakarta).

Main transactions in the Group in 2018

Divestitures

Sale of BBVA’s stake in BBVA Chile

On November 28, 2017, BBVA received a binding offer (the “Offer”) from The Bank of Nova Scotia group (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (amongst them, BBVA Seguros Vida, S.A.). BBVA owned approximately, directly and indirectly, 68.19% of BBVA Chile share capital. On December 5, 2017, BBVA accepted the Offer and entered into a sale and purchase agreement and the sale was completed on July 6, 2018.

The consideration received in cash by BBVA as consequence of the referred sale amounts to, approximately, USD 2,200 million. The transaction results in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

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Agreement for the creation of a joint-venture and transfer of the Real - Estate business in Spain

On November 29, 2017, BBVA reached an agreement with a subsidiary of Cerberus Capital Management, L.P. (“Cerberus”) for the creation of a “joint venture” to which an important part of the real estate business of BBVA in Spain is transferred (the “Business”).

The Business comprises: (i) foreclosed real estate assets (the “REOs”), with a gross book value of approximately €13,000 million, taking as starting point the position of the REOs as of June 26, 2017; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For the purpose of the agreement with Cerberus, the whole Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all required authorizations, BBVA completed the transfer of the real estate business in Spain. Closing of the transaction has resulted in the sale of 80% of the share capital of the company Divarian Propiedad, S.A. to an entity managed by Cerberus.

Divarian is the company to which the BBVA Group has contributed the Business provided that the effective transfer of several real estate assets (REO´s) remains subject to the fulfilment of certain conditions precedent. The final price payable by Cerberus will be adjusted depending on the volume of REO´s effectively contributed.

As of December 31, 2018, the transaction did not have a significant impact on BBVA Group’s attributable profit or the Common Equity Tier 1 (fully loaded).

Main transactions in the Group in 2017

Investments

On February 21, 2017, BBVA Group entered into an agreement for the acquisition from Dogus Holding A.S. and Dogus Arastirma Gelistirme ve Musavirlik Hizmetleri A.S of 41,790,000,000 shares of Turkiye Garanti Bankasi, A.S. (“Garanti Bank”), amounting to 9.95% of the total issued share capital of Garanti Bank. On March 22, 2017, the sale and purchase agreement was completed, and therefore BBVA´s total stake in Garanti Bank as of December 31, 2017 amounts to 49.85% (See Note 31).

Main transactions in the Group in 2016

Mergers

The BBVA Group, at its Board of Directors meeting held on March 31, 2016, adopted a resolution to begin a merger process of BBVA S.A. (absorbing company), Catalunya Banc, S.A., Banco Depositario BBVA, S.A. y Unoe Bank, S.A.

This transaction was part of the corporate reorganization of its banking subsidiaries in Spain, was successfully completed throughout 2016 and has no impact in the Consolidated Financial Statements both from the accounting and the solvency stand points.

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4. Shareholder remuneration system

BBVA’s shareholder remuneration policy communicated in October 2013 established the distribution of an annual pay-out of between 35% and 40% of the profits earned in each year and the progressive reduction of the remuneration via “Dividend Options”, so that the shareholders’ remuneration would ultimately be fully in cash. As announced on February 1, 2017, BBVA’s Board of Directors executed a capital increase to be charged to voluntary reserves for the instrumentation of the last “Dividend Option”, being the subsequent shareholders’ remunerations fully in cash, dated March 29, 2017.

This fully – in - cash shareholders’ remuneration policy would be composed, for each year, of a distribution on account of the dividend of such year (expected to be paid in October) and a final dividend (which would be paid once the year has ended and the profit allocation has been approved, expected for April), subject to the applicable authorizations by the competent governing bodies.

Shareholder remuneration scheme “Dividend Option”

During 2012, 2013, 2014, 2015, 2016 and 2017, the Group implemented a shareholder remuneration system referred to as “Dividend Option”.

Under such remuneration scheme, BBVA offered its shareholders the possibility to receive all or part of their remuneration in the form of newly-issued BBVA ordinary shares, whilst maintaining the possibility for BBVA shareholders to receive their entire remuneration in cash by selling the rights of free allocation assigned either to BBVA (in execution of the commitment assumed by BBVA to acquire the rights of free allocation at a guaranteed fixed price) or by selling the rights of free allocation on the market at the prevailing market price at that time. However, the execution of the commitment assumed by BBVA was only available to whoever had been originally assigned such rights of free allocation and only in connection with the rights of free allocation initially allocated at such time.

On March 29, 2017, BBVA’s Board of Directors resolved to execute the capital increase to be charged to voluntary reserves approved by the Annual General Meeting (“AGM”) held on March 17, 2017, under agenda item three, to implement a “Dividend Option” this year. As a result of this increase, the Bank’s share capital increased by €49,622,955.62 through the issuance of 101,271,338 newly-issued BBVA ordinary shares at 0.49 euros par value, given that 83.28% of owners of the rights of free allocation opted to receive newly issued BBVA ordinary shares. The remaining 16.72% of the owners of the rights of free allocation exercised the commitment assumed by BBVA, and as a result, BBVA acquired 1,097,962,903 rights (at a gross price of €0.131 each) for a total amount of €143,833,140.29. This amount is recorded in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2017 (see Note 26).

On September, 28 2016, BBVA’s Board of Directors resolved to execute the second of the share capital increases to be charged to voluntary reserves, as agreed by the AGM held on March 11, 2016. As a result of this increase, the Bank’s share capital increased by €42,266,085.33 through the issuance of 86,257,317 newly-issued BBVA ordinary shares at 0.49 euros par value, given that 87.85% of owners of the rights of free allocation opted to receive newly-issued BBVA ordinary shares. The remaining 12.15% of the owners of the rights of free allocation exercised the commitment assumed by BBVA, and as a result, BBVA acquired 787,374,942 rights (at a gross price of €0.08 each) for a total amount of €62,989,995.36. This amount is recorded in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2016 (see Note 26).

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On March 31, 2016, BBVA’s Board of Directors resolved to execute the first of the share capital increases to be charged to voluntary reserves, as agreed by the AGM held on March 11, 2016 for the implementation of the shareholder remuneration system called the “Dividend Option”. As a result of this increase, the Bank’s share capital increased by €55,702,125.43 through the issuance of 113,677,807 newly-issued BBVA ordinary shares at a €0.49 par value, given that 82.13% of owners of the rights of free allocation opted to receive newly-issued BBVA ordinary shares. The remaining 17.87% of the owners of the rights of free allocation exercised the commitment assumed by BBVA, and as a result, BBVA acquired 1,137,500,965 rights (at a gross price of €0.129 each) for a total amount of €146,737,624.49. This amount is recorded in “Total Equity- Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2016 (see Note 26).

Cash Dividends

Throughout 2016, 2017 and 2018, BBVA’s Board of Directors approved the payment of the following dividends (interim or final dividends) fully in cash, recorded in “Total Equity- Interim Dividends” of the consolidated balance sheet of the relevant year:

· The Board of Directors, at its meeting held on June 22, 2016, approved the payment in cash of €0.08 (€0.0648 net of withholding tax) per BBVA share as the first gross interim dividend against 2016 results. The total amount paid to shareholders on July 11, 2016, after deducting treasury shares held by the Group's companies, amounted to €517 million and is recognized under the headings “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2016.

· The Board of Directors, at its meeting held on December 21, 2016, approved the payment in cash of €0.08 (€0.0648 withholding tax) per BBVA share, as the second gross interim dividend against 2016 results. The total amount paid to shareholders on January 12, 2017, after deducting treasury shares held by the Group’s Companies, amounted to €525 million and is recognized under the heading “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2016.

· The Board of Directors, at its meeting held on September 27, 2017, approved the payment in cash of €0.09 (€0.0729 net of withholding tax) per BBVA share, as the first gross interim dividend against 2017 results. The total amount paid to shareholders on October 10, 2017, after deducting treasury shares held by the Group's companies, amounted to €599 million and is recognized under the heading “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2017.

· The Annual General Meeting of BBVA held on March 16, 2018 approved, under item 1 of the Agenda, the payment of a final dividend for 2017, in addition to other dividends previously paid, in cash for an amount equal to €0.15 (€0.1215 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 10, 2018, after deducting treasury shares held by the Group’s companies, amounted €996 million and is recognized under heading “Total Equity- Final Dividends” of the consolidated balance sheet as of December 31, 2018.

· The Board of Directors, at its meeting held on September 26, 2018, approved the payment in cash of €0.10 (€0.081 net of withholding tax rate of 19%) per BBVA share, as gross interim dividend based on 2018 results. The total amount paid to shareholders on October 10, 2018, after deducting treasury shares held by the Group´s companies, amounted €663 million and is recognized under heading “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2018.

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The interim accounting statements prepared in accordance with legal requirements evidencing the existence of sufficient liquidity for the distribution of the amounts agreed on September 26, 2018, mentioned above are as follows:

Available Amount for Interim Dividend Payments (Millions of euros)
| August, 31, 2018
Profit of BBVA, S.A., after the provision for income tax | 2,462
Additional Tier I capital instruments remuneration | 236
Maximum amount distributable | 2,226
Amount of proposed interim dividend | 667
BBVA cash balance available to the date | 4,577

Proposal on allocation of earnings for 2018

The allocation of earnings for 2018 subject to the approval of the Board of Directors at the Annual Shareholders Meeting is presented below:

Allocation of Earnings (Millions of euros)
| December 2018
Profit for year (*) | 2,316
Distribution: |
Interim dividends | 667
Final dividend | 1,067
Additional Tier 1 securities | 313
Voluntary reserves | 269

(*) Net income of BBVA, S.A.

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5. Earnings per share

Basic and diluted earnings per share are calculated in accordance with the criteria established by IAS 33. For more information see Glossary of terms.

The calculation of earnings per share is as follows:

Basic and Diluted Earnings per Share
| 2018 | 2017 | 2016
Numerator for basic and diluted earnings per share (millions of euros) |  |  |
Profit attributable to parent company | 5,324 | 3,519 | 3,475
Adjustment: Additional Tier 1 securities (1) | (313) | (301) | (260)
Profit adjusted (millions of euros) (A) | 5,011 | 3,218 | 3,215
Profit from discontinued operations (net of non-controlling interest) (B) | - | - | -
Denominator for basic earnings per share (number of shares outstanding) | - | - | -
Weighted average number of shares outstanding (2) | 6,668 | 6,642 | 6,468
Weighted average number of shares outstanding x corrective factor (3) | 6,668 | 6,642 | 6,592
Adjusted number of shares - Basic earning per share (C) | 6,636 | 6,642 | 6,592
Adjusted number of shares - diluted earning per share (D) | 6,636 | 6,642 | 6,592
Earnings per share (*) | 0.76 | 0.48 | 0.49
Basic earnings per share from continued operations (Euros per share)A-B/C | 0.76 | 0.48 | 0.49
Diluted earnings per share from continued operations (Euros per share)A-B/D | 0.76 | 0.48 | 0.49
Basic earnings per share from discontinued operations (Euros per share)B/C | - | - | -
Diluted earnings per share from discontinued operations (Euros per share)B/D | - | - | -

(1) Remuneration in the year related to contingent convertible securities, recognized in equity (see Note 22.4).

(2) Weighted average number of shares outstanding (millions of euros), excluding weighted average of treasury shares during the period.

(3) Corrective factor, due to the capital increase with pre-emptive subscription right, applied for the previous years.

(*) As of December 31, 2018 the weighted average number of shares outstanding was 6,668 million (6,642 and 6,468 million as of December 31, 2017 and 2016, respectively) and the adjustment of additional Tier 1 securities amounted to €313 million (€301 and €260 million as of December 31, 2017 and 2016, respectively).

As of December 31, 2018, 2017 and 2016, there were no other financial instruments or share option commitments to employees that could potentially affect the calculation of the diluted earnings per share for the years presented. For this reason, basic and diluted earnings per share are the same.

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6. Operating segment reporting

Operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on disaggregated business activities. These business activities are then aggregated in accordance with the organizational structure determined by the BBVA Group and, ultimately, into the reportable operating segments themselves.

During 2018, there have not been significant changes in the reporting structure of the operating segments of the BBVA Group, although its composition is different from the close of 2017, as a result of the agreement of the sale of BBVA Chile (see Note 3). This transaction, which has affected South America´s area composition, is presented as follows, as well as the other operating segments within the BBVA Group:

· Banking activity in Spain

Includes, as in previous years, the Retail Network in Spain, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management units in Spain. It also includes the loans to developers that are granted new or that are no longer in difficult conditions, as well as the portfolios, finance and structural interest-rate positions of the euro balance sheet.

· Non Core Real - Estate

It manages loans in Spain to developers who were in difficulty and real estate assets, mainly from foreclosed properties, both residential mortgages and developers. On November 29, 2017, the BBVA Group signed a sale agreement with Cerberus for the subsequent sale of 80% of the company created to a subsidiary of Cerberus (see Note 3). The effective transfer of some real estate owned assets are subject to the fulfillment of certain conditions and in the meanwhile, BBVA will continue to manage those assets.

· The United States

Includes the Group’s business activity in the country through the BBVA Compass Group and the BBVA New York branch.

· Mexico

B asically includes all the banking and insurance businesses carried out by the Group in the country. Since 2018 it has also included the BBVA Bancomer branch in Houston (in previous years located in the United States). Consequently, the figures from previous years have been recalculated to incorporate this change and show comparable series.

· Turkey

Includes the activity of the BBVA Group business in Turkey through Garanti Group.

· South America

Includes BBVA’s banking and insurance businesses in the region. On July 6, 2018, the sale of BBVA Chile to The Bank of Nova Scotia (Scotiabank) (see Note 3) was completed which affects the comparability of the results, the balance sheet, the activity and the most significant ratios of this business area with prior periods.

· Rest of Eurasia

Includes business activity in the rest of Europe and Asia, i.e. the Group´s retail and wholesale businesses in the area.

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Lastly, the Corporate Center is comprised of the rest of the assets and liabilities that have not been allocated to the operating segments, as it corresponds to the Group’s holding function. It includes: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of capital instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with employees; goodwill and other intangibles. As of December 31, 2018, it contains the 20% stake of BBVA in Divarian´s share capital (see Note 3).

The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2018, 2017 and 2016, is as follows:

Total Assets by Operating Segments (Millions of euros)
| 2018 | 2017 (1) | 2016 (2)
Banking Activity in Spain | 335,294 | 319,417 | 335,847
Non Core Real Estate | 4,163 | 9,714 | 13,713
United States | 82,057 | 75,775 | 88,902
Mexico | 96,455 | 94,061 | 93,318
Turkey | 66,250 | 78,694 | 84,866
South America | 52,385 | 74,636 | 77,918
Rest of Eurasia | 18,000 | 17,265 | 19,106
Subtotal Assets by Operating Segments | 654,605 | 669,562 | 713,670
Corporate Center | 22,084 | 20,497 | 18,186
Total Assets BBVA Group | 676,689 | 690,059 | 731,856

(1) The figures corresponding to 2017 have been restated (see Note 1.3).

(2) Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), total assets of the United States and the Mexico operating segments would have been €84,726 million and €97,492 million, respectively, as of December 31, 2016.

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The attributable profit and main earning figures in the consolidated income statements for the years ended December 31, 2018, 2017 and 2016 by operating segments are as follows:

Main Margins and Profits by Operating Segments (Millions of euros)
|  | Operating Segments
|  | BBVA Group | Spain | Non Core Real Estate | United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center
2018 | Notes |  |  |  |  |  |  |  |  |
Net interest income |  | 17,591 | 3,672 | 32 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (276)
Gross income |  | 23,747 | 5,943 | 38 | 2,989 | 7,193 | 3,901 | 3,701 | 415 | (432)
Operating profit /(loss) before tax |  | 7,580 | 2,017 | (129) | 919 | 3,294 | 1,448 | 1,307 | 144 | (1,420)
Profit | 55.2 | 5,324 | 1,522 | (78) | 735 | 2,384 | 569 | 591 | 93 | (494)
2017(1) |  |  |  |  |  |  |  |  |  |
Net interest income |  | 17,758 | 3,738 | 71 | 2,119 | 5,476 | 3,331 | 3,200 | 180 | (357)
Gross income |  | 25,270 | 6,180 | (17) | 2,876 | 7,122 | 4,115 | 4,451 | 468 | 73
Operating profit /(loss) before tax |  | 6,931 | 1,854 | (656) | 748 | 2,984 | 2,147 | 1,691 | 177 | (2,013)
Profit | 55.2 | 3,519 | 1,374 | (490) | 486 | 2,187 | 826 | 861 | 125 | (1,848)
2016(2) |  |  |  |  |  |  |  |  |  |
Net interest income |  | 17,059 | 3,877 | 60 | 1,953 | 5,126 | 3,404 | 2,930 | 166 | (455)
Gross income |  | 24,653 | 6,416 | (6) | 2,706 | 6,766 | 4,257 | 4,054 | 491 | (31)
Operating profit /(loss) before tax |  | 6,392 | 1,268 | (743) | 612 | 2,678 | 1,906 | 1,552 | 203 | (1,084)
Profit | 55.2 | 3,475 | 905 | (595) | 459 | 1,980 | 599 | 771 | 151 | (794)

(1) The figures corresponding to 2017 have been restated (see Note 1.3).

(2) Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), profit attributable to parent company for the United States and the Mexico operating segments would have been €442 million and €1,997 million, respectively, for the year ended December 31, 2016.

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7. Risk management

|  | PAGE
7.1 | General risk management and control model | F-74
7.1.1 | Governance and organization | F-74
7.1.2 | Risk Appetite Framework | F-78
7.1.3 | Decisions and processes | F-80
7.1.4 | Assessment, monitoring and reporting | F-82
7.1.5 | Infrastructure | F-82
7.1.6 | Risk culture | F-83
7.2 | Risk factors | F-84
7.3 | Credit risk | F-86
7.3.1 | Measurement Expected Credit Loss (ECL) | F-87
7.3.2 | Credit risk exposure | F-89
7.3.3 | Mitigation of credit risk, collateralized credit risk and other credit enhancements | F-94
7.3.4 | Credit quality of financial assets that are neither past due nor impaired | F-95
7.3.5 | Past due but not impaired and impaired secured loans risks | F-97
7.3.6 | Impairment losses | F-104
7.3.7 | Refinancing and restructuring operations | F-110
7.4 | Market risk | F-112
7.4.1 | Market risk trading portfolios | F-112
7.4.2 | Structural risk | F-118
7.4.3 | Financial Instruments offset | F-121
7.5 | Liquidity risk | F-123
7.5.1 | Liquidity risk management | F-123
7.5.2 | Asset encumbrance | F-131
7.6 | Operational Risk | F-134
7.7 | Risk concentration | F-137

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7.1 General risk management and control model

The BBVA Group has an overall risk management and control model (hereinafter 'the model') tailored to its business model, its organization and the geographies in which it operates, This model allows BBVA Group to develop its activity in accordance with the risk strategy and risk controls and management policies defined by the governing bodies of the Bank and to adapt to a changing economic and regulatory environment, tackling risk management globally and adapted to the circumstances at all times. The model establishes a system of appropriate risk management regarding risk profile and strategy of the Group.

This model is applied comprehensively in the Group and consists of the basic elements listed below:

· Governance and organization.

· Risk Appetite Framework.

· Decisions and processes.

· Assessment, monitoring and reporting.

· Infrastructure.

The Group promotes the development of a risk culture which aims to ensure consistent application of the risk management and control model in the Group, so that the risk function is understood and assimilated at all levels of the organization.

7.1.1 Governance and organization

BBVA Group´s risk governance model is characterized by a special involvement of its corporate bodies, both in setting the risk strategy and in the ongoing monitoring and supervision of its implementation.

Thus, as developed below, the corporate bodies are the ones that approve this risk strategy and corporate policies for the different types of risk. The risk function is responsible at management level for their implementation and development, and reporting to the governing bodies.

The responsibility for the daily management of the risks lies on the businesses which abide in the development of their activity to meet the policies, rules, procedures, infrastructures and controls, which are defined by the function risk on the basis of the framework set by the governing bodies.

To perform this task properly, the risk function in the BBVA Group is configured as a single, global function with an independent role from commercial areas.

Corporate bodies

The BBVA Board of Directors (hereinafter also referred to as "the Board") approves the risk strategy and oversees the internal management and control systems. Specifically, in relation to the risk strategy, the Board approves the Group's risk appetite statement, the core metrics (and their statements) and the main metrics by type of risk, as well as the general risk management and control model.

The Board of Directors is also responsible for approving and monitoring the strategic and business plan, the annual budget and management goals, as well as the investment and funding policy, in a consistent way and in line with the approved Risk Appetite Framework. For this reason, the processes for defining the Risk Appetite Framework proposals and the strategic and budgetary planning at Group level are coordinated by the executive areas for submission to the Board.

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With the aim of integrating the Risk Appetite Framework into management, on the basis established by the Board of Directors, the Executive Committee approves the metrics by type of risk in relation to profitability and income recurrence and the Group's basic structure of limits by geographical area, risk type, asset type and portfolio level. This committee also approves specific corporate policies for each type of risk.

Lastly, the Board has set up a Board committee specialized in risks, the Risk Committee, that assists the Board and the Executive Committee in determining the Group's risk strategy and the risk limits and policies, respectively, analyzing and assessing beforehand the proposals submitted to those bodies. The Board of Directors has the exclusive authority to amend the Group’s risk strategy and its elements, including the Risk Appetite Framework metrics within its scope of decision, while the Executive Committee is responsible for amending the metrics by type of risk within its scope of decision and the Group's basic structure of limits (core limits), when applicable. In both cases, the amendments follow the same decision-making process described above, so the proposals for amendment are submitted by the executive area (Chief Risk Officer, “CRO”) and analyzed by the Risk Committee, for later submission to the Board of Directors or to the Executive Committee, as appropriate.

Moreover, the Risk Committee, the Executive Committee and the Board itself conduct adequate monitoring of the risk strategy implementation and of the Group's risk profile. The risk function regularly reports on the development of the Group's Risk Appetite Framework metrics to the Board and to the Executive Committee, after the analysis by the Risk Committee, whose role in this monitoring and control work is particularly relevant.

Risk Function: CRO. Organizational structure and committees

The head of the risk function at executive level is the Group’s CRO, who carries out his functions independently and with the necessary authority, rank, experience, knowledge and resources. He is appointed by the Board as a member of its senior management and has direct access to its corporate bodies (Board, Executive Standing Committee and Risk Committee), to whom he reports regularly on the status of risks in the Group.

The CRO is supported in the exercise of his functions by a structure consisting of cross-sectional risk units in the corporate area and the specific risk units in the geographical and/or business areas of the Group. Each of the latter units is headed by a Chief Risk Officer for the geographical and/or business area who, within his/her area of responsibility, carries out risk management and control functions and is responsible for applying the corporate policies and rules approved at Group level in a consistent manner, adapting them if necessary to local requirements and reporting to the local corporate bodies.

The Chief Risk Officers of the geographical and/or business areas report both to the Group's CRO and to the head of their geographical and/or business area. The aim of this dual reporting system is that the local risk management function is independent from the operating functions and enable its alignment with the Group's corporate risk policies and goals.

As explained above, the risk management function consists of risk units from the corporate area, which carry out cross-sectional functions, and risk units from the geographical and/or business areas.

· The corporate area's risk units develop and submit to the Group CRO the proposal for the Group's Risk Appetite Framework, the corporate policies, rules and global procedures and infrastructures within the framework approved by the corporate bodies; they monitor their application and report either directly or through the CRO to the Bank's corporate bodies. Their functions include:

- Management of the different types of risks at Group level in accordance with the strategy defined by the corporate bodies.

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- Risk planning aligned with the risk appetite framework principles defined by the Group.

- Monitoring and control of the Group's risk profile in relation to the risk appetite framework approved by the Bank's corporate bodies, providing accurate and reliable information with the required frequency and in the necessary format.

- Prospective analyses to enable an evaluation of compliance with the risk appetite framework in stress scenarios and the analysis of risk mitigation mechanisms.

- Management of the technological and methodological developments required for implementing the Model in the Group.

- Design of the Group's Internal Control model and definition of the methodology, corporate criteria and procedures for identifying and prioritizing the risk inherent in each unit's activities and processes.

- Validation of the models used and the results obtained by them in order to verify their adaptation to the different uses to which they are applied.

· The risk units in the business units develop and present to the Chief Risk Officer of the geographical and/or business area the risk appetite framework proposal applicable in each geographical and/or business area, independently and always within the Group's strategy/Risk Appetite Framework. They also monitor that the corporate policies and rules are approved and applied consistently at a Group level, adapting them if necessary to local requirements; that they are provided with appropriate infrastructures for management and control of their risks, within the global risk infrastructure framework defined by the corporate areas; and that they report to their corporate bodies and/or to senior management, as appropriate.

The local risk units thus work with the corporate area risk units in order to adapt to the risk strategy at Group level and share all the information necessary for monitoring the development of their risks.

The risk function has a decision-making process to perform its functions, underpinned by a structure of committees, where the Global Risk Management Committee (GRMC) acts as the top-level committee within the risk function. It proposes, examines and, where applicable, approves, among others, the internal risk regulatory framework and the procedures and infrastructures needed to identify, assess, measure and manage the material risks faced by the Group in carrying out its business, and the determination of risk limits by portfolio. The members of this Committee are the Group's CRO, the Heads of the main Areas of the GRM Front, the Heads of GRM Corporate Discipline Units and the Head of Risk Management Group of GRM.

The GRMC carries out its functions assisted by various support committees which include:

· Global Credit Risk Management Committee: It is responsible for analyzing and decision-making related to wholesale credit risk admission.

· Wholesale Credit Risk Management Committee: its purpose is the analysis and decision-making regarding the admission of wholesale credit risk of certain customer segments of the BBVA Group.

· Work Out Committee: its purpose is to be informed about decisions taken under the delegation framework regarding risk proposals concerning clients on Watch List and clients classified as NPL of certain customer segments of the BBVA Group, as well the sanction of proposals regarding entries, exits and changes of Watch List, entries and exits in non-performing unlikely to pay and turns to written off.

· Asset Allocation Committee: The executive authority responsible for analyzing and deciding on credit risk issues related to processes aimed at achieving a portfolios combination and composition that, under the restrictions imposed by the Risk Appetite framework, allows to maximize the risk adjusted return on equity.

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· Risk Models Management Committee: It ensures an appropriate decision-making process regarding the planning, development, implementation, use, validation and monitoring of the models required to achieve an appropriate management of the Model Risk in the BBVA Group.

· Global Markets Risk Unit Global Committee: It is responsible for formalizing, supervising and communicating the monitoring of trading desk risk in all the Global Markets business units, as well as coordinating and approving GMRU key decisions activity, and developing and proposing to GRMC the corporate regulation of the unit.

· Operational Risk and Product Governance Corporate Admission Committee: It identifies, analyzes and assesses the operational risks associated initiatives related with new business, products or services, outsourcing, process transformation and new systems, prior to its launch. As well, it will verify that Product Governance normative requirements are met and will decide about the insurance scheme (global policies).

· Retail Credit Risk Committee: It provides for the analysis, discussion and decision support on all issues regarding the retail credit risk management that impact or potentially do in the practices, processes and corporate metrics established in the Policies, Rules and Operating Frameworks.

· Asset Management Global Risk Steering Committee: its purpose is to develop and coordinate the strategies, policies, procedures, and infrastructure necessary to identify, assess, measure and manage the material risks facing the bank in the operation of businesses linked to BBVA Asset Management.

· Global Insurance Risk Committee: its purpose is to monitor and promote the alignment and the communication between all the Insurance Risk Units in the BBVA Group. It will do this by promoting the application of standardized principles, policies, tools and risk metrics in the different regions with the aim of maintaining proper integration of insurance risk management in the Group.

· COPOR: its purpose is to analyze and make decision in relation to the operations of the various geographies in which Global Markets is present.

Each geographical and/or business area has its own risk management committee (or committees), with objectives and contents similar to those of the corporate area, which perform their duties consistently and in line with corporate risk policies and rules, whose decisions are reflected in the corresponding minutes.

Under this organizational scheme, the risk management function monitors that the risk strategy, the regulatory framework, and standardized risk infrastructures and controls are integrated and applied across the entire Group. It also benefits from the knowledge and proximity to customers in each geographical and/or business area, and transmits the corporate risk culture to the Group's different levels. Moreover, this organization enables the risks function to conduct and report to the corporate bodies integrated monitoring and control of the entire Group's risks.

Internal Risk Control and Internal Validation

The Group has a specific Internal Risk Control unit. Its main function is to manage that there is an adequate internal regulatory framework, a process and measures defined for each type of risk identified in the Group (and for those other types of risk that may potentially affect the Group). It controls their application and operation, as well as integrating the risk strategy into the Group's management. In this regard, the Internal Risk Control monitors verifies the performance of their duties by the units that develop the risk models, manage the processes and execute the controls. Its scope of action is global, from the geographical point of view and the type of risks.

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The Group's Head of Internal Risk Control is responsible for the function and reports on its activities and informs of its work plans to the CRO and to the Board's Risks Committee, assisting it in any matters where requested. For these purposes the Internal Risk Control department has a Technical Secretary's Office, which offers the Committee the technical support it needs to better perform its duties.

In addition, the Group has an Internal Validation unit, which reviews the performance of its duties by the units that develop the risk models and of those that use them in management. Its functions include review and independent validation at internal level of the models used for management and control of risks in the Group.

7.1.2 Risk Appetite Framework

The Group's Risk Appetite Framework, approved by the corporate bodies, determines the risks (and their level) that the Group is willing to assume to achieve its business objectives considering an organic evolution of its business. These are expressed in terms of solvency, profitability and liquidity and funding, which are reviewed periodically as well as in case of material changes to the entity’s business or relevant corporate transactions. The definition of the risk appetite has the following goals:

· To express the maximum levels of risk it is willing to assume, at both Group and geographical and/or business area level.

· To establish a set of guidelines for action and a management framework for the medium and long term that prevent actions from being taken (at both Group and geographical and/or business area level) that could compromise the future viability of the Group.

· To establish a framework for relations with the geographical and/or business areas that, while preserving their decision-making autonomy, monitors they act consistently, avoiding uneven behavior.

· To establish a common language throughout the organization and develop a compliance-oriented risk culture.

· Alignment with the new regulatory requirements, facilitating communication with regulators, investors and other stakeholders, thanks to an integrated and stable risk management framework.

Risk appetite framework is expressed through the following elements:

Risk Appetite Statement

It sets out the general principles of the Group's risk strategy and the target risk profile. The 2018 Group’s Risk appetite statement is as follows:

BBVA Group's Risk Policy is aimed to promote a multichannel and responsible universal banking model, based on principles, targeting sustainable growth, risk adjusted profitability and recurrent value creation. To achieve these objectives, the Risk Management Model is oriented to maintain a moderate risk profile that allows the Group to keep strong financial fundamentals in adverse environments preserving our strategic goals, maintaining a prudent management, an integral view of risks, and a portfolio diversification by geography, asset class and client segment, focusing on keeping a long term relationship with our customers.

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Core metrics

Based on the risk appetite statement, statements are established to set down the general risk management principles in terms of solvency, liquidity and funding, profitability and income recurrence.

· Solvency: a sound capital position, maintaining resilient capital buffer from regulatory and internal requirements that supports the regular development of banking activity even under stress situations. As a result, BBVA proactively manages its capital position, which is tested under different stress scenarios from a regular basis.

· Liquidity and funding: A sound balance-sheet structure to sustain the business model. Maintenance of an adequate volume of stable resources, a diversified wholesale funding structure, which limits the weight of short term funding and ensures the access to the different funding markets, optimizing the costs and preserving a cushion of liquid assets to overcome a liquidity survival period under stress scenarios.

· Profitability and income recurrence: A sound margin-generation capacity supported by a recurrent business model based on the diversification of assets, a stable funding and a customer focus; combined with a moderate risk profile that limits the credit losses even under stress situations; all focused on allowing income stability and maximizing the risk-adjusted profitability.

The core metrics define, in quantitative terms, the principles and the target risk profile set out in the risk appetite statement and are in line with the strategy of the Group. Each metric has three thresholds (traffic-light approach) ranging from a standard business management to higher deterioration levels: Management reference, Maximum appetite and Maximum capacity. The 2018 Group’s Core metrics are:

By type of risk metrics

Based on the core metrics, statements are established for each type of risk reflecting the main principles governing the management of that risk and several metrics are calibrated, compliance with which enables compliance with the core metrics and the risk appetite statement of the Group. The metrics by type of risk have a maximum appetite threshold.

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Basic limits structure (core limits)

The purpose of the basic limits structure or core limits is to shape the Risk Appetite Framework at geographical area risk type, asset type and portfolio level, ensuring that the management of risks on an ongoing basis is within the thresholds set forth for by type of risk.

In addition to this framework, there’s a level of management limits that is defined and managed by the risk function developing the core limits, in order to ensure that the anticipatory management of risks by subcategories or by subportfolios complies with that core limits and, in general, with the Risk Appetite Framework.

The following graphic summarizes the structure of BBVA’s Risk Appetite Framework:

The corporate risk area works with the various geographical and/or business areas to define their risk appetite framework, which will be coordinated with and integrated into the Group's risk appetite to ensure that its profile fits as defined.

The Risk Appetite Framework is integrated into the management and the processes for defining the Risk Appetite Framework proposals and strategic and budgetary planning at Group level are coordinates.

As explained above, the core metrics of BBVA Risk Appetite Framework measure Groups performance in terms of solvency, liquidity and funding, profitability and income recurrence; most of the core metrics are accounting related or regulatory metrics which are published regularly to the market in the BBVA Group annual report and in the quarterly financial reports. During 2018, the Group risk profile evolved in line with the Risk Appetite metrics.

7.1.3 Decisions and processes

The transfer of risk appetite framework to ordinary management is supported by three basic aspects:

· A standardized set of regulations.

· Risk planning.

· Comprehensive management of risks over their life cycle.

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Standardized regulatory framework

The corporate risk area is responsible for the definition and proposal of the corporate policies, specific rules, procedures and schemes of delegation based on which risk decisions should be taken within the Group.

This process aims for the following objectives:

· Hierarchy and structure: well-structured information through a clear and simple hierarchy creating relations between documents that depend on each other.

· Simplicity: an appropriate and sufficient number of documents.

· Standardization: a standardized name and content of document.

· Accessibility: ability to search for, and easy access to, documentation through the corporate risk management library.

The approval of corporate policies for all types of risks is the responsibility of the corporate bodies of the Bank, while the corporate risk area endorses the remaining regulations.

Risk units of geographical and / or business areas comply with this set of regulations and, where necessary, adapt it to local requirements for the purpose of having a decision process that is appropriate at local level and aligned with the Group policies. If such adaptation is necessary, the local risk area must inform the corporate area of GRM, who must ensure the consistency of the regulatory body at the Group level and, therefore, if necessary, give prior approval to the modifications proposed by the local risk areas.

Risk planning

Risk planning monitors that the risk appetite framework is integrated into management through a cascade process for establishing limits and profitability adjusted to the risk profile, in which the function of the corporate area risk units and the geographical and/or business areas is to guarantee the alignment of this process with the Group's Risk Appetite Framework in terms of solvency, liquidity and funding, profitability and income recurrence.

There are tools in place that allow the Risk Appetite Framework defined at aggregate level to be assigned and monitored by business areas, legal entities, types of risk, concentrations and any other level considered necessary.

The risk planning process is aligned and taken into consideration within the rest of the Group's planning framework so as to ensure consistency.

Comprehensive management

All risks must be managed comprehensively during their life cycle, and be treated differently depending on the type.

The risk management cycle is composed of five elements:

· Planning: with the aim of ensuring that the Group's activities are consistent with the target risk profile and guaranteeing solvency in the development of the strategy.

· Assessment: a process focused on identifying all the risks inherent to the activities carried out by the Group.

· Formalization: includes the risk origination, approval and formalization stages.

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· Monitoring and reporting: continuous and structured monitoring of risks and preparation of reports for internal and/or external (market, investors, etc.) consumption.

· Active portfolio management: focused on identifying business opportunities in existing portfolios and new markets, businesses and products.

7.1.4 Assessment, monitoring and reporting

Assessment, monitoring and reporting is a cross-cutting element that monitors that the Model has a dynamic and proactive vision to enable compliance with the risk appetite framework approved by the corporate bodies, even in adverse scenarios. The materialization of this process has the following objectives:

· Assess compliance with the risk appetite framework at the present time, through monitoring of the core metrics, metrics by type of risk and the basic structure of limits.

· Assess compliance with the risk appetite framework in the future, through the projection of the risk appetite framework variables, in both a baseline scenario determined by the budget and a risk scenario determined by the stress tests.

· Identify and assess the risk factors and scenarios that could compromise compliance with the risk appetite framework, through the development of a risk repository and an analysis of the impact of those risks.

· Act to mitigate the impact in the Group of the identified risk factors and scenarios, ensuring this impact remains within the target risk profile.

· Supervise the key variables that are not a direct part of the risk appetite framework, but that condition its compliance. These can be either external or internal.

This process is integrated in the activity of the risk units, both of the corporate area and in the business units, and it is carried out during the following phases:

· Identification of the risk factors that can compromise the performance of the Group or of the geographical and/or business areas in relation to the defined risk thresholds.

· Assessment of the impact of the materialization of the risk factors on the metrics that define the Risk Appetite Framework based on different scenarios, including stress scenarios.

· Response to unwanted situations and proposals for readjustment to enable a dynamic management of the situation, even before it takes place.

· Monitoring of the Group's risk profile and of the identified risk factors, through internal, competitor and market indicators, among others, to anticipate their future development.

· Reporting: Complete and reliable information on the development of risks for the corporate bodies and senior management, with the frequency and completeness appropriate to the nature, significance and complexity of the reported risks. The principle of transparency governs al reporting of risk information.

7.1.5 Infrastructure

The infrastructure is an element that must manage that the Group has the human and technological resources needed for effective management and supervision of risks in order to carry out the functions set out in the Group's risk Model and the achievement of their objectives.

With respect to human resources, the Group risk function has an adequate workforce, in terms of number, skills, knowledge and experience.

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With regards to technology, the Group risk function manages the integrity of management information systems and the provision of the infrastructure needed for supporting risk management, including tools appropriate to the needs arising from the different types of risks for their admission, management, assessment and monitoring.

The principles that govern the Group risk technology are:

· Standardization: the criteria are consistent across the Group, thus ensuring that risk handling is standardized at geographical and/or business area level.

· Integration in management: the tools incorporate the corporate risk policies and are applied in the Group's day-to-day management.

· Automation of the main processes making up the risk management cycle.

· Appropriateness: provision of adequate information at the right time.

Through the “Risk Analytics” function, the Group has a corporate framework in place for developing the measurement techniques and models. It covers all the types of risks and the different purposes and uses a standard language for all the activities and geographical/business areas and decentralized execution to make the most of the Group's global reach. The aim is to continually evolve the existing risk models and generate others that cover the new areas of the businesses that develop them, so as to reinforce the anticipation and proactiveness that characterize the Group's risk function.

Also the risk units of geographical and / or business areas have sufficient means from the point of view of resources, structures and tools to develop a risk management in line with the corporate model.

7.1.6 Risk culture

The BBVA Group promotes the development of a risk culture based on the observance and understanding of values, attitudes, and behaviors that allow the compliance with the regulations and frameworks that contribute to an appropriate risk management.

At BBVA the Risk Governance Model is characterized by a special involvement of social bodies, as they define the risk culture that permeates the rest of the organization and has the following main elements:

· Our Purpose which defines our reason to be and with our values and behaviors guide the performance of our organization and the people who are part of it.

· The Risk Appetite Framework which determines the risks and levels of risks that the Group is willing to assume in order to fulfill its goals.

· The Code of Conduct establishes the behavior guidelines that we must follow to adjust our behavior to the BBVA values.

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The Risk Culture at BBVA is based on these levers:

· Communication: The BBVA Group promotes the dissemination of the principles and values that should govern the conduct and risk management in a comprehensive and consistent manner. To do this, the most appropriate channels of communication are used, to allow for the Risk culture to be integrated into the business activities at all levels of the organization.

· Training: The BBVA Group favors the understanding of the values, risk management model, and the code of conduct in all scenarios, ensuring standards in skills and knowledge.

· Motivation: The BBVA Group aims to define incentives for BBVA employees that support the risk culture at all levels. Among these incentives, the role of the Compensation policy and incentive programs stand out, as well as implementation of risk culture control mechanisms, including the complaint channels and the disciplinary committees.

· Monitoring: The BBVA Group pursues at the highest levels of the organization a continuous evaluation and monitoring of the risk culture to guarantee its implementation and identification of areas for improvement.

7.2 Risk factors

As mentioned earlier, BBVA has processes in place for identifying risks and analyzing scenarios that enable the Group to manage risks in a dynamic and proactive way.

The risk identification processes are forward looking to ensure the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.

Risks are captured and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected.

As part of this process, a forward projection of the risk appetite framework variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile.

To this extent, there are a number of emerging risks that could affect the Group’s business trends. These risks are described in the following main sections:

Macroeconomic and geopolitical risks

Global economic growth maintained robust in 2018 even if it slowed down more than expected during the second half of the year as a result of the worse development of the trade and the industrial sector as well as the strong increase in financial tensions, especially in developed economies due to the rise of uncertainties. To the worse economic development in Europe and in China, it has to be added the downturn in Asian countries and the deterioration in the expansive cycle of the United States. In this context, both the Federal Reserve (Fed) and the ECB have demonstrated to be more prudent and patient at the time of advancing with the normalization of their monetary policies and their future decisions will depend on the economic evolution. The main risk at sort-term continues to be protectionism not only for the direct effect on global trade, but also for the indirect impact of lower confidence and financial volatility. To this, it has to be added the concerns about the degree of the impact on the economic activities in the United States and China in the following quarters have to be added as well as the increased political uncertainty in Europe.

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In summary, the uncertainty related to the economic perspectives continues to be elevated due to the fear of a protectionist escalation and a higher perception of the risk related to the global economic growth.

Regulatory and reputational risks

· Financial institutions are exposed to a complex and ever-changing regulatory environment defined by governments and regulators. This can affect their ability to grow and the capacity of certain businesses to develop, and result in stricter liquidity and capital requirements with lower profitability ratios. The Group constantly monitors changes in the regulatory framework that allow for anticipation and adaptation to them in a timely manner, adopt industry practices and more efficient and rigorous criteria in its implementation.

· The financial sector is under ever closer scrutiny by regulators, governments and society itself. In the course of activities, situations which might cause relevant reputational damage to the entity could raise and might affect the regular course of business. The attitudes and behaviors of the Group and its members are governed by the principles of integrity, honesty, long-term vision and industry practices through, inter alia, internal control Model, the Code of Conduct, tax strategy and Responsible Business Strategy of the Group.

Business, operational and legal risks

· New technologies and forms of customer relationships: Developments in the digital world and in information technologies pose significant challenges for financial institutions, entailing threats (new competitors, disintermediation…) but also opportunities (new framework of relations with customers, greater ability to adapt to their needs, new products and distribution channels...). Digital transformation is a priority for the Group as it aims to lead digital banking of the future as one of its objectives.

· Technological risks and security breaches: The Group is exposed to new threats such as cyber-attacks, theft of internal and customer databases, fraud in payment systems, etc. that require major investments in security from both the technological and human point of view. The Group gives great importance to the active operational and technological risk management and control. One example was the early adoption of advanced models for management of these risks (AMA - Advanced Measurement Approach).

· The financial sector is exposed to increasing litigiousness, such that financial institutions face a large number of proceedings of every kind -civil, criminal, administrative and otherwise-, as well as supervisory investigations, in multiple jurisdictions, the consequences of which are difficult to determine (including those proceedings where an undetermined number of claimants is involved, where damages claimed are not easy to estimate, where exorbitant amounts are claimed, where novel legal questions are introduced using new, creative legal theories and where proceedings are at a very early stage).

In Spain, in many current proceedings claimants seek, both at Spanish courts and through preliminary rulings sought from the European Union Court of Justice, that various clauses typically included within mortgage loan agreements with credit institutions be declared abusive (including clauses related to mortgage fees, early termination rights, reference interest rates and arrangement fees). Unfavorable resolutions of such proceedings against the Group or against other banking entities may directly or indirectly affect the Group.

The BBVA Group is under regulatory investigations in several countries which may give rise to sanctions and claims for damages by third parties.

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The Group may likewise be subject to investigations by legal authorities, of which we have not heretofore received formal notice to such effect, in relation with the contracting of supposedly irregular services, that may have a negative reputational or economic impact on the Bank. The Bank is undertaking a forensic investigation, led by PwC, through the Bank’s external legal counsel Garrigues, together with Uría, the scope or duration of which it is not currently possible to predict, nor is it possible to predict the outcome or implications for the Group of any such investigation by the legal authorities.

The BBVA Group undertakes constant management and monitoring of legal and regulatory investigations, proceedings and actions where its interests may be defended, and allocates (on the basis of the number of disputes, rulings and the state of proceedings or actions) what we believe are the appropriate provisions where necessary. Nevertheless, the results of judicial or regulatory investigations, proceedings or actions, whether to which the Bank is currently party, to which it may be party in the future, or to which other banking entities are party, are difficult to predict, and if jurisprudential criteria are modified or unexpected results occur, such allocated provisions may prove insufficient.

7.3 Credit risk

Credit risk arises from the probability that one party to a financial instrument will fail to meet its contractual obligations for reasons of insolvency or inability to pay and cause a financial loss for the other party.

It is the most important risk for the Group and includes counterparty risk, issuer risk, settlement risk and country risk management.

The principles underpinning credit risk management in BBVA are as follows:

· Availability of basic information for the study and proposal of risk, and supporting documentation for approval, which sets out the conditions required by the internal relevant body.

· Sufficient generation of funds and asset solvency of the customer to assume principal and interest repayments of loans owed.

· Establishment of adequate and sufficient guarantees that allow effective recovery of the transaction, this being considered a secondary and exceptional method of recovery when the first has failed.

Credit risk management in the Group has an integrated structure for all its functions, allowing decisions to be taken objectively and independently throughout the life cycle of the risk.

· At Group level: frameworks for action and standard rules of conduct are defined for handling risk, specifically, the circuits, procedures, structure and supervision.

· At the business area level: they are responsible for adapting the Group's criteria to the local realities of each geographical area and for direct management of risk according to the decision-making circuit:

- Retail risks: in general, the decisions are formalized according to the scoring tools, within the general framework for action of each business area with regard to risks. The changes in weighting and variables of these tools must be validated by the GRM area.

- Wholesale risks: in general, the decisions are formalized by each business area within its general framework for action with regard to risks, which incorporates the delegation rule and the Group's corporate policies.

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### 7.3.1 Measurement Expected Credit Loss (ECL)

IFRS 9 requires determining the expected credit loss of a financial instrument in a way that reflects an unbiased estimation removing any conservatism or optimism, the time value of money and a forward looking perspective (including the economic forecast).

Therefore the recognition and measurement of expected credit losses (ECL) is highly complex and involves the use of significant analysis and estimation including formulation and incorporation of forward-looking economic conditions into ECL.

Risk Parameters Adjusted by Macroeconomic Scenarios

Expected Credit Loss must include forward looking information, in accordance with IFRS 9, which states that the comprehensive credit risk information must incorporate not only historical information but also all relevant credit information, including forward-looking macroeconomic information. BBVA uses the classical credit risk parameters PD, LGD and EAD in order to calculate the ECL for the credit portfolios.

BBVA´s methodological approach in order to incorporate the forward looking information aims to determine the relation between macroeconomic variables and risk parameters following three main steps:

· Step 1: Analysis and transformation of time series data.

· Step 2: For each dependent variable find conditional forecasting models that are economically consistent.

· Step 3: Select the best conditional forecasting model from the set of candidates defined in Step 2, based on their out of sample forecasting performance.

How economic scenarios are reflected in calculation of ECL

The forward looking component is added through the introduction of macroeconomic scenarios as an input. Inputs would highly depend on the particular combination of region and portfolio, so inputs are adapted to available data.

Based on economic theory and analysis, the macroeconomic variables most directly relevant for explaining and forecasting the selected risk parameters (PD, LGD) are:

· a) The net income of families, corporates or public administrations.

· b) The payment amounts on the principal and interest on the outstanding loans.

· c) The value of the collateral assets pledge to the loan.

BBVA Group approximates these variables by using a proxy indicator from the set included in the macroeconomic scenarios provided by the economic research department.

Only a single specific indicator for each of the three categories can be used and only core macroeconomic indicators should be chosen as first choice: for a) using Real GDP Growth for the purpose of conditional forecasting can be seen as the single sufficient “factor” required for capturing the influence of all potentially relevant macro-financial scenario on internal PDs and LGD ; for b) using the most representative short term interest rate (typically the policy rate or the most liquid sovereign yield or interbank rate or EMBI) or exchange rates expressed in real terms and for c) using a comprehensive index of the price of real estate properties also expressed in real terms in the case of mortgage loans and a representative index of the price of the relevant commodity (in real terms) for corporate loan portfolios concentrated in exporters or producer of such commodity.

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Real GDP growth is given priority over any other indicator not only because it is the most comprehensive indicator of income and economic activity but also because it is the central variable in the generation of macroeconomic scenarios.

Multiple scenario approach under IFRS 9

IFRS 9 requires calculating an unbiased probability weighted measurement of expected credit losses (“ECL”) by evaluating a range of possible outcomes, including forecasts of future economic conditions.

The BBVA Research teams within the BBVA Group produce forecasts of the macroeconomic variables under the baseline scenario, which are used in the rest of the related processes of the bank, such as budgeting, ICAAP and risk appetite framework, stress testing, etc.

Additionally, the BBVA Research teams produced alternative scenarios to the baseline scenario so as to meet the requirements under the IFRS 9 standard.

Alternative macroeconomic scenarios

· For each of the macro-financial variables, BBVA Research produces three scenarios.

· Each of these scenarios corresponds to the expected value of a different area of the probabilistic distribution of the possible projections of the economic variables.

The approach in BBVA consists on using the scenario that is the most likely scenario, which is the baseline scenario, consistent with the rest of internal processes (ICAAP, Budgeting…) and then applying an overlay adjustment that is calculated by taking into account the weighted average of the ECL determined by each of the scenarios.

It is important to note that in general, it is expected that the effect of the overlay is to increase the ECL. It is possible to obtain an overlay that does not have that effect, whenever the relationship between macro scenarios and losses is linear. However, the overlay is not expected to reduce the ECL.

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### 7.3.2 Credit risk exposure

In accordance with IFRS 7 “Financial Instruments: Disclosures”, the BBVA Group’s maximum credit risk exposure (see definition below) by headings in the balance sheets as of December 31, 2018 is provided below. It does not consider the availability of collateral or other credit enhancements to guarantee compliance with payment obligations. The details are broken down by financial instruments and counterparties.

Maximum Credit Risk Exposure (Millions of euros)
| Notes | 2018 |  |  |
Financial assets held for trading |  | 59,581 |  |  |
Debt securities | 10 | 25,577 |  |  |
Equity instruments | 10 | 5,254 |  |  |
Loans and advances | 10 | 28,750 |  |  |
Non-trading financial assets mandatorily at fair value through profit or loss |  | 5,135 |  |  |
Loans and advances | 11 | 1,803 |  |  |
Debt securities | 11 | 237 |  |  |
Equity instruments | 11 | 3,095 |  |  |
Financial assets designated at fair value through profit or loss | 12 | 1,313 |  |  |
Derivatives (trading and hedging) |  | 38,249 | Stage 1 | Stage 2 | Stage 3
Financial assets at fair value through other comprehensive income |  | 56,332 | 56,329 | 3 | -
Debt securities | 13.1 | 53,737 | 53,734 | 3 | -
Equity instruments | 13.1 | 2,595 | 2,595 | - | -
Financial assets at amortized cost |  | 431,927 | 384,632 | 30,902 | 16,394
Loans and advances to central banks |  | 3,947 | 3,947 | - | -
Loans and advances to credit institutions |  | 9,175 | 9,131 | 34 | 10
Loans and advances to customers |  | 386,225 | 339,204 | 30,673 | 16,348
Debt securities |  | 32,580 | 32,350 | 195 | 35
Total financial assets risk |  | 592,538 | 440,960 | 30,905 | 16,394
Total loan commitments and financial guarantees | 33 | 170,511 | 161,404 | 8,120 | 987
Total maximum credit exposure |  | 763,049 |  |  |

There was no similar breakdown before the implementation of IFRS 9 on January 1, 2018 (see Note 2.1).

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The maximum credit exposure presented in the table above is determined by type of financial asset as explained below:

· In the case of financial assets recognized in the consolidated balance sheets, exposure to credit risk is considered equal to its carrying amount (not including impairment losses), with the sole exception of derivatives and hedging derivatives.

· The maximum credit risk exposure on financial guarantees granted is the maximum that the Group would be liable for if these guarantees were called in, and that is their amount.

· The calculation of risk exposure for derivatives is based on the sum of two factors: the derivatives fair value and their potential risk (or "add-on").

- The first factor, fair value, reflects the difference between original commitments and fair values on the reporting date (mark-to-market).

- The second factor, potential risk (‘add-on’), is an estimate of the maximum increase to be expected on risk exposure over a derivative fair value (at a given statistical confidence level) as a result of future changes in the fair value over the remaining term of the derivatives.

- The consideration of the potential risk ("add-on") relates the risk exposure to the exposure level at the time of a customer’s default. The exposure level will depend on the customer’s credit quality and the type of transaction with such customer. Given the fact that default is an uncertain event which might occur any time during the life of a contract, the BBVA Group has to consider not only the credit exposure of the derivatives on the reporting date, but also the potential changes in exposure during the life of the contract. This is especially important for derivatives, whose valuation changes substantially throughout their terms, depending on the fluctuation of market prices.

The breakdown by counterparty and product of loans and advances, net of impairment losses, as well as the gross carrying amount by type of product, classified in the different headings of the assets, as of December 31, 2018, 2017 and 2016 is shown below:

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December 2018 (Millions of Euros)
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total | Provisions | Gross carrying amount
By product |  |  |  |  |  |  |  |  |
On demand and short notice | - | 10 | - | 151 | 2,833 | 648 | 3,641 | (193) | 3,834
Credit card debt | - | 8 | 1 | 2 | 2,328 | 13,108 | 15,446 | (1,048) | 16,495
Trade receivables |  | 948 | - | 195 | 16,190 | 103 | 17,436 | (280) | 17,716
Finance leases | - | 226 | - | 3 | 8,014 | 406 | 8,650 | (427) | 9,077
Reverse repurchase loans | - | 293 | 477 | - | - | - | 770 | (1) | 772
Other term loans | 3,911 | 26,839 | 2,947 | 7,030 | 133,573 | 157,760 | 332,060 | (10,204) | 342,264
Advances that are not loans | 29 | 1,592 | 5,771 | 2,088 | 984 | 498 | 10,962 | (63) | 11,025
Loans and advances | 3,941 | 29,917 | 9,196 | 9,468 | 163,922 | 172,522 | 388,966 | (12,217) | 401,183
By secured loans |  |  |  |  |  |  |  |  |
of which: mortgage loans collateralized by immovable property |  | 1,056 | 15 | 219 | 26,784 | 111,809 | 139,883 | (4,122) | 144,005
of which: other collateralized loans | - | 7,179 | 285 | 1,389 | 31,393 | 6,835 | 47,081 | (774) | 47,855
By purpose of the loan |  |  |  |  |  |  |  |  |
of which: credit for consumption |  |  |  |  |  | 40,124 | 40,124 | (2,613) | 42,736
of which: lending for house purchase |  |  |  |  |  | 111,007 | 111,007 | (1,945) | 112,952
By subordination |  |  |  |  |  |  |  |  |
of which: project finance loans |  |  |  |  | 13,973 |  | 13,973 | (312) | 14,286

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December 2017 (Millions of euros)
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total
On demand and short notice | - | 222 | - | 270 | 7,663 | 2,405 | 10,560
Credit card debt | - | 6 | - | 3 | 1,862 | 13,964 | 15,835
Trade receivables |  | 1,624 | - | 497 | 20,385 | 198 | 22,705
Finance leases | - | 205 | - | 36 | 8,040 | 361 | 8,642
Reverse repurchase loans | 305 | 1,290 | 13,793 | 10,912 | - | - | 26,300
Other term loans | 6,993 | 26,983 | 4,463 | 5,763 | 125,228 | 155,418 | 324,848
Advances that are not loans | 2 | 1,964 | 8,005 | 1,044 | 1,459 | 522 | 12,995
Loans and advances | 7,301 | 32,294 | 26,261 | 18,525 | 164,637 | 172,868 | 421,886
of which: mortgage loans (Loans collateralized by immovable property) |  | 998 | - | 308 | 37,353 | 116,938 | 155,597
of which: other collateralized loans |  | 7,167 | 13,501 | 12,907 | 24,100 | 9,092 | 66,767
of which: credit for consumption |  |  |  |  |  | 40,705 | 40,705
of which: lending for house purchase |  |  |  |  |  | 114,709 | 114,709
of which: project finance loans |  |  |  |  | 16,412 |  | 16,412

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December 2016 (Millions of euros)
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total
On demand and short notice | - | 373 | - | 246 | 8,125 | 2,507 | 11,251
Credit card debt | - | 1 | - | 1 | 1,875 | 14,719 | 16,596
Trade receivables |  | 2,091 | - | 998 | 20,246 | 418 | 23,753
Finance leases | - | 261 | - | 57 | 8,647 | 477 | 9,442
Reverse repurchase loans | 81 | 544 | 15,597 | 6,746 | - | - | 22,968
Other term loans | 8,814 | 29,140 | 7,694 | 6,878 | 136,105 | 167,892 | 356,524
Advances that are not loans | - | 2,410 | 8,083 | 2,082 | 1,194 | 620 | 14,389
Loans and advances | 8,894 | 34,820 | 31,373 | 17,009 | 176,192 | 186,633 | 454,921
of which: mortgage loans [Loans collateralized by immovable property] |  | 4,722 | 112 | 690 | 44,406 | 132,398 | 182,328
of which: other collateralized loans |  | 3,700 | 15,191 | 8,164 | 21,863 | 6,061 | 54,979
of which: credit for consumption |  |  |  |  |  | 44,504 | 44,504
of which: lending for house purchase |  |  |  |  |  | 127,606 | 127,606
of which: project finance loans |  |  |  |  | 19,269 |  | 19,269

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### 7.3.3 Mitigation of credit risk, collateralized credit risk and other credit enhancements

In most cases, maximum credit risk exposure is reduced by collateral, credit enhancements and other actions which mitigate the Group’s exposure. The BBVA Group applies a credit risk hedging and mitigation policy deriving from a banking approach focused on relationship banking. The existence of guarantees could be a necessary but not sufficient instrument for accepting risks, as the assumption of risks by the Group requires prior evaluation of the debtor’s capacity for repayment, or that the debtor can generate sufficient resources to allow the amortization of the risk incurred under the agreed terms.

The policy of accepting risks is therefore organized into three different levels in the BBVA Group:

· Analysis of the financial risk of the transaction, based on the debtor’s capacity for repayment or generation of funds.

· The constitution of guarantees that are adequate, or at any rate generally accepted, for the risk assumed, in any of the generally accepted forms: monetary, secured, personal or hedge guarantees; and finally

· Assessment of the repayment risk (asset liquidity) of the guarantees received.

The procedures for the management and valuation of collateral are set out in the Corporate Policies (retail and wholesale), which establish the basic principles for credit risk management, including the management of collaterals assigned in transactions with customers.

The methods used to value the collateral are in line with the best market practices and imply the use of appraisal of real-estate collateral, the market price in market securities, the trading price of shares in mutual funds, etc. All the collaterals received must be correctly assigned and entered in the corresponding register. They must also have the approval of the Group’s legal units.

The following is a description of the main types of collateral for each financial instrument class:

· Financial instruments held for trading: The guarantees or credit enhancements obtained directly from the issuer or counterparty are implicit in the clauses of the instrument.

· Derivatives and hedging derivatives: In derivatives, credit risk is minimized through contractual netting agreements, where positive- and negative-value derivatives with the same counterparty are offset for their net balance. There may likewise be other kinds of guarantees and collaterals, depending on counterparty solvency and the nature of the transaction.

· The summary of the compensation effect (via netting and collateral) for derivatives and securities operations is presented in Note 7.4.3.

· Other financial assets designated at fair value through profit or loss and financial assets at fair value through other comprehensive income: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.

· At December 31, 2018, BBVA Group had no credit risk exposure of impaired financial assets at fair value through other comprehensive income at December 31, 2018 (see Note 7.3.2).

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· Financial assets at amortized cost:

- Loans and advances to credit institutions: These usually only have the counterparty’s personal guarantee.

- Loans and advances to customers: Most of these loans and advances are backed by personal guarantees extended by the customer. There may also be collateral to secure loans and advances to customers (such as mortgages, cash collaterals, pledged securities and other collateral), or to obtain other credit enhancements (bonds, hedging, etc.).

- Debt securities: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.

The disclosure of impaired financial assets at amortized cost covered by collateral (see Note 7.3.2), by type of collateral, at December 31, 2018, is the following:

December 2018 (Millions of Euros)
| Maximum exposure to credit risk | Of which secured by collateral
| Residential properties | Commercial properties | Cash | Others | Financial
Impaired financial assets at amortized cost | 16,394 | 3,484 | 1,255 | 13 | 317 | 502
Total | 16,394 | 3,484 | 1,255 | 13 | 317 | 502

· Financial guarantees, other contingent risks and drawable by third parties: These have the counterparty’s personal guarantee.

The maximum credit risk exposure of impaired financial guarantees and other commitments at December 31, 2018 amounts to €987 million (see Note 7.3.2).

### 7.3.4 Credit quality of financial assets that are neither past due nor impaired

The BBVA Group has tools (“scoring” and “rating”) that enable it to rank the credit quality of its transactions and customers based on an assessment and its correspondence with the probability of default (“PD”) scales. To analyze the performance of PD, the Group has a series of tracking tools and historical databases that collect the pertinent internally generated information. These tools can be grouped together into scoring and rating models.

Scoring

Scoring is a decision-making model that contributes to both the arrangement and management of retail loans: consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to originate a loan, what amount should be originated and what strategies can help establish the price, because it is an algorithm that sorts transactions by their credit quality. This algorithm enables the BBVA Group to assign a score to each transaction requested by a customer, on the basis of a series of objective characteristics that have statistically been shown to discriminate between the quality and risk of this type of transactions. The advantage of scoring lies in its simplicity and homogeneity: all that is needed is a series of objective data for each customer, and this data is analyzed automatically using an algorithm.

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There are three types of scoring, based on the information used and on its purpose:

· Reactive scoring: measures the risk of a transaction requested by an individual using variables relating to the requested transaction and to the customer’s socio-economic data available at the time of the request. The new transaction is approved or rejected depending on the score.

· Behavioral scoring: scores transactions for a given product in an outstanding risk portfolio of the entity, enabling the credit rating to be tracked and the customer’s needs to be anticipated. It uses transaction and customer variables available internally. Specifically, variables that refer to the behavior of both the product and the customer.

· Proactive scoring: gives a score at customer level using variables related to the individual’s general behavior with the entity, and to his/her payment behavior in all the contracted products. The purpose is to track the customer’s credit quality and it is used to pre-approved new transactions.

Rating

Rating tools, as opposed to scoring tools, do not assess transactions but focus on the rating of customers instead: companies, corporations, SMEs, general governments, etc. A rating tool is an instrument that, based on a detailed financial study, helps determine a customer’s ability to meet his/her financial obligations. The final rating is usually a combination of various factors: on one hand, quantitative factors, and on the other hand, qualitative factors. It is a middle road between an individual analysis and a statistical analysis.

The main difference between ratings and scorings is that the latter are used to assess retail products, while ratings use a wholesale banking customer approach. Moreover, scorings only include objective variables, while ratings add qualitative information. And although both are based on statistical studies, adding a business view, rating tools give more weight to the business criterion compared to scoring tools.

For portfolios where the number of defaults is low (sovereign risk, corporates, financial entities, etc.) the internal information is supplemented by “benchmarking” of the external rating agencies (Moody’s, Standard & Poor’s and Fitch). To this end, each year the PDs compiled by the rating agencies at each level of risk rating are compared, and the measurements compiled by the various agencies are mapped against those of the BBVA master rating scale.

Once the probability of default of a transaction or customer has been calculated, a "business cycle adjustment" is carried out. This is a means of establishing a measure of risk that goes beyond the time of its calculation. The aim is to capture representative information of the behavior of portfolios over a complete economic cycle. This probability is linked to the Master Rating Scale prepared by the BBVA Group to enable uniform classification of the Group’s various asset risk portfolios.

The table below shows the abridged scale used to classify the BBVA Group’s outstanding risk as of December 31, 2018:

External rating | Internal rating | Probability of default (basis points)
Standard&Poor's List | Reduced List (22 groups) | Average | Minimum from >= | Maximum
AAA | AAA | 1 | - | 2
AA+ | AA+ | 2 | 2 | 3
AA | AA | 3 | 3 | 4
AA- | AA- | 4 | 4 | 5
A+ | A+ | 5 | 5 | 6
A | A | 8 | 6 | 9
A- | A- | 10 | 9 | 11
BBB+ | BBB+ | 14 | 11 | 17
BBB | BBB | 20 | 17 | 24
BBB- | BBB- | 31 | 24 | 39
BB+ | BB+ | 51 | 39 | 67
BB | BB | 88 | 67 | 116
BB- | BB- | 150 | 116 | 194
B+ | B+ | 255 | 194 | 335
B | B | 441 | 335 | 581
B- | B- | 785 | 581 | 1,061
CCC+ | CCC+ | 1,191 | 1,061 | 1,336
CCC | CCC | 1,500 | 1,336 | 1,684
CCC- | CCC- | 1,890 | 1,684 | 2,121
CC+ | CC+ | 2,381 | 2,121 | 2,673
CC | CC | 3,000 | 2,673 | 3,367
CC- | CC- | 3,780 | 3,367 | 4,243

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These different levels and their probability of default were calculated by using as a reference the rating scales and default rates provided by the external agencies Standard & Poor’s and Moody’s. These calculations establish the levels of probability of default for the BBVA Group’s Master Rating Scale. Although this scale is common to the entire Group, the calibrations (mapping scores to PD sections/Master Rating Scale levels) are carried out at tool level for each country in which the Group has tools available.

The table below outlines the distribution by probability of default within 12 months and stages of the gross carrying amount of loans and advances to customers in percentage of BBVA Group as of December 31, 2018 is shown below:

| December 2018
| Subject to 12 month ECL (Stage 1) | Subject to lifetime ECL (Stage 2)
Probability of default (basis points) | % | %
0 to 2 | 9.6 | 0.0
2 to 5 | 10.8 | 0.1
5 to 11 | 6.3 | 0.0
11 to 39 | 20.9 | 0.4
39 to 194 | 30.1 | 1.8
194 to 1,061 | 12.2 | 3.6
1,061 to 2,121 | 1.6 | 1.2
> 2,021 | 0.2 | 1.2
Total | 91.7 | 8.3

There was no similar breakdown before the implementation of IFRS 9 on January 1, 2018 (see Note 2.1).

### 7.3.5 Past due but not impaired and impaired secured loans risks

The tables below provides details by counterpart and by product of past due risks but not considered to be impaired, as of December 31, 2018, 2017 and 2016, listed by their first past-due date; as well as the breakdown of the debt securities and loans and advances individually and collectively estimated (see Note 2.2.1):

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December 2018 (Millions of euros)
| Assets without significant increase in credit risk since initial recognition (Stage 1) | Assets with significant increase in credit risk since initial recognition but not credit-impaired (Stage 2) | Credit-impaired assets (Stage 3)
| <= 30 days | > 30 days <= 90 days | > 90 days | <= 30 days | > 30 days <= 90 days | > 90 days | <= 30 days | > 30 days <= 90 days | > 90 days
Debt securities | - | - | - | - | - | - | - | - | 5
Loans and advances | 4,191 | 454 | - | 4,261 | 3,228 | - | 407 | 900 | 2,769
Central banks | - | - | - | - | - | - | - | - | -
General governments | 95 | 7 | - | 5 | 1 | - | 5 | 5 | 26
Credit institutions | 3 | - | - | - | - | - | - | - | -
Other financial corporations | 117 | 224 | - | 2 | - | - | - | - | 5
Non-financial corporations | 1,140 | 158 | - | 1,282 | 1,180 | - | 149 | 276 | 1,333
Households | 2,835 | 64 | - | 2,971 | 2,047 | - | 254 | 618 | 1,404
TOTAL | 4,191 | 454 | - | 4,261 | 3,228 | - | 407 | 900 | 2,774
Loans and advances by product, by collateral and by subordination |  |  |  |  |  |  |  |  |
On demand (call) and short notice (current account) | 127 | - | - | 25 | 47 | - | 3 | 4 | 52
Credit card debt | 182 | 10 | - | 598 | 102 | - | 24 | 25 | 120
Trade receivables | 46 | 12 | - | 20 | 106 | - | 2 | 11 | 50
Finance leases | 307 | 16 | - | 43 | 102 | - | 10 | 20 | 110
Reverse repurchase loans | - | - | - | - | - | - | - | - | -
Other term loans | 3,421 | 325 | - | 3,575 | 2,869 | - | 369 | 840 | 2,433
Advances that are not loans | 108 | 89 | - | - | 1 | - | - | - | 4
of which: mortgage loans collateralized by immovable property | 1,681 | 38 | - | 1,598 | 1,745 | - | 251 | 712 | 1,365
of which: other collateralized loans | 255 | 14 | - | 742 | 99 | - | 22 | 21 | 103
of which: credit for consumption | 910 | 27 | - | 1,278 | 424 | - | 49 | 49 | 281
of which: lending for house purchase | 1,365 | 24 | - | 1,394 | 1,404 | - | 170 | 507 | 839
of which: project finance loans | 1 | - | - | - | 382 | - | - | - | 71

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December 2017 (Millions of euros) (*)
| Past due but not impaired | Impaired assets | Carrying amount of the impaired assets | Specific allowances for financial assets, individually and collectively estimated | Collective allowances for incurred but not reported losses | Accumulated write-offs
| ≤ 30 days | > 30 days ≤ 60 days | > 60 days ≤ 90 days
Debt securities | - | - | - | 66 | 38 | (28) | (21) | -
Loans and advances | 3,432 | 759 | 503 | 19,401 | 10,726 | (8,675) | (4,109) | (29,938)
Central banks | - | - | - | - | - | - | - | -
General governments | 75 | 3 | 13 | 171 | 129 | (42) | (69) | (27)
Credit institutions | - | - | - | 11 | 5 | (6) | (30) | (5)
Other financial corporations | 2 | - | - | 12 | 6 | (7) | (19) | (5)
Non-financial corporations | 843 | 153 | 170 | 10,791 | 5,192 | (5,599) | (1,939) | (18,988)
Households | 2,512 | 603 | 319 | 8,417 | 5,395 | (3,022) | (2,052) | (10,913)
TOTAL | 3,432 | 759 | 503 | 19,467 | 10,764 | (8,703) | (4,130) | (29,938)
Loans and advances by product, by collateral and by subordination |  |  |  |  |  |  |  |
On demand (call) and short notice (current account) | 77 | 12 | 11 | 389 | 151 | (238) |  |
Credit card debt | 397 | 66 | 118 | 629 | 190 | (439) |  |
Trade receivables | 115 | 8 | 9 | 515 | 179 | (336) |  |
Finance leases | 138 | 66 | 47 | 431 | 155 | (276) |  |
Reverse repurchase loans | - | - | - | - | - | - |  |
Other term loans | 2,705 | 606 | 317 | 17,417 | 10,047 | (7,370) |  |
Advances that are not loans | 1 | - | 1 | 20 | 3 | (16) |  |
of which: mortgage loans (Loans collateralized by immovable property) | 1,345 | 360 | 164 | 11,388 | 7,630 | (3,757) |  |
of which: other collateralized loans | 592 | 137 | 43 | 803 | 493 | (310) |  |
of which: credit for consumption | 1,260 | 248 | 207 | 1,551 | 457 | (1,093) |  |
of which: lending for house purchase | 1,034 | 307 | 107 | 5,730 | 4,444 | (1,286) |  |
of which: project finance loans | 13 | - | 25 | 1,165 | 895 | (271) |  |

(*) Figures originally reported in the year 2017 in accordance to the applicable regulation, without restatements.

