20-F 1 d20f2019.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, 2019

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 | Trading Symbol | 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 | BBVA | New York Stock Exchange
Ordinary shares, par value €0.49 per share | BBVA* | New York Stock Exchange*
3.000% Fixed Rate Senior Notes due 2020 | BBVA/20A | 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-Up Non-Cumulative Contingent Convertible Perpetual Preferred Tier 1 Securities |  |  | Irish Stock Exchange
Series 9 Non-Step-Up 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, 2019, 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 | 6
A. | Directors and Senior Management | 6
B. | Advisers | 6
C. | Auditors | 6
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 6
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 | 9
ITEM 4. | INFORMATION ON THE COMPANY | 32
A. | History and Development of the Company | 32
B. | Business Overview | 34
C. | Organizational Structure | 64
D. | Property, Plants and Equipment | 65
E. | Selected Statistical Information | 65
F. | Competition | 89
G. | Cybersecurity and Fraud Management | 92
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 93
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 94
A. | Operating Results | 98
B. | Liquidity and Capital Resources | 160
C. | Research and Development, Patents and Licenses, etc. | 162
D. | Trend Information | 163
E. | Off-Balance Sheet Arrangements | 164
F. | Tabular Disclosure of Contractual Obligations | 165
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 166
A. | Directors and Senior Management | 166
B. | Compensation | 174
C. | Board Practices | 184
D. | Employees | 197
E. | Share Ownership | 201
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 202
A. | Major Shareholders | 202
B. | Related Party Transactions | 202
C. | Interests of Experts and Counsel | 203
ITEM 8. | FINANCIAL INFORMATION | 203
A. | Consolidated Statements and Other Financial Information | 203
B. | Significant Changes | 204
ITEM 9. | THE OFFER AND LISTING | 204
A. | Offer and Listing Details | 204
B. | Plan of Distribution | 211
C. | Markets | 211
D. | Selling Shareholders | 211
E. | Dilution | 211
F. | Expenses of the Issue | 211

|  | PAGE
ITEM 10. | ADDITIONAL INFORMATION | 211
A. | Share Capital | 211
B. | Memorandum and Articles of Association | 211
C. | Material Contracts | 214
D. | Exchange Controls | 215
E. | Taxation | 216
F. | Dividends and Paying Agents | 221
G. | Statement by Experts | 221
H. | Documents on Display | 221
I. | Subsidiary Information | 221
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 221
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 221
A. | Debt Securities | 221
B. | Warrants and Rights | 221
C. | Other Securities | 221
D. | American Depositary Shares | 222
PART II |  |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 223
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 223
ITEM 15. | CONTROLS AND PROCEDURES | 223
ITEM 16. | [RESERVED] | 226
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 226
ITEM 16B. | CODE OF ETHICS | 226
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 226
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 227
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 228
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 228
ITEM 16G. | CORPORATE GOVERNANCE | 228
ITEM 16H. | MINE SAFETY DISCLOSURE | 230
PART III |  |
ITEM 17. | FINANCIAL STATEMENTS | 230
ITEM 18. | FINANCIAL STATEMENTS | 230
ITEM 19. | EXHIBITS | 231

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

· “BBVA USA” means BBVA USA 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, 2019, 2018 and 2017, prepared in compliance with the 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 BBVA” 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.

1

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 the other geographies in which we operate;

· our ability to comply with various legal and regulatory regimes and the impact of changes in applicable laws and regulations, including increased capital, liquidity and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union and an EU capital markets 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 political, economic and regulatory impacts related to the United Kingdom’s withdrawal from the European Union and the future relationship between the United Kingdom and the European Union;

· adjustments in the real estate markets in the geographies in which we operate, in particular in Spain, Mexico, the United States and Turkey;

· the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation for us and our competitors, and our ability to implement technological advances;

· 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, exchange controls or other limitations to the repatriation of dividends, international ownership legislation, interest rate caps and tax policies;

· our ability to continue to access sources of liquidity and funding and to receive dividends and other funds from our subsidiaries;

· 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;

2

· 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 and identity theft;

· 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;

· uncertainty surrounding the integrity and continued existence of reference rates;

· 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.

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.

3

PRESENTATION OF FINANCIAL INFORMATION

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, 2019, 2018 and 2017. 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.

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” and Note 2.2 to our Consolidated Financial Statements.

The financial information as of and for the years ended December 31, 2018, 2017, 2016 and 2015 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 changes in accounting policies and operating segments 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

Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has applied both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Property, plant and equipment” and “Tangible assets – Investment properties” in our consolidated balance sheets within our Consolidated Financial Statements (see Note 17), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other financial liabilities” in our consolidated balance sheets within our Consolidated Financial Statements (see Note 22.5). For the consolidated income statement within our Consolidated Financial Statements, the amortization of the right to use asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 45) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 37.2).

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 to account for those two types of leases differently.

As allowed by IFRS 16, consolidated financial information as of December 31, 2018 and 2017 and for the years then ended included in our Consolidated Financial Statements has not been restated retrospectively in this regard. For additional information, see Notes 2.2.19 and 2.3 to our Consolidated Financial Statements.

See “Item 5. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition—Application of IFRS 16”.

4

IAS 12 – “Income Taxes” Amendment

As part of the annual improvements to IFRS standards (2015-2017 cycle), IAS 12 “Income Taxes” was amended for annual reporting periods beginning on or after January 1, 2019. According to the amended standard, an entity shall recognize the income tax consequences of payments of dividends in profit or loss, other comprehensive income or equity, depending on where the entity recognized the originating transaction or event that generated the distributable profits giving rise to the dividend. In accordance with the amended standard, we recorded the income tax consequences of dividends paid for the year ended December 31, 2019 (amounting to €91 million of income) under “Tax expense or income related to profit or loss from continuing operations” in our consolidated income statement within our Consolidated Financial Statements (see Note 19). Such income tax consequences were recorded under “Total equity” in our consolidated balance sheet in previous periods. In order to make the financial information for prior years comparable with the financial information for 2019, the financial information for 2018 and 2017 has been restated retrospectively in this regard. The application of the amended standard resulted in an increase by €76 million and a decrease by €5 million, respectively, in our “Profit attributable to parent company” for 2018 and 2017, respectively (an increase of 1.4% and a decrease of 0.1% in the “Profit attributable to parent company” for 2018 and 2017, respectively). The new standard has had no significant impact on our consolidated total equity.

Hyperinflationary economies

In late 2018, the Group made a change with respect to the accounting policies for hyperinflationary economies in accordance with IAS 29 “Financial information in hyperinflationary economies”.

In addition, in the third quarter of 2018, Argentina, which is part of the South America segment, was considered to be a hyperinflationary country for the first time, and we applied hyperinflation accounting in respect thereof with effect from January 1, 2018.

For additional information, see Notes 2.2.16 and 2.2.20 to our Consolidated Financial Statements.

Changes in Operating Segments

During 2019, we changed the reporting structure of the BBVA Group’s operating segments as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which was renamed “Spain”. Additionally, certain balance sheet intra-group adjustments between the Corporate Center and the operating segments were reallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of and for the years ended December 31, 2018 and 2017 comparable with the information as of and for the year ended December 31, 2019, as required by IFRS 8 “Information by business segments”, figures as of and for the years ended December 31, 2018 and 2017 were recast in conformity with the new segment reporting structure.

For additional information on our current segments, see “Item 4. Business Overview―Operating Segments” and Note 6 to the Consolidated Financial Statements.

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.

5

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.

## ITEM 3. KEY INFORMATION

A. Selected Consolidated Financial Data

The historical financial information set forth below for the years ended December 31, 2019, 2018 and 2017 has been selected from, and should be read together with, the Consolidated Financial Statements included herein. The Group´s consolidated income statements for 2018 and 2017 have been restated for comparative purposes due to the entry into force of the Amendment to IAS 12. See “Presentation of Financial Information―IAS 12―”Income Taxes” Amendment”.

The audited consolidated financial statements for 2016 and 2015 are not included in this document. The historical financial information set forth below for such years has been 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 in prior years 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”.

6

| Year Ended December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros, Except Per Share/ADS Data (in Euros))
Consolidated Statement of Income Data |  |  |  |  |
Interest and other income | 31,061 | 29,831 | 29,296 | 27,708 | 24,783
Interest expense | (12,859) | (12,239) | (11,537) | (10,648) | (8,761)
Net interest income | 18,202 | 17,591 | 17,758 | 17,059 | 16,022
Dividend income | 162 | 157 | 334 | 467 | 415
Share of profit or loss of entities accounted for using the equity method | (42) | (7) | 4 | 25 | 174
Fee and commission income | 7,522 | 7,132 | 7,150 | 6,804 | 6,340
Fee and commission expense | (2,489) | (2,253) | (2,229) | (2,086) | (1,729)
Net gains (losses) on financial assets and liabilities (1) | 798 | 1,234 | 938 | 1,661 | 865
Exchange differences, net | 586 | (9) | 1,030 | 472 | 1,165
Other operating income | 671 | 949 | 1,439 | 1,272 | 1,315
Other operating expense | (2,006) | (2,101) | (2,223) | (2,128) | (2,285)
Income on insurance and reinsurance contracts | 2,890 | 2,949 | 3,342 | 3,652 | 3,678
Expense on insurance and reinsurance contracts | (1,751) | (1,894) | (2,272) | (2,545) | (2,599)
Gross income | 24,542 | 23,747 | 25,270 | 24,653 | 23,362
Administration costs | (10,303) | (10,494) | (11,112) | (11,366) | (10,836)
Depreciation and amortization | (1,599) | (1,208) | (1,387) | (1,426) | (1,272)
Provisions or reversal of provisions | (617) | (373) | (745) | (1,186) | (731)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (4,151) | (3,981) | (4,803) | (3,801) | (4,272)
Net operating income | 7,872 | 7,691 | 7,222 | 6,874 | 6,251
Impairment or reversal of impairment of investments in joint ventures and associates | (46) | - | - | - | -
Impairment or reversal of impairment on non-financial assets | (1,447) | (138) | (364) | (521) | (273)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net | (3) | 78 | 47 | 70 | (2,135)
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 | 21 | 815 | 26 | (31) | 734
Operating profit before tax | 6,398 | 8,446 | 6,931 | 6,392 | 4,603
Tax (expense) or income related to profit or loss from continuing operations | (2,053) | (2,219) | (2,174) | (1,699) | (1,274)
Profit from continuing operations | 4,345 | 6,227 | 4,757 | 4,693 | 3,328
Profit from discontinued operations, net | - | - | - | - | -
Profit | 4,345 | 6,227 | 4,757 | 4,693 | 3,328
Profit attributable to parent company | 3,512 | 5,400 | 3,514 | 3,475 | 2,642
Profit attributable to non-controlling interests | 833 | 827 | 1,243 | 1,218 | 686
Per share/ADS(2) Data |  |  |  |  |
Profit from continuing operations | 0.65 | 0.93 | 0.71 | 0.71 | 0.52
Diluted profit attributable to parent company (3) | 0.47 | 0.75 | 0.46 | 0.49 | 0.37
Basic profit attributable to parent company | 0.47 | 0.75 | 0.46 | 0.49 | 0.37
Dividends declared (In Euros) | 0.260 | 0.250 | 0.170 | 0.160 | 0.160
Dividends declared (In U.S. dollars) | 0.292 | 0.286 | 0.204 | 0.169 | 0.174
Number of shares outstanding (at period end) | 6,667,886,580 | 6,667,886,580 | 6,667,886,580 | 6,566,615,242 | 6,366,680,118

(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 2016, October 2016 and April 2017, excluding the weighted average number of treasury shares during the year (6,668 million, 6,668 million, 6,642 million, 6,468 million and 6,290 million shares for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively).

7

| As of and for the Year Ended December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros, Except Percentages)
Consolidated Balance Sheet Data | 0 |  |  |  |
Total assets | 698,690 | 676,689 | 690,059 | 731,856 | 749,855
Net assets | 54,925 | 52,874 | 53,323 | 55,428 | 55,282
Common stock | 3,267 | 3,267 | 3,267 | 3,218 | 3,120
Financial assets at amortized cost (1) | 439,162 | 419,660 | 445,275 | 483,672 | 471,828
Financial liabilities at amortized cost - Customer deposits | 384,219 | 375,970 | 376,379 | 401,465 | 403,362
Debt certificates | 68,619 | 63,970 | 63,915 | 76,375 | 81,980
Non-controlling interest | 6,201 | 5,764 | 6,979 | 8,064 | 7,992
Total equity | 54,925 | 52,874 | 53,323 | 55,428 | 55,282
Consolidated ratios |  |  |  |  |
Profitability ratios: |  |  |  |  |
Net interest margin (2) | 2.62% | 2.59% | 2.52% | 2.32% | 2.27%
Return on average total assets (3) | 0.6% | 0.9% | 0.7% | 0.6% | 0.5%
Return on average shareholders’ funds (4) | 6.3% | 10.2% | 6.7% | 6.7% | 5.3%
Credit quality data |  |  |  |  |
Loan loss reserve (5) | 12,427 | 12,217 | 12,784 | 16,016 | 18,742
Loan loss reserve as a percentage of financial assets at amortized cost (1) | 2.83% | 2.91% | 2.87% | 3.31% | 3.97%
Non-performing asset ratio (NPA ratio) (6) | 3.79% | 3.94% | 4.49% | 4.90% | 5.37%
Impaired loans and advances to customers | 15,954 | 16,349 | 19,390 | 22,915 | 25,333
Impaired loan commitments and guarantees to customers (7) | 731 | 740 | 739 | 680 | 664
| 16,684 | 17,089 | 20,130 | 23,595 | 25,997
Loans and advances to customers at amortized cost (8) | 394,763 | 386,225 | 401,074 | 430,629 | 432,921
Loan commitments and guarantees to customers | 45,952 | 47,575 | 47,671 | 50,540 | 49,876
| 440,714 | 433,800 | 448,745 | 481,169 | 482,797

(1) With respect to 2015, consists exclusively of assets recorded under “Loans and receivables” as of December 31, 2015 in the consolidated financial statements included in the annual report on Form 20-F for such year, following IAS 39 (see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Financial instruments”). Financial information for 2017 included in the Consolidated Financial Statements, and financial information for 2016 included in the consolidated financial statements for the year ended December 31, 2018, was prepared in accordance with the accounting policies and valuation criteria applicable under IAS 39, subject to certain modifications in order to improve its comparability with financial information for subsequent periods. For additional information on such modifications, see “Presentation of Financial Information—Application of IFRS 9” in our annual report on Form 20-F for the year ended December 31, 2018.

(2) Represents net interest income as a percentage of average total assets.

(3) Represents profit attributable to parent company 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.

(5) Represents loss allowance on loans and advances at amortized cost.

(6) Represents the sum of impaired loans and advances to customers and impaired loan commitments and guarantees to customers divided by the sum of loans and advances to customers and loan commitments and guarantees to customers.

(7) We include loan commitments and guarantees to customers in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired loan commitments and guarantees to customers 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 loan commitments and guarantees to customers (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 loan commitments and guarantees to customers were not included in the calculation of our NPA ratio, such ratio would generally be lower for the periods covered, amounting to 3.62%, 3.77%, 4.32%, 4.76% and 5.25% as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(8) Includes impaired loans and advances.

## B. Capitalization and Indebtedness

Not Applicable.

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

Not Applicable.

##

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## D. Risk Factors

BUSINESS RISKS

Inherent Business Risks

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 loss allowances. Credit risk can be affected by a range of factors, including an adverse economic environment, reduced consumer, corporate 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 household 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.

The total maximum credit risk exposure (calculated as set forth in Note 7.1.2 to the Consolidated Financial Statements) was €809,786 million, €763,082 million and €763,165 million as of December 31, 2019, 2018 and 2017, respectively. Total non-performing or impaired financial assets and contingent risk (calculated as set forth in Note 7.1.5 to the Consolidated Financial Statements) amounted to €16,770 million, €17,134 million and €20,590 million as of December 31, 2019, 2018 and 2017, respectively. The Group had a 3.79% non-performing asset ratio (calculated as indicated herein) as of December 31, 2019, compared to 3.94% and 4.49% as of December 31, 2018 and 2017, respectively. The Group’s non-performing loan coverage ratio was 77% as of December 31, 2019, compared to 73% and 65% as of December 31, 2018 and 2017, respectively.

Non-performing or low credit quality loans have in the past and can continue to negatively affect the Group’s results of operations. The Group 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 there is a risk of increased default rates if interest rates start to rise. The timing, quantum and pace of any default rate 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, including 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 based on its classifications and estimates of possible changes in credit quality. 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. There is a risk in making such assessments 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.

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, any 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 plans.

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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 from their effect on 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 the Group’s loans referenced to variable interest rates makes borrowers’ capacity to repay such loans more vulnerable to changes in interest rates and the profitability of the loans more vulnerable to interest rate decreases. Loans and advances to customers maturing in more than one year and bearing floating interest rates made up 59%, 62% and 62% of such transactions as of December 31, 2019, 2018 and 2017, respectively. See Note 14.3 to the Consolidated Financial Statements. 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. See Note 7.3.1 to the Consolidated Financial Statements for further information.

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, well-capitalized banks with which the Group must now compete.

The Group also faces competition from non-bank competitors, such as BigTech firms, financial-technology (or “Fintech”) companies, payment platforms, e-commerce businesses, large department stores (for some credit products), automotive finance corporations, leasing companies, factoring companies, mutual funds, pension funds, insurance companies and –with respect to its deposits- public and corporate debt securities. According to the Financial Stability Board (“FSB”), non-bank financial intermediaries managed assets totaling $184.3 trillion as of December 2017 and are experiencing growth exceeding that of the commercial banking business. BigTech firms are already engaged in a wide range of financial activities. This is particularly the case in China, where BigTech firms have market capitalizations comparable to those of the world’s largest financial groups, and offer a wide range of financial services through subsidiaries. BigTech firms have also been expanding their provision of financial service in other emerging markets, notably in South East Asia, East Africa and Latin America. Such firms have achieved scale in financial services very rapidly, in part due to the large customer bases and high degree of brand recognition associated with their existing core technology businesses. Despite its recent growth, total credit extended by BigTech firms accounts for a small proportion of overall credit. Still, competition from non-bank competitors may significantly increase in the future.

In recent years, the financial services sector has experienced a significant transformation, closely linked to the development of the internet and mobile technologies. Part of that transformation involves the entrance of new players, such as those listed above. However, as of the date of this Annual Report, there is an uneven playing field between banks and 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 V Directive limits the ratio between the variable and 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 companies.

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 banks and non-bank players arise since banks, as regulated entities, often face obstacles to engage in unregulated activities.

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The Group’s future success depends, 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, one of its main objectives being 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.

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

The Group is significantly exposed to the real estate market, particularly in Spain. The Group’s exposure to the construction and real estate industries in Spain amounted to €9,943 million, €11,045 million and €11,981 million as of December 31, 2019, 2018 and 2017, respectively, of which €2,649 million, €3,183 million and €5,224 million, respectively, related to construction and real estate development loans in Spain (representing 1.4%, 1.7% and 2.9%, respectively, of the Group’s loans and advances to customers in Spain (excluding loans and advances to the public sector) and 0.4%, 0.5% and 0.8%, respectively, of the Group’s consolidated assets, as of such dates). The Group is exposed to the real estate market due to the fact that real estate assets secure many of its outstanding loans, it holds a significant amount of real estate assets on its balance sheet, principally as a result of foreclosures, and it holds stakes in real estate companies such as Metrovacesa, S.A. and Divarian Propiedad, S.A. Total real estate exposure in Spain, including development loans, foreclosed assets and other real estate-related assets had a coverage ratio of 52% as of December 31, 2019 (55% as of December 31, 2018). For additional information, see item (b) of Appendix IX (Additional information on risk concentration) of our Consolidated Financial Statements.

While the demand for homes and real estate loans has been on the rise in recent years, growth in the sector seems to be stagnating. Any deterioration of real estate prices could have a material adverse effect on the Group’s business, financial condition and results of operations. For example, a decline in prices for real estate assets in Spain would reduce the value of the real estate portfolio that serves to secure its real estate loans and credit and, consequently, any defaults would increase the amount of expected losses relating to those loans and credit facilities.

The Group faces risks related to its acquisitions and divestitures

The Group has both acquired and sold various companies and businesses over the past few years. As of the date of this Annual Report, the closing of the sale of BBVA Paraguay remains subject to obtaining the relevant regulatory authorizations. Other recent transactions include the sale of BBVA Chile and the Cerberus Transaction (as defined herein). For additional information, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures”.

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The Group’s mergers and acquisitions activity (M&A) involves divestitures from certain businesses and the strengthening of other business areas through acquisitions. The Group may not complete these transactions in a timely manner, on a cost-effective basis or at all and, if completed, they may not obtain the expected results. In addition, if completed, the Group’s results of operations could be negatively affected by divestiture or acquisition-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, divestitures or acquisitions, including claims from terminated employees, customers or third parties, and the Group may be liable for potential or existing litigation and claims related to an acquired business, including 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.

In the case of acquisitions, even though the Group reviews the companies it plans to acquire, it is often not possible for these reviews to be complete in all respects and, consequently, there may be risks associated with unforeseen events or liabilities relating to the acquired assets or businesses that may not have been revealed during the due diligence processes, resulting in the Group needing to assume unforeseen liabilities or an acquisition not performing as expected. In addition, acquisitions 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 that adversely affect the Group’s results of operations.

Any of the foregoing may cause the Group to incur significant unexpected expenses, may divert significant resources and management attention from our other business concerns, or may otherwise have a material adverse impact on the Group’s business, financial condition and results of operations.

Risks Deriving from our Geographic Distribution

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

The Group operates commercial banks and insurance and other financial services companies in many countries and its overall success as a global business depends on its ability to succeed in differing economic, social and political conditions and in environments of differing legislative and regulatory requirements (including, among others, laws and regulations regarding the repatriation of funds or the nationalization or expropriation of assets). The Group is particularly sensitive to developments in Mexico, the United States, Turkey and Argentina, which represented 15.6%, 12.7%, 9.2% and 1.0% of the Group’s assets as of December 31, 2019, respectively (14.3%, 12.1%, 9.8% and 1.2% of the Group’s assets as of December 31, 2018, respectively).

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

· weak economic growth or recession in the countries where it operates, poor employment growth and structural challenges constraining employment growth, such as in Spain, where unemployment has remained relatively high, which may negatively affect the household income levels of the Group’s retail customers and the recoverability of the Group’s retail loans, resulting in increased loan loss allowances and asset impairments;

· declines in inflation or even deflation, primarily in Europe, or very high inflation rates, such as in 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;

· an environment of very low interest rates 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;

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

· 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 net oil consuming areas, such as Spain or Turkey, to which the Group is also materially exposed;

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· the impact of the coronavirus disease (COVID-19), which may adversely affect, among other matters, factory output, supply chains, travel and tourism, investor confidence and consumer spending;

· changes in the institutional or political environment in the countries where the Group operates, which could evolve into sudden and intense economic downturns and/or regulatory changes; for example, the potential exit by an EU Member State from the European Monetary Union, which could materially adversely affect the European and global economies, 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; and

· a government default on, or restructuring of, sovereign debt, which could affect the Group primarily in two ways: directly, through portfolio losses (the Group’s exposure to government debt relates mainly to Spain, Mexico, the United States and Turkey, which together amounted to €116,006 million, equivalent to 16.6% of the Group’s consolidated total assets, as of December 31, 2019); and indirectly, through instabilities that a default on, or restructuring of, sovereign 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’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 deterioration of economic conditions or the institutional environment 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.

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’s international operations 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. There is no guarantee that the Group will be successful in developing and implementing policies and strategies in each country in which it operates, some of which have experienced significant financial, political and social volatility in recent decades.

As of December 31, 2019, approximately 48.1% of the Group’s assets and approximately 41.9% of its liabilities were denominated in currencies other than the euro. See Note 7.3.2 to the Consolidated Financial Statements for information on our hedging policy for exchange rate risk and Appendix VII thereof for additional information on our exposure to such risk.

The Group is particularly sensitive to developments in Mexico, Turkey and Argentina, which represented 15.6%, 12.7%, 9.2% and 1.0% of the Group’s assets as of December 31, 2019, respectively (14.3%, 9.8% and 1.2% of the Group’s assets as of December 31, 2018, respectively).

Certain risks affecting emerging markets and, in particular, Mexico, are discussed in greater detail below.

Emerging Markets

Emerging markets are generally subject to greater risk than more developed markets.

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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 recent global economic growth, there are increasing risks of deterioration that might be triggered by a full-scale trade war, geopolitical events or changes in financial risk appetite, including as a result of a disordered deleveraging process in China or a sudden and unexpected downward growth adjustment in the United States. If global financial conditions deteriorate, the business, financial condition and results of operations of the Bank’s subsidiaries in emerging economies, especially in Latin America and Turkey, could be materially adversely affected.

Moreover, a financial crisis in a particular emerging market could adversely affect other emerging markets that are commercially or financially related and could impact the global economy. 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.

Argentina, where the Bank operates through BBVA Argentina, and Turkey, where the Bank operates through Garanti BBVA, 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 and 2019), rapidly-increasing interest rates and deteriorating economic conditions, adversely affecting our operations in those countries and the value of the related assets and liabilities when translated into euros. Hyperinflation in Argentina had a negative impact of €224 million on profit attributable to parent company for the year ended December 31, 2019 (€266 million for the year ended December 31, 2018). In addition, the Group’s activities in 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. Moreover, the repatriation of dividends from BBVA’s Venezuelan and Argentinean subsidiaries are subject to certain restrictions and there is no assurance that further restrictions will not be imposed.

Mexico

The Group may be affected by currency fluctuations, inflation, interest rates, regulation, taxation, social instability and other political, social and economic developments in or affecting Mexico.

Economic conditions in Mexico are highly correlated with economic conditions in the United States due to the physical proximity and the high degree of economic activity between the two countries generally, including the trade historically facilitated by NAFTA. As a result, economic, political and regulatory conditions in the United States or in U.S. laws and policies governing foreign trade, immigration and foreign relations can have an impact on economic conditions in Mexico. Because the Mexican economy is heavily influenced by the U.S. economy, the termination of NAFTA and/or any development affecting the United States-Mexico-Canada Agreement (the “USMCA”) may adversely affect economic conditions in Mexico. As of the date of this Annual Report, USMCA still needs to be approved by the legislature of Canada. As such, uncertainty continues as to whether USMCA will be ratified in its current form, or at all.

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions could have a significant impact on Mexican private sector entities in general, as well as on market conditions and prices. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Mexico” for information on certain recent changes to the financial sector regulation.

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.

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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 carried out its lending activity mainly in Spain, which continues to be one of its primary business areas, such that as of December 31, 2019, total risk in financial instruments in Spain (calculated as set forth in item (c) of Appendix IX (Additional information on risk concentration) of our Consolidated Financial Statements) amounted to €229,564 million, equivalent to 37% of the Group’s total risk in financial instruments. After rapid economic growth until 2007, Spanish gross domestic product (“GDP”) contracted in the 2009-2010 and 2012-2013 periods. 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 each of 2015 and 2016, falling to 2.9%, 2.4% and 2.0% in 2017, 2018 and 2019, respectively, and unemployment decreased to 13.8% in 2019 from 15.3% in 2018. GDP growth is expected to remain around 2.0% in the coming years, although there are drivers of uncertainty abroad (for example, the possibility of a sudden halt to global growth, and the medium- to long-term consequences of the United Kingdom’s exit from the European Union) and in Spain (for example, the adoption of economic policies that deteriorate household and corporate confidence in the economy and/or financing costs) that could alter that trend, restricting employment growth and reducing levels of disposable income for households and companies. In addition, the Spanish economy is particularly sensitive to economic conditions in the Eurozone, the main export market for Spanish goods and services. The Group’s loans and advances to customers in Spain totaled €197,058 million as of December 31, 2019, representing 50% of the total amount of loans and advances to customers included on the Group’s consolidated balance sheet. Our Spanish business includes extensive operations in Catalonia, which represented 18% of the Group’s assets in Spain as of December 31, 2019 (18% as of December 31, 2018). While social and political tensions have generally declined in recent months, if such tensions were to increase, this could lead to scenarios of uncertainty, volatility in capital markets and a deterioration of economic and financing conditions in Spain.

Given the relevance of the Group’s loan portfolio in Spain, any adverse change affecting economic conditions in Spain could have a material adverse effect on our business, financial condition and results of operations.

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

The United Kingdom’s exit from the European Union on January 31, 2020 (“Brexit”) has 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 on the future relationship between the United Kingdom and the European Union, including whether the two maintain close commercial ties after the United Kingdom exits the European Single Market, which is currently scheduled to occur on December 31, 2020.

The Group currently has a branch and 120 employees (as of December 31, 2019) in the United Kingdom, and engages in significant cross-border transactions with the United Kingdom, primarily with banks and other financial institutions. The Group held U.K. sovereign debt totaling €43 million as of December 31, 2019 and it currently holds a 39.02% interest in Atom Bank plc, a U.K. digital bank. In addition to the effects on the economy and European and global financial markets, the implementation of Brexit could harm or otherwise limit our capacity to carry out commercial transactions in the United Kingdom or in any other location. 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 may cause an economic slowdown, or even 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 United Kingdom’s future relationship with the European Union, 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.

15

FINANCIAL RISKS

See also “—Business Risks—Inherent Business Risks—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” and “—Business Risks—Inherent Business Risks—The Group’s business is particularly vulnerable to volatility in interest rates”.