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December 2016 (Millions of euros) (*)
| Past due but not impaired | Impaired assets | Carrying amount of the impaired assets | Specific allowances for financial assets, individually and collectively estimated | Collective allowances for incurred but not reported losses | Accumulated write-offs
| <= 30 days | > 30 days <= 60 days | > 60 days <= 90 days
Debt securities | - | - | - | 272 | 128 | (144) | (46) | (1)
Loans and advances | 3,384 | 696 | 735 | 22,925 | 12,133 | (10,793) | (5,224) | (29,346)
Central banks | - | - | - | - | - | - | - | -
General governments | 66 | - | 2 | 295 | 256 | (39) | (13) | (13)
Credit institutions | 3 | - | 82 | 10 | 3 | (7) | (36) | (5)
Other financial corporations | 4 | 7 | 21 | 34 | 8 | (25) | (57) | (6)
Non-financial corporations | 968 | 209 | 204 | 13,786 | 6,383 | (7,402) | (2,789) | (18,020)
Households | 2,343 | 479 | 426 | 8,801 | 5,483 | (3,319) | (2,329) | (11,303)
TOTAL | 3,384 | 696 | 735 | 23,197 | 12,261 | (10,937) | (5,270) | (29,347)
Loans and advances by product, by collateral and by subordination |  |  |  |  |  |  |  |
On demand (call) and short notice (current account) | 79 | 15 | 29 | 562 | 249 | (313) |  |
Credit card debt | 377 | 88 | 124 | 643 | 114 | (529) |  |
Trade receivables | 51 | 15 | 13 | 424 | 87 | (337) |  |
Finance leases | 188 | 107 | 59 | 516 | 252 | (264) |  |
Reverse repurchase loans | - | - | 82 | 1 | - | (1) |  |
Other term loans | 2,685 | 469 | 407 | 20,765 | 11,429 | (9,336) |  |
Advances that are not loans | 5 | - | 21 | 14 | 2 | (12) |  |
of which: mortgage loans (Loans collateralized by immovable property) | 1,202 | 265 | 254 | 16,526 | 9,008 | (5,850) |  |
of which: other collateralized loans | 593 | 124 | 47 | 1,129 | 656 | (275) |  |
of which: credit for consumption | 1,186 | 227 | 269 | 1,622 | 455 | (1,168) |  |
of which: lending for house purchase | 883 | 194 | 105 | 6,094 | 4,546 | (1,548) |  |
of which: project finance loans | 138 | - | - | 253 | 105 | (147) |  |

(*) Figures originally reported in the year 2016 in accordance to the applicable regulation, without restatements.

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The breakdown of loans and advances, within financial assets at amortized cost, impaired and accumulated impairment by sectors as of December 31, 2018, 2017 and 2016 is as follows:

December 2018 (Millions of euros) |  |  |
| Non-performing loans and advances | Accumulated impairment | Non-performing loans and advances as a % of the total
General governments | 128 | (84) | 0.4%
Credit institutions | 10 | (12) | 0.1%
Other financial corporations | 11 | (22) | 0.1%
Non-financial corporations | 8,372 | (6,260) | 4.9%
Agriculture, forestry and fishing | 122 | (107) | 3.3%
Mining and quarrying | 96 | (70) | 1.9%
Manufacturing | 1,695 | (1,134) | 4.6%
Electricity, gas, steam and air conditioning supply | 585 | (446) | 4.2%
Water supply | 19 | (15) | 1.8%
Construction | 1,488 | (1,007) | 12.5%
Wholesale and retail trade | 1,624 | (1,259) | 6.3%
Transport and storage | 459 | (374) | 4.7%
Accommodation and food service activities | 315 | (204) | 4.0%
Information and communication | 113 | (72) | 2.1%
Financial and insurance activities | 147 | (128) | 2.1%
Real estate activities | 834 | (624) | 4.8%
Professional, scientific and technical activities | 204 | (171) | 4.0%
Administrative and support service activities | 128 | (125) | 4.0%
Public administration and defense, compulsory social security | 5 | (7) | 1.6%
Education | 31 | (31) | 3.4%
Human health services and social work activities | 63 | (63) | 1.4%
Arts, entertainment and recreation | 59 | (41) | 4.5%
Other services | 386 | (382) | 3.9%
Households | 7,838 | (5,833) | 4.4%
LOANS AND ADVANCES | 16,359 | (12,211) | 4.1%

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December 2017 (Millions of euros)
| Non-performing loans and advances | Accumulated impairment or Accumulated changes in fair value due to credit risk | Non-performing loans and advances as a % of the total
General governments | 171 | (111) | 0.5%
Credit institutions | 11 | (36) | 0.3%
Other financial corporations | 12 | (26) | 0.1%
Non-financial corporations | 10,791 | (7,538) | 6.3%
Agriculture, forestry and fishing | 166 | (123) | 4.3%
Mining and quarrying | 177 | (123) | 3.7%
Manufacturing | 1,239 | (955) | 3.6%
Electricity, gas, steam and air conditioning supply | 213 | (289) | 1.8%
Water supply | 29 | (11) | 4.5%
Construction | 2,993 | (1,708) | 20.1%
Wholesale and retail trade | 1,706 | (1,230) | 5.9%
Transport and storage | 441 | (353) | 4.2%
Accommodation and food service activities | 362 | (222) | 4.3%
Information and communication | 984 | (256) | 17.0%
Real estate activities | 1,171 | (1,100) | 7.9%
Professional, scientific and technical activities | 252 | (183) | 3.8%
Administrative and support service activities | 188 | (130) | 6.3%
Public administration and defense, compulsory social security | 4 | (6) | 1.9%
Education | 31 | (25) | 3.4%
Human health services and social work activities | 75 | (68) | 1.7%
Arts, entertainment and recreation | 69 | (38) | 4.6%
Other services | 690 | (716) | 4.3%
Households | 8,417 | (5,073) | 4.7%
LOANS AND ADVANCES | 19,401 | (12,784) | 4.5%

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December 2016 (Millions of euros)
| Non-performing | Accumulated impairment or Accumulated changes in fair value due to credit risk | Non-performing loans and advances as a % of the total
General governments | 295 | (52) | 0.8%
Credit institutions | 10 | (42) | 0.0%
Other financial corporations | 34 | (82) | 0.2%
Non-financial corporations | 13,786 | (10,192) | 7.4%
Agriculture, forestry and fishing | 221 | (188) | 5.1%
Mining and quarrying | 126 | (83) | 3.3%
Manufacturing | 1,569 | (1,201) | 4.5%
Electricity, gas, steam and air conditioning supply | 569 | (402) | 3.2%
Water supply | 29 | (10) | 3.5%
Construction | 5,358 | (3,162) | 26.3%
Wholesale and retail trade | 1,857 | (1,418) | 6.2%
Transport and storage | 442 | (501) | 4.5%
Accommodation and food service activities | 499 | (273) | 5.9%
Information and communication | 112 | (110) | 2.2%
Real estate activities | 1,441 | (1,074) | 8.7%
Professional, scientific and technical activities | 442 | (380) | 6.0%
Administrative and support service activities | 182 | (107) | 7.3%
Public administration and defense, compulsory social security | 18 | (25) | 3.0%
Education | 58 | (31) | 5.4%
Human health services and social work activities | 89 | (88) | 1.8%
Arts, entertainment and recreation | 84 | (51) | 5.1%
Other services | 691 | (1,088) | 4.2%
Households | 8,801 | (5,648) | 4.6%
LOANS AND ADVANCES | 22,925 | (16,016) | 5.0%

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The changes during the years 2018, 2017 and 2016 of impaired financial assets and contingent risks are as follow:

Changes in Impaired Financial Assets and Contingent Risks (Millions of euros)
| 2018 | 2017 | 2016
Balance at the beginning | 20,590 | 23,877 | 26,103
Additions | 9,792 | 10,856 | 11,133
Decreases (*) | (6,909) | (7,771) | (7,633)
Net additions | 2,883 | 3,085 | 3,500
Amounts written-off | (5,076) | (5,758) | (5,592)
Exchange differences and other | (1,264) | (615) | (134)
Balance at the end | 17,134 | 20,590 | 23,877

(*) Reflects the total amount of impaired loans derecognized from the consolidated balance sheet throughout the year as a result of mortgage foreclosures and real estate assets received in lieu of payment as well as monetary recoveries (see Notes 19 and 20 to the Consolidated Financial Statement for additional information).

The changes during the years 2018, 2017 and 2016 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely (hereinafter "write-offs"), is shown below:

Changes in Impaired Financial Assets Written-Off from the Balance Sheet (Millions of Euros)
| Notes | 2018 | 2017 | 2016
Balance at the beginning |  | 30,139 | 29,347 | 26,143
Acquisition of subsidiaries in the year |  | - | - | -
Increase: |  | 6,164 | 5,986 | 5,699
Decrease: |  | (4,210) | (4,442) | (2,384)
Re-financing or restructuring |  | (10) | (9) | (32)
Cash recovery | 47 | (589) | (558) | (541)
Foreclosed assets |  | (625) | (149) | (210)
Sales of written-off |  | (1,805) | (2,284) | (45)
Debt forgiveness |  | (889) | (1,121) | (864)
Time-barred debt and other causes |  | (292) | (321) | (692)
Net exchange differences |  | 250 | (752) | (111)
Balance at the end |  | 32,343 | 30,139 | 29,347

As indicated in Note 2.2.1, although they have been derecognized from the consolidated balance sheet, the BBVA Group continues to attempt to collect on these written-off financial assets, until the rights to receive them are fully extinguished, either because it is time-barred financial asset, the financial asset is condoned, or other reasons.

### 7.3.6 Impairment losses

Below are the changes in the years ended December 31, 2018, 2017 and 2016, in the provisions recognized on the accompanying consolidated balance sheets to cover estimated impairment losses in loans and advances and debt securities measured at amortized cost and financial assets at fair value through other comprehensive income as well as the loan commitment and financial guarantees:

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Financial assets at amortized cost. December 2018 (Millions of Euros)
| Not credit-impaired | Credit-impaired | Total
| Stage 1 | Stage 2 | Credit-impaired (Stage 3) | Purchased/originated credit-impaired (Stage 3)
| Loss allowances | Loss allowances (collectively assessed) | Loss allowances (individually assessed) | Loss allowances | Loss allowances | Loss allowances
Opening balance (under IFRS 9) | (2,237) | (1,827) | (525) | (9,371) | - | (13,960)
Transfers of financial assets: | - | - | - | - | - | -
Transfers from Stage 1 to Stage 2 (not credit-impaired) | 208 | (930) | (218) | - | - | (940)
Transfers from Stage 2 (not credit - impaired) to Stage 1 | (125) | 619 | 50 | - | - | 544
Transfers to Stage 3 | 55 | 282 | 564 | (2,127) | - | (1,226)
Transfers from Stage 3 to Stage 1 or 2 | (7) | (126) | (68) | 333 | - | 132
Changes without transfers between Stages | 358 | (53) | (260) | (3,775) | - | (3,730)
New financial assets originated | (1,072) | (375) | (244) | - | - | (1,692)
Purchased | - | - | - | - | - | -
Disposals | 2 | 3 | - | 110 | - | 115
Repayments | 641 | 432 | 118 | 1,432 | - | 2,623
Write-offs | 13 | 14 | 2 | 4,433 | - | 4,461
Changes in model/ methodology | - | - | - | - | - | -
Foreign exchange | (84) | 72 | (93) | 343 | - | 239
Modifications that result in derecognition | 5 | 10 | 25 | 98 | - | 138
Modifications that do not result in derecognition | 3 | (8) | 1 | (362) | - | (366)
Other | 135 | 133 | 20 | 1,111 | - | 1,399
Closing balance | (2,106) | (1,753) | (628) | (7,777) | - | (12,264)

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Financial assets at fair value through other comprehensive income. December 2018 (Millions of Euros)
| Not credit-impaired | Credit-impaired | Total
| Stage 1 | Stage 2 | Credit-impaired (Stage 3) | Purchased/originated credit-impaired (Stage 3)
| Loss allowances | Loss allowances (collectively assessed) | Loss allowances (individually assessed) | Loss allowances | Loss allowances | Loss allowances
Opening balance (under IFRS 9) | (20) | (1) | - | (14) | - | (35)
Transfers of financial assets: | - | - | - | - | - | -
Transfers from Stage 1 to Stage 2 (not credit-impaired) | - | - | - | - | - | -
Transfers from Stage 2 (not credit - impaired) to Stage 1 | - | - | - | - | - | -
Transfers to Stage 3 | - | - | - | - | - | -
Transfers from Stage 3 to Stage 1 or 2 | - | - | - | - | - | -
Changes without transfers between Stages | (7) | - | - | 16 | - | 9
New financial assets originated | (3) | - | - | - | - | (3)
Purchased | - | - | - | - | - | -
Disposals | - | - | - | - | - | -
Repayments | 5 | - | - | - | - | 5
Write-offs | - | - | - | - | - | -
Changes in model/ methodology | - | - | - | - | - | -
Foreign exchange | 2 | - | - | - | - | 2
Modifications that result in derecognition | - | - | - | - | - | -
Modifications that do not result in derecognition | - | - | - | (11) | - | (11)
Other | (5) | 1 | - | 8 | - | 4
Closing balance | (28) | - | - | - | - | (28)

F-106

Loan commitments and financial guarantees. December 2018 (Millions of Euros)
| Not credit-impaired | Credit-impaired | Total
| Stage 1 | Stage 2 | Credit-impaired (Stage 3) | Purchased/originated credit-impaired (Stage 3)
| Loss allowances | Loss allowances (collectively assessed) | Loss allowances (individually assessed) | Loss allowances | Loss allowances | Loss allowances
Opening balance (under IFRS 9) | (200) | (135) | (84) | (285) | - | (704)
Transfers of financial assets: | - | - | - | - | - | -
Transfers from Stage 1 to Stage 2 (not credit-impaired) | 14 | (84) | (11) | - | - | (81)
Transfers from Stage 2 (not credit - impaired) to Stage 1 | (8) | 65 | 1 | - | - | 58
Transfers to Stage 3 | 1 | 4 | 16 | (48) | - | (27)
Transfers from Stage 3 to Stage 1 or 2 | (3) | (3) | - | 20 | - | 14
Changes without transfers between Stages | 14 | 12 | 6 | 35 | - | 67
New financial assets originated | (102) | (32) | (20) | - | - | (154)
Purchased | - | - | - | - | - | -
Disposals | - | - | - | 1 | - | 1
Repayments | 47 | 58 | 24 | 73 | - | 202
Write-offs | - | - | - | - | - | -
Changes in model/ methodology | - | - | - | - | - | -
Foreign exchange | 11 | 1 | (2) | 6 | - | 16
Modifications that result in derecognition | - | - | - | - | - | -
Modifications that do not result in derecognition | - | - | - | (32) | - | (32)
Other | (6) | (13) | 10 | 13 | - | 4
Closing balance | (232) | (127) | (60) | (217) | - | (636)

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December 2017 (Millions of euros) (*)
| Opening balance | Increases due to amounts set aside for estimated loan losses during the period | Decreases due to amounts reversed for estimated loan losses during the period | Decreases due to amounts taken against allowances | Transfers between allowances | Other adjustments | Closing balance | Recoveries recorded directly to the statement of profit or loss
Equity instruments |  |  |  |  |  |  |  |
Specific allowances for financial assets, individually and collectively estimated | (10,937) | (7,484) | 2,878 | 4,503 | 1,810 | 526 | (8,703) | 558
Debt securities | (144) | (26) | 6 | - | 123 | 13 | (28) | -
Central banks | - | - | - | - | - | - | - | -
General governments | - | - | - | - | - | - | - | -
Credit institutions | (15) | (5) | 4 | - | 16 | - | - | -
Other financial corporations | (26) | (4) | 2 | - | - | 13 | (16) | -
Non-financial corporations | (103) | (17) | - | - | 107 | - | (12) | -
Loans and advances | (10,793) | (7,458) | 2,872 | 4,503 | 1,687 | 513 | (8,675) | 558
Central banks | - | - | - | - | - | - | - | -
General governments | (39) | (70) | 37 | 14 | 1 | 15 | (42) | 1
Credit institutions | (7) | (2) | 2 | - | - | 1 | (6) | -
Other financial corporations | (25) | (287) | 3 | 38 | 227 | 38 | (7) | -
Non-financial corporations | (7,402) | (3,627) | 1,993 | 3,029 | (228) | 636 | (5,599) | 345
Households | (3,319) | (3,472) | 837 | 1,422 | 1,687 | (177) | (3,022) | 212
Collective allowances for incurred but not reported losses on financial assets | (5,270) | (1,783) | 2,159 | 1,537 | (1,328) | 557 | (4,130) | -
Debt securities | (46) | (8) | 30 | 1 | - | 3 | (21) | -
Loans and advances | (5,224) | (1,776) | 2,128 | 1,536 | (1,328) | 554 | (4,109) | -
Total | (16,206) | (9,267) | 5,037 | 6,038 | 482 | 1,083 | (12,833) | 558

(*) Figures originally reported in the year 2017 in accordance to the applicable regulation, without restatements.

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December 2016 (Millions of euros)
| Opening balance | Increases due to amounts set aside for estimated loan losses during the period | Decreases due to amounts reversed for estimated loan losses during the period | Decreases due to amounts taken against allowances | Transfers between allowances | Other adjustments | Closing balance | Recoveries recorded directly to the statement of profit or loss
Equity instruments |  |  |  |  |  |  |  |
Specific allowances for financial assets, individually and collectively estimated | (12,866) | (6,912) | 2,708 | 5,673 | (123) | 583 | (10,937) | 540
Debt securities | (35) | (167) | 6 | 64 | (10) | (2) | (144) | -
Central banks | - | - | - | - | - | - | - | -
General governments | - | - | - | - | - | - | - | -
Credit institutions | (20) | - | - | 5 | - | - | (15) | -
Other financial corporations | (15) | (29) | 3 | 26 | (10) | (1) | (26) | -
Non-financial corporations | - | (138) | 3 | 33 | - | (1) | (103) | -
Loans and advances | (12,831) | (6,745) | 2,702 | 5,610 | (113) | 585 | (10,793) | 540
Central banks | - | - | - | - | - | - | - | -
General governments | (37) | (2) | 20 | 6 | (27) | 2 | (39) | 1
Credit institutions | (17) | (2) | 3 | - | 10 | (3) | (7) | -
Other financial corporations | (38) | (34) | 9 | 22 | 10 | 6 | (25) | -
Non-financial corporations | (9,225) | (3,705) | 2,158 | 3,257 | (278) | 391 | (7,402) | 335
Households | (3,514) | (3,002) | 511 | 2,325 | 172 | 189 | (3,319) | 205
Collective allowances for incurred but not reported losses on financial assets | (6,024) | (1,558) | 1,463 | 88 | 775 | (15) | (5,270) | 1
Debt securities | (113) | (11) | 15 | 1 | 64 | - | (46) | -
Loans and advances | (5,911) | (1,546) | 1,449 | 87 | 711 | (15) | (5,224) | -
Total | (18,890) | (8,470) | 4,172 | 5,762 | 652 | 568 | (16,206) | 541

(*) Figures originally reported in the year 2016 in accordance to the applicable regulation, without restatements.

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### 7.3.7 Refinancing and restructuring operations

Group policies and principles with respect to refinancing and restructuring operations

Refinancing and restructuring transactions (see definition in the Glossary) are carried out with customers who have requested such an operation in order to meet their current loan payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future.

The basic aim of a refinancing and restructuring operation is to provide the customer with a situation of financial viability over time by adapting repayment of the loan incurred with the Group to the customer’s new situation of fund generation. The use of refinancing and restructuring for other purposes, such as to delay loss recognition, is contrary to BBVA Group policies.

The BBVA Group’s refinancing and restructuring policies are based on the following general principles:

· Refinancing and restructuring is authorized according to the capacity of customers to pay the new installments. This is done by first identifying the origin of the payment difficulties and then carrying out an analysis of the customers’ viability, including an updated analysis of their economic and financial situation and capacity to pay and generate funds. If the customer is a company, the analysis also covers the situation of the industry in which it operates.

· With the aim of increasing the solvency of the operation, new guarantees and/or guarantors of demonstrable solvency are obtained where possible. An essential part of this process is an analysis of the effectiveness of both the new and original guarantees.

· This analysis is carried out from the overall customer or group perspective.

· Refinancing and restructuring operations do not in general increase the amount of the customer’s loan, except for the expenses inherent to the operation itself.

· The capacity to refinance and restructure loan is not delegated to the branches, but decided on by the risk units.

· The decisions made are reviewed from time to time with the aim of evaluating full compliance with refinancing and restructuring policies.

These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.

In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing and restructuring loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of customer’s loan. The solution required is adapted to each case and the loan repayment is made easier, in accordance with the following principles:

· Analysis of the viability of operations based on the customer’s willingness and ability to pay, which may be reduced, but should nevertheless be present. The customer must therefore repay at least the interest on the operation in all cases. No arrangements may be concluded that involve a grace period for both principal and interest.

· Refinancing and restructuring of operations is only allowed on those loans in which the BBVA Group originally entered into.

· Customers subject to refinancing and restructuring operations are excluded from marketing campaigns of any kind.

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In the case of non-retail customers (mainly companies, enterprises and corporates), refinancing/restructuring is authorized according to an economic and financial viability plan based on:

· Forecasted future income, margins and cash flows to allow entities to implement cost adjustment measures (industrial restructuring) and a business development plan that can help reduce the level of leverage to sustainable levels (capacity to access the financial markets).

· Where appropriate, the existence of a divestment plan for assets and/or operating segments that can generate cash to assist the deleveraging process.

· The capacity of shareholders to contribute capital and/or guarantees that can support the viability of the plan.

In accordance with the Group’s policy, the conclusion of a loan refinancing and restructuring operation does not meet the loan is reclassified from "impaired" or "significant increase in credit risk" to outstanding risk. The reclassification to "significant increase in credit risk" or normal risk categories must be based on the analysis mentioned earlier of the viability, upon completion of the probationary periods described below.

The Group maintains the policy of including risks related to refinanced and restructured loans as either:

· "Impaired assets", as although the customer is up to date with payments, they are classified as unlikely to pay when there are significant doubts that the terms of their refinancing may not be met; or

· "Significant increase in credit risk" until the conditions established for their consideration as normal risk are met).

The conditions established for assets classified as “Significant increase in credit risk” to be reclassified out of this category are as follows:

· The customer must have paid past-due amounts (principal and interest) since the date of the renegotiation or restructuring of the loan or other objective criteria, demonstrating the borrower´s ability to pay, have been verified; none of its exposures is more than 30 days past-due; and

· At least two years must have elapsed since completion of the renegotiation or restructuring of the loan and regular payments must have been made during at least half of this probation period;

· It is unlikely that the customer will have financial difficulties and, therefore, it is expected that the customer will be able to meet its loan payment obligations (principal and interest) in a timely manner.

The BBVA Group’s refinancing and restructuring policy provides for the possibility of two modifications in a 24 month period for loans that are not in compliance with the payment schedule.

The internal models used to determine allowances for loan losses consider the restructuring and renegotiation of a loan, as well as re-defaults on such a loan, by assigning a lower internal rating to restructured and renegotiated loans than the average internal rating assigned to non-restructured/renegotiated loans. This downgrade results in an increase in the probability of default (PD) assigned to restructured/renegotiated loans (with the resulting PD being higher than the average PD of the non- renegotiated loans in the same portfolios).

For quantitative information on refinancing and restructuring operations see Appendix VIII.

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7.4 Market risk

### 7.4.1 Market risk trading portfolios

Market risk originates as a result of movements in the market variables that impact the valuation of traded financial products and assets. The main risks generated can be classified as follows:

· Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all the financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.

· Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.

· Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.

· Credit-spread risk: Credit spread is an indicator of an issuer's credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.

· Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.

The metrics developed to control and monitor market risk in BBVA Group are aligned with market practices and are implemented consistently across all the local market risk units.

Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group's Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used to measure market risk is Value at Risk (“VaR”), which indicates the maximum loss that may occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and credit spreads. The market risk analysis considers risks, such as credit spread, basis risk as well as volatility and correlation risk.

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Most of the headings on the Group's balance sheet subject to market risk are positions in the Group´s trading portfolio whose metric for measuring their market risk is VaR. This table shows the accounting lines of the consolidated balance sheet as of December 31, 2018, 2017 and 2016 in which there is a market risk in the Group´s trading and non-trading portfolios:

Headings of the balance sheet under market risk (Millions of euros)
| December 2018 | December 2017 | December 2016
| Main market risk metrics - VaR | Main market risk metrics - Others (*) | Main market risk metrics - VaR | Main market risk metrics - Others (*) | Main market risk metrics - VaR | Main market risk metrics - Others (*)
Assets subject to market risk |  |  |  |  |  |
Financial assets held for trading | 57,486 | 28,459 | 59,008 | 441 | 64,623 | 1,480
Financial assets at fair value through other comprehensive income | 5,652 | 19,125 | 5,661 | 24,083 | 7,119 | 28,771
Of which: Equity instruments | - | 2,046 | - | 2,404 | - | 3,559
Derivatives - Hedging accounting | 688 | 1,061 | 829 | 1,397 | 1,041 | 1,415
Liabilities subject to market risk |  |  |  |  |  |
Financial liabilities held for trading | 38,844 | 40,026 | 42,468 | 2,526 | 47,491 | 2,223
Derivatives - Hedging accounting | 550 | 910 | 1,157 | 638 | 1,305 | 689

(*) Includes mainly assets and liabilities managed by ALCO.

Although the prior table shows details of the financial positions subject to market risk, it should be noted that the data are for information purposes only and do not reflect how the risk is managed in trading activity, where it is not classified into assets and liabilities.

With respect to the risk measurement models used in BBVA Group, the Bank of Spain has authorized the use of the internal model to determine bank capital requirements deriving from risk positions on the BBVA S.A. and BBVA Bancomer trading book, which jointly account for around 76%, 70% and 66% of the Group’s trading-book market risk as of December 31, 2018, 2017 and 2016. For the rest of the geographical areas (mainly South America, Garanti and BBVA Compass), bank capital for the risk positions in the trading book is calculated using the standard model.

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the "historical simulation" methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it infers the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years. The historical simulation method is used in BBVA S.A., BBVA Bancomer, BBVA Colombia, Compass Bank and Garanti.

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VaR figures are estimated following two methodologies:

· VaR without smoothing, which awards equal weight to the daily information for the previous two years. This is currently the official methodology for measuring market risks for the purpose of monitoring compliance with risk limits.

· VaR with smoothing, which gives a greater weight to more recent market information. This metric supplements the previous one.

In the case of Global Markets Argentina and Global Markets Peru a parametric methodology is used to measure risk in terms of VaR.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain's regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the new measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

· VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed VaR) is calculated. This quantifies the losses associated with the movements of the two risk factors inherent to market operations (interest rates, FX, RV, credit, etc.). Both VaR and stressed VaR are rescaled by a regulatory multiplier set at three and by the square root of ten to calculate the capital charge.

· Specific Risk: Incremental Risk Capital (“IRC”) Quantification of the risks of default and downgrading of the credit ratings of the bond and credit derivative positions in the portfolio. The specific capital risk by IRC is a charge exclusively used in the geographical areas with the internal model approved (BBVA S.A. and Bancomer). The capital charge is determined according to the associated losses (at 99.9% in a 1-year horizon under the hypothesis of constant risk) due to the rating migration and/or default state the issuer of an asset. In addition, the price risk is included in sovereign positions for the items specified.

· Specific Risk: Securitization and correlation portfolios. Capital charge for securitizations and the correlation portfolio to include the potential losses associated at the level of rating a specific credit structure (rating). Both are calculated by the standard method. The scope of the correlation portfolios refers to the FTD-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity.

Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at trading desk level in order to enable more specific monitoring of the validity of the measurement models.

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Market risk in 2018

The Group’s market risk remains at low levels compared to other risks managed by BBVA, particularly in terms of credit risk. This is due to the nature of the business. During the financial year 2018 the average VaR was €21 million, below the figure of 2017, with a high on March 16, 2018 of €26 million. The evolution in the BBVA Group’s market risk during 2018, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in millions of Euros) is as follows:

By type of market risk assumed by the Group's trading portfolio, the main risk factor for the Group continues to be that linked to interest rates, with a weight of 55% of the total at the end of year ended December 31, 2018 (this figure includes the spread risk). The relative weight has increased compared with the close of 2017 (48%). Exchange-rate risk maintains its proportion with respect to 2017 (14%), while equity, volatility and correlation risk have decreased, with a weight of 31% at the close of 2018 (vs. 38% at the close of 2017).

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As of December 31, 2018, 2017 and 2016 the balance of VaR was €17 million, €22 million and €26 million, respectively. These figures can be broken down as follows:

VaR by Risk Factor (Millions of euros)
| Interest/Spread Risk | Currency Risk | Stock-market Risk | Vega/Correlation Risk | Diversification Effect(*) | Total
December 2018 |  |  |  |  |  |
VaR average in the year | 20 | 6 | 4 | 9 | (20) | 21
VaR max in the year | 23 | 7 | 6 | 11 | (21) | 26
VaR min in the year | 17 | 6 | 4 | 7 | (18) | 16
End of period VaR | 19 | 5 | 3 | 7 | (17) | 17
December 2017 |  |  |  |  |  |
VaR average in the year | 25 | 10 | 3 | 13 | (23) | 27
VaR max in the year | 27 | 11 | 2 | 12 | (19) | 34
VaR min in the year | 23 | 7 | 4 | 14 | (26) | 22
End of period VaR | 23 | 7 | 4 | 14 | (26) | 22
December 2016 |  |  |  |  |  |
VaR average in the year | 28 | 10 | 4 | 11 | (23) | 29
VaR max in the year | 30 | 16 | 4 | 11 | (23) | 38
VaR min in the year | 21 | 10 | 1 | 11 | (20) | 23
End of period VaR | 29 | 7 | 2 | 12 | (24) | 26

(*) The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.

Validation of the model

The internal market risk model is validated on a regular basis by backtesting in both BBVA S.A. and Bancomer. The aim of backtesting is to validate the quality and precision of the internal market risk model used by BBVA Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group's results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both BBVA, S.A. and Bancomer is adequate and precise.

Two types of backtesting have been carried out during 2018, 2017 and 2016:

· "Hypothetical" backtesting: the daily VaR is compared with the results obtained, not taking into account the intraday results or the changes in the portfolio positions. This validates the appropriateness of the market risk metrics for the end-of-day position.

· "Real" backtesting: the daily VaR is compared with the total results, including intraday transactions, but discounting the possible minimum charges or fees involved. This type of backtesting includes the intraday risk in portfolios.

In addition, each of these two types of backtesting was carried out at the level of risk factor or business type, thus making a deeper comparison of the results with respect to risk measurements.

For the period between the year ended December 31, 2017 and the year ended December 31, 2018, the backtesting of the internal VaR calculation model was carried out, comparing the daily results obtained to the estimated risk level by the internal VaR calculation model. At the end of the year the comparison showed the internal VaR calculation model was working correctly, within the "green" zone (0-4 exceptions), thus validating the internal VaR calculation model, as has occurred each year since the internal market risk model was approved for the Group.

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Stress test analysis

A number of stress tests are carried out on BBVA Group's trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the "Tequilazo" crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions.

Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

· Credit shock: reflected mainly in the increase of credit spreads and downgrades in credit ratings.

· Increased volatility in most of the financial markets (giving rise to a great deal of variation in the prices of different assets (currency, equity, debt).

· Liquidity shock in the financial systems, reflected by a major movement in interbank curves, particularly in the shortest sections of the euro and dollar curves.

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on Resampling methodology. This methodology is based on the use of dynamic scenarios are recalculated periodically depending on the main risks held in the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from 1-1-2008 until today), a simulation is performed by resampling of historic observations, generating a loss distribution and profits to analyze most extreme of births in the selected historical window. The advantage of this resampling methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a richer information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) flexibility in the inclusion of new risk factors and c) to allow the introduction of a lot of variability in the simulations (desirable to consider extreme events).

The impact of the stress test under multivariable simulation of the risk factors of the portfolio (Expected shortfall 95% to 20 days) as of December 31, 2018 is as follows:

Millions of Euros
| Europe | Mexico | Peru | Venezuela | Argentina | Colombia | Turkey | Compass
Expected Shortfall | (99) | (33) | (11) | - | (5) | (6) | (6) | (1)

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### 7.4.2 Structural risk

The Assets and Liabilities Committee (ALCO) is the main responsible body for the management of structural risks relating to liquidity/funding, interest rates, currency rates, equity and solvency. Every month, with the assistance of the CEO and representatives from the areas of Finance, Risks and Business Areas, this committee monitors the above risks and is presented with proposals for managing them for its approval. These management proposals are made proactively by the Finance area, taking into account the risk appetite framework and with the aim of guaranteeing recurrent earnings and financial stability and preserving the entity's solvency. All the balance-sheet management units have a local ALCO, assisted constantly by the members of the Corporate Center. There is also a corporate ALCO where the management strategies in the Group's subsidiaries are monitored and presented.

Structural interest-rate risk

The structural interest-rate risk (“IRRBB”) is related to the potential impact that variations in market interest rates have on an entity's net interest income and equity. In order to properly measure IRRBB, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed from two complementary points of view: net interest income (short term) and economic value (long term).

ALCO monitors the interest-rate risk metrics and the Assets and Liabilities Management unit carries out the management proposals for the structural balance sheet. The management objective is to ensure the stability of net interest income and book value in the face of changes in market interest rates, while respecting the internal solvency and limits in the different balance-sheets and for BBVA Group as a whole; and complying with current and future regulatory requirements.

BBVA's structural interest-rate risk management control and monitoring is based on a set of metrics and tools that enable the entity's risk profile to be monitored correctly. A wide range of scenarios are measured on a regular basis, including sensitivities to parallel movements in the event of different shocks, changes in slope and curve, as well as delayed movements. Other probabilistic metrics based on statistical scenario-simulating methods are also assessed, such as earnings at risk (“EaR”) and economic capital (“EC”), which are defined as the maximum adverse deviations in net interest income and economic value, respectively, for a given confidence level and time horizon. Impact thresholds are established on these management metrics both in terms of deviations in net interest income and in terms of the impact on economic value. The process is carried out separately for each currency to which the Group is exposed, and the diversification effect between currencies and business units is considered after this.

In order to evaluate its effectiveness, the model is subjected to regular internal validation. In addition, the banking book’s interest-rate risk exposures are subjected to different stress tests in order to reveal balance sheet vulnerabilities under extreme scenarios. This testing includes an analysis of adverse macroeconomic scenarios designed specifically by BBVA Research, together with a wide range of potential scenarios that aim to identify interest-rate environments that are particularly damaging for the entity. This is done by generating extreme scenarios of a breakthrough in interest rate levels and historical correlations, giving rise to sudden changes in the slopes and even to inverted curves.

The model is necessarily underpinned by an elaborate set of hypotheses that aim to reproduce the behavior of the balance sheet as closely as possible to reality. Especially relevant among these assumptions are those related to the behavior of Non Maturity Deposits, for which stability and remuneration assumptions are established, consistent with an adequate segmentation by type of product and customer, and prepayment estimates (implicit optionality). The assumptions are reviewed and adapted, at least on an annual basis, to signs of changes in behavior, kept properly documented and reviewed on a regular basis in the internal validation processes.

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The impacts on the metrics are assessed both from a point of view of economic value with a static model (gone concern) and from the perspective of net interest income, for which a dynamic model (going concern) consistent with the corporate assumptions of earnings forecasts is used.

The table below shows the profile of average sensitivities to net interest income and value of the main banks in BBVA Group in 2018:

Sensitivity to Interest-Rate Analysis - December 2018
| Impact on Net Interest Income (*) | Impact on Economic Value (**)
| 100 Basis-Point Increase | 100 Basis-Point Decrease | 100 Basis-Point Increase | 100 Basis-Point Decrease
Europe (***) | + (5% - 10%) | - (5% - 10%) | + (0% - 5%) | - (0% - 5%)
Mexico | + (0% - 5%) | - (0% - 5%) | + (0% - 5%) | - (0% - 5%)
USA | + (5% - 10%) | - (5% - 10%) | - (5% - 10%) | + (0% - 5%)
Turkey | + (0% - 5%) | - (0% - 5%) | - (0% - 5%) | + (0% - 5%)
South America | + (0% - 5%) | - (0% - 5%) | - (0% - 5%) | + (0% - 5%)
BBVA Group | + (0% - 5%) | - (0% - 5%) | - (0% - 5%) | - (0% - 5%)

(*) Percentage of "1 year" net interest income forecast for each unit.

(**) Percentage of Core Capital for each unit.

(***) In Europe downward movement including rates below the current ones.

In 2018 in Europe monetary policy has remained expansionary, maintaining rates at 0% and the deposit rate at -0.4%. In USA the rising rate cycle initiated by the Federal Reserve in 2015 has continued. In Mexico and Turkey, the upward cycle has continued because of volatility of their currencies and inflation prospects. In South America, monetary policy has continued to be expansive in most of the economies where the Group operates, with the exception of Argentina, where rates increased and actions were taken not to increase the monetary basis and slow the inflation.

The BBVA Group maintains, overall a positive and moderate sensitivity in its net interest income to an increase in interest rates. The higher relative net interest income sensitivities are observed in, particularly Euro and USD. In Europe however, the decrease in interest rates is limited by the downward path scope in interest rates. The Group maintains a moderate risk profile, according to its target risk, through effective management of its balance sheet structural risk.

Structural exchange-rate risk

In BBVA Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint handling of permanent foreign currency exposures, taking into account the diversification.

The corporate Global ALM unit, through ALCO, designs and executes hedging strategies with the main purpose of controlling the potential negative effect of exchange-rate fluctuations on capital ratios and on the equivalent value in euros of the foreign-currency earnings of the Group's subsidiaries, considering transactions according to market expectations and their cost.

The risk monitoring metrics included in the framework of limits are integrated into management and supplemented with additional assessment indicators. At corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 (“Common Equity Tier 1”) ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

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The suitability of these risk assessment metrics is reviewed on a regular basis through backtesting exercises. The final element of structural exchange-rate risk control is the analysis of scenarios and stress with the aim of identifying in advance possible threats to future compliance with the risk appetite levels set, so that any necessary preventive management actions can be taken. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

2018 has been characterized by higher volatility levels of FX rates in emerging markets. As for the main currencies of the geographies where the Group operates, it is worth mentioning the appreciation of Mexican peso and US Dollar against the euro (around 5% in both cases), while Turkish lira and Argentinian peso have strongly depreciated (25% and 48%, respectively) affected by idiosyncratic factors.

The Group's structural exchange-rate risk exposure level has remained fairly stable since the end of 2017. The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging currencies against the euro and focuses on Mexican peso and Turkish lira. The risk mitigation level in capital ratio due to the book value of BBVA Group's holdings in foreign emerging currencies stood at around 70% and, as of the end of 2018, CET1 ratio sensitivity to the appreciation of 1% in the euro exchange rate for each currency is: US Dollar +1.1 bps; Mexican peso -0.2 bps; Turkish Lira -0.2 bps; other currencies -0.2 bps. On the other hand, hedging of emerging-currency denominated earnings of 2018 has reached an 82%, concentrated in Mexican peso, Turkish lira and the main Latin American currencies.

Structural equity risk

BBVA Group's exposure to structural equity risk stems basically from minority shareholdings in industrial and financial companies held with long or medium-term investment horizons. This exposure is modulated in some portfolios with positions held in derivative instruments on the same underlying assets, in order to adjust the portfolio sensitivity to potential changes in equity prices.

The management of structural equity portfolios is a responsibility of the Group's units specialized in this area. Their activity is subject to the risk management corporate policy on structural equity risk management, complying with the defined management principles and Risk Appetite Framework.

The Group's risk management systems also make it possible to anticipate potential negative impacts and take appropriate measures to prevent damage being caused to the entity. The risk control and limitation mechanisms are focused on the exposure, annual performance and economic capital estimated for each portfolio. Economic capital is estimated in accordance with a corporate model based on Monte Carlo simulations, taking into account the statistical performance of asset prices and the diversification existing among the different exposures.

Stress tests and analyses of sensitivity to different simulated scenarios are carried out periodically to analyze the risk profile in more depth. They are based on both past crisis situations and forecasts made by BBVA Research. This checks that the risks are limited and that the tolerance levels set by the Group are not at risk.

Backtesting is carried out on a regular basis on the risk measurement model used.

With regard to the equity markets, the world indexes have closed the year 2018 with generalized falls and volatility surges in a macro environment of global growth slowdown, increase of the political uncertainty and normalization of the monetary policies.

Structural equity risk, measured in terms of economic capital, has decreased in the period mainly due to lower exposure. The aggregate sensitivity of the BBVA Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio remained at around €-28 million as of December 31, 2018 and €-32 million as of December 31, 2017. This estimation takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (excluding the positions in the Treasury Area and the net delta-equivalent positions in derivatives on the same underlyings.

###

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### 7.4.3 Financial Instruments offset

Financial assets and liabilities may be netted, i.e. they are presented for a net amount on the consolidated balance sheet only when the Group's entities satisfy with the provisions of IAS 32-Paragraph 42, so they have both the legal right to net recognized amounts, and the intention of settling the net amount or of realizing the asset and simultaneously paying the liability.

In addition, the Group has presented as gross amounts assets and liabilities on the consolidated balance sheet for which there are master netting arrangements in place, but for which there is no intention of settling net. The most common types of events that trigger the netting of reciprocal obligations are bankruptcy of the entity, surpassing certain level of indebtedness threshold, failure to pay, restructuring and dissolution of the entity.

In the current market context, derivatives are contracted under different framework contracts being the most widespread developed by the International Swaps and Derivatives Association (“ISDA”) and, for the Spanish market, the Framework Agreement on Financial Transactions (“CMOF”). Almost all portfolio derivative transactions have been concluded under these framework contracts, including in them the netting clauses mentioned in the preceding paragraph as "Master Netting Agreement", greatly reducing the credit exposure on these instruments. Additionally, in contracts signed with professional counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty.

Moreover, in transactions involving assets purchased or sold under a repurchase agreement there is a high volume transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signature of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by International Capital Market Association (“ICMA”), to which the clauses related to the collateral exchange are usually added within the text of the master agreement itself.

A summary of the effect of the compensation (via netting and collateral) for derivatives and securities operations is presented below as of December 31, 2018, 2017 and 2016:

December 2018 (Millions of euros)
|  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets (D) |
| Notes | Gross Amounts Recognized (A) | Gross Amounts Offset in the Consolidated Balance Sheets (B) | Net Amount Presented in the Consolidated Balance Sheets (C=A-B) | Financial Instruments | Cash Collateral Received/ Pledged | Net Amount (E=C-D)
Trading and hedging derivatives | 10, 15 | 49,908 | 16,480 | 33,428 | 25,024 | 7,790 | 613
Reverse repurchase, securities borrowing and similar agreements |  | 28,074 | 42 | 28,032 | 28,022 | 169 | (159)
Total Assets |  | 77,982 | 16,522 | 61,460 | 53,046 | 7,959 | 454
Trading and hedging derivatives | 10, 15 | 51,596 | 17,101 | 34,494 | 25,024 | 6,788 | 2,682
Repurchase, securities lending and similar agreements |  | 43,035 | 42 | 42,993 | 42,877 | 34 | 82
Total liabilities |  | 94,631 | 17,143 | 77,487 | 67,901 | 6,822 | 2,765

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December 2017 (Millions of euros)
|  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets (D) |
| Notes | Gross Amounts Recognized (A) | Gross Amounts Offset in the Consolidated Balance Sheets (B) | Net Amount Presented in the Consolidated Balance Sheets (C=A-B) | Financial Instruments | Cash Collateral Received/ Pledged | Net Amount (E=C-D)
Trading and hedging derivatives | 10, 15 | 49,333 | 11,584 | 37,749 | 27,106 | 7,442 | 3,202
Reverse repurchase, securities borrowing and similar agreements |  | 26,426 | 56 | 26,369 | 26,612 | 141 | (384)
Total Assets |  | 75,759 | 11,641 | 64,118 | 53,717 | 7,583 | 2,818
Trading and hedging derivatives | 10, 15 | 50,693 | 11,644 | 39,049 | 27,106 | 8,328 | 3,615
Repurchase, securities lending and similar agreements |  | 40,134 | 56 | 40,078 | 40,158 | 21 | (101)
Total liabilities |  | 90,827 | 11,701 | 79,126 | 67,264 | 8,349 | 3,514

December 2016 (Millions of euros)
|  |  |  |  | Gross Amounts Not Offset in the Consolidated Balance Sheets (D) |
| Notes | Gross Amounts Recognized (A) | Gross Amounts Offset in the Consolidated Balance Sheets (B) | Net Amount Presented in the Consolidated Balance Sheets (C=A-B) | Financial Instruments | Cash Collateral Received/ Pledged | Net Amount (E=C-D)
Trading and hedging derivatives | 10, 15 | 59,374 | 13,587 | 45,788 | 32,146 | 6,571 | 7,070
Reverse repurchase, securities borrowing and similar agreements |  | 25,833 | 2,912 | 22,921 | 23,080 | 174 | (333)
Total Assets |  | 85,208 | 16,499 | 68,709 | 55,226 | 6,745 | 6,738
Trading and hedging derivatives | 10, 15 | 59,545 | 14,080 | 45,465 | 32,146 | 7,272 | 6,047
Repurchase, securities lending and similar agreements |  | 49,474 | 2,912 | 46,562 | 47,915 | 176 | (1,529)
Total liabilities |  | 109,019 | 16,991 | 92,027 | 80,061 | 7,448 | 4,518

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7.5 Liquidity risk

7.5.1 Liquidity risk management

Management of liquidity and structural finance within the BBVA Group is based on the principle of the financial autonomy of the entities that make it up. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability in periods of high risk. This decentralized management avoids possible contagion due to a crisis that could affect only one or several BBVA Group entities, which must cover their liquidity needs independently in the markets where they operate. Liquidity Management Units (LMUs) have been set up for this reason in the geographical areas where the main foreign subsidiaries operate, and also for the parent BBVA S.A.

Assets and Liabilities Management unit manages BBVA Group's liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMUs and proposes to ALCO the actions to adopt in this regard in accordance with the policies and limits established by the Standing Committee.

As first core element, the Bank's target in terms of liquidity and funding risk is characterized through the Liquidity Coverage Ratio (LCR) and the Loan-to-Stable-Customer-Deposits (LtSCD) ratio. LCR is a regulatory measurement aimed at ensuring entities’ resistance in a scenario of liquidity stress within a time horizon of 30 days. BBVA, within its risk appetite framework and its limits and alerts schemes, has established a level of requirement for compliance with the LCR ratio both for the Group as a whole and for each of the Liquidity Management Units (LMUs) individually. The internal levels required are geared to comply sufficiently and efficiently in advance with the implementation of the regulatory requirement of 2018, at a level above 100%.

LCR ratio in Europe was applicable as from October 1, 2015. With an initial 60% minimum requirement, progressively increased (phased-in) up to 100% in 2018. Throughout the year 2018, LCR level at BBVA Group has been above 100%. As of December 31, 2018, the LCR ratio at Group level is 127%.

Although this regulatory requirement is mandatory at a Group level and Eurozone banks, all subsidiaries are above this minimum. In any case, it should be noted that liquidity excesses in subsidiaries are not deemed transferable when calculating the consolidated ratio. Taking into account the impact of these High Quality Liquid Assets excluded, LCR ratio would be 154%, which is +27% above the Group’s LCR.

LCR main LMU
| December 2018 | December 2017
Group | 127% | 128%
Eurozone | 145% | 151%
Bancomer | 154% | 148%
Compass(*) | 143% | 144%
Garanti | 209% | 134%

(*) Compass LCR calculated according to local regulation (Fed Modified LCR).

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The LtSCD measures the relation between the net loans credit investment and stable customer deposits. The aim is to preserve a stable funding structure in the medium term for each of the LMUs making up BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile.

Stable customer deposits are defined as the customer funds captured and managed by business units among their target customers. These funds usually show little sensitivity to market changes and are largely non-volatile in terms of aggregate amounts per transaction, thanks to customer linkage to the unit. Stable funds in each LMU are calculated by analyzing the behavior of the balance sheets of the different customer segments identified as likely to provide stability to the funding structure, and by prioritizing an established relationship and applying bigger haircuts to the funding lines of less stable customers. The main base of stable funds is composed of deposits by retail individual customers and small businesses.

For the purpose of establishing the (maximum) target levels for LtSCD in each LMU and providing an optimal funding structure reference in terms of risk appetite, GRM-Structural Risks identifies and assesses the economic and financial variables that condition the funding structures in the various geographical areas.

The behavior of the indicators reflects that the funding structure remained robust in 2018, 2017 and 2016, in the sense that all the LMUs maintain levels of self-funding with stable customer funds higher than the required levels.

LtSCD by LMU
| December 2018 | December 2017 | December 2016
Group (average) | 106% | 110% | 113%
Eurozone | 101% | 108% | 113%
Bancomer | 114% | 109% | 113%
Compass | 119% | 109% | 108%
Garanti | 110% | 122% | 124%
Other LMUs | 99% | 108% | 107%

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The second core element in liquidity and funding risk management is to achieve proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term funding comprising both wholesale funding as well as funds from less stable non-retail customers. Regarding long-term funding, the maturity profile does not show significant concentrations, which enables adaptation of the anticipated issuance schedule to the best financial conditions of the markets. Finally, concentration risk is monitored at the LMU level, with a view to ensuring the right diversification both per counterparty and per instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, making sure that each LMU has sufficient collateral to address the risk of wholesale markets closing. Basic Capacity is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets and the maturities of wholesale liabilities and volatile funds, at different terms to one year, with special relevance being given to 30 and 90-day maturities.

Each entity maintains an individual liquidity buffer, both Banco Bilbao Vizcaya Argentaria, S.A. and its subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti Bank and the Latin American subsidiaries. The table below shows the liquidity available by instrument as of December 31, 2018 and 2017 for the most significant entities based on prudential supervisor’s information (Commission Implementing Regulations (EU) 2017/2114 of November 9, 2017):

December 2018 (Millions of euros)
| BBVA Eurozone | BBVA Bancomer | BBVA Compass | Garanti Bank | Other
Cash and withdrawable central bank reserves | 26,506 | 7,666 | 1,667 | 7,633 | 6,677
Level 1 tradable assets | 29,938 | 4,995 | 10,490 | 6,502 | 3,652
Level 2A tradable assets | 449 | 409 | 510 | - | -
Level 2B tradable assets | 4,040 | 33 | - | - | -
Other tradable assets | 5,661 | 1,372 | 1,043 | 499 | 617
Non tradable assets eligible for central banks | - | - | 2,314 | - | -
Cumulated Counterbalancing Capacity | 66,594 | 14,475 | 16,024 | 14,634 | 10,946

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December 2017 (Millions of euros)
| BBVA Eurozone (1) | BBVA Bancomer | BBVA Compass | Garanti Bank | Other
Cash and withdrawable central bank reserves | 15,634 | 8,649 | 2,150 | 6,692 | 6,083
Level 1 tradable assets | 38,954 | 3,805 | 9,028 | 5,705 | 6,141
Level 2A tradable assets | 386 | 418 | 753 | - | 10
Level 2B tradable assets | 4,995 | 69 | - | - | 21
Other tradable assets | 6,734 | 1,703 | 1,252 | 962 | 1,573
Non tradable assets eligible for central banks | - | - | 2,800 | - | -
Cumulated Counterbalancing Capacity | 66,703 | 14,644 | 15,983 | 13,359 | 13,828

(1) Includes Spain, Portugal and Rest of Eurasia.

Stress analyses are also a basic element of the liquidity and funding risk monitoring system, as they help anticipate deviations from the liquidity targets and limits set out in the risk appetite as well as establish tolerance ranges at different management levels. They also play a key role in the design of the Liquidity Contingency Plan and in defining the specific measures for action for realigning the risk profile.

For each of the scenarios, a check is carried out whether BBVA has sufficient liquid assets to meet the liquidity commitments/outflows in the various periods analyzed. The analysis considers four scenarios, one core and three crisis-related: systemic crisis; unexpected internal crisis with a considerable rating downgrade and/or affecting the ability to issue in wholesale markets and the perception of business risk by the banking intermediaries and the BBVA's customers; and a mixed scenario, as a combination of the two aforementioned scenarios. Each scenario considers the following factors: liquidity existing on the market, customer behavior and sources of funding, impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the performance of the BBVA's asset quality.

The results of these stress analyses carried out regularly reveal that BBVA has a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario such as a combination of a systemic crisis and an unexpected internal crisis, during a period in general longer than 3 months for LMUs, including a major downgrade in the BBVA's rating (by up to three notches).

Beside the results of stress exercises and risk metrics, Early Warning Indicators play an important role in the corporate model and also in the Liquidity Contingency Plan. These are mainly financing structure indicators, related to asset encumbrance, counterparty concentration, outflows of customer deposits, unexpected use of credit lines, and market indicators, which help to anticipate potential risks and capture market expectations.

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Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2018, 2017 and 2016:

December 2018. Contractual Maturities (Millions of euros)
| Demand | Up to 1 Month | 1 to 3 Months | 3 to 6 Months | 6 to 9 Months | 9 to 12 Months | 1 to 2 Years | 2 to 3 Years | 3 to 5 Years | Over 5 Years | Total
ASSETS |  |  |  |  |  |  |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 9,550 | 40,599 | - | - | - | - | - | - | - | - | 50,149
Deposits in credit entities | 801 | 3,211 | 216 | 141 | 83 | 152 | 133 | 178 | 27 | 1,269 | 6,211
Deposits in other financial institutions | 1 | 1,408 | 750 | 664 | 647 | 375 | 1,724 | 896 | 1,286 | 2,764 | 10,515
Reverse repo, securities borrowing and margin lending | - | 21,266 | 1,655 | 1,158 | 805 | 498 | 205 | 1,352 | 390 | 210 | 27,539
Loans and Advances | 132 | 19,825 | 25,939 | 23,265 | 15,347 | 16,433 | 42,100 | 32,336 | 53,386 | 120,571 | 349,334
Securities' portfolio settlement | - | 1,875 | 4,379 | 5,990 | 2,148 | 6,823 | 8,592 | 12,423 | 11,533 | 42,738 | 96,501

December 2018. Contractual Maturities (Millions of euros)
| Demand | Up to 1 Month | 1 to 3 Months | 3 to 6 Months | 6 to 9 Months | 9 to 12 Months | 1 to 2 Years | 2 to 3 Years | 3 to 5 Years | Over 5 Years | Total
LIABILITIES |  |  |  |  |  |  |  |  |  |  |
Wholesale funding | 1 | 2,678 | 1,652 | 2,160 | 2,425 | 2,736 | 7,225 | 8,578 | 16,040 | 26,363 | 69,858
Deposits in financial institutions | 7,107 | 5,599 | 751 | 1,992 | 377 | 1,240 | 1,149 | 229 | 196 | 904 | 19,544
Deposits in other financial institutions and international agencies | 10,680 | 4,327 | 1,580 | 458 | 302 | 309 | 781 | 304 | 825 | 1,692 | 21,258
Customer deposits | 252,630 | 44,866 | 18,514 | 10,625 | 6,217 | 7,345 | 5,667 | 2,137 | 1,207 | 1,310 | 350,518
Security pledge funding | 40 | 46,489 | 2,219 | 2,274 | 114 | 97 | 22,911 | 526 | 218 | 1,627 | 76,515
Derivatives, net | - | (75) | (523) | (68) | (5) | (117) | 498 | (91) | (67) | (392) | (840)

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December 2017. Contractual Maturities (Millions of euros)
| Demand | Up to 1 Month | 1 to 3 Months | 3 to 6 Months | 6 to 9 Months | 9 to 12 Months | 1 to 2 Years | 2 to 3 Years | 3 to 5 Years | Over 5 Years | Total
ASSETS |  |  |  |  |  |  |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 8,179 | 31,029 | - | - | - | - | - | - | - | - | 39,208
Deposits in credit entities | 252 | 4,391 | 181 | 169 | 120 | 122 | 116 | 112 | 157 | 1,868 | 7,488
Deposits in other financial institutions | 1 | 939 | 758 | 796 | 628 | 447 | 1,029 | 681 | 806 | 1,975 | 8,060
Reverse repo, securities borrowing and margin lending | 18,979 | 2,689 | 1,921 | 541 | 426 | 815 | 30 | 727 | 226 | - | 26,354
Loans and Advances | 267 | 21,203 | 26,323 | 23,606 | 15,380 | 17,516 | 43,973 | 35,383 | 50,809 | 123,568 | 358,028
Securities' portfolio settlement | 1 | 1,579 | 4,159 | 4,423 | 2,380 | 13,391 | 5,789 | 11,289 | 12,070 | 44,666 | 99,747

December 2017. Contractual Maturities (Millions of euros)
| Demand | Up to 1 Month | 1 to 3 Months | 3 to 6 Months | 6 to 9 Months | 9 to 12 Months | 1 to 2 Years | 2 to 3 Years | 3 to 5 Years | Over 5 Years | Total
LIABILITIES |  |  |  |  |  |  |  |  |  |  |
Wholesale funding | - | 3,648 | 4,209 | 4,238 | 1,227 | 2,456 | 5,772 | 6,432 | 18,391 | 30,162 | 76,535
Deposits in financial institutions | 6,831 | 5,863 | 1,082 | 2,335 | 392 | 1,714 | 930 | 765 | 171 | 1,429 | 21,512
Deposits in other financial institutions and international agencies | 10,700 | 4,827 | 3,290 | 1,959 | 554 | 1,328 | 963 | 286 | 355 | 1,045 | 25,307
Customer deposits | 233,068 | 45,171 | 18,616 | 11,428 | 8,711 | 10,368 | 7,607 | 2,612 | 1,833 | 2,034 | 341,448
Security pledge funding | - | 35,502 | 2,284 | 1,405 | 396 | 973 | 64 | 23,009 | 338 | 1,697 | 65,668
Derivatives, net | - | (18) | (110) | (116) | (135) | (117) | (336) | (91) | (106) | (419) | (1,448)

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December 2016. Contractual Maturities (Millions of euros)
| Demand | Up to 1 Month | 1 to 3 Months | 3 to 6 Months | 6 to 9 Months | 9 to 12 Months | 1 to 2 Years | 2 to 3 Years | 3 to 5 Years | Over 5 Years | Total
ASSETS |  |  |  |  |  |  |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 23,191 | 13,825 | - | - | - | - | - | - | - | - | 37,016
Deposits in credit entities | 991 | 4,068 | 254 | 155 | 48 | 72 | 117 | 87 | 122 | 4,087 | 10,002
Deposits in other financial institutions | 1 | 1,192 | 967 | 675 | 714 | 532 | 1,330 | 918 | 942 | 336 | 7,608
Reverse repo, securities borrowing and margin lending | - | 20,232 | 544 | 523 | - | 428 | 500 | 286 | 124 | 189 | 22,826
Loans and Advances | 591 | 20,272 | 25,990 | 22,318 | 16,212 | 15,613 | 44,956 | 35,093 | 55,561 | 133,589 | 370,195
Securities' portfolio settlement | - | 708 | 3,566 | 3,688 | 2,301 | 4,312 | 19,320 | 10,010 | 16,662 | 51,472 | 112,039

December 2016. Contractual Maturities (Millions of euros)
| Demand | Up to 1 Month | 1 to 3 Months | 3 to 6 Months | 6 to 9 Months | 9 to 12 Months | 1 to 2 Years | 2 to 3 Years | 3 to 5 Years | Over 5 Years | Total
LIABILITIES |  |  |  |  |  |  |  |  |  |  |
Wholesale funding | 419 | 7,380 | 2,943 | 5,547 | 3,463 | 5,967 | 7,825 | 5,963 | 14,016 | 31,875 | 85,397
Deposits in financial institutions | 6,762 | 5,365 | 1,181 | 2,104 | 800 | 2,176 | 746 | 1,156 | 859 | 3,714 | 24,862
Deposits in other financial institutions and international agencies | 15,375 | 6,542 | 8,624 | 3,382 | 2,566 | 1,897 | 1,340 | 686 | 875 | 2,825 | 44,114
Customer deposits | 206,140 | 49,053 | 25,522 | 15,736 | 11,863 | 11,343 | 8,619 | 5,060 | 781 | 936 | 335,052
Security pledge funding | - | 38,153 | 3,561 | 1,403 | 1,004 | 912 | 1,281 | 640 | 23,959 | 1,712 | 72,626
Derivatives, net | - | (2,123) | (95) | (190) | (111) | (326) | (132) | (82) | (105) | (47) | (3,210)

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The matrix shows the retail nature of the funding structure, with a loan portfolio being mostly funded by customer deposits (66%). On the outflows side of the matrix, the “demand” maturity bucket mainly contains the retail customer sight accounts whose behavior historically showed a high level of stability and little concentration. According to a behavior analysis which is done every year in every entity, this type of account is considered to be stable and for liquidity risk purposes, it is estimated that 78% have a maturity of more than 5 years.

In the Euro Liquidity Management Unit (LMU), solid liquidity and funding situation, where activity has continued to generate liquidity through the decrease of Credit Gap. In addition, during 2018 the Euro LMU made 3 issues in the public market for €3,500 million; Senior Non Preferred (“SNP”) at 5 years for €1,500 million, Green bond SNP at 7 years for €1,000 million and AT1 for €1,000 million, which have allowed it to obtain long-term funding at favorable price conditions. These public operations have been complemented by a private issue T2 for USD 300 million.

In Mexico, sound liquidity position despite the market volatility, the Credit Gap has increased in 2018 due to a minor increase in deposits mainly because of the outflows of non-profitable USD deposits. During the financial year 2018, BBVA Bancomer made a local Tier II issuance on international markets for USD 1,000 million as well as an issuance on the local market for 7,000 million of Mexican pesos in 2 tranches: at 3 and 5 years, being the 3 years tranche the first Green Bond issued by a private bank.

In the United States, the containment of the cost of liabilities has led to a slightly increase in the credit gap. During the financial year 2018, BBVA Compass successfully issued 3 year senior debt for USD 1,150 million.

In Turkey an adequate liquidity situation is maintained, after having been affected by the currency volatility at the beginning of the second semester. Despite this, Garanti showed a good performance with the roll-over of the 2018 maturities of corporate funding. The main operations during the year were two syndicated loans for USD 2,300 million, the first Green Bond at 6 years for USD 75 million and future flows securitization (Diversified Payment Rights) for USD 375 million at 7 years.

Argentina was affected by the market volatility but no relevant impact on the liquidity situation of the entity has been noted. BBVA Francés maintains a solid liquidity situation distinguished by a major volume of cash reserves.

The liquidity position of the rest of subsidiaries has continued to be sound, maintaining a solid liquidity position in all the jurisdictions in which the Group operates. Access to capital markets of these subsidiaries has also been maintained with recurring issuances in the local market.

In this context, BBVA has maintained its objective of strengthening the funding structure of the different Group entities based on growing their self-funding from stable customer funds, while guaranteeing a sufficient buffer of fully available liquid assets, diversifying the various sources of funding available, and optimizing the generation of collateral available for dealing with stress situations in the markets.

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7.5.2 Asset encumbrance

As of December 31, 2018, 2017 and 2016, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:

December 2018 (Millions of euros)
| Encumbered assets | Non-Encumbered assets
| Book value of Encumbered assets | Market value of Encumbered assets | Book value of non-encumbered assets | Market value of non-encumbered assets
Assets |  |  |  |
Equity instruments | 1,864 | 1,864 | 6,485 | 6,485
Debt Securities | 31,157 | 32,216 | 82,209 | 82,209
Loans and Advances and other assets | 74,928 |  | 478,880 |

December 2017 (Millions of euros)
| Encumbered assets | Non-Encumbered assets
| Book value of Encumbered assets | Market value of Encumbered assets | Book value of non-encumbered assets | Market value of non-encumbered assets
Assets |  |  |  |
Equity instruments | 2,297 | 2,297 | 9,616 | 9,616
Debt Securities | 28,700 | 29,798 | 84,391 | 84,391
Loans and Advances and other assets | 79,604 |  | 485,451 |

December 2016 (Millions of euros)
| Encumbered assets | Non-Encumbered assets
| Book value of Encumbered assets | Market value of Encumbered assets | Book value of non-encumbered assets | Market value of non-encumbered assets
Assets |  |  |  |
Equity instruments | 2,214 | 2,214 | 9,022 | 9,022
Debt Securities | 40,114 | 39,972 | 90,679 | 90,679
Loans and Advances and other assets | 94,718 |  | 495,109 |

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The committed value of "Loans and Advances and other assets" corresponds mainly to loans linked to the issue of covered bonds, territorial bonds or long-term securitized bonds (see Note 22.3) as well as those used as a guarantee to access certain funding transactions with central banks. Debt securities and equity instruments correspond to underlying that are delivered in repos with different types of counterparties, mainly clearing houses or credit institutions, and to a lesser extent central banks. Collateral provided to guarantee derivative transactions is also included as committed assets.

As of December 31, 2018, 2017 and 2016, collateral pledge mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:

December 2018. Collateral received (Millions of euros)
| Fair value of encumbered collateral received or own debt securities issued | Fair value of collateral received or own debt securities issued available for encumbrance | Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received | 27,474 | 5,633 | 319
Equity instruments | 89 | 82 | -
Debt securities | 27,385 | 5,542 | 300
Loans and Advances and other assets | - | 8 | 19
Own debt securities issued other than own covered bonds or ABSs | 78 | 87 | -

December 2017. Collateral received (Millions of euros)
| Fair value of encumbered collateral received or own debt securities issued | Fair value of collateral received or own debt securities issued available for encumbrance | Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received | 23,881 | 9,630 | 201
Equity instruments | 103 | 5 | -
Debt securities | 23,715 | 9,619 | 121
Loans and Advances and other assets | 63 | 6 | 80
Own debt securities issued other than own covered bonds or ABSs | 3 | 161 | -

December 2016. Collateral received (Millions of euros)
| Fair value of encumbered collateral received or own debt securities issued | Fair value of collateral received or own debt securities issued available for encumbrance | Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received | 19,921 | 10,039 | 173
Equity instruments | 58 | 59 | -
Debt securities | 19,863 | 8,230 | 28
Loans and Advances and other assets | - | 1,750 | 144
Own debt securities issued other than own covered bonds or ABSs | 5 | - | -

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The guarantees received in the form of reverse repurchase agreements or security lending transactions are committed by their use in repurchase agreements, as is the case with debt securities.

As of December 31, 2018, 2017 and 2016, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:

December 2018. Sources of encumbrance (Millions of euros)
| Matching liabilities, contingent liabilities or securities lent | Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
Book value of financial liabilities | 113,498 | 131,172
Derivatives | 8,972 | 11,036
Loans and Advances | 85,989 | 97,361
Outstanding subordinated debt | 18,538 | 22,775
Other sources | 3,972 | 4,330

December 2017. Sources of encumbrance (Millions of euros)
| Matching liabilities, contingent liabilities or securities lent | Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
Book value of financial liabilities | 118,704 | 133,312
Derivatives | 11,843 | 11,103
Loans and Advances | 87,484 | 98,478
Outstanding subordinated debt | 19,377 | 23,732
Other sources | 305 | 1,028

December 2016. Sources of encumbrance (Millions of euros)
| Matching liabilities, contingent liabilities or securities lent | Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
Book value of financial liabilities | 134,387 | 153,632
Derivatives | 9,304 | 9,794
Loans and Advances | 96,137 | 108,268
Outstanding subordinated debt | 28,946 | 35,569
Other sources | - | 2,594

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7.6 Operational Risk

BBVA defines operational risk (“OR”) as any risk that could result in losses caused by human errors, inadequate or faulty internal processes, misconduct with clients or in the markets, failures, disruptions or deficiencies of systems or communications, inadequate data management, legal risks and, lastly, from external events, including cyberattacks, frauds committed by third parties, disasters and an unsatisfactory service provided by suppliers.

Operational risk management is oriented towards the identification of the root causes to avoid their occurrence and mitigate possible consequences. This is carried out through the establishment of mitigation plans and control frameworks aimed at minimizing resulting losses and their impact on the recurrent generation of income and the profit of the Group. Operational risk management is integrated into the global risk management structure of the BBVA Group.

This section addresses general aspects of operational risk management as the main component of non-financial risks. However, sections devoted to conduct and compliance risk and to cybersecurity risk management are also included in this report.

Operational Risk Management Principles

The BBVA Group is committed to preferably applying advanced operational risk management models, regardless of the capital calculation regulatory model applicable at the time. Operational risk management at the BBVA Group shall:

· Be in line with the Risk Appetite Framework approved by BBVA's Board of Directors.

· Meet BBVA’s management needs arising from compliance with rules, regulation, industry standards and from decisions or positions taken by the governing bodies of the Group.

· Predict potential operational risks to which the Group shall be exposed as a result of the emergence or changes on new products, activities, processes or systems and services procurement or outsourcing decisions; and establish mechanisms to achieve a reasonable assessment and mitigation before implementation, in addition to a regular review on all existing processes.

· Establish methodologies, procedures and indicators to regularly reassess the relevant operational risks to which the Group is exposed to implement the most appropriate mitigation measures in each case, once the identified risk and the mitigation cost have been considered (cost-benefit analysis) and preserving the solvency of the Group at all times.

· Seek the causes behind the operational events suffered by the Group and establish the appropriate redressing measures (always considering the cost-benefit analysis). To that end, procedures for analyzing operational events must be in place, in addition to mechanisms to capture the potential operational losses resulting from those events.

· Analyze the public events with significant operational risk in other entities and to promote, if applicable, the implementation of the appropriate measures to avoid its occurrence in the Group.

· Identify, analyze and try to quantify events with a low probability of occurrence and a high impact that, due to their exceptional nature, may not be included in the loss database or, if included, with not highly representative impacts, in order to assess possible mitigation measures.

· Have an effective governance on which the functions and responsibilities of the Areas and Bodies intervening in OR management are clearly defined.

Irrespective of the implementation of all the possible measures and controls designed to avoid or mitigate the frequency and severity of OR events, BBVA ensures at all times the capital required to face potential expected or unexpected losses.

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Operational risk control and management model

The operational risk management cycle at BBVA is similar to the one implemented for the rest of risks. Its elements are:

Planning

Operational risk forms part of the risk appetite framework of the Group and includes three types of metrics:

· Economic capital calculated with the operational losses database of the Group and the industry, considering the corresponding diversification effects and the additional estimation of potential and emerging risks through stress scenarios designed for the main types of risks. The economic capital is regularly calculated for the main banks of the group and simulation capabilities are available to anticipate the impact of changes on the risk profile or new potential events.

· IRO metrics (operational risk losses vs. gross income) broken down by geography, business area and type of risk.

· In addition, work is in progress on the implementation in the entire group of a common and more granular scheme of metrics that covers the main types of operational risks.

Operational risk admission

The main purposes of the operational risk admission phase are the following:

· Anticipate potential operational risks to which the Group would be exposed with the emergence of new initiatives (new business, product, outsourcing, process transformation, new systems, etc.) or changes in those initiatives in place.

· Ensure that the implementation is carried out once the appropriate mitigation measures have been adopted, among others risk insurance, where appropriate.

The Corporate Policy on Operational Risk Management and Control sets out the specific operational risk admission framework through different committees, at a corporate and Business Area level, that follow a delegation structure based on the risk level of proposed initiatives.

Operational risk monitoring

The purpose of this phase is to check that the target operational risk profile of the group is within the authorized limits. Operational risk monitoring considers 2 scopes:

· Monitoring the operational risk admission process, oriented towards checking that accepted risks levels are within the limits and that defined controls are effective.

· Monitoring the operational risk “stock” linked to the processes, in order to carry out a regular reassessment to confirm that residual risks and target risk are reasonably aligned and, if not, to implement action plans to redress gaps to the desired level.

This process is supported by a corporate Governance, Risk & Compliance tool that monitors OR at a local level and its aggregation at a corporate level.

In addition, and in line with the best practices and recommendations provided by the BIS, BBVA has procedures to collect the operational losses occurred in the different entities of the Group and in other financial groups, with the appropriate level of detail to carry out an effective analysis that provides useful information for management purposes. To that end, a corporate tool implemented in all the countries of the Group is used.

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Operational risk mitigation

Several cross-sectional operational risk plans have been promoted over the last two years for the entire BBVA Group to encourage a forward-looking management of these risks. To that end, focuses have been identified from events, self-assessments and recommendations from auditors and supervisors in different geographies, both in the Group and the industry, thereby analyzing the best practices and fostering comprehensive action plans to strengthen and standardize the control environment.

One of the core plans is outsourcing management, which is an increasingly important subject in the Group, the industry and the regulatory environment. Some of the different initiatives launched under this scheme are summarized below:

· Strengthening the admission process of these initiatives and their control and monitoring frameworks.

· New internal regulation comprising the best practices of the industry.

· Integration in the 3 lines of defense control model: roles and responsibilities in each phase of its life cycle.

· Risk management of the service and the supplier.

· Review of its governance process, which is included in operational risk governance, and escalation criteria.

· Adaptation of the management tool to the new requirements.

· Internal communication process and training between outsourcing units and senior management, including these issues on the agenda of the main control committees of the Group.

This plan will still be promoted in the year 2019 with a focus on a review of the most significant outsourcing stock.

Governance of Non-financial risks

The non-financial risks governance model at the BBVA Group is based on two components:

· The three lines of defense control model, in accordance with the best practices of the industry and through which compliance with the most advanced standards in terms of operational risk internal control is ensured.

· Scheme of Corporate Assurance Committees and Operational Risk and Internal Control Committees at the level of the different business areas.

Corporate Assurance establishes a structure of corporate and local committees that provides Senior Management with a comprehensive and consistent view of the most relevant non-financial risks. The purpose is to ensure a forward-looking and prompt decision-making process for the mitigation or taking of the major risks both at a local level and at the level of the consolidated Group.

In addition, the Non-Financial Risks unit periodically reports the Risk Committee of the Board on the situation of non-financial risks management in the Group.

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7.7 Risk concentration

Policies for preventing excessive risk concentration

In order to prevent the build-up of excessive risk concentrations at the individual, sector and portfolio levels, BBVA Group maintains updated maximum permitted risk concentration indices which are tied to the various observable variables related to concentration risk.

Together with the limits for individual concentration, the Group uses the Herfindahl index to measure the concentration of the Group's portfolio and the banking group's subsidiaries. At the BBVA Group level, the index reached implies a "very low" degree of concentration.

The limit on the Group’s exposure or financial commitment to a specific customer therefore depends on the customer’s credit rating, the nature of the risks involved, and the Group’s presence in a given market, based on the following guidelines:

· The aim is, as much as possible, to reconcile the customer's credit needs (commercial/financial, short-term/long-term, etc.) with the interests of the Group.

· Any legal limits that may exist concerning risk concentration are taken into account (relationship between risks with a customer and the capital of the shareholder´s entity that assumes them), the markets, the macroeconomic situation, etc.

Risk concentrations by geography

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix IX.

Sovereign risk concentration

Sovereign risk management

The risk associated with the transactions involving sovereign risk is identified, measured, controlled and tracked by a centralized unit integrated in the BBVA Group’s Risk Area. Its basic functions involve the preparation of reports in the countries where sovereign risk exists (called “financial programs”), tracking such risks, assigning ratings to these countries and, in general, supporting the Group in terms of reporting requirements for any transactions involving sovereign risk. The risk policies established in the financial programs are approved by the relevant risk committees.

The country risk unit tracks the evolution of the risks associated with the various countries to which the Group are exposed (including sovereign risk) on an ongoing basis in order to adapt its risk and mitigation policies to any macroeconomic and political changes that may occur. Moreover, it regularly updates its internal ratings and forecasts for these countries. The methodology is based on the assessment of quantitative and qualitative parameters which are in line with those used by certain multilateral organizations such as the International Monetary Fund (IMF) and the World Bank, rating agencies and export credit organizations.

For additional information on sovereign risk in Europe see Appendix IX.

Valuation and impairment methods

The valuation methods used to assess the instruments that are subject to sovereign risks are the same ones used for other instruments included in the relevant portfolios and are detailed in Note 8.

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Specifically, the fair value of sovereign debt securities of European countries has been considered equivalent to their listed price in active markets (Level 1 as defined in Note 8).

Risk related to the developer and Real-Estate sector in Spain

The relative weight of the investment in Real Estate developments has dramatically decreased during the last years, especially since 2014. A corporate sales policy has been rolled out to eliminate those real estate assets from the balance sheet which have been most difficult to be commercialized. The sales of 80% of the Group’s share in Divarian and of other performing and NPL wholesale portfolios to Funds and specialized investors have been some of the most relevant transactions (see Note 3).

Policies and strategies established by the Group to deal with risks related to the developer and real-estate sector

BBVA has teams specializing in the management of the Real-Estate Sector risk, given its economic importance and specific technical component. This specialization is not only in the Risk-Acceptance teams, but throughout the handling, commercial, problem risks and legal, etc. It also includes the research department of the BBVA Group (BBVA Research), which helps determine the medium/long-term vision needed to manage this portfolio.

The policies established to address the risks related to the developer and real-estate sector, aim to accomplish, among others, the following objectives: to avoid concentration in terms of customers, products and regions; to estimate the risk profile for the portfolio; and to anticipate possible worsening of the portfolio within a sector is highly cyclic.

Specific policies for analysis and admission of new developer risk transactions

In the analysis of new operations, the assessment of the commercial operation in terms of the economic and financial viability of the project has been one of the constant.

The monitoring of the work, the sales and the legal situation of the project are essential aspects for the admission and follow-up of new real estate operations. With regard the participation of the Risk Acceptance teams, they have a direct link and participate in the committees of areas such as Valuation, Legal, Research and Recoveries. This guarantees coordination and exchange of information in all the processes.

The following strategies have been implemented with customers in the developer sector: avoidance of large corporate transactions, which had already reduced their share in the years of greatest market growth. Additionally, very restrictive limits have been established for the second-home market and for the of land operations. Feasibility studies, at project level, are performed by doing a contrast analysis in the pre-commercialization phase, with an appropriate funding cycle and in locations with low commercialization risk.

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Risk monitoring policies

The base information for analyzing the real estate portfolios is updated monthly. The tools used include the so-called “watch-list”, which is updated monthly with the progress of each client under watch, and the different strategic plans for management of special groups. There are plans that involve an intensification of the review of the portfolio for financing land, while, in the case of ongoing promotions, they are classified based on the rate of progress of the projects. This implies a comparison of the progress of the work and the sales, including a scoreboard which enables the persons in charge to detect timely any deviation from the project’s initial plan.

These actions have enabled BBVA to identify possible impairment situations, by always keeping an eye on BBVA’s position with each customer (whether or not as first creditor). In this regard, key aspects include management of the risk policy to be followed with each customer, contract review, improved collateral and rate review (repricing. Since 2013, there are no threats of new defaults in the portfolio

Proper management of the relationship with each customer requires knowledge of various aspects such as an analysis of the company’s future viability, the updating of the information on the debtor and the guarantors (their current situation and business course, economic-financial information, debt analysis and generation of funds), and the updating of the appraisal of the assets offered as collateral.

The volume of restructurings during the last period has been very low, being close to 0.

Policies applied in the management of real estate assets in Spain

Regarding the financing of real estate, a new regulation has been updated in 2018 in which recommendations for the promotion of residential real estate are established.

The recommendations represent guidelines about how to manage the credit admission activity of BBVA Group entities based on best practices of markets in which this activity is performed. It is expected that a high percentage of the current transactions will be in compliance with the latter.

The guidelines apply to new transactions with clients which are not classified as impaired or Watchlist (WL1 or WL2).

The policies deriving from the guidelines foresee a prudential intervention in a market which has changed its cycle in almost all of the geographies and which is showing a more sustainable behavior in terms of demography, employment and economic and investment capacities.

For quantitative information about the risk related to the developer and Real-Estate sector in Spain see Appendix IX.

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8. Fair Value of financial instruments

Framework and processes control

As part of the process established in the Group for determining the fair value in order to ensure that financial assets and liabilities are properly valued, BBVA has established, at a geographic level, a structure of Risk Operational Admission and Product Governance Committees responsible for validating and approving new products or types of financial assets and liabilities before being contracted. Local management responsible for valuation, which are independent from the business (see Note 7) are members of these committees.

These areas are required to ensure, prior to the approval stage, the existence of not only technical and human resources, but also adequate informational sources to measure the fair value of these financial assets and liabilities, in accordance with the rules established by the Group and using models that have been validated and approved by the responsible areas.

Fair value hierarchy

The fair value of financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is therefore a market-based measurement and not specific to each entity.

All financial instruments, both assets and liabilities are initially recognized at fair value, which at that point is equivalent to the transaction price, unless there is evidence to the contrary in the market. Subsequently, depending on the type of financial instrument, it may continue to be recognized at amortized cost or fair value through adjustments in the consolidated income statement or equity.

When possible, the fair value is determined as the market price of a financial instrument. However, for many of the financial assets and liabilities of the Group, especially in the case of derivatives, there is no market price available, so its fair value is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, by using mathematical measurement models that are sufficiently tried and trusted by the international financial community. The estimates of the fair value derived from the use of such models take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent in the measurement models and possible inaccuracies in the assumptions and parameters required by these models may mean that the estimated fair value of an asset or liability does not exactly match the price for which the asset or liability could be exchanged or settled on the date of its measurement.

Additionally, for financial assets and liabilities that show significant uncertainty in inputs or model parameters used for valuation, criteria is established to measure said uncertainty and activity limits are set based on these. Finally, these measurements are compared, as much as possible, against other sources such as the measurements obtained by the business teams or those obtained by other market participants.

The process for determining the fair value requires the classification of the financial assets and liabilities according to the measurement processes used as set forth below:

· Level 1: Valuation using directly the quotation of the instrument, observable and readily and regularly available from independent price sources and referenced to active markets that the entity can access at the measurement date. The instruments classified within this level are fixed-income securities, equity instruments and certain derivatives.

· Level 2: Valuation of financial instruments with commonly accepted techniques that use inputs obtained from observable data in markets.

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· Level 3: Valuation of financial instruments with valuation techniques that use significant unobservable inputs in the market. As of December 31, 2018, the affected instruments at fair value accounted for approximately 0.56% of financial assets and 0.46% of the Group’s financial liabilities recorded at fair value. Model selection and validation is undertaken by control areas outside the business areas.

8.1 Fair value of financial instrument

Below is a comparison of the carrying amount of the Group’s financial instruments in the accompanying consolidated balance sheets and their respective fair values.

Fair Value and Carrying Amount (Millions of euros)
|  | 2018
| Notes | Carrying Amount | Fair Value
ASSETS |  |  |
Cash, cash balances at central banks and other demand deposits | 9 | 58,196 | 58,196
Financial assets held for trading | 10 | 90,117 | 90,117
Non-trading financial assets mandatorily at fair value through profit or loss | 11 | 5,135 | 5,135
Financial assets designated at fair value through profit or loss | 12 | 1,313 | 1,313
Financial assets at fair value through other comprehensive income | 13 | 56,337 | 56,337
Financial assets at amortized cost | 14 | 419,660 | 419,857
Hedging derivatives | 15 | 2,892 | 2,892
LIABILITIES |  |  |
Financial liabilities held for trading | 10 | 80,774 | 80,774
Financial liabilities designated at fair value through profit or loss | 12 | 6,993 | 6,993
Financial liabilities at amortized cost | 22 | 509,185 | 510,300
Hedging derivatives | 15 | 2,680 | 2,680

Fair Value and Carrying Amount (Millions of euros)
|  | 2017 | 2016
| Notes | Carrying Amount | Fair Value | Carrying Amount | Fair Value
ASSETS |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 9 | 42,680 | 42,680 | 40,039 | 40,039
Financial assets held for trading | 10 | 64,695 | 64,695 | 74,950 | 74,950
Financial assets designated at fair value through profit or loss | 12 | 2,709 | 2,709 | 2,062 | 2,062
Available-for-sale financial assets |  | 69,476 | 69,476 | 79,221 | 79,221
Loans and receivables |  | 431,521 | 438,991 | 465,977 | 468,844
Held-to-maturity investments |  | 13,754 | 13,865 | 17,696 | 17,619
Derivatives – Hedge accounting | 15 | 2,485 | 2,485 | 2,833 | 2,833
LIABILITIES |  |  |  |  |
Financial liabilities held for trading | 10 | 46,182 | 46,182 | 54,675 | 54,675
Financial liabilities designated at fair value through profit or loss | 12 | 2,222 | 2,222 | 2,338 | 2,338
Financial liabilities at amortized cost | 22 | 543,713 | 544,604 | 589,210 | 594,190
Derivatives – Hedge accounting | 15 | 2,880 | 2,880 | 2,347 | 2,347

2017 and 2016 are presented separately due to the implementation of IFRS 9.

Not all financial assets and liabilities are recorded at fair value, so below we provide the information on financial instruments recorded at fair value and subsequently the information of those recorded at amortized cost (including their fair value), although this value is not used when accounting for these instruments.

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8.1.1 Fair value of financial instrument recognized at fair value, according to valuation criteria

Below are the different elements used in the valuation technique of financial instruments.

Active Market

BBVA considers active market as “a market that allows the observation of bid and offer prices representative of the levels to which the market participants are willing to negotiate an asset, with sufficient frequency and volume”.

By default, BBVA would consider all internally approved “Organized Markets” as active markets, without considering this an unchangeable list.

Furthermore, BBVA would consider as traded in an “Organized Market” quotations for assets or liabilities from OTC markets when they are obtained from independent sources, observable on a daily basis and fulfil certain conditions.

The following table shows the financial instruments carried at fair value in the accompanying consolidated balance sheets, broken down by the measurement technique used to determine their fair value:

Fair Value of financial Instruments by Levels (Millions of euros)
|  | 2018
| Notes | Level 1 | Level 2 | Level 3
ASSETS- |  |  |  |
Financial assets held for trading | 10 | 26,730 | 62,983 | 404
Loans and advances to customers |  | 47 | 28,642 | 60
Debt securities |  | 17,884 | 7,494 | 199
Equity instruments |  | 5,194 | - | 60
Derivatives |  | 3,605 | 26,846 | 85
Non-trading financial assets mandatorily at fair value through profit or loss | 11 | 3,127 | 78 | 1,929
Loans and advances |  | 25 | - | 1,778
Debt securities |  | 90 | 71 | 76
Equity instruments |  | 3,012 | 8 | 75
Financial assets designated at fair value through profit or loss | 12 | 1,313 | - | -
Loans and advances |  | - | - | -
Debt securities |  | 1,313 | - | -
Equity instruments |  | - | - | -
Financial assets at fair value through other comprehensive income | 13 | 45,824 | 9,323 | 1,190
Loans and advances |  | 33 | - | -
Debt securities |  | 43,788 | 9,211 | 711
Equity instruments |  | 2,003 | 113 | 479
Hedging derivatives | 15 | 7 | 2,882 | 3
LIABILITIES- |  |  |  |
Financial liabilities held for trading | 10 | 22,932 | 57,573 | 269
Deposits |  | 7,989 | 29,945 | -
Trading derivatives |  | 3,919 | 27,628 | 267
Other financial liabilities |  | 11,024 | - | 1
Financial liabilities designated at fair value through profit or loss | 12 | - | 4,478 | 2,515
Customer deposits |  | - | 976 | -
Debt certificates |  | - | 2,858 | -
Other financial liabilities |  | - | 643 | 2,515
Derivatives – Hedge accounting | 15 | 223 | 2,454 | 3

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Fair Value of financial Instruments by Levels (Millions of euros)
|  | 2017 | 2016
| Notes | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3
ASSETS- |  |  |  |  |  |  |
Financial assets held for trading | 10 | 29,057 | 35,349 | 289 | 32,544 | 42,221 | 184
Loans and advances to customers |  | - | 56 | - | - | 154 | -
Debt securities |  | 21,107 | 1,444 | 22 | 26,720 | 418 | 28
Equity instruments |  | 6,688 | 33 | 80 | 4,570 | 9 | 96
Derivatives |  | 1,262 | 33,815 | 187 | 1,254 | 41,640 | 60
Financial assets designated at fair value through profit or loss | 11 | 2,061 | 648 | - | 2,062 | - | -
Loans and advances to customers |  | - | 648 | - | - | - | -
Loans and advances to credit institutions |  | - | - | - | - | - | -
Debt securities |  | 174 | - | - | 142 | - | -
Equity instruments |  | 1,888 | - | - | 1,920 | - | -
Available-for-sale financial assets |  | 57,381 | 11,082 | 544 | 62,125 | 15,894 | 637
Debt securities |  | 54,850 | 10,948 | 454 | 58,372 | 15,779 | 429
Equity instruments |  | 2,531 | 134 | 90 | 3,753 | 115 | 208
Hedging derivatives | 15 | - | 2,483 | 2 | 41 | 2,792 | -
LIABILITIES- |  |  |  |  |  |  |
Financial liabilities held for trading | 10 | 11,191 | 34,866 | 125 | 12,502 | 42,120 | 53
Derivatives |  | 1,183 | 34,866 | 119 | 952 | 42,120 | 47
Short positions |  | 10,008 | - | 6 | 11,550 | - | 6
Financial liabilities designated at fair value through profit or loss | 12 | - | 2,222 | - | - | 2,338 | -
Derivatives – Hedge accounting | 15 | 274 | 2,606 | - | 94 | 2,189 | 64

The years 2017 and 2016 are presented separately due to the implementation of IFRS 9.

Financial instruments carried at fair value corresponding to the companies that belong to Banco Provincial Group in Venezuela whose balance is denominated in “bolivares fuertes” are classified under Level 3 in the above tables (see Note 2.2.20).

The following table sets forth the main valuation techniques, hypothesis and inputs used in the estimation of fair value of the financial instruments classified under Levels 2 and 3, based on the type of financial asset and liability and the corresponding balances as of December 31, 2018:

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Fair Value of financial Instruments by Levels. December 2018 (Millions of euros)
| Level 2 | Level 3 | Valuation technique(s) | Observable inputs | Unobservable inputs
ASSETS |  |  |  |  |
Financial assets held for trading | 62,983 | 404 |  |  |
Loans and advances | 28,642 | 60 | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Current market interest rates | - Prepayment rates - Issuer´s credit risk - Recovery rates
Debt securities | 7,494 | 199 | Present-value method (Discounted future cash flows) Observed prices in non active markets | - Issuer´s credit risk - Current market interest rates - Non active markets prices | - Prepayment rates - Issuer´s credit risk - Recovery rates
Equity instruments | - | 60 | Comparable pricing (Observable price in a similar market) Present-value method | - Brokers quotes - Market operations - NAVs published | - NAV provided by the administrator of the fund
Derivatives | 26,846 | 85 |  |  |
Interest rate |  |  | Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows Caps/Floors: Black, Hull-White y SABR Bond options: Black Swaptions: Black, Hull-White y LGM Other Interest rate options: Black, Hull-White y LGM Constant Maturity Swaps: SABR | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Beta - Implicit correlations between tenors - interest rates volatility
Equity |  |  | Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local Volatility, moments adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and Discounted cash flows | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |
Non-trading financial assets mandatorily at fair value through profit or loss | 78 | 1,929 |  |  |
Loans and advances | - | 1,778 | Present-value method (Discounted future cash flows) Specific criteria for the liquidation of losses established by the EPA protocol |  | - Prepayment rates - Issuer credit risk - Recovery rates - PD and LGD
Debt securities | 71 | 76 | Present-value method (Discounted future cash flows) | - Issuer credit risk - Current market interest rates | - Prepayment rates - Issuer credit risk - Recovery rates
Equity instruments | 8 | 75 | Present-value method (Discounted future cash flows) | - Issuer credit risk - Current market interest rates | - Prepayment rates - Issuer credit risk - Recovery rates
Financial assets at fair value through other comprehensive income | 9,323 | 1,190 |  |  |
Debt securities | 9,211 | 711 | Present-value method (Discounted future cash flows) Observed prices in non active markets | - Issuer´s credit risk - Current market interest rates - Non active market prices | - Prepayment rates - Issuer credit risk - Recovery rates
Equity instruments | 113 | 479 | Comparable pricing (Observable price in a similar market) Present-value method | - Brokers quotes - Market operations - NAVs published | - NAV provided by the administrator of the fund
Hedging derivatives | 2,882 | 3 |  |  |
Interest rate |  |  | Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows Caps/Floors: Black, Hull-White y SABR Bond options: Black Swaptions: Black, Hull-White y LGM Other Interest rate options: Black, Hull-White y LGM Constant Maturity Swaps: SABR | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |
Equity |  |  | Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local Volatility, moments adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |
Commodities |  |  | Commodities: Momentum adjustment and Discounted cash flows | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |

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Fair Value of financial Instruments by Levels. December 2018 (Millions of euros)
|  |  | Valuation technique(s) | Observable inputs | Unobservable inputs
LIABILITIES |  |  |  |  |
Financial liabilities held for trading | 57,573 | 269 |  |  |
Deposits | 29,945 | - |  |  |
Derivatives | 27,628 | 267 |  |  |
Interest rate |  |  | Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows Caps/Floors: Black, Hull-White y SABR Bond options: Black Swaptions: Black, Hull-White y LGM Other Interest rate options: Black, Hull-White y LGM Constant Maturity Swaps: SABR | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Beta - Correlation between tenors - interest rates volatility
Equity |  |  | Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Volatility of volatility - Assets correlation
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local Volatility, moments adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Volatility of volatility - Assets correlation
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and Discounted cash flows | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |
Short positions | - | 1 | Present-value method (Discounted future cash flows) |  | - Correlation default - Credit spread - Recovery rates - Interest rate yield
Financial liabilities designated at fair value through profit or loss | 4,478 | 2,515 | Present-value method (Discounted future cash flows) | - Prepayment rates - Issuer´s credit risk - Current market interest rates | - Prepayment rates - Issuer´s credit risk - Current market interest rates
Derivatives – Hedge accounting | 2,454 | 3 |  |  |
Interest rate |  |  | Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows Caps/Floors: Black, Hull-White y SABR Bond options: Black Swaptions: Black, Hull-White y LGM Other Interest rate options: Black, Hull-White y LGM Constant Maturity Swaps: SABR | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Beta - Implicit correlations between tenors - interest rates volatility
Equity |  |  | Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local Volatility, moments adjustment | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and Discounted cash flows | - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations |

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Main valuation techniques

The main techniques used for the assessment of the majority of the financial instruments classified in Level 3, and its main unobservable inputs, are described below:

· The net present value (net present value method): This technique uses the future cash flows of each debt security, which are established in the different contracts, and discounted to their present value. This technique often includes many observable inputs, but may also include unobservable inputs, as described below:

- Credit Spread: This input represents the difference in yield of a debt security and the reference rate, reflecting the additional return that a market participant would require to take the credit risk of that debt security. Therefore, the credit spread of the debt security is part of the discount rate used to calculate the present value of the future cash flows.

- Recovery rate: This input represents the percentage of principal and interest recovered from a debt instrument that has defaulted.

· Comparable prices (similar asset prices): This input represents the prices of comparable financial instruments and benchmarks used to calculate a reference yield based on relative movements from the entry price or current market levels. Further adjustments to account for differences that may exist between financial instrument being valued and the comparable financial instrument may be added. It can also be assumed that the price of the financial instrument is equivalent to the comparable instrument.

· Net asset value: This input represents the total value of the financial assets and liabilities of a fund and is published by the fund manager thereof.

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· Gaussian copula: This model is used to integrate default probabilities of credit instruments referenced to more than one underlying CDS. The joint density function used to value the instrument is constructed by using a Gaussian copula that relates the marginal densities by a normal distribution, usually extracted from the correlation matrix of events approaching default by CDS issuers.

· Black 76: variant of Black Scholes model, whose main application is the valuation of bond options, cap floors and swaptions where the behavior of the Forward and not the Spot itself, is directly modeled.

· Black Scholes: The Black Scholes model postulates log-normal distribution for the prices of securities, so that the expected return under the risk neutral measure is the risk free interest rate. Under this assumption, the price of vanilla options can be obtained analytically, so that inverting the Black- Scholes formula, the implied volatility for process of the price can be calculated.

· Heston: This model, typically applied to equity OTC options, assumes stochastic behavior of volatility. According to which, the volatility follows a process that reverts to a long-term level and is correlated with the underlying equity instrument. As opposed to local volatility models, in which the volatility evolves deterministically, the Heston model is more flexible, allowing it to be similar to that observed in the short term today.

· Libor market model: This model assumes that the dynamics of the interest rate curve can be modeled based on the set of forward contracts that compose the underlying interest rate. The correlation matrix is parameterized on the assumption that the correlation between any two forward contracts decreases at a constant rate, beta, to the extent of the difference in their respective due dates. The input “Credit default volatility” is a volatility input of the credit factor dynamic. The multifactorial frame of this model makes it ideal for the valuation of instruments sensitive to the slope or curve, including interest rate option.

· Local Volatility: In the local volatility models of the volatility, instead of being static, evolves over time according to the level of moneyness of the underlying, capturing the existence of smiles. These models are appropriate for pricing path dependent options when use Monte Carlo simulation technique is used.

Adjustments to the valuation for risk of default

Under IFRS 13 the credit risk valuation adjustments must be considered in the classification of assets and liabilities within fair value hierarchy, because of the absence of observables data of probabilities of default used in the calculation.

The credit valuation adjustments (“CVA”) and debit valuation adjustments (“DVA”) are a part of derivative instrument valuations, both financial assets and liabilities, to reflect the impact in the fair value of the credit risk of the counterparty and BBVA, respectively.

These adjustments are calculated by estimating Exposure At Default, Probability of Default and Loss Given Default, for all derivative products on any instrument at the legal entity level (all counterparties under a same ISDA / CMOF) in which BBVA has exposure.

As a general rule, the calculation of CVA is done through simulations of market and credit variables to calculate the expected positive exposure, given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Consequently, the DVA is calculated as the result of the expected negative exposure given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Both calculations are performed throughout the entire period of potential exposure.

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The information needed to calculate the exposure at default and the loss given default come from the credit markets (Credit Default Swaps or iTraxx Indexes), where rating is available. For those cases where the rating is not available, BBVA implements a mapping process based on the sector, rating and geography to assign probabilities of both probability of default and loss given default, calibrated directly to market or with an adjustment market factor for the probability of default and the historical expected loss.

The amounts recognized in the consolidated balance sheet as of December 31, 2018 and 2017 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) was €-163 million and €-153 million respectively, and the valuation adjustments to the derivative liabilities as “Debit Valuation Adjustment” (DVA) was €214 million and €138 million respectively . The impact recorded under “Gains or (-) losses on financial assets and liabilities held for trading, net” in the consolidated income statement as for the years ended 2018 and 2017 corresponding to the mentioned adjustments was a net impact of €-24 million and €-23 million respectively. Additionally, as of December 31, 2018, €-12 million related to the “Funding Valuation Adjustments” (“FVA”) were recognized in the consolidated balance sheet.

Unobservable inputs

Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below as of December 31, 2018:

Financial instrument | Valuation technique(s) | Significant unobservable inputs | Min | Average | Max | Units
Debt Securities | Net Present Value | Credit Spread | 37 | 152.22 | 385.00 | b.p.
Recovery Rate | 0.00% | 32.06% | 40.00% | %
Comparable pricing |  | 1.00% | 88.00% | 275.00% | %
Equity instruments | Net Asset Value |  |
Comparable pricing |
Credit Option | Gaussian Copula | Correlation Default | 0.00% | 37.98% | 60.26% | %
Corporate Bond Option | Black 76 | Price Volatility | - | - | - | vegas
Equity OTC Option | Heston | Forward Volatility Skew | 47.05 | 47.05 | 47.05 | Vegas
Local Volatility | Dividends |
Volatility | 13.79 | 27.24 | 65.02 | vegas
FX OTC Options | Black Scholes/Local Vol | Volatility | 5.05 | 7.73 | 9.71 | vegas
Interest Rate Option | Libor Market Model | Beta | 0.25 | 9.00 | 18.00 | %
Correlation Rate/Credit | (100) | - | 100 | %
Credit Default Volatility | - | - | - | Vegas

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Financial assets and liabilities classified as Level 3

The changes in the balance of Level 3 financial assets and liabilities included in the accompanying consolidated balance sheets during 2018, 2017 and 2016, are as follows:

Financial Assets Level 3: Changes in the Period (Millions of euros)
| 2018 | 2017 | 2016
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities
Balance at the beginning | 835 | 125 | 822 | 116 | 463 | 182
Group incorporations | - | - | - | - | - | -
Changes in fair value recognized in profit and loss (*) | (167) | (95) | (24) | (21) | 33 | (86)
Changes in fair value not recognized in profit and loss | (4) | - | (45) | - | (81) | (3)
Acquisitions, disposals and liquidations (**) | 2,102 | 2,710 | 32 | 320 | 438 | (25)
Net transfers to Level 3 | 761 | 47 | 106 | (39) | 16 | -
Exchange differences and others | - | - | (55) | (250) | (47) | 49
Balance at the end | 3,527 | 2,787 | 835 | 125 | 822 | 116

(*) Profit or loss that is attributable to gains or losses relating to those financial assets and liabilities held as of December 31, 2018, 2017 and 2016. Valuation adjustments are recorded under the heading “Gains (losses) on financial assets and liabilities, net”.

(**) Of which, in 2018, the assets roll forward is comprised of €2,400 million of acquisitions, €254 millions of disposals and €44 millions of liquidations. The liabilities roll forward is comprised of €2,716 million of acquisitions and €5 millions of liquidations.

As of December 31, 2018, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying consolidated income statement was not material.

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Transfers between levels

The Global Valuation Area, in collaboration with BBVA Group, has established the rules for a proper financials instruments held for trading classification according to the fair value hierarchy defined by international accounting standards.

On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the accounting subsidiary. Then, there is a quarterly review of the portfolio in order to analyze the need for a change in classification of any of these assets.

The financial instruments transferred between the different levels of measurement for the year ended December 31, 2018 are recorded at the following amounts in the accompanying consolidated balance sheets as of December 31, 2018:

Transfer Between Levels. December 2018 (Millions of euros)
| From: | Level 1 | Level 2 | Level 3
| To: | Level 2 | Level 3 | Level 1 | Level 3 | Level 1 | Level2
ASSETS |  |  |  |  |  |  |
Financial assets held for trading |  | 1,171 | 2 | 2 | 6 | - | 2
Non-trading financial assets mandatorily at fair value through profit or loss |  | - | - | 9 | 67 | - | 24
Financial assets at fair value through other comprehensive income |  | 134 | 72 | - | 515 | - | -
Derivatives |  | - | - | - | 52 | 118 | 49
Total |  | 1,305 | 74 | 11 | 641 | 118 | 75
LIABILITIES- |  |  |  |  |  |  |
Financial liabilities held for trading |  | - | - | - | 138 | - | 37
Total |  | - | - | - | 138 | - | 37

The amount of financial instruments that were transferred between levels of valuation for the year ended December 31, 2018 is not material relative to the total portfolios, and corresponds to the above changes in the classification between levels these financial instruments modified some of their features, specifically:

· Transfers between Levels 1 and 2 represent mainly debt and equity instruments, which are either no longer listed on an active market (transfer from Level 1 to 2) or have just started to be listed (transfer from Level 2 to 1).

· Transfers from Level 2 to Level 3 are mainly due to derivative transactions.

· Transfers from Level 3 to Level 2 generally affect derivative and debt instruments transactions, for which inputs observable in the market have been obtained.

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Sensitivity Analysis

Sensitivity analysis is performed on financial instruments with significant unobservable inputs (financial instruments included in level 3), in order to obtain a reasonable range of possible alternative valuations. This analysis is carried out on a monthly basis, based on the criteria defined by the Global Valuation Area taking into account the nature of the methods used for the assessment and the reliability and availability of inputs and proxies used. In order to establish, with a sufficient degree of certainty, the valuating risk that is incurred in such assets without applying diversification criteria between them.

As of December 31, 2018, the effect on profit for the period and total equity of changing the main unobservable inputs used for the measurement of Level 3 financial instruments for other reasonably possible unobservable inputs, taking the highest (most favorable input) or lowest (least favorable input) value of the range deemed probable, would be as follows:

Financial Assets Level 3: Sensitivity Analysis (Millions of euros)
| Potential Impact on Consolidated Income Statement | Potential Impact on Total Equity
| Most Favorable Hypothesis | Least Favorable Hypothesis | Most Favorable Hypothesis | Least Favorable Hypothesis
ASSETS |  |  |  |
Financial assets held for trading | 6 | (13) | - | -
Loans and Advances | - | - | - | -
Debt securities | 2 | (3) | - | -
Equity instruments | 3 | (9) | - | -
Derivatives | 1 | (1) | - | -
Non-trading financial assets mandatorily at fair value through profit or loss | 291 | (181) | - | -
Loans and Advances | 285 | (161) | - | -
Debt securities | 3 | (12) | - | -
Equity instruments | 3 | (8) | - | -
Financial assets designated at fair value through profit or loss | - | - | - | -
Financial assets at fair value through other comprehensive income | - | - | 1 | (1)
LIABILITIES |  |  |  |
Financial liabilities held for trading | 1 | (1) | 1 | (1)
Total | 297 | (194) | 1 | (1)

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8.2 Fair value of financial instruments carried at cost

The valuation technique used to calculate the fair value of financial assets and liabilities carried at cost as of December 31, 2018, are presented below:

Financial assets

· Cash, balances at central banks and other demand deposits / loans to central banks / short-term loans to credit institutions / Repurchase agreements: in general, their fair value is assimilated to their book value, due to the nature of the counterparty and because they are mainly short-term balances in which the book value is the most reasonable estimation of the value of the asset.

· Loans to credit institutions which are not short-term and loans to customers: In general, the fair value of these financial assets is determined by the discount of expected future cash flows, using market interest rates at the time of valuation adjusted by the credit spread and taking all kind of behavior hypothesis if it is considered to be relevant (prepayment fees, optionality, etc.).

· Debt securities: Fair value estimated based on the available market price or by using internal valuation methodologies.

Financial liabilities

· Deposits from central banks: for recurrent liquidity auctions and other monetary policy instruments of central banks, / short-term deposits from credit institutions / repurchase agreements / short-term customer deposits: their book value is considered to be the best estimation of their fair value.

· Deposits of credit institutions which are not short-term and term customer deposits: these deposits will be valued by discounting future cash flows using the interest rate curve in effect at the time of the adjustment adjusted by the credit spread and incorporating any behavioral assumptions if this proves relevant (early repayments , optionalities, etc.).

· Debt certificate (Issuances): The fair value estimation of these liabilities depend on the availability of market prices or by using the present value method: discount of future cash flows, using market interest rates at valuation time and taking into account the credit spread.

The following table presents the fair value of key financial instruments carried at amortized cost in the accompanying consolidated balance sheets as of December 31, 2018, 2017 and 2016, broken down according to the method of valuation used for the estimation:

Fair Value of financial Instruments at amortized cost by Levels (Millions of euros)
|  | 2018
| Notes | Level 1 | Level 2 | Level 3
ASSETS |  |  |  |
Cash, cash balances at central banks and other demand deposits | 9 | 58,024 | - | 172
Financial assets at amortized cost | 14 | 21,419 | 204,619 | 193,819
LIABILITIES |  |  |  |
Financial liabilities at amortized cost | 22 | 58,225 | 269,128 | 182,948

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The main valuation techniques and inputs used to estimate the fair value of financial instruments accounted for at cost and classified in levels 2 and 3 is shown below. These are broken down by type of financial instrument and the balances correspond to those as of December 31, 2018:

Fair Value of financial Instruments at amortized cost by valuation technique. December 2018 (Millions of euros)
| Level 2 | Level 3 | Valuation technique(s) | Main inputs used
ASSETS |  |  |  |
Financial assets at amortized cost | 204,619 | 193,819 |  |
Central Banks | - | 1 | Present-value method (Discounted future cash flows) | - Credit spread - Prepayment rates - Interest rate yield
Loans and advances to credit institutions | 4,934 | 4,291 | Present-value method (Discounted future cash flows) | - Credit spread - Prepayment rates - Interest rate yield
Loans and advances to customers | 190,666 | 183,645 | Present-value method (Discounted future cash flows) | - Credit spread - Prepayment rates - Interest rate yield
Debt securities | 9,019 | 5,881 | Present-value method (Discounted future cash flows) | - Credit spread - Interest rate yield
LIABILITIES |  |  |  |
Financial liabilities at amortized cost | 269,128 | 182,948 |  |
Central Banks | 196 | - | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Prepayment rates - Interest rate yield
Loans and advances to credit institutions | 22,281 | 9,852 | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Prepayment rates - Interest rate yield
Loans and advances to customers | 240,547 | 135,270 | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Prepayment rates - Interest rate yield
Debt securities | 6,104 | 25,096 | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Prepayment rates - Interest rate yield
Other financial liabilities | - | 12,730 | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Prepayment rates - Interest rate yield

Equity instruments at cost

Until 2017, there were equity instruments and discretionary profit-sharing arrangements in some entities which were recognized at cost in the Group’s consolidated balance sheets because their fair value could not be estimated in a sufficiently reliable manner for the amount of €469 and €565 million, as of December 31, 2017 and 2016, respectively.

9. Cash, cash balances at central banks and other demands deposits

The breakdown of the balance under the heading “Cash, cash balances at central banks and other demands deposits” in the accompanying consolidated balance sheets is as follows:

Cash, cash balances at central banks and other demand deposits (Millions of euros)
|  | 2018 | 2017 | 2016
Cash on hand |  | 6,346 | 6,220 | 7,413
Cash balances at central banks |  | 43,880 | 31,718 | 28,671
Other demand deposits |  | 7,970 | 4,742 | 3,955
Total |  | 58,196 | 42,680 | 40,039

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10. Financial assets and liabilities held for trading

## 10.1 Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial Assets and Liabilities Held-for-Trading (Millions of euros)
| Notes | 2018 | 2017 | 2016
ASSETS |  |  |  |
Derivatives |  | 30,536 | 35,265 | 42,955
Debt securities | 7.3.2 | 25,577 | 22,573 | 27,166
Loans and advances | 7.3.2 | 28,750 | 56 | 154
Equity instruments | 7.3.2 | 5,254 | 6,801 | 4,675
Total Assets |  | 90,117 | 64,695 | 74,950
LIABILITIES |  |  |  |
Derivatives |  | 31,815 | 36,169 | 43,118
Short positions |  | 11,025 | 10,013 | 11,556
Deposits |  | 37,934 |  |
Total Liabilities |  | 80,774 | 46,182 | 54,675

As of December 31, 2018 “Short positions” include €10,255 million held with General governments.

## 10.2 Debt securities

The breakdown by type of issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Assets Held-for-Trading. Debt securities by issuer (Millions of euros)
| 2018 | 2017 | 2016
Issued by Central Banks | 1,001 | 1,371 | 544
Issued by public administrations | 22,950 | 19,344 | 23,621
Issued by financial institutions | 790 | 816 | 1,652
Other debt securities | 836 | 1,041 | 1,349
Total | 25,577 | 22,573 | 27,166

##

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## 10.3 Loans and advances

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Assets Held-for-Trading. Loans and advances (Millions of euros)
| Notes | 2018 | 2017 | 2016
Loans and advances to central banks |  | 2,163 | - | -
Reverse repurchase agreements | 35 | 2,163 | - | -
Loans and advances to credit institutions |  | 14,566 | - | -
Reverse repurchase agreements | 35 | 13,305 | - | -
Loans and advances to customers |  | 12,021 | 56 | 154
Reverse repurchase agreements | 35 | 11,794 | - | -
Total |  | 28,750 | 56 | 154

## 10.4 Equity instruments

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Assets Held-for-Trading. Equity instruments by Issuer (Millions of euros)
| 2018 | 2017 | 2016
Shares of Spanish companies |  |  |
Credit institutions | 576 | 617 | 781
Other sectors | 536 | 603 | 956
Subtotal | 1,112 | 1,220 | 1,737
Shares of foreign companies |  |  |
Credit institutions | 304 | 345 | 220
Other sectors | 3,838 | 5,236 | 2,718
Subtotal | 4,142 | 5,581 | 2,939
Total | 5,254 | 6,801 | 4,675

##

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## 10.5 Deposits

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Liabilities Held-for-Trading. Deposits (Millions of euros)
| Notes | 2018 | 2017 | 2016
Deposits from central banks (*) |  | 10,511 |  |
Repurchase agreement | 35 | 10,511 |  |
Deposits from credit institutions (*) |  | 15,687 |  |
Repurchase agreement | 35 | 14,839 |  |
Deposits from customers (*) |  | 11,736 |  |
Repurchase agreement | 35 | 11,466 |  |
Total |  | 37,934 |  |

##

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## 10.6 Derivatives

The derivatives portfolio arises from the Group’s need to manage the risks it is exposed to in the normal course of business and also to market products amongst the Group’s customers. As of December 31, 2018, 2017 and 2016, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties, consisting primarily of foreign credit institutions, and are related to foreign-exchange, interest-rate and equity risk.

Below is a breakdown of the net positions by transaction type of the fair value and notional amounts of derivatives recognized in the accompanying consolidated balance sheets, divided into organized and OTC markets:

Derivatives by type of risk / by product or by type of market - December 2018 (Millions of Euros)
| Assets | Liabilities | Notional amount - Total
Interest rate | 19,147 | 18,769 | 2,929,371
OTC options | 1,940 | 2,413 | 207,107
OTC other | 17,206 | 16,356 | 2,702,909
Organized market options | - | - | 6,092
Organized market other | - | - | 13,263
Equity | 2,799 | 2,956 | 114,184
OTC options | 400 | 341 | 32,906
OTC other | 230 | 123 | 6,693
Organized market options | 2,168 | 2,492 | 72,062
Organized market other | - | - | 2,524
Foreign exchange and gold | 8,355 | 9,693 | 432,283
OTC options | 226 | 309 | 21,293
OTC other | 8,118 | 9,329 | 405,659
Organized market options | - | 1 | 45
Organized market other | 11 | 54 | 5,286
Credit | 232 | 393 | 25,452
Credit default swap | 228 | 248 | 22,791
Credit spread option | 2 | - | 500
Total return swap | 2 | 145 | 2,161
Other | - | - | -
Commodities | 3 | 3 | 67
Other | - | - | -
DERIVATIVES | 30,536 | 31,815 | 3,501,358
of which: OTC - credit institutions | 16,979 | 18,729 | 897,384
of which: OTC - other financial corporations | 7,372 | 7,758 | 2,355,784
of which: OTC - other | 4,005 | 2,780 | 148,917

F-157

Derivatives by type of risk / by product or by type of market - December 2017 (Millions of Euros)
| Assets | Liabilities | Notional amount - Total
Interest rate | 22,606 | 22,546 | 2,152,490
OTC options | 2,429 | 2,581 | 212,554
OTC other | 20,177 | 19,965 | 1,916,920
Organized market options | - | - | 600
Organized market other | - | - | 22,416
Equity | 1,778 | 2,336 | 95,573
OTC options | 495 | 1,118 | 34,140
OTC other | 83 | 90 | 8,158
Organized market options | 1,200 | 1,129 | 48,644
Organized market other | - | - | 4,631
Foreign exchange and gold | 10,371 | 10,729 | 380,404
OTC options | 245 | 258 | 24,447
OTC other | 10,092 | 10,430 | 348,857
Organized market options | - | 3 | 104
Organized market other | 34 | 37 | 6,997
Credit | 489 | 517 | 30,181
Credit default swap | 480 | 507 | 27,942
Credit spread option | - | - | 200
Total return swap | 9 | 9 | 2,039
Other | - | - | -
Commodities | 3 | 3 | 36
Other | 18 | 38 | 561
DERIVATIVES | 35,265 | 36,169 | 2,659,246
of which: OTC - credit institutions | 21,016 | 22,804 | 898,209
of which: OTC - other financial corporations | 8,695 | 9,207 | 1,548,919
of which: OTC - other | 4,316 | 2,986 | 128,722

F-158

Derivatives by type of risk / by product or by type of market - December 2016 (Millions of Euros)
| Assets | Liabilities | Notional amount - Total
Interest rate | 25,770 | 25,322 | 1,556,150
OTC options | 3,331 | 3,428 | 217,958
OTC other | 22,339 | 21,792 | 1,296,183
Organized market options | 1 | - | 1,311
Organized market other | 100 | 102 | 40,698
Equity | 2,032 | 2,252 | 90,655
OTC options | 718 | 1,224 | 44,837
OTC other | 109 | 91 | 5,312
Organized market options | 1,205 | 937 | 36,795
Organized market other | - | - | 3,712
Foreign exchange and gold | 14,872 | 15,179 | 425,506
OTC options | 417 | 539 | 27,583
OTC other | 14,436 | 14,624 | 392,240
Organized market options | 3 | - | 175
Organized market other | 16 | 16 | 5,508
Credit | 261 | 338 | 19,399
Credit default swap | 246 | 230 | 15,788
Credit spread option | - | - | 150
Total return swap | 2 | 108 | 1,895
Other | 14 | - | 1,565
Commodities | 6 | 6 | 169
Other | 13 | 22 | 1,065
DERIVATIVES | 42,955 | 43,118 | 2,092,945
of which: OTC - credit institutions | 26,438 | 28,005 | 806,096
of which: OTC - other financial corporations | 8,786 | 9,362 | 1,023,174
of which: OTC - other | 6,404 | 4,694 | 175,473

F-159

11. Non-trading financial assets mandatorily at fair value through profit or loss

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Non-trading financial assets mandatorily at fair value through profit or loss (Millions of Euros)
| Notes | 2018
Equity instruments | 7.3.2 | 3,095
Debt securities | 7.3.2 | 237
Loans and advances | 7.3.2 | 1,803
Total |  | 5,135

This heading is included with the implementation of IFRS 9 on January 1, 2018. Previously, this category did not exist in IAS 39 (see Note 2.2.1 and 2.3).

12. Financial assets and liabilities designated at fair value through profit or loss

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial assets and liabilities designated at fair value through profit or loss (Millions of euros)
| Notes | 2018 | 2017 | 2016
ASSETS |  |  |  |
Equity instruments |  |  | 1,888 | 1,920
Unit-linked products |  |  | 1,621 | 1,749
Other securities |  |  | 266 | 171
Debt securities |  | 1,313 | 174 | 142
Loans and advances |  | - | 648 | -
Total Assets | 7.3.2 | 1,313 | 2,709 | 2,062
LIABILITIES |  |  |  |
Deposits |  | 976 | - | -
Debt certificates |  | 2,858 | - | -
Other financial liabilities |  | 3,159 | 2,222 | 2,338
Unit-linked products |  | 3,159 | 2,222 | 2,338
Total Liabilities |  | 6,993 | 2,222 | 2,338

With the implementation of IFRS 9 on January 1, 2018, equity instruments under this heading have been reclassified to the heading: “Non-trading financial assets mandatorily at fair value through profit or loss” (see Note 11).

As of December 31, 2018, 2017 and 2016, the most significant balances within financial liabilities designated at fair value through profit or loss related to assets and liabilities linked to insurance products where the policyholder bears the risk ("Unit-Link"). This type of product is sold only in Spain, through BBVA Seguros S.A., insurance and reinsurance and in Mexico through Seguros Bancomer S.A. de CV.

F-160

Since the liabilities linked to insurance products in which the policyholder assumes the risk are valued the same way as the assets associated to these insurance products, there is no credit risk component borne by the Group in relation to these liabilities.

13. Financial assets at fair value through other comprehensive income

13.1 Balance details

The breakdown of the balance by the main financial instruments in the accompanying consolidated balance sheets is as follows:

Financial assets designated at fair value through other comprehensive income (Millions of euros)
| Notes | 2018 | 2017 | 2016
Debt securities | 7.3.2 | 53,737 | 66,273 | 74,739
Impairment losses |  | (28) | (21) | (159)
Subtotal |  | 53,709 | 66,251 | 74,580
Equity instruments | 7.3.2 | 2,595 | 4,488 | 4,814
Impairment losses |  | - | (1,264) | (174)
Subtotal |  | 2,595 | 3,224 | 4,641
Loans and advances to credit entities |  | 33 | - | -
Total |  | 56,337 | 69,476 | 79,221

F-161

13.2 Debt securities

The breakdown of the balance under the heading “Debt securities” of the accompanying consolidated financial statements, broken down by the nature of the financial instruments, is as follows:

Financial assets designated at fair value through other comprehensive income: Debt Securities. December 2018 (Millions of euros)
| Amortized Cost (*) | Unrealized Gains | Unrealized Losses | Book Value
Domestic Debt Securities |  |  |  |
Spanish Government and other general governments agencies debt securities | 17,205 | 661 | (9) | 17,857
Other debt securities | 1,597 | 100 | (1) | 1,696
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 793 | 63 | - | 855
Issued by other issuers | 804 | 37 | (1) | 841
Subtotal | 18,802 | 761 | (10) | 19,553
Foreign Debt Securities |  |  |  |
Mexico | 6,299 | 6 | (142) | 6,163
Mexican Government and other general governments agencies debt securities | 5,286 | 4 | (121) | 5,169
Other debt securities | 1,013 | 2 | (21) | 994
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 35 | - | (1) | 34
Issued by other issuers | 978 | 2 | (20) | 961
The United States | 14,507 | 47 | (217) | 14,338
Government securities | 11,227 | 37 | (135) | 11,130
US Treasury and other US Government agencies | 7,285 | 29 | (56) | 7,258
States and political subdivisions | 3,942 | 8 | (79) | 3,872
Other debt securities | 3,280 | 10 | (82) | 3,208
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 49 | 1 | - | 50
Issued by other issuers | 3,231 | 9 | (82) | 3,158
Turkey | 4,164 | 20 | (269) | 3,916
Turkey Government and other general governments agencies debt securities | 4,007 | 20 | (256) | 3,771
Other debt securities | 157 | - | (13) | 145
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 157 | - | (13) | 145
Issued by other issuers | - | - | - | -
Other countries | 9,551 | 319 | (130) | 9,740
Other foreign governments and other general governments agencies debt securities | 4,510 | 173 | (82) | 4,601
Other debt securities | 5,041 | 146 | (48) | 5,139
Issued by Central Banks | 987 | 2 | (4) | 986
Issued by credit institutions | 1,856 | 111 | (20) | 1,947
Issued by other issuers | 2,197 | 33 | (25) | 2,206
Subtotal | 34,521 | 392 | (758) | 34,157
Total | 53,323 | 1,153 | (768) | 53,709

(*) The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.

F-162

Available-for-sale financial assets: Debt Securities. December 2017 (Millions of euros)
| Amortized Cost (*) | Unrealized Gains | Unrealized Losses | Book Value
Domestic Debt Securities |  |  |  |
Spanish Government and other general governments agencies debt securities | 22,765 | 791 | (17) | 23,539
Other debt securities | 1,951 | 114 | - | 2,066
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 891 | 72 | - | 962
Issued by other issuers | 1,061 | 43 | - | 1,103
Subtotal | 24,716 | 906 | (17) | 25,605
Foreign Debt Securities |  |  |  |
Mexico | 9,755 | 45 | (142) | 9,658
Mexican Government and other general governments agencies debt securities | 8,101 | 34 | (120) | 8,015
Other debt securities | 1,654 | 11 | (22) | 1,643
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 212 | 1 | (3) | 209
Issued by other issuers | 1,442 | 10 | (19) | 1,434
The United States | 12,479 | 36 | (198) | 12,317
Government securities | 8,625 | 8 | (133) | 8,500
US Treasury and other US Government agencies | 3,052 | - | (34) | 3,018
States and political subdivisions | 5,573 | 8 | (99) | 5,482
Other debt securities | 3,854 | 28 | (65) | 3,817
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 56 | 1 | - | 57
Issued by other issuers | 3,798 | 26 | (65) | 3,759
Turkey | 5,052 | 48 | (115) | 4,985
Turkey Government and other general governments agencies debt securities | 5,033 | 48 | (114) | 4,967
Other debt securities | 19 | 1 | (1) | 19
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 19 | - | (1) | 19
Issued by other issuers | - | - | - | -
Other countries | 13,271 | 533 | (117) | 13,687
Other foreign governments and other general governments agencies debt securities | 6,774 | 325 | (77) | 7,022
Other debt securities | 6,497 | 208 | (40) | 6,664
Issued by Central Banks | 1,330 | 2 | (1) | 1,331
Issued by credit institutions | 2,535 | 139 | (19) | 2,654
Issued by other issuers | 2,632 | 66 | (19) | 2,679
Subtotal | 40,557 | 661 | (572) | 40,647
Total | 65,273 | 1,567 | (589) | 66,251

(*) The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.

F-163

Available-for-sale financial assets: Debt Securities. December 2016 (Millions of euros)
| Amortized Cost (*) | Unrealized Gains | Unrealized Losses | Book Value
Domestic Debt Securities |  |  |  |
Spanish Government and other general governments agencies debt securities | 22,427 | 711 | (18) | 23,119
Other debt securities | 2,305 | 117 | (1) | 2,421
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 986 | 82 | - | 1,067
Issued by other issuers | 1,319 | 36 | (1) | 1,354
Subtotal | 24,731 | 828 | (19) | 25,540
Foreign Debt Securities |  |  |  |
Mexico | 11,525 | 19 | (343) | 11,200
Mexican Government and other general governments agencies debt securities | 9,728 | 11 | (301) | 9,438
Other debt securities | 1,797 | 8 | (42) | 1,763
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 86 | 2 | (1) | 87
Issued by other issuers | 1,710 | 6 | (41) | 1,675
The United States | 14,256 | 48 | (261) | 14,043
Government securities | 8,460 | 9 | (131) | 8,337
US Treasury and other US Government agencies | 1,702 | 1 | (19) | 1,683
States and political subdivisions | 6,758 | 8 | (112) | 6,654
Other debt securities | 5,797 | 39 | (130) | 5,706
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 95 | 2 | - | 97
Issued by other issuers | 5,702 | 37 | (130) | 5,609
Turkey | 5,550 | 73 | (180) | 5,443
Turkey Government and other general governments agencies debt securities | 5,055 | 70 | (164) | 4,961
Other debt securities | 495 | 2 | (16) | 482
Issued by Central Banks | - | - | - | -
Issued by credit institutions | 448 | 2 | (15) | 436
Issued by other issuers | 47 | - | (1) | 46
Other countries | 17,923 | 634 | (203) | 18,354
Other foreign governments and other general government agencies debt securities | 7,882 | 373 | (98) | 8,156
Other debt securities | 10,041 | 261 | (105) | 10,197
Issued by Central Banks | 1,657 | 4 | (2) | 1,659
Issued by credit institutions | 3,269 | 96 | (54) | 3,311
Issued by other issuers | 5,115 | 161 | (49) | 5,227
Subtotal | 49,253 | 773 | (987) | 49,040
Total | 73,985 | 1,601 | (1,006) | 74,580

(*) The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.

The credit ratings of the issuers of debt securities as of December 31, 2018, 2017 and 2016, are as follows:

Debt Securities by Rating
| December 2018 | December 2017 | December 2016
| Fair Value (Millions of Euros) | % | Fair Value (Millions of Euros) | % | Fair Value (Millions of Euros) | %
AAA | 531 | 1.0% | 687 | 1.0% | 4,922 | 6.6%
AA+ | 13,100 | 24.4% | 10,738 | 16.2% | 11,172 | 15.0%
AA | 222 | 0.4% | 507 | 0.8% | 594 | 0.8%
AA- | 409 | 0.8% | 291 | 0.4% | 575 | 0.8%
A+ | 632 | 1.2% | 664 | 1.0% | 1,230 | 1.6%
A | 687 | 1.3% | 683 | 1.0% | 7,442 | 10.0%
A- | 18,426 | 34.3% | 1,330 | 2.0% | 1,719 | 2.3%
BBB+ | 9,195 | 17.1% | 35,175 | 53.1% | 29,569 | 39.6%
BBB | 4,607 | 8.6% | 7,958 | 12.0% | 3,233 | 4.3%
BBB- | 1,003 | 1.9% | 5,583 | 8.4% | 6,809 | 9.1%
BB+ or below | 4,453 | 8.3% | 1,564 | 2.4% | 2,055 | 2.8%
Without rating | 445 | 0.8% | 1,071 | 1.6% | 5,261 | 7.1%
Total | 53,709 | 100% | 66,251 | 100.0% | 74,580 | 100.0%

F-164

13.3 Equity instruments

The breakdown of the balance under the heading "Equity instruments" of the accompanying consolidated financial statements as of December 31, 2018, 2017 and 2016, are as follows:

Financial assets designated at fair value through other comprehensive income: Equity Instruments. December 2018 (Millions of euros)
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value
Equity instruments listed |  |  |  |
Listed Spanish company shares | 2,172 | - | (210) | 1,962
Credit institutions | - | - | - | -
Other entities | 2,172 | - | (210) | 1,962
Listed foreign company shares | 90 | 43 | (12) | 121
United States | 20 | 17 | - | 37
Mexico | 1 | 25 | - | 26
Turkey | 3 | - | (1) | 2
Other countries | 66 | 1 | (11) | 56
Subtotal | 2,262 | 43 | (222) | 2,083
Unlisted equity instruments | - | - | - | -
Unlisted Spanish company shares | 6 | 1 | - | 7
Credit institutions | - | - | - | -
Other entities | 6 | 1 | - | 7
Unlisted foreign companies shares | 453 | 54 | (1) | 506
United States | 388 | 23 | - | 411
Mexico | - | - | - | -
Turkey | 6 | 4 | - | 10
Other countries | 59 | 27 | (1) | 85
Subtotal | 459 | 55 | (1) | 513
Total | 2,721 | 98 | (223) | 2,595

Available-for-sale financial assets: Equity Securities. December 2017 (Millions of euros)
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value
Equity instruments listed |  |  |  |
Listed Spanish company shares | 2,189 | - | (1) | 2,188
Credit institutions | - | - | - | -
Other entities | 2,189 | - | (1) | 2,188
Listed foreign company shares | 215 | 33 | (7) | 241
United States | 11 | - | - | 11
Mexico | 8 | 25 | - | 33
Turkey | 4 | 1 | - | 5
Other countries | 192 | 7 | (7) | 192
Subtotal | 2,404 | 33 | (8) | 2,429
Unlisted equity instruments |  |  |  |
Unlisted Spanish company shares | 33 | 29 | - | 62
Credit institutions | 4 | - | - | 4
Other entities | 29 | 29 | - | 58
Unlisted foreign companies shares | 665 | 77 | (8) | 734
United States | 498 | 40 | (6) | 532
Mexico | 1 | - | - | 1
Turkey | 15 | 6 | (2) | 19
Other countries | 151 | 31 | - | 182
Subtotal | 698 | 106 | (8) | 796
Total | 3,102 | 139 | (16) | 3,224

F-165

Available-for-sale financial assets: Equity Securities. December 2016 (Millions of euros)
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value
Equity instruments listed |  |  |  |
Listed Spanish company shares | 3,690 | 17 | (944) | 2,763
Credit institutions | - | - | - | -
Other entities | 3,690 | 17 | (944) | 2,763
Listed foreign company shares | 793 | 289 | (15) | 1,066
United States | 16 | 22 | - | 38
Mexico | 8 | 33 | - | 41
Turkey | 5 | 1 | - | 6
Other countries | 763 | 234 | (15) | 981
Subtotal | 4,483 | 306 | (960) | 3,829
Unlisted equity instruments |  |  |  |
Unlisted Spanish company shares | 57 | 2 | (1) | 59
Credit institutions | 4 | - | - | 4
Other entities | 53 | 2 | (1) | 55
Unlisted foreign companies shares | 708 | 46 | (2) | 752
United States | 537 | 13 | - | 550
Mexico | 1 | - | - | 1
Turkey | 18 | 7 | (2) | 24
Other countries | 152 | 26 | - | 178
Subtotal | 766 | 48 | (3) | 811
Total | 5,248 | 355 | (962) | 4,641

13.4 Gains/losses

Debt securities

The changes in the gains/losses, net of taxes, recognized in 2018 under the equity heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income (Millions of euros)
| Notes | 2018
Balance at the beginning |  | 1,557
Effect of changes in accounting policies (IFRS 9) |  | (58)
Valuation gains and losses |  | (640)
Amounts transferred to income |  | (137)
Other reclassifications |  | -
Income tax |  | 221
Balance at the end | 30 | 943

F-166

In 2018, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss - Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €1 million. In 2017 the recovery recognized amounted €4 million; meanwhile, in 2016 the impairment recognized amounted €157 million (see Note 47).

Equity instruments

The changes in the gains/losses, net of taxes, recognized under the equity heading “Accumulated other comprehensive income – Items that will not be reclassified to profit or loss - Fair value changes of equity instruments measured at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income (Millions of euros)
| Notes | 2018
Balance at the beginning |  | 84
Effect of changes in accounting policies (IFRS 9) |  | (40)
Valuation gains and losses |  | (174)
Amounts transferred to income |  | -
Other reclassifications |  | -
Income tax |  | (25)
Balance at the end | 30 | (155)

In 2018, there has been no impairment recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss - Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement. In 2017 and 2016 the impairment recognized were €1,131 and €46 million, respectively (see Note 47).

Years 2017 and 2016

2017 and 2016 are presented separately due to the implementation of IFRS 9:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Available-for-Sale Financial Assets (Millions of euros)
| Notes | 2017 | 2016
Balance at the beginning |  | 947 | 1,674
Valuation gains and losses |  | 321 | 400
Amounts transferred to income |  | 356 | (1,181)
Other reclassifications |  | (10) | 116
Income tax |  | 27 | (62)
Balance at the end | 30 | 1,641 | 947
Of which: |  | - | -
Debt securities |  | 1,557 | 1,629
Equity instruments |  | 84 | (682)

F-167

14. Financial assets at amortized cost

14.1 Balance details

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the nature of the financial instrument, is as follows:

Financial assets at amortized cost (Millions of Euros)
| December 2018 | December 2017 | December 2016
Debt securities | 32,530 | 24,093 | 28,905
Loans and advances to central banks | 3,941 | 7,300 | 8,894
Loans and advances to credit institutions | 9,163 | 26,261 | 31,373
Loans and advances to customers | 374,027 | 387,621 | 414,500
Government | 28,114 | 31,645 |
Other financial corporations | 9,468 | 18,173 |
Non-financial corporations | 163,922 | 164,510 |
Other | 172,522 | 173,293 |
Total | 419,660 | 445,275 | 483,672

During financial year 2018, there have been no significant reclassifications neither from “Financial assets at amortized cost” to other headings or from other headings to “Financial assets at amortized cost”.

14.2 Loans and advances to central banks and credit institutions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:

Loans and Advances to Central Banks and Credit Institutions (Millions of euros)
| Notes | 2018 | 2017 | 2016
Loans and advances to central banks | 7.3.2 | 3,941 | 7,300 | 8,894
Loans and advances to credit institutions | 7.3.2 | 9,163 | 26,261 | 31,373
Reverse repurchase agreements | 35 | 478 | 13,861 | 15,561
Other loans |  | 8,685 | 12,400 | 15,812
Total |  | 13,104 | 33,561 | 40,267
Of which: |  | - | - | -
Impairment losses | 7.3.5 / 7.3.2 | (18) | (36) | (43)

14.3 Loans and advances to customers

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:

Loans and Advances to Customers (Millions of euros)
| Notes | 2018 | 2017 | 2016
On demand and short notice |  | 3,641 | 10,560 | 11,251
Credit card debt |  | 15,445 | 15,835 | 16,596
Trade receivables |  | 17,436 | 22,705 | 23,753
Finance leases |  | 8,650 | 8,642 | 9,442
Reverse repurchase loans | 35 | 294 | 11,554 | 7,291
Other term loans |  | 324,767 | 313,336 | 339,862
Advances that are not loans |  | 3,794 | 4,989 | 6,306
Total | 7.3.2 | 374,027 | 387,621 | 414,500
Of which: |  | - | - | -
Impaired assets | 7.3.5 | 16,349 | 19,390 | 22,915
Impairment losses | 7.3.5 / 7.3.2 | (12,199) | (12,748) | (15,974)

F-168

As of December 31, 2018, 2017 and 2016, 38%, 38% and 34%, respectively, of "Loans and advances to customers" with maturity greater than one year have fixed-interest rates and 62%, 62% and 66%, respectively, have variable interest rates.

The heading “Financial assets at amortized cost – Loans and advances to customers” in the accompanying consolidated balance sheets also includes certain secured loans that, as pursuant to the Mortgage Market Act, are linked to long-term mortgage-covered bonds.