Liquidity Risks

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 an exercise of the Spanish Bail-in Power

Historically, one of the Group’s principal sources of funds has been savings and demand deposits. Customer deposits represented approximately 74% of the BBVA Group’s total financial liabilities at amortized cost as of December 31, 2019, compared with 74% and 69% at December 31, 2018 and 2017, respectively. See Note 22 to the Consolidated Financial Statements.

Long-term 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 political actions, such as an exercise of the Spanish Bail-in Power (as defined below), expropriation or taxation of creditors’ funds) or competition from investment funds or other products. 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. In that case, the Bank could be subject to early intervention or, ultimately, resolution measures implemented by the Spanish Resolution Authority in accordance with 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”) including, but not limited to, an exercise of the Spanish Bail-in Power (including a Non-Viability Loss Absorption (as defined below)). See “—Legal, Regulatory, Tax and Reporting Risks—Regulatory 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 addition, if public sources of liquidity, such as the ECB extraordinary measures adopted in response to the financial crisis in 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 the Spanish Resolution Authority pursuant to Law 11/2015 (including, but not limited to, the exercise of the Spanish Bail-in Power (including a Non-Viability Loss Absorption)).

“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 defined herein), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015 (as defined herein); and (c) the SRM Regulation (as defined herein), 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.

“Non-Viability Loss Absorption” means the power of the Spanish Resolution Authority to permanently write-down or convert capital instruments into equity at the point of non-viability of an institution.

“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, and any other entity with the authority to exercise the Spanish Bail-in Power (including a Non-Viability Loss Absorption) from time to time.

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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 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 Group’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 Group (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.

Other Financial Risks

The Bank and certain of its subsidiaries depend on their credit ratings and those assigned to Spanish sovereign debt. Any decline in these credit ratings could increase the cost of financing or require contracts to be terminated or obligate the Bank to provide additional guarantees under such contracts, which could adversely affect the Group’s business, financial condition and results of operations

The banking business carried out by the Group involves obtaining financing from various sources. Credit ratings are essential to carrying out the banking business since the ability to obtain financing and its price depends in part on such ratings, as well as on other factors including market conditions and the interest rate environment.

The Bank and certain of its subsidiaries are rated by various credit rating agencies. The credit ratings assigned to the Bank and such subsidiaries are an assessment by rating agencies of their ability to pay their obligations when due, affecting the cost of financing and other conditions.

Rating agencies regularly review the Group’s long-term debt ratings based on several factors including financial solvency and other circumstances that affect the financial sector in general. There is no assurance that the Group’s current ratings or outlook will be maintained, and any actual or planned reduction in such ratings or outlook, whether to below investment grade or any other level, could increase the Group’s financing cost and limit or deteriorate the Group’s ability to access the capital markets, secured financing markets (affecting its capacity to replace its impaired assets with other assets bearing better ratings) or inter-bank markets through wholesale deposits, or even lead to a failure to comply with certain contracts or generate additional obligations under those contracts, such as the need to grant additional guarantees, due to the fact that credit ratings are used in some contracts to activate non-compliance and early termination clauses or serve as a basis for demanding additional guarantees if they fall below certain levels.

If the Group is required to cancel contracts due to a ratings reduction leading to early termination, it may not be able to replace them on similar terms or at all, which could have a material adverse impact on its business, financial condition and results of operations.

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A ratings reduction could also have an adverse effect on the Group’s reputation or on its ability to sell or market some of its products or participate in certain transactions, and could cause a loss of customer deposits or lead to third parties being less willing to carry out commercial transactions with the Group, especially transactions requiring a minimum rating for investment, which could have a material adverse effect on the Group’s business, financial condition and results of operations.

Moreover, the Group’s ratings may be affected by a decline in the rating for Spanish sovereign debt, including because the Group holds a substantial amount of securities issued by the Kingdom of Spain, autonomous communities within Spain and other Spanish issuers. The Group’s exposure as of December 31, 2019 to Spanish sovereign debt was €50,905 million, representing 7% of the Group’s total consolidated assets (compared to €48,473 million and €51,410 million, representing 7% and 7% of the Group’s total consolidated assets as of December 31, 2018 and 2017, respectively). Any decline in the Kingdom of Spain’s credit ratings could adversely affect the value of the respective debt portfolios held by the Group 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.

BBVA depends in part upon dividends and other funds from subsidiaries, which payment could be beyond BBVA’s control

Some of the Group’s operations are conducted through BBVA’s subsidiaries. As a result, BBVA’s results (and its ability to pay dividends) depend in part on the ability of its subsidiaries to generate earnings and to pay dividends to BBVA. However, as a result in part of the Group’s decision to follow a multiple-point-of-entry resolution strategy (as part of the framework for the resolution of financial entities designed by the Financial Stability Board (FSB)), BBVA’s subsidiaries are required to manage their own liquidity autonomously (obtaining deposits or accessing markets using their own rating) and their payment of dividends, distributions and advances will depend on their earnings and liquidity and the overall state of their business, among other considerations, subject to any legal, regulatory and contractual restrictions.

Additionally, the Bank’s right to receive any assets of any of its 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 “—Regulatory Risks—Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations”).

The Group is exposed to risks related to the continued existence of certain reference rates and the transition to alternative reference rates

In recent years, international regulators are driving a transition from the use of interbank offer rates (“IBORs”), including EURIBOR, LIBOR and EONIA, to alternative risk free rates (“RFRs”). This has resulted in regulatory reform and changes to existing IBORs, with further changes anticipated. These reforms and changes may cause an IBOR to perform differently than it has done in the past or to be discontinued. For example, in 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, and EONIA modified its methodology on October 2, 2019 and will likely be discontinued as from January 2022. In November 2019, the determination methodology for EURIBOR was changed to a new hybrid methodology using transaction-based data and other sources of data.

Uncertainty as to the nature and extent of such reforms and changes, and how they might affect financial instruments, may adversely affect the valuation or trading of a broad array of financial instruments that use IBORs, including any EURIBOR, EONIA or LIBOR-based securities, loans, deposits and derivatives that are issued by the Group or otherwise included in the Group’s financial assets and liabilities. Such uncertainty may also affect the availability and cost of hedging instruments and borrowings. The Group is particularly exposed to EURIBOR-based financial instruments.

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It is not possible to predict the timing or full effect of the transition to RFRs. As a result of such transition, the Group will be required to adapt or amend documentation for new and the majority of existing financial instruments, and may be subject to disputes (including with customers of the Group) related thereto, either of which could have an adverse effect on the Group’s results of operations. The implementation of any alternative RFRs may be impossible or impracticable under the existing terms of certain financial instruments. Such transition could also result in pricing risks arising from how changes to reference rates could impact pricing mechanisms in some instruments, and could have an adverse effect on the value of, return on and trading market for such financial instruments and on the Group’s profitability. In addition, the transition to RFRs will require important operational changes to the Group’s systems and infrastructure as all systems will need to account for the changes in the reference rates.

Any of these factors may have a material adverse effect 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). Recent and ongoing political processes such as Brexit, the surge of populist trends in several European countries, health-related crisis, 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.

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. See Note 24 to the 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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LEGAL, REGULATORY, TAX AND REPORTING RISKS

Legal Risks

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 the 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 the claimants argue that certain provisions of such agreements should be declared null and void (including provisions concerning fees and other expenses, early termination and the use of certain interest rate indexes in mortgage loans). The application of certain interest rates and other conditions in certain credit card contracts is also being challenged in the Spanish courts. Legal and regulatory actions and proceedings currently faced by other financial institutions regarding these and other matters, especially if such actions or proceedings result in consumer-friendly rulings, could also adversely affect the Group.

On December 14, 2017, the Spanish Supreme Court issued judgment 669/2017 regarding consumer mortgage loans linked to the interest rate index known as IRPH (the average rate for mortgage loans with a term exceeding three years for the acquisition of free-market homes granted by credit institutions in Spain), which was calculated by the Bank of Spain and published in the Official State Journal, which ruling confirmed that the mere referencing of a mortgage loan to the IRPH did not imply a lack of transparency.

A request for a preliminary ruling was subsequently made to the European Court of Justice, which questioned the judgment adopted by the Spanish Supreme Court. On September 10, 2019, the Attorney General of the European Court of Justice issued a report in which he concluded that Bankia, S.A. (the Spanish bank that is a party to this proceeding) complied with the transparency requirement imposed by applicable European legislation. The Attorney General also stated that national judges are responsible for assessing compliance with applicable transparency obligations in each particular case. However, the conclusions reached by the Attorney General in his report are not binding on the European Court of Justice, which is still to rule on the matter. If the European Court of Justice were to adopt a ruling contrary to the Group’s interests, the Group’s results could be materially adversely affected. The precise impact of such a ruling would depend on (i) the Court’s decision regarding which interest rate should be applied to consumer mortgage loans linked to IRPH, and (ii) whether the judgment would be applied retroactively. It is currently expected that the European Court of Justice will issue a ruling in this matter in March 2020.

The Group is also involved in antitrust proceedings and investigations in certain countries which could, among other things, 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, S.A. (“BBVA Mexico”) 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, insignificant in amount, being initially imposed, which BBVA Mexico has challenged. In March 2018, BBVA Mexico 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 judge assigned to hear these proceedings dismissed plaintiffs’ claims in their entirety but permitted plaintiffs to file an amended complaint, which the defendants have again moved to dismiss.

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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 contrary to the Group’s interests, could have a material adverse effect on the Group’s business, financial condition and results of operations.

The Spanish judicial authorities are carrying out a criminal investigation relating to possible bribery, revelation of secrets and corruption by the Bank

Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (“Cenyt”). Such investigation includes the provision of services by Cenyt to the Bank. On July 29, 2019, the Bank was named as an investigated party (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could represent the crimes of bribery, revelation of secrets and corruption. As at the date of this Annual Report, no formal accusation against the Bank has been made. Certain current and former officers and employees of the Group, as well as former directors of the Bank, have also been named as investigated parties in connection with this investigation. The Bank has been and continues to be proactively collaborating with the Spanish judicial authorities, including sharing with the courts information from its on-going forensic investigation regarding its relationship with Cenyt. The Bank has also testified before the judge and prosecutors at the request of the Central Investigating Court No. 6 of the National High Court.

On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings.

This criminal judicial proceeding is at a preliminary stage. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the Group, including any fines, damages or harm to the Group’s reputation caused thereby.

Regulatory Risks

The Group is subject to substantial regulation and regulatory and governmental oversight. Changes in the regulatory framework, including the different local regulations applicable to the Group, 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. Other proposals are still being developed.

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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, legislation regarding mortgages and banking products, consumer and user regulations, 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, legislation on the prevention of money laundering and the financing of terrorism, market abuse and integrity legislation, regulations regarding conduct with financial market customers, anti-corruption legislation, heightened reporting requirements and reforms of derivatives, other financial instruments, investment products and market infrastructures. In addition, the European supervisory and regulatory framework has changed and intensified, following the creation of the Single Supervisory Mechanism and the SRM.

The specific effects of these new regulations are often uncertain given their early stage of elaboration or implementation. In addition, while some of these new laws and regulations have already entered into force, the manner in which they will be applied to the operations of financial institutions is still evolving. The discretion that regulators and supervisors have when regulating and supervising banks also generates uncertainty.

Moreover, local legislation in certain jurisdictions where the Group operates differs in a number of material respects from equivalent regulations in Spain or the United States and may, for example, establish different capital requirements, prohibit the Bank from engaging in certain activities or require specific authorization for those activities, which may give rise to higher compliance costs. See “—Business Risks—Risks Deriving from our Geographic Distribution—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”.

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, and increase the Group’s compliance costs.

Any required changes to the Group’s business operations resulting from the legislation and regulations applicable to such business, in particular in Spain, Mexico, the United States or Turkey, 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 its business, financial condition and results of operations.

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

In its capacity as a Spanish credit institution, the Bank is subject to compliance with a “Pillar 1” solvency requirement, a “Pillar 2” solvency requirement and a “combined capital buffer requirement” at both the individual and consolidated level. For additional information, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation”.

As a result of the latest Supervisory Review and Evaluation Process (“SREP”) carried out by the European Central Bank (“ECB”), the Bank is required to maintain, from January 1, 2020 on a consolidated basis, a common equity tier 1 capital ratio (“CET1”) of 9.27% and a total capital ratio of 12.77%. This total capital requirement on a consolidated basis includes: (i) a Pillar 1 requirement of 8% that should be fulfilled by a minimum of 4.5 p.p. of CET1; (ii) a Pillar 2 requirement of 1.5 p.p. of CET1 (the same as that imposed in the previous SREP decision); (iii) a Capital Conservation buffer of 2.5 p.p. of CET1; (iv) an Other Systemic Important Institution buffer (“D-SIBs”) of 0.75 p.p. of CET1; and (v) a Countercyclical Capital buffer 0.02 p.p. of CET1. Additionally, the Bank is required to maintain, from January 1, 2020, on an individual basis, a CET1 capital ratio of 8.53% and a total capital ratio of 12.03%.

As of December 31, 2019, the Bank’s phased-in total capital ratio was 15.92% on a consolidated basis and 20.81% on an individual basis (15.71% and 22.07%, respectively, as of December 31, 2018), and its CET1 phased-in capital ratio was 11.98% on a consolidated basis and 16.42% on an individual basis (11.58% and 17.45%, respectively, as of December 31, 2018).

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While such ratios exceed the applicable regulatory requirements described above, 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.

Should the Bank or the Group fail to comply with its “combined capital buffer requirement”, it would have to calculate its Maximum Distributable Amount (“MDA”) and, until such calculation was done and reported to the Bank of Spain, the affected entity would not be able to make any distributions relating to additional tier 1 instruments (“Discretionary Payments”). Once the MDA was calculated and reported, any Discretionary Payments would be limited to the calculated MDA.

In addition, if the Bank or the Group fails to comply with the applicable capital requirements, additional “Pillar 2” requirements could be imposed and early action measures could be adopted or, ultimately, resolution measures could be implemented by the resolution authorities in accordance with Law 11/2015 which, together with RD 1012/2015 (as defined herein), transposes Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“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.

Moreover, CRR II (as defined herein) has established a binding leveraging ratio requirement of 3% of tier 1 capital. Any failure to comply with this leveraging ratio would also result in the need to calculate and report the MDA and the same restrictions on Discretionary Payments.

Additionally, the CRR II proposes new requirements that capital instruments must meet in order to be considered AT1 or Tier 2 instruments, including some grandfathering measures until June 28, 2025. Once CRR II has been transposed and the grandfathering period has elapsed, AT1 and/or Tier 2 instruments that do not comply with the new requirements at that date will no longer be computed as capital instruments. This could give rise to shortfalls in regulatory capital and, ultimately, a failure to comply with the applicable regulatory minimum capital requirements, with the aforementioned consequences.

On February 1, 2019, the Bank announced its CET1 fully-loaded capital ratio target (on a consolidated basis) to be in the range between 11.5% and 12.0%. No assurance can be given that the Bank will maintain this target or meet it in the future. Any failure by the Bank to maintain a consolidated CET1 capital ratio in line with its CET1 capital target, or any change in such target, could be negatively perceived by investors and/or regulators, who may interpret that the Bank lacks capacity to generate capital or that its capital position has deteriorated, any of which 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 published its supervisory expectations regarding prudential provisions for non-performing loans (“NPLs”) as an addendum (“Addendum”) to the ECB guidance on NPLs for credit institutions published on March 20, 2017, where the ECB’s supervisory expectations with respect to the identification, management, measurement and write-off of NPLs were clarified with the aim of avoiding an excessive build-up of non-covered aged NPLs on banks’ balance sheets.

The supervisory expectations set out in the Addendum are applicable to new NPLs classified as such starting on April 1, 2018. The ECB will assess bank practices at least once per year and, from 2021, banks must inform the ECB of any difference between their practices and the prudential provision expectations. The implementation of such expectations may affect the minimum coverage levels required for new defaulted loans and, if applicable, the amounts of provisions relating to NPLs exposures.

The ECB has also 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 with a view to harmonizing such approaches throughout the European Union. Even though the results of the TRIM are not yet known, if they require changes to the internal models used by banks, including BBVA, this could in turn give rise to increases or decreases in the banks’ capital needs.

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On December 7, 2017 the Basel Committee on Banking Supervision (“BCBS”) announced the completion of the 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 risk sensitivity, as well as to 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 (“RWA s”) using internal risk models as compared to the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches applying from January 1, 2022 and increasing to 72.5% from January 1, 2027, which could in turn imply a decrease in the capital ratios of the Bank and the Group. To the extent the Basel III reforms result in an increase in the Bank’s total RWAs, they could also result in a corresponding decrease in the Bank’s capital ratios.

The lack of uniformity in the implementation of the Basel III reforms across jurisdictions in terms of timing and applicable regulations could give rise to inequalities and competition distortions. Moreover, the lack of regulatory coordination, with some countries bringing forward the application of Basel III requirements or increasing such requirements, could adversely affect an entity with global operations such as the Group and could affect its profitability.

There can be no assurance that 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, an increase in capital requirements could negatively affect the return on equity (“ROE”) and other banking financial result 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 measures and authorities established by the BRRD, Law 11/2015 and RD 1012/2015 (especially the Spanish Bail-in Power, including a Non-Viability Loss Absorption), affect the manner in which credit institutions and investment firms are managed and, under certain circumstances, creditor rights.

In the event that the Spanish Resolution Authority 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; and (iii) a resolution action is in the public interest, the Spanish Resolution Authority may apply, individually or on a combined basis, the following four resolution instruments: (a) the sale of all or part of the institution’s business, (b) its transfer to a bridge entity (which could limit its capacity to satisfy its payment obligations), (c) the transfer of certain asset categories for management by one or more management entities and (d) the application of the Spanish Bail-in Power.

The Spanish Resolution Authority could also adopt a Non-Viability Loss Absorption measure in the event that it determines that the entity complies with the conditions for resolution and that it would become non-viable unless some or all of the capital instruments are redeemed or converted into shares or other equity instruments.

As part of the application of the Spanish Bail in Power (including a Non-Viability Loss Absorption), unsecured debt securities, subordinated instruments and shares (among other securities) issued by the Bank, could be subject to a full or partial write-down and/or conversion into equity or other securities or obligations. There is no assurance that the mere existence of these powers or any suggestion of their exercise, even if the likelihood of such exercise is remote, will not affect the price and trading behavior of such securities issued by the Bank.

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Therefore, as a result of the application of the Spanish Bail-in Power (including a Non-Viability Loss Absorption), the owners of those securities could lose all or part of their investment, and their rights under those securities could be adversely affected, or these securities could be substituted for by other securities with less advantageous terms. Such exercise could also involve modifications to, or the disapplication of, provisions in the terms and conditions of such securities including alteration of the principal amount or any interest payable thereon, the maturity date or any other dates on which payments may be due, as well as the suspension of payments for a certain period. The Spanish Resolution Authority may exercise any of the foregoing measures without prior warning to the owners of the affected securities. Further, their application is unpredictable and may depend on a series of factors that may be outside of the Bank’s control. Accordingly, the owners of any affected securities may not be able to anticipate the application of the Spanish Bail-in Power and/or a Non-Viability Loss Absorption.

In the event that the treatment of a holder of the Bank’s affected securities resulting from the application of the Spanish Bail-in Power (other than a Non-Viability Loss Absorption) is less favorable than would have been the case in an ordinary insolvency proceeding, the affected creditor would be able to seek compensation in accordance with the BRRD and the SRM Regulation, subject to the limitations and deadlines established in applicable legislation. However, there is uncertainty with respect to the amounts that could be collected and the payment date. Moreover, there are uncertainties as to whether an affected holder would be entitled to compensation under the BRRD and the SRM Regulation after the implementation of a Non-Viability Loss Absorption.

For further information, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation”.

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

As a Spanish credit institution, the Bank must maintain a minimum level of eligible liabilities and own funds compared to its total liabilities and own funds (the minimum requirement for own funds and eligible liabilities or “MREL”).

On November 19, 2019, the Bank announced that it had received a communication from the Bank of Spain regarding its MREL, as determined by the Single Resolution Board (“SRB”), that has been calculated taking into account the financial and supervisory information as of December 31, 2017. In accordance with such communication, the Bank has to reach, by January 1, 2021, an MREL equal to 15.16% on a sub-consolidated level (as described below). Within this MREL, an amount equal to 8.01% of the total liabilities and own funds must be met with subordinated instruments, once the allowance established in such requirement is applied. This MREL is equal to 28.50% of RWAs, while the subordination requirement included in the MREL is equal to 15.05% of RWAs, once the corresponding allowance has been applied.

Pursuant to the Group’s multiple point of entry resolution strategy, as established by the SRB, the Bank’s resolution group on a sub-consolidated level consists of the Bank and its subsidiaries that belong to the European resolution group. As of December 31, 2017, the total liabilities and own funds of the resolution group amounted to €371,910 million, representing the Bank more than 95% of such amount. The RWAs of the resolution group amounted to €197,819 million at that date.

According to the Bank’s estimates, the current own funds and eligible liabilities structure of our resolution group meets the MREL and subordination requirement. However, such requirements are subject to change and no assurance can be given that the Bank will not be subject to more stringent requirements in the future. If the Spanish Resolution Authority believes that there could be any impediments to the resolution of the Bank and/or the Group, more stringent requirements could be imposed.

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The EU Banking Reforms (as defined herein) provide that a bank’s failure to comply with its MREL or its subordination requirement should 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 and their power to impose early intervention measures, administrative penalties and other administrative measures. If there is any shortfall in an institution’s level of eligible liabilities and own funds, and the own funds of such institution are otherwise contributing to the “combined buffer requirement”, those own funds will automatically be used instead to meet that institution’s MREL or subordination requirement and will no longer count towards its “combined buffer requirement”, which may lead the institution to fail to meet its “combined buffer requirement”. This would require such institution to calculate its MDA, and the relevant resolution authority would be able (but not obligated to) impose restrictions 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”). As a result of the above, upon the entry into force of the EU Banking Reforms on June 27, 2019, the Bank must fully comply with its “combined buffer requirement” in addition to its MREL and subordination requirement in order to make sure that it is able to make Discretionary Payments.

In addition, under the European Banking Authority (“EBA”) guidelines on triggers for use of early intervention measures dated 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 MREL may put an institution in a situation where conditions for early intervention are met, which may result in the application by the competent resolution authority of early intervention measures.

Moreover, if Total Loss-Absorbing Capacity (“TLAC”) requirements (which are currently only applicable to entities that are considered to be of global systemic importance (G-SIBs)) were to be extended to non-G-SIBs, or if the Bank was to be classified as a G-SIB, further requirements similar to MREL could be imposed on the Bank in the future.

Any failure or perceived failure by the Bank and/or the Group to comply with its MREL and the subordination requirement may have a material adverse effect on the Bank’s business, financial condition and results of operations and could result in the imposition of restrictions or prohibitions on Discretionary Payments. There can also be no assurance as to the manner in which the “Pillar 2” additional own funds requirements, the “combined buffer requirement” and the MREL and subordination requirement (once in effect) will be jointly implemented in Spain, or if the combined effect of these requirements will restrict our ability to make any Discretionary Payments.

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 is to be applied have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. The LCR has been progressively implemented since 2015 in accordance with the CRR, with banks having had to fully comply with such ratio since January 1, 2018. As of December 31, 2019, the Group’s LCR was 129%.

The BCBS has also put forward a net stable funding ratio (“NSFR”), which has a time horizon of one year. This ratio 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. Although the BCBS contemplated that EU Member States had to implement such ratio by January 1, 2018, with no phase-in, the NSFR has not yet been adopted. The EU Banking Reforms propose the introduction of a harmonized binding requirement for the NSFR across the European Union.

Various elements of the LCR and the NSFR, and how they are implemented by national banking regulators, may lead to changes to certain business practices, which could expose the Bank to additional costs (including increased compliance costs) or otherwise affect the profitability of the business, which could 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.

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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

Spanish credit institutions, including BBVA, are required to make at least one annual ordinary contribution to the National Resolution Fund (Fondo de Resolución Nacional) (“FRN”), payable on request of the FROB. The total amount of contributions by all Spanish banking entities must equal at least 1% of the aggregate amount of all deposits guaranteed by the Credit Entities Deposit Guarantee Fund (Fondo de Garantía de Depósitos de Entidades de Crédito) (“FGD”) by December 31, 2024. The contributions are adjusted to the risk profile of each institution in accordance with the criteria set out in the relevant regulation. Moreover, the FROB may decide to collect additional contributions. Furthermore, Law 11/2015 establishes an additional contribution that seeks to provide financing to the FROB in its capacity as the Spanish Resolution Authority. This contribution amounts to 2.5% of the aforementioned annual ordinary contribution to the FRN. Finally, since 2016, the Bank is required to make contributions directly to the Single Resolution Fund.

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

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, 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”).

Tax Risks

Increased taxation and other burdens 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 (the “EU 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 implemented, 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 EU 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 would be considered to be “established” in a participating Member State in a broad variety of circumstances, including: (i) by carrying out transactions with a person established in a participating Member State or (ii) when the financial instrument involved in the transaction has been issued in a participating Member State.

However, the Commission’s 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, in February 2020 a financial transaction tax was announced in Spain which is based in part on the Commission’s Proposal (the “Spanish FTT”). The Spanish FTT rate is proposed to be 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. Trades of the Bank’s shares would be subject to the Spanish FTT. If the directive for the implementation of the EU FTT is approved, the Spanish FTT would have to be adapted to the content of the directive. The EU FTT could impose a higher tax rate than that currently proposed in the Spanish FTT bill.

There can be no assurance that additional financial transaction taxes will not be adopted by the authorities of the jurisdictions where the Bank operates and, if introduced, certain financial instrument transactions may be subject to higher expenses.

Any levies or taxes imposed on the Bank’s securities or activities or otherwise affecting the Bank pursuant to the foregoing or otherwise could have a material adverse effect on the Bank’s business, financial condition and results of operations.

Reporting Risks

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, particularly where such assets do not have a readily available market price, 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 “—Legal Risks—Regulatory Risks—Our financial results, regulatory capital and ratios may be negatively affected by changes to accounting standards”.

INTERNAL CONTROL RISKS

Compliance Risks

The Group is exposed to compliance risks which may have a material adverse effect on the Group’s business, financial condition and results of operations, and may damage the Group’s reputation

As part of its business, the Group offers and markets banking and investment products and services to its customers and actively operates in financial markets on its own behalf and on behalf of its customers in the various jurisdictions in which it operates. As a result of the nature of its operations and the fact that the Group operates in many different jurisdictions around the world, the Group must comply with a wide array of laws, rules and regulations, many of which have different scopes and implications. Legal fragmentation may be further exacerbated by how such laws, rules and regulations are implemented by the relevant local supervising authorities. This fragmentation makes compliance risk management particularly complex, as compliance programs must address the different legal requirements facing the Group.

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Compliance risk relates to the fact that the Group must comply with many different laws, rules and regulations. For example, the Group is subject to laws, rules and regulations regarding money laundering and the financing of terrorism. The Group must also abide by applicable sanctions programs. The most relevant sanctions programs are those administered by the United Nations, the European Union and the United States (including sanctions imposed by the Office of Foreign Assets Control under the U.S. Treasury Department). In addition, the Group’s operations are subject to various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977 and the UK Bribery Act of 2010. These 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 whose employees are considered to be government officials. The Group’s activities are also subject to complex customer protection and market integrity regulations.

The Group has compliance programs intended to mitigate the Group’s compliance risk. However, t he Group cannot provide assurance that the controls established within the Group to ensure compliance with these laws, rules and regulations will not be circumvented or that they will otherwise be sufficient to prevent their violation. A violation of the applicable laws, rules and regulations could lead to material consequences, including 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, any of which could have a material adverse effect on the Group’s business, results of operations and financial condition.

Further, compliance with these laws, rules and regulations can represent a material financial burden for the Group and raise important technical problems. Further, the Group engages in investigations relating to potential violations of these laws, rules and regulations from time to time and any such investigations or any related proceedings could be time-consuming and costly and their outcomes difficult to predict.

Moreover, some of our management, 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 such persons 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. 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. Actual or alleged misconduct 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 actions taken by regulators or others in response to such misconduct, could lead to, among other things, sanctions, fines and reputational damage, any of which could have a material adverse effect on the Group’s business, financial condition and results of operations.

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IT 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 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.

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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 criminal groups, 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.

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 financial industry is increasingly dependent on information technology systems, which may fail, may not be adequate for required tasks or may no longer be available

Our 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 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.

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Over the past few years, there have been a series of distributed denial of service attacks on financial services companies, including the Group. Distributed denial of service attacks are designed to saturate the targeted 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.

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.

# 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.

Capital Expenditures

Our principal investments are financial investments in our subsidiaries and affiliates. The main capital expenditures from 2017 to the date of this Annual Report were the following:

2019

In 2019 there were no significant capital expenditures.

2018

In 2018 there were no significant capital expenditures.

2017

Acquisition of an additional 9.95% of Garanti BBVA

On March 22, 2017, we acquired 41,790,000,000 shares (in the aggregate) of Garanti BBVA (amounting to 9.95% of the total issued share capital of Garanti BBVA) 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).

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Capital Divestitures

Our principal divestitures are financial divestitures in our subsidiaries and affiliates. The main capital divestitures from 2017 to the date of this Annual Report were the following:

2019

Sale of BBVA Paraguay

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of our wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”).

The consideration for the acquisition of BBVA Paraguay’s shares amounts to approximately $270 million in the aggregate. The abovementioned consideration is subject to certain adjustments for matters between the signing and closing dates of the transaction.