This heading also includes some loans that have been securitized. The balances recognized in the accompanying consolidated balance sheets corresponding to these securitized loans are as follows:

Securitized Loans (Millions of euros)
| 2018 | 2017 | 2016
Securitized mortgage assets | 26,556 | 28,950 | 29,512
Other securitized assets | 3,221 | 4,143 | 3,731
Total | 29,777 | 33,093 | 33,243

14.4 Debt securities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the issuer of the debt securities, is as follows:

Debt securities (Millions of euros)
| Notes | 2018 | 2017 | 2016
Government |  | 25,014 | 17,030 | 20,736
Credit institutions |  | 644 | 1,152 | 1,688
Other sectors |  | 6,872 | 5,911 | 6,481
Total gross | 7.3.2 | 32,530 | 24,093 | 28,905
Of which: |  | - | - | -
Impairment losses |  | (51) | (15) | (17)

As of December 31, 2018, 2017 and 2016, the credit ratings of the issuers of debt securities classified as follows:

Financial assets at amortized cost. Debt Securities by Rating
| December 2018 |  | December 2017 |  | December 2016 |
| Carrying amount (Millions of Euros) | % | Carrying amount (Millions of Euros) | % | Carrying amount (Millions of Euros) | %
AAA | 49 | 0.2% | - | - | - | -
AA+ | 1,969 | 6.1% | - | - | - | -
AA | 62 | 0.2% | 41 | 0.3% | 43 | 0.2%
AA- | - | 0.0% | - | - | 134 | 0.8%
A+ | 607 | 1.9% | 55 | 0.4% | - | -
A | 21 | 0.1% | - | - | - | -
A- | 6,117 | 18.8% | - | - | - | -
BBB+ | 13,894 | 42.7% | 5,667 | 41.2% | 10,472 | 59.2%
BBB | 1,623 | 5.0% | 2,412 | 17.5% | 591 | 3.3%
BBB- | 2,694 | 8.3% | 2,818 | 20.5% | 5,187 | 29.3%
BB+ or below | 4,371 | 13.4% | 1,696 | 12.3% | - | -
Without rating | 1,123 | 3.5% | 1,064 | 7.7% | 1,270 | 7.2%
Total | 32,530 | 100.0% | 13,754 | 100.0% | 17,696 | 100.0%

F-169

In 2016, according to the applicable accounting policy, some debt securities were reclassified between existing accounts from such policy (from “Available for sale financial assets” to “Loans and receivables” and “Held-to-maturity investments” of the consolidated balance sheet. As mentioned in Note 1.3, on January 1, 2018, IFRS 9 became effective, therefore, the debt securities previously reclassified are recorded under “Financial assets at amortized cost” in the consolidated balance sheet as of December 31, 2018. The following table shows the fair value and carrying amounts of these reclassified financial assets:

Debt Securities reclassified (Millions of euros)
| As of Reclassification date | As of December 31, 2018 | As of December 31, 2017 | As of December 31, 2016
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value
BBVA, S.A. | 12,024 | 12,024 | 1,467 | 1,486 | 7,236 | 7,286 | 10,433 | 10,498
TURKIYE GARANTI BANKASI, A.S | 6,488 | 6,488 | 2,859 | 2,668 | 5,381 | 5,392 | 6,230 | 6,083
Total | 18,512 | 18,512 | 4,326 | 4,154 | 12,617 | 12,678 | 16,663 | 16,581

As of December 31, 2018, 2017 and 2016, the amount recognized in the income statement from the valuation at amortized cost of the reclassified financial assets, as well as the impact recognized on the income statement and under the heading “Total Equity - Accumulated other comprehensive income”, if the reclassification was not performed is included in the following table.

Effect on Income Statement and Other Comprehensive Income (Millions of euros)
| 2018 | 2017 | 2016
| Recognized in | Effect of not Reclassifying in | Recognized in | Effect of not Reclassifying in | Recognized in | Effect of not Reclassifying in
| Income Statement | Income Statement | Equity "Accumulated other comprehensive income" | Income Statement | Income Statement | Equity "Accumulated other comprehensive income" | Income Statement | Income Statement | Equity "Accumulated other comprehensive income"
BBVA, S.A. | 41 | 41 | (2) | 198 | 198 | (14) | 252 | 252 | (91)
TURKIYE GARANTI BANKASI, A.S | 414 | 414 | (172) | 545 | 545 | (16) | 326 | 326 | (225)
Total | 456 | 456 | (173) | 743 | 743 | (30) | 578 | 578 | (316)

15. Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk

The balance of these headings in the accompanying consolidated balance sheets is as follows:

Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk (Millions of euros)
| 2018 | 2017 | 2016
ASSETS |  |  |
Hedging Derivatives | 2,892 | 2,485 | 2,833
Fair value changes of the hedged items in portfolio hedges of interest rate risk | (21) | (25) | 17
LIABILITIES |  |  |
Hedging Derivatives | 2,680 | 2,880 | 2,347
Fair value changes of the hedged items in portfolio hedges of interest rate risk | - | (7) | -

F-170

As of December 31, 2018, 2017 and 2016, the main positions hedged by the Group and the derivatives designated to hedge those positions were:

· Fair value hedging:

- Fixed-interest debt securities at fair value through other comprehensive income and at amortized cost: The interest rate risk of these securities is hedged using interest rate derivatives (fixed-variable swaps) and forward sales.

- Long-term fixed-interest debt securities issued by the Bank: the interest rate risk of these securities is hedged using interest rate derivatives (fixed-variable swaps).

- Fixed-interest loans: The equity price risk of these instruments is hedged using interest rate derivatives (fixed-variable swaps).

- Fixed-interest and/or embedded derivative deposit portfolio hedges: it covers the interest rate risk through fixed-variable swaps. The valuation of the borrowed deposits corresponding to the interest rate risk is in the heading "Fair value changes of the hedged items in portfolio hedges of interest rate risk”.

· Cash-flow hedges: Most of the hedged items are floating interest-rate loans and asset hedges linked to the inflation of the financial assets at fair value through other comprehensive income portfolio. This risk is hedged using foreign-exchange, interest-rate swaps, inflation and FRA’s (“Forward Rate Agreement”).

· Net foreign-currency investment hedges: These hedged risks are foreign-currency investments in the Group’s foreign subsidiaries. This risk is hedged mainly with foreign-exchange options and forward currency sales and purchases.

Note 7 analyzes the Group’s main risks that are hedged using these derivatives.

The details of the net positions by hedged risk of the fair value of the hedging derivatives recognized in the accompanying consolidated balance sheets are as follows:

Hedging Derivatives Breakdown by type of risk and type of hedge (Millions of euros)
|  | 2018 | 2017 | 2016
|  | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities
Interest rate |  | 982 | 513 | 1,141 | 850 | 1,154 | 974
OTC options |  | 5 | 158 | 100 | 111 | 125 | 118
OTC other |  | 978 | 355 | 1,041 | 739 | 1,029 | 856
Organized market options |  | - | - | - | - | - | -
Organized market other |  | - | - | - | - | - | -
Equity |  | 6 | - | - | - | - | 50
OTC options |  | 6 | - | - | - | - | 50
OTC other |  | - | - | - | - | - | -
Organized market options |  | - | - | - | - | - | -
Organized market other |  | - | - | - | - | - | -
Foreign exchange and gold |  | 587 | 398 | 625 | 511 | 817 | 553
OTC options |  | - | - | - | - | - | -
OTC other |  | 587 | 398 | 625 | 511 | 817 | 553
Organized market options |  | - | - | - | - | - | -
Organized market other |  | - | - | - | - | - | -
Credit |  | - | - | - | - | - | -
Commodities |  | - | - | - | - | - | -
Other |  | - | - | - | - | - | -
FAIR VALUE HEDGES |  | 1,575 | 912 | 1,766 | 1,362 | 1,970 | 1,577
Interest rate |  | 221 | 562 | 244 | 533 | 194 | 358
OTC options |  | - | - | - | - | - | -
OTC other |  | 219 | 562 | 242 | 533 | 186 | 358
Organized market options |  | - | - | - | - | - | -
Organized market other |  | 2 | - | 2 | - | 8 | -
Equity |  | - | - | - | - | - | -
Foreign exchange and gold |  | 955 | 873 | 119 | 714 | 248 | 118
OTC options |  | - | - | - | - | 89 | 70
OTC other |  | 955 | 873 | 119 | 714 | 160 | 48
Organized market options |  | - | - | - | - | - | -
Organized market other |  | - | - | - | - | - | -
Credit |  | - | - | - | - | - | -
Commodities |  | - | - | - | - | - | -
Other |  | - | - | - | - | - | -
CASH FLOW HEDGES |  | 1,176 | 1,435 | 363 | 1,247 | 442 | 476
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION |  | 92 | 231 | 301 | 15 | 362 | 79
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK |  | 33 | 90 | 46 | 256 | 55 | 214
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK |  | 15 | 12 | 9 | - | 4 | -
DERIVATIVES-HEDGE ACCOUNTING |  | 2,892 | 2,680 | 2,485 | 2,880 | 2,833 | 2,347
of which: OTC - credit institutions |  | 2,534 | 2,462 | 1,829 | 2,527 | 2,381 | 2,103
of which: OTC - other financial corporations |  | 355 | 216 | 651 | 234 | 435 | 165
of which: OTC - other |  | 2 | 2 | 2 | 120 | 9 | 79

F-171

The cash flows forecasts for the coming years for cash flow hedging recognized on the accompanying consolidated balance sheet as of December 31, 2018 are:

Cash Flows of Hedging Instruments (Millions of euros)
| 3 Months or Less | From 3 Months to 1 Year | From 1 to 5 Years | More than 5 Years | Total
Receivable cash inflows | 116 | 277 | 1,828 | 2,181 | 4,401
Payable cash outflows | 139 | 517 | 2,215 | 2,221 | 5,092

The above cash flows will have an impact on the Group’s consolidated income statements until 2058.

In 2018, 2017 and 2016, there was no reclassification in the accompanying consolidated income statements of any amount corresponding to cash flow hedges that was previously recognized in equity (see Note 41).

The amount for derivatives designated as accounting hedges that did not pass the effectiveness test in December 31, 2018, 2017 and 2016 were not material.

16. Investments in joint ventures, associates

16.1 Joint venture s and associates

The breakdown of the balance of “Investments in joint ventures and associates” (see Note 2.1) in the accompanying consolidated balance sheets is as follows:

Joint Ventures and Associates Entities. Breakdown by entities (Millions of euros)
| 2018 | 2017 | 2016
Joint ventures |  |  |
Fideic F 403853 5 BBVA Bancom Ser.Zibata | - | 27 | 33
Fideicomiso 1729 Invex Enajenacion de Cartera | 55 | 53 | 57
PSA Finance Argentina Compañia Financier | 10 | 14 | 21
Altura Markets, S.V., S.A. | 69 | 64 | 19
RCI Colombia | 32 | 19 | 17
Other joint ventures | 7 | 79 | 82
Subtotal | 173 | 256 | 229
Associates Entities |  |  |
Metrovacesa Suelo y Promoción, S.A. | 508 | 697 | 208
Testa Residencial SOCIMI, S.A.U. | - | 444 | 91
Metrovacesa Promoción y Arrendamientos, S.A. | - | - | 67
Atom Bank, PLC | 138 | 66 | 43
Divarian Propiedad S.A.U. | 591 | - | -
Servired | 9 | 9 | 11
Other associates | 159 | 116 | 116
Subtotal | 1,405 | 1,332 | 536
Total | 1,578 | 1,588 | 765

F-172

Details of the joint ventures and associates as of December 31, 2018 are shown in Appendix II.

The following is a summary of the changes in the in December 31, 2018, 2017 and 2016 under this heading in the accompanying consolidated balance sheets:

Joint Ventures and Associates Entities. Changes in the Year (Millions of euros)
| Notes | 2018 | 2017 | 2016
Balance at the beginning |  | 1,588 | 765 | 879
Acquisitions and capital increases |  | 309 | 868 | 456
Disposals and capital reductions |  | (516) | (8) | (91)
Transfers and changes of consolidation method |  | 211 | - | (351)
Share of profit and loss | 39 | (7) | 3 | 25
Exchange differences |  | 2 | (29) | (34)
Dividends, valuation adjustments and others |  | (8) | (12) | (118)
Balance at the end |  | 1,578 | 1,588 | 765

The variation during the year 2018 is mainly explained by the decrease of BBVA Group stakes in Testa Residencial, S.A., Metrovacesa Suelo y Promoción, S.A. and Divarian Propiedad, S.A.U. (see Note 3 and Appendix III).

The variation during the year 2017 is mainly explained by the increase of BBVA Group stakes in Testa Residencial, S.A. and Metrovacesa Suelo y Promoción, S.A. through its contribution to the capital increases carried out by both entities by contributing assets from the Bank’s real estate assets (see Note 21).

During the year 2016, two capital increases in Metrovacesa, S.A. were made through a debt swap and a contribution of real estate assets, which provided the Group 357 million euros, after this there was a partial Split of Metrovacesa, S.A. in favor of a beneficiary company from a new constitution denominated Metrovacesa Suelo y Promocion, S.A. In the fourth quarter of the year 2016, there was a total split of Metrovacesa, S.A. through its extinction and division of its patrimony in three parts, two of which merged with Merlin Properties, SOCIMI, S.A. and Testa Residencial, SOCIMI, S.A. As result of the previous mentioned splits, the Group received equity interests in the corresponding beneficiary companies, 6.41% of its capital was received, having been transferred to the heading "Available-for-sale” of the consolidated financial assets as of December 31, 2016.

Appendix III provides notifications on acquisitions and disposals of holdings in subsidiaries, joint ventures and associates, in compliance with Article 155 of the Corporations Act and Article 53 of the Securities Market Act 24/1988.

F-173

16.2 Other information about associates and joint ventures

If these entities had been consolidated rather than accounted for using the equity method, the change in each of the lines of balance sheet and the consolidated income statement would not be significant.

As of December 31, 2018, 2017 and 2016 there was no financial support agreement or other contractual commitment to associates and joint ventures entities from the holding or the subsidiaries that are not recognized in the financial statements (see Note 53.2).

As of December 31, 2018, 2017 and 2016 there was no contingent liability in connection with the investments in joint ventures and associates (see Note 53.2).

16.3 Impairment

As described in IAS 36, when there is indicator of impairment, the book value of the associates and joint venture entities should be compared with their recoverable amount, being the latter calculated as the higher between the value in use and the fair value minus the cost of sale. As of December 31, 2018, 2017 and 2016, there were no significant impairments recognized.

17. Tangible assets

The breakdown and movement of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Tangible Assets: Breakdown by Type of Assets and Changes in the year 2018. (Millions of euros) |
|  | For Own Use | Total tangible asset of Own Use | Investment Properties | Assets Leased out under an Operating Lease | Total |
| Notes | Land and Buildings | Work in Progress | Furniture, Fixtures and Vehicles |
Cost |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 5,490 | 234 | 6,628 | 12,352 | 228 | 492 | 13,072 |
Additions |  | 445 | 78 | 404 | 927 | 11 | - | 938 |
Retirements |  | (98) | (17) | (492) | (607) | (149) | (1) | (757) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | - | - |
Transfers |  | 64 | (177) | (12) | (125) | (5) | - | (130) |
Exchange difference and other |  | 38 | (48) | (214) | (224) | 116 | (105) | (213) |
Balance at the end |  | 5,939 | 70 | 6,314 | 12,323 | 201 | 386 | 12,910 |
Accrued depreciation |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 1,076 | - | 4,380 | 5,456 | 13 | 77 | 5,546 |
Additions | 45 | 120 | - | 469 | 589 | 5 | - | 594 |
Retirements |  | (36) | - | (403) | (439) | (8) | - | (447) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | (3) | - | - | (3) | - | - | (3) |
Transfers |  | (31) | - | (22) | (53) | (2) | - | (55) |
Exchange difference and other |  | 12 | - | (212) | (200) | 3 | (1) | (198) |
Balance at the end |  | 1,138 | - | 4,212 | 5,350 | 11 | 76 | 5,437 |
Impairment |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 315 | - | - | 315 | 20 | - | 335 |
Additions | 48 | 30 | - | - | 30 | (25) | - | 5 |
Retirements |  | - | - | - | - | (27) | - | (27) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | - | - |
Transfers |  | (77) | - | - | (77) | (3) | - | (80) |
Exchange difference and other |  | (51) | - | - | (51) | 62 | - | 11 |
Balance at the end |  | 217 | - | - | 217 | 27 | - | 244 |
Net tangible assets |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 4,099 | 234 | 2,248 | 6,581 | 195 | 415 | 7,191 |
Balance at the end |  | 4,584 | 70 | 2,102 | 6,756 | 163 | 310 | 7,229 |

F-174

Tangible Assets. Breakdown by Type of Assets and Changes in the year 2017 (Millions of euros) |
|  | For Own Use | Total tangible asset of Own Use | Investment Properties | Assets Leased out under an Operating Lease | Total |
| Notes | Land and Buildings | Work in Progress | Furniture, Fixtures and Vehicles |
Cost |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 6,176 | 240 | 7,059 | 13,473 | 1,163 | 958 | 15,594 |
Additions |  | 49 | 128 | 397 | 574 | 1 | 201 | 776 |
Retirements |  | (42) | (29) | (264) | (335) | (90) | (93) | (518) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | (552) | (552) |
Transfers |  | (273) | (57) | (186) | (516) | (698) | - | (1,214) |
Exchange difference and other |  | (420) | (48) | (378) | (844) | (148) | (22) | (1,014) |
Balance at the end |  | 5,490 | 234 | 6,628 | 12,352 | 228 | 492 | 13,072 |
Accrued depreciation |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 1,116 | - | 4,461 | 5,577 | 63 | 216 | 5,856 |
Additions | 45 | 127 | - | 553 | 680 | 13 | - | 693 |
Retirements |  | (26) | - | (235) | (261) | (7) | (21) | (289) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | (134) | (134) |
Transfers |  | (53) | - | (146) | (199) | (31) | - | (230) |
Exchange difference and other |  | (88) | - | (253) | (341) | (25) | 16 | (350) |
Balance at the end |  | 1,076 | - | 4,380 | 5,456 | 13 | 77 | 5,546 |
Impairment |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 379 | - | - | 379 | 409 | 10 | 798 |
Additions | 48 | 5 | - | - | 5 | 37 | - | 42 |
Retirements |  | (2) | - | - | (2) | (10) | - | (12) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | (10) | (10) |
Transfers |  | (58) | - | - | (58) | (276) | - | (334) |
Exchange difference and other |  | (9) | - | - | (9) | (140) | - | (149) |
Balance at the end |  | 315 | - | - | 315 | 20 | - | 335 |
Net tangible assets |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 4,681 | 240 | 2,598 | 7,519 | 691 | 732 | 8,941 |
Balance at the end |  | 4,099 | 234 | 2,248 | 6,581 | 195 | 415 | 7,191 |

F-175

Tangible Assets. Breakdown by Type of Assets and Changes in the year 2016 (Millions of euros) |
|  | For Own Use | Total tangible asset of Own Use | Investment Properties | Assets Leased out under an Operating Lease | Total |
| Notes | Land and Buildings | Work in Progress | Furniture, Fixtures and Vehicles |
Cost |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 5,858 | 545 | 7,628 | 14,029 | 2,391 | 668 | 17,088 |
Additions |  | 30 | 320 | 563 | 913 | 62 | 337 | 1,312 |
Retirements |  | (85) | (29) | (468) | (582) | (117) | (97) | (796) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | (7) | - | (1) | (8) | (3) | - | (11) |
Transfers |  | 676 | (544) | (386) | (254) | (986) | 84 | (1,156) |
Exchange difference and other |  | (296) | (52) | (277) | (625) | (184) | (34) | (843) |
Balance at the end |  | 6,176 | 240 | 7,059 | 13,473 | 1,163 | 958 | 15,594 |
Accrued depreciation |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 1,103 | - | 4,551 | 5,654 | 116 | 202 | 5,972 |
Additions | 45 | 106 | - | 561 | 667 | 23 | - | 690 |
Retirements |  | (72) | - | (461) | (533) | (10) | (17) | (560) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | - | - |
Transfers |  | (1) | - | (37) | (38) | (55) | 55 | (38) |
Exchange difference and other |  | (20) | - | (153) | (173) | (11) | (24) | (208) |
Balance at the end |  | 1,116 | - | 4,461 | 5,577 | 63 | 216 | 5,856 |
Impairment |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 354 | - | - | 354 | 808 | 10 | 1,172 |
Additions | 48 | 48 | - | 5 | 53 | 90 | - | 143 |
Retirements |  | (2) | - | - | (2) | (9) | - | (11) |
Acquisition of subsidiaries in the year |  | - | - | - | - | - | - | - |
Disposal of entities in the year |  | - | - | - | - | - | - | - |
Transfers |  | (1) | - | - | (1) | (380) | - | (381) |
Exchange difference and other |  | (20) | - | (5) | (25) | (100) | - | (125) |
Balance at the end |  | 379 | - | - | 379 | 409 | 10 | 798 |
Net tangible assets |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 4,401 | 545 | 3,077 | 8,021 | 1,467 | 456 | 9,944 |
Balance at the end |  | 4,681 | 240 | 2,598 | 7,519 | 691 | 732 | 8,941 |

As of December 31, 2018, 2017 and 2016, the cost of fully amortized tangible assets that remained in use were €2,624, €2,660 and €2,313 million respectively while its recoverable residual value was not significant.

As of December 31, 2018, 2017 and 2016 the amount of tangible assets under financial lease schemes on which the purchase option is expected to be exercised was not material. The main activity of the Group is carried out through a network of bank branches located geographically as shown in the following table:

Branches by Geographical Location (Number of branches)
| 2018 | 2017 | 2016
Spain | 2,840 | 3,019 | 3,303
Mexico | 1,836 | 1,840 | 1,836
South America | 1,543 | 1,631 | 1,667
The United States | 646 | 651 | 676
Turkey | 1,066 | 1,095 | 1,131
Rest of Eurasia | 32 | 35 | 47
Total | 7,963 | 8,271 | 8,660

F-176

The following table shows the detail of the net carrying amount of the tangible assets corresponding to Spanish and foreign subsidiaries as of December 31, 2018, 2017 and 2016:

Tangible Assets by Spanish and Foreign Subsidiaries. Net Assets Values (Millions of euros)
|  | 2018 | 2017 | 2016
BBVA and Spanish subsidiaries |  | 2,705 | 2,574 | 3,692
Foreign subsidiaries |  | 4,524 | 4,617 | 5,249
Total |  | 7,229 | 7,191 | 8,941

18. Intangible assets

18.1 Goodwill

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating units (CGUs), is as follows:

Goodwill. Breakdown by CGU and Changes of the year (Millions of euros)
| The United States | Turkey | Mexico | Colombia | Chile | Other | Total
Balance as of December 31, 2015 | 5,328 | 727 | 602 | 176 | 62 | 20 | 6,915
Additions | - | - | - | - | - | 8 | 8
Exchange difference | 175 | (101) | (79) | 14 | 6 | - | 15
Impairment | - | - | - | - | - | - | -
Other | - | (1) | - | - | - | - | (1)
Balance as of December 31, 2016 | 5,503 | 624 | 523 | 191 | 68 | 28 | 6,937
Additions | - | - | 24 | - | - | - | 24
Exchange difference | (666) | (115) | (44) | (22) | (3) | (1) | (851)
Impairment | - | - | - | - | - | (4) | (4)
Other | - | - | (10) | - | (33) | - | (43)
Balance as of December 31, 2017 | 4,837 | 509 | 493 | 168 | 32 | 23 | 6,062
Additions | - | - | - | - | - | - | -
Exchange difference | 229 | (127) | 26 | (7) | (3) | - | 118
Impairment | - | - | - | - | - | - | -
Other | - | - | - | - | - | - | -
Balance as of December 31, 2018 | 5,066 | 382 | 519 | 161 | 29 | 23 | 6,180

In 2018, 2017 and 2016, there were no significant business combinations.

F-177

Impairment Test

As mentioned in Note 2.2.8 of the consolidated financial statements for the year 2018, the cash-generating units (CGUs) to which goodwill has been allocated are periodically tested for impairment by including the allocated goodwill in their carrying amount. This analysis is performed at least annually and whenever there is any indication of impairment.

Both the CGU’s fair values and the fair values assigned to its assets and liabilities had been based on the estimates and assumptions that the Group’s Management has deemed most likely given the circumstances. However, some changes to the valuation assumptions used could result in differences in the impairment test result.

Three key assumptions are used when calculating the impairment test. These hypothesis are the ones to which the amount of the recoverable value is most sensitive:

· The forecast cash flows estimated by the Group's management, and based on the latest available budgets for the next 5 years.

· The constant sustainable growth rate for extrapolating cash flows, starting in the fifth year (2023), beyond the period covered by the budgets or forecasts.

· The discount rate on future cash flows, which coincides with the cost of capital assigned to each CGU, and which consists of a risk-free rate plus a premium that reflects the inherent risk of each of the businesses evaluated.

The focus used by the Group's management to determine the values of the hypotheses is based both on its projections and past experience. These values are uniform and use external sources of information. At the same time, the valuations of the most significant goodwill have in general been reviewed by independent experts (not the Group's external auditors) who apply different valuation methods according to each type of asset and liability. The valuation methods used are: The method for calculating the discounted value of future cash flows, the market transaction method and the cost method.

As of December 31, 2018, 2017 and 2016, no indicators of impairment have been identified in any of the main CGUs.

F-178

Goodwill - United States CGU

The Group’s most significant goodwill corresponds to the CGU in the United States, the main significant hypotheses used in the impairment test of this mentioned CGU are:

Impairment test hypotheses CGU Goodwill in the United States
| 2018 | 2017 | 2016
Discount rate | 10.5% | 10.0% | 10.0%
Sustainable growth rate | 4.0% | 4.0% | 4.0%

Given the potential growth of the sector, in accordance with paragraph 33 of IAS 36, as of December 31, 2018, 2017 and 2016 the Group used a steady growth rate of 4.0% based on the real GDP growth rate of the United States and expected inflation. This 4.0% rate is less than the historical average of the past 30 years of the nominal GDP rate of the United States and lower than the real GDP growth forecasted by the IMF.

The assumptions with a greater relative weight and whose volatility could affect more in determining the present value of the cash flows starting on the fifth year are the discount rate and the sustainable growth rate. Below is shown the increased (or decreased) amount of the recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions:

Sensitivity analysis for main hypotheses - USA (Millions of euros)
| Impact of an increase of 50 basis points (*) | Impact of a decrease of 50 basis points (*)
Discount rate | (1,009) | 1,176
Sustainable growth rate | 526 | (451)

(*) Based on historical changes, the use of 50 basis points to calculate the sensitivity analysis would be a reasonable variation with respect to the observed variations over the last five years.

Another assumption used, and with a high impact on the impairment test, is the budgets of the CGU and specifically the effect that changes in interest rates have on cash flows.

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Goodwill - Turkey CGU

The Group’s most significant goodwill corresponds to the CGU in the Turkey, the main significant hypotheses used in the impairment test of this mentioned CGU are:

Impairment test assumptions CGU Goodwill in Turkey
| 2018 | 2017 | 2016
Discount rate | 24.3% | 18.0% | 17.7%
Sustainable growth rate | 7.0% | 7.0% | 7.0%

Given the potential growth of the sector, in accordance with paragraph 33 of IAS 36, as of December 31, 2018, 2017 and 2016 the Group used a steady growth rate of 7.0% based on the real GDP growth rate of Turkey and expected inflation.

The assumptions with a greater relative weight and whose volatility could affect more in determining the present value of the cash flows starting on the fifth year are the discount rate and the sustainable growth rate. Below is shown the increased (or decreased) amount of the recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions:

Sensitivity analysis for main assumptions - Turkey (Millions of euros)
| Impact of an increase of 50 basis points (*) | Impact of a decrease of 50 basis points (*)
Discount rate | (149) | 158
Sustainable growth rate | 40 | (37)

(*) Based on historical changes, the use of 50 basis points to calculate the sensitivity analysis would be a reasonable variation with respect to the observed variations over the last five years.

Goodwill in business combinations

There were no significant business combinations during 2018, 2017 and 2016.

18.2 Other intangible assets

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Other intangible assets (Millions of euros)
|  | 2018 | 2017 | 2016
Computer software acquisition expenses |  | 1,605 | 1,682 | 1,877
Other intangible assets with an infinite useful life |  | 11 | 12 | 12
Other intangible assets with a definite useful life |  | 518 | 708 | 960
Total |  | 2,134 | 2,402 | 2,849

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The changes of this heading in December 31, 2018, 2017 and 2016, are as follows:

Other Intangible Assets (Millions of euros)
| Notes | 2018 | 2017 | 2016
Balance at the beginning |  | 2,402 | 2,849 | 3,137
Acquisition of subsidiaries in the year |  | - | - | -
Additions |  | 552 | 564 | 645
Amortization in the year | 45 | (614) | (694) | (735)
Exchange differences and other |  | (123) | (305) | (196)
Impairment |  | (83) | (12) | (3)
Balance at the end |  | 2,134 | 2,402 | 2,849

As of December 31, 2018, 2017and 2016, the cost of fully amortized intangible assets that remained in use were €1,604 million, €1,380 million and €1,501 million respectively, while their recoverable value was not significant.

19. Tax assets and liabilities

19.1 Consolidated tax group

Pursuant to current legislation, the BBVA Consolidated Tax Group includes the Bank (as the parent company) and its Spanish subsidiaries that meet the requirements provided for under Spanish legislation regulating the taxation regime for the consolidated profit of corporate groups.

The Group’s non-Spanish other banks and subsidiaries file tax returns in accordance with the tax legislation in force in each country.

19.2 Years open for review by the tax authorities

The years open to review in the BBVA Consolidated Tax Group as of December 31, 2018 are 2014 and subsequent years for the main taxes applicable.

The remainder of the Spanish consolidated entities in general have the last four years open for inspection by the tax authorities for the main taxes applicable, except for those in which there has been an interruption of the limitation period due to the start of an inspection.

In the year 2017 as a consequence of the tax authorities examination reviews, inspections were initiated through the year 2013 inclusive, and all such years closed with acceptance during the year 2017. Therefore, these inspections did not constitute any material amount to record in the Consolidated Annual accounts as their impact was provisioned.

In view of the varying interpretations that can be made of some applicable tax legislation, the outcome of the tax inspections of the open years that may be conducted by the tax authorities in the future may give rise to contingent tax liabilities which cannot be reasonably estimated at the present time. However, the Group considers that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise therefore would not materially affect the Group’s accompanying consolidated financial statements.

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19.3 Reconciliation

The reconciliation of the Group’s corporate income tax expense resulting from the application of the Spanish corporation income tax rate and the income tax expense recognized in the accompanying consolidated income statements is as follows:

Reconciliation of Taxation at the Spanish Corporation Tax Rate to the Tax Expense Recorded for the Period (Millions of euros)
| 2018 | 2017 | 2016
| Amount | Effective Tax % | Amount | Effective Tax % | Amount | Effective Tax %
Profit or (-) loss before tax | 8,446 |  | 6,931 |  | 6,392 |
From continuing operations | 8,446 |  | 6,931 |  | 6,392 |
From discontinued operations | - |  | - |  | - |
Taxation at Spanish corporation tax rate 30% | 2,534 |  | 2,079 |  | 1,918 |
Lower effective tax rate from foreign entities (*) | (234) |  | (307) |  | (298) |
Mexico | (78) | 28% | (100) | 27% | (105) | 26%
Chile | (18) | 21% | (29) | 21% | (27) | 17%
Colombia | 10 | 33% | (3) | 29% | 22 | 36%
Peru | (12) | 28% | (16) | 27% | (18) | 26%
Turkey | (132) | 20% | (182) | 21% | (176) | 21%
Others | (4) |  | 23 |  | 6 |
Revenues with lower tax rate (dividends/capital gains) | (57) |  | (53) |  | (69) |
Equity accounted earnings | 3 |  | (2) |  | (11) |
Other effects | 49 |  | 452 |  | 159 |
Current income tax | 2,295 |  | 2,169 |  | 1,699 |
Of which: |  |  |  |  |  |
Continuing operations | 2,295 |  | 2,169 |  | 1,699 |
Discontinued operations | - |  | - |  | - |

(*) Calculated by applying the difference between the tax rate in force in Spain and the one applied to the Group’s earnings in each jurisdiction.

The effective income tax rate for the Group in the years ended December 31, 2018, 2017 and 2016 is as follows:

Effective Tax Rate (Millions of euros)
|  | 2018 | 2017 | 2016
Income from: |  |  |  |
Consolidated Tax Group |  | 1,482 | (678) | (483)
Other Spanish Entities |  | 33 | 29 | 52
Foreign Entities |  | 6,931 | 7,580 | 6,823
Total |  | 8,446 | 6,931 | 6,392
Income tax and other taxes |  | 2,295 | 2,169 | 1,699
Effective Tax Rate |  | 27.17% | 31.3% | 26.6%

In the year 2018, the changes in the nominal tax rate on corporate income tax, in comparison with those existing in the previous year, in the main countries in which the Group has a presence, have been in United States (federal tax from 35% to 21%), Turkey (from 20% to 22%), Argentina (from 35% to 30%), Chile (from 25.5% to 27%) and Colombia (from 40% to 37%). In the year 2017, the changes in the nominal tax rate on corporate income tax, in comparison with those existing in the previous period, in the main countries in which the Group has a presence, have been in Chile (from 24.0% to 25.5%) and Peru (from 28.0% to 29.5%).

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19.4 Income tax recognized in equity

In addition to the income tax expense recognized in the accompanying consolidated income statements, the Group has recognized the following income tax charges for these items in the consolidated total equity:

Tax recognized in total equity (Millions of euros)
|  | 2018 | 2017 | 2016
Charges to total equity |  |  |  |
Debt securities and others |  | (87) | (355) | (533)
Equity instruments |  | (56) | (74) | (2)
Subtotal |  | (143) | (429) | (535)
Total |  | (143) | (429) | (535)

19.5 Current and deferred taxes

The balance under the heading "Tax assets" in the accompanying consolidated balance sheets includes current and deferred tax assets. The balance under the “Tax liabilities” heading includes the Group’s various current and deferred tax liabilities. The details of the mentioned tax assets and liabilities are as follows:

Tax assets and liabilities (Millions of euros)
|  | 2018 | 2017 | 2016
Tax assets |  |  |  |
Current tax assets |  | 2,784 | 2,163 | 1,853
Deferred tax assets |  | 15,316 | 14,725 | 16,391
Pensions |  | 405 | 395 | 1,190
Financial Instruments |  | 1,401 | 1,453 | 1,371
Other assets (investments in subsidiaries) |  | 302 | 357 | 662
Impairment losses |  | 1,375 | 1,005 | 1,390
Other |  | 990 | 870 | 1,236
Secured tax assets (*) |  | 9,363 | 9,433 | 9,431
Tax losses |  | 1,480 | 1,212 | 1,111
Total |  | 18,100 | 16,888 | 18,245
Tax Liabilities |  |  |  |
Current tax liabilities |  | 1,230 | 1,114 | 1,276
Deferred tax liabilities |  | 2,046 | 2,184 | 3,392
Financial Instruments |  | 1,136 | 1,427 | 1,794
Charge for income tax and other taxes |  | 910 | 757 | 1,598
Total |  | 3,276 | 3,298 | 4,668

(*) Law guaranteeing the deferred tax assets has been approved in Spain in 2013. In years 2016 and 2017 guaranteed deferred tax assets also existed in Portugal but in year 2018 they lost the guarantee due to the merge between BBVA Portugal S.A. and BBVA, S.A.

At the end of year 2018, a tax reform has taken place in Colombia, which is expected to hold a 37% tax rate for financial institutions in 2019 (prior to the reform, a 33% tax rate was planned).

The most significant variations of the deferred assets and liabilities in the years 2018, 2017 and 2016 derived from the followings causes:

Deferred tax assets and liabilities (Millions of euros)
|  | 2018 | 2017 | 2016
|  | Deferred Assets | Deferred Liabilities | Deferred Assets | Deferred Liabilities | Deferred Assets | Deferred Liabilities
Balance at the beginning |  | 14,725 | 2,184 | 16,391 | 3,392 | 15,878 | 3,418
Pensions |  | 10 | - | (795) | - | 168 | -
Financials Instruments |  | (52) | (291) | 82 | (367) | (103) | (113)
Other assets |  | (55) | - | (305) | - | 108 | -
Impairment losses |  | 370 | - | (385) | - | 44 | -
Others |  | 120 | 153 | (366) | (841) | 255 | -
Guaranteed Tax assets |  | (70) | - | 2 | - | (105) | -
Tax Losses |  | 268 | - | 101 | - | 146 | -
Charge for income tax and other taxes |  | - | - | - | - | - | 87
Balance at the end |  | 15,316 | 2,046 | 14,725 | 2,184 | 16,391 | 3,392

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With respect to the changes in assets and liabilities due to deferred tax contained in the above table, the following should be pointed out:

· The decrease in guaranteed tax assets is motivated because those corresponding to Portugal are no longer considered as guaranteed.

· The increase in tax losses is mainly due to the Corporate Income Tax (CIT) return 2017 that has generated differences with respect to the estimate of Corporate Tax reflected in the financial statements, on the other hand, the increase in tax losses is also due to the generation of negative tax bases and deductions during year 2018.

· The evolution of the deferred tax assets and liabilities (without taking into consideration the guaranteed deferred tax asset and the tax losses) in net terms is a decrease of €531 million mainly due to the first implementation of IFRS9, the variations in the valuation of portfolio securities and to the operation of the corporate income tax in which differences between accounting and taxation produce movements in the deferred taxes.

On the deferred tax assets and liabilities contained in the table above, those included in section 19.4 above have been recognized against the entity's equity, and the rest against earnings for the year or reserves.

As of December 31, 2018, 2017 and 2016, the estimated amount of temporary differences associated with investments in subsidiaries, joint ventures and associates, which were not recognized deferred tax liabilities in the accompanying consolidated balance sheets, amounted to 443 million euros, 376 million euros and 874 million euros, respectively.

Of the deferred tax assets contained in the above table, the detail of the items and amounts guaranteed by the Spanish government, broken down by the items that originated those assets is as follows:

Secured tax assets (Millions of euros)
|  | 2018 | 2017 (*) | 2016 (*)
Pensions |  | 1,874 | 1,897 | 1,901
Impairment losses |  | 7,489 | 7,536 | 7,530
Total |  | 9,363 | 9,433 | 9,431

(*) In 2017 and 2016 guaranteed deferred tax assets also existed in Portugal but in 2018 they lost the guarantee.

As of December 31, 2018, non-guaranteed net deferred tax assets of the above table amounted to €3,907 million (€3,108 and €3,568 million as of December 31, 2017 and 2016 respectively), which broken down by major geographies is as follows:

· Spain: Net deferred tax assets recognized in Spain totaled €2,653 million as of December 31, 2018 (€2,052 and €2,007 million as of December 31, 2017 and 2016, respectively). €1,462 million of the figure recorded in the year ended December 31, 2018 for net deferred tax assets related to tax credits and tax loss carry forwards and €1,191 million relate to temporary differences.

· Mexico: Net deferred tax assets recognized in Mexico amounted to €826 million as of December 31, 2018 (€615 and €698 million as of December 31, 2017 and 2016, respectively). 99.97% of deferred tax assets as of December 31, 2018 relate to temporary differences. The remainders are tax credits carry forwards.

· South America: Net deferred tax assets recognized in South America amounted to €383 thousand as of December 31, 2018 (€26 and €362 million as of December 31, 2017 and 2016, respectively). Practically all the deferred tax assets are related to temporary differences, only 1.03% are related to tax credits.

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· The United States: Net deferred tax assets recognized in The United States amounted to €164 million as of December 31, 2018 (€180 and €345 million as of December 31, 2017 and 2016, respectively). All the deferred tax assets relate to temporary differences.

· Turkey: Net deferred tax assets recognized in Turkey amounted to €250 million as of December 31, 2018 (€224 and €135 million as of December 31, 2017 and 2016 respectively). As of December 31, 2018, all the deferred tax assets correspond to €15 million of tax credits related to tax losses carry forwards and deductions and €235 million relate to temporary differences.

Based on the information available as of December 31, 2018, including historical levels of benefits and projected results available to the Group for the coming years, it is considered that sufficient taxable income will be generated for the recovery of above mentioned unsecured deferred tax assets when they become deductible according to the tax laws.

On the other hand, the Group has not recognized certain deductible temporary differences, negative tax bases and deductions for which, in general, there is no legal period for offsetting, amounting to approximately € 2,236 million, which are mainly originated by Catalunya Banc.

20. Other assets and liabilities

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Other assets and liabilities: (Millions of euros)
|  | 2018 | 2017 | 2016
ASSETS |  |  |  |
Inventories |  | 635 | 229 | 3,298
Real estate |  | 633 | 226 | 3,268
Others |  | 2 | 3 | 29
Transactions in progress |  | 249 | 156 | 241
Accruals |  | 702 | 768 | 723
Prepaid expenses |  | 465 | 509 | 518
Other prepayments and accrued income |  | 237 | 259 | 204
Other items |  | 3,886 | 3,207 | 3,012
Total Other Assets |  | 5,472 | 4,359 | 7,274
LIABILITIES |  |  |  |
Transactions in progress |  | 39 | 165 | 127
Accruals |  | 2,558 | 2,490 | 2,721
Accrued expenses |  | 2,119 | 1,997 | 2,125
Other accrued expenses and deferred income |  | 439 | 493 | 596
Other items |  | 1,704 | 1,894 | 2,131
Total Other Liabilities |  | 4,301 | 4,550 | 4,979

"Inventories" includes the net book value of land and building purchases that the Group’s Real estate entities have available for sale or as part of their business. Balances under this heading include mainly real estate assets acquired by these entities from distressed customers (mostly in Spain), net of their corresponding losses. The roll-forward of our inventories from distressed customers is provided below:

Inventories from Distressed Customers (Millions of euros)
| 2018 | 2017 | 2016
Gross value |  |  |
Balance at the beginning | 91 | 8,499 | 9,318
Business combinations and disposals | - | - | -
Acquisitions | - | 533 | 336
Disposals | (20) | (2,288) | (1,214)
Others | - | (6,653) | 59
Balance at the end | 71 | 91 | 8,499
Accumulated impairment losses | (21) | (26) | (5,385)
Carrying amount | 49 | 65 | 3,114

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As of December 31, 2017, the majority of the balance of real estate assets acquired from distressed customers was reclassified to the heading "Non-current assets and disposable groups of items that have been classified as held for sale" (see Note 21) due to the agreement with Cerberus to transfer the Real Estate business in Spain (see Note 3).

The impairment included under the heading “Impairment or reversal of impairment of non- financial assets” of the accompanying consolidated financial statements were €51, €306 and €375 million in 2018, 2017 and 2016, respectively (see Note 48).

As indicated in Note 2.2.6, “Inventories” are valued at the lower amount between its fair value less costs to sell and its book value. As of December 31, 2018, practically all of the carrying amount of the assets recorded at fair value on a non-recurring basis coincides with their fair value.

21. Non-current assets and disposal groups held for sale

The composition of the balance under the heading “Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets, broken down by the origin of the assets, is as follows:

Non-current assets and disposal groups classified as held for sale Breakdown by items (Millions of euros)
|  | 2018 | 2017 | 2016
Foreclosures and recoveries |  | 2,211 | 6,207 | 4,225
Foreclosures (*) |  | 2,135 | 6,047 | 4,057
Recoveries from financial leases |  | 76 | 160 | 168
Other assets from tangible assets |  | 433 | 447 | 1,181
Property, plant and equipment |  | 276 | 447 | 378
Operating leases |  | - | - | 803
Investment properties (*) |  | 158 | - | -
Business sale - Assets (**) |  | 29 | 18,623 | 40
Accrued amortization (***) |  | (44) | (77) | (116)
Impairment losses |  | (628) | (1,348) | (1,727)
Total Non-current assets and disposal groups classified as held for sale |  | 2,001 | 23,853 | 3,603

(*) Corresponds mainly to the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).

(**) Corresponds mainly to the BBVA´s stake in BBVA Chile (see Note 3).

(***) Amortization accumulated until related asset reclassified as “non-current assets and disposal groups held for sale”.

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The changes in the balances of “Non-current assets and disposal groups classified as held for sale” in 2018, 2017 and 2016 are as follows:

Non-current assets and disposal groups classified as held for sale Changes in the year 2018 (Millions of euros)
|  | Foreclosed Assets | From Own Use Assets (*) | Other assets (**) | Total
| Notes | Foreclosed Assets through Auction Proceeding | Recovered Assets from Finance Leases
Cost (1) |  |  |  |  |  |
Balance at the beginning |  | 6,047 | 160 | 371 | 18,623 | 25,201
Additions |  | 637 | 55 | 4 | - | 696
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (4,354) | (135) | (227) | (18,594) | (23,310)
Transfers, other movements and exchange differences |  | (195) | (4) | 241 | - | 42
Balance at the end |  | 2,135 | 76 | 389 | 29 | 2,629
Impairment (2) |  |  |  |  |  |
Balance at the beginning |  | 1,102 | 52 | 194 | - | 1,348
Additions | 50 | 195 | 11 | 2 | - | 208
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (793) | (37) | (101) | - | (931)
Other movements and exchange differences |  | (22) | (4) | 29 | - | 3
Balance at the end |  | 482 | 22 | 124 | - | 628
Balance at the end of Net carrying value (1)-(2) |  | 1,653 | 54 | 265 | 29 | 2,001

(*) Net of amortization accumulated until assets were reclassified as non-current assets held for sale.

(**) The variation corresponds mainly to the BBVA’s stake in BBVA Chile and the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).

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Non-current assets and disposal groups classified as held for sale Changes in the year 2017 (Millions of euros)
|  | Foreclosed Assets | From Own Use Assets (*) | Other assets | Total
| Notes | Foreclosed Assets through Auction Proceeding | Recovered Assets from Finance Leases
Cost (1) |  |  |  |  |  |
Balance at the beginning |  | 4,057 | 168 | 1,065 | 40 | 5,330
Additions |  | 791 | 45 | 1 | - | 837
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (1,037) | (49) | (131) | - | (1,217)
Transfers, other movements and exchange differences |  | 2,236 | (4) | (564) | 18,583 | 20,251
Balance at the end |  | 6,047 | 160 | 371 | 18,623 | 25,201
Impairment (2) |  |  |  |  |  |
Balance at the beginning |  | 1,237 | 47 | 443 | - | 1,727
Additions | 50 | 143 | 14 | 1 | - | 158
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (272) | (7) | (42) | - | (321)
Other movements and exchange differences |  | (6) | (2) | (208) | - | (216)
Balance at the end |  | 1,102 | 52 | 194 | - | 1,348
Balance at the end of Net carrying value (1)-(2) |  | 4,945 | 108 | 177 | 18,623 | 23,853

(*) Net of amortization accumulated until assets were reclassified as non-current assets held for sale.

(**) The variation corresponds mainly to the BBVA’s stake in BBVA Chile and the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).

Non-current assets and disposal groups classified as held for sale Changes in the year 2016 (Millions of euros)
|  | Foreclosed Assets | From Own Use Assets (*) | Other assets (**) | Total
| Notes | Foreclosed Assets through Auction Proceeding | Recovered Assets from Finance Leases
Cost (1) |  |  |  |  |  |
Balance at the beginning |  | 3,775 | 216 | 626 | 37 | 4,654
Additions |  | 582 | 57 | 23 | - | 662
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (779) | (77) | (170) | 3 | (1,023)
Transfers, other movements and exchange differences |  | 480 | (28) | 586 | - | 1,037
Balance at the end |  | 4,057 | 168 | 1,065 | 40 | 5,330
Impairment (2) |  |  |  |  |  |
Balance at the beginning |  | 994 | 52 | 240 | - | 1,285
Additions | 50 | 129 | 3 | 5 | - | 136
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (153) | (6) | (33) | - | (192)
Other movements and exchange differences |  | 268 | (2) | 232 | - | 499
Balance at the end |  | 1,237 | 47 | 443 | - | 1,727
Balance at the end of Net carrying value (1)-(2) |  | 2,820 | 121 | 621 | 40 | 3,603

(*) Net of amortization accumulated until assets were reclassified as non-current assets held for sale.

As indicated in Note 2.2.4, “Non-current assets and disposal groups held for sale” and “liabilities included in disposal groups classified as held for sale” are valued at the lower amount between its fair value less costs to sell and its book value. As of December 31, 2018, practically all of the carrying amount of the assets recorded at fair value on a non-recurring basis coincides with their fair value.

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Assets from foreclosures or recoveries

As of December 31, 2018, 2017 and 2016, assets from foreclosures and recoveries, net of impairment losses, by nature of the asset, amounted to €1,072, €1,924 and €2,326 million in assets for residential use; €182, €491 and €574 million in assets for tertiary use (industrial, commercial or office) and €19, €29 and €41 million in assets for agricultural use, respectively.

In December 31, 2018, 2017 and 2016, the average sale time of assets from foreclosures or recoveries was between 2 and 3 years.

During the years 2018, 2017 and 2016, some of the sale transactions for these assets were financed by Group companies. The amount of loans to buyers of these assets in those years amounted to €82, €207 and €219 million, respectively; with an average financing of 50% of the sales price.

As of December 31, 2018, 2017 and 2016, the amount of the profits arising from the sale of Group companies financed assets - and therefore not recognized in the consolidated income statement - amounted to €1 in each financial year.

22. Financial liabilities at amortized cost

22.1 Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial liabilities measured at amortized cost (Millions of euros)
| 2018 | 2017 | 2016
Deposits | 435,229 | 467,949 | 499,706
Deposits from Central Banks (*) | 27,281 | 37,054 | 34,740
Deposits from Credit Institutions | 31,978 | 54,516 | 63,501
Customer deposits | 375,970 | 376,379 | 401,465
Debt certificates | 61,112 | 63,915 | 76,375
Other financial liabilities | 12,844 | 11,850 | 13,129
Total | 509,185 | 543,713 | 589,210

(*) As of December 31, 2018, balance relating to repurchase agreements in Central Banks is €375 million (see Note 35).

22.2 Deposits from credit institutions

The breakdown of the balance under this heading in the consolidated balance sheets, according to the nature of the financial instruments, is as follows:

Deposits from credit institutions (Millions of euros)
| Notes | 2018 | 2017 | 2016
Term deposits |  | 19,015 | 25,941 | 30,429
Demand deposits |  | 8,370 | 3,731 | 4,651
Repurchase agreements | 35 | 4,593 | 24,843 | 28,420
Total |  | 31,978 | 54,516 | 63,501

The breakdown by geographical area and the nature of the related instruments of this heading in the accompanying consolidated balance sheets is as follows:

Deposits from Credit Institutions. December 2018 (Millions of euros)
| Demand Deposits & Reciprocal Accounts | Term Deposits | Repurchase Agreements | Total
Spain | 1,981 | 2,527 | 55 | 4,563
The United States | 1,701 | 2,677 | - | 4,379
Mexico | 280 | 286 | - | 566
Turkey | 651 | 669 | 4 | 1,323
South America | 442 | 1,892 | - | 2,335
Rest of Europe | 3,108 | 6,903 | 4,534 | 14,545
Rest of the world | 207 | 4,061 | - | 4,268
Total | 8,370 | 19,015 | 4,593 | 31,978

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Deposits from Credit Institutions. December 2017 (Millions of euros)
| Demand Deposits & Reciprocal Accounts | Term Deposits | Repurchase Agreements | Total
Spain | 762 | 3,879 | 878 | 5,518
The United States | 1,563 | 2,398 | - | 3,961
Mexico | 282 | 330 | 1,817 | 2,429
Turkey | 73 | 836 | 44 | 953
South America | 448 | 2,538 | 13 | 2,999
Rest of Europe | 526 | 12,592 | 21,732 | 34,849
Rest of the world | 77 | 3,369 | 360 | 3,806
Total | 3,731 | 25,941 | 24,843 | 54,516

Deposits from Credit Institutions. December 2016 (Millions of euros)
| Demand Deposits & Reciprocal Accounts | Term Deposits | Repurchase Agreements | Total
Spain | 956 | 4,995 | 817 | 6,768
The United States | 1,812 | 3,225 | 3 | 5,040
Mexico | 306 | 426 | 2,931 | 3,663
Turkey | 317 | 1,140 | 5 | 1,463
South America | 275 | 3,294 | 465 | 4,035
Rest of Europe | 896 | 13,751 | 23,691 | 38,338
Rest of the world | 88 | 3,597 | 509 | 4,194
Total | 4,651 | 30,429 | 28,420 | 63,501

22.3 Customer deposits

The breakdown of this heading in the accompanying consolidated balance sheets, by type of financial instrument, is as follows:

Customer deposits (Millions of euros)
|  | 2018 | 2017 | 2016
General Governments |  | 26,459 | 23,210 | 21,396
Current accounts |  | 238,907 | 223,497 | 212,604
Time deposits |  | 105,257 | 116,538 | 153,388
Repurchase agreements |  | 1,207 | 9,076 | 13,514
Subordinated deposits |  | 220 | 194 | 233
Other accounts |  | 3,920 | 3,864 | 330
Total |  | 375,970 | 376,379 | 401,465
Of which: |  |  |  |
In Euros |  | 184,934 | 184,150 | 189,438
In foreign currency |  | 191,036 | 192,229 | 212,027

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The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:

Customer Deposits. December 2018 (Millions of euros)
| Demand Deposits | Term Deposits | Repurchase Agreements | Total
Spain | 138,236 | 28,165 | 3 | 166,403
The United States | 41,222 | 21,317 | - | 62,539
Mexico | 38,383 | 11,837 | 770 | 50,991
Turkey | 10,856 | 22,564 | 7 | 33,427
South America | 23,811 | 14,159 | - | 37,970
Rest of Europe | 7,233 | 14,415 | 429 | 22,077
Rest of the world | 831 | 1,731 | - | 2,563
Total | 260,573 | 114,188 | 1,209 | 375,970

Customer Deposits. December 2017 (Millions of euros)
| Demand Deposits | Term Deposits | Repurchase Agreements | Total
Spain | 123,382 | 39,513 | 2,664 | 165,559
The United States | 36,728 | 21,436 | - | 58,164
Mexico | 36,492 | 11,622 | 4,272 | 52,387
Turkey | 12,427 | 24,237 | 152 | 36,815
South America | 23,710 | 15,053 | 2 | 38,764
Rest of Europe | 6,816 | 13,372 | 1,989 | 22,177
Rest of the world | 1,028 | 1,484 | - | 2,511
Total | 240,583 | 126,716 | 9,079 | 376,379

Customer Deposits. December 2016 (Millions of euros)
| Demand Deposits | Term Deposits | Repurchase Agreements | Total
Spain | 102,730 | 56,391 | 1,901 | 161,022
The United States | 26,997 | 23,023 | 263 | 50,282
Mexico | 36,468 | 10,647 | 7,002 | 54,117
Turkey | 47,340 | 14,971 | - | 62,311
South America | 9,862 | 28,328 | 21 | 38,211
Rest of Europe | 6,959 | 19,683 | 4,306 | 30,949
Rest of the world | 1,190 | 3,382 | - | 4,572
Total | 231,547 | 156,425 | 13,493 | 401,465

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22.4 Debt certificates

The breakdown of the balance under this heading, by currency, is as follows:

Debt certificates (Millions of euros)
| 2018 | 2017 | 2016
In Euros | 37,436 | 38,735 | 45,619
Promissory bills and notes | 267 | 1,309 | 875
Non-convertible bonds and debentures | 9,638 | 9,418 | 8,766
Covered bonds (*) | 15,809 | 16,425 | 24,845
Hybrid financial instruments | 814 | 807 | 468
Securitization bonds | 1,630 | 2,295 | 3,693
Wholesale funding | 142 | - | -
Subordinated liabilities | 9,136 | 8,481 | 6,972
Convertible | 5,490 | 4,500 | 4,070
Convertible perpetual securities | 5,490 | 4,500 | 4,070
Convertible subordinated debt | - | - | -
Non-convertible | 3,647 | 3,981 | 2,902
Preferred Stock | 107 | 107 | 359
Other subordinated liabilities | 3,540 | 3,875 | 2,543
In Foreign Currencies | 23,676 | 25,180 | 30,759
Promissory bills and notes | 3,237 | 3,157 | 382
Non-convertible bonds and debentures | 9,335 | 11,109 | 15,134
Covered bonds (*) | 569 | 650 | 149
Hybrid financial instruments | 1,455 | 1,809 | 2,059
Securitization bonds | 38 | 47 | 3,019
Wholesale funding | 544 | - | -
Subordinated liabilities | 8,499 | 8,407 | 10,016
Convertible | 873 | 2,085 | 1,548
Convertible perpetual securities | 873 | 2,085 | 1,548
Convertible subordinated debt | - | - | -
Non-convertible | 7,626 | 6,323 | 8,467
Preferred Stock | 74 | 55 | 620
Other subordinated liabilities | 7,552 | 6,268 | 7,846
Total | 61,112 | 63,915 | 76,375

(*) Including mortgage-covered bonds (see Appendix III).

As of December 31, 2018, 67% of “Debt certificates” have fixed-interest rates and 33% have variable interest rates.

Most of the foreign currency issues are denominated in U.S. dollars.

22.4.1 Subordinated liabilities

The issuances of BBVA International Preferred, S.A.U., BBVA Global Finance, Ltd., Caixa Terrassa Societat de Participacions Preferents, S.A.U. and CaixaSabadell Preferents, S.A.U., are jointly, severally and irrevocably guaranteed by the Bank. The balance variances are mainly due to the following transactions:

Convertible perpetual liabilities

On September 24, 2018, BBVA carried out the seventh issuance of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €1,000 million. This issuance is listed in the AIAF Fixed Income Securities Market and in any case the issuance shall be offered or sold to any retail clients. The issuance qualifies as additional tier 1 capital of the Bank and the Group in accordance with Regulation EU 575/2013.

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The additional five issuances of perpetual contingent convertible securities (additional tier 1 instruments) with exclusion of pre-emptive subscription rights of shareholders were carried out in February 2014 and February 2015 for an amount of €1.5 billion each one; in April 2016 for an amount of €1 billion; in May 2017 for an amount of €500 million and in November 2017 for an amount of USD1 billion. These issuances were targeted only at qualified investors and foreign private banking clients not being offered to, and not being subscribed for, in Spain or by Spanish residents. The first issuance is listed in the Singapore Exchange Securities Trading Limited and the other issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these issuances qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation UE 575/2013.

These perpetual securities will be converted into newly issued ordinary shares of BBVA if the CET 1 ratio of the Bank or the Group is less than 5.125%, in accordance with their respective terms and conditions.

These issues may be fully redeemed at BBVA´s option only in the cases contemplated in their respective terms and conditions, and in any case, in accordance with the provisions of the applicable legislation.

In particular, on May 9, 2018, the Bank early redeemed the issuance of preferred securities contingently convertible (additional tier 1 instrument) carried out by the Bank on May 9, 2013, for an amount of USD1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator was obtained.

Additionally, on January 15, 2019, the Bank has notified its irrevocable decision to early redeem next February 19, 2019 the issuance of preferred securities contingently convertible (additional tier 1 instrument), carried out by the Bank on February 19, 2014, for a total amount of €1,5 billion and once the prior consent from the Regulator has been obtained.

Preferred securities

The breakdown by issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Preferred Securities by Issuer (Millions of euros)
| 2018 | 2017 | 2016
BBVA International Preferred, S.A.U. (1) | 35 | 36 | 855
Unnim Group (2) | 98 | 98 | 100
Compass Group | 19 | 19 | 22
BBVA Colombia, S.A. | 19 | 1 | 1
Others | 9 | 9 | 1
Total | 181 | 163 | 979

(1) Listed on the London and New York stock exchanges.

(2) Unnim Group: Issuances prior to the acquisition by BBVA.

These issues were fully subscribed at the moment of the issue by qualified/institutional investors outside the Group and are redeemable at the issuer company’s option after five years from the issue date, depending on the terms of each issue and with prior consent from the Bank of Spain.

Redemption of preferred securities

On March 20, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series B preferred securities for an outstanding amount of €164,350,000.

Likewise, on March 22, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series A preferred securities for an outstanding amount of €85,550,000.

Finally, on April 18, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series C preferred securities for an outstanding amount of USD 600,000,000.

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22.5 Other financial liabilities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Other financial liabilities (Millions of euros)
| Notes | 2018 | 2017 | 2016
Creditors for other financial liabilities |  | 2,891 | 2,835 | 3,465
Collection accounts |  | 4,305 | 3,452 | 2,768
Creditors for other payables |  | 5,648 | 5,563 | 6,370
Dividend payable but pending payment | 4 | - | - | 525
Total |  | 12,844 | 11,850 | 13,129

23. Assets and liabilities under insurance and reinsurance contracts

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

There are two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.

The insurance business is affected by different risks, including those that are related to the BBVA Group such as credit risk, market risk, liquidity risk and operational risk and the methodology for risk measurement applied in the insurance activity is similar (see Note 7), although it has a differentiated management due to the particular characteristics of the insurance business, such as the coverage of contracted obligations and the long term of the commitments. Additionally, the insurance business generates certain specific risks, of a probabilistic nature:

· Technical risk: arises from deviations in the estimation of the casualty rate of insurances, either in terms of numbers, the amount of such claims and the timing of its occurrence.

· Biometric risk: depending on the deviations in the expected mortality behavior or the survival of the insured persons.

The insurance industry is highly regulated in each country. In this regard, it should be noted that the insurance industry is undergoing a gradual regulatory transformation through new risk-based capital regulations, which have already been published in several countries.

The most significant provisions recognized by consolidated insurance subsidiaries with respect to insurance policies issued by them are under the heading “Liabilities under insurance and reinsurance contracts” in the accompanying consolidated balance sheets.

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The breakdown of the balance under this heading is as follows:

Technical Reserves by type of insurance product (Millions of euros)
| 2018 | 2017 | 2016
Mathematical reserves | 8,504 | 7,961 | 7,813
Individual life insurance (1) | 6,201 | 5,359 | 4,791
Savings | 5,180 | 4,391 | 3,943
Risk | 1,021 | 967 | 848
Others | - | 1 | -
Group insurance (2) | 2,303 | 2,601 | 3,022
Savings | 2,210 | 2,455 | 2,801
Risk | 93 | 147 | 221
Others | - | - | -
Provision for unpaid claims reported | 662 | 631 | 691
Provisions for unexpired risks and other provisions | 668 | 631 | 635
Total | 9,834 | 9,223 | 9,139

(1) Provides coverage in the event of death or disability.

(2) The insurance policies purchased by employers (other than BBVA Group) on behalf of its employees.

The cash flows of those Liabilities under insurance and reinsurance contracts are shown below:

Maturity (Millions of euros) Liabilities under Insurance and Reinsurance Contracts
| Up to 1 Year | 1 to 3 Years | 3 to 5 Years | Over 5 Years | Total
2018 | 1,686 | 1,041 | 1,822 | 5,285 | 9,834
2017 | 1,560 | 1,119 | 1,502 | 5,042 | 9,223
2016 | 1,705 | 1,214 | 1,482 | 4,738 | 9,139

The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are actuarial and financial methods and modeling techniques approved by the respective country’s insurance regulator or supervisor. The most important insurance entities are located in Spain and Mexico (which together account for approximately 85% of the insurance revenues), where the modeling methods and techniques are reviewed by the insurance regulator in Spain (General Directorate of Insurance) and Mexico (National Insurance and Bonding Commission), respectively. The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are compliant with IFRS and primarily involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each policy. To ensure this technical interest rate, asset-liability management is carried out, acquiring a portfolio of securities that generate the cash flows needed to cover the payment commitments assumed with the customers.

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The table below shows the key assumptions as of December 31, 2018, used in the calculation of the mathematical reserves for insurance products in Spain and Mexico, respectively:

Mathematical Reserves
| Mortality table | Average technical interest type
| Spain | Mexico | Spain | Mexico
Individual life insurance (1) | GRMF 80-2 GKM 80 / GKMF 95 PERMF 2000 PASEM | Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual | 0.26%-3.27% | 2.50%
Group insurance(2) | PERMF 2000 | Tables of the Comisión Nacional de Seguros y Fianzas 2000-grupo | Depending on the related portfolio | 5.50%

(1) Provides coverage in the case of one or more of the following events: death and disability.

(2) Insurance policies purchased by companies (other than Group BBVA entities) on behalf of their employees.

The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of December 31, 2018, 2017 and 2016, the balance under this heading amounted to €366 million, €421 million and €447 million, respectively.

24. Provisions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, based on type of provisions, is as follows:

Provisions. Breakdown by concepts (Millions of euros)
| Notes | 2018 | 2017 | 2016
Provisions for pensions and similar obligations | 25 | 4,787 | 5,407 | 6,025
Other long term employee benefits | 25 | 62 | 67 | 69
Provisions for taxes and other legal contingencies |  | 686 | 756 | 418
Provisions for contingent risks and commitments |  | 636 | 578 | 950
Other provisions |  | 601 | 669 | 1,609
Total |  | 6,772 | 7,477 | 9,071

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The change in provisions for pensions and similar obligations for the years ended December 31, 2018, 2017 and 2016 is as follows:

Provisions for pensions and similar obligations. Changes Over the Year (Millions of euros)
| Notes | 2018 | 2017 | 2016
Balance at the beginning |  | 5,407 | 6,025 | 6,299
Add |  |  |  |
Charges to income for the year |  | 126 | 391 | 402
Interest expenses and similar charges |  | 78 | 71 | 96
Personnel expenses | 44.1 | 58 | 62 | 67
Provision expenses |  | (10) | 258 | 239
Charges to equity (1) | 25 | 41 | 140 | 339
Transfers and other changes |  | 95 | (264) | 66
Less |  |  |  |
Benefit payments | 25 | (779) | (861) | (926)
Employer contributions | 25 | (103) | (25) | (154)
Balance at the end |  | 4,787 | 5,407 | 6,025

(1) Correspond to actuarial losses (gains) arising from certain defined-benefit post-employment pension commitments and other similar benefits recognized in “Equity” (see Note 2.2.12).

Provisions for Taxes, Legal Contingents and Other Provisions. Changes Over the Year (Millions of euros)
| 2018 | 2017 | 2016
Balance at beginning | 1,425 | 2,028 | 1,771
Additions | 455 | 868 | 1,109
Acquisition of subsidiaries | - | - | -
Unused amounts reversed during the period | (184) | (164) | (311)
Amount used and other variations | (410) | (1,306) | (540)
Balance at the end | 1,286 | 1,425 | 2,028

Ongoing legal proceedings and litigation

The financial sector faces an environment of increasing regulatory and litigious pressure. In this environment, the different Group’s entities are often parties to individual or collective legal proceedings arising from the ordinary activity of their businesses. In accordance with the procedural status of these proceedings and according to the criteria of the attorneys who manage them, BBVA considers that none of them is material, individually or in aggregate, and that no significant impact will derive from them neither in the results of operations nor on liquidity, nor in the financial position at a consolidated level of the Group, as at the level of the individual Bank. The Group Management considers that the provisions made in connection with these legal proceedings are adequate.

As mentioned in Note 7.2 Risk factors, the Group is subject or may be subject in the future to a series of legal and regulatory investigations, procedures and actions which, in case of a negative result, could have an adverse impact on the Group.

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25. Post-employment and other employee benefit commitments

As stated in Note 2.2.12, the Group has assumed commitments with employees including short-term employee benefits (see Note 44.1), defined contribution and defined benefit plans (see Glossary), healthcare and other long-term employee benefits.

The Group sponsors defined-contribution plans for the majority of its active employees with the plans in Spain and Mexico being the most significant. Most defined benefit plans are closed to new employees with liabilities relating largely to retired employees, the most significant being those in Spain, Mexico, the United States and Turkey. In Mexico, the Group provides medical benefits to a closed group of employees and their family members, both active service and in retirees.

The breakdown of the balance sheet net defined benefit liability as of December 31, 2018, 2017 and 2016 is provided below:

Net Defined Benefit Liability (asset) on the Consolidated Balance Sheet (Millions of euros)
| 2018 | 2017 | 2016
Pension commitments | 4,678 | 4,969 | 5,277
Early retirement commitments | 1,793 | 2,210 | 2,559
Medical benefits commitments | 1,114 | 1,204 | 1,015
Other long term employee benefits | 62 | 67 | 69
Total commitments | 7,647 | 8,451 | 8,920
Pension plan assets | 1,694 | 1,892 | 1,909
Medical benefit plan assets | 1,146 | 1,114 | 1,113
Total plan assets (1) | 2,840 | 3,006 | 3,022
Total net liability / asset | 4,807 | 5,445 | 5,898
Of which: |  |  |
Net asset on the consolidated balance sheet (2) | (41) | (27) | (194)
Net liability on the consolidated balance sheet for provisions for pensions and similar obligations (3) | 4,787 | 5,407 | 6,025
Net liability on the consolidated balance sheet for other long term employee benefits (4) | 62 | 67 | 69

(1) In Turkey, the foundation responsible for managing the benefit commitments holds an additional asset of 181€ million which, in accordance with IFRS regarding the asset ceiling, has not been recognized in the Consolidated Financial Statements, because although it could be used to reduce future pension contributions it could not be immediately refunded to the employer.

(2) Recorded under the heading “Other Assets - Other” of the consolidated balance sheet (see Note 20).

(3) Recorded under the heading “Provisions - Provisions for pensions and similar obligations” of the consolidated balance sheet (see Note 24).

(4) Recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet.

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The amounts relating to benefit commitments charged to consolidated income statement for the years 2018, 2017 and 2016 are as follows:

Consolidated Income Statement Impact (Millions of euros)
| Notes | 2018 | 2017 | 2016
Interest and similar expenses |  | 78 | 71 | 96
Interest expense |  | 295 | 294 | 303
Interest income |  | (217) | (223) | (207)
Personnel expenses |  | 147 | 149 | 154
Defined contribution plan expense | 44.1 | 89 | 87 | 87
Defined benefit plan expense | 44.1 | 58 | 62 | 67
Provisions (net) | 46 | 125 | 343 | 332
Early retirement expense |  | 141 | 227 | 236
Past service cost expense |  | (33) | 3 | (2)
Remeasurements (*) |  | (10) | 31 | 3
Other provision expenses |  | 28 | 82 | 95
Total impact on Consolidated Income Statement: Debit (Credit) |  | 350 | 563 | 582

(*) Actuarial losses (gains) on remeasurement of the net defined benefit liability relating to early retirements in Spain and other long-term employee benefits that are charged to the income statements (see Note 2.2.12).

The amounts relating to post-employment benefits charged to the consolidated balance sheet correspond to the actuarial gains (losses) on remeasurement of the net defined benefit liability relating to pension and medical commitments before income taxes. As of December 31, 2018, 2017 and 2016 are as follows:

Equity Impact (Millions of euros)
|  | 2018 | 2017 | 2016
Defined benefit plans |  | 81 | (40) | 237
Post-employment medical benefits |  | (47) | 179 | 119
Total impact on equity: Debit (Credit) |  | 34 | 140 | 356

##

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## 25.1 Defined benefit plans

Defined benefit commitments relate mainly to employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. For the latter, the Group pays the required premiums to fully insure the related liability. The change in these pension commitments during the years ended December 31, 2018, 2017 and 2016 is presented below:

Defined Benefits (Millions of euros)
|  | 2018 |  |  | 2017 |  |  | 2016 |
| Defined Benefit Obligation | Plan Assets | Net Liability (asset) | Defined Benefit Obligation | Plan Assets | Net Liability (asset) | Defined Benefit Obligation | Plan Assets | Net Liability (asset)
Balance at the beginning | 8,384 | 3,006 | 5,378 | 8,851 | 3,022 | 5,829 | 9,184 | 3,124 | 6,060
Current service cost | 61 | - | 61 | 64 | - | 64 | 67 | - | 67
Interest income or expense | 292 | 217 | 76 | 290 | 223 | 68 | 299 | 207 | 92
Contributions by plan participants | 4 | 3 | 1 | 4 | 4 | - | 5 | 5 | -
Employer contributions | - | 103 | (103) | - | 25 | (25) | - | 154 | (154)
Past service costs (1) | 109 | - | 109 | 231 | - | 231 | 235 | - | 235
Remeasurements: | (263) | (286) | 21 | 331 | 161 | 171 | 354 | (5) | 359
Return on plan assets (2) | - | (286) | 286 | - | 161 | (161) | - | (20) | 20
From changes in demographic assumptions | 14 | - | 14 | 100 | - | 100 | 107 | - | 107
From changes in financial assumptions | (274) | - | (274) | 220 | - | 220 | 106 | - | 106
Other actuarial gain and losses | (3) | - | (5) | 12 | - | 12 | 141 | 15 | 125
Benefit payments | (979) | (200) | (779) | (1,029) | (169) | (861) | (1,052) | (169) | (883)
Settlement payments | - | - | - | - | - | - | (43) | - | (43)
Business combinations and disposals | - | - | - | - | - | - | - | - | -
Effect on changes in foreign exchange rates | (31) | (9) | (22) | (278) | (258) | (19) | (282) | (293) | 11
Conversions to defined contributions | - | - | - | (82) | - | (82) | - | - | -
Other effects | 10 | 6 | 4 | (1) | (1) | - | 84 | - | 84
Balance at the end | 7,585 | 2,840 | 4,745 | 8,384 | 3,006 | 5,378 | 8,851 | 3,022 | 5,829
Of which |  |  |  |  |  |  |  |  |
Spain | 4,807 | 260 | 4,547 | 5,442 | 320 | 5,122 | 6,157 | 358 | 5,799
Mexico | 1,615 | 1,587 | 28 | 1,661 | 1,602 | 60 | 1,456 | 1,627 | (171)
The United States | 326 | 287 | 39 | 360 | 309 | 51 | 385 | 339 | 46
Turkey | 422 | 339 | 83 | 520 | 424 | 96 | 447 | 348 | 99

(1) Including gains and losses arising from settlements.

(2) Excluding interest, which is recorded under "Interest income or expense".

The balance under the heading “Provisions - Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet as of December 31, 2018 includes €332 million relating to post-employment benefit commitments to former members of the Board of Directors and the Bank’s Management (see Note 54).

The most significant commitments are those in Spain and Mexico and, to a lesser extent, in the United States and Turkey. The remaining commitments are located mostly in Portugal and South America. Unless otherwise required by local regulation, all defined benefit plans have been closed to new entrants, who instead are able to participate in the Group´s defined contribution plans.

Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method.

In order to guarantee the good governance of these plans, the Group has established specific benefits committees. These benefit committees include members from the different areas of the business to ensure that all decisions are made taking into consideration all of the associated impacts.

The following table sets out the key actuarial assumptions used in the valuation of these commitments as of December 31, 2018, 2017 and 2016:

Actuarial Assumptions (Millions of euros)
|  | 2018 |  |  |  | 2017 |  |  |  | 2016 |  |
| Spain | Mexico | USA | Turkey | Spain | Mexico | USA | Turkey | Spain | Mexico | USA | Turkey
Discount rate | 1.28% | 10.45% | 4.23% | 16.30% | 1.24% | 9.48% | 3.57% | 11.60% | 1.50% | 9.95% | 4.04% | 11.50%
Rate of salary increase | - | 4.75% | - | 14.00% | - | 4.75% | - | 9.90% | 1.50% | 4.75% | 3.00% | 9.30%
Rate of pension increase | - | 2.51% | - | 12.50% | - | 2.13% | - | 8.40% | - | 2.13% | - | 7.80%
Medical cost trend rate | - | 7.00% | - | 16.70% | - | 7.00% | - | 12.60% | - | 6.75% | - | 10.92%
Mortality tables | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001 | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001 | PERM/F 2000P | EMSSA97 (adjustment EMSSA09) | RP 2014 | CSO2001

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In Spain, the discount rate shown as of December, 31, 2018, corresponds to the weighted average rate, the actual discount rates used are 0.50% and 1.75% depending on the type of commitment.

Discount rates used to value future benefit cash flows have been determined by reference to high quality corporate bonds (Note 2.2.12) denominated in Euro in the case of Spain, Mexican peso for Mexico and USD for the United States, and government bonds denominated in new Turkish Lira for Turkey.

The expected return on plan assets has been set in line with the adopted discount rate.

Assumed retirement ages have been set by reference to the earliest age at which employees are entitled to retire, the contractually agreed age in the case of early retirements in Spain or by using retirement rates.

Changes in the main actuarial assumptions may affect the valuation of the commitments. The table below shows the sensitivity of the benefit obligations to changes in the key assumptions:

Sensitivity Analysis (Millions of euros)
| Basis points change | 2018 | 2017
| Increase | Decrease | Increase | Decrease
Discount rate | 50 | (298) | 332 | (352) | 386
Rate of salary increase | 50 | 3 | (3) | 5 | (5)
Rate of pension increase | 50 | 19 | (18) | 23 | (22)
Medical cost trend rate | 100 | 229 | (181) | 290 | (225)
Change in obligation from each additional year of longevity | - | 108 | - | 155 | -

The sensitivities provided above have been determined at the date of these consolidated financial statements, and reflect solely the impact of changing one individual assumption at a time, keeping the rest of the assumptions unchanged, thereby excluding the effects which may result from combined assumption changes.

In addition to the commitments to employees shown above, the Group has other less material long-term employee benefits. These include long-service awards, which consist of either an established monetary award or some vacation days granted to certain groups of employees when they complete a given number of years of service. As of December 31, 2018, 2017 and 2016, the actuarial liabilities for the outstanding awards amounted to €62 million, €67 million, and €69 million, respectively. These commitments are recorded under the heading "Provisions - Other long-term employee benefits" of the accompanying consolidated balance sheet (see Note 24).

As described above, the Group maintains both pension and medical post-employment benefit commitments with their employees.

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25.1.1 Post-employment commitments and similar obligations

These commitments relate mostly to pensions in payment, and which have been determined based on salary and years of service. For most plans, pension payments are due on retirement, death and long term disability.

In addition, during the year 2018, Group entities in Spain offered certain employees the option to take retirement or early retirement (that is, earlier than the age stipulated in the collective labor agreement in force). This offer was accepted by 489 employees (731 and 613 employees during years 2017 and 2016, respectively). These commitments include the compensation and indemnities due as well as the contributions payable to external pension funds during the early retirement period. As of December 31, 2018, 2017 and 2016, the value of these commitments amounted to €1,793 million, €2,210 million and €2,559 million, respectively. The change in the benefit plan obligations and plan assets as of December 31, 2018 was as follows:

Post-employment commitments 2018 (Millions of euros)
| Defined Benefit Obligation
| Spain | Mexico | USA | Turkey | Rest of the world
Balance at the beginning | 5,442 | 470 | 360 | 520 | 387
Current service cost | 4 | 5 | - | 21 | 4
Interest income or expense | 64 | 44 | 13 | 47 | 9
Contributions by plan participants | - | - | - | 3 | 1
Employer contributions | - | - | - | - | -
Past service costs (1) | 148 | (1) | - | 2 | 2
Remeasurements: | (32) | 18 | (28) | (18) | 3
Return on plan assets (2) | - | - | - | - | -
From changes in demographic assumptions | - | - | (1) | - | 15
From changes in financial assumptions | - | (9) | (28) | (45) | (12)
Other actuarial gain and losses | (32) | 27 | 1 | 29 | -
Benefit payments | (824) | (48) | (35) | (21) | (18)
Settlement payments | - | - | - | - | -
Business combinations and disposals | - | - | - | - | -
Effect on changes in foreign exchange rates | - | 25 | 17 | (134) | (2)
Conversions to defined contributions | - | - | - | - | -
Other effects | 5 | (2) | (1) | - | 17
Balance at the end | 4,807 | 512 | 326 | 422 | 402
Of which: |  |  |  |  |
Vested benefit obligation relating to current employees | 111 |  |  |  |
Vested benefit obligation relating to retired employees | 4,696 |  |  |  |

Post-employment commitments 2018 (Millions of euros)
| Plan Assets
| Spain | Mexico | USA | Turkey | Rest of the world
Balance at the beginning | 320 | 488 | 309 | 424 | 351
Current service cost | - | - | - | - | -
Interest income or expense | 5 | 46 | 11 | 39 | 7
Contributions by plan participants | - | - | - | 3 | 1
Employer contributions | - | - | 2 | 13 | 18
Past service costs (1) | - | - | - | - | -
Remeasurements: | (4) | (70) | (17) | (21) | (11)
Return on plan assets (2) | (4) | (70) | (17) | (21) | (11)
From changes in demographic assumptions | - | - | - | - | -
From changes in financial assumptions | - | - | - | - | -
Other actuarial gain and losses | - | - | - | - | -
Benefit payments | (61) | (47) | (33) | (10) | (15)
Settlement payments | - | - | - | - | -
Business combinations and disposals | - | - | - | - | -
Effect on changes in foreign exchange rates | - | 26 | 15 | (108) | (1)
Conversions to defined contributions | - | - | - | - | -
Other effects | - | (1) | - | - | 17
Balance at the end | 260 | 441 | 287 | 339 | 366

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Post-employment commitments 2018 (Millions of euros)
| Net Liability (Asset)
| Spain | Mexico | USA | Turkey | Rest of the world
Balance at the beginning | 5,122 | (18) | 51 | 96 | 36
Current service cost | 4 | 5 | - | 21 | 4
Interest income or expense | 59 | (2) | 2 | 8 | 2
Contributions by plan participants | - | - | - | - | 1
Employer contributions | - | - | (2) | (13) | (18)
Past service costs (1) | 148 | (1) | - | 2 | 2
Remeasurements: | (28) | 88 | (11) | 3 | 14
Return on plan assets (2) | 4 | 70 | 17 | 21 | 11
From changes in demographic assumptions | - | - | (1) | - | 15
From changes in financial assumptions | - | (9) | (28) | (45) | (12)
Other actuarial gain and losses | (32) | 27 | 1 | 29 | -
Benefit payments | (763) | - | (2) | (11) | (3)
Settlement payments | - | - | - | - | -
Business combinations and disposals | - | - | - | - | -
Effect on changes in foreign exchange rates | - | (1) | 2 | (26) | (1)
Conversions to defined contributions | - | - | - | - | -
Other effects | 5 | - | (1) | - | -
Balance at the end | 4,547 | 71 | 39 | 83 | 35

(1) Including gains and losses arising from settlements.

(2) Excluding interest, which is recorded under "Interest income or expense".

The change in net liabilities (assets) during the years ended 2017 and 2016 was as follows:

Post-employment commitments (Millions of euros)
| 2017: Net liability (asset) | 2016: Net liability (asset)
| Spain | Mexico | USA | Turkey | Rest of the world | Spain | Mexico | USA | Turkey | Rest of the world
Balance at the beginning | 5,799 | (59) | 46 | 99 | 43 | 6,109 | (79) | 35 | 97 | 24
Current service cost | 4 | 5 | 3 | 21 | 5 | 10 | 6 | 4 | 22 | 5
Interest income or expense | 73 | (6) | 1 | 9 | 2 | 98 | (7) | 1 | 8 | 2
Contributions by plan participants | - | - | - | - | - | - | - | - | - | -
Employer contributions | - | (1) | - | (16) | (8) | - | (14) | (1) | (17) | (9)
Past service costs (1) | 235 | 1 | - | 4 | 3 | 240 | 1 | - | 4 | (4)
Remeasurements: | (67) | 38 | 9 | 12 | (1) | 188 | 23 | 10 | 8 | 11
Return on plan assets (2) | (21) | (10) | (11) | (101) | 2 | (35) | 23 | 3 | (23) | (8)
From changes in demographic assumptions | - | 22 | (2) | - | (3) | - | 2 | (5) | - | (1)
From changes in financial assumptions | (33) | 18 | 22 | 81 | 4 | 192 | (22) | 13 | (23) | 37
Other actuarial gain and losses | (13) | 7 | - | 32 | (4) | 31 | 19 | (1) | 54 | (17)
Benefit payments | (842) | (1) | (2) | (11) | (3) | (867) | - | (3) | (9) | (2)
Settlement payments | - | - | - | - | - | (43) | - | - | - | -
Business combinations and disposals | - | - | - | - | - | - | - | - | - | -
Effect on changes in foreign exchange rates | - | 5 | (5) | (21) | (5) | - | 10 | 2 | (15) | (4)
Conversions to defined contributions | (82) | - | - | - | - | - | - | - | - | -
Other effects | 2 | - | (1) | - | (1) | 63 | - | (3) | - | 20
Balance at the end | 5,122 | (18) | 51 | 96 | 36 | 5,799 | (59) | 46 | 99 | 42

(1) Includes gains and losses from settlements.

(2) Excludes interest which is reflected in the line item “Interest income and expenses”.

In Spain, local regulation requires that pension and death benefit commitments must be funded, either through a qualified pension plan or an insurance contract.

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In the Spanish entities these commitments are covered by insurance contracts which meet the requirements of the accounting standard regarding the non-recoverability of contributions. However, a significant number of the insurance contracts are with BBVA Seguros, S.A. – a consolidated subsidiary and related party – and consequently these policies cannot be considered plan assets under IAS 19. For this reason, the liabilities insured under these policies are fully recognized under the heading "Provisions – Pensions and other postemployment defined benefit obligations" of the accompanying consolidated balance sheet (see Note 24), while the related assets held by the insurance company are included within the Group´s consolidated assets (recorded according to the classification of the corresponding financial instruments). As of December 31, 2018 the value of these separate assets was €2,543 million, representing direct rights of the insured employees held in the consolidated balance sheet, hence these benefits are effectively fully funded.

On the other hand, some pension commitments have been funded through insurance contracts with insurance companies not related to the Group, and can therefore be considered qualifying insurance policies and plan assets under IAS 19. In this case the accompanying consolidated balance sheet reflects the value of the obligations net of the fair value of the qualifying insurance policies. As of December 31, 2018, 2017 and 2016, the fair value of the aforementioned insurance policies (€260, €320 million and €358 million, respectively) exactly match the value of the corresponding obligations and therefore no amount for this item has been recorded in the accompanying consolidated balance sheet.

Pensions benefits are paid by the insurance companies with whom BBVA has insurance contracts and to whom all insurance premiums have been paid. The premiums are determined by the insurance companies using “cash flow matching” techniques to ensure that benefits can be met when due, guaranteeing both the actuarial and interest rate risk.

In Mexico, there is a defined benefit plan for employees hired prior to 2001. Other employees participate in a defined contribution plan. External funds/trusts have been constituted locally to meet benefit payments as required by local regulation.

In the United States there are mainly two defined benefit plans, both closed to new employees, who instead are able to join a defined contribution plan. External funds/trusts have been constituted locally to fund the plans, as required by local regulation.

In 2008, the Turkish government passed a law to unify the different existing pension systems under a single umbrella Social Security system. Such system provides for the transfer of the various previously established funds.

The financial sector is in this stage at present, maintaining these pension commitments managed by external pension funds (foundations) established for that purpose.

The Foundation that maintains the assets and liabilities relating to employees of Garanti in Turkey, as per the local regulatory requirements, has recorded an obligation amounting to €241 million as of December 31, 2018 pending future transfer to the Social Security system.

Furthermore, Garanti has set up a defined benefit pension plan for employees, additional to the social security benefits, reflected in the consolidated balance sheet.

Until the year 2016, the Bank also had commitments to pay indemnities to certain employees and members of the Group’s Senior Management in the event that they cease to hold their positions for reasons other than their own will, retirement, disability or serious dereliction of duties. The amount will be calculated according to the salary and professional conditions of each employee, taking into consideration fixed elements of the remuneration and the length of office at the Bank. Under no circumstances indemnities will be paid in cases of disciplinary dismissal for misconduct upon decision of the employer on grounds of the employee's serious dereliction of duties.

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25.1.2 Medical benefit commitments

The change in defined benefit obligations and plan assets during the years 2018, 2017 and 2016 was as follows:

Medical Benefits Commitments
| 2018 | 2017 | 2016
| Defined Benefit Obligation | Plan assets | Net liability (asset) | Defined Benefit Obligation | Plan assets | Net liability (asset) | Defined Benefit Obligation | Plan assets | Net liability (asset)
Balance at the beginning | 1,204 | 1,114 | 91 | 1,015 | 1,113 | (98) | 1,022 | 1,149 | (127)
Current service cost | 27 | - | 27 | 26 | - | 26 | 24 | - | 24
Interest income or expense | 116 | 109 | 8 | 101 | 112 | (11) | 86 | 97 | (11)
Contributions by plan participants | - | - | - | - | - | - | - | - | -
Employer contributions | - | 71 | (71) | - | - | - | - | 114 | (114)
Past service costs (1) | (42) | - | (42) | (11) | - | (11) | (5) | - | (5)
Remeasurements: | (210) | (164) | (47) | 200 | 21 | 179 | 59 | (60) | 119
Return on plan assets (2) | - | (164) | 164 | - | 21 | (21) | - | (60) | 60
From changes in demographic assumptions | - | - | - | 83 | - | 83 | 110 | - | 110
From changes in financial assumptions | (182) | - | (182) | 128 | - | 128 | (91) | - | (91)
Other actuarial gain and losses | (28) | - | (28) | (10) | - | (10) | 39 | - | 39
Benefit payments | (34) | (33) | (1) | (35) | (33) | (2) | (33) | (30) | (2)
Settlement payments | - | - | - | - | - | - | - | - | -
Business combinations and disposals | - | - | - | - | - | - | - | - | -
Effect on changes in foreign exchange rates | 62 | 59 | 3 | (92) | (100) | 8 | (138) | (156) | 18
Other effects | (9) | (9) | - | - | - | - | - | - | -
Balance at the end | 1,114 | 1,146 | (32) | 1,204 | 1,114 | 91 | 1,015 | 1,113 | (98)

(1) Including gains and losses arising from settlements.

(2) Excluding interest, which is recorded under "Interest income or expense".

In Mexico, there is a medical benefit plan for employees hired prior to 2007. New employees from 2007 are covered by a medical insurance policy. An external trust has been constituted locally to fund the plan, in accordance with local legislation and Group policy.

In Turkey, employees are currently provided with medical benefits through a foundation in collaboration with the Social Security system, although local legislation prescribes the future unification of this and similar systems into the general Social Security system itself.

The valuation of these benefits and their accounting treatment follow the same methodology as that employed in the valuation of pension commitments.

25.1.3 Estimated benefit payments

As of December 31, 2018, the estimated benefit payments over the next ten years for all the entities in Spain, Mexico, The United States and Turkey are as follows:

Estimated Benefit Payments (Millions of euros)
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024-2028
Commitments in Spain | 684 | 611 | 518 | 419 | 333 | 965
Commitments in Mexico | 91 | 92 | 99 | 106 | 112 | 680
Commitments in United States | 16 | 17 | 17 | 18 | 19 | 103
Commitments in Turkey | 24 | 14 | 18 | 20 | 25 | 231
Total | 815 | 734 | 652 | 563 | 489 | 1,979

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25.1.4 Plan assets

The majority of the Group´s defined benefit plans are funded by plan assets held in external funds/trusts legally separate from the Group sponsoring entity. However, in accordance with local regulation, some commitments are not externally funded and covered through internally held provisions, principally those relating to early retirements in Spain.

Plan assets are those assets which will be used to directly settle the assumed commitments and which meet the following conditions: they are not part of the Group sponsoring entities assets, they are available only to pay post-employment benefits and they cannot be returned to the Group sponsoring entity.

To manage the assets associated with defined benefit plans, BBVA Group has established investment policies designed according to criteria of prudence and minimizing the financial risks associated with plan assets.

The investment policy consists of investing in a low risk and diversified portfolio of assets with maturities consistent with the term of the benefit obligation and which, together with contributions made to the plan, will be sufficient to meet benefit payments when due, thus mitigating the plans‘ risks.

In those countries where plan assets are held in pension funds or trusts, the investment policy is developed consistently with local regulation. When selecting specific assets, current market conditions, the risk profile of the assets and their future market outlook are all taken into consideration. In all the cases, the selection of assets takes into consideration the term of the benefit obligations as well as short-term liquidity requirements.

The risks associated with these commitments are those which give rise to a deficit in the plan assets. A deficit could arise from factors such as a fall in the market value of plan assets, an increase in long-term interest rates leading to a decrease in the fair value of fixed income securities, or a deterioration of the economy resulting in more write-downs and credit rating downgrades.

The table below shows the allocation of plan assets of the main companies of the BBVA Group as of December 31, 2018:

Plan Assets Breakdown (Millions of euros)
| 2018
Cash or cash equivalents | 26
Debt securities (Government bonds) | 2,080
Property | -
Mutual funds | 2
Insurance contracts | 132
Other investments | -
Total | 2,241
Of which: |
Bank account in BBVA | 3
Debt securities issued by BBVA | -
Property occupied by BBVA | -

In addition to the above there are plan assets relating to the previously mentioned insurance contracts in Spain and the foundation in Turkey.

The following table provides details of investments in listed securities (Level 1) as of December 31, 2018:

Investments in listed markets
| 2018
Cash or cash equivalents | 26
Debt securities (Government bonds) | 2,080
Mutual funds | 2
Total | 2,109
Of which: |
Bank account in BBVA | 3
Debt securities issued by BBVA | -
Property occupied by BBVA | -

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The remainders of the assets are mainly invested in Level 2 assets in in accordance with the classification established under IFRS 13 (mainly insurance contracts). As of December 31, 2018, almost all of the assets related to employee’s commitments corresponded to fixed income securities.

## 25.2 Defined contribution plans

Certain Group entities sponsor defined contribution plans. Some of these plans allow employees to make contributions which are then matched by the employer.

Contributions are recognized as and when they are accrued, with a charge to the consolidated income statement in the corresponding year. No liability is therefore recognized in the accompanying consolidated balance sheet (see Note 44.1).

26. Common stock

As of December 31, 2018 BBVA’s common stock amounted to €3,267,264,424.20 divided into 6,667,886,580 fully subscribed and paid-up registered shares, all of the same class and series, at €0.49 par value each, represented through book-entries. All of the Bank shares carry the same voting and dividend rights, and no single stockholder enjoys special voting rights. Each and every share is part of the Bank’s common stock.

The Bank’s shares are traded on the stock markets of Madrid, Barcelona, Bilbao and Valencia through the Sistema de Interconexión Bursátil Español (Mercado Continuo), as well as on the London and Mexico stock markets. BBVA American Depositary Shares (ADSs) traded on the New York Stock Exchange.

Additionally, as of December 31, 2018, the shares of BBVA Banco Continental, S.A.; Banco Provincial, S.A.; BBVA Colombia, S.A.; BBVA Banco Francés, S.A. and Turkiye Garanti Bankasi A.S., were listed on their respective local stock markets. BBVA Banco Francés, S.A. was also quoted in the Latin American market (Latibex) of the Madrid Stock Exchange and the New York Stock Exchange.

As of December 31, 2018, State Street Bank and Trust Co., Chase Nominees Ltd and The Bank of New York Mellon SA NV in their capacity as international custodian/depositary banks, held 10.69%, 6.33%, and 2.31% of BBVA common stock, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding.

On February 4, 2019, Blackrock, Inc. reported to the SEC that, as of December 31, 2018, it beneficially owned 6.6% of BBVA’s common stock.

BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. BBVA has not received any information on stockholder agreements including the regulation of the exercise of voting rights at its annual general meetings or restricting or placing conditions on the free transferability of BBVA shares. No agreement is known that could give rise to changes in the control of the Bank.

The changes in the heading “Paid up Capital” of the accompanying consolidated balance sheets are due to

the following common stock increases:

Capital Increase
| Number of Shares | Common Stock (Millions of Euros)
As of December 31, 2015 | 6,366,680,118 | 3,120
Dividend option - April 2016 | 113,677,807 | 56
Dividend option - October 2016 | 86,257,317 | 42
As of December 31, 2016 | 6,566,615,242 | 3,218
Dividend option . April 2017 | 101,271,338 | 50
As of December 31, 2017 | 6,667,886,580 | 3,267
As of December 31, 2018 | 6,667,886,580 | 3,267

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“Dividend Option” Program in 2017:

The AGM of BBVA held on March 17, 2017 adopted, under agenda item three, a capital increase to be charged to voluntary reserves to implement the shareholder remuneration system called the “Dividend Option” this year in similar conditions to those agreed in 2014, 2015 and 2016, conferring on the Board of Directors, in accordance with article 297.1.a) of the Spanish Companies Act, the authority to set the date on which the capital increase should be carried out, within one year of the date of approval of the AGM resolution.

By virtue of such resolution, the Board of Directors of BBVA resolved, on March 29, 2017, to execute the capital increase to be charged to voluntary reserves, in accordance with the terms and conditions approved by the AGM mentioned above. As a result, BBVA’s share capital was increased by an amount of 49,622,955.62 euros through the issuance of 101,271,338 newly-issued BBVA ordinary shares at 0.49 euros par value each (see Note 4).

“Dividend Option” Program in 2016:

The AGM held on March 11, 2016, under agenda item three, adopted four capital increase resolutions to be charged to voluntary reserves to once again implement the shareholder remuneration program called the “Dividend Option” (see Note 4), conferring on the Board of Directors, in accordance with article 297.1 a) of the Spanish Companies Act, the authority to set the date on which said capital increases should be carried out, within one year of the date of approval of the AGM resolution, including the power not to implement any of the resolutions, when deemed advisable.

On March 31, 2016, the Board of Directors of BBVA approved the execution of the first of the capital increases charged to voluntary reserves, in accordance with the terms and conditions agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €55,702,125.43 through the issuance of 113,677,807 ordinary shares at €0.49 par values each.

On September 28, 2016, BBVA’s Board of Directors approved the execution of the second of the capital increases charged to voluntary reserves in accordance with the terms and conditions agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €42,266,085.33 through the issuance of 86,257,317 ordinary shares at €0.49 par value each.

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Convertible and/or exchangeable securities:

The AGM held on March 17, 2017, resolved, under agenda item five, to confer authority to the Board of Directors to issue securities convertible into newly issued BBVA shares, on one or several occasions, within the maximum term of five years to be counted from the approval date of the authorization, up to a maximum overall amount of €8 billion or its equivalent in any other currency. Likewise, the AGM resolved to confer to the Board of Directors the authority to totally or partially exclude shareholders’ pre-emptive subscription rights within the framework of a specific issue of convertible securities, although this power was limited to ensure the nominal amount of the capital increases resolved or effectively carried out to cover the conversion of mandatory convertible issuances of this authority (without prejudice to anti-dilution adjustments), with exclusion of pre-emptive subscription rights and of those likewise resolved or carried out with exclusion of pre-emptive subscription rights in use of the authority to increase the share capital conferred by the AGM held on March 17, 2017, under agenda item four, do not exceed the maximum nominal amount, overall, of 20% of the share capital of BBVA at the time of the authorization, this limit not being applicable to contingent convertible issues.

In use of the authority mentioned above, BBVA carried out, on May 24, 2017 the fifth issuance of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €500 million. This issuance is listed in the Global Exchange Market of the Irish Stock Exchange and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents. The issuance qualifies as additional tier 1 capital of the Bank and the Group in accordance with Regulation EU 575/2013 (see Note 22.4).

Likewise, in use of such authority, BBVA carried out, on November 14, 2017 the sixth issuance of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of $1,000 million. This issuance is listed in the Global Exchange Market of the Irish Stock Exchange and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents. The qualification of this issuance as additional tier 1 capital has been requested (see Note 22.4).

In past years, BBVA has carried out, in use of the authority to issue convertible securities conferred by the AGM held on March 16, 2012 (in effect until March 16, 2017), four additional issuances of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders (in April 2013 for an amount of $1.5 billion, in February 2014 and February 2015 for an amount of €1.5 billion each one, and in April 2016 for an amount of €1 billion). These issuances were targeted only at qualified investors and foreign private banking clients not being offered to, and not being subscribed for, in Spain or by Spanish residents. The first two issuances are listed in the Singapore Exchange Securities Trading Limited and the last two issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these four issuances qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation UE 575/2013 (see Note 22.4).

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Convertible and/or exchangeable securities:

BBVA’s AGM held on March 17, 2017 resolved, under agenda item four, to confer authority on the Board of Directors to increase Bank’s share capital, on one or several occasions, subject to provisions in the law and in the Company Bylaws that may be applicable at any time, within the legal term of five years of the approval date of the authorization, up to the maximum amount corresponding to 50% of Bank’s share capital at the time on which the resolution was adopted, likewise conferring authority to the Board of Directors to totally or partially exclude shareholders’ pre-emptive subscription rights over any specific issue that may be made under such authority; although the power to exclude pre-emptive subscription rights was limited, such that the nominal amount of the capital increases resolved or effectively carried out with the exclusion of pre-emptive subscription rights in use of the referred authority and those that may be resolved or carried out to cover the conversion of mandatory convertible issues that may equally be made with the exclusion of pre-emptive subscription rights in use of the authority to issue convertible securities conferred by the AGM held on March 17, 2017, under agenda item five (without prejudice to the anti-dilution adjustments) shall not exceed the nominal maximum overall amount of 20% of the share capital of BBVA at the time of the authorization.

As of the date of this document, the Bank’s Board of Directors has not exercised the authority conferred by the AGM.

27. Share premium

As of December 31, 2018, 2017 and 2016, the balance under this heading in the accompanying consolidated balance sheets was €23,992 million.

The amended Spanish Corporation Act expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use (see Note 26).

28. Retained earnings, revaluation reserves and other reserves

The breakdown of the balance under this heading in the accompanying consolidated balance sheet is as follows:

Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of euros)
| 2018 | 2017 | 2016
Legal reserve | 653 | 644 | 624
Restricted reserve | 133 | 159 | 201
Reserves for regularizations and balance revaluations | 3 | 12 | 20
Voluntary reserves | 8,010 | 8,643 | 8,521
Total reserves holding company | 8,799 | 9,458 | 9,366
Consolidation reserves attributed to the Bank and dependent consolidated companies. | 14,164 | 14,132 | 12,439
Total | 22,963 | 23,590 | 21,805

The impact of the first application of IFRS 9 and the change in accounting policies due to hyperinflation is recorded in the heading "Consolidation reserves attributed to the Bank and dependent consolidated companies" of the previous table (see Notes 1.3, 2.4 and 2.2.20).

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28.1 Legal reserve

Under the amended Corporations Act, 10% of any profit made each year must be transferred to the legal reserve. The transfer must be made until the legal reserve reaches 20% of the common stock.

The legal reserve can be used to increase the common stock provided that the remaining reserve balance does not fall below 10% of the increased capital. While it does not exceed 20% of the common stock, it can only be allocated to offset losses exclusively in the case that there are not sufficient reserves available.

28.2 Restricted reserves

As of December 31, 2018, 2017 and 2016, the Bank’s restricted reserves are as follows:

Restricted Reserves (Millions of euros)
| 2018 | 2017 | 2016
Restricted reserve for retired capital | 88 | 88 | 88
Restricted reserve for Parent Company shares and loans for those shares | 44 | 69 | 111
Restricted reserve for redenomination of capital in euros | 2 | 2 | 2
Total | 133 | 159 | 201

The restricted reserve for retired capital resulted from the reduction of the nominal par value of the BBVA shares made in April 2000.

The second heading corresponds to restricted reserves related to the amount of shares issued by the Bank in its possession at each date, as well as the amount of customer loans outstanding at those dates that were granted for the purchase of, or are secured by, the Parent Company shares.

Finally, pursuant to Law 46/1998 on the Introduction of the Euro, a restricted reserve is recognized as a result of the rounding effect of the redenomination of the Parent Company common stock in euros.

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28.3 Retained earnings, revaluation reserves and other reserves by entity

The breakdown, by company or corporate group, under the headings “Retained earnings, revaluation reserves and other reserves” in the accompanying consolidated balance sheets is as follows:

Retained earnings, Revaluation reserves and Other reserves (Millions of euros)
| 2018 | 2017 | 2016
Retained earnings and Revaluation reserves |  |  |
Holding Company | 14,643 | 15,625 | 14,101
BBVA Bancomer Group | 10,014 | 9,442 | 9,108
BBVA Seguros, S.A. | (127) | (215) | (62)
Corporacion General Financiera, S.A. | 1,084 | 1,202 | 1,187
BBVA Banco Provincial Group | (124) | (113) | (92)
BBVA Chile Group | 552 | 951 | 1,264
BBVA Paraguay | 119 | 108 | 98
Compañía de Cartera e Inversiones, S.A. | 108 | (20) | (27)
Anida Grupo Inmobiliario, S.L. | 363 | 515 | 528
BBVA Suiza, S.A. | (53) | (57) | (1)
BBVA Continental Group | 756 | 681 | 611
BBVA Luxinvest, S.A. | (48) | 25 | 16
BBVA Colombia Group | 998 | 926 | 803
BBVA Banco Francés Group | 103 | 999 | 827
Banco Industrial De Bilbao, S.A. | - | 25 | 61
Uno-E Bank, S.A | - | - | -
Gran Jorge Juan, S.A. | (33) | (47) | (30)
BBVA Portugal Group | (66) | (436) | (477)
Participaciones Arenal, S.L. | (4) | (183) | (180)
BBVA Propiedad S.A. | - | (503) | (431)
Anida Operaciones Singulares, S.L. | (5,317) | (4,881) | (4,127)
Grupo BBVA USA Bancshares | (586) | (794) | (1,053)
Garanti Turkiye Bankasi Group | 1,415 | 751 | 127
Unnim Real Estate | (587) | (576) | (477)
Bilbao Vizcaya Holding, S.A. | 49 | 145 | 139
Pecri Inversión S.L. | (74) | (73) | (75)
Other | (164) | 127 | 25
Subtotal | 23,021 | 23,624 | 21,864
Other reserves or accumulated losses of investments in joint ventures and associates | - | - | -
Metrovacesa, S.A. | - | - | -
Metrovacesa Suelo, S.A. | (61) | (53) | (52)
Other | 2 | 18 | (7)
Subtotal | (59) | (35) | (59)
Total | 22,963 | 23,590 | 21,805

For the purpose of allocating the reserves and accumulated losses to the consolidated entities and to the parent company, the transfers of reserves arising from the dividends paid and transactions between these entities are taken into account in the period in which they took place.

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29. Treasury shares

In the years ended December 31, 2018, 2017 and 2016 the Group entities performed the following transactions with shares issued by the Bank:

Treasury Shares (Millions of euros)
| 2018 | 2017 | 2016
| Number of Shares | Millions of Euros | Number of Shares | Millions of Euros | Number of Shares | Millions of Euros
Balance at beginning | 13,339,582 | 96 | 7,230,787 | 48 | 38,917,665 | 309
+ Purchases | 279,903,844 | 1,683 | 238,065,297 | 1,674 | 379,850,939 | 2,004
- Sales and other changes | (245,985,735) | (1,505) | (231,956,502) | (1,622) | (411,537,817) | (2,263)
+/- Derivatives on BBVA shares | - | - | - | (4) | - | (1)
+/- Other changes | - | 23 | - | - | - | -
Balance at the end | 47,257,691 | 296 | 13,339,582 | 96 | 7,230,787 | 48
Of which: | - | - | - | - | - | -
Held by BBVA, S.A. | - | - | - | - | 2,789,894 | 22
Held by Corporación General Financiera, S.A. | 47,257,691 | 296 | 13,339,582 | 96 | 4,440,893 | 26
Held by other subsidiaries | - | - | - | - | - | -
Average purchase price in Euros | 6.11 | - | 7.03 | - | 5.27 | -
Average selling price in Euros | 6.25 | - | 6.99 | - | 5.50 | -
Net gain or losses on transactions (Shareholders' funds-Reserves) |  | (24) |  | 1 |  | (30)

The percentages of treasury shares held by the Group in the years ended December 31, 2018, 2017 and 2016 are as follows:

Treasury Stock
| 2018 | 2017 | 2016
| Min | Max | Closing | Min | Max | Closing | Min | Max | Closing
% treasury stock | 0.200% | 0.850% | 0.709% | 0.004% | 0.278% | 0.200% | 0.081% | 0.756% | 0.110%

The number of BBVA shares accepted by the Group in pledge of loans as of December 31, 2018, 2017 and 2016 is as follows:

Shares of BBVA Accepted in Pledge
| 2018 | 2017 | 2016
Number of shares in pledge | 61,632,832 | 64,633,003 | 90,731,198
Nominal value | 0.49 | 0.49 | 0.49
% of share capital | 0.92% | 0.97% | 1.38%

The number of BBVA shares owned by third parties but under management of a company within the Group as of December 31, 2018, 2017 and 2016 is as follows:

Shares of BBVA Owned by Third Parties but Managed by the Group
| 2018 | 2017 | 2016
Number of shares owned by third parties | 25,306,229 | 34,597,310 | 85,766,602
Nominal value | 0.49 | 0.49 | 0.49
% of share capital | 0.38% | 0.52% | 1.31%

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30. Accumulated other comprehensive income (loss)

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Accumulated other comprehensive income (Millions of euros)
| Notes | 2018 | 2017(*) | 2016(*)
Items that will not be reclassified to profit or loss |  | (1,284) | (1,183) | (1,095)
Actuarial gains or losses on defined benefit pension plans |  | (1,245) | (1,183) | (1,095)
Non-current assets and disposal groups classified as held for sale |  | - | - | -
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates |  | - | - | -
Fair value changes of equity instruments measured at fair value through other comprehensive income | 13.4 | (155) |  |
Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income |  | - |  |
Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item) |  | - |  |
Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument) |  | - |  |
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk |  | 116 |  |
Items that may be reclassified to profit or loss |  | (5,932) | (5,755) | (2,527)
Hedge of net investments in foreign operations (effective portion) |  | (218) | 1 | (118)
Foreign currency translation |  | (6,643) | (7,297) | (3,349)
Hedging derivatives. Cash flow hedges (effective portion) |  | (6) | (34) | 16
Financial assets available for sale | 13.4 |  | 1,641 | 947
Fair value changes of debt instruments measured at fair value through other comprehensive income | 13.4 | 943 |  |
Hedging instruments (non-designated items) |  | - | - | -
Non-current assets and disposal groups classified as held for sale |  | 1 | (26) | -
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates |  | (9) | (40) | (31)
Total |  | (7,215) | (6,939) | (3,622)

(*) See Note 1.3.

The balances recognized under these headings are presented net of tax.

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31. Minority interest

The breakdown by groups of consolidated entities of the balance under the heading “Minority interests (non-controlling interest)” of total equity in the accompanying consolidated balance sheets is as follows:

Non-Controlling Interests (Millions of euros)
| 2018 | 2017 | 2016
BBVA Colombia Group | 67 | 65 | 67
BBVA Chile Group (*) | - | 399 | 377
BBVA Banco Continental Group | 1,167 | 1,059 | 1,059
BBVA Banco Provincial Group | 67 | 78 | 97
BBVA Banco Francés Group | 352 | 420 | 243
Garanti Group | 4,058 | 4,903 | 6,157
Other entities | 53 | 55 | 64
Total | 5,764 | 6,979 | 8,064

(*) See Note 3.

These amounts are broken down by groups of consolidated entities under the heading “Attributable to minority interests (non-controlling interest)” in the accompanying consolidated income statements:

Profit attributable to Non-Controlling Interests (Millions of euros)
| 2018 | 2017 | 2016
BBVA Colombia Group | 9 | 7 | 9
BBVA Chile Group (*) | 26 | 51 | 40
BBVA Banco Continental Group | 227 | 208 | 193
BBVA Banco Provincial Group | (5) | (2) | (2)
BBVA Banco Francés Group | (18) | 93 | 55
Garanti Group | 585 | 883 | 917
Other entities | 4 | 4 | 8
Total | 827 | 1,244 | 1,218

(*) See Note 3.

Dividends distributed to non-controlling interest of the Group during the year 2018 are: Garanti Group €233 million, BBVA Banco Continental Group €108 million, BBVA Chile Group €14 million, BBVA Banco Francés Group €13 million and other Spanish entities accounted for €10 million.

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32. Capital base and capital management

32.1 Capital base

As of December 31, 2018, 2017 and 2016, equity is calculated in accordance to the applicable regulation of each period on minimum capital base requirements for Spanish credit institutions –both as individual entities and as consolidated group– and how to calculate them, as well as the various internal capital adequacy assessment processes they should have in place and the information they should disclose to the market.

The minimum capital base requirements established by the current regulation are calculated according to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in said regulation and the internal corporate governance obligations.

At the date of preparation of these consolidated financial statements, BBVA has not received an official communication of the ECB about the results of the SREP process which had been carried out during the financial year 2018 and which will include requirements regarding the capital ratio (both at individual and consolidated level) applicable to BBVA and its Group as from the date indicated in that communication. As soon as this communication will be available, BBVA will disclose it to the markets by means of public relevant events.

Taking into account fully application of capital buffers since January 1, 2019 and considering last capital requirement communicated from ECB, BBVA has to maintain since January 1, 2019 i) a CET1 ratio of 9.26% at consolidated level and ii) a total capital ratio of 12.76% at consolidated level. This total consolidated capital ratio includes i) the minimum common equity tier 1 capital (CET1) requirement under Pillar 1 (4.5%); ii) the additional tier 1 capital (AT1) requirement under Pillar 1 (1.5%); iii) the tier 2 capital requirement under Pillar 1 (2%); iv) the CET1 capital requirement under Pillar 2 (1.5%); v) the capital conservation buffer (2.5% of CET1); vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and vii) the countercyclical capital buffer (0.01% of CET1).

The Group’s bank capital in accordance with the aforementioned applicable regulation, considering entities scope required by the above regulation, as of December 31, 2018, 2017 and 2016 is shown below:

Eligible capital resources (Millions of euros)
| Notes | December 2018 (*) | December 2017 | December 2016
Capital | 26 | 3,267 | 3,267 | 3,218
Share premium | 27 | 23,992 | 23,992 | 23,992
Retained earnings, revaluation reserves and other reserves | 28 | 22,963 | 23,590 | 21,805
Other equity instruments, net | 28 | 50 | 54 | 54
Treasury shares | 29 | (296) | (96) | (48)
Attributable to the parent company | 6 | 5,324 | 3,519 | 3,475
Attributable dividend | 4 | (975) | (1,043) | (1,510)
Total equity |  | 54,325 | 53,283 | 50,985
Accumulated other comprehensive income | 30 | (7,215) | (6,939) | (3,622)
Non-controlling interest | 31 | 5,764 | 6,979 | 8,064
Shareholders' equity |  | 52,874 | 53,323 | 55,428
Intangible assets |  | (8,199) | (6,627) | (5,675)
Fin. treasury shares |  | (27) | (48) | (82)
Indirect treasury shares |  | (108) | (134) | (51)
Deductions |  | (8,334) | (6,809) | (5,808)
Temporary CET 1 adjustments |  | - | (273) | (129)
Capital gains from the Available-for-sale debt instruments portfolio |  | - | (256) | (402)
Capital gains from the Available-for-sale equity portfolio |  | - | (17) | 273
Differences from solvency and accounting level |  | (176) | (189) | (120)
Equity not eligible at solvency level |  | (176) | (462) | (249)
Other adjustments and deductions |  | (4,053) | 3,711 | (2,001)
Common Equity Tier 1 (CET 1) |  | 40,311 | 42,341 | 47,370
Additional Tier 1 before Regulatory Adjustments |  | 5,634 | 6,296 | 6,114
Total Regulatory Adjustments of Additional Tier 1 |  | - | (1,657) | (3,401)
Tier 1 |  | 45,945 | 46,980 | 50,083
Tier 2 |  | 8,754 | 8,798 | 8,810
Total Minimum equity required |  | 41,607 | 40,370 | 37,923

(*) Provisional data.

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Capital Base
| 2018 (*) | 2017 | 2016
Tier 1 (millions of euros) (a) | 45,945 | 46,980 | 50,083
Exposure (millions of euros) (b) | 705,406 | 700,443 | 747,216
Leverage ratio (a)/(b) (percentage) | 6.51% | 6.71% | 6.70%

(*) Provisional data.

As of December 31, 2018 Common Equity Tier 1 (CET1) phased-in ratio stood at 11.6% (in terms of fully loaded, CET1 stood at 11.3%). Excluding the effect of the phased-in calendar in minority interest and deductions that goes from 80% in 2017 to 100% in 2018, and including the positive impact of the sale of the stake in BBVA Chile (+50 bps), the CETI phased-in ratio has increased by +48 bps. This increase is mainly explained by the generation of profit, net of dividend payments and remunerations of AT1 instruments and dividends received by the Bank, and the stability in the level of risk weighted assets (RWA).

This CET1 phased-in ratio includes the impact of the initial implementation of IFRS9. In this context, the European Commission and Parliament have established temporary arrangements that are voluntary for the institutions, adapting the impact of IFRS9 on capital ratios. BBVA has informed the supervisory board its adherence to these arrangements.

In addition, transfer of the real estate business of BBVA in Spain to Cerberus has no material impact on the ratios (see Note 3).

TIER1 phased-in ratio stood at 13.2% as of December 31, 2018. During the year the Group has computed two new issuances of contingent convertible bonds (CoCos) as TIER1 instruments for US$1,000 million and €1,000 million, respectively. In addition, the Group has no longer includes a US$1,500 million issuance which was early redeemed in May 2018 and announced in January 2019 its intention to exercise the early redemption of an issuance of €1,500 million. The net effect on TIER1 phased-in ratio was -15 bps.

Regarding TIER2 ratio, in the third quarter the Group has received authorization from the supervisor to include a subordinated issuance of US$300 million and no longer includes BBVA Chile subordinated instruments. As result of the above mentioned effects, the total capital phased-in ratio stood at 15.7%.

In addition, the Group has continued its program to meet the MREL requirements by carrying two public senior non-preferred instruments by a total amount of €2.5 billion. In terms of MREL (which stands for Minimum Requirement for own funds and Eligible Liabilities), BBVA has to reach, by January 1, 2020, an amount of own funds and eligible liabilities equal to 15.08% of the total liabilities and own funds of its resolution group (BBVA, S.A. and its subsidiaries from the same European resolution group) as of December 31, 2016. This MREL requirement would be equal to 28.04% in terms of risk-weighted assets of the resolution group as of December 31, 2016. The Group believes that it is currently in line with this requirement.

Risk-weighted assets (RWA) have decreased during the year, largely due to the sale of BBVA Chile and the depreciation of currencies against euro. The Group has performed three securitizations during the year: a traditional one in June of an automobile loan portfolio of consumer finance amounting to €800 million, and two synthetic ones in March and December, on which the European Investment Fund (EIF, a subsidiary of the European Investment Bank) provided a financial guarantee. These three securitizations have produced a positive impact on capital of €971 million via RWA release. Additionally, during the first half of the year, BBVA has received an authorization from the ECB to update the calculation of RWA on structural FX risk under the standard model.

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A reconciliation of the consolidated accounting and regulatory perimeters as of December 31st 2018 is presented below (provisional data):

Public balance sheet headings (Millions of euros)
| Public balance sheet | Insurance companies and real estate companies (1) | Jointly-controlled entities and other adjustments (2) | Regulatory balance sheet
Cash, cash balances at central banks and other demand deposits | 58,196 | (3) | 103 | 58,296
Financial assets held for trading | 90,117 | 1,277 | - | 91,394
Non- trading financial assets mandatorily at fair value through profit or loss | 5,135 | (2,768) | - | 2,367
Financial assets designated at fair value through profit or loss | 1,313 | (1,313) | - | -
Financial assets designated at fair value through other comprehensive income | 56,337 | (14,318) | - | 42,019
Financial assets at amortized cost | 419,660 | (6,279) | 593 | 413,974
Hedging derivatives | 2,892 | (87) | - | 2,805
Fair value changes of the hedged items in portfolio hedges of interest rate risk | (21) | - | - | (21)
Investments in entities accounted for using the equity method | 1,578 | 2,587 | (80) | 4,085
Non- current assets and disposal groups held for sale | 2,001 | (2) | 2 | 2,001
Other | 39,481 | 715 | 3 | 40,199
Total assets | 676,689 | (20,191) | 621 | 657,119

(1) Correspond to balances of entities fully consolidated in the public balance sheet but consolidated by the equity method in the regulatory balance sheet.

(2) Correspond to intragroup adjustments and other consolidation adjustments.

32.2 Capital management

Capital management in the BBVA Group has a twofold aim:

· Maintain a level of capitalization according to the business objectives in all countries in which it operates and, simultaneously,

· Maximize the return on shareholders’ funds through the efficient allocation of capital to the different units, a good management of the balance sheet and appropriate use of the various instruments forming the basis of the Group’s equity: shares, preferred securities and subordinate debt.

This capital management is carried out determining the capital base and the solvency ratios established by the prudential and minimum capital requirements also have to be met for the entities subject to prudential supervision in each country.

The current regulation allows each entity to apply its own internal ratings-based (IRB) approach to risk assessment and capital management, subject to Bank of Spain approval. The BBVA Group carries out an integrated management of these risks in accordance with its internal policies and its internal capital estimation model has received the Bank of Spain’s approval for certain portfolios (see Note 7).

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33. Commitments and guarantees given

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Loan commitments, financial guarantees and other commitments (Millions of euros)
| Notes | 2018 | 2017 | 2016
Loan commitments given | 7.3.2 | 118,959 | 94,268 | 107,254
of which: defaulted |  | 247 | 537 | 411
Central banks |  | - | 1 | 1
General governments |  | 2,318 | 2,198 | 4,354
Credit institutions |  | 9,635 | 946 | 1,209
Other financial corporations |  | 5,664 | 3,795 | 4,155
Non-financial corporations |  | 58,405 | 58,133 | 71,710
Households |  | 42,936 | 29,195 | 25,824
Financial guarantees given (*) | 7.3.2 | 16,454 | 16,545 | 18,267
of which: defaulted |  | 332 | 278 | 278
Central banks |  | 2 | - | -
General governments |  | 159 | 248 | 103
Credit institutions |  | 1,274 | 1,158 | 1,553
Other financial corporations |  | 730 | 3,105 | 722
Non-financial corporations |  | 13,970 | 11,518 | 15,354
Households |  | 319 | 516 | 534
Other commitments and guarantees given | 7.3.2 | 35,098 | 45,738 | 42,592
of which: defaulted |  | 408 | 461 | 402
Central banks |  | 1 | 7 | 12
General governments |  | 248 | 227 | 372
Credit institutions |  | 5,875 | 15,330 | 9,880
Other financial corporations |  | 2,990 | 3,820 | 4,892
Non-financial corporations |  | 25,723 | 25,992 | 27,297
Households |  | 261 | 362 | 138
Total Loan commitments and financial guarantees |  | 170,511 | 156,551 | 168,113

(*) Non performing financial guarantees given amounted to €740, €739 and €680 million, respectively, as of December 31, 2018, December 31, 2017, and December 31, 2016, respectively.

As of December 31, 2018, the provisions for loan commitments given, financial guarantees given and other commitments and guarantees given, recorded in the consolidated balance sheet amounted €338 million, €252 million and €45 million, respectively.

Since a significant portion of the amounts above will expire without any payment being made by the consolidated entities, the aggregate balance of these commitments cannot be considered the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.

In the years 2018, 2017 and 2016, no issuance of debt securities carried out by associates of the BBVA Group, joint venture entities or non-Group entities have been guaranteed.

34. Other contingent assets and liabilities

As of December 31, 2018, 2017 and 2016 there were no material contingent assets or liabilities other than those disclosed in the accompanying notes to the consolidated financial statements.

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35. Purchase and sale commitments and future payment obligations

The breakdown of purchase and sale commitments of the BBVA Group as of December 31, 2018, 2017 and 2016 is as follows:

Purchase and Sale Commitments (Millions of euros)
| Notes | 2018 | 2017 | 2016
Financial instruments sold with repurchase commitments |  | 42,993 | 40,077 | 46,562
Financial liabilities held for trading | 10 | 36,815 | - | -
Central Banks |  | 10,511 | - | -
Credit Institutions |  | 14,839 | - | -
General governments |  | 11,466 | - | -
Financial liabilities at amortized cost | 22 | 6,178 | 40,077 | 46,562
Central Banks |  | 375 | 6,155 | 4,649
Credit Institutions |  | 4,593 | 24,843 | 28,421
Customer deposits |  | 1,209 | 9,079 | 13,491
Financial instruments purchased with resale commitments |  | 28,034 | 26,368 | 22,921
Financial assets held for trading | 10 | 27,262 | - | -
Central Banks |  | 2,163 | - | -
Credit Institutions |  | 13,305 | - | -
General governments |  | 11,794 | - | -
Financial assets at amortized cost | 14 | 772 | 26,368 | 22,921
Central Banks |  | - | 305 | 81
Credit Institutions |  | 478 | 13,861 | 15,561
General governments |  | 294 | 12,202 | 7,279

A breakdown of the maturity of other payment obligations, not included in previous notes, due after December 31, 2018 is provided below:

Maturity of Future Payment Obligations (Millions of euros)
| Up to 1 Year | 1 to 3 Years | 3 to 5 Years | Over 5 Years | Total
Finance leases | - | - | - | - | -
Operating leases | 251 | 253 | 554 | 1,879 | 2,937
Purchase commitments | 28 | - | - | - | 28
Technology and systems projects | 7 | - | - | - | 7
Other projects | 20 | - | - | - | 20
Total | 279 | 253 | 554 | 1,879 | 2,965

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36. Transactions on behalf of third parties

As of December 31, 2018, 2017 and 2016 the details of the most transactions on behalf of third parties are as follows:

Transactions on Behalf of Third Parties (Millions of euros)
| 2018 | 2017 | 2016
Financial instruments entrusted to BBVA by third parties | 628,417 | 624,822 | 637,761
Conditional bills and other securities received for collection | 13,484 | 14,775 | 16,054
Securities lending | 4,866 | 5,485 | 3,968
Total | 646,768 | 645,081 | 657,783

As of December 31, 2018, 2017 and 2016 the customer funds managed by the BBVA Group are as follows:

Customer Funds by Type (Millions of euros)
| 2018 | 2017 | 2016
Asset management by type of customer (*): |  |  |
Collective investment | 61,393 | 60,939 | 55,037
Pension funds | 33,807 | 33,985 | 33,418
Customer portfolios managed | 29,953 | 36,901 | 40,805
Of which: |  |  |
Portfolios managed on a discretionary basis | 23,657 | 19,628 | 18,165
Other resources | 2,949 | 3,081 | 2,831
Customer resources distributed but not managed by type of product: |  |  |
Collective investment | 3,468 | 3,407 | 3,695
Insurance products | 32 | 35 | 39
Other | - | - | -
Total | 131,603 | 138,347 | 135,824

(*) Excludes balances from securitization funds.

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37. Net interest income

37.1 Interest income and other income

The breakdown of the interest income and other income recognized in the accompanying consolidated income statement is as follows:

Interest income and other income. Breakdown by Origin (Millions of euros)
| Notes | 2018 | 2017 | 2016
Central Banks |  | 482 | 406 | 229
Loans and advances to credit institutions |  | 458 | 410 | 217
Loans and advances to customers |  | 22,831 | 22,699 | 21,608
Debt securities |  | 4,395 | 3,809 | 4,128
Held for trading |  | 1,552 | 1,263 | 1,014
Other portfolios |  | 2,843 | 2,546 | 3,114
Adjustments of income as a result of hedging transactions |  | (201) | 427 | (385)
Cash flow hedges (effective portion) |  | (3) | 15 | 12
Fair value hedges |  | (198) | 412 | (397)
Insurance activity |  | 1,142 | 1,058 | 1,219
Other income |  | 722 | 487 | 692
Total | 55.2 | 29,831 | 29,296 | 27,708
Of which: |  |  |  |
Financial assets at fair value through other comprehensive income |  | 2,306 | 1,962 | -
Financial assets at amortized cost |  | 24,668 | 23,803 | 24,578
Other |  | 2,856 | 3,531 | 3,130

The amounts recognized in consolidated equity in connection with hedging derivatives and the amounts derecognized from consolidated equity and taken to the consolidated income statement during the years are given in the accompanying “Consolidated statements of recognized income and expenses”.

37.2 Interest expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Interest Expenses. Breakdown by Origin (Millions of euros)
| 2018 | 2017 | 2016
Central banks | 80 | 123 | 192
Deposits from credit institutions | 2,023 | 1,880 | 1,367
Customers deposits | 6,523 | 5,814 | 5,766
Debt certificates | 1,936 | 1,930 | 2,323
Adjustments of expenses as a result of hedging transactions | (323) | 665 | (574)
Cash flow hedges (effective portion) | 46 | 38 | 42
Fair value hedges | (368) | 627 | (616)
Cost attributable to pension funds | 119 | 125 | 96
Insurance activity | 607 | 682 | 846
Other expenses | 1,274 | 316 | 634
Total | 12,239 | 11,537 | 10,648

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37.3 Average return on investments and average borrowing cost

The detail of the average return on investments in the years ended December 31, 2018, 2017 and 2016 is as follows:

Assets (Millions of euros)
|  | 2018 |  |  | 2017 |  |  | 2016 |
| Average Balances | Interest income | Average Interest Rates (%) | Average Balances | Interest income | Average Interest Rates (%) | Average Balances | Interest income | Average Interest Rates (%)
Cash and balances with central banks and other demand deposits | 42,730 | 135 | 0.32 | 33,917 | 83 | 0.25 | 26,209 | 10 | 0.04
Securities portfolio and derivatives | 179,672 | 5,707 | 3.18 | 177,164 | 4,724 | 2.67 | 202,388 | 5,072 | 2.51
Loans and advances to central banks | 5,518 | 258 | 4.67 | 10,945 | 258 | 2.36 | 15,326 | 229 | 1.50
Loans and advances to credit institutions | 25,634 | 657 | 2.56 | 26,420 | 485 | 1.83 | 28,078 | 218 | 0.78
Loans and advances to customers | 378,996 | 22,804 | 6.02 | 407,153 | 23,261 | 5.71 | 410,895 | 21,853 | 5.32
Euros | 181,668 | 3,381 | 1.86 | 196,893 | 3,449 | 1.75 | 201,967 | 3,750 | 1.86
Foreign currency | 197,328 | 19,423 | 9.84 | 210,261 | 19,812 | 9.42 | 208,928 | 18,104 | 8.67
Other assets | 46,343 | 270 | 0.58 | 48,872 | 485 | 0.99 | 52,748 | 325 | 0.62
Total | 678,893 | 29,831 | 4.39 | 704,471 | 29,296 | 4.16 | 735,645 | 27,708 | 3.77

The average borrowing cost in the years ended December 31, 2018, 2017 and 2016 is as follows:

Liabilities (Millions of euros)
|  | 2018 |  |  | 2017 |  |  | 2016 |
| Average Balances | Interest expenses | Average Interest Rates (%) | Average Balances | Interest expenses | Average Interest Rates (%) | Average Balances | Interest expenses | Average Interest Rates (%)
Deposits from central banks and credit institutions | 65,044 | 2,192 | 3.37 | 90,619 | 2,212 | 2.44 | 101,975 | 1,866 | 1.83
Customer deposits | 370,078 | 6,559 | 1.77 | 392,057 | 7,007 | 1.79 | 398,851 | 5,944 | 1.49
Euros | 178,370 | 337 | 0.19 | 186,261 | 461 | 0.25 | 195,310 | 766 | 0.39
Foreign currency | 191,709 | 6,222 | 3.25 | 205,796 | 6,546 | 3.18 | 203,541 | 5,178 | 2.54
Debt certificates | 75,927 | 1,753 | 2.31 | 84,221 | 1,631 | 1.94 | 89,876 | 1,738 | 1.93
Other liabilities | 115,638 | 1,735 | 1.50 | 82,699 | 687 | 0.83 | 89,328 | 1,101 | 1.23
Equity | 52,206 | - | - | 54,874 | - | - | 55,616 | - | -
Total | 678,893 | 12,239 | 1.80 | 704,471 | 11,537 | 1.64 | 735,645 | 10,648 | 1.45

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The change in the balance under the headings “Interest income and other income” and “Interest expense” in the accompanying consolidated income statements is the result of exchange rate effect, changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:

Interest Income and Expenses : Change in the Balance (Millions of euros)
| 2018 / 2017 | 2017 / 2016
| Volume Effect (1) | Price Effect (2) | Total Effect | Volume Effect (1) | Price Effect (2) | Total Effect
Cash and balances with central banks and other demand deposits | 22 | 30 | 51 | 3 | 71 | 74
Securities portfolio and derivatives | 67 | 916 | 983 | (632) | 285 | (347)
Loans and advances to Central Banks | (128) | 128 | - | (66) | 94 | 29
Loans and advances to credit institutions | (14) | 187 | 172 | (13) | 279 | 266
Loans and advances to customers | (1,609) | 1,152 | (456) | (199) | 1,606 | 1,408
Euros | (267) | 199 | (68) | (94) | (206) | (301)
Foreign currencies | (1,219) | 830 | (389) | 115 | 1,593 | 1,708
Other assets | (25) | (190) | (215) | (24) | 184 | 160
Interest income | - | - | 535 | - | - | 1,588
Deposits from central banks and credit institutions | (624) | 604 | (20) | (208) | 554 | 346
Customer deposits | (393) | (55) | (448) | (101) | 1,164 | 1,063
Euros | (20) | (104) | (124) | (35) | (269) | (305)
Foreign currencies | (448) | 124 | (324) | 57 | 1,311 | 1,368
Debt securities issued | (161) | 282 | 122 | (109) | 3 | (106)
Other liabilities | 274 | 774 | 1,048 | (82) | (332) | (414)
Interest expenses | - | - | 702 | - | - | 889
Net Interest Income | - | - | (167) | - | - | 699

(1) The volume effect is calculated as the result of the interest rate of the initial period multiplied by the difference between the average balances of both periods.

(2) The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the interest rates of both periods.

38. Dividend income

The balances for this heading in the accompanying consolidated income statements correspond to dividends on shares and equity instruments other than those from shares in entities accounted for using the equity method (see Note 3 9), as can be seen in the breakdown below:

Dividend Income (Millions of euros)
| 2018 | 2017 | 2016
Dividends from: |  |  |
Financial assets held for trading and financial assets at fair value through profit or loss | 19 | 145 | 161
Financial assets at fair value through other comprehensive income | 138 | 188 | 307
Total | 157 | 334 | 467

39. Share of profit or loss of entities accounted for using the equity method

Net income from “Investments in Entities Accounted for Using the Equity Method” resulted in a negative impact of €7 million as of December 31, 2018, compared with the positive impact of €4 and €25 million recorded as of December 31, 2017 and 2016, respectively.

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40. Fee and commission income and expense

The breakdown of the balance under these heading in the accompanying consolidated income statements is as follows:

Fee and Commission Income (Millions of euros)
| 2018 | 2017 | 2016
Bills receivables | 39 | 46 | 52
Demand accounts | 451 | 507 | 469
Credit and debit cards | 2,900 | 2,834 | 2,679
Checks | 194 | 212 | 207
Transfers and other payment orders | 605 | 601 | 578
Insurance product commissions | 171 | 192 | 178
Commitment fees | 223 | 231 | 237
Contingent risks | 390 | 396 | 406
Asset Management | 1,023 | 923 | 839
Securities fees | 325 | 385 | 335
Custody securities | 122 | 122 | 122
Other fees and commissions | 689 | 700 | 701
Total | 7,132 | 7,150 | 6,804

The breakdown of fee and commission expense under these heading in the accompanying consolidated income statements is as follows:

Fee and Commission Expense (Millions of euros)
| 2018 | 2017 | 2016
Credit and debit cards | 1,502 | 1,458 | 1,334
Transfers and other payment orders | 96 | 102 | 102
Commissions for selling insurance | 48 | 60 | 63
Other fees and commissions | 607 | 610 | 587
Total | 2,253 | 2,229 | 2,086

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41. Gains (losses) on financial assets and liabilities, net and Exchange differences

The breakdown of the balance under this heading, by source of the related items, in the accompanying consolidated income statement is as follows:

Gains (losses) on financial assets and liabilities and exchange differences: Breakdown by Heading of the Consolidated Income Statements (Millions of euros)
| 2018 | 2017 | 2016
Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 216 | 985 | 1,375
Financial assets at amortized cost | 51 | 133 | 95
Other financial assets and liabilities | 164 | 852 | 1,281
Gains or losses on financial assets and liabilities held for trading, net | 707 | 218 | 248
Reclassification of financial assets from fair value through other comprehensive income | - |  |
Reclassification of financial assets from amortized cost | - |  |
Other gains or (-) losses | 707 |  |
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 96 |  |
Reclassification of financial assets from fair value through other comprehensive income | - |  |
Reclassification of financial assets from amortized cost | - |  |
Other gains or (-) losses | 96 |  |
Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net | 143 | (56) | 114
Gains or losses from hedge accounting, net | 72 | (209) | (76)
Subtotal Gains or (losses) on financial assets and liabilities | 1,234 | 938 | 1,661
Exchange Differences | (9) | 1,030 | 472
Total | 1,223 | 1,968 | 2,133

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The breakdown of the balance (excluding exchange rate differences) under this heading in the accompanying income statements by the nature of financial instruments is as follows:

Gains (losses) on financial assets and liabilities: Breakdown by nature of the Financial Instrument (Millions of euros)
| 2018 | 2017 | 2016
Debt instruments | 354 | 545 | 906
Equity instruments | (253) | 845 | 459
Loans and advances to customers | (172) | 97 | 65
Trading derivatives and hedge accounting | 927 | (470) | 109
Customer deposits | 240 | (96) | 87
Other | 137 | 18 | 35
Total | 1,233 | 938 | 1,661

The breakdown of the balance of the impact of the derivatives (trading and hedging) under this heading in the accompanying consolidated income statements is as follows:

Derivatives - Hedge accounting (Millions of euros)
| 2018 | 2017 | 2016
Derivatives |  |  |
Interest rate agreements | 90 | 165 | 431
Securities agreements | 294 | (139) | 86
Commodity agreements | (2) | 99 | (29)
Credit derivative agreements | (109) | (564) | (118)
Foreign-exchange agreements | 606 | 315 | 186
Other agreements | (24) | (137) | (371)
Subtotal | 856 | (261) | 185
Hedging Derivatives Ineffectiveness |  |  |
Fair value hedges | 87 | (177) | (76)
Hedging derivative | (150) | (236) | (330)
Hedged item | 237 | 59 | 254
Cash flow hedges | (15) | (32) | -
Subtotal | 72 | (209) | (76)
Total | 927 | (470) | 109

In addition, in the years ended December 31, 2018, 2017 and 2016, under the heading “Gains or losses on financial assets and liabilities held for trading, net” of the consolidated income statement, net amounts of negative €113 million, positive €235 million and positive €151 million, respectively, were recognized for transactions with foreign exchange trading derivatives.

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42. Other operating income and expense

The breakdown of the balance under the heading “Other operating income” in the accompanying consolidated income statements is as follows:

Other operating income (Millions of euros)
| 2018 | 2017 | 2016
Gains from sales of non-financial services | 458 | 1,109 | 882
Of which: Real estate | 283 | 884 | 588
Other | 491 | 330 | 390
Of which: net profit from building leases | 21 | 61 | 76
Total | 949 | 1,439 | 1,272

The breakdown of the balance under the heading “Other operating expense” in the accompanying consolidated income statements is as follows:

Other operating expense (Millions of euros)
| 2018 | 2017 | 2016
Change in inventories | 292 | 886 | 617
Of Which: Real estate | 248 | 816 | 511
Other | 1,808 | 1,337 | 1,511
Total | 2,101 | 2,223 | 2,128

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43. Income and expense from insurance and reinsurance contracts

The detail of the headings “Income and expense from insurance and reinsurance contracts” in the accompanying consolidated income statements is as follows:

Other operating income and expense on insurance and reinsurance contracts (Millions of euros)
| 2018 | 2017 | 2016
Income on insurance and reinsurance contracts | 2,949 | 3,342 | 3,652
Expenses on insurance and reinsurance contracts | (1,894) | (2,272) | (2,545)
Total | 1,055 | 1,069 | 1,107

The table below shows the contribution of each insurance product to the Group´s income for the years ended December 31, 2018, 2017 and 2016:

Income by type of insurance product (Millions of euros)
| 2018 | 2017 | 2016
Life insurance | 682 | 604 | 634
Individual | 486 | 346 | 268
Savings | 56 | 38 | 30
Risk | 430 | 308 | 238
Group insurance | 196 | 258 | 366
Savings | 39 | (4) | 8
Risk | 157 | 263 | 357
Non-Life insurance | 373 | 464 | 474
Home insurance | 110 | 118 | 131
Other non-life insurance products | 263 | 346 | 342
Total | 1,055 | 1,069 | 1,107

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44. Administration costs

44.1 Personnel expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Personnel Expenses (Millions of euros)
| Notes | 2018 | 2017 | 2016
Wages and salaries |  | 4,786 | 5,163 | 5,267
Social security costs |  | 722 | 761 | 784
Defined contribution plan expense | 25 | 89 | 87 | 87
Defined benefit plan expense | 25 | 58 | 62 | 67
Other personnel expenses |  | 465 | 497 | 516
Total |  | 6,120 | 6,571 | 6,722

The breakdown of the average number of employees in the BBVA Group in the year ended December 31, 2018, 2017 and 2016 by professional categories and geographical areas is as follows:

Average Number of Employees
| 2018 | 2017 | 2016
Spanish banks |  |  |
Management Team | 1,047 | 1,026 | 1,044
Other line personnel | 21,840 | 22,180 | 23,211
Clerical staff | 2,818 | 3,060 | 3,730
Branches abroad | 589 | 603 | 718
Subtotal | 26,294 | 26,869 | 28,703
Companies abroad |  |  |
Mexico | 31,655 | 30,664 | 30,378
United States | 9,786 | 9,532 | 9,710
Turkey | 22,322 | 23,154 | 23,900
Venezuela | 3,631 | 4,379 | 5,097
Argentina | 6,074 | 6,173 | 6,041
Colombia | 5,185 | 5,374 | 5,714
Peru | 5,879 | 5,571 | 5,455
Other | 3,767 | 5,501 | 5,037
Subtotal | 88,299 | 90,348 | 91,332
Pension fund managers | 395 | 362 | 335
Other non-banking companies | 14,349 | 14,925 | 16,307
Total | 129,336 | 132,504 | 136,677
Of which: |  |  |
Men | 59,547 | 60,730 | 62,738
Women | 69,790 | 71,774 | 73,939
Of which: |  |  |
BBVA, S.A. | 26,294 | 26,869 | 25,979

The breakdown of the number of employees in the BBVA Group as of December 31, 2018, 2017 and 2016 by category and gender is as follows:

Number of Employees at the period end. Professional Category and Gender
| 2018 | 2017 | 2016
| Male | Female | Male | Female | Male | Female
Management Team | 1,197 | 339 | 1,244 | 342 | 1,331 | 350
Other line personnel | 37,461 | 38,918 | 38,670 | 39,191 | 38,514 | 39,213
Clerical staff | 19,315 | 28,397 | 20,639 | 31,770 | 22,066 | 33,318
Total | 57,973 | 67,654 | 60,553 | 71,303 | 61,911 | 72,881

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### 44.1.1 Share-based employee remuneration

The amounts recognized under the heading “Administration costs - Personnel expenses - Other personnel expenses” in the consolidated income statements for the year ended December 31, 2018, 2017 and 2016, corresponding to the remuneration plans based on equity instruments in each year, amounted to €29 million, €38 million and €57 million, respectively. These amounts have been recognized with a corresponding entry under the heading “Shareholders’ funds - Other equity instruments” in the accompanying consolidated balance sheets, net of tax effect.