It is expected that the transaction will result in a capital gain, net of taxes, of approximately €40 million and in a positive impact on the BBVA Group’s Common Equity Tier 1 (fully loaded) of approximately 6 basis points. The closing of the transaction is expected to take place during the first quarter of 2020, after obtaining the relevant regulatory authorizations from the competent authorities.

2018

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from The Bank of Nova Scotia (“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 (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. 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.

Transfer of real estate business and sale of stake in Divarian

On November 29, 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 comprised: (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.

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).

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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 sale amounted to €478 million.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits.

The transaction was completed during the third quarter of 2019 and resulted in a capital gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s Common Equity Tier 1 (fully loaded).

2017

In 2017 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.

## B. Business Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

For this purpose, the Group is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2019, the number of digital and mobile customers and the volume of digital sales continued to increase.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

Operating Segments

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

• Spain;

• The United States;

• Mexico;

• Turkey;

• South America; and

• Rest of Eurasia.

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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. BBVA’s 20% stake in Divarian is also included in this unit. For more information regarding Divarian, see “History and Development of the Company—Capital Divestitures—2018” and “Item 10. Additional Information—C. Material Contracts—Joint Venture Agreement with Cerberus”.

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The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2019, 2018 and 2017 was as follows:

| As of December 31,
| 2019 | 2018 | 2017
| (In Millions of Euros)
Spain | 365,374 | 354,901 | 350,520
The United States | 88,529 | 82,057 | 75,775
Mexico | 109,079 | 97,432 | 90,214
Turkey | 64,416 | 66,250 | 78,789
South America | 54,996 | 54,373 | 75,320
Rest of Eurasia | 23,248 | 18,834 | 17,265
Subtotal Assets by Operating Segment | 705,641 | 673,848 | 687,884
Corporate Center and Adjustments (1) | (6,951) | 2,841 | 2,175
Total Assets BBVA Group | 698,690 | 676,689 | 690,059

(1) Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Changes in Operating Segments”.

The following table sets forth information relating to the profit (loss) attributable to parent company for each of BBVA’s operating segments and the Corporate Center for the years ended December 31, 2019, 2018 and 2017:

| Profit/(Loss) Attributable to Parent Company | % of Profit/(Loss) Attributable to Parent Company
| For the Year Ended December 31,
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017
| (In Millions of Euros) | (In Percentage)
Spain | 1,386 | 1,400 | 877 | 23 | 24 | 16
The United States | 590 | 736 | 486 | 10 | 13 | 9
Mexico | 2,699 | 2,367 | 2,170 | 45 | 41 | 41
Turkey | 506 | 567 | 823 | 8 | 10 | 15
South America | 721 | 578 | 847 | 12 | 10 | 16
Rest of Eurasia | 127 | 96 | 128 | 2 | 2 | 2
Subtotal operating segments | 6,029 | 5,743 | 5,331 | 100 | 100 | 100
Corporate Center | (2,517) | (343) | (1,817) |  |  |
Profit attributable to parent company | 3,512 | 5,400 | 3,514 |  |  |

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The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2019, 2018 and 2017:

| Operating Segments |
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center | Total
| (In Millions of Euros) |
2019 |  |  |  |  |  |  |  |
Net interest income | 3,645 | 2,395 | 6,209 | 2,814 | 3,196 | 175 | (233) | 18,202
Gross income | 5,734 | 3,223 | 8,029 | 3,590 | 3,850 | 454 | (339) | 24,542
Net margin before provisions(1) | 2,480 | 1,257 | 5,384 | 2,375 | 2,276 | 161 | (1,294) | 12,639
Operating profit/(loss) before tax | 1,878 | 705 | 3,691 | 1,341 | 1,396 | 163 | (2,775) | 6,398
Profit attributable to parent company | 1,386 | 590 | 2,699 | 506 | 721 | 127 | (2,517) | 3,512
2018 |  |  |  |  |  |  |  |
Net interest income | 3,698 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (269) | 17,591
Gross income | 5,968 | 2,989 | 7,193 | 3,901 | 3,701 | 414 | (420) | 23,747
Net margin before provisions(1) | 2,634 | 1,129 | 4,800 | 2,654 | 1,992 | 127 | (1,291) | 12,045
Operating profit/(loss) before tax (2) | 1,840 | 920 | 3,269 | 1,444 | 1,288 | 148 | (1,329) | 7,580
Profit attributable to parent company | 1,400 | 736 | 2,367 | 567 | 578 | 96 | (343) | 5,400
2017 |  |  |  |  |  |  |  |
Net interest income | 3,810 | 2,119 | 5,476 | 3,331 | 3,200 | 180 | (357) | 17,758
Gross income | 6,162 | 2,876 | 7,122 | 4,115 | 4,451 | 468 | 74 | 25,270
Net margin before provisions(1) | 2,665 | 1,026 | 4,646 | 2,608 | 2,424 | 164 | (764) | 12,770
Operating profit/(loss) before tax | 1,189 | 749 | 2,960 | 2,143 | 1,671 | 181 | (1,962) | 6,931
Profit attributable to parent company | 877 | 486 | 2,170 | 823 | 847 | 128 | (1,817) | 3,514

(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 has been presented under management criteria pursuant to which “Operating profit/ (loss) before tax” for 2018 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”.

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The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2019 and 2018 and information relating to the balance sheet of our operating segments as of December 31, 2017:

| As of December 31, 2019
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Total Operating Segments | Corporate Center and Adjustments (1)
| (In Millions of Euros)
Total Assets | 365,374 | 88,529 | 109,079 | 64,416 | 54,996 | 23,248 | 705,641 | (6,951)
Cash, cash balances at central banks and other demand deposits | 15,903 | 8,293 | 6,489 | 5,486 | 8,601 | 247 | 45,019 | (716)
Financial assets designated at fair value (2) | 122,844 | 7,659 | 31,402 | 5,268 | 6,120 | 477 | 173,770 | (3,128)
Financial assets at amortized cost | 195,269 | 69,510 | 66,180 | 51,285 | 37,869 | 22,224 | 442,336 | (3,174)
Loans and advances to customers | 167,341 | 63,162 | 58,081 | 40,500 | 35,701 | 19,660 | 384,445 | (2,085)
Of which: |  |  |  |  |  |  |  |
Residential mortgages | 73,871 | 14,160 | 10,786 | 2,928 | 7,168 | 1,624 | 110,536 |
Consumer finance | 11,390 | 5,201 | 8,683 | 5,603 | 7,573 | 453 | 38,904 |
Loans | 5,586 | 1,263 | 1,802 | 635 | 1,024 | 195 | 10,505 |
Credit cards | 2,213 | 883 | 5,748 | 3,837 | 2,239 | 8 | 14,928 |
Loans to enterprises | 57,203 | 36,361 | 24,780 | 26,552 | 16,226 | 16,706 | 177,828 |
Loans to public sector | 13,886 | 5,374 | 6,819 | 107 | 1,368 | 667 | 28,221 |
Total Liabilities | 356,069 | 84,127 | 101,545 | 61,678 | 52,287 | 22,299 | 678,005 | (34,240)
Financial liabilities held for trading and designated at fair value through profit or loss | 78,684 | 282 | 21,784 | 2,184 | 1,860 | 57 | 104,851 | (5,208)
Financial liabilities at amortized cost - Customer deposits | 182,370 | 67,525 | 55,934 | 41,335 | 36,104 | 4,708 | 387,976 | (3,757)
Of which: |  |  |  |  |  |  |  |
Demand and savings deposits | 150,917 | 46,338 | 43,015 | 15,737 | 22,615 | 3,292 | 281,914 |
Time deposits | 31,453 | 14,527 | 12,395 | 25,587 | 13,439 | 1,416 | 98,817 |
Total Equity | 9,305 | 4,402 | 7,533 | 2,738 | 2,709 | 949 | 27,636 | 27,289
Assets under management | 66,068 | - | 24,464 | 3,906 | 12,864 | 500 | 107,803 |
Mutual funds | 41,390 | - | 21,929 | 1,460 | 3,860 | - | 68,639 |
Pension funds | 24,678 | - | - | 2,446 | 9,005 | 500 | 36,630 |
Other placements | - | - | 2,534 | - | - | - | 2,534 |

(1) Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. 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, 2018
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Total Operating Segments | Corporate Center and Adjustments (1)
| (In Millions of Euros)
Total Assets | 354,901 | 82,057 | 97,432 | 66,250 | 54,373 | 18,834 | 673,848 | 2,841
Cash, cash balances at central banks and other demand deposits | 28,545 | 4,835 | 8,274 | 7,853 | 8,987 | 238 | 58,732 | (536)
Financial assets designated at fair value (2) | 107,320 | 10,481 | 26,022 | 5,506 | 5,634 | 504 | 155,467 | (2,564)
Financial assets at amortized cost | 195,467 | 63,539 | 57,709 | 50,315 | 36,649 | 17,799 | 421,477 | (1,818)
Loans and advances to customers | 170,438 | 60,808 | 51,101 | 41,478 | 34,469 | 16,598 | 374,893 | (867)
Of which: |  |  |  |  |  |  |  |
Residential mortgages | 76,390 | 13,961 | 9,197 | 3,530 | 6,629 | 1,821 | 111,529 |
Consumer finance | 9,665 | 5,353 | 7,347 | 5,265 | 6,900 | 410 | 34,940 |
Loans | 5,562 | 1,086 | 1,766 | 570 | 955 | 212 | 10,151 |
Credit cards | 2,083 | 720 | 4,798 | 3,880 | 2,058 | 10 | 13,549 |
Loans to enterprises | 57,317 | 34,264 | 22,553 | 27,657 | 16,897 | 13,685 | 172,373 |
Loans to public sector | 15,379 | 5,400 | 5,726 | 95 | 1,078 | 414 | 28,093 |
Total Liabilities | 345,592 | 77,976 | 90,961 | 63,657 | 52,683 | 18,052 | 648,921 | (25,106)
Financial liabilities held for trading and designated at fair value through profit or loss | 71,033 | 234 | 18,028 | 1,852 | 1,357 | 42 | 92,545 | (4,778)
Financial liabilities at amortized cost - Customer deposits | 183,414 | 63,891 | 50,530 | 39,905 | 35,842 | 4,876 | 378,456 | (2,486)
Of which: |  |  |  |  |  |  |  |
Demand and savings deposits | 142,912 | 41,213 | 38,167 | 12,530 | 22,959 | 3,544 | 261,324 |
Time deposits | 40,072 | 16,856 | 11,593 | 27,367 | 12,829 | 1,333 | 110,051 |
Total Equity | 9,309 | 4,082 | 6,471 | 2,593 | 1,690 | 782 | 24,927 | 27,947
Assets under management | 62,559 | - | 20,647 | 2,894 | 11,662 | 388 | 98,150 |
Mutual funds | 39,250 | - | 17,733 | 669 | 3,741 | - | 61,393 |
Pension funds | 23,274 | - | - | 2,225 | 7,921 | 388 | 33,807 |
Other placements | 35 | - | 2,914 | - | - | - | 2,949 |

(1) Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. 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, 2017
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Total Operating Segments
| (In Millions of Euros)
Total Assets | 350,520 | 75,775 | 90,214 | 78,789 | 75,320 | 17,265 | 687,884
Cash, cash balances at central banks and other demand deposits | 13,636 | 7,138 | 8,833 | 4,036 | 9,039 | 877 | 43,561
Financial assets designated at fair value (1) | 86,912 | 11,068 | 28,458 | 6,419 | 11,627 | 991 | 145,474
Financial assets at amortized cost | 230,228 | 54,705 | 47,691 | 65,083 | 51,207 | 15,533 | 464,447
Loans and advances to customers | 187,884 | 53,718 | 45,768 | 51,378 | 48,272 | 15,388 | 402,408
Of which: |  |  |  |  |  |  |
Residential mortgages | 77,449 | 13,298 | 8,081 | 5,147 | 11,681 | 2,112 | 117,768
Consumer finance | 9,642 | 4,432 | 10,820 | 11,185 | 10,474 | 297 | 46,850
Loans | 7,752 | 3,894 | 6,422 | 6,760 | 7,760 | 282 | 32,871
Credit cards | 1,890 | 538 | 4,397 | 4,425 | 2,715 | 15 | 13,979
Loans to enterprises | 50,878 | 30,261 | 20,977 | 34,371 | 23,567 | 11,801 | 171,855
Loans to public sector | 18,562 | 4,999 | 5,262 | 148 | 1,114 | 511 | 30,596
Total Liabilities | 338,612 | 72,653 | 86,700 | 70,348 | 70,569 | 16,330 | 655,211
Financial liabilities held for trading and designated at fair value through profit or loss | 43,793 | 139 | 9,405 | 648 | 2,823 | 45 | 56,852
Financial liabilities at amortized cost - Customer deposits | 180,840 | 60,806 | 49,964 | 44,691 | 45,705 | 6,700 | 388,707
Of which: |  |  |  |  |  |  |
Demand and savings deposits | 126,801 | 44,039 | 34,855 | 14,240 | 25,871 | 4,279 | 250,084
Time deposits | 48,014 | 16,762 | 10,237 | 30,300 | 20,099 | 2,416 | 127,828
Total Equity | 11,909 | 3,123 | 3,515 | 8,441 | 4,751 | 935 | 32,673
Assets under management | 62,018 | - | 19,472 | 3,902 | 12,197 | 376 | 97,965
Mutual funds | 37,996 | - | 16,430 | 1,265 | 5,248 | - | 60,939
Pension funds | 24,023 | - | - | 2,637 | 6,949 | 376 | 33,985
Other placements | - | - | 3,041 | - | - | - | 3,041

(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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Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary 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: which manages small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments;

· Corporate and Investment Banking: 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), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain (including assets from the previous Non-Core Real Estate operating segment), 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.

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”) amounted to €122,844 million as of December 31, 2019, a 14.5% increase from the €107,320 million recorded as of December 31, 2018, mainly as a result of the increase in the volume of reverse repurchase agreements with credit institutions recorded under “Financial assets held for trading” and, to a lesser extent, the increase in derivatives recorded under “Financial assets held for trading”.

Financial assets at amortized cost of this operating segment as of December 31, 2019 amounted to €195,269 million, a 0.1% decrease compared with the €195,467 million recorded as of December 31, 2018. Within this heading, loans and advances to customers amounted to €167,341 million as of December 31, 2019, a decrease of 1.8% from the €170,438 million recorded as of December 31, 2018, mainly as a result of the decrease in residential mortgage loans and, to a lesser extent, the decrease in loans to the public sector, partially offset by an increase in consumer loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2019 amounted to €78,684 million, a 10.8% increase compared with the €71,033 million recorded as of December 31, 2018, mainly as a result of the increase in repurchase agreements with credit institutions.

Customer deposits at amortized cost of this operating segment as of December 31, 2019 amounted to €182,370 million, a 0.6% decrease compared with the €183,414 million recorded as of December 31, 2018 mainly as a result of the decrease in time deposits due to the decreases in interest rates.

Mutual funds of this operating segment as of December 31, 2019 amounted to €41,390 million, a 5.5% increase from the €39,250 million recorded as of December 31, 2018, mainly due to new contributions by our customers.

Pension funds of this operating segment as of December 31, 2019 amounted to €24,678 million, a 6.0% increase compared with the €23,274 million recorded as of December 31, 2018, mainly due to new contributions by our customers.

This operating segment’s non-performing loan ratio decreased to 4.4% as of December 31, 2019 from 5.1% as of December 31, 2018, mainly due to a 14.3% decrease in the balance of non-performing loans in the period (€8,635 million as of December 31, 2019 and €10,073 million as of December 31, 2018). This change was mainly explained by the sale of non-performing mortgage loans and write-offs in 2019. This operating segment’s non-performing loan coverage ratio increased to 60% as of December 31, 2019 from 57% as of December 31, 2018.

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The United States

This operating segment includes the Group’s business in the United States. BBVA USA accounted for 89.7% of this operating segment’s balance sheet as of December 31, 2019. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA. 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 1.9% against the euro as of December 31, 2019 compared with December 31, 2018, positively affecting the business activity of the United States operating segment as of December 31, 2019 expressed in euros. See “Item 5. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

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, 2019 amounted to €7,659 million, a 26.9% decrease from the €10,481 million recorded as of December 31, 2018, mainly due to a decrease in the volume of U.S. Treasury and other U.S. government securities and in mortgage-backed securities due to the lower interest rates offered by such securities.

Financial assets at amortized cost of this operating segment as of December 31, 2019 amounted to €69,510 million, a 9.4% increase compared with the €63,539 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of December 31, 2019 amounted to €63,162 million, a 3.9% increase compared with the €60,808 million recorded as of December 31, 2018, mainly due to an increase in loans to non-financial entities.

Customer deposits at amortized cost of this operating segment as of December 31, 2019 amounted to €67,525 million, a 5.7% increase compared with the €63,891 million recorded as of December 31, 2018, mainly due to an increase in demand deposits, partially offset by a decrease in time deposits due to the lower interest rates offered to customers.

The non-performing loan ratio of this operating segment as of December 31, 2019 decreased to 1.1% from 1.3% as of December 31, 2018, mainly due to the decrease in the non-performing loan portfolio. This operating segment’s non-performing loan coverage ratio increased to 101% as of December 31, 2019, from 85% as of December 31, 2018, as a result of higher loss allowances and the decrease in non-performing loans, in particular, in the commercial, financial and agricultural portfolios.

Mexico

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

The financial information for 2017 relating to such segments included in the Consolidated Financial Statements and in this Annual Report has been revised in order to improve its comparability with financial information for subsequent periods.

The Mexican peso appreciated 6.0% against the euro as of December 31, 2019 compared with December 31, 2018, positively affecting the business activity of the Mexico operating segment as of December 31, 2019 expressed in euros. See “Item 5. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

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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, 2019 amounted to €31,402 million, a 20.7% increase from the €26,022 million recorded as of December 31, 2018, mainly as a result of the increase in the volume of reverse repurchase agreements with financial institutions within the trading portfolio, the increase in debt securities recorded under “Financial assets held for trading”, the transfer of certain loans from the amortized cost portfolio and the appreciation of the Mexican peso against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2019 amounted to €66,180 million, a 14.7% increase compared with the €57,709 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of December 31, 2019 amounted to €58,081 million, a 13.7% increase compared with the €51,101 million recorded as of December 31, 2018, mainly due to the increase in the volume of wholesale loans and loans to non-financial entities and households and the appreciation of the Mexican peso against the euro, partially offset by the transfer of certain loans to the trading portfolio.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2019 amounted to €21,784 million, a 20.8% increase compared with the €18,028 million recorded as of December 31, 2018, mainly as a result of the increase in the volume of repurchase agreements and, to a lesser extent, the appreciation of the Mexican peso against the euro.

Customer deposits at amortized cost of this operating segment as of December 31, 2019 amounted to €55,934 million, a 10.7% increase compared with the €50,530 million recorded as of December 31, 2018, primarily due to the increase in demand deposits for households and, to a lesser extent, the increase in wholesale deposits, being the latter positively affected by the appreciation of the Mexican peso against the euro.

Mutual funds of this operating segment as of December 31, 2019 amounted to €21,929 million, a 23.7% increase compared with the €17,733 million recorded as of December 31, 2018, primarily due to the promotion of a wide range of investment products and the appreciation of the Mexican peso against the euro.

This operating segment’s non-performing loan ratio increased to 2.4% as of December 31, 2019 from 2.1% as of December 31, 2018, mainly due to the operation of the contagion rules for retail exposures (‘pulling effect’), as well as to the change in the accounting criteria for the recognition of non-performing loans (from three past-due installments to 90 days past-due). As a consequence, this operating segment’s non-performing loan coverage ratio decreased to 136% as of December 31, 2019 from 154% as of December 31, 2018.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 9.4% against the euro as of December 31, 2019 compared to December 31, 2018, negatively affecting the business activity of the Turkey operating segment as of December 31, 2019 expressed in euros. See “Item 5. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

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, 2019 amounted to €5,268 million, a 4.3% decrease from the €5,506 million recorded as of December 31, 2018, mainly as a result of the depreciation of the Turkish lira. At constant exchange rates, there was an increase in financial assets designated at fair value as a result of the increase in debt securities denominated in euros with central governments.

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Financial assets at amortized cost of this operating segment as of December 31, 2019 amounted to €51,285 million a 1.9% increase compared with the €50,315 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of December 31, 2019 amounted to €40,500 million, a 2.4% decrease compared with the €41,478 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira, partially offset by the increase in the volume of Turkish-lira denominated loans, in particular commercial loans supported by the Credit Guarantee Fund, consumer loans and credit cards.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2019 amounted to €2,184 million, a 17.9% increase compared with the €1,852 million recorded as of December 31, 2018, mainly as a result of the increase in debt securities within the trading portfolio, which more than offset the effect of the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of December 31, 2019 amounted to €41,335 million, a 3.6% increase compared with the €39,905 million recorded as of December 31, 2018, mainly due to the increase in demand deposits in both Turkish lira and foreign currencies, partially offset by the depreciation of the Turkish lira.

Mutual funds in this operating segment as of December 31, 2019 amounted to €1,460 million compared with the €669 million recorded as of December 31, 2018, mainly due to the growth in money market related funds, which more than offset the effect of the depreciation of the Turkish lira.

Pension funds in this operating segment as of December 31, 2019 amounted to €2,446 million, a 10.0% increase compared with the €2,225 million recorded as of December 31, 2018, mainly due to the favorable market dynamics, where the rapid decrease in interest rates has forced returns from funds to be higher than those from deposits, partially offset by the depreciation of the Turkish lira.

The non-performing loan ratio of this operating segment as of December 31, 2019 was 7.0% compared with 5.3% as of December 31, 2018 mainly as a result of an increase in non-performing loans. This operating segment’s non-performing loan coverage ratio decreased to 75% as of December 31, 2019 from 81% as of December 31, 2018, mainly due to the increase in the balance of non-performing loans as of December 31, 2019 compared to the balance recorded as of December 31, 2018.

South America

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

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

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

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

As of December 31, 2019, the Argentine peso depreciated 35.7% against the euro compared to December 31, 2018, while the Colombian peso and the Peruvian sol appreciated against the euro, compared to December 31, 2018, by 1.7% and 3.8%, respectively. Overall, changes in exchanges rates have negatively affected the business activity of the South America operating segment as of December 31, 2019 expressed in euros. See “Item 5. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

As of and for the years ended December 31, 2019 and 2018, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies— Hyperinflationary economies”).

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Financial assets designated at fair value for 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, 2019 amounted to €6,120 million, a 8.6% increase compared with the €5,634 million recorded as of December 31, 2018, mainly due to the increase in debt securities issued by central banks and the central governments in Argentina and Peru, partially offset by the depreciation of the Argentine peso against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2019 amounted to €37,869 million, a 3.3% increase compared with the €36,649 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of December 31, 2019 amounted to €35,701 million, a 3.6% increase compared with the €34,469 million recorded as of December 31, 2018, mainly as a result of the increase in consumer, mortgage and credit cards loans in Colombia and Peru, partially offset by the depreciation of the Argentine peso.

Customer deposits at amortized cost of this operating segment as of December 31, 2019 amounted to €36,104 million, a 0.7% decrease compared with the €35,842 million recorded as of December 31, 2018, mainly as a result of the depreciation of the Argentine peso.

Mutual funds in this operating segment as of December 31, 2019 amounted to €3,860 million, a 3.2% increase compared with the €3,741 million recorded as of December 31, 2018, mainly due to the favorable market dynamics, which positively affected the performance of institutional banking and Corporate & Investment Banking (C&IB), especially in Colombia and Peru, partially offset by the depreciation of the Argentine peso against the euro.

Pension funds in this operating segment as of December 31, 2019 amounted to €9,005 million, a 13.7% increase compared with the €7,921 million recorded as of December 31, 2018, mainly as a result of an increase in pension funds in Bolivia, where contributions to pension funds are mandatory.

The non-performing loan ratio of this operating segment as of December 31, 2019 increased to 4.4% compared with 4.3% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2019, from 97% as of December 31, 2018, mainly due to a 9.3% increase in the balance of provisions in Peru and Argentina as of December 31, 2019 compared to the balance recorded as of December 31, 2018.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses comprised in our Spain and Turkey operating segments. In particular, The Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches (in Taipei, Tokyo, Hong Kong, Singapore and Shanghai) and representative offices (in Beijing, Seoul, Mumbai, Abu Dhabi and Jakarta).

Financial assets designated at fair value for 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, 2019 amounted to €477 million, a 5.2% decrease compared with the €504 million recorded as of December 31, 2018, mainly due to the decrease in debt securities within the fair value through other comprehensive income portfolio in C&IB Asia.

Financial assets at amortized cost of this operating segment as of December 31, 2019 amounted to €22,224 million, a 24.9% increase compared with the €17,799 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of December 31, 2019 amounted to €19,660 million, an 18.4% increase compared with the €16,598 million recorded as of December 31, 2018, mainly as a result of an increase in enterprise loans and the growth in the corporate and investment banking business in Asia.

Customer deposits at amortized cost of this operating segment as of December 31, 2019 amounted to €4,708 million, a 3.5% decrease compared with the €4,876 million recorded as of December 31, 2018, mainly due to the negative interest rate environment in Europe which has led certain investors to withdraw certain deposits.

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Pension funds in this operating segment as of December 31, 2019 amounted to €500 million, a 29.1% increase compared with the €388 million recorded as of December 31, 2018, mainly due to the offering of a new multi-strategic product.

The non-performing loan ratio of this operating segment as of December 31, 2019 was 1.2% compared with 1.7% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio increased to 98% as of December 31, 2019, from 83% as of December 31, 2018.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death 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.

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

See Note 23 to our Consolidated Financial Statements for additional 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;

· 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, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”), including the Single Supervisory Mechanism (“SSM”) at the European level and the Bank of Spain at the national level. The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

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The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Spain— Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities (“MREL”).

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under specific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be used only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the SSM as failing or likely to fail, which occurs when there is no other option to restore its viability (such as applying the bank’s recovery plan) within the available time frame.

The third and final pillar of the EBU, which is still under discussion, is the European Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the country of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

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In the aftermath of the global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that are part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, on a “Pillar 2” basis, as well as the qualitative requirements that the bank must address in the following year. This exercise takes four different elements of a bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

In addition, any work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a supervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

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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 certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

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

Capital Requirements

In December 2010, 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, the BBVA Group 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 (the “CRD IV Directive”), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014. 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 (CRR I and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or CRR I which may from time to time be applicable in Spain, “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 the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 26, 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 (“Royal Decree 84/2015”), Bank of Spain Circular 2/2014 of January 31, and Bank of Spain Circular 2/2016, of February 2.

On June 7, 2019, the following amendments to CRD IV and Directive 2014/59/EU of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“BRRD I”) were published:

· Directive 2019/878/EU of the European Parliament and of the European Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “CRD V Directive”) amending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and as amended, replaced or supplemented from time to time, the “CRD Directive”);

· Directive 2019/879/EU of the European Parliament and of the European Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “BRRD II”) amending, among other things, BRRD I as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the “BRRD”);

· Regulation (EU) No. 876/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “CRR II” and, together with the CRD V Directive, “CRD V”) amending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements for own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, replaced or supplemented from time to time, the “CRR”); and

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· Regulation (EU) No. 877/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “SRM Regulation II”) amending 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 (the “SRM Regulation I”) as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (SRM Regulation I as so amended by SRM Regulation II and as amended, replaced or supplemented from time to time, the “SRM Regulation”) (CRD V, together with BRRD II and the SRM Regulation II, the “EU Banking Reforms” ).

The EU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of their entry into force on June 27, 2019, other than in the case of certain provisions of the CRD V Directive where a two year period is provided for. CRR II is stated to apply from 24 months plus one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force in a phased-in manner as further described therein.

CRD IV, among other things, 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 capital buffer requirement” that entities must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (a) the capital conservation buffer, (b) the G-SIB buffer, (c) the institution-specific countercyclical buffer, (d) the D-SIB buffer, and (e) 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 capital buffer requirement”. This “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and is required to be satisfied with CET1 capital.

The G-SIB buffer is applicable to the institutions included in the list of G-SIBs, which is updated annually by the Financial Stability Board. The Bank was excluded from this list with effect as from January 1, 2017. Accordingly, unless otherwise indicated by the Financial Stability Board (or the Bank of Spain) in the future, the Bank will no longer be required to maintain the G-SIB buffer.

The Bank of Spain announced on November 25, 2019 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer equivalent to a CET1 capital ratio of 0.75% on a consolidated basis.

In December 2015, the Bank of Spain agreed to set the counter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is reviewed quarterly. In December 2019, the Bank of Spain agreed to maintain the counter cyclical capital buffer applicable to credit exposures in Spain at 0% for the final quarter of 2019. As of the date of this Annual Report, the counter cyclical capital buffer applicable to the Group stands at 0.01% due to certain exposures of the Group in other jurisdictions. Additionally, Article 104 of the CRD 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 (although, under the EU Banking Reforms, it is proposed that further “Pillar 2” capital requirements should be used to address micro-prudential considerations only).

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 SREP for us and the Group at least on an annual basis.

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In addition to the above, 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 CRD V. The EBA SREP Guidelines and CRD V also contemplate that national supervisors should not set additional own funds requirements in respect of risks which are already covered by the “combined capital 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.

For further information on the countercyclical capital buffer, the result of the most recent SREP and the total capital requirements applicable to the BBVA Group, see Note 32 to our Consolidated Financial Statements.