The characteristics of the Group's remuneration plans based on equity instruments are described below.

System of Variable Remuneration in Shares

In BBVA, the annual variable remuneration applying generally to all employees consists of one incentive, to be paid in cash, awarded once a year and linked to the achievement of predetermined objectives and to a sound risk management (hereinafter, the “Annual Variable Remuneration”).

According to the remuneration policy for BBVA Group, in force since 2017, the specific settlement and payment system for the Annual Variable Remuneration applicable to those employees and senior managers whose professional activities have a significant impact on the Group’s risk profile including the executive directors and members of BBVA Senior Management (hereinafter, the "Identified Staff"), which includes, among others, the payment in shares of part of their Annual Variable Remuneration.

This remuneration policy was approved, with respect to BBVA directors, by the Board of Directors held on February 9, 2017, and by the Annual General Shareholders’ Meeting held on March 17, 2017.

This remuneration policy includes a specific settlement and payment system of the Annual Variable Remuneration applicable to the Identified Staff, including directors and senior management, under the following rules, among others:

· A significant percentage of variable remuneration – 60% in the case of executive directors, Senior Management and those Identified Staff members with particularly high variable remuneration, and 40% for the rest of the Identified Staff– shall be deferred over a five-year period, in the case of executive directors and Senior Management, and over a three-year period, for the remaining Identified Staff.

· 50% of the variable remuneration of each year (including both upfront and deferred portions), shall be established in BBVA shares, albeit a larger proportion (60%) in shares shall be deferred in the case of executive directors and Senior Management.

· The variable remuneration will be subject to ex ante adjustments, so that it will not be accrued, or will be accrued in a reduced amount, should a certain level of profit or capital ratio not be obtained. Likewise, the Annual Variable Remuneration will be reduced upon performance assessment in the event of negative evolution of the Bank’s results or other parameters such as the level of achievement of budgeted targets.

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· The deferred component of the variable remuneration (in shares and in cash) may be reduced in its entirety, yet not increased, based on the result of multi-year performance indicators aligned with the Bank’s fundamental risk management and control metrics, related to the solvency, capital, liquidity, funding or profitability, or to the share performance and recurring results of the Group.

· During the entire deferral period (5 or 3 years, as applicable) and retention period, variable remuneration shall be subject to malus and clawback arrangements, both linked to a downturn in financial performance of the Bank, specific unit or area, or individual, under certain circumstances.

· All shares shall be withheld for a period of one year after delivery, except for those shares required to honor the payment of taxes.

· No personal hedging strategies or insurance may be used in connection with remuneration and responsibility that may undermine the effects of alignment with sound risk management.

· The deferred amounts in cash subject to multi-year performance indicators that are finally paid shall be subject to updating, in the terms determined by the Bank’s Board of Directors, upon proposal of the Remunerations Committee, whereas deferred amounts in shares shall not be updated.

· Finally, the variable component of the remuneration of the Identified Staff members shall be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the General Meeting resolves to increase this percentage up to 200%.

In this regard, the General Meeting held on March 16, 2018 resolved to increase the maximum level of variable remuneration to 200% of the fixed component for a number of the Identified Staff, in the terms indicated in the Report of Recommendations issued for this purpose by the Board of Directors dated February 12, 2018.

In accordance with the new remuneration policy applicable to the Identified Staff, malus and clawback arrangements will be applicable to the Annual Variable Remuneration awarded as of the year 2016, inclusive, for each member of the Identified Staff.

According to the settlement and payment scheme indicated, during 2018, members of the Identified Staff received a total amount of 3,932,268 shares corresponding to the initial payment corresponding to 2017 Annual Variable Remuneration to be delivered in shares.

Additionally, the remuneration policy prevailing until 2014 provided for a specific settlement and payment scheme for the variable remuneration of the Identified Staff that established a three-year deferral period for the Annual Variable Remuneration, being the deferred amount paid in thirds over this period in equal parts, in cash and in BBVA shares.

According to this prior scheme, during 2018, the members of the Identified Staff received the shares corresponding to the deferred parts of the Annual Variable Remuneration from previous years, and their corresponding adjustments in cash, delivery of which corresponded in 2018, were delivered to the beneficiary members of the Identified Staff, resulting in a total amount of 941,366 shares corresponding to the last deferred third of the 2014 Annual Variable Remuneration and €903,711 as adjustments for updates of the shares granted.

The information on the delivery of shares to executive Directors and senior management corresponding to the deferred parts of the Annual Variable Remuneration from previous years and their corresponding adjustments in cash, are detailed in Note 54.

Additionally, in line with specific regulation applicable in Portugal and Brazil, BBVA identifies those employees that, according to local regulators, should be subject to a specific settlement and payment scheme of the Annual Variable Remuneration.

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According to this regulation, during 2018 a number of 39,555 shares corresponding to the initial payment of 2017 Annual Variable Remuneration were delivered to these beneficiaries.

Additionally, during 2018 the shares corresponding to the deferred parts of the Annual Variable Remuneration and their corresponding adjustments in cash, were delivered to these beneficiaries, giving rise in 2018, of a total of 12,120 shares corresponding to the first deferred third of the 2016 Annual Variable Remuneration, and €2,679 as adjustments for updates of the shares granted; a total of 10,485 shares corresponding to the second third of the 2015 Annual Variable Remuneration, and €6,186 as adjustments for updates of the shares granted; and a total of 7,158 shares corresponding to the final third of the 2014 Annual Variable Remuneration, and €6,872 as adjustments for updates of the shares granted.

44.2 Other administrative expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Other Administrative Expenses (Millions of euros)
| 2018 | 2017 | 2016
Technology and systems | 1,133 | 692 | 673
Communications | 235 | 269 | 294
Advertising | 336 | 352 | 398
Property, fixtures and materials | 982 | 1,033 | 1,080
Of which: Rent expenses (*) | 552 | 581 | 616
Taxes other than income tax | 417 | 456 | 433
Other expenses | 1,271 | 1,738 | 1,766
Total | 4,374 | 4,541 | 4,644

(*) The consolidated companies do not expect to terminate the lease contracts early.

45. Depreciation and Amortization

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Depreciation and amortization (Millions of euros)
| Notes | 2018 | 2017 | 2016
Tangible assets | 17 | 594 | 694 | 690
For own use |  | 589 | 680 | 667
Investment properties |  | 5 | 13 | 23
Assets leased out under operating lease |  | - | - | -
Other Intangible assets |  | 613 | 694 | 735
Total |  | 1,208 | 1,387 | 1,426

46. Provisions or (reversal) of provisions

In the years ended December 31, 2018, 2017 and 2016 the net provisions recognized in this income statement line item were as follows:

Provisions or (reversal) of provisions (Millions of euros)
| Notes | 2018 | 2017 | 2016
Pensions and other post employment defined benefit obligations | 25 | 125 | 343 | 332
Commitments and guarantees given |  | (48) | (313) | 56
Pending legal issues and tax litigation |  | 133 | 318 | 76
Other Provisions |  | 163 | 397 | 722
Total |  | 373 | 745 | 1,186

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47. Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss

The breakdown of Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss by the nature of those assets in the accompanying consolidated income statements is as follows:

Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss (Millions of euros)
| Notes | 2018 | 2017 | 2016
Financial assets at fair value through other comprehensive income | 13.4 | 1 | 1,127 | 202
Debt securities |  | 1 | (4) | 157
Equity instruments |  | - | 1,131 | 46
Financial assets at amortized cost |  | 3,980 | 3,677 | 3,597
Of which: Recovery of written-off assets | 7.3.5 | 589 | 558 | 541
Held to maturity investments |  |  | (1) | 1
Total |  | 3,981 | 4,803 | 3,801

48. Impairment or (reversal) of impairment on non-financial assets

The impairment losses on non-financial assets broken down by the nature of those assets in the accompanying consolidated income statements are as follows:

Impairment or (reversal) of impairment on non-financial assets (Millions of euros)
| Notes | 2018 | 2017 | 2016
Tangible assets | 17 | 5 | 42 | 143
Intangible assets | 18.2 | 83 | 16 | 3
Others | 20 | 51 | 306 | 375
Total |  | 138 | 363 | 521

49. Gains (losses) on derecognition of non - financial assets and subsidiaries, net

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Gains (losses) on derecognition of non-financial assets and subsidiaries, net (Millions of euros)
| 2018 | 2017 | 2016
Gains |  |  |
Disposal of investments in non-consolidated subsidiaries | 55 | 38 | 111
Disposal of tangible assets and other | 81 | 69 | 64
Losses: |  |  |
Disposal of investments in non-consolidated subsidiaries | (13) | (27) | (58)
Disposal of tangible assets and other | (45) | (33) | (47)
Total | 78 | 47 | 70

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50. Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

The main items included in the balance under this heading in the accompanying consolidated income statements are as follows:

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of euros)
| Notes | 2018 | 2017 | 2016
Gains on sale of real estate |  | 129 | 102 | 66
Impairment of non-current assets held for sale | 21 | (208) | (158) | (136)
Gains on sale of investments classified as non-current assets held for sale (*) |  | 894 | 82 | 39
Gains on sale of equity instruments classified as non-current assets held for sale |  | - | - | -
Total |  | 815 | 26 | (31)

(*) The change is mainly as a result of the sale of the BBVA stake in BBVA Chile (see Note 3).

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51. Consolidated statements of cash flows

In the consolidated statements of cash flows, the balance of “Cash equivalent in central banks” includes short-term deposits at central banks under the heading "Financial assets at amortized cost" in the accompanying consolidated balance sheets and does not include demand deposits with credit institutions recorded in the heading "Cash, balances in cash at Central Bank and other demand deposits".

Cash flows from operating activities increased in the year ended December 31, 2018 by €6,609 million (compared with a decrease of €4,568 million in December 31, 2017), mainly due to the change in “Financial assets held for trading”.

Cash flows from investing activities increased in the year ended December 31, 2018 by €4,614 million (compared with an increase of €3,462 million in December 31, 2017), mainly due to the change in “Joint Ventures and Associates”.

Cash flows from financing activities decreased in the year ended December 31, 2018 by €4,994 million (compared with an increase of €1,015 million in December 31, 2017), mainly due to the change in “Subordinated Liabilities”.

The variation between 2018 and 2017 of the financial liabilities from financing activities is the following:

Liabilities from financing activities (Millions of Euros)
| December 31, 2017 | Cash flows | Non-cash changes | December 31, 2018
| Acquisition | Disposal | Foreign exchange movement | Fair value changes
Debt certificates | 50,635 | (1,621) | - | (1,900) | (779) | - | 46,335
Subordinated debt certificates | 17,443 | 857 | - | (694) | 29 | - | 17,635
Short-term debt | 10,013 | 931 | - | - | 81 | - | 11,025
Other financial liabilities | 8,891 | 1,574 | - | (643) | (1,328) | - | 8,495
Total | 86,982 | 1,741 | - | (3,237) | (1,997) | - | 83,490
Liabilities from financing activities (Millions of Euros)
| December 31, 2016 | Cash flows | Non-cash changes | December 31, 2017
| Acquisition | Disposal | Foreign exchange movement | Fair value changes
Debt certificates | 59,388 | (5,958) | - | - | (2,796) | - | 50,635
Subordinated debt certificates | 16,987 | 1,679 | - | - | (1,223) | - | 17,443
Short-term debt | 11,556 | (1,319) | - | - | (224) | - | 10,013
Other financial liabilities | 10,179 | (378) | - | - | (910) | - | 8,891
Total | 98,111 | (5,976) | - | - | (5,153) | - | 86,982

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52. Accountant fees and services

The details of the fees for the services contracted by entities of the BBVA Group for the years ended December 31, 2018 and 2017 with their respective auditors and other audit entities are as follows:

Fees for Audits Conducted and Other Related Services (Millions of euros) (**)
| 2018 | 2017
Audits of the companies audited by firms belonging to the KPMG worldwide organization and other reports related with the audit (*) | 26.1 | 27.2
Other reports required pursuant to applicable legislation and tax regulations issued by the national supervisory bodies of the countries in which the Group operates, reviewed by firms belonging to the KPMG worldwide organization | 1.5 | 1.9
Fees for audits conducted by other firms | 0.1 | 0.1

(*) Including fees pertaining to annual legal audits (€22.4 and 22.6 million as of December 31, 2018 and December 31, 2017, respectively).

(**) Regardless of the billed period.

In the year ended December 31, 2018, other entities in the BBVA Group contracted other services (other than audits) as follows:

Other Services rendered (Millions of euros)
| 2018 | 2017
Firms belonging to the KPMG worldwide organization | 0.3 | 0.5

This total of contracted services includes the detail of the services provided by KPMG Auditores, S.L. to BBVA, S.A. or its controlled companies at the date of preparation of these consolidated financial statements as follows:

Fees for Audits Conducted (*) (Millions of euros)
| 2018 | 2017
Legal audit of BBVA,S.A. or its companies under control | 6.7 | 6.8
Other audit services of BBVA, S.A. or its companies under control | 5.9 | 5.0
Limited Review of BBVA, S.A. or its companies under control | 1.1 | 0.9
Reports related to issuances | 0.3 | 0.4
Assurance jobs and other required by the regulator | 0.9 | 0.6
Other | - | -

(*) Services provided by KPMG Auditores, S.L. to companies located in Spain, to the branch of BBVA in New York and to the branch of BBVA in London.

The services provided by the auditors meet the independence requirements of the external auditor established under Audit of Accounts Law (Law 22/2015) and under the Sarbanes-Oxley Act of 2002 adopted by the Securities and Exchange Commission (SEC).

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53. Related-party transactions

As financial institutions, BBVA and other entities in the Group engage in transactions with related parties in the normal course of their business. All of these transactions are not material and are carried out under normal market conditions. As of December 31, 2018, 2017 and 2016, the following are the transactions with related parties:

## 53.1 Transactions with significant shareholders

As of December 31, 2018, 2017 and 2016, there were no shareholders considered significant (see Note 26).

## 53.2 Transactions with BBVA Group entities

The balances of the main aggregates in the accompanying consolidated balance sheets arising from the transactions carried out by the BBVA Group with associates and joint venture entities accounted for using the equity method are as follows:

Balances arising from transactions with Entities of the Group (Millions of euros)
| 2018 | 2017 | 2016
Assets: |  |  |
Loans and advances to credit institutions | 132 | 91 | 69
Loans and advances to customers | 1,866 | 510 | 442
Liabilities: |  |  |
Deposits from credit institutions | 2 | 5 | 1
Customer deposits | 521 | 428 | 533
Debt certificates | - | - | -
Memorandum accounts: | - |  |
Financial guarantees given | 78 | 78 | 42
Contingent commitments | 1,358 | 114 | 121
Other | 152 | 1,175 | 1,466

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The balances of the main aggregates in the accompanying consolidated income statements resulting from transactions with associates and joint venture entities that are accounted for under the equity method are as follows:

Balances of Income Statement arising from transactions with Entities of the Group (Millions of euros)
| 2018 | 2017 | 2016
Income statement: |  |  |
Financial incomes | 55 | 26 | 26
Financial costs | 2 | 1 | 1
Fee and Commission Income | 5 | 5 | 5
Fee and Commission Expenses | 48 | 49 | 58

There were no other material effects in the consolidated financial statements arising from dealings with these entities, other than the effects from using the equity method (see Note 2.1) and from the insurance policies to cover pension or similar (see Note 25) commitments and the futures transactions arranged by BBVA Group with these entities, associates and joint ventures.

In addition, as part of its normal activity, the BBVA Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the accompanying consolidated financial statements.

## 53.3 Transactions with members of the Board of Directors and Senior Management

The information on the remuneration of the members of the BBVA Board of Directors and Senior Management is included in Note 54.

As of December 31, 2018, the amount availed against the loans granted by the Group’s entities to the members of the Board of Directors amounted to €611 thousand. As of December 31, 2017 and 2016, there were no loans granted by the Group’s entities to the members of the Board of Directors. The amount availed against the loans granted by the Group’s entities to the members of Senior Management on those same dates (excluding the executive directors) amounted to €3,783, €4,049 and €5,573 thousand, respectively.

As of December 31, 2018, 2017 and 2016, there were no loans granted to parties related to the members of the Board of Directors. As of December 31, 2018, 2017 and 2016 the amount availed against the loans granted to parties related to members of the Senior Management amounted to €69, €85 and €98 thousand, respectively.

As of December 31, 2018, 2017 and 2016 no guarantees had been granted to any member of the Board of Directors.

As of December 31, 2018, 2017 and 2016, the amount availed against guarantees arranged with members of the Senior Management amounted to €38, €28 and €28 thousand, respectively.

As of December 31, 2018, no commercial loans and guarantees has been granted to parties related to the members of the Bank’s Board of Directors and the Senior Management. As of December 31, 2017 and 2016 the amount availed against commercial loans and guarantees arranged with parties related to the members of the Bank’s Board of Directors and the Senior Management totaled €8 thousand.

##

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## 53.4 Transactions with other related parties

As of December 31, 2018, 2017 and 2016, the Group did not conduct any transactions with other related parties that are not in the ordinary course of its business, which were not carried out at arm's-length market conditions and of marginal relevance; whose information is not necessary to give a true picture of the BBVA Group’s consolidated net equity, net earnings and financial situation.

54. Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management

Remuneration received by non-executive directors during the 2018 financial year

The remunerations paid to non-executive members of the Board of Directors during the 2018 financial year are indicated below, individually and itemized:

Remuneration for non-executive directors (thousands of euro)
| Board of Directors | Executive Committee | Audit and Compliance Committee | Risk Committee | Remunerations Committee | Appointments Committee | Technology and Cybersecurity Committee | Total
Tomás Alfaro Drake | 129 | - | 18 | - | 43 | 25 | 43 | 258
José Miguel Andrés Torrecillas | 129 | - | 179 | 107 | - | 71 | - | 485
Jaime Félix Caruana Lacorte (1) | 75 | 83 | - | 53 | - | - | 25 | 237
Belén Garijo López | 129 | - | 71 | - | 107 | 20 | - | 328
Sunir Kumar Kapoor | 129 | - | - | - | - | - | 43 | 172
Carlos Loring Martínez de Irujo | 129 | 167 | - | 107 | 43 | - | - | 445
Lourdes Máiz Carro | 129 | - | 71 | - | 43 | 41 | - | 284
José Maldonado Ramos | 129 | 167 | - | 53 | - | 41 | - | 390
Ana Peralta Moreno (1) | 86 | - | 36 | - | 21 | - | - | 143
Juan Pi Llorens | 129 | - | 71 | 214 | - | - | 43 | 457
Susana Rodríguez Vidarte | 129 | 167 | - | 107 | - | 41 | - | 443
Jan Verplancke (1) | 107 | - | - | - | - | - | 25 | 132
Total (2) | 1,427 | 584 | 446 | 642 | 257 | 239 | 179 | 3,773

(1) Directors appointed by the General Meeting held on 16 March 2018. This includes the remunerations paid for membership of the various Board Committees throughout the 2018 financial year. The composition of these Committees was modified on 27 June 2018. Remunerations paid in accordance with the date of acceptance of said appointment.

(2) In addition, José Antonio Fernández Rivero, who stepped down as director on 16 March 2018, received a total of €95 thousand in 2018, for his membership of the Board and of a number of Board Committees.

Also, during the 2018 financial year, €107 thousand has been paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors.

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Remuneration received by executive directors during the 2018 financial year

Over the course of financial year 2018, the executive directors have received the amount of the Annual Fixed Remuneration corresponding to said financial year, established in the Remuneration Policy for BBVA Directors applicable in 2018, which was approved by the General Meeting held on 17 March 2017.

In addition, the executive directors have received the Annual Variable Remuneration for 2017 financial year, which, in accordance with the settlement and payment system set out in said Policy, was due to be paid to them during the first quarter of financial year 2018.

In application of this settlement and payment system:

· 40% of the 2017 Annual Variable Remuneration corresponding to executive directors has been paid, having the conditions been met, in the first quarter of financial year 2018 (hereinafter, the "Upfront Portion"), in equal parts in cash and in shares.

· The remaining 60% of the Annual Variable Remuneration, both in cash and in shares, has been deferred in its entirety for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators (hereinafter, the "Deferred Portion"). The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion, even in its entirety, but in no event may be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid (40% in cash and 60% in shares), according to the following schedule: 60% in 2021, 20% in 2022 and the remaining 20% in 2023.

· All the shares delivered to the executive directors as Annual Variable Remuneration, both of the Upfront Portion and the Deferred Portion will be withheld for a period of one year after their delivery; this will not apply to those shares transferred to honor the payment of taxes arising therefrom.

· The Deferred Portion of the Annual Variable Remuneration in cash will be subject to updating under the terms established by the Board of Directors.

· Executive directors may not use personal hedging strategies or insurance in connection with the remuneration and responsibility that may undermine the effects of alignment with prudent risk management.

· The variable component of the remuneration for executive directors corresponding financial year 2017 is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the General Meeting.

· Over the entire deferral and withholding period, the entire Annual Variable Remuneration for the executive directors will be subject to reduction and recovery ("malus" and "clawback") arrangements.

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Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number of shares equivalent to twice their Annual Fixed Remuneration (AFR) for at least three years after their delivery.

Similarly, in application of the settlement and payment system of the annual variable remuneration for 2014 financial year, in accordance with the remuneration policy applicable at that time, the executive directors have received in 2018 the last third of the deferred annual variable remuneration for 2014 financial year, delivery of which corresponded in 2018, thus concluding payment of the deferred variable remuneration for 2014.

In accordance with the above, the remunerations paid to executive directors during financial year 2018 are indicated below, individually and itemized:

Annual Fixed Remuneration (thousands of euro), received in 2018
Carlos Torres Vila | 1,965
José Manuel González-Páramo Martínez-Murillo | 834
Total | 2,799

Variable remuneration for financial year 2017, received in 2018
| In cash (1) (thousands of euro) | In shares (1)
Carlos Torres Vila | 562 | 77,493
José Manuel González-Páramo Martínez-Murillo | 87 | 12,029
Total | 649 | 89,522

(1) Remunerations corresponding to the Upfront Portion (40%) of the Annual Variable Remuneration for financial year 2017, 50% in cash and 50% in shares.

Deferred variable remuneration for financial year 2014, received in 2018
| In cash (1) (thousands of euro) | In shares (1)
Carlos Torres Vila | 105 | 11,766
José Manuel González-Páramo Martínez-Murillo | 33 | 3,678
Total | 137 | 15,444

(1) Remunerations corresponding to the last third of the deferred annual variable remuneration for financial year 2014, 50% in cash and 50% in shares, along with its update in cash.

In addition, the executive directors received remuneration in kind throughout financial year 2018, including insurance premiums and others, amounting to a total of €236 thousand, of which €154 thousand correspond to Carlos Torres Vila and €82 thousand to José Manuel González-Páramo Martínez-Murillo.

Former Group Executive Chairman, Francisco González Rodríguez, who stepped down from this position with effect on 21 December 2018, received, during 2018, €2,475 thousand as Annual Fixed Remuneration; €660 thousand and 90,933 BBVA shares corresponding to 40% of the Annual Variable Remuneration for financial year 2017; and €332 thousand and 37,390 BBVA shares as settlement of the last third of the deferred variable remuneration for financial year 2014, payment of which corresponded in first quarter of financial year 2018, including the corresponding update; as well as €20 thousand as remuneration in kind.

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On the other hand, it is indicated that in 2018, CEO Onur Genç—who was appointed by resolution of BBVA's Board of Directors on 20 December 2018— has not received any remuneration for said role in 2018, having received fixed and variable remuneration in accordance with his previous position as Chairman and CEO of BBVA Compass, this remuneration being subject to the settlement and payment system applicable to said position. Thus, over the course of the financial year 2018, he has received €2,240(*) thousand as Annual Fixed Remuneration; €191(*) thousand and 26,531 BBVA ADSs corresponding to 40% of the Annual Variable Remuneration for financial year 2017; and €376 thousand as remuneration in kind, which includes benefits for his expatriate status in the United States.

(*) Amounts paid in US Dollars. Euro details are for information purposes.

· Annual Variable Remuneration for executive directors for financial year 2018

Following year-end 2018, the Annual Variable Remuneration for executive directors corresponding to said period has been determined, applying the conditions established at the beginning of the year, as established in the Remuneration Policy for BBVA Directors approved by the General Meeting on 17 March 2017 with the following settlement and payment system:

· The Upfront Portion (40%) of the Annual Variable Remuneration of the executive directors for 2018 will be paid, if conditions are met, in equal parts in cash and shares, during the first quarter of 2019, which amounts to €479 thousand and 100,436 BBVA shares in the case of Carlos Torres Vila; and €79 thousand and 16,641 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo.

· The Deferred Portion (60%) remaining will be deferred for a five-year period, subject to compliance with the multi-year performance indicators determined by the Board of Directors at the start of financial year 2018, calculated over the first three-year deferral period. Provided that the conditions are met, the resulting amount will vest (40% in cash and 60% in shares), under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and the remaining 20% after the fifth year of deferral. All the above is subject to the settlement and payment system conditions set out in the Remuneration Policy for BBVA Directors, which includes malus and clawback arrangements and retention periods for shares.

As regards former Group Executive Chairman, Francisco González Rodríguez, his Annual Variable Remuneration for 2018 has been determined. This Annual Variable Remuneration for 2018 will be received, provided that conditions are met, in accordance with the same settlement and payment system applicable to executive directors which includes deferral rules, malus and clawback arrangements and retention periods for shares. Thus, the Upfront Portion (40%) has been determined in: €528 thousand and 110,814 BBVA shares. Accrual and payment of the Deferred Portion (remaining 60%), 40% in cash and 60% in shares, will be subject to compliance with multi-year performance indicators approved by the Board of Directors. All the above is subject to the conditions of the settlement and payment system established in the Remuneration Policy for BBVA Directors, which includes malus and clawback arrangements and withholding periods for shares.

As regards CEO Onur Genç and as aforementioned, his Annual Variable Remuneration for financial year 2018 is linked to his previous position as Chairman and CEO of BBVA Compass and has been determined in accordance with the settlement and payment system applicable for such position. Thus, providing that applicable conditions are met, 40% of Annual Variable Remuneration for 2018 will be paid in the first quarter of 2019, amounting to a total of €196 thousand(*) and 41,267 BBVA shares. Accrual and payment of the remaining 60% of the Annual Variable Remuneration for financial year 2018, 50% in cash and 50% in shares, will be deferred for a three-year period and will be subject to compliance with multi-year performance indicators set by the Board of Directors for the whole Identified Staff at the beginning of 2018 and measured over the course of the three-year period.

(*) Euro details are for information purposes. Year-end 2018 exchange rate applied: EUR/USD 1,145001.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.

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The amounts corresponding to deferred shares is detailed in the section "Remuneration based on Capital/Equity Instruments" and the cash part in "Other Liabilities/Other Accruals" in the consolidated balance sheet at 31 December 2018.

· Deferred Annual Variable Remuneration of executive directors for financial year 2015

Following year-end 2018, the deferred Annual Variable Remuneration of executive directors for financial year 2015 has been determined, with delivery, if conditions are met, corresponding during the first quarter of financial year 2019, subject to the conditions established for this purpose in the Remuneration Policy for BBVA Directors approved by the General Meeting on 13 March 2015.

Thus, based on the result of each of the multi-year performance indicators set by the Board in 2015 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the Annual Variable Remuneration for financial year 2015 has been adjusted downwards as a consequence of result of the TSR indicator, which scale has determined a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the Annual Variable Remuneration for financial year 2015, after the corresponding adjustment in light of the result of the TSR indicator, has been determined in an amount of €612 thousand and 79,157 BBVA shares, in the case of Carlos Torres Vila, and €113 thousand and 14,667 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo, which includes the corresponding updating.

As regards the former Group Executive Chairman, Francisco González Rodríguez, his deferred Annual Variable Remuneration for financial year 2015 has been determined, to be received, providing that conditions are met, in accordance with the same settlement and payment system applicable to executive directors, amounting to a total of €1,035 thousand and 133,947 BBVA shares, which includes the corresponding updating.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.

Lastly, as at year-end 2018 and in accordance with the conditions established in the remuneration policies applicable in the corresponding years, 50% and 60% of the annual variable remuneration of the executive directors corresponding to 2016 and 2017 financial years, respectively, has been deferred, to be received in future years, if applicable conditions are met, in accordance with the terms established in the remuneration policy applicable for each of such financial years.

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Remuneration received by the members of Senior Management in the 2018 financial year

The members of Senior Management, excluding executive directors, who held that position as at 20 December 2018(*) (15 members) have, over the course of the 2018 financial year, received the amount of the fixed remuneration corresponding to that financial year and the Annual Variable Remuneration for the 2017 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to Senior Management in this financial year, was due to be paid to them during the first quarter of 2018.

In application of this settlement and payment system:

· 40% of the Annual Variable Remuneration due to members of the Senior Management for the 2017 financial year, 40% has been paid, as the conditions have been met, in the first quarter of the 2018 financial year (the "Upfront Portion"), in equal parts in cash and in shares.

· The remaining 60% of the Annual Variable Remuneration, in both cash and shares, has been deferred in its entirety for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators (the "Deferred Portion"). The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion, even in its entirety, but in no event may be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid (40% in cash and 60% in shares), according to the following payment schedule: 60% in 2021, 20% in 2022 and the remaining 20% in 2023.

· The shares received as Annual Variable Remuneration will be withheld for a period of one year after their delivery, with the exception of those transferred to honor the payment of taxes arising from their delivery.

· The deferred portion of the Annual Variable Remuneration in cash will be subject to updating under the terms established by the Board of Directors.

· No personal hedging strategies or insurance may be used in connection with the remuneration and the responsibility that may undermine the effects of alignment with prudent risk management.

· The variable component of the remuneration corresponding to the financial year 2017 will be limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the General Meeting.

· Over the entire deferral and withholding period, the total Annual Variable Remuneration will be subject to variable "malus" and "clawback" arrangements.

Similarly, in application of the settlement and payment system of the annual variable remuneration for 2014 financial year, in accordance with the remuneration policy applicable at that time, the Senior Management who were beneficiaries of such remuneration, have received the deferred last third of the annual variable remuneration for that financial year, which delivery corresponded to the first quarter of 2018, thus concluding payment of the deferred variable remuneration for the 2014 financial year.

(*) Date of the Board of Directors’ resolution by which organizational changes were approved in the Group.

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In accordance with the above, the remuneration paid to members of the Senior Management as a whole, who held that position as at 20 December 2018, excluding executive directors, during the 2018 financial year is indicated below (itemized):

Annual Fixed Remuneration (thousands of euro) received in 2018
Senior Management total | 16,129

Annual Variable Remuneration for the 2017 financial year, received in 2018
| In cash (thousands of euro) | In shares
Senior Management total | 1,489 | 205,104

Deferred variable remuneration for the 2014 financial year, received in 2018
| In cash (thousands of euro) | In shares
Senior Management total | 573 | 64,853

In addition, all members of Senior Management who held that position as at 20 December 2018, excluding executive directors, received remuneration in kind throughout the 2018 financial year, including insurance premiums and others, amounting to a total of €875 thousand.

At the year-end 2018 and subject to the conditions established in the remuneration policies applicable to the corresponding year for, components of the annual variable remuneration of members of the Senior Management who were beneficiaries of remunerations for the 2016 and 2017 financial years, are deferred to be received in future years, if conditions are met, in accordance with the policy applicable for each of such financial years.

As regards of those members of the Senior Management who were appointed by resolution of BBVA's Board of Directors on 20 December 2018 (5 members) have not received any remuneration for such condition, having received fixed and variable remuneration in line with their former positions and functions amounting in aggregate €1,757 thousand as Annual Fixed Remuneration; €337 thousand and 24,293 BBVA shares for Upfront Portion of the Annual Variable Remuneration for the 2017 financial year; and €33 thousand and 3,684 BBVA shares as settlement of the deferred last third of the Annual Variable Remuneration for the 2014 financial year to the Senior Management who were beneficiaries of such remuneration, including the corresponding update, as well as remuneration in kind and others for an amount of €158 thousand, all in application of the remuneration policy to which they were entitled in their condition as risk taker.

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· Annual Variable Remuneration for Senior Management for financial year 2018

Following year-end 2018, the Annual Variable Remuneration of Senior Management corresponding to said period has been determined, excluding executive directors, who held that position as at 20 December 2018 (15 members).

Therefore, the 2018 Annual Variable Remuneration to all of the Senior Management, excluding executive directors, has been determined in a total amount of €7,074 thousand, in application of the settlement and payment system for this group. T he 40% of the Annual Variable Remuneration corresponding to each of will be paid, providing the conditions are met, in equal parts in cash and in shares, during the first quarter of 2019. The remaining 60% of the Annual Variable Remuneration (40% in cash and 60% in shares) will be subject to compliance with a series of multi-year indicators and to the rest of the settlement and payment system conditions set out in the remuneration policy applicable to Senior Management, which includes malus and clawback arrangements and retention periods for shares.

As regards those members of the Senior Management who were appointed by resolution of BBVA's Board of Directors on 20 December 2018 (5 members), their Annual Variable Remuneration for the 2018 year-end has been calculated in line with their former positions and functions, amounting in aggregate €633 thousand, being subject to the conditions set out in the remuneration policy to which they were entitled in their condition as risk taker.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.

· Deferred Annual Variable Remuneration of Senior Management for financial year 2015

Following year-end 2018, the deferred Annual Variable Remuneration of Senior Management for financial year 2015 has been determined, excluding executive directors, who held that position as at 20 December 2018 (15 members).

Thus, based on the result of each of the multi-year performance indicators set by the Board in 2015 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the Annual Variable Remuneration for financial year 2015 has been adjusted downwards as a consequence of result of the TSR indicator, which scale has determined a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the Annual Variable Remuneration for financial year 2015 to be paid to Senior Management beneficiaries of such remuneration, if applicable conditions are met, after the corresponding adjustment in light of the result of the TSR indicator, has been determined in an amount of €2,936 thousand and 382,407 BBVA shares, which includes the corresponding updating.

As regards those members of the Senior Management who were appointed by resolution of BBVA's Board of Directors on 20 December 2018 (5 members) that were entitled to such deferred remuneration, their Annual Variable Remuneration for financial year 2015 has been calculated in line with their former positions and functions, amounting in aggregate €110 thousand and 14,203 BBVA shares, which includes the corresponding updating and being subject to the conditions set out in the remuneration policy to which they were entitled in their condition as a Group's risk takers.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.

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· Remuneration system with deferred delivery of shares for non-executive directors

BBVA has a remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the General Shareholders' Meeting held on 18 March 2006 and extended by resolutions of the General Shareholders' Meetings held on 11 March 2011 and 11 March 2016 for an additional period of five years in each case.

This system involves the annual allocation to non-executive directors of a number of "theoretical shares" of BBVA equivalent to 20% of the total remuneration received in cash received by each director in the previous financial year. This is calculated according to the average closing prices of BBVA shares during the 60 trading sessions prior to the dates of the Annual General Shareholders' Meetings that approve the corresponding financial statements for each financial year.

These shares will be delivered to each beneficiary, where applicable, after they leave their positions as directors for reasons other than serious breach of their duties.

The "theoretical shares" allocated in 2018 to each non-executive director beneficiaries of the remuneration system in shares with deferred delivery, corresponding to 20% of the total remuneration in cash received by each of them in 2017, are as follows:

| Theoretical shares allocated in 2018 | Theoretical shares accumulated as at 31 December 2018
Tomás Alfaro Drake | 10,367 | 83,449
José Miguel Andrés Torrecillas | 12,755 | 36,565
Belén Garijo López | 7,865 | 34,641
Sunir Kumar Kapoor | 4,811 | 8,976
Carlos Loring Martínez de Irujo | 11,985 | 98,876
Lourdes Máiz Carro | 7,454 | 23,160
José Maldonado Ramos | 11,176 | 78,995
Juan Pi Llorens | 11,562 | 54,171
Susana Rodríguez Vidarte | 12,425 | 104,983
Total (1) | 90,400 | 523,816

(1) In addition, in 2018, 10,188 "theoretical shares" were allocated to José Antonio Fernández Rivero, who stepped down as a director on 16 March 2018.

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· Pension commitments

At the end of the 2018 financial year, the Bank has pension commitments in favor of the executive directors Carlos Torres Vila and José Manuel González-Páramo Martínez-Murillo to cover contingencies for retirement, disability and death, in accordance with the Bylaws, the Remuneration Policy for BBVA Directors and their respective contracts entered into with the Bank.

With regard to Carlos Torres Vila, the Remuneration Policy for BBVA Directors provides for a benefits framework according to which he is entitled, provided that he does not leave his position as Chief Executive Officer due to serious breach of duties, to receive a retirement pension when he reaches the legally established retirement age, in the form of capital or income. The amount of this pension shall result from the funds accumulated by the Bank up to December 2016 to cover the commitments under his previous benefits scheme, plus the sum of the annual contributions made by the Bank from 1 January 2017 to cover said pension, as well as the corresponding accumulated yields.

The amount set out in the Remuneration Policy for BBVA Directors as annual contribution to cover retirement benefit under the defined-contribution scheme for Carlos Torres Vila is €1,642 thousand.

15% of the aforementioned agreed annual contribution will be based on variable components and considered "discretionary pension benefits", therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with this Policy.

Should the contractual relationship be terminated before he reaches the retirement age for reasons other than serious breach of duties, the retirement pension due to Carlos Torres Vila upon reaching the legally established retirement age will be calculated based on the total contributions made by the Bank under the terms set out, up to that date, plus the corresponding accumulated yield, with no additional contributions to be made by the Bank from the time of termination.

With respect to the commitments to cover the contingencies for death and disability benefits for Carlos Torres Vila, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage the death and disability contingencies of his benefits system.

In line with the above, during the 2018 financial year, €1,896 thousand has been recorded to meet the benefits commitments for Carlos Torres Vila, amount which includes the contribution to the retirement contingency (€1,642 thousand) and to death and disability (€212 thousand), as well as €42 thousand corresponding to the adjustments made to the amount of "discretionary pension benefits" from 2017, as declared at 2017 year-end and which had to be recorded in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with Carlos Torres Vila amounts to €18,581 thousand as at 31 December 2018.

15% of the agreed annual contribution to retirement (€246 thousand) has been recognized in 2018 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria established to determine Carlos Torres Vila's Annual Variable Remuneration for 2018. Accordingly, the "discretionary pension benefits" for the financial year have been determined in an amount of €245 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Component of Annual Variable Remuneration for 2018, as well as the remaining conditions established for these benefits in the Remuneration Policy for BBVA Directors.

In the case of José Manuel González-Páramo Martínez-Murillo, the pension system provided for in the Remuneration Policy for BBVA Directors establishes an annual contribution of 30% of his Annual Fixed Remuneration, to cover the contingency of his retirement, as well as the payment of the corresponding insurance premiums in order to top up the coverage of death and disability.

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15% of the aforementioned agreed annual contribution will be based on variable components and considered "discretionary pension benefits", therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with this Policy.

José Manuel González-Páramo Martínez-Murillo, upon reaching retirement age, will be entitled to receive, in the form of capital or income, the benefits arising from contributions made by the Bank to cover pension commitments, plus the corresponding yield accumulated up to that date, provided he does not leave his position due to serious breach of duties. In the event of voluntary termination of contractual relationship by the director before retirement, the benefits will be limited to 50% of the contributions made by the Bank up to that date, as well as the corresponding accumulated yield, with no additional contributions to be made by the Bank upon termination.

With respect to the commitments to cover the contingencies for death and disability benefits for José Manuel González-Páramo Martínez-Murillo, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage the death and disability contingencies of his benefits system.

In line with the above, during the 2018 financial year, €405 thousand has been recorded to meet the benefits commitments for José Manuel González-Páramo Martínez-Murillo, amount which includes the contribution to the retirement contingency (€250 thousand) and to death and disability (€147 thousand), as well as €8 thousand corresponding to the adjustments made to the amount of "discretionary pension benefits" from 2017, as declared at 2017 year-end and which had to be recorded in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with José Manuel González-Páramo amounts to €1,067 thousand as at 31 December 2018.

15% of the agreed annual contribution to retirement (€38 thousand) has been recognized in 2018 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria established to determine José Manuel González-Páramo Martínez-Murillo’s Annual Variable Remuneration for 2018. Accordingly, the "discretionary pension benefits" for the financial year have been determined in an amount of €42 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Component of Annual Variable Remuneration for 2018, as well as the remaining conditions established for these benefits in the Remuneration Policy for BBVA Directors.

As of 31 December 2018 there are no other pension commitments undertaken in favor of other executive directors.

Likewise, during the 2018 financial year, €4,754 thousand has been recorded to meet the benefits commitments undertaken with members of the Senior Management, excluding executive directors, who held said position as at 20 December 2018 (15 members), amount which includes the contribution to the retirement contingency (€3,883 thousand) and to death and disability (€831 thousand), as well as €40 thousand corresponding to the adjustments made to the amount of "discretionary pension benefits" from 2017, as declared at 2017 year-end and which had to be recorded in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with Senior Management amounts to €57,429 thousand as at 31 December 2018.

15% of the agreed annual contributions for members of Senior Management who held that position as at 20 December 2018 will be based on variable components and considered "discretionary pension benefits", therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the remuneration policy applicable to members of Senior Management.

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To this end, of the agreed annual contribution to retirement, an amount of €571 thousand has been recognized in 2018 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria established to determine the Annual Variable Remuneration of the Senior Management for 2018. Accordingly, the "discretionary pension benefits" for the financial year, corresponding to members of the Senior Management who held that position as at 20 December 2018, have been determined in an amount of €555 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Component of Annual Variable Remuneration for 2018, as well as the remaining conditions established for these benefits in the remuneration policy applicable to members of the Senior Management.

During the 2018 financial year, €146 thousand has been recorded to meet the benefits commitments undertaken with the members of the Senior Management, excluding executive directors, who were appointed by BBVA's Board of Directors on 20 December 2018 (five members), pursuant to the commitments made by the Bank with each of them in relation to their previous positions and functions, with such amount including both the contribution to retirement contingency(€97 thousand) as well as to death and disability (€49 thousand), with the fund accumulated to meet retirement commitments for this group amounting to a total of €1,713 thousand.

Termination of the contractual relationship

In accordance with the Remuneration Policy for BBVA Directors, the Bank has no commitments to pay severance payments to executive directors.

The contractual framework defined in the aforementioned Policy for Carlos Torres Vila and for the executive director José Manuel González-Páramo Martínez-Murillo, includes a post-contractual non-compete agreement for a period of two years after they cease as BBVA executive directors, in accordance to which they will receive remuneration from the Bank for an amount equivalent to one Annual Fixed Remuneration for each year of duration of the non-compete arrangement , which shall be paid periodically over the course of the two years, provided that they leave their positions as executive directors for reasons other than retirement, disability or serious breach of duties.

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55. Other information

55.1 Environmental impact

Given the activities BBVA Group entities engage in, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that could have a significant effect on its consolidated equity, financial situation and profits. Consequently, as of December 31, 2018, there is no item in the Group’s accompanying consolidated financial statements that requires disclosure in an environmental information report pursuant to Ministry of Justice Order JUS/471/2017, of May 19, and consequently no specific disclosure of information on environmental matters is included in these financial statements.

55.2 Reporting requirements of the Spanish National Securities Market Commission (CNMV)

Dividends paid in the year

The table below presents the dividends per share paid in cash during 2018, 2017 and 2016 (cash basis dividend, regardless of the year in which they were accrued), but without including other shareholder remuneration, such as the “Dividend Option”. See Notes 4 and 26 for a complete analysis of all remuneration awarded to the shareholders.

Dividends Paid ("Dividend Option" not included)
|  | 2018 |  |  | 2017 |  |  | 2016 |
| % Over Nominal | Euros per Share | Amount (Millions of Euros) | % Over Nominal | Euros per Share | Amount (Millions of Euros) | % Over Nominal | Euros per Share | Amount (Millions of Euros)
Ordinary shares | 51.02% | 0.25 | 1,667 | 34.69% | 0.17 | 1,125 | 32.65% | 0.16 | 1,028
Rest of shares | - | - | - | - | - | - | - | - | -
Total dividends paid in cash | 51.02% | 0.25 | 1,667 | 34.69% | 0.17 | 1,125 | 32.65% | 0.16 | 1,028
Dividends with charge to income | 51.02% | 0.25 | 1,667 | 34.69% | 0.17 | 1,125 | 32.65% | 0.16 | 1,028
Dividends with charge to reserve or share premium | - | - | - | - | - | - | - | - | -
Dividends in kind | - | - | - | - | - | - | - | - | -

F-252

Ordinary earnings and ordinary income by operating segment

The detail of the consolidated profit for each operating segment is as follows as of December 31 2018, 2017 and 2016:

Profit Attributable by Operating Segments
| Notes | 2018 | 2017 | 2016
Banking Activity in Spain |  | 1,522 | 1,374 | 912
Non-Core Real Estate |  | (78) | (490) | (595)
United States |  | 735 | 486 | 459
Mexico |  | 2,384 | 2,187 | 1,980
Turkey |  | 569 | 826 | 599
South America |  | 591 | 861 | 771
Rest of Eurasia |  | 93 | 125 | 151
Subtotal operating segments |  | 5,818 | 5,368 | 4,276
Corporate Center |  | (494) | (1,848) | (801)
Profit attributable to parent company | 6 | 5,324 | 3,519 | 3,475
Non-assigned income |  | - | - | -
Elimination of interim income (between segments) |  | - | - | -
Other gains (losses) (*) |  | 827 | 1,243 | 1,218
Income tax and/or profit from discontinued operations |  | 2,295 | 2,169 | 1,699
Operating profit before tax | 6 | 8,446 | 6,931 | 6,392

(*) Profit attributable to non-controlling interests.

Interest income by geographical area

The breakdown of the balance of “Interest income and other income” in the accompanying consolidated income statements by geographical area is as follows:

Interest Income. Breakdown by geographical area (Millions of euros)
| Notes | 2018 | 2017 | 2016
Domestic |  | 4,952 | 5,093 | 5,962
Foreign |  | 24,879 | 24,203 | 21,745
European Union |  | 509 | 422 | 291
Eurozone |  | 391 | 239 | 291
No eurozone |  | 117 | 183 | -
Other countries |  | 24,370 | 23,781 | 21,455
Total | 37.1 | 29,831 | 29,296 | 27,708

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56. Subsequent events

On January 15, 2019, BBVA announced its irrevocable decision to early redeem, on February 19, 2019, the issuance of preferred securities contingently convertible (additional tier 1 instrument) carried out by the Bank on February 19, 2014, for an amount of €1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator was obtained (see Note 22.4).

The Board of Directors, in their meeting on January 31, 2019, agreed on carrying out an issuance of bonds convertible into ordinary shares of BBVA with exclusion of pre-emptive subscription rights, under the power delegated by the General Shareholders' Meeting of the Company held on March 17, 2017 under the fifth item on the agenda which is pending to be executed.

On February 1, 2019 it was announced that it was foreseen to submit to the consideration of the corresponding government bodies the proposal of cash payment in a gross amount of euro 0.16 per share to be paid in April as final dividend for 2018 (see Note 4).

On February 14, 2019, the results of the supervisory review and evaluation process (SREP) were announced.

On 19 February, BBVA announced the irrevocable decision to early redeem, on April 11, the issuance of subordinated bonds (Subordinated Notes) that has been computed as Tier 2 capital for an amount of €1.5 billion, coinciding with the Optional Amortization date of said issue, and once the prior consent from the Regulator has been obtained.

From January 1, 2019 to the date of preparation of these Consolidated Financial Statements, no other subsequent events not mentioned above in these financial statements have taken place that could significantly affect the Group’s earnings or its equity position.

F-254

Appendices

F-255

APPENDIX I Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group

Additional Information on Consolidated Subsidiaries and consolidated structured entities composing the BBVA Group

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
ACTIVOS MACORP SL | SPAIN | REAL ESTATE | 50.63 | 49.37 | 100.00 | 21 | 24 | 3 | 20 | 1
ALCALA 120 PROMOC. Y GEST.IMMOB. S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 17 | 26 | 8 | 16 | 2
ANIDA GERMANIA IMMOBILIEN ONE, GMBH | GERMANY | IN LIQUIDATION | - | 100.00 | 100.00 | - | - | - | - | -
ANIDA GRUPO INMOBILIARIO SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 1,569 | 1,642 | 38 | 1,863 | (259)
ANIDA INMOBILIARIA, S.A. DE C.V. | MEXICO | INVESTMENT COMPANY | - | 100.00 | 100.00 | 113 | 80 | - | 59 | 21
ANIDA OPERACIONES SINGULARES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1,485 | 2,381 | 893 | 1,678 | (190)
ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 53 | 57 | 4 | 32 | 21
ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA | PORTUGAL | REAL ESTATE | - | 100.00 | 100.00 | 23 | 62 | 53 | 6 | 2
APLICA NEXTGEN OPERADORA S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 10 | 9 | 1 | -
APLICA NEXTGEN SERVICIOS S.A. DE C.V | MEXICO | SERVICES | - | 100.00 | 100.00 | - | 3 | 3 | - | -
APLICA TECNOLOGIA AVANZADA SA DE CV | MEXICO | SERVICES | 100.00 | - | 100.00 | 203 | 232 | 21 | 214 | (3)
ARIZONA FINANCIAL PRODUCTS, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 855 | 855 | - | 855 | 1
ARRAHONA AMBIT, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 12 | 34 | 10 | 14 | 9
ARRAHONA IMMO, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 53 | 118 | 4 | 105 | 9
ARRAHONA NEXUS, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 58 | 131 | 67 | 58 | 6
ARRAHONA RENT, S.L.U. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 9 | 12 | 1 | 10 | -
ARRELS CT FINSOL, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 64 | 114 | 35 | 64 | 15
ARRELS CT LLOGUER, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 | 27 | 21 | 5 | 1
ARRELS CT PATRIMONI I PROJECTES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 22 | 52 | 28 | 22 | 2
ARRELS CT PROMOU SA | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 28 | 60 | 23 | 28 | 9
AZLO BUSINESS, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 11 | 12 | 1 | 18 | (8)
BAHIA SUR RESORT S.C. | SPAIN | INACTIVE | 99.95 | - | 99.95 | 1 | 1 | - | 1 | -
BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY SA | URUGUAY | BANKING | 100.00 | - | 100.00 | 110 | 2,850 | 2,652 | 168 | 30
BANCO INDUSTRIAL DE BILBAO SA | SPAIN | BANKING | - | 99.93 | 99.93 | 46 | 45 | - | 60 | (15)
BANCO OCCIDENTAL SA | SPAIN | BANKING | 49.43 | 50.57 | 100.00 | 17 | 18 | - | 18 | -
BANCO PROVINCIAL OVERSEAS NV | CURAÇAO | BANKING | - | 100.00 | 100.00 | 48 | 403 | 355 | 44 | 5
BANCO PROVINCIAL SA - BANCO UNIVERSAL | VENEZUELA | BANKING | 1.46 | 53.75 | 55.21 | 52 | 296 | 174 | 140 | (18)
BANCOMER FOREIGN EXCHANGE INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 21 | 21 | - | 16 | 5
BANCOMER PAYMENT SERVICES INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 2 | 1 | 1 | -
BBV AMERICA SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 79 | 614 | - | 604 | 10
BBVA AGENCIA DE SEGUROS COLOMBIA LTDA | COLOMBIA | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
BBVA ASSET MANAGEMENT CONTINENTAL SA SAF | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 15 | 18 | 3 | 11 | 4
BBVA ASSET MANAGEMENT SA SGIIC | SPAIN | OTHER INVESTMENT COMPANIES | 17.00 | 83.00 | 100.00 | 38 | 111 | 55 | (41) | 98
BBVA ASSET MANAGEMENT SA SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA) | COLOMBIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 29 | 32 | 4 | 19 | 10
BBVA AUTOMERCANTIL COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS LDA. | PORTUGAL | FINANCIAL SERVICES | 100.00 | - | 100.00 | 4 | 26 | 21 | 4 | -
BBVA BANCO CONTINENTAL SA | PERU | BANKING | - | 46.12 | 46.12 | 998 | 19,382 | 17,212 | 1,747 | 423
BBVA BANCO FRANCES SA | ARGENTINA | BANKING | 39.97 | 26.58 | 66.55 | 157 | 8,189 | 7,166 | 1,047 | (23)
BBVA BANCOMER GESTION, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 14 | 31 | 17 | 9 | 5
BBVA BANCOMER OPERADORA, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 69 | 269 | 199 | 60 | 9
BBVA BANCOMER SA INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER | MEXICO | BANKING | - | 100.00 | 100.00 | 8,633 | 87,919 | 79,560 | 6,374 | 1,985
(*) Information on foreign companies at exchange rate on December 31, 2018

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Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
BBVA BANCOMER SEGUROS SALUD SA DE CV | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 13 | 23 | 10 | 12 | 2
BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 38 | 197 | 159 | 27 | 11
BBVA BRASIL BANCO DE INVESTIMENTO SA | BRASIL | BANKING | 100.00 | - | 100.00 | 16 | 28 | 3 | 25 | -
BBVA BROKER CORREDURIA DE SEGUROS Y REASEGUROS SA | SPAIN | INSURANCES SERVICES | 99.94 | 0.06 | 100.00 | - | 15 | 3 | 8 | 4
BBVA BROKER SA | ARGENTINA | INSURANCES SERVICES | - | 99.99 | 99.99 | - | 9 | 2 | 2 | 5
BBVA COLOMBIA SA | COLOMBIA | BANKING | 77.41 | 18.06 | 95.47 | 355 | 16,793 | 15,572 | 1,035 | 186
BBVA COMPASS BANCSHARES INC | UNITED STATES | INVESTMENT COMPANY | 100.00 | - | 100.00 | 11,703 | 11,817 | 41 | 11,131 | 645
BBVA COMPASS FINANCIAL CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 230 | 432 | 210 | 217 | 5
BBVA COMPASS INSURANCE AGENCY, INC | UNITED STATES | INSURANCES SERVICES | - | 100.00 | 100.00 | 38 | 40 | 2 | 29 | 9
BBVA COMPASS PAYMENTS INC | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 88 | 88 | - | 73 | 15
BBVA CONSOLIDAR SEGUROS SA | ARGENTINA | INSURANCES SERVICES | 87.78 | 12.22 | 100.00 | 8 | 82 | 55 | 22 | 4
BBVA CONSULTING ( BEIJING) LIMITED | CHINA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 2 | - | 2 | -
BBVA CONSULTORIA, S.A. | SPAIN | SERVICES | - | 100.00 | 100.00 | 2 | 5 | 3 | 2 | -
BBVA CONSUMER FINANCE ENTIDAD DE DESARROLLO A LA PEQUEÑA Y MICRO EMPRESA EDPYME SA (BBVA CONSUMER FINANCE - EDPYME) | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 21 | 135 | 115 | 17 | 3
BBVA DATA & ANALYTICS SL | SPAIN | SERVICES | - | 100.00 | 100.00 | 6 | 5 | 2 | 3 | 1
BBVA DISTRIBUIDORA DE SEGUROS S.R.L. | URUGUAY | INSURANCES SERVICES | - | 100.00 | 100.00 | 5 | 5 | - | 3 | 2
BBVA FINANZIA SPA | ITALY | IN LIQUIDATION | 100.00 | - | 100.00 | 4 | 13 | 10 | 4 | -
BBVA FRANCES ASSET MANAGMENT S.A. SOCIEDAD GERENTE DE FONDOS COMUNES DE INVERSIÓN. | ARGENTINA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 11 | 15 | 5 | 11 | -
BBVA FRANCES VALORES, S.A. | ARGENTINA | SECURITIES DEALER | - | 100.00 | 100.00 | 4 | 5 | 1 | 5 | (1)
BBVA FUNDOS S.GESTORA FUNDOS PENSOES SA | PORTUGAL | PENSION FUNDS MANAGEMENT | 100.00 | - | 100.00 | 10 | 10 | - | 8 | 2
BBVA GLOBAL FINANCE LTD | CAYMAN ISLANDS | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 179 | 175 | 4 | -
BBVA GLOBAL MARKETS BV | NETHERLANDS | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 2,562 | 2,561 | - | -
BBVA HOLDING CHILE SA | CHILE | INVESTMENT COMPANY | 61.22 | 38.78 | 100.00 | 139 | 348 | - | 273 | 75
BBVA INFORMATION TECHNOLOGY ESPAÑA SL | SPAIN | SERVICES | 76.00 | - | 76.00 | 1 | 6 | 5 | 1 | -
BBVA INSTITUIÇAO FINANCEIRA DE CREDITO SA | PORTUGAL | FINANCIAL SERVICES | 49.90 | 50.10 | 100.00 | 39 | 422 | 369 | 50 | 3
BBVA INTERNATIONAL PREFERRED SOCIEDAD ANONIMA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 36 | 35 | - | -
BBVA IRELAND PLC | IRELAND | FINANCIAL SERVICES | 100.00 | - | 100.00 | 2 | 52 | 48 | 2 | 1
BBVA LEASING MEXICO SA DE CV | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 51 | 888 | 751 | 127 | 10
BBVA LUXINVEST SA | LUXEMBOURG | PENSION FUNDS MANAGEMENT | 36.00 | 64.00 | 100.00 | - | 2 | 1 | (1) | 1
BBVA MEDIACION OPERADOR DE BANCA-SEGUROS VINCULADO, S.A. | SPAIN | INSURANCES SERVICES | - | 100.00 | 100.00 | 10 | 96 | 69 | 10 | 17
BBVA NEXT TECHNOLOGIES SLU | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 19 | 41 | 18 | 20 | 3
BBVA NOMINEES LIMITED | UNITED KINGDOM | IN LIQUIDATION | 100.00 | - | 100.00 | - | - | - | - | -
BBVA OP3N S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | - | 3 | 4 | (1) | (1)
BBVA OPEN PLATFORM INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 1 | 2 | 1 | 8 | (7)
BBVA PARAGUAY SA | PARAGUAY | BANKING | 100.00 | - | 100.00 | 23 | 1,923 | 1,741 | 150 | 32
BBVA PENSIONES SA ENTIDAD GESTORA DE FONDOS DE PENSIONES | SPAIN | PENSION FUNDS MANAGEMENT | 100.00 | - | 100.00 | 13 | 40 | 13 | 16 | 11
BBVA PLANIFICACION PATRIMONIAL SL | SPAIN | FINANCIAL SERVICES | 80.00 | 20.00 | 100.00 | - | 1 | - | 1 | -
BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES | BOLIVIA | PENSION FUNDS MANAGEMENT | 75.00 | 5.00 | 80.00 | 1 | 26 | 15 | 5 | 7
BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA | CHILE | SERVICES | - | 100.00 | 100.00 | 6 | 8 | 1 | 6 | 1
BBVA RE DAC | IRELAND | INSURANCES SERVICES | - | 100.00 | 100.00 | 39 | 68 | 25 | 48 | (6)
(*) Information on foreign companies at exchange rate on December 31, 2018

F-257

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
BBVA REAL ESTATE MEXICO, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
BBVA SECURITIES INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 192 | 398 | 205 | 187 | 6
BBVA SEGUROS COLOMBIA SA | COLOMBIA | INSURANCES SERVICES | 94.00 | 6.00 | 100.00 | 10 | 90 | 68 | 13 | 9
BBVA SEGUROS DE VIDA COLOMBIA SA | COLOMBIA | INSURANCES SERVICES | 94.00 | 6.00 | 100.00 | 14 | 402 | 282 | 86 | 33
BBVA SEGUROS SA DE SEGUROS Y REASEGUROS | SPAIN | INSURANCES SERVICES | 99.96 | - | 99.96 | 713 | 17,303 | 16,509 | 484 | 309
BBVA SERVICIOS, S.A. | SPAIN | COMMERCIAL | - | 100.00 | 100.00 | - | 8 | - | 7 | -
BBVA SUIZA SA (BBVA SWITZERLAND) | SWITZERLAND | BANKING | 100.00 | - | 100.00 | 98 | 832 | 719 | 108 | 4
BBVA TRADE, S.A. (**) | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 4 | 42 | 37 | 5 | -
BBVA TRANSFER SERVICES INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 66 | 118 | 51 | 57 | 9
BBVA VALORES COLOMBIA SA COMISIONISTA DE BOLSA | COLOMBIA | SECURITIES DEALER | - | 100.00 | 100.00 | 5 | 6 | 1 | 4 | 1
BBVA WEALTH SOLUTIONS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 8 | 8 | - | 6 | 2
BEEVA TEC OPERADORA, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - | 2 | 2 | - | -
BEEVA TEC SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 6 | 3 | 2 | 1
BILBAO VIZCAYA HOLDING SA | SPAIN | INVESTMENT COMPANY | 89.00 | 11.00 | 100.00 | 51 | 234 | 141 | 90 | 3
CAIXA MANRESA IMMOBILIARIA ON CASA SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | - | 2 | -
CAIXA MANRESA IMMOBILIARIA SOCIAL SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 4 | 3 | - | 3 | -
CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | 1 | 76 | 74 | 2 | -
CAIXASABADELL PREFERENTS SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 91 | 90 | 1 | -
CARTERA E INVERSIONES SA CIA DE | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 92 | 224 | 120 | (83) | 186
CASA DE BOLSA BBVA BANCOMER SA DE CV | MEXICO | SECURITIES DEALER | - | 100.00 | 100.00 | 48 | 57 | 8 | 21 | 27
CATALONIA GEBIRA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | - | 1 | 1 | - | -
CATALONIA PROMODIS 4, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 4 | 2 | 2 | -
CATALUNYACAIXA CAPITAL SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 79 | 88 | 7 | 76 | 5
CATALUNYACAIXA IMMOBILIARIA SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 328 | 324 | 8 | 303 | 14
CATALUNYACAIXA SERVEIS SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 2 | 8 | 6 | 3 | -
CDD GESTIONI S.R.L. | ITALY | REAL ESTATE | 100.00 | - | 100.00 | 5 | 12 | 2 | 6 | 4
CETACTIUS SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 1 | 1 | - | 1 | -
CIDESSA DOS, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 15 | 15 | 1 | 15 | -
CIDESSA UNO SL | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 5 | 283 | 251 | (50) | 83
CIERVANA SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 53 | 60 | 6 | 54 | -
CLUB GOLF HACIENDA EL ALAMO, S.L. | SPAIN | IN LIQUIDATION | - | 97.87 | 97.87 | 1 | 2 | 1 | - | 1
COMERCIALIZADORA CORPORATIVA SAC | PERU | FINANCIAL SERVICES | - | 50.00 | 50.00 | - | 1 | 1 | - | -
COMERCIALIZADORA DE SERVICIOS FINANCIEROS, S.A. | COLOMBIA | SERVICES | - | 100.00 | 100.00 | 4 | 9 | 5 | 3 | 1
COMPAÑIA CHILENA DE INVERSIONES SL | SPAIN | INVESTMENT COMPANY | 99.97 | 0.03 | 100.00 | 221 | 719 | 280 | (59) | 498
COMPASS BANK | UNITED STATES | BANKING | - | 100.00 | 100.00 | 10,950 | 84,383 | 73,398 | 10,267 | 718
COMPASS CAPITAL MARKETS, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 7,203 | 7,203 | - | 7,116 | 88
COMPASS GP, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 43 | 54 | 10 | 43 | -
COMPASS INSURANCE TRUST | UNITED STATES | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
COMPASS LIMITED PARTNER, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 6,305 | 6,305 | - | 6,218 | 87
COMPASS LOAN HOLDINGS TRS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 72 | 72 | - | 71 | 1
(*) Information on foreign companies at exchange rate on December 31, 2018
(**) This company has an equity loan from CARTERA E INVERSIONES S.A., CIA DE.