Additionally, in 2019, the Bank has achieved its CET1 fully-loaded capital target, consisting of a CET1 ratio within the range between 11.5% and 12% on a consolidated basis. No assurance can be given that such target will not change in the future. See “Cautionary Statement Regarding Forward-Looking Statements”. Any failure by us to maintain a consolidated CET1 capital ratio in line with our CET1 fully-loaded capital target could adversely affect the market price or value or trading behavior of any securities issued by us (and, in particular, any of our capital instruments) and ultimately lead to the imposition of further “Pillar 2” guidance or requirements. In addition, 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, and 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.

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”), competent authorities should ensure that the CET1 capital to be taken into account in determining the CET1 capital available to meet the “combined capital buffer requirement” is limited to the amount of CET1 capital not used to meet the Bank’s “Pillar 1” and, where applicable, “Pillar 2” own funds requirements. Furthermore, CRD V introduces certain amendments in order to clarify the hierarchy or order of priority of own funds and eligible liabilities among the “Pillar 1” minimum solvency requirements, the “Pillar 2” additional own funds solvency requirements, the MREL requirements and the “combined capital buffer requirement” (referred to as the “stacking order”).

In accordance with Article 48 of Law 10/2014, Article 73 of Royal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any institution not meeting its “combined capital buffer requirement” is required to calculate its maximum distributable amount (“MDA”) as stipulated in such legislation. Should that requirement not be met and until the MDA has been calculated and communicated to the Bank of Spain, the relevant institution shall not make any: (i) distributions relating to CET1 capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to AT1 instruments (“discretionary payments”), and once the MDA has been calculated and communicated to the Bank of Spain, the discretionary payments will be subject to the limit of the MDA calculated.

Additionally, pursuant to Article 48 of Law 10/2014, the Bank of Spain’s adoption of the measures provided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds and limiting or prohibiting the distribution of dividends, respectively, will also entail the requirement to determine the MDA and to restrict discretionary payments to such MDA. In accordance with the EU Banking Reforms, the calculation of the MDA and the related restrictions, including those applicable while such calculation is pending, which are described in the preceding paragraph, shall also be triggered by a failure to meet the MREL or the minimum leverage ratio requirement.

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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. CRD V also makes a distinction between “Pillar 2” capital requirements and “Pillar 2” capital guidance, with only the former being mandatory requirements. Notwithstanding the foregoing, CRD V provides that, in addition to certain other measures, supervisory authorities are entitled to impose further “Pillar 2” capital requirements where an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

At its meeting of January 12, 2014, the oversight body of the Basel Committee 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, CRR II sets 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.

Furthermore, on December 7, 2017 the BCBS announced the completion of the 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 risk sensitivity, as well as to 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 (“RWA s”) using internal risk models as compared to the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches applying from January 1, 2022 and increasing to 72.5% from January 1, 2027.

Additionally, BRRD prescribes that an institution 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, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 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.

On November 9, 2015, the FSB published its final 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 RWAs 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.

Among other amendments, BRRD II introduces the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“TLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II also provides for a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms provide for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, they provide that MRELs will be imposed on a bank-specific basis. For G-SIBs, the EU Banking Reforms provide 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.

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Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty insofar as such eligibility is concerned and how the regulations and exemptions provided for in the EU Banking Reforms are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or MREL purposes.

As outlined in the final report submitted by the EBA on December 14, 2016 on the implementation and design of the MREL framework which contains a number of recommendations to amend the current MREL framework, the EBA’s recommendation is that an institution will not be able to use the same CET1 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 MREL and will no longer count towards its combined buffer requirement. Accordingly, this could trigger a limit on discretionary payments.

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 us) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must 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 will be eligible for compliance with the subordination requirement). For “top tier” banks such as us, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s risk weighted assets (“RWAs”) or alternatively, 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.

For information on the notifications from the Bank of Spain regarding our MREL, as determined by the SRB, see Note 32 to our Consolidated Financial Statements.

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 the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management 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. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new 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 concerning certain portfolios and its operational risk internal model.

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From an economic standpoint, capital management seeks to optimize value creation for the Group and 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 credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

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 so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other 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 must 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 must 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, must 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 the CRD IV Directive to address and control concentration risk, provided that 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 of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

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 each of them on a voluntary basis upon the declaration of an interim dividend. 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 that credit institutions 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 SREP.

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Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are 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.

Investment Ratio

In the past, the Spanish 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.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). Recently approved Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”), applies to individuals, whether or not they are consumers, and sets limits on default interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to signing a residential credit agreement in which the notary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

The European Union’s sustainability initiatives will also impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Revision of the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the European Council and the Parliament reached a political agreement on the Taxonomy Regulation, which provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities. Furthermore, the EBA published its Action Plan on sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

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Regarding the pension funds sector, Directive (EU) 2016/2341 has been recently transposed by Royal Decree Law 3/2020, of February 4, of urgent measures transposing into Spanish law various European Union directives in the field of public procurement in certain sectors; private insurance; pension plans and funds; taxation and tax litigation, including, regarding pension funds and plans, (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

In terms of financial markets legislation, Directive (EU) 2014/65 relating to markets in financial instruments (“MIFID II”) has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to provide retail investors based in the European Economic Area with KIDs to enable those investors to better understand and compare products. Recently, European authorities have issued a consultation paper to obtain feedback from the industry in order to amend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margin when dealing with other in-scope entities. The BBVA Group is currently working to prepare together with its clients the next phase in which new entities will be subject to the obligations, that will start in September 2020. The impact and work to be done until that period will depend on the number of entities that might be subject to this obligation in 2020 (which may also depend on whether the approach of the International Organization of Securities Commissions recommending a phase-in for this 2020-phase is implemented in Europe).

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), 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, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation, suspicious activity reports, etc.

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 (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in all EU member states with the same level of legally enforceable rights and obligations regarding personal data and imposing 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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For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to the incremental use of new technologies in almost any process carried out by the Group, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased uptake of implementing and revising our privacy management processes, from the way in which consent is obtained from the client, to the implementation of processes to put into effect new rights, such as the right to be forgotten or the right to data portability.

GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements and the legitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on actual risk.

In terms of security, GDPR obligations and requirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), 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.

Recovery and Resolution of Credit Institutions and Investment Firms

The BRRD (which has been partially transposed in Spain by Law 11/2015, of June 18, on the recovery and resolution of credit institutions and investment firms (“Law 11/2015”) and Royal Decree 1012/2015, of November 6, on development of law on recovery and resolution of credit entities and investment firms and modification of the royal decree on deposit guarantee funds of credit entities (“RD 1012/2015”) , pending the transposition of BRRD II) and the SRM Regulation are designed to provide the authorities with mechanisms and instruments to intervene sufficiently early and rapidly in failing or likely to fail credit institutions or investment firms (each an “Entity”) in order to ensure the continuity of the Entity’s critical financial and economic functions, while minimizing the impact of its non-feasibility on the economic and financial system. The BRRD further provides that a Member State may only use additional financial stabilization instruments to provide extraordinary public financial support as a last resort, once the following resolution instruments have been evaluated and used to the fullest extent possible while maintaining financial stability.

In accordance with the provisions of Article 20 of Law 11/2015, an Entity will be considered as failing or likely to fail in any of the following situations: (i) when the Entity significantly fails, or may reasonably be expected to significantly fail in the near future, to comply with the solvency requirements or other requirements necessary to maintain its authorization; (ii) when the Entity’s enforceable liabilities exceed its assets, or it is reasonably foreseeable that they will exceed them in the near future; (iii) when the Entity is unable, or it is reasonably foreseeable that it will not be able, to meet its enforceable obligations in a timely manner; or (iv) when the Entity needs extraordinary public financial support (except in limited circumstances). The decision as to whether the Entity is failing or likely to fail may depend on a number of factors which may be outside of that Entity’s control.

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In line with the provisions of the BRRD, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the Spanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of any other measures that would prevent the failure of such Entity within a reasonable period of time, and (c) resolution is necessary or advisable, as opposed to the winding up of the Entity through ordinary insolvency proceedings, for reasons of public interest.

The four resolution instruments are (i) the sale of the Entity’s business, which enables the resolution authorities to transfer, under market conditions, all or part of the business of the Entity being resolved; (ii) bridge institution, which enables resolution authorities to transfer all or part of the business of the Entity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control); (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 their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Bail-in Tool (as defined below). Any exercise of the Bail-in Tool by the 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 Bail-in Tool) of certain unsecured debt claims of the Entity.

In the event that an Entity is in a resolution situation, the “Bail-in Tool” is understood to mean 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 the provisions of Article 48 of Law 11/2015 (without prejudice to any exclusions that may be applied by the Spanish Resolution Authority in accordance with Article 43 of Law 11/2015), in the event of any application of the Bail-in Tool, any resulting write-down or conversion by the Spanish Resolution Authority will be carried out so that they affect instruments in the following sequence: (i) CET1 items; (ii) the principal amount of Additional Tier 1 capital instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims other than 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 (with senior non-preferred claims (créditos ordinarios no preferentes) subject to the Bail-in Tool after any subordinated claims (créditos subordinados) under Article 92 of the Insolvency Law, but before the other senior claims).

In addition to the Bail-in Tool, 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 of an Entity at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Bail-in Tool, the “Spanish Bail-in Power” ). Any write-down or conversion must follow the same insolvency hierarchy as described below. The point of non-viability of an Entity is the point at which the Spanish Resolution Authority determines that the Entity 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 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 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 Bail-in Tool or any other resolution tool or power (where the conditions for resolution referred to above are met).

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In addition, the EBA has published certain technical regulation standards and technical implementation standards to be adopted by the European Commission, in addition to other guidelines. These standards and guidelines could potentially be relevant in determining when or how a Spanish Resolution Authority may exercise the Bail-in Tool and/or impose a Non-Viability Loss Absorption. These include guidelines on the treatment of shareholders when applying the Bail-in Tool or Non-Viability Loss Absorption, as well as on the rate for converting debt into shares or other securities or debentures in the application of the Bail-in Tool and/or Non-Viability Loss Absorption.

To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Bail-in Tool 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, together with any other compensation provided for in any applicable banking regulations including, inter alia, compensation in accordance with Article 36.5 of Law 11/2015. However, if the treatment of a creditor following a Non-Viability Loss Absorption is less favorable than it would have been under ordinary insolvency proceedings, it is uncertain whether said creditor would be entitled to the compensation provided for in the BRRD and the SRM Regulation.

Mexico

BBVA’s operations in Mexico are subject to regulation by Mexican national authorities. The Mexican regulatory framework for financial and banking activities aims to ensure the stability of the financial system, as well as to provide consumer protection and transparency in the provision of financial services.

The provision of finance and deposit products is mainly regulated in the Banking Law and provisions issued by National Banking and Securities Commission (“CNBV”) and Bank of Mexico (“BANXICO”), where CNBV establishes prudential obligations and BANXICO regulates the banking transactions, including finance and deposit products. In addition, the Financial Services Transparency and Regulation Law contains provisions regarding transparency and protection for the users of financial services.

The regulatory framework for capital markets includes specific regulations designed to develop the stock market in an equitable, efficient and transparent manner, protect the interests of investors, as well as minimize systemic risk and the promotion of a healthy competition.

Regarding asset management, regulation encourages the promotion of investment companies, their balanced development and the promotion of conditions for strengthening and decentralizing the stock market through the access for small and medium investors, the establishment of rules for the organization and operation of investment funds, the intermediation of their shares in the stock market, as well as the organization and operation of the people who provide asset management services.

Recent changes to the Mexican framework include: (a) the issuance by BANXICO of rules regarding the granting of finance products linked to payroll services, (b) the proposal of an initiative regarding bank fees that requires banks to offer certain accounts exempted from some fees and to provide comparative information of the fees charged, and (c) the amendment to the law to establish obligations related to telemarketing activities.

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Under the new administration, regulatory activity in Mexico has slowed down considerably, although one draft bill could have significant potential impact on competition in the near future. In November 2019, after the ruling party’s majority leader in the Senate presented a bill to severely restrict banks’ fees, a new banking fee bill with a broader and more comprehensive approach, developed by the Mexican Bank Association and the financial authorities, was presented. This new project would, inter alia, (a) broaden existing “basic” fee-free accounts to include accounts into which government aid and subsidies are deposited (for example with respect to unemployed or disabled customers); (b) create an “intermediate account” which would have no fees for deposits, for a number of monthly cash withdrawals on own ATMs (to be determined by BANXICO), and up to three interbank monthly transfers, among others; (c) reinforce measures to permit customers to switch banks and cancel products; (d) create a mandatory banking services offering platform where customers will be able to review offers and, if they so choose and meet the relevant eligibility criteria (including credit checks, where applicable), receive a binding offer from the bank in question; and (e) with clients’ prior consent, allow banks to access credit data for the submission of tailored offers to potential clients through the credit bureaus. The bill would increase fee transparency requirements, with enhanced fee disclosure prior to the signing of contracts, and the submission of a yearly report on paid fees and interest. In addition, BANXICO and CONDUSEF (the financial ombudsman), would be required to align their fee catalogues in order to make comparison easier for clients. The bill was presented to the Senate, and could be voted on in the coming months, before continuing its process at the Chamber of Deputies.

Turkey

BBVA’s operations in Turkey are subject to regulation by Turkish national authorities. In general, the rules applicable to products and services that banks in Turkey offer to consumers are more stringent than rules applicable with respect to commercial and corporate banking customers. Besides general consumer protection regulations, there are specific regulations of the Banking Regulation and Supervision Agency (“BRSA”) on banking consumers.

Apart from fundamental legal rules and product/service-specific legal regulations, the most basic regulation for the sector is the Banking Law No. 5411. The purpose of this law is to regulate the principles and procedures of ensuring confidence and stability in financial markets, the efficient functioning of the credit system and the protection of the rights and interests of depositors.

In 2019, new regulations were passed that seek to facilitate the restructuring and repayment of loans by distressed commercial customers, provided that they are willing to pay their debts but are not able to fulfill their obligations due to financial distress. These regulations seek to ensure that customers can resume their economic activities in a reasonable time and under reasonable conditions. The debt restructuring could involve, inter alia, the extension of loan maturities, the renewal of loans, the granting of additional credit and the release of claims.

In addition, the new legal framework extended the maturity period for consumer loans. This extension applies to all consumer loans, including loans that existed at the time that the framework was passed.

Floating interest rates can be applied to Turkish Lira deposits with a maturity of three months or more, and to foreign currency deposits with a maturity of more than six months. Regarding fees received from merchants from purchases made by credit cards, while the banks previously had the right to determine the commission rate within their sole discretion, such commission rate has now been limited to 1.60%.

In general, the Payment Systems Law regulates the procedures and principles of payment services, payment institutions and electronic money institutions. While certain significant amendments have been made to this law, they have not yet come into force. These amendments seek to: (i) answer the sectoral needs of the payment and electronic money institutions; (ii) eliminate the dual structure which consists of the Central Bank of the Republic of Turkey (“Central Bank”) and BRSA and position the Central Bank as the sole regulatory and supervisory authority and; (iii) ensure the compliance of Turkish legislation with EU regulations (especially the Payment Services (PSD2) Directive). As part of these amendments, with the authority defined as payment service initiation and providing of account information, it will be possible to consolidate payment account information online with consenting users and initiate a payment for a payment account at another payment service provider.

The draft Regulation on Information Systems and Electronic Banking Services is expected to enter into force during the first quarter of 2020. The draft regulation mainly regulates information systems and electronic banking. The draft regulation explicitly stipulates that cloud-based information systems (and their backups) (including those used by Garanti BBVA and its Turkish customers) shall be maintained in Turkey.

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Garanti BBVA conducts its investment banking business in accordance with the Turkish Capital Market Law and various related regulations issued by Capital Market Board of Turkey. As a commercial bank, Garanti BBVA has a license to carry out the following activities: (a) receipt and transmission of orders in relation to capital market instruments, (b) execution of orders in relation to capital market instruments (except shares and derivative instruments based on stock indices or stocks) in the name and account of the customer or in its own name and in the account of the customer, (c) dealing for its own account (except for derivative instruments based on stock indices and stocks) and (d) safekeeping and administration of capital market instruments in the name of the customer and portfolio custody service.

United States

BBVA’s activities and operations in the United States are subject to extensive U.S. federal and state supervision and regulation, and in some cases, U.S. requirements may impose restrictions on BBVA’s global activities. BBVA is a foreign banking organization and a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”) and the International Banking Act of 1978, as amended (the “IBA”), and as a result, BBVA is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). BBVA has also elected to be treated as a financial holding company.

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 and IBA. BBVA 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. In addition, a bank holding company, including BBVA, 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.

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 USA Bancshares, Inc., BBVA’s top-tier U.S. intermediate holding company, holds all of BBVA’s U.S. bank and nonbank subsidiaries, including BBVA’s U.S. bank subsidiary, BBVA USA. BBVA USA Bancshares, Inc. is also a bank holding company that has elected to be treated as a financial holding company and is subject to regulation and supervision by the Federal Reserve. BBVA USA is regulated extensively under U.S. federal and state law by, among other regulators, the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Alabama State Banking Department. BBVA USA Bancshares, Inc. is also subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) with respect to consumer protection laws.

To continue to be treated as a financial holding company, each of BBVA and BBVA USA Bancshares, Inc. must maintain certain regulatory capital ratios above minimum requirements and must be deemed to be “well-managed” for U.S. bank regulatory purposes. In addition, any U.S. depository institution subsidiaries of the foreign banking organization or bank holding company must also maintain certain regulatory capital ratios above minimum requirements and be deemed to be “well-managed” and must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.

Sections 23A and 23B of Federal Reserve Act and Regulation W place various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to extensions of credit, credit exposures arising from derivative transactions, and securities borrowing and lending transactions 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. These restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

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The availability of dividends from banking organizations in the United States is limited by various statutes and regulations. Federal banking agencies are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In particular, the banking agencies have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, state-chartered banking institutions, including BBVA USA, are subject to dividend limitations imposed by applicable federal and state laws.

Enhanced Prudential Standards

Pursuant to the D odd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), BBVA and BBVA USA Bancshares, Inc. have been subject to certain enhanced prudential standards (including resolution planning), capital adequacy requirements, capital planning and stress testing, liquidity standards, risk management and governance requirements, among other regulatory and supervisory requirements.

In October 2019, the Federal Reserve finalized rules that implement certain provisions of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”) by tailoring enhanced prudential standards and capital and liquidity requirements applicable to foreign and domestic banking organizations, including BBVA and BBVA USA Bancshares, Inc. As a result, both BBVA and BBVA USA Bancshares, Inc. will be subject to less restrictive enhanced prudential standards and capital and liquidity requirements going forward.

Under Title I of the Dodd-Frank Act and implementing regulations issued by the Federal Reserve and the FDIC, BBVA must prepare and submit 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”). BBVA filed its most recent Title I Resolution Plan in December 2018. As a result of EGRRCPA and its implementing regulations, BBVA will now be required to file a reduced Title I Resolution Plan once every three years. In addition, BBVA USA is subject to the FDIC rule requiring large insured depository institutions to submit periodically to the FDIC a plan for resolution in the event of failure under the Federal Deposit Insurance Act. The deadline for the BBVA’s next Title I Resolution Plan submission is currently unclear, because 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.

BBVA USA Bancshares, Inc. and BBVA USA 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. In the past, BBVA USA Bancshares, Inc. and BBVA USA had been subject to certain additional capital planning, stress testing and liquidity requirements, but, as result of EGRRCPA and its implementing regulations, BBVA USA Bancshares, Inc. and BBVA USA will no longer be subject to these additional requirements.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as BBVA USA, 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 October 2019, the five regulatory agencies charged with implementing the Volcker Rule released finalized amendments to the current Volcker Rule regulations that 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. In addition, the regulatory agencies proposed further amendments to the covered fund provisions of the Volcker Rule in January 2020. BBVA is of the view that the impact of the Volcker Rule, as amended and proposed to be amended, is not material to its business operations.

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Derivatives

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 and the National Futures Association. 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 certain conditions, BBVA may comply with EU OTC derivatives requirements in lieu of certain CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued 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.

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

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, (a) give special attention to correspondent and payable-through bank accounts, (b) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (c) scrutinize the beneficial ownership and activity of certain non-U.S. and private banking customers (especially for so-called politically exposed persons), and (d) 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.

Other Regulated U.S. Entities

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 (“FinCEN”) 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. In addition, 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, BBVA USA 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.

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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. The BBVA Group made a payment of $642 to Bank Melli on July 11, 2019, due to outstanding commissions on the counterindemnity executed on October 16, 2018. Such counterindemnity was issued in April 2000 and has been regulatory reported until its execution in 2018.

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, 2019, from embassy-related activity, which include fees and/or commissions, totaled $2,225. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.

The BBVA Group is committed to terminating these business relationships as soon as legally possible.

## C. Organizational Structure

For information on the composition of the BBVA Group as of December 31, 2019, see Note 1.1 to our Consolidated Financial Statements.

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

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Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2019.

Subsidiary | Country of Incorporation | Activity | BBVA Voting Power | BBVA Ownership | Total Assets (1)
|  |  | (in Percentages) | (In Millions of Euros)
BBVA MEXICO | Mexico | Bank | 100.00 | 100.00 | 95,364
BBVA USA | The United States | Bank | 100.00 | 100.00 | 72,994
GARANTI BBVA AS | Turkey | Bank | 49.85 | 49.85 | 56,969
BBVA PERU | Peru | Bank | 92.24 (2) | 46.12 | 21,506
BBVA SEGUROS, S.A. DE SEGUROS Y REASEGUROS | Spain | Insurance | 99.96 | 99.96 | 17,950
BBVA COLOMBIA, S.A. | Colombia | Bank | 95.47 | 95.47 | 17,222
BANCO BBVA ARGENTINA, S.A. | Argentina | Bank | 66.55 | 66.55 | 6,587
SEGUROS BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER | Mexico | Insurance | 100.00 | 100.00 | 5,335
PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER | Mexico | Insurance | 100.00 | 100.00 | 5,080
BBVA USA BANCSHARES, INC. | The United States | Investment | 100.00 | 100.00 | 4,099

(1) Information for non-EU subsidiaries has been calculated using the prevailing exchange rates on December 31, 2019.

(2) Subject to certain exceptions.

## D. Property, Plants and Equipment

We own and rent a substantial network of properties in Spain and abroad, including 2,642 branch offices in Spain and, principally through our various subsidiaries, 5,102 branch offices abroad as of December 31, 2019. As of December 31, 2019, approximately 67% of our branches in Spain and 65% of our branches abroad (59% excluding branches relating to Garanti BBVA) 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.

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. Interest income figures include “other income”, which amounted to €343 million for the year ended December 31, 2019. For additional information on “interest and other income” see Note 37.1 to our Consolidated Financial Statements.

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.

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| Average Balance Sheet - Assets and Interest from Earning Assets
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017
| 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 | 46,060 | 256 | 0.56% | 42,730 | 135 | 0.32% | 33,917 | 83 | 0.25%
Domestic | 17,293 | 50 | 0.29% | 19,883 | 43 | 0.22% | 12,150 | 34 | 0.28%
Foreign | 28,767 | 206 | 0.72% | 22,847 | 92 | 0.40% | 21,767 | 50 | 0.23%
Debt securities and derivatives | 186,156 | 5,458 | 2.93% | 179,672 | 5,707 | 3.18% | 177,164 | 4,724 | 2.67%
Domestic | 124,600 | 1,070 | 0.86% | 116,998 | 1,212 | 1.04% | 110,491 | 1,089 | 0.99%
Foreign | 61,555 | 4,388 | 7.13% | 62,674 | 4,495 | 7.17% | 66,673 | 3,636 | 5.45%
Financial assets | 415,580 | 25,020 | 6.02% | 410,149 | 23,719 | 5.78% | 444,518 | 24,003 | 5.40%
Loans and advances to central banks | 5,086 | 267 | 5.25% | 5,518 | 258 | 4.67% | 10,945 | 258 | 2.36%
Loans and advances to credit institutions | 32,448 | 806 | 2.48% | 25,634 | 657 | 2.56% | 26,420 | 485 | 1.83%
Loans and advances to customers | 378,046 | 23,946 | 6.33% | 378,996 | 22,804 | 6.02% | 407,153 | 23,261 | 5.71%
In euros | 180,028 | 3,372 | 1.87% | 181,668 | 3,381 | 1.86% | 196,893 | 3,449 | 1.75%
Domestic | 171,412 | 3,344 | 1.95% | 172,561 | 3,276 | 1.90% | 187,281 | 3,377 | 1.80%
Foreign | 8,617 | 28 | 0.32% | 9,107 | 105 | 1.16% | 9,612 | 72 | 0.75%
In other currency | 198,018 | 20,575 | 10.39% | 197,328 | 19,423 | 9.84% | 210,261 | 19,812 | 9.42%
Domestic | 18,622 | 601 | 3.23% | 14,825 | 511 | 3.45% | 15,329 | 403 | 2.63%
Foreign | 179,397 | 19,973 | 11.13% | 182,503 | 18,912 | 10.36% | 194,932 | 19,409 | 9.96%
Other assets(2) | 45,954 | 327 | 0.71% | 46,343 | 270 | 0.58% | 48,872 | 485 | 0.99%
Total average assets (3) | 693,750 | 31,061 | 4.48% | 678,893 | 29,831 | 4.39% | 704,471 | 29,296 | 4.16%

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

(2) Includes “Derivatives - Hedge accounting”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures and associates”, “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 44.55% of the total average assets for the year ended December 31, 2019, 45.28% for the year ended December 31, 2018 and 46.99% for the year ended December 31, 2017.

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| Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017
| 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 | 61,285 | 2,123 | 3.46% | 65,044 | 2,192 | 3.37% | 90,619 | 2,212 | 2.44%
Customer deposits | 376,057 | 6,984 | 1.86% | 370,078 | 6,559 | 1.77% | 392,057 | 7,007 | 1.79%
In euros | 183,316 | 236 | 0.13% | 178,370 | 337 | 0.19% | 186,261 | 461 | 0.25%
Domestic | 174,301 | 230 | 0.13% | 169,163 | 323 | 0.19% | 176,429 | 447 | 0.25%
Foreign | 9,015 | 7 | 0.07% | 9,206 | 14 | 0.16% | 9,832 | 14 | 0.14%
In other currency | 192,741 | 6,748 | 3.50% | 191,709 | 6,222 | 3.25% | 205,796 | 6,546 | 3.18%
Domestic | 9,505 | 178 | 1.87% | 10,738 | 130 | 1.21% | 12,076 | 95 | 0.78%
Foreign | 183,236 | 6,571 | 3.59% | 180,971 | 6,092 | 3.37% | 193,720 | 6,451 | 3.33%
Debt certificates | 77,438 | 1,884 | 2.43% | 75,927 | 1,753 | 2.31% | 84,221 | 1,631 | 1.94%
Other liabilities (2) | 124,006 | 1,868 | 1.51% | 115,638 | 1,735 | 1.50% | 82,699 | 687 | 0.83%
Total average liabilities | 638,786 | 12,859 | 2.01% | 626,688 | 12,239 | 1.95% | 649,597 | 11,537 | 1.78%
Equity | 54,964 | - | - | 52,206 | - | - | 54,874 | - | -
Total average liabilities and equity (3) | 693,750 | 12,859 | 1.85% | 678,893 | 12,239 | 1.80% | 704,471 | 11,537 | 1.64%

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

(2) Includes “Financial liabilities held for trading”, “Derivatives - Hedge accounting”, “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 46.65% of the total average liabilities for the year ended December 31, 2019, 47.54% for the year ended December 31, 2018 and 46.99% for the year ended December 31, 2017.

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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, 2019 compared with the year ended December 31, 2018, and the year ended December 31, 2018 compared with the year ended December 31, 2017. 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 such 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.

| 2019 / 2018
| Increase (Decrease) Due to Changes in
| Volume (1) | Rate (2) | Net Change
| (In Millions of Euros)
Interest income |  |  |
Cash and balances with central banks | 11 | 111 | 121
Securities portfolio and derivatives | 206 | (455) | (249)
Loans and advances to central banks | (20) | 29 | 9
Loans and advances to credit institutions | 175 | (25) | 150
Loans and advances to customers | (57) | 1,199 | 1,142
In euros | (31) | 21 | (10)
Domestic | (22) | 90 | 68
Foreign | (9) | (69) | (78)
In other currencies | 68 | 1,084 | 1,152
Domestic | 131 | (41) | 90
Foreign | (63) | 1,125 | 1,062
Other assets | (2) | 60 | 58
Total income |  |  | 1,230
Interest expense |  |  |
Deposits from central banks and credit institutions | (127) | 57 | (69)
Customer deposits | 106 | 320 | 426
In euros | 9 | (110) | (101)
Domestic | 10 | (103) | (93)
Foreign | (1) | (7) | (8)
In other currencies | 34 | 493 | 526
Domestic | (15) | 62 | 47
Foreign | 48 | 430 | 479
Debt certificates | 35 | 96 | 131
Other liabilities | 126 | 7 | 133
Total expense |  |  | 620
Net interest income |  |  | 611

(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.

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| 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 | -
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.

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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,
| 2019 | 2018 | 2017
| (In Millions of Euro, Except Percentages)
Average interest earning assets | 647,796 | 632,501 | 655,599
Gross yield (1) | 4.8% | 4.7% | 4.5%
Net yield (2) | 4.5% | 4.4% | 4.2%
Net interest margin (3) | 2.8% | 2.8% | 2.7%
Average effective rate paid on all interest-bearing liabilities | 2.5% | 2.4% | 2.0%
Spread (4) | 2.3% | 2.3% | 2.4%

(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 effective rate paid on interest-bearing liabilities”.

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ASSETS

Interest-Bearing Deposits in Other Banks

As of December 31, 2019, interbank deposits (excluding deposits with central banks) represented 5.0% of our total assets. Of such interbank deposits, 16.4% were held outside of Spain and 83.6% 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, 2019, 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 €130,686 million, representing 18.7% of our total assets. €27,625 million, or 21.1%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during 2019 on the investment securities that BBVA held was 3.8%, compared with an average yield of approximately 6.0% earned on loans and advances during 2019. See Notes 10 and 13 to our Consolidated Financial Statements for additional information.

The first table in Note 13.3 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under “Financial assets at fair value through other comprehensive income” as of December 31, 2019 and 2018. The second table in Note 13.3 to our Consolidated Financial Statements shows our debt securities recorded, as of December 31, 2017, under “Available-for-sale financial assets”. See Note 2.2.1 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.

Note 14.2 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under “Financial assets at amortized cost” as of December 31, 2019 and 2018.

This information is not provided for debt securities recorded under “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” since the amortized costs and fair values of these items are the same. See Note 8 to our Consolidated Financial Statements.

The third table in Note 13.3 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2019 and 2018, under “Financial assets at fair value through other comprehensive income” and, as of December 31, 2017, under “Available-for-sale financial assets”, by rating categories defined by external rating agencies. The second table in Note 14.2 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2019 and 2018, under “Financial assets at amortized cost”, by rating categories defined by external rating agencies.

Readers are directed to the tables and Notes referred to above for information regarding our securities portfolio.

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.

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The following table analyzes the maturities of our debt securities recorded under “Financial assets at fair value through other comprehensive income” and “Financial assets at amortized cost”, by type and geographical area, as of December 31, 2019.

| 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 | 596 | 1.68 | 12,537 | 1.11 | 5,660 | 4.11 | 2,757 | 3.62 | 21,550
Other debt securities | 411 | 1.87 | 1,096 | 2.16 | 322 | 3.50 | 143 | 5.83 | 1,971
Total Domestic | 1,007 | 1.76 | 13,633 | 1.19 | 5,982 | 4.08 | 2,900 | 3.73 | 23,521
Foreign |  |  |  |  |  |  |  |  |
Mexico | 942 | 6.15 | 4,015 | 4.97 | 2,782 | 6.37 | 47 | 3.27 | 7,786
Mexican Government and other government agency debt securities | 683 | 6.75 | 3,601 | 4.96 | 2,558 | 6.45 | 26 | 5.29 | 6,868
Other debt securities | 259 | 4.58 | 414 | 5.02 | 224 | 5.41 | 21 | 0.77 | 918
The United States | 1,251 | 1.32 | 5,368 | 1.80 | 543 | 3.74 | 4,231 | 2.08 | 11,393
U.S. Treasury and other government agency debt securities | 950 | 0.99 | 4,667 | 1.70 | 1 | 3.20 | 7 | 1.86 | 5,624
States and political subdivisions debt securities | - | - | 9 | 3.16 | 42 | 2.50 | 2,925 | 1.86 | 2,975
Other debt securities | 302 | 2.37 | 692 | 2.46 | 500 | 3.84 | 1,300 | 2.56 | 2,794
Turkey | 761 | 14.63 | 1,992 | 14.13 | 874 | 11.51 | 87 | 6.81 | 3,713
Turkey Government and other government agencies debt securities | 761 | 14.63 | 1,992 | 14.13 | 874 | 11.51 | 87 | 6.81 | 3,713
Other debt securities | - | - | - | - | - | - | - | - | -
Other countries | 2,006 | 15.20 | 6,081 | 1.59 | 2,315 | 2.94 | 1,916 | 3.80 | 12,318
Securities of other foreign governments(2) | 623 | 43.63 | 3,899 | 1.01 | 1,575 | 2.16 | 1,172 | 4.16 | 7,269
Other debt securities of other countries | 1,383 | 2.40 | 2,182 | 2.64 | 739 | 4.60 | 745 | 3.23 | 5,049
Total Foreign | 4,960 | 9.89 | 17,455 | 3.86 | 6,513 | 5.62 | 6,281 | 2.68 | 35,210
TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 5,967 | 8.52 | 31,088 | 2.69 | 12,495 | 4.88 | 9,181 | 3.01 | 58,731
AT AMORTIZED COST PORTFOLIO |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |
Spanish government and other government agencies debt securities | 1,459 | 4.00 | 489 | 2.43 | 7,458 | 1.40 | 3,349 | 1.47 | 12,755
Other debt securities | 4,216 | 0.02 | 493 | 0.59 | 119 | 1.14 | 101 | 0.03 | 4,929
Total Domestic | 5,675 | 1.04 | 982 | 1.51 | 7,577 | 1.40 | 3,450 | 1.43 | 17,684
Foreign |  |  |  |  |  |  |  |  |
Mexico | - | - | 1,592 | 7.17 | 216 | 7.42 | 4,567 | 3.59 | 6,374
Mexican Government and other government agency debt securities | - | - | 1,592 | 7.17 | 216 | 7.42 | 3,768 | 3.59 | 5,576
Other debt securities | - | - | - | - | - | - | 798 | 3.59 | 798
The United States | 69 | 4.17 | 1,256 | 2.73 | 283 | 3.00 | 4,519 | 2.77 | 6,126
U.S. Treasury and other government agency debt securities | - | - | 1,158 | 2.71 | 2 | 2.71 | - | - | 1,160
States and political subdivisions debt securities | 17 | 4.17 | 45 | 3.39 | 29 | 3.33 | 4,439 | 2.78 | 4,530
Other debt securities | 51 | 4.17 | 53 | 2.72 | 252 | 2.97 | 79 | 2.46 | 435
Turkey | 712 | 19.03 | 1,981 | 12.72 | 1,200 | 16.57 | 221 | 5.56 | 4,113
Turkey Government and other government agencies debt securities | 712 | 19.03 | 1,973 | 12.70 | 1,200 | 16.57 | 221 | 5.56 | 4,105
Other debt securities | - | - | 8 | 18.10 | - | - | - | - | 8
Other countries | 660 | 1.55 | 457 | 1.16 | 1,706 | 2.09 | 1,758 | 3.59 | 4,581
Securities of other foreign governments(2) | 13 | 0.28 | 122 | 0.99 | 1,622 | 2.09 | 1,644 | 3.53 | 3,400
Other debt securities of other countries | 647 | 1.58 | 336 | 1.22 | 84 | 2.16 | 114 | 4.38 | 1,181
Total Foreign | 1,440 | 10.32 | 5,286 | 7.68 | 3,404 | 7.61 | 11,064 | 3.30 | 21,194
TOTAL AT AMORTIZED COST PORTFOLIO | 7,115 | 2.92 | 6,268 | 6.71 | 10,981 | 3.32 | 14,514 | 2.85 | 38,878
TOTAL DEBT SECURITIES | 13,082 | 5.48 | 37,356 | 3.37 | 23,476 | 4.15 | 23,695 | 2.91 | 97,609
(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.

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Loans and Advances to Credit Institutions and Central Banks

As of December 31, 2019, our total loans and advances to credit institutions and central banks amounted to €39,778 million, or 5.7% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €17,948 million, or 2.6% of total assets. Net of our loss allowances, total loans and advances to credit institutions and central banks at amortized cost amounted to €17,924 million as of December 31, 2019, or 2.6% of total assets.

Loans and Advances to Customers

As of December 31, 2019, our total loans and advances to customers amounted to €408,364 million, or 58.4% of total assets. Net of our loss allowances, total loans and advances to customers amounted to €395,962 million as of December 31, 2019, or 56.7% of our total assets. As of December 31, 2019 our total loans and advances to customers in Spain amounted to €165,032 million. Our total loans and advances to customers outside Spain amounted to €243,332 million as of December 31, 2019.

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Loans by Geographic Area

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

| As of December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros)
Domestic | 165,032 | 171,361 | 180,033 | 182,492 | 192,227
Foreign |  |  |  |  |
Western Europe | 31,483 | 29,322 | 25,308 | 25,763 | 23,327
The United States | 64,395 | 61,497 | 53,526 | 60,388 | 58,677
Mexico | 61,455 | 53,772 | 48,463 | 50,242 | 51,842
Turkey | 40,230 | 40,641 | 49,690 | 54,174 | 54,252
South America | 39,091 | 38,680 | 39,814 | 53,512 | 47,862
Other | 6,677 | 4,777 | 4,240 | 4,058 | 4,735
Total foreign | 243,332 | 228,688 | 221,041 | 248,137 | 240,695
Total loans and advances | 408,364 | 400,049 | 401,074 | 430,629 | 432,921
Loss allowances | (12,402) | (12,199) | (12,748) | (15,974) | (18,691)
Total net lending (1) | 395,962 | 387,850 | 388,326 | 414,655 | 414,231

(1) As of December 31, 2019 and 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”, net of loss allowances. As of December 31, 2017, 2016 and 2015, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

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Loans by Type of Customer

The following table shows 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 the country where the branch office that issued the loan is located:

| As of December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros)
Domestic |  |  |  |  |
Government | 14,477 | 16,671 | 18,116 | 20,741 | 23,549
Agriculture | 1,224 | 1,118 | 1,231 | 1,076 | 1,064
Industrial | 13,982 | 14,683 | 14,707 | 13,670 | 15,079
Real estate and construction | 9,567 | 10,671 | 11,786 | 15,179 | 18,621
Commercial and financial | 16,192 | 17,131 | 16,075 | 13,111 | 11,557
Loans to individuals (1) | 96,735 | 98,131 | 99,780 | 102,299 | 105,157
Other | 12,855 | 12,955 | 18,338 | 16,415 | 17,200
Total Domestic | 165,032 | 171,361 | 180,033 | 182,492 | 192,227
Foreign |  |  |  |  |
Government | 14,840 | 13,900 | 14,289 | 14,132 | 15,062
Agriculture | 2,533 | 2,566 | 2,646 | 3,236 | 3,251
Industrial | 43,408 | 41,954 | 37,319 | 43,402 | 41,834
Real estate and construction | 20,814 | 18,499 | 17,885 | 21,822 | 20,343
Commercial and financial | 41,406 | 36,571 | 31,584 | 33,933 | 32,019
Loans to individuals (1) | 85,324 | 80,224 | 78,162 | 89,981 | 89,132
Other | 35,007 | 34,973 | 39,156 | 41,630 | 39,054
Total Foreign | 243,332 | 228,688 | 221,040 | 248,137 | 240,695
Total Loans and Advances | 408,364 | 400,049 | 401,074 | 430,629 | 432,921
Loss allowances | (12,402) | (12,199) | (12,748) | (15,974) | (18,691)
Total net lending (2) | 395,962 | 387,850 | 388,326 | 414,655 | 414,231

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

(2) As of December 31, 2019 and 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”, net of loss allowances. As of December 31, 2017, 2016 and 2015, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

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The following table sets forth a breakdown, by currency, of our net loans and advances to customers as of December 31, 2019, 2018, 2017, 2016 and 2015:

| As of December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros)
In euros | 191,083 | 193,702 | 199,399 | 199,289 | 204,549
In other currencies | 204,879 | 194,148 | 188,926 | 215,366 | 209,681
Total net lending (1) | 395,962 | 387,850 | 388,326 | 414,655 | 414,231

(1) As of December 31, 2019 and 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”, net of loss allowances. As of December 31, 2017, 2016 and 2015, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables.

As of December 31, 2019, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,682 million, compared with €1,866 million as of December 31, 2018. Loans and advances outstanding to the Spanish government and its agencies amounted to €14,477 million, or 3.5% of our total loans and advances to customers as of December 31, 2019, compared with the €16,671 million, or 4.2% of our total loans and advances to customers as of December 31, 2018. 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, 2019 excluding government-related loans amounted to €17,561 million or approximately 4.0% of our total outstanding loans and advances. As of December 31, 2019 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

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Maturity and Interest Sensitivity

The following table sets forth a breakdown 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, 2019. The determination of maturities is based on contract terms.

| 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 | 4,648 | 4,325 | 5,504 | 14,477
Agriculture | 361 | 452 | 411 | 1,224
Industrial | 5,142 | 4,683 | 4,158 | 13,982
Real estate and construction | 1,443 | 2,881 | 5,243 | 9,567
Commercial and financial | 8,392 | 4,935 | 2,865 | 16,192
Loans to individuals | 5,677 | 9,261 | 81,797 | 96,735
Other | 3,775 | 4,895 | 4,185 | 12,855
Total Domestic | 29,437 | 31,432 | 104,164 | 165,032
Foreign |  |  |  |
Government | 1,674 | 2,871 | 10,294 | 14,840
Agriculture | 1,345 | 833 | 356 | 2,533
Industrial | 17,354 | 19,081 | 6,972 | 43,408
Real estate and construction | 5,346 | 10,424 | 5,044 | 20,814
Commercial and financial | 25,321 | 12,934 | 3,151 | 41,406
Loans to individuals | 12,113 | 30,375 | 42,836 | 85,324
Other | 11,186 | 15,307 | 8,513 | 35,007
Total Foreign | 74,339 | 91,826 | 77,167 | 243,332
Total loans and advances (1) | 103,776 | 123,258 | 181,331 | 408,364

(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 second table in Note 14.3 to our Consolidated Financial Statements provides a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of December 31, 2019.

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Loss allowances on Loans and Advances

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

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The following table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries for the periods indicated. Information as of December 31, 2019 refers to customers, central banks and credit institutions and information as of December 31, 2018, 2017, 2016 and 2015 refers to customers and credit institutions:

|  | As of and for the Year Ended December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros)
Loan loss reserve at beginning of period: |  |  |  |  |
Domestic | 5,774 | 7,234 | 9,113 | 12,357 | 9,832
Foreign | 6,437 | 5,550 | 6,903 | 6,385 | 4,441
First implementation of IFRS 9 | - | 1,171 | - | - | -
Total loan loss reserve at beginning of period | 12,211 | 13,955 | 16,016 | 18,742 | 14,273
Loans charged off: (1) |  |  |  |  |
Total domestic | (1,006) | (2,818) | (3,709) | (3,298) | (3,340)
Total foreign | (2,250) | (1,956) | (2,330) | (2,400) | (1,933)
Total loans charged off | (3,256) | (4,774) | (6,039) | (5,698) | (5,273)
Provision for loan losses: |  |  |  |  |
Domestic | 764 | 910 | 1,155 | 1,095 | 1,933
Foreign | 3,560 | 3,659 | 3,078 | 3,046 | 2,804
Total provision for loan losses | 4,324 | 4,569 | 4,233 | 4,141 | 4,737
Acquisition and disposition of subsidiaries (2) | - | - | (5) | - | 6,572
Effect of foreign currency translation | (20) | (239) | (926) | (601) | (862)
Other | (832) | (1,301) | (495) | (567) | (705)
Acquisition, foreign currency and others | (852) | (1,539) | (1,426) | (1,168) | 5,005
Loan loss reserve at end of period: |  |  |  |  |
Domestic | 4,931 | 5,774 | 7,234 | 9,113 | 12,357
Foreign | 7,496 | 6,437 | 5,550 | 6,903 | 6,385
Total loan loss reserve at end of period | 12,427 | 12,211 | 12,784 | 16,016 | 18,742
Loan loss reserve as a percentage of loans and advances at amortized cost at end of period | 3.10% | 3.19% | 3.09% | 3.44% | 3.97%
Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period | 0.81% | 1.25% | 1.46% | 1.22% | 1.12%

(1) Domestic loans charged off in 2019, 2018, 2017, 2016 and 2015 were mainly related to the real estate sector.

(2) In 2015, includes amounts related to Garanti BBVA (in which we acquired a further 14.89% stake in such year, following which we started to fully consolidate Garanti BBVA´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.

The loans charged off amounted to €3,256 million during the year ended December 31, 2019 compared with the €4,774 million during the year ended December 31, 2018.

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Our loan loss reserves as a percentage of total loans and advances decreased to 3.10% as of December 31, 2019 compared with 3.19% as of December 31, 2018.

Impaired Loans

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 2019, 2018, 2017, 2016 and 2015 was €399.9 million, €412.5 million, €347.4 million, €264.2 million and €253.9 million, respectively.

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The following table provides information regarding our impaired loans of customers, central banks and credit institutions as of the dates indicated:

| As of December 31,
| 2019 | 2018 | 2017 | 2016 | 2015
| (In Millions of Euros)
Impaired loans |  |  |  |  |
Domestic | 8,104 | 9,436 | 12,730 | 16,360 | 19,481
Public sector | 86 | 112 | 158 | 270 | 191
Other resident sector | 8,018 | 9,324 | 12,572 | 16,090 | 19,290
Foreign | 7,855 | 6,923 | 6,671 | 6,565 | 5,882
Public sector | 1 | 16 | 13 | 42 | 21
Other non-resident sector | 7,853 | 6,906 | 6,658 | 6,523 | 5,860
Total impaired loans | 15,959 | 16,359 | 19,401 | 22,925 | 25,363
Total loan loss reserve | (12,427) | (12,211) | (12,784) | (16,016) | (18,742)
Impaired loans net of reserves | 3,533 | 4,148 | 6,617 | 6,909 | 6,621
Impaired loans as a percentage of loans and advances at amortized cost | 3.99% | 4.27% | 4.69% | 4.92% | 5.38%
Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost | 0.88% | 1.08% | 1.60% | 1.48% | 1.40%

Our total impaired loans amounted to €15,959 million as of December 31, 2019, a 2.4% decrease compared with €16,359 million as of December 31, 2018. This decrease was mainly attributable to the reduction in the impairment of loans to the public sector and, to a lesser extent, in loans to households, partially offset by the impact of the increase in the volume of consumer loans.

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 which present an expected credit loss. As of December 31, 2019, the loan loss reserve amounted to €12,427 million, a 1.8% increase compared with the €12,211 million recorded as of December 31, 2018.

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The following tables provide information regarding impaired loans to customers, central banks and credit institutions recorded under “Financial assets at amortized cost” and accumulated impairment taken for each loan category, as of December 31, 2019 and 2018, by type of customer:

2019 | Impaired Loans | Loan Loss Reserve (1) | Impaired Loans as a Percentage of Loans by Category
| (In Millions of Euros)
Domestic: |  |  |
Government | 86 | (36) | 0.60%
Credit institutions | - | - | -
Other sectors | 8,018 | (4,895) | 5.33%
Agriculture | 60 | (42) | 4.93%
Industrial | 686 | (513) | 4.90%
Real estate and construction | 1,180 | (751) | 12.33%
Commercial and other financial | 1,173 | (856) | 7.24%
Loans to individuals | 4,257 | (2,176) | 4.40%
Other | 663 | (557) | 5.16%
Total Domestic | 8,104 | (4,931) | 4.91%
Foreign: |  |  |
Government | 1 | (23) | 0.01%
Credit institutions | 6 | (24) | 0.04%
Other sectors | 7,848 | (7,448) | 3.43%
Agriculture | 93 | (83) | 3.69%
Industrial | 1,824 | (1,405) | 4.20%
Real estate and construction | 980 | (652) | 4.71%
Commercial and other financial | 835 | (763) | 2.02%
Loans to individuals | 3,124 | (3,670) | 3.66%
Other | 991 | (876) | 2.83%
Total Foreign | 7,855 | (7,496) | 3.23%
Total | 15,959 | (12,427) | 3.91%

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

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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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Troubled Debt Restructurings

As of December 31, 2019, of the total troubled debt restructurings of €16,237 million, €6,887 million were not considered impaired loans. See Note 7.1 and Appendix VIII to our Consolidated Financial Statements.

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 12.3% as of December 31, 2019 (compared with 15.2% as of December 31, 2018), substantially higher than the average non-performing asset ratio for all of our domestic activities (4.9% as of December 31, 2019 and 5.5% as of December 31, 2018) and the average non-performing asset ratio for all of our consolidated activities (3.8% as of December 31, 2019 and 3.9% as of December 31, 2018). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 9.0% as of December 31, 2019 (compared with 17.2% as of December 31, 2018).

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, 2019, December 31, 2018 and December 31, 2017. 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.

| 2019 | 2018 | 2017
| Amount | % of Total Assets | Amount | % of Total Assets | Amount | % of Total Assets
| (In Millions of Euros, Except Percentages)
United Kingdom | 6,086 | 0.9% | 7,114 | 1.1% | 8,444 | 1.2%
Mexico | 1,697 | 0.2% | 2,217 | 0.3% | 2,635 | 0.4%
Turkey | 3,856 | 0.6% | 5,060 | 0.7% | 7,754 | 1.1%
Other OECD (Organization for Economic Co-operation and Development) | 9,463 | 1.4% | 7,779 | 1.1% | 7,885 | 1.1%
Total OECD | 21,102 | 3.0% | 22,170 | 3.3% | 26,718 | 3.9%
Central and South America | 3,323 | 0.5% | 2,720 | 0.4% | 3,980 | 0.6%
Other | 6,924 | 1.0% | 4,739 | 0.7% | 3,787 | 0.5%
Total | 31,349 | 4.5% | 29,629 | 4.4% | 34,485 | 5.0%

The following table sets forth the amounts of our cross-border outstandings as of December 31, 2019, 2018 and 2017 by type of borrower where outstandings in the borrower´s country exceeded 1% of our total assets.

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| Governments | Banks and Other Financial Institutions | Commercial, Industrial and Other | Total
| (In Millions of Euros)
As of December 31, 2019 |  |  |  |
Mexico | 188 | 8 | 1,501 | 1,697
Turkey | 618 | 283 | 2,955 | 3,856
United Kingdom | - | 5,246 | 839 | 6,086
Total | 806 | 5,537 | 5,295 | 11,638
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

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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 €184 million, €100 million and €130 million as of December 31, 2019, 2018 and 2017, respectively. These figures do not reflect loan loss reserves of 12.5%, 38.0% and 19.1%, respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 2019 did not in the aggregate exceed 0.03% of our total assets.

The country-risk exposures described in the preceding paragraph as of December 31, 2019, 2018 and 2017 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, 2019, 2018 and 2017 amounted to $73 million, $90 million and $124 million, respectively (approximately €65 million, €78 million and €104 million, respectively, based on a euro/dollar exchange rate on December 31, 2019 of $1.00 = €0.89, on December 31, 2018 of $1.00 = €0.87 and on December 31, 2017 of $1.00 = €0.83).

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, 2019
| Customer Deposits | Bank of Spain and Other Central Banks | Other Credit Institutions | Total
| (In Millions of Euros)
Total Domestic | 171,611 | 24,318 | 3,218 | 199,147
Foreign |  |  |  |
Western Europe | 15,360 | - | 9,190 | 24,549
The United States | 66,181 | 72 | 6,377 | 72,630
Mexico | 56,564 | 492 | 1,634 | 58,689
Turkey | 36,042 | 257 | 924 | 37,223
South America | 36,661 | 811 | 2,840 | 40,311
Other | 1,801 | - | 4,568 | 6,369
Total Foreign | 212,608 | 1,631 | 25,533 | 239,772
Total | 384,219 | 25,950 | 28,751 | 438,919

| 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

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| 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

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, 2019, 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, 2019
| Domestic | Foreign | Total
| (In Millions of Euros)
3 months or under | 3,269 | 36,240 | 39,509
Over 3 to 6 months | 1,430 | 4,552 | 5,982
Over 6 to 12 months | 2,149 | 6,572 | 8,721
Over 12 months | 2,221 | 5,416 | 7,636
Total | 9,069 | 52,780 | 61,849

Time deposits recorded under “Financial liabilities at amortized cost” from Spanish and foreign financial institutions amounted to €18,896 million as of December 31, 2019, 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 geographic area of customer deposits recorded under “Financial liabilities at amortized cost” as of December 31, 2019, 2018 and 2017 see Note 22 to our Consolidated Financial Statements.

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, 2019, 2018 and 2017.

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The following table provides information about our total short-term borrowings for the years ended December 31, 2019, 2018 and 2017:

| As of and for the Year Ended December 31, 2019 (1) |  | As of and for the Year Ended December 31, 2018 (1) |  | As of and for the Year Ended December 31, 2017
| Amount | Average rate |  | Amount | Average rate |  | Amount | Average rate
| (In Millions of Euros, Except Percentages)
Securities sold under agreements to repurchase: |  |  |  |  |  |  |  |
As of end of period | 45,296 | 1.9% |  | 16,524 | 4.3% |  | 33,208 | 1.7%
Average during period | 46,139 | 2.1% |  | 16,836 | 4.7% |  | 32,475 | 2.4%
Maximum quarter-end balance | 50,482 | - |  | 17,155 | - |  | 33,863 | -
Bank promissory notes: |  |  |  |  |  |  |  |
As of end of period | 801 | 0.4% |  | 449 | 3.1% |  | 1,462 | 0.7%
Average during period | 681 | 0.7% |  | 580 | 1.6% |  | 704 | 1.0%
Maximum quarter-end balance | 939 | - |  | 1,036 | - |  | 1,462 | -
Bonds and subordinated debt: |  |  |  |  |  |  |  |
As of end of period | 9,249 | 3.8% |  | 5,633 | 3.6% |  | 4,321 | 5.8%
Average during period | 6,799 | 4.5% |  | 4,775 | 4.6% |  | 7,717 | 5.4%
Maximum quarter-end balance | 9,468 | - |  | 5,633 | - |  | 10,848 | -
Total short-term borrowings as of end of period | 55,346 | 2.2% |  | 22,606 | 4.1% |  | 38,991 | 2.1%

(1) As of December 31, 2019, includes all repurchase agreements recorded under “Financial liabilities at amortized cost” and “Financial liabilities held for trading”. As of December 31, 2018, includes only certain repurchase agreements which were accounted for as “Financial liabilities at amortized cost” as of December 31, 2017.

As of December 31, 2019 and 2018, the securities sold under agreements to repurchase were mainly Mexican and Spanish treasury bills and such agreements were entered into with other financial and credit institutions. As of December 31, 2017, the securities sold under agreements to repurchase were mainly Spanish treasury bills.

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Certain Ratios

The following table sets out certain ratios for the years ended December 31, 2019, 2018 and 2017:

| As of or for the Year Ended December 31,
| 2019 | 2018 | 2017
| (In Percentages)
Return on equity (1) | 6.3% | 10.2% | 6.7%
Return on assets (2) | 0.6% | 0.9% | 0.7%
Dividend pay-out ratio (3) | 39.9% | 31.3% | 32.0%
Equity to assets ratio (4) | 7.9% | 7.8% | 7.7%

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

(2) Represents profit attributable to parent company for the year 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 in 2017) as a percentage of profit. This ratio does not take into account the non-cash remuneration paid by BBVA under the “Dividend Option” scheme in 2017 (in the form of BBVA shares or ADSs). See “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

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

EQUITY

Accumulated other comprehensive income (loss)

As of December 31, 2019, the accumulated other comprehensive loss amounted to €7,235 million, a 0.3% increase compared to the €7,215 million recorded as of December 31, 2018. As of December 31, 2017, the accumulated other comprehensive loss amounted to €6,939 million. The increase in accumulated other comprehensive loss in 2018 was principally due to the hedges of investments in foreign exchange transactions.

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 SRB for the latter. This has further increased the market share of Banco Santander in Spain. Finally, in January 2018, the merger between Bankia and Banco Mare Nostrum (“BMN”) was completed.

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 SMEs, where new credit interest rates have fallen from a weighted average of 5.5% between January 2012 and May 2014 to around 2.45% in November 2019, 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 remuneration for deposits, 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.

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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.

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 European Union 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 Single Euro Payments Area, which is a payment-integration initiative for simplification of bank transfers, direct debits and payment cards mainly within the European Union, and MiFID, complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, further steps are being taken towards achieving a banking and capital markets union in Europe. The ECB started to work as a single supervisor in November 2014, supervising 117 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 SRF, the appointment of the SRB which is operational since January 1, 2015 and the bail-in tool included in the BRRD, which entered into force on January 1, 2016. For additional information on regulatory developments, see “―Business Overview―Supervision and Regulation”.

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 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.

The performance of the U.S. banking system continued to improve in 2019. Despite elevated policy uncertainty, lower interest rates and increased funding costs, bank loans continued to grow at a solid pace while asset quality indicators remained stable, supported by strong labor market conditions, robust private consumption and solid capital spending in intellectual property, IT and industrial equipment. As a result, during the first three quarters of 2019, net interest income for all FDIC-insured institutions reached an all-time high of $415.9 billion, an increase of $14.1 billion or 3.5% year-on-year. In addition, applicable income taxes edged down 1.3% year-over-year to $47.4 billion. However, compared to 2018, non-interest income declined $1 billion while non-interest expense increased $7.4 billion to $349.5 billion. In addition, provisions for loan and lease losses increased $4.6 billion or 12% year-on-year to $40.6 billion. These trends boosted net income modestly by $2.7 billion to $180.5 billion, an increase of 1.5% year-over-year. Although both return on assets and return on equity edged down slightly during 2019 to 1.33% and 11.67%, respectively, they remained well above their historical average and near a 12-year high. In addition, the core capital ratio of FDIC-institutions on overage remained stable at 9.7%, confirming healthy capital buffers. Going forward, we expect commercial banks to continue benefiting from economic growth and positive labor markets amid price stability and low interest rates. In addition, we expect banking consolidation to persist, in an environment that becomes gradually more challenging as the credit cycle matures further and competition from non-banks intensifies.