F-258

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
COMPASS MORTGAGE CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2,857 | 2,950 | 98 | 2,783 | 69
COMPASS MORTGAGE FINANCING, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
COMPASS SOUTHWEST, LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 5,213 | 5,229 | 5 | 5,151 | 73
COMPASS TEXAS MORTGAGE FINANCING, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
CONSOLIDAR A.F.J.P SA | ARGENTINA | IN LIQUIDATION | 46.00 | 53.89 | 100.00 | 1 | 2 | 1 | 2 | -
CONTENTS AREA, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 6 | 8 | 1 | 6 | 1
CONTINENTAL BOLSA SDAD. AGENTE DE BOLSA SA | PERU | SECURITIES DEALER | - | 100.00 | 100.00 | 6 | 103 | 98 | 4 | 2
CONTINENTAL DPR FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 52 | 52 | - | -
CONTINENTAL SOCIEDAD TITULIZADORA SA | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - | 1 | -
CONTRATACION DE PERSONAL, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 6 | 11 | 5 | 5 | 1
COPROMED SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
CORPORACION GENERAL FINANCIERA SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 510 | 1,577 | - | 1,642 | (65)
COVAULT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 1 | 1 | 1 | 2 | (2)
DALLAS CREATION CENTER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 4 | 8 | 4 | - | 3
DATA ARCHITECTURE AND TECHNOLOGY S.L. | SPAIN | SERVICES | - | 51.00 | 51.00 | - | 4 | 1 | 2 | -
DENIZEN FINANCIAL, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | - | - | 1 | 3 | (3)
DENIZEN GLOBAL FINANCIAL SAU | SPAIN | PAYMENT ENTITIE | 100.00 | - | 100.00 | 2 | 4 | 1 | 4 | (1)
DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1859 | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1860 | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
DISTRITO CASTELLANA NORTE, S.A. | SPAIN | REAL ESTATE | - | 75.54 | 75.54 | 98 | 147 | 20 | 133 | (5)
ECASA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 25 | 30 | 4 | 14 | 11
EL ENCINAR METROPOLITANO, S.A. | SPAIN | REAL ESTATE | - | 99.05 | 99.05 | 6 | 6 | - | 6 | -
EL MILANILLO, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 7 | 13 | 6 | 9 | (3)
EMPRENDIMIENTOS DE VALOR S.A. | URUGUAY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 3 | 6 | 3 | 3 | -
ENTIDAD DE PROMOCION DE NEGOCIOS SA | SPAIN | HOLDING | - | 99.88 | 99.88 | 15 | 17 | - | 17 | -
ENTRE2 SERVICIOS FINANCIEROS E.F.C SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | 9 | 9 | - | 9 | -
ESPAIS SABADELL PROMOCIONS INMOBILIARIES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 8 | - | 8 | -
EUROPEA DE TITULIZACION SA SGFT . | SPAIN | FINANCIAL SERVICES | 88.24 | - | 88.24 | 2 | 34 | 2 | 28 | 4
EXPANSION INTERCOMARCAL SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 16 | 17 | - | 16 | -
F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | - | 1 | - | 1 | -
F/253863 EL DESEO RESIDENCIAL | MEXICO | REAL ESTATE | - | 65.00 | 65.00 | - | 1 | - | 1 | -
F/403035-9 BBVA HORIZONTES RESIDENCIAL | MEXICO | REAL ESTATE | - | 65.00 | 65.00 | - | - | - | - | -
FIDEICOMISO 28991-8 TRADING EN LOS MCADOS FINANCIEROS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 2 | - | 2 | -
FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 46 | 46 | - | 41 | 6
FIDEICOMISO F/403112-6 DE ADMINISTRACION DOS LAGOS | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | - | - | - | - | -
FIDEICOMISO HARES BBVA BANCOMER F/ 47997-2 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 4 | 8 | 5 | 4 | -
FIDEICOMISO LOTE 6.1 ZARAGOZA | COLOMBIA | REAL ESTATE | - | 59.99 | 59.99 | - | 2 | - | 2 | -
FIDEICOMISO N.989 EN THE BANK OF NEW YORK MELLON SA INSTITUCION DE BANCA MULTIPLE FIDUCIARIO (FIDEIC.00989 6 EMISION) | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 79 | 79 | (3) | 3
(*) Information on foreign companies at exchange rate on December 31, 2018

F-259

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
FIDEICOMISO Nº 711 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 1ª EMISION) | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 13 | 14 | (1) | -
FIDEICOMISO Nº 752 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 2ª EMISION) | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 7 | 7 | - | -
FIDEICOMISO Nº 847 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 4ª EMISION) | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 39 | 38 | - | 1
FIDEICOMISO SCOTIABANK INVERLAT S A F100322908 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 7 | 13 | 6 | 6 | 1
FINANCEIRA DO COMERCIO EXTERIOR SAR. | PORTUGAL | INACTIVE | 100.00 | - | 100.00 | - | - | - | - | -
FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 11 | 12 | 1 | 16 | (6)
FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. | SPAIN | IN LIQUIDATION | - | 60.00 | 60.00 | - | - | - | - | -
FORUM COMERCIALIZADORA DEL PERU SA | PERU | SERVICES | - | 100.00 | 100.00 | 2 | 1 | - | 1 | -
FORUM DISTRIBUIDORA DEL PERU SA | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 5 | 46 | 41 | 5 | -
FORUM DISTRIBUIDORA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 39 | 373 | 336 | 32 | 5
FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 244 | 3,014 | 2,785 | 161 | 68
FUTURO FAMILIAR, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 4 | 3 | 1 | -
G NETHERLANDS BV | NETHERLANDS | INVESTMENT COMPANY | - | 100.00 | 100.00 | 340 | 348 | 50 | 299 | (1)
GARANTI BANK SA | ROMANIA | BANKING | - | 100.00 | 100.00 | 269 | 2,216 | 1,930 | 258 | 28
GARANTI BILISIM TEKNOLOJISI VE TIC TAS | TURKEY | SERVICES | - | 100.00 | 100.00 | 13 | 17 | 4 | 12 | 2
GARANTI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 3,316 | 3,321 | (3) | (3)
GARANTI EMEKLILIK VE HAYAT AS | TURKEY | INSURANCES SERVICES | - | 84.91 | 84.91 | 126 | 266 | 120 | 67 | 79
GARANTI FACTORING HIZMETLERI AS | TURKEY | FINANCIAL SERVICES | - | 81.84 | 81.84 | 19 | 399 | 376 | 29 | (6)
GARANTI FILO SIGORTA ARACILIK HIZMETLERI A.S. | TURKEY | INSURANCES SERVICES | - | 100.00 | 100.00 | - | 1 | - | - | -
GARANTI FILO YONETIM HIZMETLERI A.S. | TURKEY | OTHER HOLDING | - | 100.00 | 100.00 | 2 | 302 | 301 | - | 1
GARANTI FINANSAL KIRALAMA AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 149 | 995 | 846 | 133 | 16
GARANTI HIZMET YONETIMI AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 1 | - | 1 | -
GARANTI HOLDING BV | NETHERLANDS | INVESTMENT COMPANY | - | 100.00 | 100.00 | 228 | 340 | - | 340 | -
GARANTI KONUT FINANSMANI DANISMANLIK HIZMETLERI AS (GARANTI MORTGAGE) | TURKEY | SERVICES | - | 100.00 | 100.00 | - | 1 | - | - | -
GARANTI KULTUR AS | TURKEY | SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
GARANTI ODEME SISTEMLERI AS (GOSAS) | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 6 | 3 | 3 | 1
GARANTI PORTFOY YONETIMI AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 16 | 19 | 2 | 11 | 5
GARANTI YATIRIM MENKUL KIYMETLER AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 29 | 56 | 27 | 19 | 11
GARANTI YATIRIM ORTAKLIGI AS | TURKEY | INVESTMENT COMPANY | - | 3.61 | 95.49 | - | 6 | - | 6 | -
GARANTIBANK INTERNATIONAL NV | NETHERLANDS | BANKING | - | 100.00 | 100.00 | 578 | 4,278 | 3,703 | 560 | 14
GARRAF MEDITERRANIA, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | 1 | 2 | -
GESCAT GESTIO DE SOL SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 8 | 20 | 8 | 14 | (2)
GESCAT LLEVANT, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 3 | 5 | 2 | 2 | 1
GESCAT LLOGUERS SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 3 | 4 | - | 3 | -
GESCAT POLSKA SP ZOO | POLAND | REAL ESTATE | 100.00 | - | 100.00 | 10 | 10 | - | 9 | 1
GESCAT SINEVA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | - | 6 | -
GESCAT VIVENDES EN COMERCIALITZACIO SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 93 | 107 | 14 | 98 | (6)
GESTION DE PREVISION Y PENSIONES SA | SPAIN | PENSION FUNDS MANAGEMENT | 60.00 | - | 60.00 | 9 | 28 | 1 | 21 | 6
GESTION Y ADMINISTRACION DE RECIBOS, S.A. - GARSA | SPAIN | SERVICES | - | 100.00 | 100.00 | 1 | 2 | - | 2 | -
GRAN JORGE JUAN SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 409 | 966 | 558 | 395 | 14
(*) Information on foreign companies at exchange rate on December 31, 2018

F-260

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
GRUPO FINANCIERO BBVA BANCOMER SA DE CV | MEXICO | FINANCIAL SERVICES | 99.98 | - | 99.98 | 6,678 | 9,642 | - | 7,323 | 2,318
GUARANTY BUSINESS CREDIT CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 32 | 32 | - | 32 | -
GUARANTY PLUS HOLDING COMPANY | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | - | - | - | - | -
HABITATGES FINVER, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 2 | - | 1 | -
HABITATGES JUVIPRO, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | - | 1 | -
HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U.(**) | SPAIN | INSURANCES SERVICES | - | 100.00 | 100.00 | - | 2 | 4 | (1) | (2)
HOLVI DEUTSCHLAND SERVICE GMBH | GERMANY | SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
HOLVI PAYMENT SERVICE OY | FINLAND | FINANCIAL SERVICES | - | 100.00 | 100.00 | 32 | 5 | 2 | 12 | (9)
HUMAN RESOURCES PROVIDER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 404 | 404 | - | 398 | 6
HUMAN RESOURCES SUPPORT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 399 | 399 | - | 393 | 6
INMESP DESARROLLADORA, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 26 | 34 | 9 | 25 | -
INMUEBLES Y RECUPERACIONES CONTINENTAL SA | PERU | REAL ESTATE | - | 100.00 | 100.00 | 40 | 41 | 1 | 39 | 1
INPAU, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 25 | 25 | - | 25 | -
INVERAHORRO SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 101 | 103 | - | 105 | (3)
INVERPRO DESENVOLUPAMENT, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 4 | 10 | 2 | 4 | 3
INVERSIONES ALDAMA, C.A. | VENEZUELA | IN LIQUIDATION | - | 100.00 | 100.00 | - | - | - | - | -
INVERSIONES BANPRO INTERNATIONAL INC NV | CURAÇAO | INVESTMENT COMPANY | 48.00 | - | 48.01 | 16 | 52 | 2 | 45 | 5
INVERSIONES BAPROBA CA | VENEZUELA | FINANCIAL SERVICES | 100 | - | 100.00 | 1 | 1 | - | - | 1
INVERSIONES DE INNOVACION EN SERVICIOS FINANCIEROS, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 40 | 41 | 1 | 40 | -
INVERSIONES P.H.R.4, C.A. | VENEZUELA | INACTIVE | - | 60.46 | 60.46 | - | - | - | - | -
IRIDION SOLUCIONS IMMOBILIARIES SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 3 | 1 | 2 | -
JALE PROCAM, S.L. | SPAIN | IN LIQUIDATION | - | 50.00 | 50.00 | - | 3 | 56 | (49) | (4)
L'EIX IMMOBLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 9 | 7 | 2 | -
LIQUIDITY ADVISORS LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1,116 | 1,124 | 2 | 1,108 | 14
MADIVA SOLUCIONES, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 9 | 3 | 1 | 2 | 1
MICRO SPINAL LLC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
MISAPRE, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 2 | - | 2 | -
MOMENTUM SOCIAL INVESTMENT HOLDING, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 7 | 7 | - | 7 | -
MOTORACTIVE IFN SA | ROMANIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 37 | 185 | 158 | 23 | 3
MOTORACTIVE MULTISERVICES SRL | ROMANIA | SERVICES | - | 100.00 | 100.00 | - | 16 | 14 | 1 | 1
MULTIASISTENCIA OPERADORA S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | - | 1 | 1 | - | -
MULTIASISTENCIA SERVICIOS S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | - | 1 | - | - | -
MULTIASISTENCIA, S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 22 | 35 | 13 | 15 | 6
NEWCO PERU SAC | PERU | INVESTMENT COMPANY | 100.00 | - | 100.00 | 124 | 1,005 | - | 829 | 176
NOIDIRI SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | - | - | - | - | -
NOVA TERRASSA 3, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | - | 6 | -
OPCION VOLCAN, S.A. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 19 | 23 | 4 | 20 | -
OPENPAY S.A.P.I DE C.V. | MEXICO | PAYMENT ENTITIES | - | 100.00 | 100.00 | 15 | 2 | 1 | 1 | -
OPENPAY SERVICIOS S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
OPERADORA DOS LAGOS S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 2 | 1 | 1 | -
(*) Information on foreign companies at exchange rate on December 31, 2018
(**) These companies have an equity loan from BILBAO VIZCAYA HOLDING, S.A.

F-261

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
OPPLUS OPERACIONES Y SERVICIOS SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 1 | 41 | 11 | 24 | 6
OPPLUS SAC | PERU | IN LIQUIDATION | - | 100.00 | 100.00 | 1 | 1 | - | 1 | -
P.I. HOLDINGS NO. 3, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - | 1 | -
PARCSUD PLANNER, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 4 | 2 | 1 | -
PECRI INVERSION SA | SPAIN | OTHER INVESTMENT COMPANIES | 100.00 | - | 100.00 | 163 | 164 | - | 148 | 15
PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 185 | 4,629 | 4,449 | 140 | 41
PERSONAL DATA BANK SLU | SPAIN | SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
PHOENIX LOAN HOLDINGS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 339 | 361 | 20 | 336 | 5
PI HOLDINGS NO. 1, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 83 | 83 | - | 83 | -
PORTICO PROCAM, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 26 | 26 | - | 25 | -
PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 8 | 8 | - | 8 | -
PROMOTORA DEL VALLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 39 | 101 | 65 | 49 | (13)
PROMOU CT 3AG DELTA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 10 | 9 | 1 | -
PROMOU CT EIX MACIA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 4 | 5 | - | 5 | -
PROMOU CT GEBIRA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 8 | 6 | 1 | 1
PROMOU CT OPENSEGRE, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 | 29 | 22 | 6 | 1
PROMOU CT VALLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 8 | 6 | 2 | -
PROMOU GLOBAL, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 18 | 45 | 28 | 7 | 11
PRONORTE UNO PROCAM, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | - | 5 | 4 | - | -
PROPEL VENTURE PARTNERS GLOBAL, S.L | SPAIN | FINANCIAL SERVICES | - | 99.50 | 99.50 | 31 | 64 | 20 | 33 | 10
PROPEL VENTURE PARTNERS US FUND I, L.P. | UNITED STATES | VENTURE CAPITAL | - | 100.00 | 100.00 | 71 | 71 | - | 70 | -
PRO-SALUD, C.A. | VENEZUELA | INACTIVE | - | 58.86 | 58.86 | - | - | - | - | -
PROVINCIAL DE VALORES CASA DE BOLSA CA | VENEZUELA | SECURITIES DEALER | - | 90.00 | 90.00 | 1 | 2 | 1 | - | 1
PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA CA | VENEZUELA | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
PROV-INFI-ARRAHONA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 9 | 3 | 4 | 2
PROVIVIENDA ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A. | BOLIVIA | PENSION FUNDS MANAGEMENT | - | 100.00 | 100.00 | 2 | 8 | 7 | 2 | -
PUERTO CIUDAD LAS PALMAS, S.A. (**) | SPAIN | REAL ESTATE | - | 96.64 | 96.64 | - | 21 | 45 | (18) | (6)
QIPRO SOLUCIONES S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 5 | 15 | 3 | 10 | 2
RALFI IFN SA | ROMANIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 39 | 126 | 109 | 15 | 2
RENTRUCKS ALQUILER Y SERVICIOS DE TRANSPORTE SA | SPAIN | INACTIVE | 100.00 | - | 100.00 | 1 | 1 | - | 2 | (1)
RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 3 | 3 | - | 2 | -
RPV COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 1,324 | 1,324 | - | -
RWHC, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 742 | 739 | - | 725 | 14
SAGE OG I, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - | - | -
SATICEM GESTIO SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 4 | 4 | - | 4 | -
SATICEM HOLDING SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 5 | 6 | - | 5 | -
SATICEM IMMOBILIARIA SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 15 | 15 | - | 15 | -
SATICEM IMMOBLES EN ARRENDAMENT SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | - | 2 | -
SEGUROS BBVA BANCOMER SA DE CV GRUPO FINANCIERO BBVA BANCOMER | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 335 | 4,199 | 3,865 | 124 | 210
SEGUROS PROVINCIAL CA | VENEZUELA | INSURANCES SERVICES | - | 100.00 | 100.00 | 7 | 7 | 7 | - | -
(*) Information on foreign companies at exchange rate on December 31, 2018
(**) These companies have an equity loan from CATALUNYA CAIXA INMOBILIARIA, S.A

F-262

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % Legal share of participation | Millions of Euros (*)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 5 | 6 | 2 | 5 | -
SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 3 | 17 | 14 | 2 | -
SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 10 | 26 | 15 | 8 | 2
SERVICIOS TECNOLOGICOS SINGULARES, S.A. | SPAIN | SERVICES | - | 100.00 | 100.00 | - | 1 | 1 | - | -
SIMPLE FINANCE TECHNOLOGY CORP. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 50 | 59 | 9 | 80 | (30)
SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 79 | 83 | 8 | 81 | (5)
SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO SA | SPAIN | PAYMENT INSTITUIONS | 77.20 | - | 77.20 | - | - | - | - | -
SPORT CLUB 18 SA (**) | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 10 | 13 | 1 | 13 | (1)
TEXAS LOAN SERVICES LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1,129 | 1,130 | - | 1,112 | 17
TMF HOLDING INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 15 | 22 | 8 | 14 | 1
TRIFOI REAL ESTATE SRL | ROMANIA | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | - | 1 | -
TUCSON LOAN HOLDINGS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 33 | 35 | - | 34 | 1
TURKIYE GARANTI BANKASI AS | TURKEY | BANKING | 49.85 | - | 49.85 | 5,509 | 59,390 | 51,556 | 6,670 | 1,163
UNIVERSALIDAD TIPS PESOS E-9 | COLOMBIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 49 | 20 | 27 | 2
UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 359 | 1,038 | 496 | 500 | 42
UPTURN FINANCIAL INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - | 2 | (1)
URBANIZADORA SANT LLORENC SA | SPAIN | INACTIVE | 60.60 | - | 60.60 | - | - | - | - | -
VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. | SPAIN | SERVICES | - | 51.00 | 51.00 | - | 3 | 2 | - | -
(*) Information on foreign companies at exchange rate on December 31, 2018
(**) This company has an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

F-263

APPENDIX II Additional information on investments joint ventures and associates in the BBVA Group

Acquisitions or increases of interest ownership in consolidated subsidiaries

|  |  | % Legal share of participation | Millions of Euros (**)
|  |  | Affiliate Entity Data
Company | Location | Activity | Direct | Indirect | Total | Net Carrying Amount | Assets 31.12.18 | Liabilities 31.12.18 | Equity 31.12.18 | Profit (Loss) 31.12.18
ASSOCIATES |  |  |  |  |  |  |  |  |  |
ADQUIRA ESPAÑA, S.A. | SPAIN | COMMERCIAL | - | 40.00 | 40.00 | 3 | 18 | 11 | 7 | 1
ATOM BANK PLC | UNITED KINGDOM | BANKING | 39.06 | - | 39.06 | 138 | 3,078 | 2,796 | 330 | (48)
AUREA, S.A. (CUBA) | CUBA | REAL ESTATE | - | 49.00 | 49.00 | 5 | 10 | 1 | 9 | 1
BANK OF HANGZHOU CONSUMER FINANCE CO LTD | CHINA | BANKING | 30.00 | - | 30.00 | 18 | 753 | 693 | 58 | 3
CANCUN SUN & GOLF COUNTRY CLUB, S.A.P.I. DE C.V. | MEXICO | REAL ESTATE | - | 33.33 | 33.33 | 27 | 75 | 22 | 52 | 1
COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO SA | SPAIN | PUBLIC INSTITUTIONS | 16.67 | - | 16.67 | 22 | 138 | 6 | 124 | 9
COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU) | PERU | ELECTRONIC MONEY ENTITIES | - | 20.96 | 20.96 | 2 | 49 | 37 | 4 | 8
DIVARIAN PROPIEDAD, S.A.U. | SPAIN | REAL ESTATE | - | - | 20.00 | 591 | 3,014 | 57 | 2,936 | 20
FIDEICOMISO F/00185 FIMPE - FIDEICOMISO F/00185 PARA EXTENDER A LA SOCIEDAD LOS BENEFICIOS DEL ACCESO A LA INFRAESTRUCTURA DE LOS MEDIOS DE PAGO ELECTRONICOS | MEXICO | FINANCIAL SERVICES | - | 28.50 | 28.50 | 3 | 12 | - | 12 | -
METROVACESA SA | SPAIN | REAL ESTATE | 9.44 | 11.41 | 20.85 | 508 | 2,577 | 184 | 2,402 | (9)
REDSYS SERVICIOS DE PROCESAMIENTO SL | SPAIN | FINANCIAL SERVICES | 20.00 | - | 20.00 | 12 | 121 | 60 | 51 | 11
ROMBO COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 40.00 | 40.00 | 12 | 209 | 179 | 31 | (2)
SERVICIOS ELECTRONICOS GLOBALES SA DE CV | MEXICO | SERVICES | - | 46.14 | 46.14 | 9 | 18 | - | 17 | 1
SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO SA | SPAIN | FINANCIAL SERVICES | 28.72 | - | 28.72 | 9 | 38 | 8 | 27 | 3
SOLARISBANK AG | GERMANY | BANKING | - | 18.76 | 18.76 | 37 | 212 | 158 | 56 | (2)
TELEFONICA FACTORING ESPAÑA SA | SPAIN | FINANCIAL ASSETS | 30.00 | - | 30.00 | 4 | 59 | 46 | 7 | 6
TF PERU SAC | PERU | FINANCIAL ASSETS | - | 24.30 | 24.30 | 1 | 5 | 1 | 3 | 2
JOINT VENTURES (*) |  |  |  |  |  |  |  |  |  |
ADQUIRA MEXICO SA DE CV | MEXICO | COMMERCIAL | - | 50.00 | 50.00 | 2 | 5 | 2 | 3 | -
ALTURA MARKETS SOCIEDAD DE VALORES SA | SPAIN | SECURITIES DEALER | 50.00 | - | 50.00 | 69 | 2,711 | 2,574 | 127 | 10
COMPAÑIA MEXICANA DE PROCESAMIENTO SA DE CV | MEXICO | SERVICES | - | 50.00 | 50.00 | 7 | 15 | - | 14 | 1
CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A. | SPAIN | INVESTMENT COMPANY | - | 50.00 | 50.00 | 29 | 63 | 5 | 58 | -
DESARROLLOS METROPOLITANOS DEL SUR, S.L. | SPAIN | REAL ESTATE | - | 50.00 | 50.00 | 13 | 77 | 52 | 25 | 1
FIDEICOMISO F/402770-2 ALAMAR | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | 7 | 17 | - | 17 | -
FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA | MEXICO | REAL ESTATE | - | 32.25 | 32.25 | 55 | 171 | - | 171 | -
INVERSIONES PLATCO CA | VENEZUELA | FINANCIAL SERVICES | - | 50.00 | 50.00 | 1 | 2 | - | 4 | (2)
PROMOCIONS TERRES CAVADES, S.A. | SPAIN | REAL ESTATE | - | 39.11 | 39.11 | 4 | 15 | - | 15 | -
PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 50.00 | 50.00 | 10 | 96 | 76 | 22 | (2)
RCI COLOMBIA SA COMPAÑIA DE FINANCIAMIENTO | COLOMBIA | FINANCIAL SERVICES | - | 49.00 | 49.00 | 32 | 379 | 314 | 61 | 5
REAL ESTATE DEAL II SA | SPAIN | IN LIQUIDATION | 20.06 | - | 20.06 | 4 | 20 | - | 18 | 2
VITAMEDICA ADMINISTRADORA, S.A. DE C.V | MEXICO | SERVICES | - | 51.00 | 51.00 | 5 | 16 | 8 | 6 | 2
VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 51.00 | 51.00 | 15 | 195 | 166 | 34 | (5)
(*) Joint ventures incorporated by the equity method.
(**) In foreign companies the exchange rate of December 31, 2018 is applied.

F-264

APPENDIX III Changes and notification of participations in the BBVA Group in 2018

Acquisitions or Increases of Interest Ownership in Consolidated Subsidiaries

|  |  | Millions of Euros | % of Voting Rights |  |
Company | Type of Transaction | Activity | Price Paid in the Transactions + Expenses directly attributable to the Transactions | Fair Value of Equity Instruments issued for the Transactions | % Participation (net) Acquired in the Year | Total Voting Rights Controlled after the Transactions | Effective Date for the Transaction (or Notification Date) | Category
ENTIDAD DE PROMOCION DE NEGOCIOS SA | ACQUISITION | RENT HOLDING | - | - | 0.02% | 99.88% | 10-May-18 | SUBSIDIARY
BBVA BROKER SA | ACQUISITION | INSURANCES SERVICES | - | - | 4.99% | 99.99% | 01-Oct-18 | SUBSIDIARY
BBVA HOLDING CHILE SA | FOUNDING AND SPLIT | INVESTMENT COMPANY | - | - | 100.00% | 100.00% | 23-Jan-18 | SUBSIDIARY
HOLVI DEUTSCHLAND SERVICE GMBH | FOUNDING | SERVICES | - | - | 100.00% | 100.00% | 01-May-18 | SUBSIDIARY
PERSONAL DATA BANK SLU | FOUNDING | SERVICES | - | - | 100.00% | 100.00% | 01-Jun-18 | SUBSIDIARY
DOMICILIA TREBOLBLUE SA | FOUNDING | HOLDING ENT. | - | - | 100.00% | 100.00% | 03-Jul-18 | SUBSIDIARY
ONUTPEN 2018 SL | FOUNDING | INVESTMENT COMPANY | - | - | 100.00% | 100.00% | 21-Aug-18 | SUBSIDIARY
GARANTI YATIRIM ORTAKLIGI AS | CAPITAL INCREASE | INVESTMENT COMPANY | - | - | 0.31% | 95.49% | 01-Dec-18 | SUBSIDIARY

### Changes and notification of participations in the BBVA Group in 2018 (continued)

### Disposals or Reduction of Interest Ownership in Consolidated Subsidiaries

|  |  | Millions of Euros | % of Voting Rights |  |
Company | Type of Transaction | Activity | Profit (Loss) in the Transaction | Changes in the Equity due to the transaction | % Participation Sold in the Year | Total Voting Rights Controlled after the Disposal | Effective Date for the Transaction (or Notification Date) | Category
BANCO BILBAO VIZCAYA ARGENTARIA (PORTUGAL) SA | MERGER | BANKING | - | - | 100.00% | - | 1-Oct-18 | SUBSIDIARY
PROMOCION EMPRESARIAL XX SA | MERGER | INVESTMENT COMPANY | - | - | 100.00% | - | 17-Dec-18 | SUBSIDIARY
BBVA RENTING, S.A. | MERGER | FINANCIAL SERVICES | - | - | 100.00% | - | 2-Jul-18 | SUBSIDIARY
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A. | DISPOSAL | BANKING | - | - | 68.19% | - | 6-Jul-18 | SUBSIDIARY
BBVA CORREDORES DE BOLSA LIMITADA | DISPOSAL | SECURITIES DEALER | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
BBVA SOCIEDAD DE LEASING INMOBILIARIO, S.A. | DISPOSAL | FINANCIAL SERVICES | - | - | 97.49% | - | 6-Jul-18 | SUBSIDIARY
BBVA ASESORIAS FINANCIERAS, S.A. | DISPOSAL | FINANCIAL SERVICES | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
BBVA ASSET MANAGEMENT ADMINISTRADORA GENERAL DE FONDOS S.A. | DISPOSAL | FINANCIAL SERVICES | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
BBVA FACTORING LIMITADA (CHILE) | DISPOSAL | FINANCIAL SERVICES | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
BBVA CORREDORA TECNICA DE SEGUROS LIMITADA | DISPOSAL | INSURANCES SERVICES | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
BANCOMER FINANCIAL SERVICES INC. | MERGER | FINANCIAL SERVICES | - | - | 100.00% | - | 6-Dec-18 | SUBSIDIARY
APLICA TECNOLOGIA AVANZADA OPERADORA, S.A. DE C.V. | DISPOSAL | SERVICES | (8) | - | 100.00% | - | 18-Jul-18 | SUBSIDIARY
APLICA TECNOLOGIA AVANZADA SERVICIOS, S.A. DE C.V. | DISPOSAL | SERVICES | - | - | 100.00% | - | 18-Jul-18 | SUBSIDIARY
BBVA SUBORDINATED CAPITAL SOCIEDAD ANONIMA | LIQUIDATION | FINANCIAL SERVICES | - | - | 100.00% | - | 18-Dec-18 | SUBSIDIARY
BBVA SENIOR FINANCE SAU | LIQUIDATION | FINANCIAL SERVICES | - | - | 100.00% | - | 18-Dec-18 | SUBSIDIARY
BBVA INMOBILIARIA E INVERSIONES, S.A. | DISPOSAL | REAL ESTATE | 3 | - | 68.11% | - | 6-Jul-18 | SUBSIDIARY
HOMEOWNERS LOAN CORPORATION | LIQUIDATION | FINANCIAL SERVICES | - | - | 100.00% | - | 1-Dec-18 | SUBSIDIARY
BBVA RENTAS E INVERSIONES LIMITADA | MERGER | INVESTMENT COMPANY | - | - | 100.00% | - | 30-Apr-18 | SUBSIDIARY
BBVA SERVICIOS CORPORATIVOS LIMITADA | DISPOSAL | SERVICES | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
DIVARIAN DESARROLLOS INMOBILIARIOS, S.L.U | DISPOSAL | REAL ESTATE | - | - | 100.00% | - | 10-Oct-18 | SUBSIDIARY
BBVA INVERSIONES CHILE, S.A. | DISPOSAL | INVESTMENT COMPANY | 863 | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
BBVA SEGUROS DE VIDA, S.A. | DISPOSAL | SERVICES | - | - | 100.00% | - | 6-Jul-18 | SUBSIDIARY
GUARANTY PLUS PROPERTIES, INC-1 | MERGER | FINANCIAL SERVICES | - | - | 100.00% | - | 31-Dec-18 | SUBSIDIARY
GUARANTY PLUS PROPERTIES LLC-2 | LIQUIDATION | FINANCIAL SERVICES | (1) | - | 100.00% | - | 1-Aug-18 | SUBSIDIARY
4D INTERNET SOLUTIONS, INC | LIQUIDATION | FINANCIAL SERVICES | - | - | 100.00% | - | 18-Dec-18 | SUBSIDIARY

F-265

### Changes and notification of participations in the BBVA Group in 2018 (continued)

### Disposals or Reduction of Interest Ownership in Consolidated Subsidiaries

|  |  | Millions of Euros | % of Voting Rights |  |
Company | Type of Transaction | Activity | Profit (Loss) in the Transaction | Changes in the Equity due to the transaction | % Participation Sold in the Year | Total Voting Rights Controlled after the Disposal | Effective Date for the Transaction (or Notification Date) | Category
PARTICIPACIONES ARENAL, S.L. | LIQUIDATION | INVESTMENT COMPANY | - | - | 100.00% | 0.00% | 7-Aug-18 | SUBSIDIARY
CAIXASABADELL TINELIA, S.L. | MERGER | INVESTMENT COMPANY | - | - | 100.00% | 0.00% | 18-Jul-18 | SUBSIDIARY
HABITATGES INVERVIC, S.L. | LIQUIDATION | REAL ESTATE | - | - | 35.00% | 0.00% | 22-Feb-18 | SUBSIDIARY
PROCAMVASA, S.A. | LIQUIDATION | REAL ESTATE | - | - | 51.00% | 0.00% | 4-May-18 | SUBSIDIARY
CATALUNYACAIXA ASSEGURANCES GENERALS, S.A. | MERGER | INSURANCES SERVICES | - | - | 100.00% | 0.00% | 23-Jan-18 | SUBSIDIARY
VOLJA LUX, SARL | LIQUIDATION | INVESTMENT COMPANY | - | - | 71.78% | 0.00% | 29-Jan-19 | SUBSIDIARY
CX PROPIETAT, FII | LIQUIDATION | REAL ESTATE INVESTMENT | - | - | 94.96% | 0.00% | 30-Jun-18 | SUBSIDIARY
VOLJA PLUS SL | LIQUIDATION | INVESTMENT COMPANY | - | - | 75.40% | 0.00% | 1-Oct-18 | SUBSIDIARY
UNITARIA GESTION DE PATRIMONIOS INMOBILIARIOS SA | LIQUIDATION | REAL ESTATE | - | - | 100.00% | 0.00% | 20-Dec-18 | SUBSIDIARY
SCALDIS FINANCE, S.A. | LIQUIDATION | INVESTMENT COMPANY | - | - | 100.00% | 0.00% | 1-Apr-18 | SUBSIDIARY
ONUTPEN 2018 SL | DISPOSAL | INVESTMENT COMPANY | - | - | 100.00% | 0.00% | 31-Oct-18 | SUBSIDIARY
DOMICILIA TREBOLBLUE SA | MERGER | OTHER HOLDING | - | - | 100.00% | 0.00% | 19-Dec-18 | SUBSIDIARY

F-266

### Changes and notification of participations in the BBVA Group in 2018 (continued)

### Business Combinations and Other Acquisitions or Increases of Interest Ownership in Associates and Joint-Ventures Accounted for Under the Equity Method

|  |  | Millions of Euros | % of Voting Rights |  |
Company | Type of Transaction | Activity | Price Paid in the Transactions + Expenses Directly Attributable to the Transactions | Fair Value of Equity Instruments Issued for the Transactions | % Participation (Net) Acquired in the Year | Total Voting Rights Controlled After the Transactions | Effective Date for the Transaction (or Notification Date) | Category
LEVENT YAPILANDIRMA YONETIMI AS | FOUNDING | SERVICES | - | - | 22.13% | 22.13% | 14-Dec-18 | ASSOCIATED
ATOM BANK PLC | INCREASE TO WHICH OTHER MEMERS DO NOT ASSIST | BANKING | 99 | - | 9.16% | 39.06% | 01-May-18 | ASSOCIATED
SR2 SOCIEDAD DE MEDIOS DE PAGO S.A. | FOUNDING AND SPLIT | PAYMENT ENTITIES | 1 | - | 28.72% | 28.72% | 01-Jan-18 | ASSOCIATED
SOCIEDADE ALTITUDE SOFTWARE-SISTEMA E SERCIÇOS SA | FOUNDING | SERVICES | - | - | 31.55% | 31.55% | 02-Apr-18 | JOINT VENTURE
SISTEMAS DE TARJETAS Y MEDIOS DE PAGO SA | FOUNDING | PAYMENT ENTITIES | - | - | 18.11% | 18.11% | 30-Apr-18 | ASSOCIATED
SOLARISBANK AG | ACQUISITION | BANKING | 38 | - | 18.76% | 18.76% | 01-Oct-18 | ASSOCIATED
ANTHEMIS BBVA VENTURE PARTNERSHIP LLP | FOUNDING | INVESTMENT COMPANY | - | - | 75.00% | 75.00% | 01-Dec-18 | JOINT VENTURE
COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU) | CAPITAL INCREASE | ELECTRONIC MONEY ENTITIES | - | - | 0.68% | 20.96% | 01-Aug-18 | ASSOCIATED

### Changes and notification of participations in the BBVA Group in 2018 (continued)

### Disposal or Reduction of Interest Ownership in Associates and Joint-Ventures Companies Accounted for Under the Equity Method

|  |  | Millions of Euros | % of Voting Rights |  |
Company | Type of Transaction | Activity | Profit (Loss) in the Transaction | % Participation Sold in the Year | Total Voting Rights Controlled after the Disposal | Effective Date for the Transaction (or Notification Date) | Category
FIDEICOMISO F/404180-2 BBVA BANCOMER SERVICIOS GOLF ZIBATA | DISPOSAL | REAL ESTATE | - | 30.00% | - | 15-Feb-18 | JOINT VENTURE
SISTARBANC S.R.L. | DISPOSAL | FINANCIAL SERVICES | - | 26.66% | - | 13-Sep-18 | ASSOCIATE
FIDEICOMISO F 403853- 5 BBVA BANCOMER SERVICIOS ZIBATA | DISPOSAL | REAL ESTATE | 22 | 30.00% | - | 15-Feb-18 | JOINT VENTURE
OPERADORA ZIBATA S. DE R.L. DE C.V. | DISPOSAL | SERVICES | - | 30.00% | - | 15-Feb-18 | ASSOCIATE
FERROMOVIL 3000, S.L. | DISPOSAL | SERVICES | 12 | 20.00% | - | 29-May-18 | JOINT VENTURE
FERROMOVIL 9000, S.L. | DISPOSAL | SERVICES | 8 | 20.00% | - | 29-May-18 | JOINT VENTURE
DIVARIAN PROPIEDAD, S.A.U. | DISPOSAL | REAL ESTATE | - | 80.00% | 20.00% | 10-Oct-18 | ASSOCIATE
TELEFONICA FACTORING CHILE, S.A. | DISPOSAL | FINANCIAL SERVICES | - | 24.30% | - | 06-Jul-18 | ASSOCIATE
ALTITUDE SOFTWARE SGPS, S.A. | MERGER | SERVICES | - | 31.55% | - | 01-Apr-18 | JOINT VENTURE
METROVACESA SA | DISPOSAL | REAL ESTATE | 2 | 7.66% | 20.85% | 06-Feb-18 | ASSOCIATE
TESTA RESIDENCIAL SOCIMI SAU | DISPOSAL | REAL ESTATE INVESTMENT TRUST | 28 | 26.87% | - | 21-Dec-18 | ASSOCIATE
PARQUE RIO RESIDENCIAL, S.L. | DISPOSAL | REAL ESTATE | 8 | 50.00% | - | 27-Apr-18 | JOINT VENTURE
AVANTESPACIA INMOBILIARIA, S.L. | DISPOSAL | REAL ESTATE | 3 | 30.01% | - | 28-Dec-18 | JOINT VENTURE
BATEC ORTO DISTRIBUCION S.L. | LIQUIDATION | COMMERCIAL | - | 100.00% | - | 07-Jun-18 | JOINT VENTURE
HABITATGES CIMIPRO, S.L. | LIQUIDATION | REAL ESTATE | - | 50.00% | - | 12-Mar-18 | JOINT VENTURE
SOLARVOLAR, S.L. | LIQUIDATION | REAL ESTATE | - | 45.00% | - | 08-Feb-18 | JOINT VENTURE
PROMOCIONES MIES DEL VALLE, S.L. | DILUTION EFFECT | REAL ESTATE | - | 51.00% | - | 01-Oct-18 | JOINT VENTURE
TEIN CENTRO TECNOLOGICO DEL PLASTICO, S.L. | DILUTION EFFECT | SERVICES | - | 40.00% | - | 01-Sep-18 | JOINT VENTURE
HABITATGES SOCIALS DE CALAF S.L | DISPOSAL | REAL ESTATE | - | 40.00% | - | 04-Apr-18 | JOINT VENTURE
SR2 SOCIEDAD DE MEDIOS DE PAGO S.A. | MERGER | PAYMENT ENTITIES | - | 28.72% | - | 01-Apr-18 | ASSOCIATE

F-267

APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2018

|  | % of Voting Rights Controlled by the Bank
Company | Activity | Direct | Indirect | Total
BBVA BANCO CONTINENTAL SA | BANKING | - | 46.12 | 46.12
BANCO PROVINCIAL SA - BANCO UNIVERSAL | BANKING | 1.46 | 53.75 | 55.21
INVERSIONES BANPRO INTERNATIONAL INC NV | INVESTMENT COMPANY | 48.00 | - | 48.00
PRO-SALUD, C.A. | NO ACTIVITY | - | 58.86 | 58.86
INVERSIONES P.H.R.4, C.A. | NO ACTIVITY | - | 60.46 | 60.46
COMERCIALIZADORA CORPORATIVA SAC | FINANCIAL SERVICES | - | 50.00 | 50.00
DISTRITO CASTELLANA NORTE, S.A. | REAL ESTATE | - | 75.54 | 75.54
GESTION DE PREVISION Y PENSIONES SA | PENSION FUND MANAGEMENT | 60.00 | - | 60.00
URBANIZADORA SANT LLORENC SA | NO ACTIVITY | 60.60 | - | 60.60
F/403035-9 BBVA HORIZONTES RESIDENCIAL | REAL ESTATE | - | 65.00 | 65.00
F/253863 EL DESEO RESIDENCIAL | REAL ESTATE | - | 65.00 | 65.00
DATA ARCHITECTURE AND TECHNOLOGY S.L. | SERVICES | - | 51.00 | 51.00
FIDEICOMISO LOTE 6.1 ZARAGOZA | REAL ESTATE | - | 59.99 | 59.99
F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION | REAL ESTATE | - | 42.40 | 42.40
VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. | SERVICES | - | 51.00 | 51.00
GARANTI EMEKLILIK VE HAYAT AS | INSURANCES | - | 84.91 | 84.91
FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. | IN LIQUIDATION | - | 60.00 | 60.00
BBVA INFORMATION TECHNOLOGY ESPAÑA SL | SERVICES | 76.00 | - | 76.00
JALE PROCAM, S.L. | IN LIQUIDATION | - | 50.00 | 50.00

F-268

APPENDIX V BBVA Group’s structured entities. Securitization funds

|  |  | Millions of Euros
Securitization Fund (consolidated) | Company | Origination Date | Total Securitized Exposures at the Origination Date | Total Securitized Exposures as of December 31, 2018 (*)
AYT CAIXA SABADELL HIPOTECARIO I, FTA | BBVA SA | 07/2008 | 300 | 80
AYT HIPOTECARIO MIXTO IV, FTA | BBVA SA | 06/2005 | 100 | 18
AYT HIPOTECARIO MIXTO, FTA | BBVA SA | 03/2004 | 100 | 13
BBVA CONSUMER AUTO 2018-1 | BBVA SA | 06/2018 | 800 | 746
BBVA CONSUMO 6 FTA | BBVA SA | 10/2014 | 299 | 54
BBVA CONSUMO 7 FTA | BBVA SA | 07/2015 | 1,450 | 572
BBVA CONSUMO 8 FT | BBVA SA | 07/2016 | 700 | 502
BBVA CONSUMO 9 FT | BBVA SA | 03/2017 | 1,375 | 1,229
BBVA EMPRESAS 4 FTA | BBVA SA | 07/2010 | 1,700 | 37
BBVA LEASING 1 FTA | BBVA SA | 06/2007 | 2,500 | 43
BBVA PYME 10 FT | BBVA SA | 12/2015 | 780 | 201
BBVA RMBS 1 FTA | BBVA SA | 02/2007 | 2,500 | 1,000
BBVA RMBS 10 FTA | BBVA SA | 06/2011 | 1,600 | 1,150
BBVA RMBS 11 FTA | BBVA SA | 06/2012 | 1,400 | 1,006
BBVA RMBS 12 FTA | BBVA SA | 12/2013 | 4,350 | 3,197
BBVA RMBS 13 FTA | BBVA SA | 07/2014 | 4,100 | 3,138
BBVA RMBS 14 FTA | BBVA SA | 11/2014 | 700 | 488
BBVA RMBS 15 FTA | BBVA SA | 05/2015 | 4,000 | 3,185
BBVA RMBS 16 FT | BBVA SA | 05/2016 | 1,600 | 1,345
BBVA RMBS 17 FT | BBVA SA | 11/2016 | 1,800 | 1,576
BBVA RMBS 18 FT | BBVA SA | 11/2017 | 1,800 | 1,686
BBVA RMBS 2 FTA | BBVA SA | 03/2007 | 5,000 | 1,858
BBVA RMBS 3 FTA | BBVA SA | 07/2007 | 3,000 | 1,414
BBVA RMBS 5 FTA | BBVA SA | 05/2008 | 5,000 | 2,350
BBVA RMBS 9 FTA | BBVA SA | 04/2010 | 1,295 | 844
BBVA VELA SME 2017-1 | BBVA SA | 06/2017 | 3,000 | 1,321
BBVA VELA SME 2018 | BBVA SA | 03/2018 | 1,950 | 1,387
BBVA-5 FTPYME FTA | BBVA SA | 11/2006 | 1,900 | 11
BBVA-6 FTPYME FTA | BBVA SA | 06/2007 | 1,500 | 13
FTA TDA-22 MIXTO | BBVA SA | 12/2004 | 112 | 24
FTA TDA-27 | BBVA SA | 12/2006 | 275 | 87
FTA TDA-28 | BBVA SA | 07/2007 | 250 | 88
GAT ICO FTVPO 1, F.T.H | BBVA SA | jun.-09 | 358 | 84
GC FTGENCAT TARRAGONA 1 FTA | BBVA SA | 06/2008 | 283 | 23
HIPOCAT 10 FTA | BBVA SA | 07/2006 | 1,500 | 291
HIPOCAT 11 FTA | BBVA SA | 03/2007 | 1,600 | 299
HIPOCAT 7 FTA | BBVA SA | 06/2004 | 1,400 | 221
HIPOCAT 8 FTA | BBVA SA | 05/2005 | 1,500 | 261
HIPOCAT 9 FTA | BBVA SA | 11/2005 | 1,000 | 201
TDA 19 FTA | BBVA SA | 03/2004 | 200 | 25
TDA 20-MIXTO, FTA | BBVA SA | 06/2004 | 100 | 15
TDA 23 FTA | BBVA SA | 03/2005 | 300 | 53
TDA TARRAGONA 1 FTA | BBVA SA | 12/2007 | 397 | 116
VELA CORPORATE 2018-1 | BBVA SA | 12/2018 | 1,000 | 916

F-269

|  |  | Millions of Euros
Securitization Fund (not consolidated) | Company | Origination Date | Total Securitized Exposures at the Origination Date | Total Securitized Exposures as of December 31, 2018 (*)
FTA TDA-18 MIXTO | BBVA, S.A. | nov.-03 | 91 | 12
HIPOCAT 6 FTA | BBVA, S.A. | jul.-03 | 850 | 108
(*) Solvency scope.

F-270

APPENDIX VI Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of December 31, 2018, 2017 and 201 6

Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues

|  | Millions of Euros |  |
Issuer Entity and Issued Date(*) | Currency | December 2018 | December 2017 | December 2016 | Prevailing Interest Rate as of December 31, 2018 | Maturity Date
Issues in Euros |  |  |  |  |  |
BBVA, S.A |  |  |  |  |  |
February-07 | EUR | - | 255 | 255 | 0.47% | 16-Feb-22
March-08 | EUR | 125 | 125 | 125 | 6.03% | 3-Mar-33
July-08 | EUR | 100 | 100 | 100 | 6.20% | 4-Jul-23
February-14 | EUR | 1,500 | 1,500 | 1,500 | 7.00% | Perpetual
April-14 | EUR | 1,494 | 1,494 | - | 3.50% | 11-Apr-24
February-15 | EUR | 1,500 | 1,500 | 1,500 | 6.75% | Perpetual
April-16 | EUR | 1,000 | 1,000 | 1,000 | 8.88% | Perpetual
February-17 | EUR | 1,000 | 997 | - | 3.50% | 10-Feb-27
February-17 | EUR | 165 | 165 | - | 4.00% | 24-Feb-32
May-17 | EUR | 150 | 150 | - | 2.54% | 24-May-27
May-17 | EUR | 500 | 500 | - | 5.88% | Perpetual
September-18 | EUR | 990 | - | - | 5.87% | Perpetual
Various | EUR | 384 | 386 | 277 |  |
Subtotal | EUR | 8,906 | 8,171 | 4,756 |  |
BBVA SUBORDINATED CAPITAL, S.A.U. (*) |  |  |  |  |  |
October-05 | EUR | - | 99 | 99 | 0.47% | 13-Oct-20
April-07 | EUR | - | - | 68 | 0.57% | 4-Apr-22
May-08 | EUR | - | - | 50 | 3.00% | 19-May-23
July-08 | EUR | - | 20 | 20 | 6.11% | 22-Jul-18
April-14 | EUR | - | - | 1,500 | 3.50% | 11-Apr-24
Subtotal | EUR | - | 119 | 1,737 |  |
Others | EUR | - | - | - |  |
Total issued in Euros | EUR | 8,906 | 8,290 | 6,493 |  |
(*) The issuances of BBVA Subordinated Capital, S.A.U. are jointly, severally and unconditionally guaranteed by the Bank.

F-271

Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues (continued)

|  | Millions of Euros |  |
Issuer Entity and Issued Date | Currency | December 2018 | December 2017 | December 2016 | Prevailing Interest Rate as of December 31, 2018 | Maturity Date
Issues in foreign currency |  |  |  |  |  |
BBVA, S.A |  |  |  |  |  |
May-13 | USD | - | 1,251 | 1,423 | 9.00% | Perpetual
March-17 | USD | 105 | 100 | - | 5.70% | 31-Mar-32
November-17 | USD | 873 | 834 | - | 6.13% | Perpetual
May-18 | USD | 260 | - | - | 5.25% | 29-May-33
Subtotal | USD | 1,238 | 2,185 | 1,423 |  |
May-17 | CHF | 18 | 17 | - | 1.60% | 24-May-27
Subtotal | CHF | 18 | 17 | - |  |
BBVA GLOBAL FINANCE, LTD. (*) |  |  |  |  |  |
December-95 | USD | 169 | 162 | 189 | 7.00% | 1-Dec-25
Subtotal | USD | 169 | 162 | 189 |  |
BANCO BILBAO VIZCAYA ARGENTARIA, CHILE |  |  |  |  |  |
Different issues | CLP | - | 574 | 609 |  | Various
Subtotal | CLP | - | 574 | 609 |  |
BBVA BANCOMER, S.A. de C.V. |  |  |  |  |  |
May-07 | USD | - | - | 474 | 6,01% | 17-May-22
April-10 | USD | 874 | 831 | 947 | 7.25% | 22-Apr-20
March-11 | USD | 1,092 | 1,039 | 1,184 | 6.50% | 10-Mar-21
July-12 | USD | 1,311 | 1,247 | 1,421 | 6.75% | 30-Sep-22
November-14 | USD | 175 | 166 | 189 | 5.35% | 12-Nov-29
Jan-18 | USD | 874 | - | - | 5.13% | 18-Jan-33
Subtotal | USD | 4,325 | 3,283 | 4,214 |  |
BBVA PARAGUAY |  |  |  |  |  |
November-14 | USD | 19 | 17 | 19 | 6.75% | 05-Nov-21
November-15 | USD | 23 | 21 | 24 | 6.70% | 22-Nov-22
Subtotal | USD | 42 | 38 | 43 |  |
TEXAS REGIONAL STATUTORY TRUST I |  |  |  |  |  |
February-04 | USD | - | - | 47 | 3.13% | 17-Mar-34
Subtotal | USD | - | - | 47 |  |
(*) The issuances of BBVA Global Finance, Ltd, are guaranteed (secondary liability) by the Bank

F-272

Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues

|  | Millions of Euros |  |
Issuer Entity and Issued Date (continued) | Currency | December 2018 | December 2017 | December 2016 | Prevailing Interest Rate as of December 31, 2018 | Maturity Date
STATE NATIONAL CAPITAL TRUST I |  |  |  |  |  |
July-03 | USD | - | - | 14 | 3.32% | 30-Sep-33
Subtotal | USD | - | - | 14 |  |
STATE NATIONAL STATUTORY TRUST II |  |  |  |  |  |
March-04 | USD | - | - | 9 | 3.07% | 17-Mar-34
Subtotal | USD | - | - | 9 |  |
TEXASBANC CAPITAL TRUST I |  |  |  |  |  |
June-04 | USD | - | - | 24 | 2.88% | 23-Jul-34
Subtotal | USD | - | - | 24 |  |
COMPASS BANK |  |  |  |  |  |
March-05 | USD | 199 | 190 | 212 | 5.50% | 1-Apr-20
March-06 | USD | 62 | 59 | 65 | 5.90% | 1-Apr-26
September-07 | USD | - | - | 332 | 6.40% | 1-Oct-17
April-15 | USD | 611 | 584 | 655 | 3.88% | 10-Apr-25
Subtotal | - | 872 | 833 | 1,264 |  |
BBVA COLOMBIA, S.A. |  |  |  |  |  |
September-11 | COP | - | 28 | 32 | 8.31% | 19-Sep-18
September-11 | COP | 28 | 30 | 33 | 8.48% | 19-Sep-21
September-11 | COP | 42 | 44 | 49 | 8.72% | 19-Sep-26
February-13 | COP | 53 | 56 | 63 | 7.65% | 19-Feb-23
February-13 | COP | 44 | 46 | 52 | 7.93% | 19-Feb-28
November-14 | COP | 24 | 25 | 28 | 8.53% | 26-Nov-26
November-14 | COP | 43 | 45 | 51 | 8.41% | 26-Nov-34
January-00 | COP | (9) | - | - |  |
December-15 | COP | (9) | - | - |  |
Subtotal | COP | 215 | 273 | 308 |  |
April-15 | USD | 332 | 313 | 379 | 4.88% | 21-Apr-25
Subtotal | USD | 332 | 313 | 379 |  |
BANCO CONTINENTAL, S.A. |  |  |  |  |  |
September-07 | USD | - | - | 19 | 2.16% | 24-Sep-17
Subtotal | USD | - | - | 19 |  |
May-07 | PEN | - | - | 11 | 5.85% | 7-May-22
May-07 | PEN | 17 | 17 | 19 | 6.00% | 14-May-27
June-07 | PEN | 20 | 20 | 21 | 3.47% | 18-Jun-32
November-07 | PEN | 18 | 18 | 19 | 3.56% | 19-Nov-32
February-08 | PEN | 18 | 17 | 19 | 6.47% | 28-Feb-28
July-08 | PEN | 16 | 16 | 17 | 3.06% | 8-Jul-23
September-08 | PEN | 17 | 17 | 18 | 3.09% | 9-Sep-23
December-08 | PEN | 10 | 10 | 11 | 4.19% | 15-Dec-33
October-13 | PEN | 40 | 38 | 43 | 6.53% | 2-oct.-28
September-14 | PEN | 252 | 244 | 273 | 5.25% | 22-sep.-29
Subtotal | PEN | 410 | 395 | 451 |  |
TURKIYE GARANTI BANKASI A.S |  |  |  |  |  |
May-17 | USD | 652 | 623 | - | 6.13% | 24-May-27
Subtotal | USD | 652 | 623 | - |  |
Total issues in foreign currencies(Millions of Euros) |  | 8,274 | 8,695 | 8,994 |  |

F-273

Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues (Millions of euros)

| December 2018 | December 2017 | December 2016
Issuer Entity and Issued Date | Currency | Amount Issued | Currency | Amount Issued | Currency | Amount Issued
BBVA S.A |  |  |  |  |  |
December 2007 | EUR | - | EUR | - | EUR | 14
BBVA COLOMBIA SA | - | - | - | - | - | -
December 1993 | COP | 19 | PESO COL | - | PESO COL | -
BBVA PARAGUAY, S.A. | - | - | - | - | - | -
September 2005 | - | - | EUR | - | EUR | 86
September 2006 | - | - | EUR | - | EUR | 164
April 2007 | - | - | USD | - | USD | 569
BBVA International Preferred, S.A.U. | - | - | - | - | - | -
July 2007 | GBP | 35 | GBP | 35 | GBP | 36
Phoenix Loan Holdings Inc. | - | - | - | - | - | -
December 2000 | USD | 18 | USD | 18 | USD | 22
Caixa Terrasa Societat de Participacion | - | - | - | - | - | -
August 2005 | EUR | 52 | EUR | 51 | EUR | 51
Caixasabadell Preferents, S.A. | - | - | - | - | - | -
December 2004 | - | - | - | - | EUR | -
July 2006 | EUR | 56 | EUR | 56 | EUR | 53
Others | - | - | - | 1 | - | 1

F-274

APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2018, 2017 and 2016.

December 2018 (Millions of euros)
| USD | Mexican Pesos | Turkish Lira | Other Foreign Currencies | Total Foreign Currencies
Assets |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 15,184 | 6,869 | 476 | 5,547 | 28,076
Financial assets held for trading | 3,133 | 15,500 | 366 | 3,614 | 22,614
Non- Trading financial assets mandatorily at fair value through profit or loss | 650 | 2,303 | 3 | 58 | 3,014
Financial assets at fair value through comprehensive income | 16,566 | 4,704 | 3,031 | 2,931 | 27,232
Financial assets at amortized cost | 101,366 | 47,550 | 28,094 | 34,075 | 211,085
Joint ventures and associates | 5 | 54 | - | 267 | 326
Tangible assets | 670 | 1,964 | 1,007 | 850 | 4,490
Other assets | 3,444 | 2,911 | 1,361 | 2,879 | 10,595
Total | 141,019 | 81,856 | 34,336 | 50,221 | 307,433
Liabilities |  |  |  |  |
Financial liabilities held for trading | 2,372 | 13,626 | 360 | 1,507 | 17,864
Financial liabilities at amortized cost | 136,307 | 48,169 | 20,878 | 37,342 | 242,696
Other liabilities | 3,874 | 6,081 | 750 | 7,200 | 17,904
Total | 142,552 | 67,876 | 21,987 | 46,049 | 278,464

F-275

December 2017 (Millions of euros)
| USD | Mexican Pesos | Turkish Lira | Other Foreign Currencies | Total Foreign Currencies
Assets |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 17,111 | 4,699 | 827 | 4,264 | 26,902
Financial assets held for trading | 2,085 | 14,961 | 484 | 4,583 | 22,113
Available-for-sale financial assets | 14,218 | 8,051 | 4,904 | 3,010 | 30,183
Loans and receivables | 93,069 | 39,717 | 32,808 | 34,488 | 200,081
Investments in entities accounted for using the equity method | 5 | 124 | - | 147 | 276
Tangible assets | 659 | 1,953 | 1,289 | 673 | 4,573
Other assets | 7,309 | 5,041 | 4,426 | 18,662 | 35,438
Total | 134,456 | 74,546 | 44,738 | 65,826 | 319,566
Liabilities |  |  |  |  |
Financial liabilities held for trading | 935 | 5,714 | 506 | 533 | 7,688
Financial liabilities at amortized cost | 135,546 | 51,492 | 27,079 | 39,062 | 253,178
Other liabilities | 3,907 | 8,720 | 1,039 | 16,593 | 30,259
Total | 140,387 | 65,926 | 28,623 | 56,188 | 291,124

F-276

December 2016 (Millions of euros)
| USD | Mexican Pesos | Turkish Lira | Other Foreign Currencies | Total Foreign Currencies
Assets |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 15,436 | 4,947 | 426 | 4,547 | 25,357
Financial assets held for trading | 5,048 | 15,541 | 732 | 2,695 | 24,016
Available-for-sale financial assets | 18,525 | 9,458 | 4,889 | 5,658 | 38,530
Loans and receivables | 109,167 | 41,344 | 34,425 | 46,629 | 231,565
Investments in entities accounted for using the equity method | 5 | 135 | - | 106 | 247
Tangible assets | 788 | 2,200 | 1,376 | 844 | 5,207
Other assets | 4,482 | 5,214 | 5,219 | 4,358 | 19,273
Total | 153,451 | 78,839 | 47,066 | 64,839 | 344,194
Liabilities |  |  |  |  |
Financial liabilities held for trading | 3,908 | 5,957 | 693 | 1,426 | 11,983
Financial liabilities at amortized cost | 150,035 | 53,185 | 28,467 | 53,858 | 285,546
Other liabilities | 1,812 | 8,774 | 1,418 | 1,957 | 123,961
Total | 155,755 | 67,916 | 30,578 | 57,241 | 311,490

F-277

APPENDIX VIII. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012

a) Quantitative information on refinancing and restructuring operations

The breakdown of refinancing and restructuring operations as of December 31, 2018, 2017 and 2016 is as follows:

| DECEMBER 2018 BALANCE OF FORBEARANCE (Millions of Euros)
| TOTAL
| Unsecured loans | Secured loans | Accumulated impairment or accumulated losses in fair value due to credit risk
|  |  |  |  | Maximum amount of secured loans that can be considered
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | Real estate mortgage secured | Rest of secured loans
Credit institutions | - | - | - | - | - | - | -
General Governments | 75 | 111 | 46 | 64 | 52 | - | 15
Other financial corporations and individual entrepreneurs (financial business) | 252 | 13 | 29,360 | 5 | 3 | - | 6
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 44,271 | 4,483 | 15,493 | 4,177 | 2,200 | 221 | 3,148
Of which: financing the construction and property (including land) | 734 | 258 | 1,627 | 962 | 501 | 12 | 517
Rest homes (*) | 193,061 | 1,326 | 355,466 | 6,990 | 5,083 | 150 | 1,716
Total | 237,659 | 5,933 | 400,365 | 11,236 | 7,338 | 371 | 4,885

| Of which: IMPAIRED
| Unsecured loans | Secured loans | Accumulated impairment or accumulated losses in fair value due to credit risk
|  |  |  |  | Maximum amount of secured loans that can be considered
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | Real estate mortgage secured | Rest of secured loans
Credit institutions | - | - | - | - | - | - | -
General Governments | 46 | 65 | 12 | 16 | 8 | - | 10
Other financial corporations and individual entrepreneurs (financial business) | 133 | 4 | 29,320 | 4 | 2 | - | 5
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 25,420 | 2,723 | 9,922 | 2,777 | 1,192 | 100 | 2,773
Of which: financing the construction and property (including land) | 631 | 200 | 1,145 | 656 | 254 | 1 | 477
Rest homes (*) | 116,916 | 741 | 42,403 | 3,673 | 2,435 | 26 | 1,414
Total | 142,515 | 3,533 | 81,657 | 6,470 | 3,636 | 126 | 4,202

(*) Number of operations does not include Garanti Bank.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €682 million of collective impairment losses and €4,202 million of specific impairment losses.

F-278

| DECEMBER 2017 BALANCE OF FORBEARANCE (Millions of Euros)
| TOTAL
| Unsecured loans | Secured loans | Accumulated impairment or accumulated losses in fair value due to credit risk
|  |  |  |  | Maximum amount of secured loans that can be considered
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | Real estate mortgage secured | Rest of secured loans
Credit institutions | - | - | - | - | - | - | -
General Governments | 69 | 105 | 135 | 430 | 112 | 302 | 18
Other financial corporations and individual entrepreneurs (financial business) | 4,727 | 36 | 93 | 8 | 1 | - | 21
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 113,464 | 4,672 | 17,890 | 6,258 | 3,182 | 251 | 3,579
Of which: financing the construction and property (including land) | 1,812 | 398 | 3,495 | 2,345 | 1,995 | - | 1,327
Rest homes (*) | 163,101 | 1,325 | 109,776 | 8,477 | 6,891 | 18 | 1,373
Total | 281,361 | 6,138 | 127,894 | 15,173 | 10,186 | 571 | 4,991

| Of which: IMPAIRED
| Unsecured loans | Secured loans | Accumulated impairment or accumulated losses in fair value due to credit risk
|  |  |  |  | Maximum amount of secured loans that can be considered
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | Real estate mortgage secured | Rest of secured loans
Credit institutions | - | - | - | - | - | - | -
General Governments | 50 | 72 | 45 | 29 | 22 | - | 16
Other financial corporations and individual entrepreneurs (financial business) | 126 | 5 | 16 | 2 | + | - | 5
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 95,427 | 2,791 | 10,994 | 4,144 | 1,983 | 66 | 3,361
Of which: financing the construction and property (including land) | 1,538 | 208 | 2,779 | 1,961 | 1,273 | - | 1,282
Rest homes (*) | 105,468 | 747 | 47,612 | 4,330 | 3,270 | 6 | 1,231
Total | 201,071 | 3,615 | 58,667 | 8,506 | 5,275 | 72 | 4,612

(*) Number of operations does not include Garanti Bank.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €378 million of collective impairment losses and €4,612 million of specific impairment losses.

F-279

| DECEMBER 2016 BALANCE OF FORBEARANCE (Millions of Euros)
| TOTAL
| Unsecured loans | Secured loans | Accumulated impairment or accumulated losses in fair value due to credit risk
|  |  |  |  | Maximum amount of secured loans that can be considered
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | Real estate mortgage secured | Rest of secured loans
Credit institutions | - | - | - | - | - | - | -
General Governments | 24 | 8 | 112 | 711 | 98 | 584 | 6
Other financial corporations and individual entrepreneurs (financial business) | 3,349 | 59 | 71 | 18 | 5 | - | 8
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 125,328 | 5,057 | 25,327 | 9,643 | 4,844 | 124 | 5,310
Of which: financing the construction and property (including land) | 1,519 | 496 | 5,102 | 4,395 | 694 | - | 2,552
Rest homes (*) | 116,961 | 1,550 | 103,868 | 9,243 | 7,628 | 18 | 1,474
Total | 245,662 | 6,674 | 129,378 | 19,615 | 12,576 | 726 | 6,798

| Of which: IMPAIRED
| Unsecured loans | Secured loans | Accumulated impairment or accumulated losses in fair value due to credit risk
|  |  |  |  | Maximum amount of secured loans that can be considered
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | Real estate mortgage secured | Rest of secured loans
Credit institutions | - | - | - | - | - | - | -
General Governments | 12 | 8 | 53 | 33 | 27 | - | 4
Other financial corporations and individual entrepreneurs (financial business) | 131 | 8 | 22 | 2 | - | - | 5
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 103,310 | 2,857 | 16,327 | 6,924 | 3,002 | 53 | 4,986
Of which: financing the construction and property (including land) | 1,191 | 304 | 4,188 | 3,848 | 494 | - | 2,499
Rest homes (*) | 72,199 | 672 | 47,767 | 4,366 | 3,271 | 3 | 1,285
Total | 175,652 | 3,545 | 64,169 | 11,325 | 6,300 | 57 | 6,281

(*) Number of operations does not include Garanti Bank.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €517 million of collective impairment losses and €6,281 million of specific impairment losses.

F-280

In addition to the restructuring and refinancing transactions mentioned in this section, loans that were not considered impaired or renegotiated have been modified based on the criteria set out in the accounting regulation that applies. These loans have not been classified as renegotiated or impaired, since they were modified for commercial or competitive reasons (for instance, to improve relationships with clients) rather than for economic or legal reasons relating to the borrower's financial situation.

The table below provides a roll forward of refinanced assets during 2018 and 2017:

Refinanced assets Roll forward. December 2018 (Millions of euros)
| Stages 1&2 | Stage 3 | TOTAL
| Risk | Coverage | Risk | Coverage | Risk | Coverage
Balance at the beginning | 9,191 | 378 | 12,120 | 4,612 | 21,311 | 4,991
(+) Additions | 1,599 | 397 | 1,417 | 767 | 3,017 | 1,164
(-) Decreases (payments or repayments) | (1,098) | (47) | (2,280) | (1,282) | (3,378) | (1,330)
(-) Foreclosures | - | - | (339) | (216) | (339) | (216)
(-) Write-offs | (2) | (1) | (857) | (606) | (859) | (607)
(+)/(-) Other | (2,524) | (45) | (58) | 927 | (2,582) | 882
Ending Balance | 7,166 | 682 | 10,003 | 4,202 | 17,169 | 4,885

Refinanced assets Roll forward. December 2017 (*) (Millions of euros)
| Normal | Impaired | TOTAL
| Risk | Coverage | Risk | Coverage | Risk | Coverage
Balance at the beginning | 11,418 | 517 | 14,869 | 6,281 | 26,288 | 6,798
(+) Additions | 3,095 | 182 | 1,614 | 599 | 4,709 | 781
(-) Decreases (payments or repayments) | (2,462) | (145) | (2,754) | (1,180) | (5,216) | (1,325)
(-) Foreclosures | (2) | - | (463) | (267) | (465) | (267)
(-) Write-offs | (63) | (2) | (1,667) | (1,413) | (1,730) | (1,415)
(+)/(-) Other | (2,795) | (174) | 521 | 593 | (2,275) | 419
Ending Balance | 9,191 | 378 | 12,120 | 4,612 | 21,311 | 4,991

(*) Data presenting under the accounting regulation that applied in 2017.

The table below provides a breakdown by segments of the forbearance operations (net of provisions) as of December 31, 2018 and 2017:

Forbearance operations. Breakdown by segments (Millions of euros)
| December 2018 | December 2017 | December 2016
Credit institutions | - | - | -
Central governments | 160 | 518 | 713
Other financial corporations and individual entrepreneurs (financial activity) | 13 | 24 | 69
Non-financial corporations and individual entrepreneurs (non-financial activity) | 5,512 | 7,351 | 9,390
Of which: Financing the construction and property development (including land) | 702 | 1,416 | 2,339
Households | 6,600 | 8,428 | 9,319
Total carrying amount | 12,284 | 16,321 | 19,491
Financing classified as non-current assets and disposal groups held for sale | - | - | -

F-281

NPL ratio by type of renegotiated loan

The non performing ratio of the renegotiated portfolio is defined as the impaired balance of renegotiated loans that shows signs of difficulties as of the closing of the reporting period, divided by the total payment outstanding in that portfolio.