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In Turkey, where we operate through Garanti BBVA, the three public banks that operate in the country accounted for 41% of the total assets of financial institutions as of December 31, 2019, whereas private banks (including Garanti BBVA) accounted for 59%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 13% of the total. Following a significant macroeconomic slow-down in 2018, the Turkish economy started to recover in the third quarter of 2019 on the back of supportive economic policies. TL lending (i.e., loans denominated in Turkish lira) growth accelerated to 14% in 2019 after the weak growth rate of 2% in 2018. TL lending to corporations grew by 15%, consumer loans grew by 16% and credit cards grew by 13%. Credit growth adjusted for the exchange rate depreciation rose to 12% in 2019 from its 3% growth in 2018. Total customer deposits grew by 26% during the year (20% on a foreign exchange adjusted basis, compared with 6% in 2018). The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) rose to 20% from 10% in 2018. The contraction in foreign currency denominated deposits that started in the second half of 2018, turned into positive growth since the first quarter of 2019. Foreign currency denominated deposits grew by 16.3% in 2019. Given the increases in TL and foreign currency denominated deposits, the TL loan-to-deposit ratio diminished to 130% in 2019 from 137% in 2018 and the foreign exchange loan-to-deposit ratio fell to 78% from 99%.

In Mexico, the banking sector remained solvent with an average capitalization ratio of 16.1% in November 2019 (slightly higher than the ratio reported in November 2018 of 15.9%) (in each case considering the group of entities of “banca múltiple” operating in Mexico). On November 30, 2019, the Mexican banking sector had 51 operating banks, one more than the previous year. The one that started operations was Keb Hana México (February 2019).

Total bank lending to the private sector in Mexico decreased from an annual nominal average growth rate of 12.2% from January to November of 2018 to 8.7% in the same period of 2019. Among the factors that influenced the slowdown in private sector credit are the stagnation of economic activity and a significant drop in the growth rate of formal employment. Corporate lending was the main source of growth in total credit to the private sector. In the first half of 2019, the substitution of external financing sources for internal credit granted by commercial banks prevailed, which allowed an average nominal growth rate of 11.2% compared to the first half of 2018. As this substitution effect faded out, the impact of lower economic dynamism in general, and the contraction of private investment in particular, was reflected in a weak firm’s credit demand, so that the average nominal growth rate of firm’s credit for the July to November 2019 period was 6.7%. In the first nine months of 2019, credit to firms averaged an annual nominal growth rate of 9.2% (versus 15.5% in the same period of 2018). Credit to consumption decreased its annual nominal average growth rate from 7.2% in January to November 2018 to 6.0% in the same period of 2019.

As stated above, this lower dynamism was mainly associated with the deceleration of formal employment in Mexico. Mortgage lending was the only category of commercial bank credit which grew more in 2019 than in 2018, from an average nominal growth rate of 8.7% in January to November 2018 to a nominal growth rate of 10.5% in the same period of 2019. Part of this momentum was attributable to the lagged impact of the increase in the number of formal workers in previous years (2016-2017), since potential clients of this type of credit must prove a minimum time in service to obtain a mortgage, such that the stimulus of formal employment on mortgage lending is observed after a lag of several months. Other factors that contributed to boost commercial banks mortgages were the reduction of the credit activity of public housing institutes and the recovery of real wages.

Bank deposits in Mexico continued to grow, but at lower rates, in line with the reduced momentum in the economy. Traditional bank deposits (demand deposits and term deposits) had an average annual growth rate of 10.1% in nominal terms between January and November 2019, which represented a drop of 3.0 p.p. compared with the same period of 2018. Within the deposits, demand deposits began to be replaced with term deposits to a certain extent, influenced by the recent reduction in the benchmark interest rate, which, however, was not enough to offset the negative impact of lower economic activity on demand deposits. The only savings item which grew more in 2019 than in 2018 was debt investment funds, which, from January to November 2019, showed a nominal double-digit annual growth rate (12.6% versus 7.3% in the same month of 2018). This resulted from reduced interest rates, exchange rate stability and a reduction in risk aversion stemming from reduced trade tensions between the United States and China.

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Under the new administration, regulatory activity in Mexico has slowed down considerably, although one draft bill could have significant potential impact on competition in the near future. On November 2019, after the ruling party’s majority leader in the Senate presented a bill to severely restrict banks’ fees, a new banking fee bill with a broader and more comprehensive approach, worked out by the Mexican Bank Association and the financial authorities, was presented. This new project would, inter alia, (a) broaden existing “basic” fee-free accounts to include accounts into which government aid and subsidies are deposited (for example with respect to unemployed or disabled customers); (b) create an “intermediate account” which would have no fees for deposits, for a number of monthly cash withdrawals on own ATMs (to be determined by BANXICO), and up to three interbank monthly transfers, among others; (c) reinforce measures to permit customers to switch banks and cancel products; (d) create a mandatory banking services offering platform where customers will be able to review offers and, if they so choose and meet the relevant eligibility criteria (including credit checks, where applicable), receive a binding offer from the bank in question; and (e) with clients’ prior consent, allow banks to access credit data for the submission of tailored offers to potential clients through the credit bureaus. The bill would increase fee transparency requirements, with enhanced fee disclosure prior to the signing of contracts, and the submission of a yearly report on paid fees and interest. In addition, BANXICO and CONDUSEF (the financial ombudsman), would be required to align their fee catalogues in order to make comparison easier for clients. The bill was presented to the Senate, and could be voted by February 2020 when the regular sessions period begins, before continuing its process at the Chamber of Deputies.

Finally, there have been new developments during 2019 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. The law 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. BANXICO and the CNBV published the secondary regulation governing the operations of the regulatory sandbox during 2019.

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 European Union and elsewhere 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 (CS) 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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BBVA’s security strategy resides on three fundamental pillars: (a) cybersecurity, (b) data protection, and (c) fraud prevention. For each pillar, there is a program that seeks to reduce the risks identified in the developed taxonomy. All these programs are periodically reviewed by internal governance structures to assess their effective impact on the Group’s risks.

With respect to cybersecurity, the Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks targeting global users and the Group’s infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, is made up of approximately 200 people and provides security services in all countries where the Group operates in accordance with a service catalogue which includes more than 60 different services. The Global CERT operates 24x7, with operation lines dedicated to fraud and cybersecurity.

During 2019, the Group detected an increase in the number of the attacks, accentuated by the presence of organized crime groups specialized in the banking sector and working in a multi-country environment. Furthermore, the Group detected a significant increase in phishing attacks to retail customers, including fraud attempts and the stealing of credentials.

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 and the attacks of our “red team” (made up of in-house hackers). The outcome of such exercises 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, including cyber surveillance services for the digital fingerprints of these key personnel, to minimize the risk of cybersecurity breaches.

The second pillar of the strategy is based on the adequate protection of data and its treatment, which is a fundamental element of the data-centric strategy of the BBVA Group. All activities related to the data protection program are reviewed by the Data Protection Committee, where all relevant stakeholders of the organization are represented.

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts, the third pillar of our strategy, 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.

#

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# ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

## Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

BBVA 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 largest shareholder in Garanti BBVA, Turkey’s biggest bank in terms of market capitalization.

The purpose of the BBVA Group is to bring the age of opportunities to everyone, based on our customers’ real needs, resting the institution in solid values: customer comes first, we think big and we are one team. Its responsible banking model aspires to achieve a more inclusive and sustainable society. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture.

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.

Critical Accounting Policies

The Consolidated Financial Statements as of and for the years ended December 31, 2019, 2018 and 2017 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, 2019, 2018 and 2017, and its results of operations and consolidated cash flows for the years ended December 31, 2019, 2018 and 2017. 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, expense and commitments reported herein. These estimates relate mainly to the following:

· The loss allowance of 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, 2019, 2018 and 2017, respectively, events that take place in the future might make it necessary to revise these estimates (upwards or downwards) in coming years.

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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.

See Note 2.3 to our Consolidated Financial Statements for information on changes to IFRS or their interpretation that were not yet effective as of December 31, 2019.

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 was not applied retrospectively for previous years and financial information relating to 2017 is presented in accordance with IAS 39 except for certain modifications in order to improve its comparability with financial information for 2019 and 2018.

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.

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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, although the amortized cost criteria is not used when accounting for these instruments.

Financial derivatives designated as hedging items are included in the heading of the balance sheet “Derivatives - Hedge accounting”. 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.

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. 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, 2019, an impairment of €1,318 million was recognized in the United States CGU and was mainly the result of the negative changes in interest rates, especially in the second half of 2019, which together with the slowdown of the economy caused the expected results to be below the previous estimate. For additional information, see Note 18.1 to our Consolidated Financial Statements.

As of December 2018 and 2017, no impairment had been identified in any of the main CGUs.

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The Group’s most significant goodwill corresponds to the CGU in the United States. The calculation of the impairment test 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, 2019, the Group used a steady growth rate of 3.5% (4.0% as of December 31, 2018 and 2017) to extrapolate the cash flows in perpetuity starting on the fifth year (2024), 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, 10.0% as of December 31, 2019 (10.5% as of December 31, 2018 and 10.0% as of December 31, 2017), which consists of the risk free rate plus a risk premium.

As of December 31, 2019 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €871 million and €1,017 million respectively (€1,009 million and €1,176 million respectively as of December 31, 2018). If, as of December 31, 2019, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €340 million and €292 million respectively (€526 million and €451 million respectively as of December 31, 2018).

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, 2019, the Group used a steady growth rate of 7.0% (the same rate was considered as of December 31, 2018 and 2017) to extrapolate the cash flows in perpetuity starting on the fifth year (2024), 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, 17.4% as of December 31, 2019 (24.3% and 18.0% as of December 31, 2018 and 2017, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2019 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €192 million and €212 million, respectively. If, as of December 31, 2019, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €31 million and €28 million, respectively.

Except as indicated above with the respect to the United States CGU, as of December 31, 2019 the recoverable amounts of our main CGUs were in excess of their carrying value.

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.

##

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## 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 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, 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 the years ended December 31, 2019, 2018, and 2017 and as period-end exchange rates as of December 31, 2019, 2018 and 2017 according to the European Central Bank (the “ECB”).

| Average Exchange Rates | Period-End Exchange Rates
| Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2017
Mexican peso | 21.5531 | 22.7046 | 21.3297 | 21.2202 | 22.4921 | 23.6614
U.S. dollar | 1.1195 | 1.1810 | 1.1296 | 1.1234 | 1.1450 | 1.1993
Argentine peso | - | - | 18.7375 | 67.2860 | 43.2900 | 22.5830
Colombian peso | 3,673.6747 | 3,484.3206 | 3,333.3333 | 3,681.5391 | 3,745.3184 | 3,584.2294
Peruvian sol | 3.7335 | 3.8787 | 3.6813 | 3.7205 | 3.8621 | 3.8813
Turkish lira | 6.3595 | 5.7058 | 4.1213 | 6.6843 | 6.0588 | 4.5464

During 2019, the Turkish lira, the Argentine peso and the Colombian peso depreciated against the euro in average terms compared with average exchange rates in the prior year. On the other hand, the Mexican peso, the U.S. dollar and the Peruvian sol appreciated against the euro in average terms. In terms of period-end exchange rates, the Argentine peso and the Turkish lira depreciated against the euro. On the other hand, the Mexican peso, the U.S. dollar, the Colombian peso and the Peruvian sol appreciated against the euro. The overall effect of changes in exchange rates was positive for the period-on-period comparison of the Group’s income statement and negative for the period-on-period comparison of the Group’s balance sheet.

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 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.

When comparing two dates or periods in this annual report on Form 20-F 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 the more recent period for both period ends.

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Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has applied both exceptions.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Properties, plants and equipment” and “Tangible assets – Investment properties” in our Consolidated Financial Statements (see Note 17), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other financial liabilities” in our Consolidated Financial Statements (see Note 22.5). For the consolidated income statement within our Consolidated Financial Statements, the amortization of the right to use asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 45) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 37.2).

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 to account for those two types of leases differently.

At the adoption date, the Group decided to apply the modified retrospective approach which required the recognition of lease liabilities in an amount equal to the present value of any future payments committed under the Group´s leases as of such date. Regarding the measurement of its right-of-use assets, the Group elected to record an amount equal to the lease liabilities, adjusted for the amount of any advance or accrued lease payment related to the Group´s leases recognized in the consolidated financial statements immediately before the adoption date.

As of January 1, 2019, the Group recognized right-of-use assets and lease liabilities for an amount of €3,419 million and €3,472 million, respectively. The impact in terms of capital (CET1) of the Group amounted to -11 basis points.

As allowed by IFRS 16, consolidated financial information as of December 31, 2018 and 2017 and for the years then ended included in our Consolidated Financial Statements has not been restated retrospectively in this regard. For additional information, see Notes 2.2.19 and 2.3 to our Consolidated Financial Statements.

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from Scotiabank for the acquisition of BBVA’s stake in 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. BBVA Chile was part of our South America segment.

Transfer of real estate business and sale of stake in Divarian

On October 10, 2018, after obtaining 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 former Non-Core Real Estate segment (which was subsequently integrated into our Spain operating 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”.

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Hyperinflationary economies

Argentina, which is part of the South America segment, was considered to be a hyperinflationary country in 2018 for the first time. For information on the impact of hyperinflation in the Consolidated Financial Statements, see Note 2.2.20 of the Consolidated Financial Statements.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager, an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits. The transaction was completed during the third quarter of 2019 and resulted in a gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1.

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 GDP, employment and corporate profits evolution. Interest rates 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.

Global growth slowed in 2019 largely due to the structural slowdown of the Chinese economy and cyclical moderation in the United States, especially after the effects of the fiscal stimulus adopted in 2018 faded. Escalating protectionism added to these factors and helped to drive global growth downwards. Investment and exports weakened, in contrast to the relatively strong performance of private consumption, bolstered by the relative strength of labor markets, low inflation and counter-cyclical policies adopted in China, the United States and the Eurozone. The fiscal stimulus launched in China and, to a lesser extent, in the Eurozone, together with the Federal Reserve’s monetary stimulus, prevented further moderation of growth in 2019. In addition, these measures were fundamental to limiting volatility in financial markets. BBVA Research’s forecasts global GDP growth to be approximately 3.2% in 2020, the same rate as in 2019, and to gradually accelerate to approximately 3.3% in 2021. This is based on the assumption that the easing of trade tensions between the United States and China and the avoidance of the risk of a disorderly Brexit in the short term (though such risk continues to persist) have contributed to reduce economic uncertainty. At the same time, economic policy is expected to continue to support activity at least in the major economies, as both the Federal Reserve and the ECB are expected to keep interest rates at current low levels for a prolonged period of time, while China is expected to take additional fiscal and monetary stimulus measures. However, protectionism is expected to continue to weigh on world trade and the geopolitical and structural risks remain high. In addition, the outbreak of coronavirus disease (COVID-19) may affect the estimates of growth included herein.

Regarding the evolution of key economic areas for the Group, the Spanish economy has continued to slow to an annual growth rate of approximately 2.0% in 2019 driven by the moderation of domestic demand, but it continued to expand at a higher pace than the Eurozone (which expanded at 1.2% during the year). Looking forward, Spanish GDP growth should be supported by the slight improvement expected in Europe, while consumption and investment are expected to recover as uncertainty fades and fiscal and monetary policy remain expansionary. According to BBVA Research’s current estimates, growth is expected to slow to approximately 1.6% in 2020 and to gain some traction in 2021 to 1.9%. However, several sectors have been negatively affected by recent regulatory changes and remain a drag on growth (including the automobile and residential construction sectors). In addition, there is some slowdown in the tourism sector. Reforms need to be implemented to increase growth capacity, foster an investment-friendly environment and help to reduce some imbalances (including public finances, unemployment, precariousness, inequality and climate change).

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Mexico’s GDP growth stagnated in 2019 (after growing at 2.1% in 2018) driven by a falling construction sector and weakness in manufacturing, in addition to being dragged down by the sharp slowdown in the U.S. industrial sector. On the demand side, the decline in investment and the sharp slowdown in private consumption on the back of a slower pace of job creation continued to take a toll on growth last year. At the beginning of 2020, BBVA Research’s GDP growth forecast was revised slightly upwards to 1.5% in 2020 due to the lower uncertainty after the ratification of the United States-Mexico-Canada Agreement. This is expected to lead to a gradual recovery in private investment, while the expected improvement in formal employment should foster private consumption, all of which should underpin the recovery of GDP growth in 2021 to approximately 2.0%. In addition, slowing inflation should allow BANXICO to cut interest rates further to 6.0% this year. However, Petroleos Mexicanos’ (PEMEX) structural problems (declining production and very high debt) and uncertainty on economic policy continue to be a source of concern. A sound fiscal and monetary policy is likely to be crucial to limiting potential negative developments or any uncertainty with regards to the Mexican economy.

South American GDP growth slowed to 0.9% in 2019 after having grown by 1.3% in 2018. Low regional growth was mainly a result of the global slowdown, but also higher uncertainty on politics and economic policies in many countries in the region. As a result, this moderation was widespread across countries except in Colombia, where recovery gained some momentum, supported by strong performance in private consumption and investment.

In contrast, Argentina’s GDP growth contracted by approximately 2.5% for the second year in a row largely due to the effects of the foreign exchange crisis. Moving forward, according to BBVA Research, the slight improvement in the global outlook, ongoing expansionary monetary policies in the region thanks to more contained inflation and the easing of global uncertainty should support a gradual recovery in South America, underpinned by the improvement of domestic demand and investment. BBVA Research expects average GDP growth to be approximately 1.3% in 2020 and 2.2% in 2021. However, this recovery is expected to be heterogeneous across countries with growth rates above 3.0% in Peru and Colombia, but converging to approximately 2.0% in Brazil, Uruguay and Chile. In Argentina, BBVA Research expects that GDP will decline again by approximately 3.0% in 2020 as a whole, dragged down by the sharp adjustment of consumption and investment, although it could grow slightly in 2021. The main risks in the region are related to uncertainty around economic policies and the return of social unrest in several countries that could put a brake on the expected recovery in investment, in addition to more general risks in the context of the global environment, particularly protectionism.

In the United States, GDP growth slowed in 2019 to 2.3% from 2.9% in the previous year, as the fiscal stimulus faded, but also dragged down by the poor performance of investment and exports as a result of the global slowdown and the strength of the U.S. dollar. This was partly offset by a more accommodative monetary policy and the resilience of private consumption, which was supported by strong labor figures. According to BBVA Research, U.S. GDP growth is expected to slow down to 1.8% in 2020, although it is expected to gain some traction over the year due to lower uncertainty and a somewhat more benign global outlook. As a result, growth is expected to converge to potential rates at approximately 2.0% in 2021. Despite the strength of private consumption, and an unemployment rate below 4.0%, inflationary pressures remain contained. BBVA Research expects inflation to increase slightly from 1.8% in 2019 to 2.0% in 2020 and 2.2% in 2021. This outlook along with lower probability of recession should lead the Federal Reserve to pause monetary policy.

In Turkey, GDP growth slowed again in 2019 to 0.8% driven by the sharp contraction of activity in the second half of 2018, even though the Turkish economy technically emerged from recession in the first quarter of 2019. The adjustment in domestic demand, triggered by the sharp depreciation of the Turkish lira and higher interest rates, seems to have led the recovery of private consumption and investment over the second half of 2019, which was also supported by an easing monetary policy since mid-2019. In contrast, the support of net exports faded. According to BBVA Research, GDP growth is expected to accelerate to 4.0% in 2020 and 4.5% in 2021 underpinned by a more accommodative monetary policy in a context of slowing inflation (15.2% in 2019, 10.0% in 2020 and 8.6% in 2021) and the correction of imbalances generated in previous years.

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BBVA Group results of operations for 2019 compared to 2018

The table below shows the Group’s consolidated income statements for 2019 and 2018. The Group´s consolidated income statement for 2018 has been restated for comparative purposes due to the entry into force of the Amendment to IAS 12. See “Presentation of Financial Information―IAS 12―”Income Taxes” Amendment”.

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Interest and other income | 31,061 | 29,831 | 4.1
Interest expense | (12,859) | (12,239) | 5.1
Net interest income | 18,202 | 17,591 | 3.5
Dividend income | 162 | 157 | 3.2
Share of profit or loss of entities accounted for using the equity method | (42) | (7) | n.m. (3)
Fee and commission income | 7,522 | 7,132 | 5.5
Fee and commission expense | (2,489) | (2,253) | 10.5
Net gains (losses) on financial assets and liabilities (1) | 798 | 1,234 | (35.3)
Exchange differences, net | 586 | (9) | n.m. (3)
Other operating income | 671 | 949 | (29.3)
Other operating expense | (2,006) | (2,101) | (4.5)
Income on insurance and reinsurance contracts | 2,890 | 2,949 | (2.0)
Expense on insurance and reinsurance contracts | (1,751) | (1,894) | (7.6)
Gross income | 24,542 | 23,747 | 3.3
Administration costs | (10,303) | (10,494) | (1.8)
Personnel expense | (6,340) | (6,120) | 3.6
Other administrative expense | (3,963) | (4,374) | (9.4)
Depreciation and amortization | (1,599) | (1,208) | 32.4
Net margin before provisions (2) | 12,639 | 12,045 | 4.9
Provisions or reversal of provisions and other results | (663) | (373) | 77.7
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (4,151) | (3,981) | 4.3
Impairment or reversal of impairment on non-financial assets | (1,447) | (138) | n.m. (3)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net | (3) | 78 | n.m. (3)
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 | 21 | 815 | (97.4)
Operating profit/(loss) before tax | 6,398 | 8,446 | (24.2)
Tax expense or income related to profit or loss from continuing operations | (2,053) | (2,219) | (7.5)
Profit from continuing operations | 4,345 | 6,227 | (30.2)
Profit from discontinued operations, net | - | - | -
Profit | 4,345 | 6,227 | (30.2)
Profit attributable to parent company | 3,512 | 5,400 | (35.0)
Profit attributable to non-controlling interests | 833 | 827 | 0.7

(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) Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

102

The changes in our consolidated income statements for the years ended December 31, 2019 and 2018 were as follows:

Net interest income

The following table summarizes net interest income for the years ended December 31, 2019 and 2018.

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Interest and other income | 31,061 | 29,831 | 4.1
Interest expense | (12,859) | (12,239) | 5.1
Net interest income | 18,202 | 17,591 | 3.5

Net interest income for the year ended December 31, 2019 amounted to €18,202 million, a 3.5% increase compared with the €17,591 million recorded for the year ended December 31, 2018, mainly as a result of the increases in net interest income in Mexico and the United States and, to a lesser extent, South America (as described below). At constant exchange rates, net interest income increased by 4.3%. The following factors, set out by region, were the main contributors to the 3.5% increase in net interest income:

· The United States: there was a 5.2% period-on-period increase in net interest income due mainly to the appreciation of the U.S. dollar, partially offset by higher funding costs. Additionally, while the Federal Reserve’s increase in interest rates in 2018 positively impacted net interest income, subsequent rate reductions in 2019 have negatively impacted results especially in the second half of 2019.

· Mexico: there was an 11.5% period-on-period increase in net interest income mainly as a result of increases in the volume of interest-earning assets in the retail portfolio and volumes and yields in the wholesale portfolio and, to a lesser extent, the appreciation of the Mexican peso against the euro. In particular, net interest income benefited from the increase in the average volume of loans and advances to customers, particularly to enterprises and households. The increase was partially offset by greater funding costs.

· South America: there was a 6.2% period-on-period increase in net interest income mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and the increase in the average volume of interest-earning assets in retail and corporate banking, mainly in Peru. Additionally, the average volume of consumer and mortgage loans in Colombia increased during 2019. These effects were partially offset by the depreciation of the Argentine peso against the euro. At constant exchange rates, there was a 15.2% increase.

The increase in net interest income was partially offset by:

· Spain: there was a 1.4% period-on-period decrease in net interest income mainly as a result of the lower contribution from the ALCO portfolio.

· Turkey: there was a 10.2% period-on-period decrease in net interest income mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 0.1% increase.

Dividend income

Dividend income for the year ended December 31, 2019 amounted to €162 million, a 3.2% increase compared with the €157 million recorded for the year ended December 31, 2018.

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, 2019 amounted to a €42 million loss, compared with the €7 million loss recorded for the year ended December 31, 2018.

103

Fee and commission income

The table below provides a breakdown of fee and commission income for the years ended December 31, 2019 and 2018:

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Bills receivables | 39 | 39 | -
Demand accounts | 526 | 451 | 16.6
Credit and debit cards and TPVs | 3,083 | 2,900 | 6.3
Checks | 203 | 194 | 4.6
Transfers and other payment orders | 735 | 689 | 6.7
Insurance product commissions | 172 | 178 | (3.4)
Loan commitments given | 222 | 223 | (0.4)
Other commitments and financial guarantees given | 392 | 390 | 0.5
Asset management | 1,066 | 1,023 | 4.2
Securities fees | 319 | 325 | (1.7)
Custody securities | 123 | 122 | 1.0
Other fees and commissions | 642 | 598 | 7.4
Fee and commission income | 7,522 | 7,132 | 5.5

Fee and commission income increased by 5.5% to €7,522 million for the year ended December 31, 2019 from the €7,132 million recorded for the year ended December 31, 2018, primarily due to the increase in commissions relating to the use of credit and debit cards, as a result of the increased level of transactions (mainly in Mexico), the appreciation of the currencies of some of the main countries where the Group operates against the euro and, to a lesser extent, the increase in the number of corporate banking transactions and the positive performance of asset management activities in Spain.

Fee and commission expense

The breakdown of fee and commission expense for the years ended December 31, 2019 and 2018 is as follows:

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Demand accounts | 36 | 39 | (7.7)
Credit and debit cards | 1,662 | 1,502 | 10.7
Transfers and other payment orders | 150 | 96 | 56.3
Commissions for selling insurance | 54 | 48 | 12.5
Custody securities | 30 | 29 | 3.4
Other fees and commissions | 557 | 539 | 3.3
Fee and commission expense | 2,489 | 2,253 | 10.5

Fee and commission expense increased by 10.5% to €2,489 million for the year ended December 31, 2019 from the €2,253 million recorded for the year ended December 31, 2018, mainly due to the increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards, particularly in Mexico and Turkey, and the appreciation of the currencies of some 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 decreased by 35.3% to €798 million for the year ended December 31, 2019 compared to the net gain of €1,234 million recorded for the year ended December 31, 2018, mainly due to the weaker performance in Spain, due mainly to uneven market conditions, lower portfolio sales in 2019, and the depreciation of the Turkish lira.

104

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 2019 and 2018:

| Year Ended December 31, |
| 2019 | 2018 | 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 | 239 | 216 | 10.6
Financial assets at fair value through other comprehensive income | 169 | 153 | 10.8
Financial assets at amortized cost | 65 | 51 | 27.9
Other financial assets and liabilities | 4 | 12 | (63.9)
Gains (losses) on financial assets and liabilities held for trading, net | 451 | 707 | (36.2)
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 143 | 96 | 49.0
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | (94) | 143 | n.m. (1)
Gains (losses) from hedge accounting, net | 59 | 72 | (18.1)
Net gains (losses) on financial assets and liabilities | 798 | 1,234 | (35.3)

(1) Not meaningful.

Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss increased to €239 million in the year ended December 31, 2019 from €216 million in the year ended December 31, 2018 mainly due to higher ALCO portfolio sales, in particular, in Mexico and the United States.

Gains on financial assets and liabilities held for trading decreased by 36.2%, to €451 million in the year ended December 31, 2019 from €707 million in the year ended December 31, 2018, mainly as a result of the decrease in the volume of U.S. Treasury securities and the depreciation of the Turkish lira, as well as the decrease in gains associated with derivatives and interest-bearing securities in Spain.

Gains on non-trading financial assets mandatorily at fair value through profit or loss increased to €143 million in the year ended December 31, 2019 from €96 million in the year ended December 31, 2018, primarily due to increased foreign-currency transactions and the valuation and sale of the stake in Prisma Medios de Pago, S.A. in Argentina.

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss amounted to a €94 million loss in the year ended December 31, 2019 compared to the €143 million gain recorded in the year ended December 31, 2018.

Exchange differences, net

Exchange differences increased to a €586 million gain for the year ended December 31, 2019 from a €9 million loss for the year ended December 31, 2018 mainly as a result of the appreciation of the currencies of some of the main countries where BBVA operates against the euro (in average terms).

Other operating income and expense, net

Other operating income for the year ended December 31, 2019 decreased by 29.3% to €671 million compared with the €949 million recorded for the year ended December 31, 2018, mainly as a result of lower income from real estate related services in Spain following the various dispositions of real estate related assets completed (see “—Results of Operations by Operating Segment— Results of Operations by Operating Segment for 2019 Compared with 2018—Spain”) and, to a lesser extent, decreased dividends from Telefónica, S.A.

Other operating expense for the year ended December 31, 2019 amounted to €2,006 million, a 4.5% decrease compared with the €2,101 million recorded for the year ended December 31, 2018, mainly as a result of lower expense from real estate related services in Spain, partially offset mainly by the impact of the hyperinflation adjustment in Argentina.

105

Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 2019 was €2,890 million, a 2.0% decrease compared with the €2,949 million of income recorded for the for the year ended December 31, 2018.

Expense on insurance and reinsurance contracts for the year ended December 31, 2019 was €1,751 million, a 7.6% decrease compared with the €1,894 million expense recorded for the year ended December 31, 2018, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the Argentine peso against the euro.

Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 2019 amounted to €10,303 million, a 1.8% decrease compared with the €10,494 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense recorded under “Rent expense” (within “Administration costs”) due to the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”, partially offset by increases in wages and salaries and increased technology costs.

The table below provides a breakdown of personnel expense for the years ended December 31, 2019 and 2018:

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Wages and salaries | 4,920 | 4,786 | 2.8
Social security costs | 780 | 722 | 8.0
Defined contribution plan expense | 113 | 89 | 27.0
Defined benefit plan expense | 50 | 58 | (13.8)
Other personnel expense | 478 | 465 | 2.8
Personnel expense | 6,340 | 6,120 | 3.6

The table below provides a breakdown of other administrative expense for the years ended December 31, 2019 and 2018:

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Technology and systems | 1,216 | 1,133 | 7.3
Communications | 218 | 235 | (7.2)
Advertising | 317 | 336 | (5.7)
Properties, fixtures and materials | 552 | 982 | (43.8)
Of which: |  |  |
Rent expense | 106 | 552 | (80.8)
Taxes other than income tax | 401 | 417 | (3.8)
Other expense | 1,258 | 1,271 | (1.0)
Other administrative expense | 3,963 | 4,374 | (9.4)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €1,599 million, a 32.4% increase compared with the €1,208 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets” (within “Depreciation and amortization”).

106

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results for the year ended December 31, 2019 amounted to an expense of €663 million, a 77.7% increase compared with the €373 million expense recorded for the year ended December 31, 2018, mainly as a result of increased provisions for commitments and guarantees given in Turkey and Spain, the increase in provisions for various purposes, particularly in Argentina, and the higher pension and pre-early retirement provisions in Spain, partially offset by lower real estate-related costs and the reversal of provisions in Spain.

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, 2019 was an expense of €4,151 million, a 4.3% increase compared with the €3,981 million expense recorded for the year ended December 31, 2018, mainly due to the increase in allowances for loan losses driven by the contagion rules for retail exposures (‘pulling effect’) and macroeconomic deterioration, especially in the United States, Mexico and South America.

In addition, there was credit quality deterioration in Argentina and Peru (which more than offset the impact of the depreciation of the Argentine peso). In the United States, impairment on financial assets increased mainly due to the higher losses in the consumer loan portfolios, as well as increases in the loss allowances for individually evaluated non-performing loans in the commercial, financial and agricultural loan portfolios. In addition, the year-on-year comparison is affected by the release of provisions in 2018 related to hurricanes in the United States.

107

The table below provides a breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the years ended December 31, 2019 and 2018:

| Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Financial assets at fair value through other comprehensive income | 82 | 1 | n.m.(1)
Financial assets at amortized cost | 4,069 | 3,980 | 2.2
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | 4,151 | 3,981 | 4.3

(1) Not meaningful.

Impairment or reversal of impairment on non-financial assets

Impairment or reversal of impairment on non-financial assets for the year ended December 31, 2019 amounted to an expense of €1,447 million, compared with the €138 million expense recorded for the year ended December 31, 2018, mainly as a result of the goodwill impairment losses recognized in the United States CGU, which have been recorded under this line item in our consolidated income statement for the year ended December 31, 2019, and assigned to the Corporate Center. This impairment had a net negative impact on the “Profit attributable to parent company” of €1,318 million, and was mainly the result of the negative evolution of interest rates (following the interest rate cuts approved by the Federal Reserve), especially in the second half of 2019, which together with the slowdown of the economy, caused the expected evolution of results to be below the previous estimate. For additional information, see Note 18.1 to our Consolidated Financial Statements.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

Gains (losses) on derecognition of non-financial assets and subsidiaries, for the year ended December 31, 2019 amounted to a €3 million loss compared with the €78 million gain recorded for the year ended December 31, 2018. Capital gains in the year ended December 31, 2018 related mainly to the sale of portfolios in the Mexico and Spain 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, 2019 was €21 million, compared with the €815 million recorded for the year ended December 31, 2018, mainly due to the result of the sale of BBVA Chile and the Cerberus Transaction recognized in 2018.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 2019 amounted to €6,398 million, a 24.2% decrease compared with the €8,446 million operating profit before tax recorded for the year ended December 31, 2018.

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, 2019 amounted to €2,053 million, a 7.5% decrease compared with the €2,219 million expense recorded for the year ended December 31, 2018, mainly due to the decrease in operating profit before tax. The year-on-year variation was also affected by the higher dividends and capital gains exempt from taxation in 2018 (which included those recognized in the 2017 tax declaration presented in July 2018) in Spain and the recognition of the income tax deductibility for hyperinflation in Argenti na. Additionally, the tax expense related to the sale of BBVA Chile was recognized in 2018.

108

Profit

As a result of the foregoing, profit for the year ended December 31, 2019 amounted to €4,345 million, a 30.2% decrease compared with the €6,227 million recorded for the year ended December 31, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 2019 amounted to €3,512 million, a 35.0% decrease compared with the €5,400 million recorded for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 2019 amounted to €833 million, a 0.7% increase compared with the €827 million profit attributable to non-controlling interests recorded for the year ended December 31, 2018, mainly as a result of the increase in profit in South America.

###

109

### BBVA Group results of operations for 2018 compared with 2017

The table below shows the Group’s consolidated income statements for 2018 and 2017, which have been restated for comparative purposes due to the entry into force of the Amendment to IAS 12. See “Presentation of Financial Information―IAS 12―”Income Taxes” Amendment”.

| 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. (3)
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 (1) | 1,234 | 938 | 31.6
Exchange differences, net | (9) | 1,030 | n.m. (3)
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 (2) | 12,045 | 12,770 | (5.7)
Provisions or reversal of provisions and other results | (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 | - | - | -
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 815 | 26 | n.m. (3)
Operating profit/(loss) before tax | 8,446 | 6,931 | 21.9
Tax expense or income related to profit or loss from continuing operations | (2,219) | (2,174) | 2.1
Profit from continuing operations | 6,227 | 4,757 | 30.9
Profit from discontinued operations, net | - | - | -
Profit | 6,227 | 4,757 | 30.9
Profit attributable to parent company | 5,400 | 3,514 | 53.7
Profit attributable to non-controlling interests | 827 | 1,243 | (33.5)

(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.

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)

110

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 changes 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 2.9% 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 cost 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 was partially offset by:

· The 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 increase) and to measures adopted by BBVA USA 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 the higher net interest income from the retail portfolio, the lower cost of deposits and the 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 53.0% 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”

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)
Demand accounts | 451 | 507 | (11.0)
Credit and debit cards and TPVs | 2,900 | 2,834 | 2.3
Checks | 194 | 212 | (8.5)
Transfers and other payment orders | 689 | 648 | 6.3
Insurance product commissions | 178 | 200 | (11.0)
Loan commitments given | 223 | 231 | (3.5)
Other commitments and financial guarantees given | 390 | 396 | (1.5)
Asset management | 1,023 | 923 | 10.8
Securities fees | 325 | 385 | (15.7)
Custody securities | 122 | 122 | -
Other fees and commissions | 598 | 645 | (7.3)
Fee and commission income | 7,132 | 7,150 | (0.3)

111

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 %)
Demand accounts | 39 | 45 | (13.8)
Credit and debit cards | 1,502 | 1,458 | 3.0
Transfers and other payment orders | 96 | 123 | (21.7)
Commissions for selling insurance | 48 | 60 | (19.6)
Custody securities | 29 | 38 | (23.8)
Other fees and commissions | 539 | 506 | 6.6
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.

112

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 fair value through other comprehensive income | 153 | 843 | (81.9)
Financial assets at amortized cost | 51 | 133 | (61.6)
Other financial assets and liabilities | 12 | 10 | 19.2
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.

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.

113

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.

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.

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 | 1,018 | 11.3
Communications | 235 | 269 | (12.6)
Advertising | 336 | 352 | (4.5)
Properties, 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 | 1,412 | (10.0)
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.

114

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results 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 a loss allowance 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 or net gains by modification 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 or net gains by modification | 3,981 | 4,803 | (17.1)

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 Spain operating 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/(loss)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.

115

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 €2,219 million, a 2.1% increase compared with the €2,174 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 €6,227 million, a 30.9% increase compared with the €4,757 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 €5,400 million, a 53.7% increase compared with the €3,514 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.

Results of Operations by Operating Segment

The information contained in this section is presented under management criteria.

The tables set forth below show the income statement of our operating segments and Corporate Center for the years indicated. In addition, with respect to 2019 and 2018, the income statement of our operating segments and Corporate Center is reconciled to the consolidated income statement of the Group. The “Adjustments” column in such years relates to the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria for 2019 and 2018. In particular:

· in 2019, such differences relate to the accounting of: (i) the impairment of goodwill in the United States’ CGU, which amounted to €1,318 million for the year ended December 31, 2019, and (ii) the impairment or reversal of impairment on tangible assets and other intangible assets, which amounted to €129 million for the year ended December 31, 2019. In this section, information relating to our Corporate Center for 2019 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”. However, for purposes of the Group financial statements, such losses are presented under the heading “Impairment or reversal of impairment on non-financial assets”; and

· in 2018, such differences relate to the accounting of the capital gain resulting from the sale of our stake in BBVA Chile (which amounted to €633 million, net of taxes). In this section, information relating to our Corporate Center 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 financial statements, such capital gain has been recorded under “Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations”.

Consolidated financial information for the years ended December 31, 2018 and 2017 has been restated to reflect the new segment reporting structure adopted in 2019 and the adoption of the Amendment to IAS 12. For additional information, see “Presentation of Financial Information—Changes in Operating Segments” and Note 6 to the Consolidated Financial Statements and “Presentation of Financial Information―IAS 12―”Income Taxes” Amendment”, respectively.

116

| For the Year Ended December 31, 2019
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center | Adjustments (1) | Group
| (In Millions of Euros) |  |
Net interest income | 3,645 | 2,395 | 6,209 | 2,814 | 3,196 | 175 | (233) | - | 18,202
Net fees and commissions | 1,751 | 644 | 1,298 | 717 | 557 | 139 | (73) | - | 5,033
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 239 | 173 | 310 | 10 | 576 | 131 | (54) | - | 1,383
Other operating income and expense, net (3) | 98 | 12 | 212 | 50 | (479) | 9 | 21 | - | (77)
Gross income | 5,734 | 3,223 | 8,029 | 3,590 | 3,850 | 454 | (339) | - | 24,542
Administration costs | (2,777) | (1,747) | (2,299) | (1,036) | (1,403) | (275) | (765) | - | (10,303)
Depreciation and amortization | (476) | (219) | (346) | (179) | (171) | (18) | (190) | - | (1,599)
Net margin before provisions (4) | 2,480 | 1,257 | 5,384 | 2,375 | 2,276 | 161 | (1,294) | - | 12,639
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (216) | (550) | (1,698) | (906) | (777) | (4) | - | - | (4,151)
Provisions or reversal of provisions and other results | (386) | (2) | 5 | (128) | (103) | 6 | (1,481) | 1,447 | (643)
Impairment or reversal of impairment on non-financial assets | - | - | - | - | - | - | - | (1,447) | (1,447)
Operating profit/ (loss) before tax | 1,878 | 705 | 3,691 | 1,341 | 1,396 | 163 | (2,775) | - | 6,398
Tax expense or income related to profit or loss from continuing operations | (489) | (115) | (992) | (312) | (368) | (36) | 258 | - | (2,053)
Profit from continuing operations | 1,389 | 590 | 2,699 | 1,029 | 1,028 | 127 | (2,517) | - | 4,345
Profit from discontinued operations/ Profit from corporate operations, net | - | - | - | - | - | - | - | - | -
Profit | 1,389 | 590 | 2,699 | 1,029 | 1,028 | 127 | (2,517) | - | 4,345
Profit attributable to non-controlling interests | (3) | - | - | (524) | (307) | - | - | - | (833)
Profit attributable to parent company | 1,386 | 590 | 2,699 | 506 | 721 | 127 | (2,517) | - | 3,512

(1) Adjustments in 2019 correspond to the accounting of (i) the impairment of goodwill in the United States’ CGU, which amounted to €1,318 million for the year ended December 31, 2019, and (ii) the impairment or reversal of impairment on tangible assets and other intangible assets, which amounted to €129 million for the year ended December 31, 2019. In this section, information relating to our Corporate Center for 2019 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”. However, for purposes of the Group financial statements, such losses are presented under the heading “Impairment or reversal of impairment on non-financial assets”.

(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 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 “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “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”.

117

| For the Year Ended December 31, 2018 |  |  |  |
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center | Total |  | Adjustments (1) | Group
| (In Millions of Euros) |  |  |  |
Net interest income | 3,698 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (269) | 17,591 |  | - | 17,591
Net fees and commissions | 1,682 | 596 | 1,205 | 686 | 631 | 138 | (59) | 4,879 |  | - | 4,879
Net gains (losses) on financial assets and liabilities and exchange differences, net (2) | 529 | 109 | 223 | 11 | 405 | 101 | (155) | 1,223 |  | - | 1,223
Other operating income and expense, net (3) | 59 | 9 | 197 | 70 | (344) | - | 63 | 54 |  | - | 54
Gross income | 5,968 | 2,989 | 7,193 | 3,901 | 3,701 | 414 | (420) | 23,747 |  | - | 23,747
Administration costs | (3,027) | (1,683) | (2,139) | (1,109) | (1,584) | (281) | (672) | (10,494) |  | - | (10,494)
Depreciation and amortization | (308) | (178) | (253) | (138) | (125) | (6) | (200) | (1,208) |  | - | (1,208)
Net margin before provisions (4) | 2,634 | 1,129 | 4,800 | 2,654 | 1,992 | 127 | (1,291) | 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 | (383) | (225) | (1,555) | (1,202) | (638) | 24 | (2) | (3,981) |  | - | (3,981)
Provisions or reversal of provisions and other results | (410) | 16 | 24 | (8) | (65) | (3) | (36) | (483) |  | 866 | 383
Operating profit/ (loss) before tax | 1,840 | 920 | 3,269 | 1,444 | 1,288 | 148 | (1,329) | 7,580 |  | 866 | 8,446
Tax expense or income related to profit or loss from continuing operations | (437) | (185) | (901) | (293) | (469) | (52) | 350 | (1,986) |  | (233) | (2,219)
Profit from continuing operations excluding corporate operations | 1,403 | 736 | 2,368 | 1,151 | 819 | 96 | (979) | 5,594 |  | 633 | 6,227
Profit from discontinued operations/ Profit from corporate operations, net | - | - | - | - | - | - | 633 | 633 |  | (633) | -
Profit | 1,403 | 736 | 2,368 | 1,151 | 819 | 96 | (346) | 6,227 |  | - | 6,227
Profit attributable to non-controlling interests | (3) | - | - | (585) | (241) | - | 3 | (827) |  | - | (827)
Profit attributable to parent company | 1,400 | 736 | 2,367 | 567 | 578 | 96 | (343) | 5,400 |  | - | 5,400

(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 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 financial statements, 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 “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 “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “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”.

118

| For the Year Ended December 31, 2017
| Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center | Group
| (In Millions of Euros)
Net interest income | 3,810 | 2,119 | 5,476 | 3,331 | 3,200 | 180 | (357) | 17,758
Net fees and commissions | 1,563 | 644 | 1,219 | 703 | 713 | 164 | (86) | 4,921
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 555 | 111 | 249 | 14 | 480 | 123 | 436 | 1,968
Other operating income and expense, net (2) | 234 | 2 | 177 | 67 | 59 | 1 | 82 | 622
Gross income | 6,162 | 2,876 | 7,122 | 4,115 | 4,451 | 468 | 74 | 25,270
Administration costs | (3,145) | (1,664) | (2,220) | (1,329) | (1,906) | (293) | (556) | (11,112)
Depreciation and amortization | (352) | (187) | (256) | (178) | (121) | (11) | (282) | (1,387)
Net margin before provisions (3) | 2,665 | 1,026 | 4,646 | 2,608 | 2,424 | 164 | (764) | 12,770
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (705) | (241) | (1,651) | (453) | (650) | 23 | (1,125) | (4,803)
Provisions or reversal of provisions and other results | (771) | (36) | (35) | (12) | (103) | (6) | (73) | (1,036)
Operating profit/ (loss) before tax | 1,189 | 749 | 2,960 | 2,143 | 1,671 | 181 | (1,962) | 6,931
Tax expense or income related to profit or loss from continuing operations | (309) | (263) | (789) | (425) | (480) | (53) | 146 | (2,174)
Profit from continuing operations | 879 | 486 | 2,170 | 1,718 | 1,192 | 128 | (1,816) | 4,757
Profit from discontinued operations/ Profit from corporate operations, net | - | - | - | - | - | - | - | -
Profit | 879 | 486 | 2,170 | 1,718 | 1,192 | 128 | (1,816) | 4,757
Profit attributable to non-controlling interests | (2) | - | - | (895) | (345) | - | (1) | (1,243)
Profit attributable to parent company | 877 | 486 | 2,170 | 823 | 847 | 128 | (1,817) | 3,514

(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 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) Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “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”.

###

119

### Results of Operations by Operating Segment for 2019 Compared with 2018

#### SPAIN

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,645 | 3,698 | (1.4)
Net fees and commissions | 1,751 | 1,682 | 4.1
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 239 | 529 | (54.9)
Other operating income and expense, net | (419) | (425) | (1.5)
Income and expense on insurance and reinsurance contracts | 518 | 485 | 6.7
Gross income | 5,734 | 5,968 | (3.9)
Administration costs | (2,777) | (3,027) | (8.2)
Depreciation and amortization | (476) | (308) | 54.8
Net margin before provisions (2) | 2,480 | 2,634 | (5.8)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (216) | (383) | (43.6)
Provisions or reversal of provisions and other results | (386) | (410) | (5.9)
Operating profit/(loss) before tax | 1,878 | 1,840 | 2.1
Tax expense or income related to profit or loss from continuing operations | (489) | (437) | 12.0
Profit from continuing operations | 1,389 | 1,403 | (1.0)
Profit from corporate operations, net | - | - | -
Profit | 1,389 | 1,403 | (1.0)
Profit attributable to non-controlling interests | (3) | (3) | -
Profit attributable to parent company | 1,386 | 1,400 | (1.0)

(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) Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of an important part of the real estate business of BBVA in Spain to Divarian and the sale of an 80% stake in Divarian to Promontoria Marina, S.L.U., a company managed by Cerberus Capital Management, L.P. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa Residencial SOCIMI, S.A. for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager (Anfora), for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in-default mortgage credits. The transaction was completed during the third quarter of 2019. The completion of these transactions has affected the comparability of year-on-year results for this operating segment. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €3,645 million, a 1.4% decrease compared with the €3,698 million recorded for the year ended December 31, 2018, mainly as a result of the lower contribution from the ALCO portfolio. The net interest margin over total average assets of this operating segment amounted to 1.01% for the year ended December 31, 2019, compared with 1.06% for the year ended December 31, 2018.

120

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €1,751 million, a 4.1% increase compared with the €1,682 million recorded for the year ended December 31, 2018, mainly due to the increase of corporate banking transactions and the positive performance of asset management activities.

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, 2019 was a net gain of €239 million, a 54.9% decrease compared with the €529 million net gain recorded for the year ended December 31, 2018, mainly as a result of uneven market conditions and lower portfolio sales in 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2019 amounted to €419 million, a 1.5% decrease compared with the €425 million expense recorded for the year ended December 31, 2018.

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, 2019 was €518 million, a 6.7% increase compared with the €485 million recorded for the year ended December 31, 2018, mainly as a result of higher premiums collected and a lower claims ratio, partially offset by the lower insurance activity related to insurance-savings products (through BBVA Seguros).

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €2,777 million, a 8.2% decrease compared with the €3,027 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense due to the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

121

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €476 million, a 54.8% increase compared with the €308 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

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, 2019 amounted to an expense of €216 million, a 43.6% decrease compared with the €383 million expense recorded for the year ended December 31, 2018, mainly as a result of the sale of non-performing and in-default mortgage credits and to lower loan loss provisions of real estate developer loans previously allocated to the former Non-Core Real Estate operating segment following the Anfora transaction (see “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Agreement with Voyager Investing UK Limited Partnership (Anfora)”).

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, 2019 were a €386 million expense, a 5.9% decrease compared with the €410 million expense recorded for the year ended December 31, 2018, mainly due to lower real estate related costs and other results, partially offset by higher pension and pre-early retirement provisions.

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, 2019 was €1,878 million, a 2.1% increase compared with the €1,840 million recorded for the year ended December 31, 2018.

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, 2019 was an expense of €489 million, a 12.0% increase compared with the €437 million expense recorded for the year ended December 31, 2018. The year-on-year variation was mainly attributable to the higher dividends and capital gains exempt from taxation in 2018 (which included those recognized in the 2017 tax declaration presented in July 2018) and the higher operating profit before tax. Tax expense amounted to 26.0% of operating profit before tax for the year ended December 31, 2019 and 23.7% for the year ended December 31, 2018.

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, 2019 amounted to €1,386 million, a 1.0% decrease compared with the €1,400 million recorded for the year ended December 31, 2018.

####

122

#### THE UNITED STATES

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | 2,395 | 2,276 | 5.2
Net fees and commissions | 644 | 596 | 8.1
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 173 | 109 | 58.8
Other operating income and expense, net | 12 | 9 | 31.7
Income and expense on insurance and reinsurance contracts | - | - | -
Gross income | 3,223 | 2,989 | 7.8
Administration costs | (1,747) | (1,683) | 3.8
Depreciation and amortization | (219) | (178) | 23.1
Net margin before provisions (2) | 1,257 | 1,129 | 11.4
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (550) | (225) | n.m. (3)
Provisions or reversal of provisions and other results | (2) | 16 | n.m. (3)
Operating profit/(loss) before tax | 705 | 920 | (23.4)
Tax expense or income related to profit or loss from continuing operations | (115) | (185) | (37.7)
Profit from continuing operations | 590 | 736 | (19.9)
Profit from corporate operations, net | - | - | -
Profit | 590 | 736 | (19.9)
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 590 | 736 | (19.9)

(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) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

In the year ended December 31, 2019 the U.S. dollar appreciated 5.5% against the euro in average terms, resulting in a positive exchange rate effect on our consolidated income statement for the year ended December 31, 2018 and in the results of operations of the United States operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

123

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €2,395 million, a 5.2% increase compared with the €2,276 million recorded for the year ended December 31, 2018, mainly due to the appreciation of the U.S. dollar, partially offset by higher funding costs. Additionally, while the Federal Reserve’s increase in interest rates in 2018 positively impacted net interest income, subsequent rate reductions in 2019 have negatively impacted results especially in the second half of 2019. The net interest margin over total average assets of this operating segment amounted to 2.78% for the year ended December 31, 2019, compared with 2.96% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €644 million, a 8.1% increase compared with the €596 million recorded for the year ended December 31, 2018, mainly due to higher service charges on deposit accounts, higher card and merchant processing fees, lower commissions paid and the appreciation of the U.S. dollar against the euro.

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, 2019 was a net gain of €173 million, a 58.8% increase compared with the €109 million gain recorded for the year ended December 31, 2018, mainly as a result of higher ALCO portfolio sales, the performance in the BBVA branch in New York and the appreciation of the U.S. dollar against the euro.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2019 amounted to €12 million, compared with the €9 million income recorded for the year ended December 31, 2018.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,747 million, a 3.8% increase compared with the €1,683 million recorded for the year ended December 31, 2018, mainly as a result of increased expenses relating to professional services, business development and deposit campaigns, partially offset by the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

124

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €219 million, a 23.1% increase compared with the €178 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

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, 2019 was a €550 million expense compared with the €225 million expense recorded for the year ended December 31, 2018, mainly as a result of higher loan loss allowances for specific commercial portfolio customers and losses within the consumer loan portfolios as well as an increase in the loss allowances for individually evaluated non-performing loans in the commercial, financial and agricultural loan portfolios and, to a lesser extent, the deterioration of macroeconomic conditions. In addition, the comparison is affected by the release of provisions in 2018 related to the hurricanes in the United States.

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, 2019 was €705 million, a 23.4% decrease compared with the €920 million of operating profit recorded for the year ended December 31, 2018.

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, 2019 was €115 million, a 37.7% decrease compared with the €185 million expense recorded for the year ended December 31, 2018, mainly as a result of the lower operating profit before tax. Tax expense amounted to 16.3% of operating profit before tax for the year ended December 31, 2019, compared with 20.1% for the year ended December 31, 2018.

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, 2019 amounted to €590 million, a 19.9% decrease compared with the €736 million recorded for the year ended December 31, 2018.

####

125

#### MEXICO

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | 6,209 | 5,568 | 11.5
Net fees and commissions | 1,298 | 1,205 | 7.8
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 310 | 223 | 38.7
Other operating income and expense, net | (267) | (236) | 13.1
Income and expense on insurance and reinsurance contracts | 479 | 433 | 10.6
Gross income | 8,029 | 7,193 | 11.6
Administration costs | (2,299) | (2,139) | 7.5
Depreciation and amortization | (346) | (253) | 36.6
Net margin before provisions (2) | 5,384 | 4,800 | 12.2
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (1,698) | (1,555) | 9.2
Provisions or reversal of provisions and other results | 5 | 24 | (80.4)
Operating profit/(loss) before tax | 3,691 | 3,269 | 12.9
Tax expense or income related to profit or loss from continuing operations | (992) | (901) | 10.0
Profit from continuing operations | 2,699 | 2,368 | 14.0
Profit from corporate operations, net | - | - | -
Profit | 2,699 | 2,368 | 14.0
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 2,699 | 2,367 | 14.0

(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) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

In the year ended December 31, 2019, the Mexican peso appreciated 5.3% against the euro in average terms compared with the year ended December 31, 2018, resulting in a positive exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the Mexico operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

126

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €6,209 million, a 11.5% increase compared with the €5,568 million recorded for the year ended December 31, 2018, mainly as a result of increases in the volume of interest-earning assets in the retail portfolio and volumes and yields in the wholesale portfolio and, to a lesser extent, the appreciation of the Mexican peso against the euro. In particular, net interest income benefited from the increase in the average volume of loans and advances to customers, particularly to enterprises and households. The increase was partially offset by greater funding costs.

The net interest margin over total average assets of this operating segment amounted to 5.91% for the year ended December 31, 2019, compared with 5.81% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €1,298 million, a 7.8% increase compared with the €1,205 million recorded for the year ended December 31, 2018, mainly as a result of the increased use of credit and debit cards, as a result of the increased level of transactions during the period, and the appreciation of the Mexican peso, partially offset by the increase in commissions paid to other financial institutions in connection with the increased use of credit and debit cards.

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, 2019 were €310 million, a 38.7% increase compared with the €223 million gain recorded for the year ended December 31, 2018, mainly as a result of higher income from the ALCO portfolio and higher securities sales, partially offset by the Global Markets unit’s performance during the period and the appreciation of the Mexican peso against the euro.

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2019 was a net expense of €267 million, a 13.1% increase compared with the €236 million net expense recorded for the year ended December 31, 2018, mainly as a result of the higher contribution to the Deposit Guarantee Fund and the appreciation of the Mexican 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, 2019 was €479 million, a 10.6% increase compared with the €433 million net income recorded for the year ended December 31, 2018, mainly as a result of the positive performance of savings products and the appreciation of the Mexican peso.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 were €2,299 million, a 7.5% increase compared with the €2,139 million recorded for the year ended December 31, 2018, mainly as a result of the increase in digital infrastructure costs, the increase in the contribution to the BBVA Mexico’s foundation and the appreciation of the Mexican peso, partially offset by the lower rent expense, due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”. At a constant exchange rate, administration costs increased by 2.0%. Such increase was below Mexico’s inflation rate for the period.

127

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €346 million, a 36.6% increase compared with the €253 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”, and the appreciation of the Mexican 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, 2019 was a €1,698 million expense, a 9.2% increase compared with the €1,555 million expense recorded for the year ended December 31, 2018. At a constant exchange rate, there was a 3.6% increase in allowances for loan losses driven by the operation of the contagion rules for retail exposures (‘pulling effect’) in the amortized cost portfolio. In addition, the deterioration of macroeconomic conditions and the change in the parameters used to estimate loan loss allowances for the retail portfolio have negatively affected the year-on-year comparison.

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, 2019 amounted to €5 million of income compared with the €24 million income recorded for the year ended December 31, 2018. During 2018, other income was recognized from the sale of the stake that BBVA Mexico held in certain real estate developments.

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, 2019 was €3,691 million, a 12.9% increase compared with the €3,269 million of operating profit recorded for the year ended December 31, 2018.

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, 2019 was €992 million, a 10.0% increase compared with the €901 million expense recorded for the year ended December 31, 2018, mainly as a result of the higher operating profit before tax. The tax expense amounted to 26.9% of operating profit before tax for the year ended December 31, 2019, and 27.6% for the year ended December 31, 2018.

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, 2019 amounted to €2,699 million, a 14.0% increase compared with the €2,367 million recorded for the year ended December 31, 2018.