As of December 31, 2018, the non performing ratio for each of the portfolios of renegotiated loans is as follows:

December 2018. NPL ratio renegotiated loan portfolio
| Ratio of Impaired loans - Past due
General governments | 47%
Commercial | 64%
Of which: Construction and developer | 70%
Other consumer | 53%

December 2017. NPL ratio renegotiated loan portfolio
| Ratio of Impaired loans - Past due
General governments | 19%
Commercial | 63%
Of which: Construction and developer | 79%
Other consumer | 52%

F-282

b) Qualitative information on the concentration of risk by activity and guarantees

Loans and advances to customers by activity (carrying amount)

December 2018 (Millions OF Euros)
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 30,488 | 1,056 | 7,750 | 1,729 | 1,856 | 1,119 | 3,514 | 588
2 Other financial institutions | 20,802 | 233 | 12,549 | 1,167 | 221 | 93 | 11,209 | 92
3 Non-financial institutions and individual entrepreneurs | 173,493 | 29,001 | 32,371 | 25,211 | 11,121 | 9,793 | 5,087 | 10,160
3.1 Construction and property development | 14,323 | 5,226 | 2,539 | 1,979 | 2,556 | 2,140 | 486 | 605
3.2 Construction of civil works | 7,775 | 1,082 | 620 | 703 | 285 | 195 | 200 | 319
3.3 Other purposes | 151,394 | 22,694 | 29,212 | 22,529 | 8,281 | 7,459 | 4,401 | 9,235
3.3.1 Large companies | 97,132 | 9,912 | 19,069 | 13,918 | 3,979 | 4,019 | 2,245 | 4,820
3.3.2 SMEs (**) and individual entrepreneurs | 54,262 | 12,782 | 10,143 | 8,611 | 4,302 | 3,440 | 2,156 | 4,416
4 Rest of households and NPISHs (***) | 163,068 | 109,578 | 5,854 | 21,974 | 27,860 | 33,200 | 21,490 | 10,908
4.1 Housing | 111,007 | 105,817 | 2,419 | 19,981 | 26,384 | 32,122 | 19,345 | 10,404
4.2 Consumption | 40,124 | 522 | 2,600 | 489 | 587 | 306 | 1,597 | 142
4.3 Other purposes | 11,938 | 3,239 | 835 | 1,505 | 888 | 772 | 547 | 362
6 TOTAL | 387,850 | 139,868 | 58,524 | 50,082 | 41,058 | 44,206 | 41,300 | 21,747
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 12,284 | 8,325 | 523 | 1,508 | 1,421 | 1,769 | 1,527 | 2,623

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions

F-283

December 2017 (Millions of euros)
|  |  |  | Collateralized Credit Risk. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 32,294 | 998 | 7,167 | 1,540 | 179 | 475 | 532 | 5,440
2 Other financial institutions | 18,669 | 319 | 12,910 | 314 | 277 | 106 | 11,349 | 1,183
3 Non-financial institutions and individual entrepreneurs | 172,338 | 39,722 | 24,793 | 11,697 | 5,878 | 5,183 | 9,167 | 32,591
3.1 Construction and property development | 14,599 | 10,664 | 1,066 | 1,518 | 876 | 1,049 | 1,313 | 6,974
3.2 Construction of civil works | 7,733 | 1,404 | 521 | 449 | 358 | 289 | 162 | 667
3.3 Other purposes | 150,006 | 27,654 | 23,206 | 9,729 | 4,644 | 3,845 | 7,692 | 24,950
3.3.1 Large companies | 93,604 | 10,513 | 16,868 | 2,769 | 1,252 | 1,023 | 3,631 | 18,706
3.3.2 SMEs (**) and individual entrepreneurs | 56,402 | 17,142 | 6,338 | 6,960 | 3,392 | 2,823 | 4,061 | 6,244
4 Rest of households and NPISHs (***) | 165,024 | 114,558 | 8,395 | 19,762 | 22,807 | 25,595 | 22,122 | 32,667
4.1 Housing | 114,709 | 111,604 | 128 | 18,251 | 22,222 | 25,029 | 21,154 | 25,076
4.2 Consumption | 40,705 | 670 | 4,784 | 1,058 | 256 | 192 | 316 | 3,632
4.3 Other purposes | 9,609 | 2,284 | 3,483 | 452 | 330 | 374 | 652 | 3,959
6 TOTAL | 388,325 | 155,597 | 53,266 | 33,312 | 29,142 | 31,359 | 43,170 | 71,882
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 16,321 | 6,584 | 5,117 | 1,485 | 1,315 | 1,871 | 1,580 | 5,451

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-284

December 2016 (Millions of euros)
|  |  |  | Collateralized Credit Risk. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 34,820 | 4,722 | 3,700 | 380 | 715 | 1,266 | 2,740 | 3,320
2 Other financial institutions | 17,181 | 800 | 8,168 | 650 | 464 | 319 | 6,846 | 690
3 Non-financial institutions and individual entrepreneurs | 183,871 | 47,105 | 22,663 | 17,000 | 13,122 | 11,667 | 14,445 | 13,533
3.1 Construction and property development | 19,283 | 12,888 | 1,736 | 3,074 | 4,173 | 3,843 | 2,217 | 1,316
3.2 Construction of civil works | 8,884 | 1,920 | 478 | 508 | 547 | 469 | 379 | 494
3.3 Other purposes | 155,704 | 32,297 | 20,449 | 13,417 | 8,402 | 7,356 | 11,850 | 11,722
3.3.1 Large companies | 107,550 | 16,041 | 16,349 | 7,311 | 5,149 | 4,777 | 7,160 | 7,993
3.3.2 SMEs (**) and individual entrepreneurs | 48,154 | 16,257 | 4,100 | 6,106 | 3,253 | 2,579 | 4,689 | 3,729
4 Rest of households and NPISHs (***) | 178,781 | 129,590 | 5,257 | 21,906 | 24,764 | 34,434 | 34,254 | 19,489
4.1 Housing | 127,606 | 124,427 | 477 | 18,802 | 23,120 | 32,713 | 32,148 | 18,122
4.2 Consumption | 44,504 | 3,181 | 3,732 | 2,535 | 1,278 | 1,230 | 1,322 | 547
4.3 Other purposes | 6,671 | 1,982 | 1,048 | 569 | 366 | 491 | 784 | 820
6 TOTAL | 414,654 | 182,216 | 39,789 | 39,936 | 39,065 | 47,687 | 58,286 | 37,032
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 19,491 | 8,031 | 6,504 | 3,703 | 1,845 | 2,316 | 2,091 | 4,580

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-285

The information of the main geographic areas is as follows:

December 2018 (Millions Of Euros) BBVA, S.A.
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 17,828 | 390 | 572 | 68 | 209 | 94 | 575 | 15
2 Other financial institutions | 16,079 | 103 | 11,161 | 70 | 19 | 4 | 11,159 | 12
3 Non-financial institutions and individual entrepreneurs | 74,558 | 12,614 | 1,592 | 4,674 | 3,935 | 2,622 | 1,282 | 1,692
3.1 Construction and property development | 2,206 | 2,069 | 22 | 544 | 705 | 493 | 199 | 150
3.2 Construction of civil works | 4,877 | 991 | 70 | 327 | 247 | 178 | 63 | 246
3.3 Other purposes | 67,475 | 9,554 | 1,500 | 3,803 | 2,984 | 1,952 | 1,019 | 1,296
3.3.1 Large companies | 44,529 | 2,843 | 318 | 1,086 | 789 | 497 | 272 | 517
3.3.2 SMEs (**) and individual entrepreneurs | 22,947 | 6,711 | 1,182 | 2,717 | 2,195 | 1,455 | 747 | 779
4 Rest of households and NPISHs (***) | 94,129 | 79,755 | 413 | 15,476 | 19,737 | 22,511 | 13,128 | 9,315
4.1 Housing | 79,054 | 77,061 | 136 | 14,623 | 18,946 | 21,768 | 12,803 | 9,056
4.2 Consumption | 10,321 | 131 | 147 | 66 | 58 | 77 | 43 | 34
4.3 Other purposes | 4,754 | 2,563 | 130 | 786 | 733 | 667 | 282 | 225
6 TOTAL | 202,594 | 92,861 | 13,738 | 20,289 | 23,901 | 25,231 | 26,143 | 11,035
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 9,143 | 7,308 | 85 | 1,173 | 1,189 | 1,365 | 1,225 | 2,441

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-286

December 2018 (Millions Of Euros) Bancomer
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 5,725 | - | 2,612 | 762 | 730 | 88 | 720 | 312
2 Other financial institutions | 1,279 | 4 | 788 | 714 | 12 | 39 | 17 | 9
3 Non-financial institutions and individual entrepreneurs | 22,608 | 85 | 17,107 | 12,662 | 833 | 878 | 815 | 2,004
3.1 Construction and property development | 883 | 4 | 547 | 220 | 148 | 91 | 63 | 29
3.2 Construction of civil works | 354 | 3 | 257 | 208 | 5 | 7 | 25 | 14
3.3 Other purposes | 21,371 | 78 | 16,303 | 12,233 | 680 | 781 | 726 | 1,961
3.3.1 Large companies | 11,762 | 0 | 9,918 | 8,294 | 265 | 571 | 311 | 476
3.3.2 SMEs (**) and individual entrepreneurs | 9,609 | 78 | 6,385 | 3,939 | 415 | 209 | 415 | 1,485
4 Rest of households and NPISHs (***) | 20,198 | 8,714 | 5 | 901 | 1,833 | 3,874 | 1,847 | 264
4.1 Housing | 8,714 | 8,714 | - | 900 | 1,833 | 3,874 | 1,847 | 261
4.2 Consumption | 10,897 | - | - | - | - | - | - | -
4.3 Other purposes | 587 | - | 5 | 2 | 0 | 0 | 0 | 3
6 TOTAL | 49,810 | 8,804 | 20,511 | 15,038 | 3,409 | 4,880 | 3,399 | 2,589
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 486 | 236 | 148 | 128 | 51 | 82 | 89 | 34

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-287

December 2018 (Millions Of Euros) Compass Bank
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 908 | 129 | 693 | 161 | 179 | 163 | 267 | 52
2 Other financial institutions | 1,867 | 35 | 263 | 253 | 7 | 17 | 6 | 15
3 Non-financial institutions and individual entrepreneurs | 27,998 | 5,277 | 11,827 | 5,035 | 4,185 | 3,563 | 1,337 | 2,984
3.1 Construction and property development | 8,002 | 1,731 | 1,852 | 924 | 1,300 | 1,154 | 81 | 124
3.2 Construction of civil works | 297 | 6 | 265 | 150 | 18 | 5 | 98 | -
3.3 Other purposes | 19,699 | 3,540 | 9,711 | 3,961 | 2,866 | 2,405 | 1,158 | 2,860
3.3.1 Large companies | 16,293 | 2,790 | 8,074 | 3,317 | 2,331 | 1,876 | 903 | 2,438
3.3.2 SMEs (**) and individual entrepreneurs | 3,406 | 750 | 1,637 | 645 | 536 | 529 | 255 | 422
4 Rest of households and NPISHs (***) | 20,971 | 11,184 | 3,475 | 2,934 | 2,576 | 5,501 | 3,609 | 38
4.1 Housing | 13,364 | 10,989 | 2,255 | 2,198 | 2,146 | 5,317 | 3,559 | 23
4.2 Consumption | 4,051 | 0 | 664 | 169 | 337 | 124 | 31 | 3
4.3 Other purposes | 3,556 | 195 | 555 | 566 | 93 | 60 | 19 | 12
6 TOTAL | 51,744 | 16,625 | 16,259 | 8,384 | 6,947 | 9,244 | 5,219 | 3,090
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 625 | 241 | 237 | 55 | 97 | 213 | 109 | 5

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-288

December 2018 (Millions Of Euros) Garanti Bank
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 94 | - | - | - | - | - | - | -
2 Other financial institutions | 529 | 63 | 29 | 1 | 21 | 31 | 20 | 18
3 Non-financial institutions and individual entrepreneurs | 24,485 | 5,812 | 427 | 1,724 | 1,381 | 1,901 | 521 | 712
3.1 Construction and property development | 2,184 | 921 | 53 | 238 | 287 | 306 | 83 | 60
3.2 Construction of civil works | 1,912 | - | - | - | - | - | - | -
3.3 Other purposes | 20,390 | 4,891 | 374 | 1,487 | 1,094 | 1,595 | 437 | 652
3.3.1 Large companies | 10,900 | 2,261 | 102 | 877 | 293 | 735 | 182 | 275
3.3.2 SMEs (**) and individual entrepreneurs | 9,490 | 2,630 | 272 | 610 | 800 | 860 | 255 | 377
4 Rest of households and NPISHs (***) | 11,030 | 3,404 | 28 | 958 | 2,367 | 71 | 32 | 3
4.1 Housing | 3,597 | 3,234 | 0 | 902 | 2,295 | 35 | 2 | 1
4.2 Consumption | 7,151 | 62 | 26 | 35 | 38 | 13 | 1 | 1
4.3 Other purposes | 281 | 107 | 2 | 20 | 34 | 24 | 29 | 1
6 TOTAL | 36,138 | 9,279 | 483 | 2,683 | 3,769 | 2,003 | 573 | 733
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 1,372 | 149 | 1 | 0 | 0 | 56 | 65 | 29

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-289

December 2018 (Millions Of Euros) Other Entities
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Of which: Mortgage loans | Of which: Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100%
1 General governments | 5,932 | 538 | 3,873 | 738 | 737 | 774 | 1,952 | 209
2 Other financial institutions | 1,048 | 28 | 307 | 129 | 161 | 3 | 7 | 36
3 Non-financial institutions and individual entrepreneurs | 23,844 | 5,214 | 1,418 | 1,116 | 787 | 829 | 1,133 | 2,767
3.1 Construction and property development | 1,049 | 500 | 65 | 53 | 115 | 96 | 60 | 242
3.2 Construction of civil works | 336 | 82 | 29 | 18 | 15 | 5 | 13 | 59
3.3 Other purposes | 22,459 | 4,632 | 1,324 | 1,045 | 658 | 727 | 1,060 | 2,466
3.3.1 Large companies | 13,648 | 2,018 | 656 | 344 | 301 | 340 | 576 | 1,113
3.3.2 SMEs (**) and individual entrepreneurs | 8,811 | 2,613 | 667 | 701 | 356 | 387 | 484 | 1,353
4 Rest of households and NPISHs (***) | 16,740 | 6,521 | 1,934 | 1,705 | 1,346 | 1,242 | 2,874 | 1,287
4.1 Housing | 6,277 | 5,818 | 28 | 1,357 | 1,165 | 1,128 | 1,134 | 1,062
4.2 Consumption | 7,704 | 328 | 1,763 | 218 | 154 | 93 | 1,522 | 104
4.3 Other purposes | 2,759 | 375 | 143 | 130 | 27 | 21 | 218 | 121
6 TOTAL | 47,564 | 12,300 | 7,533 | 3,688 | 3,032 | 2,847 | 5,966 | 4,300
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 658 | 391 | 52 | 152 | 84 | 53 | 40 | 113

(*) The amounts included in this table are net of impairment losses.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-290

c) Information on the concentration of risk by activity and geographical areas.

December 2018 (Millions of euros)
| TOTAL(*) | Spain | European Union Other | America | Other
Credit institutions | 113,978 | 35,728 | 33,440 | 31,234 | 13,575
General governments | 123,382 | 53,686 | 11,081 | 50,092 | 8,523
Central Administration | 87,611 | 35,691 | 10,756 | 32,735 | 8,428
Other | 35,771 | 17,995 | 325 | 17,357 | 95
Other financial institutions | 49,166 | 13,784 | 17,977 | 15,345 | 2,061
Non-financial institutions and individual entrepreneurs | 226,487 | 70,536 | 24,565 | 87,419 | 43,967
Construction and property development | 17,697 | 3,497 | 244 | 10,113 | 3,843
Construction of civil works | 11,430 | 5,789 | 1,535 | 1,762 | 2,343
Other purposes | 197,361 | 61,250 | 22,786 | 75,543 | 37,781
Large companies | 137,150 | 36,964 | 22,114 | 53,423 | 24,649
SMEs and individual entrepreneurs | 60,211 | 24,286 | 672 | 22,120 | 13,132
Other households and NPISHs | 163,443 | 91,977 | 3,383 | 56,777 | 11,306
Housing | 111,007 | 78,414 | 765 | 28,034 | 3,794
Consumer | 40,124 | 10,303 | 629 | 22,036 | 7,155
Other purposes | 12,312 | 3,259 | 1,989 | 6,707 | 357
TOTAL | 676,456 | 265,710 | 90,447 | 240,867 | 79,432

(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances, Debt securities, Equity instruments, Other equity securities, Derivatives and hedging derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses.

F-291

December 2017 (Millions of euros)
| TOTAL(*) | Spain | European Union Other | America | Other
Credit institutions | 70,141 | 10,606 | 34,623 | 13,490 | 11,422
General governments | 121,863 | 55,391 | 11,940 | 44,191 | 10,341
Central Administration | 83,673 | 35,597 | 11,625 | 26,211 | 10,240
Other | 38,190 | 19,794 | 316 | 17,980 | 101
Other financial institutions | 48,000 | 19,175 | 14,283 | 12,469 | 2,074
Non-financial institutions and individual entrepreneurs | 228,227 | 78,507 | 20,485 | 80,777 | 48,458
Construction and property development | 18,619 | 4,623 | 339 | 8,834 | 4,822
Construction of civil works | 12,348 | 6,936 | 1,302 | 2,267 | 1,843
Other purposes | 197,260 | 66,948 | 18,843 | 69,676 | 41,793
Large companies | 134,454 | 43,286 | 17,470 | 48,016 | 25,681
SMEs and individual entrepreneurs | 62,807 | 23,662 | 1,373 | 21,660 | 16,112
Other households and NPISHs | 165,667 | 93,774 | 3,609 | 53,615 | 14,669
Housing | 114,710 | 81,815 | 2,720 | 24,815 | 5,361
Consumer | 40,705 | 8,711 | 649 | 22,759 | 8,587
Other purposes | 10,251 | 3,248 | 241 | 6,041 | 721
TOTAL | 633,899 | 257,453 | 84,940 | 204,542 | 86,964

(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances, Debt securities, Equity instruments, Other equity securities, Derivatives and hedging derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses.

F-292

December 2016 (Millions of euros)
| TOTAL(*) | Spain | European Union Other | America | Other
Credit institutions | 84,381 | 12,198 | 40,552 | 17,498 | 14,133
General governments | 134,261 | 61,495 | 14,865 | 47,072 | 10,829
Central Administration | 92,155 | 39,080 | 14,550 | 27,758 | 10,768
Other | 42,105 | 22,415 | 315 | 19,314 | 61
Other financial institutions | 47,029 | 16,942 | 14,881 | 12,631 | 2,576
Non-financial institutions and individual entrepreneurs | 249,322 | 69,833 | 26,335 | 98,797 | 54,357
Construction and property development | 23,141 | 5,572 | 371 | 11,988 | 5,209
Construction of civil works | 14,185 | 6,180 | 2,493 | 3,803 | 1,709
Other purposes | 211,996 | 58,080 | 23,471 | 83,005 | 47,439
Large companies | 158,356 | 35,514 | 22,074 | 64,940 | 35,828
SMEs and individual entrepreneurs | 53,640 | 22,566 | 1,397 | 18,065 | 11,611
Other households and NPISHs | 179,051 | 96,345 | 3,796 | 62,836 | 16,073
Housing | 127,607 | 85,763 | 3,025 | 32,775 | 6,044
Consumer | 44,504 | 7,230 | 642 | 27,398 | 9,234
Other purposes | 6,939 | 3,352 | 129 | 2,663 | 795
TOTAL | 694,044 | 256,813 | 100,428 | 238,834 | 97,968

(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances, Debt securities, Equity instruments, Other equity securities, Derivatives and hedging derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses.

F-293

APPENDIX IX Additional information on Risk Concentration

a) Sovereign risk exposure

The table below provides a breakdown of exposure to financial assets (excluding derivatives and equity instruments), as of December 31, 2018, 2017 and 2016 by type of counterparty and the country of residence of such counterparty. The below figures do not take into account accumulated other comprehensive income, impairment losses or loan-loss provisions:

Risk Exposure by Countries (Millions of euros)
| Sovereign Risk
| December 2018 | December 2017 | December 2016
Spain | 52,970 | 54,625 | 60,434
Turkey | 7,998 | 9,825 | 10,478
Italy | 9,249 | 9,827 | 12,206
France | 122 | 383 | 518
Portugal | 529 | 722 | 586
Germany | 362 | 259 | 521
United Kingdom | 51 | 41 | 17
Ireland | - | - | -
Greece | - | - | -
Rest of Europe | 699 | 662 | 940
Subtotal Europe | 71,981 | 76,343 | 85,699
Mexico | 26,562 | 25,114 | 26,942
The United States | 18,645 | 14,059 | 16,039
Venezuela | 1 | 137 | 179
Rest of countries | 4,910 | 5,809 | 3,814
Subtotal Rest of Countries | 50,118 | 45,119 | 46,974
Total Exposure to Financial Instruments | 122,099 | 121,462 | 132,674

The exposure to sovereign risk set out in the above table includes positions held in government debt securities in countries where the Group operates. They are used for ALCO’s management of the interest-rate risk on the balance sheets of the Group’s entities in these countries, as well as for hedging of pension and insurance commitments by insurance entities within the BBVA Group.

F-294

Sovereign risk exposure in Europe

The table below provides a breakdown of the exposure of the Group’s credit institutions to European sovereign risk as of December 31, 2018 and 2017 by type of financial instrument and the country of residence of the counterparty, under EBA (European Banking Authority) requirements:

Exposure to Sovereign Risk by European Union Countries. December 2018 (Millions of euros)
|  | Debt securities | Loans and advances | Derivatives | Total | %
|  | Direct exposure | Indirect exposure
|  | Notional value | Fair value + | Fair value - | Notional value | Fair value + | Fair value -
Spain |  | 5,237 | 43,236 | 1,264 | 57 | (15) | (3,224) | 1,130 | (1,117) | 46,568 | 79%
Italy |  | 1,726 | 8,270 | - | - | - | (795) | 210 | (298) | 9,112 | 15%
France |  | 591 | 77 | - | - | - | 150 | 1 | (32) | 787 | 1%
Germany |  | 310 | 334 | - | - | - | 182 | 74 | (87) | 813 | 1%
Portugal |  | 265 | 430 | 277 | 57 | (57) | 67 | 37 | (26) | 1,050 | 2%
United Kingdom |  | - | 45 | - | - | - | - | - | - | 45 | 0%
Greece |  | - | - | - | - | - | - | - | - | - | 0%
Hungary |  | - | - | - | - | - | - | - | - | - | 0%
Ireland |  | - | 548 | - | - | - | - | - | - | 548 | 1%
Rest of European Union |  | 300 | 31 | - | - | - | (36) | 3 | (3) | 295 | 0%
Total Exposure to Sovereign Counterparties (European Union) |  | 8,428 | 52,971 | 1,541 | 113 | (71) | (3,656) | 1,454 | (1,563) | 59,218 | 100%

This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of the Group’s insurance companies (€10,883 million as of December 31, 2018) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

Exposure to Sovereign Risk by European Union Countries. December 2017 (Millions of euros)
| Debt securities | Loans and receivables | Derivatives | Total | %
| Direct exposure | Indirect exposure
| Financial Assets Held-for-Trading | Available-for-Sale Financial Assets | Held -to-maturity investment | Notional value | Fair value + | Fair value - | Notional value | Fair value + | Fair value -
Spain | 7,065 | 14,029 | 5,754 | 22,101 | 1,513 | 62 | (15) | 591 | 1,082 | (773) | 51,410 | 75.3%
Italy | 4,606 | 4,292 | 2,349 | 55 | - | - | - | (57) | 648 | (237) | 11,657 | 17.1%
France | 622 | 8 | - | 27 | - | - | - | 329 | 15 | (19) | 983 | 1.4%
Germany | 517 | - | - | - | - | - | - | 826 | 26 | (17) | 1,352 | 2.0%
Portugal | 832 | 1 | - | 202 | 1,019 | 1 | (44) | 176 | 87 | (53) | 2,221 | 3.3%
United Kingdom | - | - | - | 37 | - | - | - | (2) | - | - | 35 | 0.1%
Greece | - | - | - | - | - | - | - | - | - | - | - | -
Hungary | - | - | - | - | - | - | - | - | - | - | - | -
Ireland | - | - | - | - | - | - | - | - | - | - | - | -
Rest of European Union | 38 | 505 | - | 32 | - | - | - | 31 | 5 | (5) | 607 | 0.9%
Total Exposure to Sovereign Counterparties (European Union) | 13,681 | 18,835 | 8,103 | 22,453 | 2,533 | 64 | (59) | 1,896 | 1,863 | (1,104) | 68,265 | 100.0%

F-295

This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of the Group’s insurance companies (€10,474 million as of December 31, 2017) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

Exposure to Sovereign Risk by European Union Countries. December 2016 (Millions of euros)
| Debt securities | Loans and receivables | Derivatives (2) | Total | %
| Direct exposure | Indirect exposure
| Financial Assets Held-for-Trading | Available-for-Sale Financial Assets | Held -to-maturity investment | Notional value | Fair value + | Fair value - | Notional value | Fair value + | Fair value -
Spain | 927 | 13,385 | 8,063 | 24,835 | 1,786 | 88 | (27) | (744) | 993 | (1,569) | 47,737 | 81.4%
Italy | 1,973 | 4,806 | 2,719 | 60 | - | - | - | (1,321) | 1,271 | (866) | 8,641 | 14.7%
France | 250 | - | - | 28 | - | - | - | (13) | 46 | (63) | 248 | 0.4%
Germany | 82 | - | - | - | - | - | - | (5) | 203 | (249) | 30 | 0.1%
Portugal | 54 | 1 | - | 285 | 1,150 | - | (215) | 10 | 1 | (6) | 1,280 | 2.2%
United Kingdom | - | - | - | 16 | - | - | - | (9) | 1 | - | 8 | 0.0%
Greece | - | - | - | - | - | - | - | - | - | - | - | 0.0%
Hungary | - | - | - | - | - | - | - | - | - | - | - | 0.0%
Ireland | - | - | - | - | - | - | - | - | - | - | - | 0.0%
Rest of European Union | 195 | 469 | - | 36 | - | - | - | 30 | 13 | (6) | 736 | 1.3%
Total Exposure to Sovereign Counterparties (European Union) | 3,482 | 18,660 | 10,783 | 25,259 | 2,936 | 88 | (242) | (2,053) | 2,527 | (2,759) | 58,680 | 100.0%

F-296

This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of the Group’s insurance companies (€10,443 million as of December 31, 2016) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

As of December 31, 2018, 2017 and 2016 the breakdown of total exposure faced by the Group’s credit institutions to Spain and other countries, by maturity of the financial instruments, is as follows:

Maturities of Sovereign Risks European Union. December 2018 (Millions of euros)
|  | Debt securities | Loans and advances | Derivatives | Total | %
|  | Direct exposure | Indirect exposure
|  | Notional value | Fair value + | Fair value - | Notional value | Fair value + | Fair value -
Spain |  | 5,237 | 43,236 | 1,264 | 57 | (15) | (3,224) | 1,130 | (1,117) | 46,568 | 79%
Up to 1 Year |  | 2,821 | 13,381 | 383 | 1 | - | (3,224) | 1,130 | (1,117) | 13,375 | 23%
1 to 5 Years |  | 761 | 7,904 | 640 | 42 | (8) | - | - | - | 9,340 | 16%
Over 5 Years |  | 1,654 | 21,950 | 242 | 13 | (7) | - | - | - | 23,853 | 40%
Rest of European Union |  | 3,192 | 9,735 | 277 | 57 | (57) | (431) | 324 | (446) | 12,651 | 21%
Up to 1 Year |  | 1,155 | 2,328 | 220 | - | (5) | (865) | 297 | (355) | 2,776 | 5%
1 to 5 Years |  | 250 | 1,184 | 57 | 57 | - | 10 | 16 | (24) | 1,548 | 3%
Over 5 Years |  | 1,787 | 6,224 | - | - | (52) | 423 | 12 | (67) | 8,327 | 14%
Total Exposure to European Union Sovereign Counterparties |  | 8,428 | 52,971 | 1,541 | 113 | (71) | (3,656) | 1,454 | (1,563) | 59,218 | 100%

Maturities of Sovereign Risks European Union. December 2017 (Millions of euros)
| Debt securities | Loans and receivables | Derivatives | Total | %
| Direct exposure | Indirect exposure
| Financial Assets Held-for-Trading | Available-for-Sale Financial Assets | Held -to-maturity investment | Notional value | Fair value + | Fair value - | Notional value | Fair value + | Fair value -
Spain | 7,065 | 14,029 | 5,754 | 22,101 | 1,513 | 62 | (15) | 591 | 1,082 | (773) | 51,410 | 75%
Up to 1 Year | 1,675 | 3,363 | 2,900 | 7,852 | 69 | 1 | - | 591 | 1,082 | (773) | 12,312 | 25%
1 to 5 Years | 2,196 | 1,335 | 106 | 7,978 | 1,131 | 44 | (1) | - | 0 | - | 16,883 | 19%
Over 5 Years | 3,195 | 9,332 | 2,747 | 6,271 | 314 | 17 | (14) | - | - | - | 22,215 | 32%
Rest of European Union | 6,616 | 4,806 | 2,349 | 352 | 1,019 | 1 | (44) | 1,305 | 781 | (331) | 16,856 | 25%
Up to 1 Year | 2,212 | 1,663 | 1,895 | 54 | 466 | 1 | (6) | 744 | 756 | (252) | 3,614 | 11%
1 to 5 Years | 2,932 | 192 | - | 162 | 3 | 0 | - | 243 | 17 | (21) | 7,313 | 5%
Over 5 Years | 1,473 | 2,951 | 454 | 137 | 550 | - | (38) | 318 | 8 | (58) | 5,928 | 8%
Total Exposure to European Union Sovereign Counterparties | 13,681 | 18,835 | 8,103 | 22,453 | 2,533 | 64 | (59) | 1,896 | 1,863 | (1,104) | 68,265 | 100%

F-297

Maturities of Sovereign Risks European Union. December 2016 (Millions of euros)
| Debt securities | Loans and receivables | Derivatives | Total | %
| Direct exposure | Indirect exposure
| Financial Assets Held-for-Trading | Available-for-Sale Financial Assets | Held -to-maturity investment | Notional value | Fair value + | Fair value - | Notional value | Fair value + | Fair value -
Spain | 927 | 13,385 | 8,063 | 24,835 | 1,786 | 88 | (27) | (744) | 993 | (1,569) | 47,737 | 81%
Up to 1 Year | 913 | 889 | 1,989 | 9,087 | - | - | - | (736) | 993 | (1,564) | 11,571 | 20%
1 to 5 Years | 1,272 | 3,116 | 3,319 | 7,059 | 1,209 | 32 | (1) | (3) | - | - | 16,004 | 27%
Over 5 Years | (1,259) | 9,380 | 2,755 | 4,595 | 577 | 56 | (27) | (6) | - | (4) | 16,068 | 27%
Rest of European Union | 2,554 | 5,275 | 2,719 | 424 | 1,150 | - | (215) | (1,309) | 1,534 | (1,191) | 10,943 | 19%
Up to 1 Year | (395) | 38 | - | 2 | - | - | - | (1,721) | 1,507 | (1,054) | (1,623) | -3%
1 to 5 Years | 1,535 | 2,050 | 1,958 | 247 | 381 | - | (12) | 194 | 19 | (50) | 6,322 | 11%
Over 5 Years | 1,414 | 3,186 | 761 | 175 | 770 | - | (203) | 218 | 8 | (86) | 6,243 | 11%
Total Exposure to European Union Sovereign Counterparties | 3,482 | 18,660 | 10,783 | 25,259 | 2,936 | 88 | (242) | (2,053) | 2,527 | (2,759) | 58,680 | 100%

F-298

b) Concentration of risk on activities in the real-estate market in Spain

Quantitative information on activities in the real-estate market in Spain

The following quantitative information on real-estate activities in Spain has been prepared using the reporting models required by Bank of Spain Circular 5/2011, of November 30.

As of December 31, 2018, 2017 and 2016, exposure to the construction sector and real-estate activities in Spain stood at €11,045, €11,981 and €15,285 million, respectively. Of that amount, risk from loans to construction and real-estate development activities accounted for €3,183, €5,224 and €7,930 million, respectively, representing 1.7%, 2.9% and 5.0% of loans and advances to customers of the balance of business in Spain (excluding the general governments) and 0.5%, 0.8% and 1.1% of the total assets of the Consolidated Group.

Lending for real estate development of the loans as of December 31, 2018, 2017 and 2016 is shown below:

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)
| Gross Amount | Drawn Over the Guarantee Value | Accumulated impairment
Financing to construction and real estate development (including land) (Business in Spain) | 3,183 | 941 | (537)
Of which: Impaired assets | 875 | 440 | (463)
Memorandum item: |  |  |
Write-offs | 2,619 |  |
Memorandum item: |  |  |
Total loans and advances to customers, excluding the General Governments (Business in Spain) | 183,196 |  |
Total consolidated assets (total business) | 676,689 |  |
Impairment and provisions for normal exposures | 4,938 |  |

December 2017. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)
| Gross Amount | Drawn Over the Guarantee Value | Accumulated impairment
Financing to construction and real estate development (including land) (Business in Spain) | 5,224 | 2,132 | (1,500)
Of which: Impaired assets | 2,660 | 1,529 | (1,461)
Memorandum item: |  |  |
Write-offs | 2,289 |  |
Memorandum item: |  |  |
Total loans and advances to customers, excluding the General Governments (Business in Spain) | 174,014 |  |
Total consolidated assets (total business) | 690,059 |  |
Impairment and provisions for normal exposures | (5,843) |  |

December 2016. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)
| Gross Amount | Drawn Over the Guarantee Value | Accumulated impairment
Financing to construction and real estate development (including land) (Business in Spain) | 7,930 | 3,449 | (2,944)
Of which: Impaired assets | 5,095 | 2,680 | (2,888)
Memorandum item: |  |  |
Write-offs | 2,061 |  |
Memorandum item: |  |  |
Total loans and advances to customers, excluding the General Governments (Business in Spain) | 159,492 |  |
Total consolidated assets (total business) | 731,856 |  |
Impairment and provisions for normal exposures | (5,830) |  |

F-299

The following is a description of the real estate credit risk based on the types of associated guarantees:

Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)
| 2018 | 2017 | 2016
Without secured loan | 324 | 552 | 801
With secured loan | 2,859 | 4,672 | 7,129
Terminated buildings | 1,861 | 2,904 | 3,875
Homes | 1,382 | 2,027 | 2,954
Other | 479 | 877 | 921
Buildings under construction | 432 | 462 | 760
Homes | 408 | 439 | 633
Other | 24 | 23 | 127
Land | 566 | 1,306 | 2,494
Urbanized land | 364 | 704 | 1,196
Rest of land | 202 | 602 | 1,298
Total | 3,183 | 5,224 | 7,930

As of December 31, 2018, 2017 and 2016, 58.5%, 55.6%, and 48.9% of loans to developers were guaranteed with buildings (74.3%, 69.8% and 76.2%, are homes), and only 17.8%, 25.0% and 31.5% by land, of which 64.3%, 53.9% and 48.0% are in urban locations, respectively.

The table below provides the breakdown of the financial guarantees given as of December 31, 2018, 2017 and 2016:

Financial guarantees given (Millions of euros)
| December 2018 | December 2017 | December 2016
Houses purchase loans | 48 | 64 | 62
Without mortgage | 24 | 12 | 18

F-300

The information on the retail mortgage portfolio risk (housing mortgage) as of December 31, 2018, 2017 and 2016 is as follows:

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros)
| Gross amount | Of which: impaired loans
Houses purchase loans | 80,159 | 3,852
Without mortgage | 1,611 | 30
With mortgage | 78,548 | 3,822

December 2017. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros)
| Gross amount | Of which: impaired loans
Houses purchase loans | 83,505 | 4,821
Without mortgage | 1,578 | 51
With mortgage | 81,927 | 4,770

December 2016. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros)
| Gross amount | Of which: impaired loans
Houses purchase loans | 87,874 | 4,938
Without mortgage | 1,935 | 93
With mortgage | 85,939 | 4,845

The loan to value (LTV) ratio of the above portfolio is as follows:

LTV Breakdown of mortgage to households for the purchase of a home (Business in Spain) (Millions of euros)"
| Total risk over the amount of the last valuation available (Loan To Value-LTV)
| Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100% | Total
Gross amount 2018 | 14,491 | 18,822 | 21,657 | 13,070 | 10,508 | 78,548
of which: Impaired loans | 204 | 323 | 507 | 610 | 2,178 | 3,822
Gross amount 2017 | 14,485 | 18,197 | 20,778 | 14,240 | 14,227 | 81,927
of which: Impaired loans | 293 | 444 | 715 | 897 | 2,421 | 4,770
Gross amount 2016 | 13,780 | 18,223 | 20,705 | 15,967 | 17,264 | 85,939
of which: Impaired loans | 306 | 447 | 747 | 962 | 2,383 | 4,845

Outstanding home mortgage loans as of December 31, 2018, 2017 and 2016 had an average LTV of 49%, 51%, and 47% respectively.

The breakdown of foreclosed, acquired, purchased or exchanged assets from debt from loans relating to business in Spain, as well as the holdings and financing to non-consolidated entities holding such assets is as follows:

F-301

Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros)
| December 2018
| Gross Value | Provisions | Of which: Valuation adjustments on impaired assets, from the time of foreclosure | Carrying Amount
Real estate assets from loans to the construction and real estate development sectors in Spain. | 2,165 | 1,252 | 828 | 913
Terminated buildings | 991 | 445 | 274 | 546
Homes | 588 | 245 | 144 | 343
Other | 403 | 200 | 130 | 203
Buildings under construction | 209 | 131 | 96 | 78
Homes | 194 | 117 | 85 | 77
Other | 15 | 14 | 11 | 1
Land | 965 | 676 | 458 | 289
Urbanized land | 892 | 633 | 421 | 259
Rest of land | 73 | 43 | 37 | 30
Real estate assets from mortgage financing for households for the purchase of a home | 1,797 | 932 | 331 | 865
Rest of foreclosed real estate assets | 348 | 192 | 40 | 156
Equity instruments, investments and financing to non-consolidated companies holding said assets | 1,345 | 234 | 234 | 1,111
Total | 5,655 | 2,610 | 1,433 | 3,045

Additionally, in December 2018, there was an increase of BBVA, S.A.’s stake in Garanti Yatirim Ortakligi AS through its contribution to the capital increase carried out by the latter entity.

Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros)
| December 2017
| Gross Value | Provisions | Of which: Valuation adjustments on impaired assets, from the time of foreclosure | Carrying Amount
Real estate assets from loans to the construction and real estate development sectors in Spain. | 6,429 | 4,350 | 2,542 | 2,079
Terminated buildings | 2,191 | 1,184 | 606 | 1,007
Homes | 1,368 | 742 | 366 | 626
Other | 823 | 442 | 240 | 381
Buildings under construction | 541 | 359 | 192 | 182
Homes | 521 | 347 | 188 | 174
Other | 20 | 12 | 4 | 8
Land | 3,697 | 2,807 | 1,744 | 890
Urbanized land | 1,932 | 1,458 | 1,031 | 474
Rest of land | 1,765 | 1,349 | 713 | 416
Real estate assets from mortgage financing for households for the purchase of a home | 3,592 | 2,104 | 953 | 1,488
Rest of foreclosed real estate assets | 1,665 | 905 | 268 | 760
Equity instruments, investments and financing to non-consolidated companies holding said assets | 1,135 | 325 | 273 | 810
Total | 12,821 | 7,684 | 4,036 | 5,137

Additionally, in March 2017, there was an increase of BBVA, S.A.’s stake in Testa Residencial through its contribution to the capital increase carried out by the latter entity by contributing assets from the Bank’s real estate assets.

F-302

Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros)
| December 2016
| Gross Value | Provisions | Of which: Valuation adjustments on impaired assets, from the time of foreclosure | Carrying Amount
Real estate assets from loans to the construction and real estate development sectors in Spain. | 8,017 | 5,290 | 2,790 | 2,727
Finished buildings | 2,602 | 1,346 | 688 | 1,256
Homes | 1,586 | 801 | 408 | 785
Other | 1,016 | 545 | 280 | 471
Buildings under construction | 665 | 429 | 203 | 236
Homes | 642 | 414 | 195 | 228
Other | 23 | 15 | 8 | 8
Land | 4,750 | 3,515 | 1,899 | 1,235
Urbanized land | 3,240 | 2,382 | 1,364 | 858
Rest of land | 1,510 | 1,133 | 535 | 377
Real estate assets from mortgage financing for households for the purchase of a home | 4,332 | 2,588 | 1,069 | 1,744
Rest of foreclosed real estate assets | 1,856 | 1,006 | 225 | 850
Foreclosed equity instruments | 1,240 | 549 | 451 | 691
Total | 15,445 | 9,433 | 4,535 | 6,012

As of December 31, 2018, 2017 and 2016, the gross book value of the Group’s real-estate assets from corporate financing of real-estate construction and development was €2,165, €6,429 and €8,017 million, respectively, with an average coverage ratio of 57.8%, 67.7% and 66.0%, respectively.

The gross book value of real-estate assets from mortgage lending to households for home purchase as of December 31, 2018, 2017 and 2016, amounted to €1,797, €3,592 and €4,332 million, respectively, with an average coverage ratio of 51.9%, 58.6% and 59.7%.

As of December 31, 2018, 2017 and 2016, the gross book value of the BBVA Group’s total real-estate assets (business in Spain), including other real-estate assets received as debt payment, was €4,310, €11,686 and €14,205 million, respectively. The coverage ratio was 55.1%, 63.0% and 62.5%, respectively.

F-303

c) Concentration of risk by geography

Below is a breakdown of the balances of financial instruments recorded in the accompanying consolidated balance sheets by their concentration in geographical areas and according to the residence of the customer or counterparty. It does not take into account impairment losses or loan-loss provisions:

Risks by Geographical Areas. December 2018 (millions of euros)
| Spain | Europe, Excluding Spain | Mexico | USA | Turkey | South America | Other | Total
Derivatives | 3,979 | 16,055 | 1,550 | 7,057 | 161 | 1,150 | 583 | 30,536
Equity instruments (*) | 3,228 | 3,669 | 2,459 | 1,139 | 29 | 212 | 207 | 10,944
Debt securities | 43,777 | 14,908 | 23,134 | 16,991 | 8,048 | 5,274 | 1,312 | 113,445
Central banks | - | - | - | - | - | 1,982 | 71 | 2,052
General governments | 36,553 | 10,675 | 20,891 | 13,276 | 7,887 | 2,431 | 164 | 91,877
Credit institutions | 1,130 | 1,821 | 573 | 74 | 155 | 297 | 463 | 4,514
Other financial corporations | 5,769 | 1,048 | 227 | 2,595 | 5 | 432 | 114 | 10,190
Non-financial corporations | 325 | 1,364 | 1,443 | 1,046 | 1 | 132 | 500 | 4,812
Loans and advances | 177,077 | 43,034 | 55,248 | 62,193 | 45,285 | 40,007 | 7,089 | 429,933
Central banks | 294 | - | - | - | 3,688 | 342 | 1,674 | 6,110
General governments | 16,671 | 329 | 5,727 | 5,369 | 99 | 1,923 | 453 | 30,572
Credit institutions | 5,422 | 13,600 | 1,476 | 696 | 956 | 984 | 639 | 23,774
Other financial corporations | 4,616 | 10,893 | 1,303 | 2,255 | 766 | 637 | 304 | 20,773
Non-financial corporations | 51,942 | 14,317 | 22,426 | 32,480 | 26,813 | 18,518 | 3,852 | 170,349
Households | 98,131 | 3,783 | 24,316 | 21,393 | 12,963 | 17,602 | 168 | 178,355
Total Risk in Financial Assets | 228,061 | 77,666 | 82,392 | 87,381 | 53,523 | 46,644 | 9,191 | 584,858
Loan commitments given | 32,582 | 21,983 | 14,503 | 32,136 | 7,914 | 8,590 | 1,252 | 118,959
Financial guarantees given | 3,242 | 1,708 | 1,528 | 796 | 6,900 | 989 | 1,291 | 16,454
Other Commitments given | 15,995 | 9,229 | 532 | 2,118 | 2,230 | 2,782 | 2,213 | 35,098
Off-balance sheet exposures | 51,819 | 32,920 | 16,563 | 35,050 | 17,043 | 12,360 | 4,756 | 170,511
Total Risks in Financial Instruments | 279,880 | 110,586 | 98,955 | 122,430 | 70,567 | 59,004 | 13,947 | 755,369

(*) Equity instruments are shown net of valuation adjustment.

F-304

Risks by Geographical Areas. December 2017 (Millions of euros)
| Spain | Europe, Excluding Spain | Mexico | USA | Turkey | South America | Other | Total
Derivatives | 6,336 | 20,506 | 1,847 | 4,573 | 113 | 977 | 921 | 35,273
Equity instruments (*) | 3,539 | 4,888 | 2,050 | 991 | 36 | 333 | 71 | 11,908
Debt securities | 44,773 | 15,582 | 21,594 | 13,280 | 10,601 | 5,861 | 1,450 | 113,141
Central banks | 49 | - | - | 2,734 | - | 2,685 | - | 5,468
General governments | 36,658 | 11,475 | 19,323 | 8,894 | 9,668 | 2,246 | 221 | 88,485
Credit institutions | 1,364 | 2,095 | 289 | 98 | 884 | 387 | 752 | 5,869
Other financial corporations | 6,492 | 994 | 337 | 3,026 | 7 | 315 | 194 | 11,365
Non-financial corporations | 259 | 1,018 | 1,645 | 1,262 | 42 | 228 | 234 | 4,688
Loans and advances | 185,597 | 41,426 | 50,352 | 54,315 | 56,062 | 42,334 | 4,585 | 434,670
Central banks | - | 626 | - | - | 5,299 | 1,375 | - | 7,300
General governments | 18,116 | 352 | 5,868 | 5,165 | 152 | 2,354 | 398 | 32,405
Credit institutions | 5,564 | 15,493 | 1,889 | 789 | 1,073 | 1,145 | 345 | 26,297
Other financial corporations | 7,769 | 6,231 | 588 | 1,732 | 1,297 | 664 | 270 | 18,551
Non-financial corporations | 54,369 | 14,615 | 19,737 | 29,396 | 31,691 | 19,023 | 3,345 | 172,175
Households | 99,780 | 4,110 | 22,269 | 17,233 | 16,550 | 17,773 | 227 | 177,942
Total Risk in Financial Assets | 240,245 | 82,401 | 75,842 | 73,159 | 66,812 | 49,504 | 7,027 | 594,990
Loan commitments given | 31,100 | 16,203 | 1,691 | 29,539 | 2,944 | 11,664 | 1,126 | 94,268
Financial guarantees given | 4,635 | 1,427 | 82 | 717 | 7,993 | 1,174 | 519 | 16,546
Other Commitments given | 25,279 | 9,854 | 1,582 | 1,879 | 1,591 | 3,750 | 1,804 | 45,738
Off-balance sheet exposures | 61,014 | 27,484 | 3,356 | 32,134 | 12,527 | 16,588 | 3,450 | 156,552
Total Risks in Financial Instruments | 301,259 | 109,885 | 79,198 | 105,293 | 79,339 | 66,092 | 10,477 | 751,542

(*) Equity instruments are shown net of valuation adjustment.

F-305

Risks by Geographical Areas. December 2016 (Millions of euros)
| Spain | Europe, Excluding Spain | Mexico | USA | Turkey | South America | Other | Total
Derivatives | 7,143 | 26,176 | 2,719 | 4,045 | 175 | 1,359 | 1,339 | 42,955
Equity instruments (*) | 4,641 | 2,303 | 2,383 | 831 | 57 | 316 | 706 | 11,236
Debt securities | 49,355 | 20,325 | 22,380 | 18,043 | 11,695 | 7,262 | 1,923 | 130,983
Central banks | - | - | - | - | - | 2,237 | 16 | 2,253
General governments | 40,172 | 14,282 | 19,771 | 11,446 | 10,258 | 2,257 | 240 | 98,426
Credit institutions | 1,781 | 2,465 | 257 | 112 | 1,331 | 1,459 | 869 | 8,275
Other financial corporations | 6,959 | 1,181 | 352 | 4,142 | 15 | 347 | 379 | 13,376
Non-financial corporations | 443 | 2,397 | 2,000 | 2,343 | 90 | 961 | 418 | 8,653
Loans and advances | 187,717 | 45,075 | 52,230 | 61,739 | 61,090 | 58,020 | 5,067 | 470,938
Central banks | - | 158 | 21 | - | 5,722 | 2,994 | - | 8,894
General governments | 20,741 | 424 | 7,262 | 4,593 | 217 | 1,380 | 256 | 34,873
Credit institutions | 5,225 | 19,154 | 1,967 | 1,351 | 1,194 | 1,515 | 1,011 | 31,416
Other financial corporations | 5,339 | 6,213 | 1,171 | 1,648 | 1,620 | 886 | 214 | 17,091
Non-financial corporations | 54,112 | 14,818 | 19,256 | 34,330 | 34,471 | 26,024 | 3,371 | 186,384
Households | 102,299 | 4,308 | 22,552 | 19,818 | 17,866 | 25,221 | 216 | 192,281
Total Risk in Financial Assets | 248,856 | 93,880 | 79,712 | 84,657 | 73,016 | 66,956 | 9,036 | 656,112
Loan commitments given | 31,477 | 19,219 | 13,060 | 34,449 | 2,912 | 5,161 | 976 | 107,254
Financial guarantees given | 1,853 | 3,504 | 121 | 819 | 9,184 | 2,072 | 714 | 18,267
Other Commitments given | 16,610 | 14,154 | 1,364 | 2,911 | 2,002 | 3,779 | 1,771 | 42,592
Off-balance sheet exposures | 49,940 | 36,878 | 14,545 | 38,179 | 14,098 | 11,012 | 3,461 | 168,113
Total Risks in Financial Instruments | 298,796 | 130,757 | 94,257 | 122,836 | 87,114 | 77,968 | 12,497 | 824,225

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix VII.

F-306

The breakdown of loans and advances in the heading of Loans and receivables, impaired by geographical area as of December 31, 2018, 2017 and 2016 is as follows:

Impaired Financial Assets by geographic area (Millions of euros)
| December 2018 | December 2017 | December 2016
Spain | 10,025 | 13,318 | 16,812
Rest of Europe | 225 | 549 | 704
Mexico | 1,138 | 1,124 | 1,152
South America | 1,715 | 1,468 | 1,589
The United States | 733 | 631 | 975
Turkey | 2,520 | 2,311 | 1,693
Rest of the world | 2 | - | -
IMPAIRED RISKS | 16,359 | 19,401 | 22,925

F-307

Glossary

Additional Tier 1 Capital | Includes: Preferred stock and convertible perpetual securities and deductions.
Adjusted acquisition cost | The acquisition cost of the securities less accumulated amortizations, plus interest accrued, but not net of any other valuation adjustments.
Amortized cost | The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus, the cumulative amortization using the effective interest rate method of any difference between the initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
Associates | Companies in which the Group has a significant influence, without having control. Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly.
Available-for-sale financial assets | Available-for-sale (AFS) financial assets are debt securities that are not classified as held-to-maturity investments or as financial assets designated at fair value through profit or loss (FVTPL) and equity instruments that are not subsidiaries, associates or jointly controlled entities and have not been designated as at FVTPL. The AFS category belongs to IAS 39 standard, replaced by “Financial Assets at fair value through other comprehensive income” under IFRS 9.
Baseline macroeconomic scenarios | IFRS 9 requires that an entity must evaluate a range of possible outcomes when estimating provisions and measuring expected credit losses, through macroeconomic scenarios. The baseline macroeconomic scenario presents the situation of the particular economic cycle.
Basic earnings per share | Calculated by dividing “Profit attributable to Parent Company” corresponding to ordinary shareholders of the entity by the weighted average number of shares outstanding throughout the year (i.e., excluding the average number of treasury shares held over the year).
Basis risk | Risk arising from hedging exposure to one interest rate with exposure to a rate that reprices under slightly different conditions.
Business combination | A business combination is a transaction, or any other event, through which a single entity obtains the control of one or more businesses.
Business Model | The assessment as to how an asset shall be classified is made on the basis of both the business model for managing the financial asset and the contractual cash flow characteristic of the financial asset (SPPI Criterion). Financial assets are classified on the basis of its business model for managing the financial assets. The Group’s business models shall be determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective and generate cash flows.
Cash flow hedges | Those that hedge the exposure to variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.
Commissions | Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are: · Fees and commissions relating linked to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected. · Fees and commissions arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services. · Fees and commissions generated by a single act are accrued upon execution of that act.

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Consolidated statements of cash flows | The indirect method has been used for the preparation of the consolidated statement of cash flows. This method starts from the entity’s consolidated profit and adjusts its amount for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with cash flows classified as investment or finance. As well as cash, short-term, highly liquid investments subject to a low risk of changes in value, such as cash and deposits in central banks, are classified as cash and equivalents. When preparing these financial statements the following definitions have been used: · Cash flows: Inflows and outflows of cash and equivalents. · Operating activities: The typical activities of credit institutions and other activities that cannot be classified as investment or financing activities. · Investing activities: The acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents or in operating activities. · Financing activities: Activities that result in changes in the size and composition of the Group’s equity and of liabilities that do not form part of operating activities.
Consolidated statements of changes in equity | The consolidated statements of changes in equity reflect all the movements generated in each year in each of the headings of the consolidated equity, including those from transactions undertaken with shareholders when they act as such, and those due to changes in accounting criteria or corrections of errors, if any. The applicable regulations establish that certain categories of assets and liabilities are recognized at their fair value with a charge to equity. These charges, known as “Valuation adjustments” (see Note 31), are included in the Group’s total consolidated equity net of tax effect, which has been recognized as deferred tax assets or liabilities, as appropriate.
Consolidated statements of recognized income and expenses | The consolidated statements of recognized income and expenses reflect the income and expenses generated each year. Such statement distinguishes between income and expenses recognized in the consolidated income statements and “Other recognized income (expenses)” recognized directly in consolidated equity. “Other recognized income (expenses)” include the changes that have taken place in the year in the “Valuation adjustments” broken down by item. The sum of the changes to the heading “Other comprehensive income ” of the consolidated total equity and the consolidated profit for the year comprise the “Total recognized income/expenses of the year”.
Consolidation method | Method used for the consolidation of the accounts of the Group’s subsidiaries. The assets and liabilities of the Group entities are incorporated line-by-line on the consolidate balance sheets, after conciliation and the elimination in full of intragroup balances, including amounts payable and receivable. Group entity income statement income and expense headings are similarly combined line by line into the consolidated income statement, having made the following consolidation eliminations: a) income and expenses in respect of intragroup transactions are eliminated in full. b) profits and losses resulting from intragroup transactions are similarly eliminated. The carrying amount of the parent's investment and the parent's share of equity in each subsidiary are eliminated.
Contingencies | Current obligations of the entity arising as a result of past events whose existence depends on the occurrence or non-occurrence of one or more future events independent of the will of the entity.
Contingent commitments | Possible obligations of the entity that arise from past events and whose existence depends on the occurrence or non-occurrence of one or more future events independent of the entity’s will and that could lead to the recognition of financial assets.

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Control | An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. An investor controls an investee if and only if the investor has all the following: a) Power; An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns. b) Returns; An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative. c) Link between power and returns; An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.
Correlation risk | Correlation risk is related to derivatives whose final value depends on the performance of more than one underlying asset (primarily, stock baskets) and indicates the existing variability in the correlations between each pair of assets.
Credit Valuation Adjustment (CVA) | An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties.
Current service cost | Current service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the current period.
Current tax assets | Taxes recoverable over the next twelve months.
Current tax liabilities | Corporate income tax payable on taxable profit for the year and other taxes payable in the next twelve months.
Debit Valuation Adjustment (DVA) | An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity’s own credit risk.
Debt certificates | Obligations and other interest-bearing securities that create or evidence a debt on the part of their issuer, including debt securities issued for trading among an open group of investors, that accrue interest, implied or explicit, whose rate, fixed or benchmarked to other rates, is established contractually, and take the form of securities or book-entries, irrespective of the issuer.
Default | An asset will be considered as defaulted whenever it is more than 90 days past due.
Deferred tax assets | Taxes recoverable in future years, including loss carry forwards or tax credits for deductions and tax rebates pending application.
Deferred tax liabilities | Income taxes payable in subsequent years.
Defined benefit plans | Post-employment obligation under which the entity, directly or indirectly via the plan, retains the contractual or implicit obligation to pay remuneration directly to employees when required or to pay additional amounts if the insurer, or other entity required to pay, does not cover all the benefits relating to the services rendered by the employees when insurance policies do not cover all of the corresponding post-employees benefits.
Defined contribution plans | Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon. The employer's obligations in respect of its employees current and prior years' employment service are discharged by contributions to the fund.

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Deposits from central banks | Deposits of all classes, including loans and money market operations, received from the Bank of Spain and other central banks.
Deposits from credit institutions | Deposits of all classes, including loans and money market operations received, from credit entities.
Deposits from customers | Redeemable cash balances received by the entity, with the exception of debt certificates, money market operations through counterparties and subordinated liabilities, which are not received from either central banks or credit entities. This category also includes cash deposits and consignments received that can be readily withdrawn.
Derivatives | The fair value in favor (assets) or again (liabilities) of the entity of derivatives not designated as accounting hedges.
Derivatives - Hedging derivatives | Derivatives designated as hedging instruments in an accounting hedge. The fair value or future cash flows of those derivatives is expected to offset the differences in the fair value or cash flows of the items hedged.
Diluted earnings per share | Calculated by using a method similar to that used to calculate basic earnings per share; the weighted average number of shares outstanding, and the profit attributable to the parent company corresponding to ordinary shareholders of the entity, if appropriate, is adjusted to take into account the potential dilutive effect of certain financial instruments that could generate the issue of new Bank shares (share option commitments with employees, warrants on parent company shares, convertible debt instruments, etc.).
Dividends and retributions | Dividend income collected announced during the year, corresponding to profits generated by investees after the acquisition of the stake.
Early retirements | Employees that no longer render their services to the entity but which, without being legally retired, remain entitled to make economic claims on the entity until they formally retire.
Economic capital | Methods or practices that allow banks to consistently assess risk and attribute capital to cover the economic effects of risk-taking activities.
Effective interest rate (EIR) | Discount rate that exactly equals the value of a financial instrument with the cash flows estimated over the expected life of the instrument based on its contractual period as well as its anticipated amortization, but without taking the future losses of credit risk into consideration.
Employee expenses | All compensation accrued during the year in respect of personnel on the payroll, under permanent or temporary contracts, irrespective of their jobs or functions, irrespective of the concept, including the current costs of servicing pension plans, own share based compensation schemes and capitalized personnel expenses. Amounts reimbursed by the state Social Security or other welfare entities in respect of employee illness are deducted from personnel expenses.
Equity | The residual interest in an entity's assets after deducting its liabilities. It includes owner or venturer contributions to the entity, at incorporation and subsequently, unless they meet the definition of liabilities, and accumulated net profits or losses, fair value adjustments affecting equity and, if warranted, non-controlling interests.
Equity instruments | An equity instrument that evidences a residual interest in the assets of an entity, that is after deducting all of its liabilities.
Equity instruments issued other than capital | Includes equity instruments that are financial instruments other than “Capital” and “Equity component of compound financial instruments”.
Equity Method | Is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.

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Exchange/translation differences | Exchange differences (P&L): Includes the earnings obtained in currency trading and the differences arising on translating monetary items denominated in foreign currency to the functional currency. Exchange differences (valuation adjustments): those recorded due to the translation of the financial statements in foreign currency to the functional currency of the Group and others recorded against equity.
Expected Credit Loss (ECL) | Expected credit losses are a probability-weighted estimate of credit losses over the expected life of the financial instrument. Hence, credit losses are the present value of expected cash shortfalls. The measurement and estimate of these expected credit losses should reflect: 1. An unbiased and probability-weighted amount. 2. The time value of money by discounting this amount to the reporting date using a rate that approximates the EIR of the asset, and 3. Reasonable and supportable information that is available without undue cost or effort. The expected credit losses must be measured as the difference between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate or an approximation thereof (forward looking).
Exposure at default | EAD is the amount of risk exposure at the date of default by the counterparty.
Fair value | The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value hedges | Derivatives that hedge the exposure to changes in the fair value of assets and liabilities or firm commitments that have not be recognized, or of an identified portion of said assets, liabilities or firm commitments, attributable to a specific risk, provided it could affect the income statement.
Financial Assets at Amortized Cost | Financial assets that do not meet the definition of financial assets designated at fair value through profit or loss and arise from the financial entities' ordinary activities to capture funds, regardless of their instrumentation or maturity.
Financial Assets at fair value through other comprehensive income | Financial instruments with determined or determinable cash flows and in which the entire payment made by the entity will be recovered, except for reasons attributable to the solvency of the debtor. This category includes both the investments from the typical lending activity as well as debts contracted by the purchasers of goods, or users of services, that form part of the entity’s business. It also includes all finance lease arrangements in which the consolidated subsidiaries act as lessors.
Financial guarantees | Contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs when a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument, irrespective of its instrumentation. These guarantees may take the form of deposits, technical or financial guarantees, insurance contracts or credit derivatives.
Financial guarantees given | Transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts.
Financial instrument | A financial instrument is any contract that gives rise to a financial asset of one entity and to a financial liability or equity instrument of another entity.
Financial liabilities at amortized cost | Financial liabilities that do not meet the definition of financial liabilities designated at fair value through profit or loss and arise from the financial entities' ordinary activities to capture funds, regardless of their instrumentation or maturity.
Goodwill | Goodwill acquired in a business combination represents a payment made by the acquirer in anticipation of future economic benefits from assets that are not able to be individually identified and separately recognized.

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Gross income | Sum of net interest income, dividend income, share of profit or loss entities accounted for using the equity method, net fee and commission income, net gains and losses on financial assets and liabilities, net exchange differences and net other operating income.
Hedges of net investments in foreign operations | Foreign currency hedge of a net investment in a foreign operation.
Held for trading (assets and liabilities) | Financial assets and liabilities acquired or incurred primarily for the purpose of profiting from variations in their prices in the short term. This category also includes financial derivatives not qualifying for hedge accounting, and in the case of borrowed securities, financial liabilities originated by the firm sale of financial assets acquired under repurchase agreements or received on loan (“short positions”).
Held-to-maturity investments | Held-to-maturity investments are financial assets traded on an active market, with fixed maturity and fixed or determinable payments and cash flows that an entity has the positive intention and financial ability to hold to maturity. The Held-to-maturity category belongs to IAS 39 standard, replaced by IFRS 9.
Impaired financial assets | An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events: a) significant financial difficulty of the issuer or the borrower, b) a breach of contract (e.g. a default or past due event), c) a lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider, d) it becoming probable that the borrower will enter bankruptcy or other financial reorganization, e) the disappearance of an active market for that financial asset because of financial difficulties, or f) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
Income from equity instruments | Dividends and income on equity instruments collected or announced during the year corresponding to profits generated by investees after the ownership interest is acquired. Income is recognized gross, i.e., without deducting any withholdings made, if any.
Insurance contracts linked to pensions | The fair value of insurance contracts written to cover pension commitments.
Inventories | Assets, other than financial instruments, under production, construction or development, held for sale during the normal course of business, or to be consumed in the production process or during the rendering of services. Inventories include land and other properties held for sale at the real estate development business.
Investment properties | Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for own use or sale in the ordinary course of business.
Joint arrangement | An arrangement of which two or more parties have joint control.
Joint control | The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

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Joint operation | A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets of the arrangement and obligations for the liabilities. A joint venturer shall recognize the following for its participation in a joint operation: a) its assets, including any share of the assets of joint ownership; b) its liabilities, including any share of the liabilities incurred jointly; c) income from the sale of its share of production from the joint venture; d) its share of the proceeds from the sale of production from the joint venturer; and e) its expenses, including any share of the joint expenses. A joint venturer shall account for the assets, liabilities, income and expenses related to its participation in a joint operation in accordance with IFRS applicable to the assets, liabilities, income and expenses specific question.
Joint venture | A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures.
Leases | A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time, a stream of cash flows that is essentially equivalent to the combination of principal and interest payments under a loan agreement. a) A lease is classified as a finance lease when it substantially transfers all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. b) A lease will be classified as operating lease when it is not a financial lease.
Liabilities included in disposal groups classified as held for sale | The balance of liabilities directly associated with assets classified as non-current assets held for sale, including those recognized under liabilities in the entity's balance sheet at the balance sheet date corresponding to discontinued operations.
Liabilities under insurance contracts | The technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at period-end.
Loans and advances to customers | Loans and receivables, irrespective of their type, granted to third parties that are not credit entities.
Loans and receivables | Financial instruments with determined or determinable cash flows and in which the entire payment made by the entity will be recovered, except for reasons attributable to the solvency of the debtor. This category includes both the investments from the typical lending activity (amounts of cash available and pending maturity by customers as a loan or deposits lent to other entities, and unlisted debt certificates), as well as debts contracted by the purchasers of goods, or users of services, that form part of the entity’s business. It also includes all finance lease arrangements in which the consolidated subsidiaries act as lessors. The Loans and receivables category belongs to IAS 39 standard, replaced by “Financial Assets at Amortized Cost” under IFRS 9.
Loss given default (LGD) | It is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.
Mortgage-covered bonds | Financial asset or security created from mortgage loans and backed by the guarantee of the mortgage loan portfolio of the entity.
Net operating income | Gross income less administrative costs and amortization.
Non performing financial guarantees given | The balance of non performing risks, whether for reasons of default by customers or for other reasons, for financial guarantees given. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.

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Non Performing Loans (NPL) | The balance of non performing risks, whether for reasons of default by customers or for other reasons, for exposures on balance loans to customers. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.
Non-controlling interests | The net amount of the profit or loss and net assets of a subsidiary attributable to associates outside the group (that is, the amount that is not owned, directly or indirectly, by the parent), including that amount in the corresponding part of the consolidated earnings for the period.
Non-current assets and disposal groups held for sale | A non-current asset or disposal group, whose carrying amount is expected to be realized through a sale transaction, rather than through continuing use, and which meets the following requirements: a) it is immediately available for sale in its present condition at the balance sheet date, i.e. only normal procedures are required for the sale of the asset. b) the sale is considered highly probable.
Non-monetary assets | Assets and liabilities that do not provide any right to receive or deliver a determined or determinable amount of monetary units, such as tangible and intangible assets, goodwill and ordinary shares subordinate to all other classes of capital instruments.
Option risk | Risks arising from options, including embedded options.
Other financial assets/liabilities at fair value through profit or loss | Instruments designated by the entity from the inception at fair value with changes in profit or loss. An entity may only designate a financial instrument at fair value through profit or loss, if doing so more relevant information is obtained, because: a) It eliminates or significantly reduces a measurement or recognition inconsistency (sometimes called "accounting mismatch") that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. It might be acceptable to designate only some of a number of similar financial assets or financial liabilities if doing so a significant reduction (and possibly a greater reduction than other allowable designations) in the inconsistency is achieved. b) The performance of a group of financial assets or financial liabilities is managed and evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity´s key management personnel. These are financial assets managed jointly with “Liabilities under insurance and reinsurance contracts” measured at fair value, in combination with derivatives written with a view to significantly mitigating exposure to changes in these contracts' fair value, or in combination with financial liabilities and derivatives designed to significantly reduce global exposure to interest rate risk. These headings include customer loans and deposits effected via so-called unit-linked life insurance contracts, in which the policyholder assumes the investment risk.
Other Reserves | This heading is broken down as follows: i) Reserves or accumulated losses of investments in subsidiaries, joint ventures and associate: include the accumulated amount of income and expenses generated by the aforementioned investments through profit or loss in past years. ii) Other: includes reserves different from those separately disclosed in other items and may include legal reserve and statutory reserve.
Other retributions to employees long term | Includes the amount of compensation plans to employees long term.

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Own/treasury shares | The amount of own equity instruments held by the entity.
Past service cost | It is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits.
Post-employment benefits | Retirement benefit plans are arrangements whereby an enterprise provides benefits for its employees on or after termination of service.
Probability of default (PD) | It is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.
Property, plant and equipment/tangible assets | Buildings, land, fixtures, vehicles, computer equipment and other facilities owned by the entity or acquired under finance leases.
Provisions | Provisions include amounts recognized to cover the Group’s current obligations arising as a result of past events, certain in terms of nature but uncertain in terms of amount and/or cancellation date.
Provisions for contingent liabilities and commitments | Provisions recorded to cover exposures arising as a result of transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts, and provisions for contingent commitments, i.e., irrevocable commitments which may arise upon recognition of financial assets.
Provisions for pensions and similar obligation | Constitutes all provisions recognized to cover retirement benefits, including commitments assumed vis-à-vis beneficiaries of early retirement and analogous schemes.
Provisions or (-) reversal of provisions | Provisions recognized during the year, net of recoveries on amounts provisioned in prior years, with the exception of provisions for pensions and contributions to pension funds which constitute current or interest expense.
Refinanced Operation | An operation which is totally or partially brought up to date with its payments as a result of a refinancing operation made by the entity itself or by another company in its group.
Refinancing Operation | An operation which, irrespective of the holder or guarantees involved, is granted or used for financial or legal reasons related to current or foreseeable financial difficulties that the holder(s) may have in settling one or more operations granted by the entity itself or by other companies in its group to the holder(s) or to another company or companies of its group, or through which such operations are totally or partially brought up to date with their payments, in order to enable the holders of the settled or refinanced operations to pay off their loans (principal and interest) because they are unable, or are expected to be unable, to meet the conditions in a timely and appropriate manner.
Renegotiated Operation | An operation whose financial conditions are modified when the borrower is not experiencing financial difficulties, and is not expected to experience them in the future, i.e. the conditions are modified for reasons other than restructuring.
Repricing risk | Risks related to the timing mismatch in the maturity and repricing of assets and liabilities and off-balance sheet short and long-term positions.

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Restructured Operation | An operation whose financial conditions are modified for economic or legal reasons related to the holder's (or holders') current or foreseeable financial difficulties, in order to enable payment of the loan (principal and interest), because the holder is unable, or is expected to be unable, to meet those conditions in a timely and appropriate manner, even if such modification is provided for in the contract. In any event, the following are considered restructured operations: operations in which a haircut is made or assets are received in order to reduce the loan, or in which their conditions are modified in order to extend their maturity, change the amortization table in order to reduce the amount of the installments in the short term or reduce their frequency, or to establish or extend the grace period for the principal, the interest or both; except when it can be proved that the conditions are modified for reasons other than the financial difficulties of the holders and, are similar to those applied on the market on the modification date for operations granted to customers with a similar risk profile.
Retained earnings | Accumulated net profits or losses recognized in the income statement in prior years and retained in equity upon distribution.
Securitization fund | A fund that is configured as a separate equity and administered by a management company. An entity that would like funding sells certain assets to the securitization fund, which, in turn, issues securities backed by said assets.
Share premium | The amount paid in by owners for issued equity at a premium to the shares' nominal value.
Shareholders' funds | Contributions by stockholders, accumulated earnings recognized in the income statement and the equity components of compound financial instruments.
Short positions | Financial liabilities arising as a result of the final sale of financial assets acquired under repurchase agreements or received on loan.
Significant increase in credit risk | In order to determine whether there has been a significant increase in credit risk for lifetime expected losses recognition, the Group has develop a two-prong approach: a) Quantitative criterion: based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios. b) Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/scoring systems or macroeconomic scenarios, so quantitative analysis covers the majority of circumstances. The Group will use additional qualitative criteria when it considers it necessary to include circumstances that are not reflected in the rating/score systems or macroeconomic scenarios used.
Significant influence | Is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. If an entity holds, directly or indirectly (i.e. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (i.e. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence. The existence of significant influence by an entity is usually evidenced in one or more of the following ways: a) representation on the board of directors or equivalent governing body of the investee; b) participation in policy-making processes, including participation in decisions about dividends or other distributions; c) material transactions between the entity and its investee; d) interchange of managerial personnel; or e) provision of essential technical information.

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Solely Payments of Principle and Interest (SPPI) | The assessment as to how an asset shall be classified is made on the basis of both the business model for managing the financial asset and the contractual cash flow characteristic of the financial asset (SPPI Criterion). To determine whether a financial asset shall be classified as measured at amortized cost or FVOCI, a Group assesses (apart from the business model) whether the cash flows from the financial asset represent, on specified dates, solely payments of principal and interest on the principal amount outstanding (SPPI).
Stages | IFRS 9 classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized - without significant increase in credit risk (Stage 1); the second comprises the operations for which a significant increase in credit risk has been identified since its initial recognition - significant increase in credit risk (Stage 2) and the third one, the impaired operations Impaired (Stage 3). The transfer logic is defined in a symmetrical way, whenever the condition that triggered a transfer to Stage 2 is no longer met, the exposure will be transferred to Stage 1. In the case of forbearances transferred to stage 2, as long as the loan is flagged as forbearance it will keep its status as Stage 2. However, when the loan is not flagged as forbearance it will be transferred back to Stage 1.
Structured credit products | Special financial instrument backed by other instruments building a subordination structure.
Structured Entities | A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: a) restricted activities. b) a narrow and well-defined objective, such as to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors y passing on risks and rewards associated with the assets of the structured entity to investors. c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support. d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
Subordinated liabilities | Financing received, regardless of its instrumentation, which ranks after the common creditors in the event of a liquidation.
Subsidiaries | Companies over which the Group exercises control. An entity is presumed to have control over another when it possesses the right to oversee its financial and operational policies, through a legal, statutory or contractual procedure, in order to obtain benefits from its economic activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than one half of an entity's voting power, unless, exceptionally, it can be clearly demonstrated that ownership of more than one half of an entity's voting rights does not constitute control of it. Control also exists when the parent owns half or less of the voting power of an entity when there is: a) an agreement that gives the parent the right to control the votes of other shareholders; b) power to govern the financial and operating policies of the entity under a statute or an agreement; power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; c) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.
Tax liabilities | All tax related liabilities except for provisions for taxes.
Territorial bonds | Financial assets or fixed asset security issued with the guarantee of portfolio loans of the public sector of the issuing entity.

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Tier 1 Capital | Mainly includes: Common stock, parent company reserves, reserves in consolidated companies, non-controlling interests, deductions and others and attributed net income.
Tier 2 Capital | Mainly includes: Subordinated, preferred shares and non- controlling interest.
Unit-link | This is life insurance in which the policyholder assumes the risk. In these policies, the funds for the technical insurance provisions are invested in the name of and on behalf of the policyholder in shares of Collective Investment Institutions and other financial assets chosen by the policyholder, who bears the investment risk.
Value at Risk (VaR) | Value at Risk (VaR) is the basic variable for measuring and controlling the Group’s market risk. This risk metric estimates the maximum loss that may occur in a portfolio’s market positions for a particular time horizon and given confidence level VaR figures are estimated following two methodologies: a) VaR without smoothing, which awards equal weight to the daily information for the immediately preceding last two years. This is currently the official methodology for measuring market risks vis-à-vis limits compliance of the risk. b) VaR with smoothing, which weighs more recent market information more heavily. This is a metric which supplements the previous one. VaR with smoothing adapts itself more swiftly to the changes in financial market conditions, whereas VaR without smoothing is, in general, a more stable metric that will tend to exceed VaR with smoothing when the markets show less volatile trends, while it will tend to be lower when they present upturns in uncertainty.
Yield curve risk | Risks arising from changes in the slope and the shape of the yield curve.

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