####

128

#### TURKEY

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | 2,814 | 3,135 | (10.2)
Net fees and commissions | 717 | 686 | 4.5
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 10 | 11 | (11.7)
Other operating income and expense, net | (10) | 23 | n.m. (3)
Income and expense on insurance and reinsurance contracts | 60 | 46 | 28.7
Gross income | 3,590 | 3,901 | (8.0)
Administration costs | (1,036) | (1,109) | (6.6)
Depreciation and amortization | (179) | (138) | 29.3
Net margin before provisions (2) | 2,375 | 2,654 | (10.5)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (906) | (1,202) | (24.6)
Provisions or reversal of provisions and other results | (128) | (8) | n.m. (3)
Operating profit/(loss) before tax | 1,341 | 1,444 | (7.1)
Tax expense or income related to profit or loss from continuing operations | (312) | (293) | 6.5
Profit from continuing operations | 1,029 | 1,151 | (10.6)
Profit from corporate operations, net | - | - | -
Profit | 1,029 | 1,151 | (10.6)
Profit attributable to non-controlling interests | (524) | (585) | (10.4)
Profit attributable to parent company | 506 | 567 | (10.7)

(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.

The Turkish lira depreciated 10.3% against the euro in average terms in the year ended December 31, 2019, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the Turkey operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

129

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €2,814 million, a 10.2% decrease compared with the €3,135 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 0.1% increase in net interest income.

The net interest margin over total average assets of this operating segment amounted to 4.26% for the year ended December 31, 2019, compared with 4.35% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €717 million, a 4.5% increase compared with the €686 million recorded for the year ended December 31, 2018, mainly as a result of the positive performance of payment instruments and cash transfers, partially offset by the depreciation of the Turkish lira and the increase in commissions paid to other financial institutions in connection with the increased use of credit and debit cards.

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, 2019 amounted to €10 million, compared with the €11 million gain recorded for the year ended December 31, 2018, mainly as a result of the lower gains from derivatives and the Global Markets unit’s transactions due to uneven market conditions, which were partially offset by the positive impact of changes in foreign exchange rates on foreign currency positions.

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2019 was a €10 million expense compared with the €23 million of net income recorded for the year ended December 31, 2018 mainly as a result of the higher contribution to the Deposit Guarantee Fund due to a modification in local regulations.

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, 2019 was €60 million a 28.7% increase compared with the €46 million income recorded for the year ended December 31, 2018, mainly as a result of higher sales in the insurance business.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,036 million, a 6.6% decrease compared with the €1,109 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira and, to a lesser extent, the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”. At a constant exchange rate, administration costs increased by 4.2%, which was below Turkey’s inflation rate for the period, mainly as a result of higher technology and professional services expenses.

130

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €179 million, a 29.3% increase compared with the €138 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

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, 2019 was a €906 million expense, a 24.6% decrease compared with the €1,202 million expense recorded for the year ended December 31, 2018, mainly as a result of lower impairments due to the improved macroeconomic prospects and the depreciation of the Turkish Lira.

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, 2019 were a €128 million expense compared with the €8 million expense recorded for the year ended December 31, 2018, mainly due to the increase in provisions for loan commitments and guarantees given in Turkey.

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, 2019 was €1,341 million, a 7.1% decrease compared with the €1,444 million recorded for the year ended December 31, 2018. At a constant exchange rate, operating profit increased by 3.5%.

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, 2019 was €312 million, a 6.5% increase compared with the €293 million expense recorded for the year ended December 31, 2018, mainly as a result of the change in the tax rate applicable to the deferred tax assets. The effective tax rate amounted to 23.3% of the operating profit before tax for the year ended December 31, 2019, and 20.3% for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2019 amounted to €524 million, a 10.4% decrease compared with the €585 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

Profit attributable to parent company

Profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €506 million, a 10.7% decrease compared with the €567 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

####

131

#### SOUTH AMERICA

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,196 | 3,009 | 6.2
Net fees and commissions | 557 | 631 | (11.9)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 576 | 405 | 42.3
Other operating income and expense, net | (580) | (454) | 27.7
Income and expense on insurance and reinsurance contracts | 101 | 110 | (8.1)
Gross income | 3,850 | 3,701 | 4.0
Administration costs | (1,403) | (1,584) | (11.4)
Depreciation and amortization | (171) | (125) | 36.7
Net margin before provisions (2) | 2,276 | 1,992 | 14.3
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (777) | (638) | 21.7
Provisions or reversal of provisions and other results | (103) | (65) | 57.8
Operating profit/(loss) before tax | 1,396 | 1,288 | 8.3
Tax expense or income related to profit or loss from continuing operations | (368) | (469) | (21.6)
Profit from continuing operations | 1,028 | 819 | 25.5
Profit from corporate operations, net | - | - | -
Profit | 1,028 | 819 | 25.5
Profit attributable to non-controlling interests | (307) | (241) | 27.4
Profit attributable to parent company | 721 | 578 | 24.7

(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”.

In the year ended December 31, 2019, the Argentine peso and the Colombian peso depreciated by 35.7% and 5.2%, respectively, against the euro in average terms, compared with the year ended December 31, 2018. On the other hand, the Peruvian sol appreciated by 3.9% against the euro in average terms. Overall, changes in exchange rates resulted in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the South America operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of December 31, 2019 and 2018 and for the years then ended, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies―Hyperinflationary economies”).

In addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Sale of BBVA Chile”.

132

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €3,196 million, a 6.2% increase compared with the €3,009 million recorded for the year ended December 31, 2018, mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and the increase in the average volume of interest-earning assets in retail and corporate banking, mainly in Peru. Additionally, the average volume of consumer and mortgage loans in Colombia increased during 2019. These effects were partially offset by the depreciation of the Argentine peso against the euro. At constant exchange rates, there was a 15.2% year-on-year increase in net interest income. The net interest margin over total average assets of this operating segment amounted to 5.71% for the year ended December 31, 2019, compared with 4.65% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €557 million, a 11.9% decrease compared with the €631 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Argentine peso. At a constant exchange rate, there was a 5.0% decrease mainly due to the sale of our stake in 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, 2019 were €576 million, a 42.3% increase compared with the €405 million gain recorded for the year ended December 31, 2018. At a constant exchange rate, there was a 58.1% increase, mainly as a result of increased foreign-currency transactions in Argentina and Peru and the sale of BBVA´s 51% stake in Prisma Medios de Pago, S.A. in Argentina. Additionally, the remaining stake held by BBVA in this entity increased its value during 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2019 was €580 million, a 27.7% increase compared with the €454 million expense recorded for the year ended December 31, 2018, mainly driven by certain non-income taxes which were previously accounted for under “Administration costs” 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, 2019 was €101 million, an 8.1% decrease compared with the €110 million net income recorded for the year ended December 31, 2018. The year-on-year variation was mainly attributable to the depreciation of the Argentine peso against the euro in 2019 and the sale of the insurance business in Chile in 2018. At constant exchange rates, there was a 12.7% increase mainly explained by the positive performance in Argentina and Colombia.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,403 million, a 11.4% decrease compared with the €1,584 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Argentine peso and the Colombian peso, the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”, and the reclassification of certain non-income taxes to the heading “Other operating income and expense, net” in Argentina, which more than offset the impact of the high inflation registered in certain countries in the region. At constant exchange rates, there was a 2.0% decrease.

133

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €171 million, a 36.7% increase compared with the €125 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”, and 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, 2019 was a €777 million expense, a 21.7% increase compared with the €638 million expense recorded for the year ended December 31, 2018, mainly as a result of the credit quality deterioration in the portfolio measured at amortized cost, in particular in Peru, Colombia and Argentina, and the deterioration of macroeconomic conditions, partially offset by the depreciation of the Argentine peso and the Colombian peso against the euro.

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, 2019 were a €103 million expense, a 57.8% increase compared with the €65 million expense recorded for the year ended December 31, 2018, mainly as a result of the increase in provisions for various purposes, particularly in Argentina.

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, 2019 was €1,396 million, an 8.3% increase compared with the €1,288 million recorded for the year ended December 31, 2018.

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, 2019 was €368 million, a 21.6% decrease compared with the €469 million expense recorded for the year ended December 31, 2018, as a result in part of the recognition of the income tax deduction related to inflation in Argentina in 2019. Additionally, the tax expense related to the sale of BBVA Chile was recognized in 2018. Consequently, the effective tax rate amounted to 26.3% of operating profit before tax for the year ended December 31, 2019, and 36.4% for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2019 amounted to €307 million, a 27.4% increase compared with the €241 million recorded for the year ended December 31, 2018, mainly due to 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, 2019 amounted to €721 million, a 24.7% increase compared with the €578 million recorded for the year ended December 31, 2018.

####

134

#### REST OF EURASIA

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | 175 | 175 | -
Net fees and commissions | 139 | 138 | 0.4
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 131 | 101 | 29.2
Other operating income and expense, net | 4 | - | n.m. (3)
Income and expense on insurance and reinsurance contracts | 5 | - | n.m. (3)
Gross income | 454 | 414 | 9.6
Administration costs | (275) | (281) | (2.0)
Depreciation and amortization | (18) | (6) | 194.2
Net margin before provisions (2) | 161 | 127 | 26.1
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (4) | 24 | n.m. (3)
Provisions or reversal of provisions and other results | 6 | (3) | n.m. (3)
Operating profit/(loss) before tax | 163 | 148 | 10.0
Tax expense or income related to profit or loss from continuing operations | (36) | (52) | (31.3)
Profit from continuing operations | 127 | 96 | 32.3
Profit from corporate operations, net | - | - | -
Profit | 127 | 96 | 32.3
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 127 | 96 | 32.3

(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) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

135

Net interest income

Net interest income of this operating segment for the years ended December 31, 2019 and 2018 amounted to €175 million. The net interest margin over total average assets of this operating segment amounted to 0.84% for the year ended December 31, 2019 compared with 0.94% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €139 million, a 0.4% increase compared with the €138 million recorded for the year ended December 31, 2018.

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, 2019 were €131 million, a 29.2% increase compared with the €101 million net gain recorded for the year ended December 31, 2018, due mainly to increased commercial activity in the Global Market’s unit.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2019 was €9 million, compared with the nil other net operating income recorded for the year ended December 31, 2018, as a result of higher activity in the insurance business.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €275 million, a 2.0% decrease compared with the €281 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €18 million, compared with the €6 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

136

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, 2019 amounted to a €4 million expense compared with the €24 million of income recorded for the year ended December 31, 2018.

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, 2019 were a €6 million income compared with the €3 million expense recorded for the year ended December 31, 2018, mainly due to the positive results of investment joint ventures and associates.

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, 2019 was €163 million, a 10.0% increase compared with the €148 million recorded for the year ended December 31, 2018.

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, 2019 was €36 million, a 31.3% decrease compared with the €52 million expense recorded for the year ended December 31, 2018, mainly as a result of the change in the tax rate applicable to the deferred tax assets.

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, 2019 amounted to €127 million, a 32.3% increase compared with the €96 million recorded for the year ended December 31, 2018.

####

137

#### CORPORATE CENTER

| For the Year Ended December 31, |
| 2019 | 2018 | Change
| (In Millions of Euros) | (In %)
Net interest income | (233) | (269) | (13.4)
Net fees and commissions | (73) | (59) | 24.0
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | (54) | (155) | (65.0)
Other operating income and expense, net | 41 | 82 | (49.3)
Income and expense on insurance and reinsurance contracts | (20) | (19) | 7.2
Gross income | (339) | (420) | (19.3)
Administration costs | (765) | (672) | 13.9
Depreciation and amortization | (190) | (200) | (4.6)
Net margin before provisions (2) | (1,294) | (1,291) | 0.2
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | - | (2) | (98.4)
Provisions or reversal of provisions and other results | (1,481) | (36) | n.m. (3)
Operating profit/(loss) before tax | (2,775) | (1,329) | 108.7
Tax expense or income related to profit or loss from continuing operations | 258 | 350 | (26.4)
Profit from continuing operations excluding corporate operations | (2,517) | (979) | 157.1
Profit from corporate operations, net | - | 633 | -
Profit | (2,517) | (346) | n.m. (3)
Profit attributable to non-controlling interests | - | 3 | (91.8)
Profit attributable to parent company | (2,517) | (343) | n.m. (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) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

138

Net interest income / (expense)

Net interest expense of the Corporate Center for the year ended December 31, 2019 was €233 million, a 13.4% decrease compared with the €269 million net expense recorded for the year ended December 31, 2018, mainly due to lower funding costs.

Net fees and commissions

Net fees and commissions of the Corporate Center for the year ended December 31, 2019 was an expense of €73 million, a 24.0% increase compared with the €59 million expense recorded for the year ended December 31, 2018, mainly as a result of the higher fees and commissions paid related to the issuance and placement of contingent convertible bonds in 2019.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net losses on financial assets and liabilities and exchange differences of the Corporate Center for the year ended December 31, 2019 were €54 million, a 65.0% decrease compared with the €155 million net losses recorded for the year ended December 31, 2018, mainly as a result of updated valuations being made at current market values of certain investments.

Other operating income and expense, net

Other net operating income of the Corporate Center for the year ended December 31, 2019 was €41 million, compared with the €82 million of net income recorded for the year ended December 31, 2018, mainly as a result of the decreased dividends from Telefónica, S.A. (as it lowered its dividends from €0.4 per share to €0.2 per share) and the lower dividend income from investees accounted for under the equity method.

Administration costs

Administration costs of the Corporate Center for the year ended December 31, 2019 amounted to €765 million, a 13.9% increase compared with the €672 million recorded for the year ended December 31, 2018, mainly as a result of the increase in personnel expense, partially offset by the lower rent expense as a result of the entry into force of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

139

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €190 million, a 4.6% decrease compared with the €200 million recorded for the year ended December 31, 2018.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of the Corporate Center for the year ended December 31, 2019 were a €1,481 million expense compared with the €36 million expense recorded for the year ended December 31, 2018, mainly as a result of the goodwill impairment losses recognized in the United States CGU. This impairment had a net negative impact on the “Profit attributable to parent company” of €1,318 million, and was mainly the result of the negative changes in interest rates, especially in the second half of 2019, which together with the slowdown of the economy caused the expected results to be below the previous estimate. For additional information, see Note 18.1 to our Consolidated Financial Statements.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of the Corporate Center for the year ended December 31, 2019 was €2,775 million compared with the €1,329 million loss recorded for the year ended December 31, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax income related to profit or loss from continuing operations of the Corporate Center for the year ended December 31, 2019 amounted to €258 million, compared with the €350 million income recorded for the year ended December 31, 2018. Tax income related to profit or loss from continuing operations in 2019 was affected by the application of the amendment to IAS 12 in such year. In addition, tax income related to profit or loss from continuing operations in 2018 was affected by the recognition of the tax impact from the sale of BBVA’s stake in Chile in such year.

Profit from corporate operations, net

Profit from corporate operations of the Corporate Center was nil for the year ended December 31, 2019, compared with the €633 million recorded for the year ended December 31, 2018, which related to the sale of our stake in BBVA Chile in 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of the Corporate Center for the year ended December 31, 2019 was a loss of €2,517 million, compared with the €343 million loss recorded for the year ended December 31, 2018.

###

140

### Results of Operations by Operating Segment for 2018 Compared with 2017

#### SPAIN

| For the Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Net interest income | 3,698 | 3,810 | (2.9)
Net fees and commissions | 1,682 | 1,563 | 7.6
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | 529 | 555 | (4.7)
Other operating income and expense, net | (425) | (204) | 108.6
Income and expense on insurance and reinsurance contracts | 485 | 438 | 10.7
Gross income | 5,968 | 6,162 | (3.2)
Administration costs | (3,027) | (3,145) | (3.8)
Depreciation and amortization | (308) | (352) | (12.6)
Net margin before provisions (2) | 2,634 | 2,665 | (1.2)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (383) | (705) | (45.6)
Provisions or reversal of provisions and other results | (410) | (771) | (46.8)
Operating profit/(loss) before tax | 1,840 | 1,189 | 54.8
Tax expense or income related to profit or loss from continuing operations | (437) | (309) | 41.2
Profit from continuing operations | 1,403 | 879 | 59.6
Profit from corporate operations, net | - | - | -
Profit | 1,403 | 879 | 59.6
Profit attributable to non-controlling interests | (3) | (2) | 65.5
Profit attributable to parent company | 1,400 | 877 | 59.6

(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”.

141

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €3,698 million, a 2.9% decrease compared with the €3,810 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 1.06% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €1,682 million, a 7.6% increase compared with the €1,563 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 €529 million, a 4.7% 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 €425 million, compared with the €204 million net operating expense 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 10.7% increase compared with the €438 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 €3,027 million, a 3.8% decrease compared with the €3,145 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 changes in efficiency plans (which generated savings of €19 million on communications, rent and legal expense).

142

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 €383 million expense, a 45.6% decrease compared with the €705 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 and decreased impaired assets due to the reduction of the size of the real-estate portfolio.

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 €410 million expense, a 46.8% decrease compared with the €771 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 and 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 €1,840 million, a 54.8% increase compared with the €1,189 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 €437 million, a 41.2% increase compared with the €309 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 23.7% of operating profit before tax for the year ended December 31, 2018 and 26.0% 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 €1,400 million, a 59.6% increase compared with the €877 million recorded for the year ended December 31, 2017.

####

143

#### THE UNITED STATES

| For the Year Ended December 31, |
| 2018 | 2017 | 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 (1) | 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 | (1,683) | (1,664) | 1.2
Depreciation and amortization | (178) | (187) | (4.6)
Net margin before provisions (2) | 1,129 | 1,026 | 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 | 920 | 749 | 22.8
Tax expense or income related to profit or loss from continuing operations | (185) | (263) | (29.8)
Profit from continuing operations | 736 | 486 | 51.2
Profit from corporate operations, net | - | - | -
Profit | 736 | 486 | 51.2
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 736 | 486 | 51.2

(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) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

144

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. 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, 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 USA 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 2.96% for the year ended December 31, 2018.

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 income recorded for the year ended December 31, 2017.

145

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €1,683 million, a 1.2% increase compared with the €1,664 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 €920 million, a 22.8% increase compared with the €749 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 €185 million, a 29.8% decrease compared with the €263 million expense recorded for the year ended December 31, 2017. Tax expense amounted to 20.1% 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 €736 million, a 51.2% increase compared with the €486 million recorded for the year ended December 31, 2017.

####

146

#### MEXICO

| For the Year Ended December 31, |
| 2018 | 2017 | 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 (1) | 223 | 249 | (10.4)
Other operating income and expense, net | (236) | (239) | (1.2)
Income and expense on insurance and reinsurance contracts | 433 | 416 | 4.1
Gross income | 7,193 | 7,122 | 1.0
Administration costs | (2,139) | (2,220) | (3.6)
Depreciation and amortization | (253) | (256) | (1.3)
Net margin before provisions (2) | 4,800 | 4,646 | 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. (3)
Operating profit/(loss) before tax | 3,269 | 2,960 | 10.5
Tax expense or income related to profit or loss from continuing operations | (901) | (789) | 14.2
Profit from continuing operations | 2,368 | 2,170 | 9.1
Profit from corporate operations, net | - | - | -
Profit | 2,368 | 2,170 | 9.1
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 2,367 | 2,170 | 9.1

(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 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.

147

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 the higher net interest income from the retail portfolio, the lower cost of deposits and the 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 5.81% for 2018.

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 1.2% 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.

148

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 were €2,139 million, a 3.6% decrease compared with the €2,220 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Mexican peso 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 €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 loss allowances 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 €3,269 million, a 10.5% increase compared with the €2,960 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 €901 million, a 14.2% increase compared with the €789 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 €2,367 million, a 9.1% increase compared with the €2,170 million recorded for the year ended December 31, 2017.

####

149

#### TURKEY

From July 2015 to March 2017, we held 39.90% of Garanti BBVA’s share capital and, on March 22, 2017, we completed the acquisition of an additional 9.95% stake in Garanti BBVA, increasing our total holding of Garanti BBVA’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. (3)
Income and expense on insurance and reinsurance contracts | 46 | 62 | (25.9)
Gross income | 3,901 | 4,115 | (5.2)
Administration costs | (1,109) | (1,329) | (16.6)
Depreciation and amortization | (138) | (178) | (22.4)
Net margin before provisions (2) | 2,654 | 2,608 | 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 | 1,444 | 2,143 | (32.6)
Tax expense or income related to profit or loss from continuing operations | (293) | (425) | (31.1)
Profit from continuing operations | 1,151 | 1,718 | (33.0)
Profit from corporate operations, net | - | - | -
Profit | 1,151 | 1,718 | (33.0)
Profit attributable to non-controlling interests | (585) | (895) | (34.6)
Profit attributable to parent company | 567 | 823 | (31.1)

(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 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.

150

The Turkish lira depreciated 27.8% against the euro in average terms in 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 4.35% for the year ended December 31, 2018.

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 income 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.

151

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €1,109 million, a 16.6% decrease compared with the €1,329 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira, partially offset by the impact of inflation 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, 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.

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 €1,444 million, a 32.6% decrease compared with the €2,143 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 €293 million, a 31.1% decrease compared with the €425 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 19.8% 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 BBVA 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 €567 million, a 31.1% decrease compared with the €823 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 BBVA on March 22, 2017.

####

152

#### 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. (3)
Income and expense on insurance and reinsurance contracts | 110 | 172 | (36.0)
Gross income | 3,701 | 4,451 | (16.9)
Administration costs | (1,584) | (1,906) | (16.9)
Depreciation and amortization | (125) | (121) | 3.2
Net margin before provisions (2) | 1,992 | 2,424 | (17.8)
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 | 1,288 | 1,671 | (22.9)
Tax expense or income related to profit or loss from continuing operations | (469) | (480) | (2.3)
Profit from continuing operations | 819 | 1,192 | (31.2)
Profit from corporate operations, net | - | - | -
Profit | 819 | 1,192 | (31.2)
Profit attributable to non-controlling interests | (241) | (345) | (29.9)
Profit attributable to parent company | 578 | 847 | (31.8)

(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.

153

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”.

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 4.65% for the year ended December 31, 2018.

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.

154

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €1,584 million, a 16.9% decrease compared with the €1,906 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 and the sale of BBVA Chile partially offset by the impact of the high inflation registered in some countries of the region.

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.

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 €1,288 million, a 22.9% decrease compared with the €1,671 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 €469 million, a 2.3% decrease compared with the €480 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 36.4% 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 29.9% 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 €578 million, a 31.8% decrease compared with the €847 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.

####

155

#### REST OF EURASIA

| For the Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Net interest income | 175 | 180 | (2.7)
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. (3)
Income and expense on insurance and reinsurance contracts | - | - | -
Gross income | 413 | 468 | (11.4)
Administration costs | (281) | (293) | (4.2)
Depreciation and amortization | (6) | (11) | (44.2)
Net margin before provisions (2) | 127 | 164 | (22.2)
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 | 148 | 181 | (18.3)
Tax expense or income related to profit or loss from continuing operations | (52) | (53) | (2.7)
Profit from continuing operations | 96 | 128 | (24.8)
Profit from corporate operations, net | - | - | -
Profit | 96 | 128 | (24.8)
Profit attributable to non-controlling interests | - | - | -
Profit attributable to parent company | 96 | 128 | (24.8)

(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.

156

Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €175 million, a 2.7% 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 €281 million, a 4.2% decrease compared with the €293 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 €148 million, an 18.3% decrease compared with the €181 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 €52 million, a 2.7% decrease compared with the €53 million expense recorded for the year ended December 31, 2017. Consequently, the effective tax rate amounted to 35.1% 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 €96 million, a 24.8% decrease compared with the €128 million recorded for the year ended December 31, 2017.

####

157

#### CORPORATE CENTER

| For the Year Ended December 31, |
| 2018 | 2017 | Change
| (In Millions of Euros) | (In %)
Net interest income | (269) | (357) | (24.7)
Net fees and commissions | (59) | (86) | (32.1)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) | (155) | 436 | n.m. (3)
Other operating income and expense, net | 82 | 101 | (19.2)
Income and expense on insurance and reinsurance contracts | (19) | (19) | (1.1)
Gross income | (420) | 74 | n.m. (3)
Administration costs | (672) | (556) | 20.8
Depreciation and amortization | (200) | (282) | (29.2)
Net margin before provisions (2) | (1,291) | (764) | 69.0
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 | (36) | (73) | (50.6)
Operating profit/(loss) before tax | (1,329) | (1,962) | (32.2)
Tax expense or income related to profit or loss from continuing operations | 350 | 146 | 140.3
Profit from continuing operations excluding corporate operations | (979) | (1,816) | (46.1)
Profit from corporate operations, net | 633 | - | n.m. (3)
Profit | (346) | (1,816) | (81.0)
Profit attributable to non-controlling interests | 3 | (1) | n.m. (3)
Profit attributable to parent company | (343) | (1,817) | (81.1)

(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 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.

158

Net interest income / (expense)

Net interest expense of the Corporate Center for the year ended December 31, 2018 was €269 million, a 24.7% 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 trend of interest rates.

Net fees and commissions

Net fees and commissions of the Corporate Center 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 the Corporate Center 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 China CITIC Bank Corporation Limited (“CNCB”) in 2017.

Other operating income and expense, net

Other net operating income of the Corporate Center for the year ended December 31, 2018 was €82 million, a 19.2% decrease compared with the €101 million net income recorded for the year ended December 31, 2017, mainly as a result of decreased dividends from Telefónica, S.A. as it lowered its dividends from €0.55 per share to €0.40 per share, and from CNCB, as a result both of a decrease in the amount of dividends distributed per share and 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 the Corporate Center for the year ended December 31, 2018 and 2017 was an expense of €19 million.

159

Administration costs

Administration costs of the Corporate Center for the year ended December 31, 2018 amounted to €672 million, a 20.8% increase compared with the €556 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 the Corporate Center for the year ended December 31, 2018 amounted to a €2 million expense, compared with the €1,125 million expense recorded for the year ended December 31, 2017, which related mainly to the recognition of loss allowances 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 the Corporate Center for the year ended December 31, 2018 were a €36 million expense, a 50.6% 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 the Corporate Center for the year ended December 31, 2018 was €1,329 million, a 32.2% decrease compared with the €1,962 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 profit or loss from continuing operations of the Corporate Center for the year ended December 31, 2018 amounted to €350 million, compared with the €146 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 the Corporate Center for the year ended December 31, 2018 was a loss of €343 million, compared with the €1,817 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.

## B. Liquidity and Capital Resources

See Note 7.4 to our Consolidated Financial Statements for information on the BBVA Group’s liquidity. Certain additional information is provided below.

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.

The following table shows the balances as of December 31, 2019, 2018 and 2017 of our principal sources of funds (including accrued interest, hedge transactions and issue expenses):

|  | As of December 31, |
| 2019 | 2018 | 2017
| (In Millions of Euros)
Deposits from central banks | 33,585 | 37,792 | 37,054
Deposits from credit institutions | 53,720 | 47,665 | 54,516
Customer deposits | 394,924 | 388,682 | 376,379
Debt certificates | 68,619 | 63,970 | 63,915
Other financial liabilities | 18,168 | 16,003 | 14,072
Total | 569,016 | 554,112 | 545,936

160

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 €394,924 million as of December 31, 2019 compared with €388,682 million as of December 31, 2018 (€376,379 million as of December 31, 2017), a 1.6% increase, attributable in part to the increase in time deposits in Mexico and the United States and the increase in demand and savings deposits in Spain.

Our customer deposits, excluding repurchase agreements, amounted to €385,150 million as of December 31, 2019 compared with €374,763 million as of December 31, 2018 (€367,300 million as of December 31, 2017).

Deposits from credit institutions and central banks

The following table shows amounts due to credit institutions and central banks as of December 31, 2019, 2018 and 2017:

| As of December 31,
| 2019 | 2018 | 2017
| (In Millions of Euros)
Deposits from credit institutions | 53,720 | 47,665 | 54,516
Deposits from central banks | 33,585 | 37,792 | 37,054
Total | 87,305 | 85,457 | 91,570

Deposits from credit institutions and central banks amounted to €87,305 million as of December 31, 2019 compared with the €85,457 million as of December 31, 2018 (€91,570 million as of December 31, 2017). The increase as of December 31, 2019 compared to December 31, 2018 was mainly attributable to higher volumes of repurchase agreements with credit institutions in Spain. 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, 2019 we had €46,329 million of debt certificates, comprising €44,381 million in bonds and debentures and €1,947 million in promissory notes and other securities, compared with €43,477 million, €39,973 million and €3,504 million outstanding, respectively, as of December 31, 2018, and €47,027 million, €42,561 million and €4,466 million outstanding, respectively, as of December 31, 2017 (see Note 22.4 to the Consolidated Financial Statements).

In addition, we had a total of €17,859 million in subordinated debt and subordinated deposits and €159 million in preferred securities outstanding as of December 31, 2019 compared with €17,866 million and €181 million, respectively, as of December 31, 2018 (€17,153 million and €163 million, respectively, as of December 31, 2017).

The following is a breakdown as of December 31, 2019 of the maturities of our debt securities (including bonds) from credit institutions and subordinated liabilities. 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)
Debt certificates (including bonds) | - | 973 | 1,633 | 7,828 | 26,862 | 9,032 | 46,329
Subordinated debt, subordinated deposits and preferred securities | 134 | 289 | 12 | 719 | 2,570 | 14,294 | 18,018
Total | 134 | 1,262 | 1,646 | 8,547 | 29,432 | 23,327 | 64,347

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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 USA, 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 USA, 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 USA, 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 USA 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, 2019, 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 December 4, 2019 BBVA received a communication of the ECB about the results of the Supervisory Review and Evaluation Process (“SREP”).

For information on our updated SREP requirements, o ur consolidated ratios as of December 31, 2019, 2018 and 2017, our risk-weighted assets, our MREL requirements and the capital issuances of Banco Bilbao Vizcaya Argentaria, S.A., see Note 32.1 to our Consolidated Financial Statements.

## C. Research and Development, Patents and Licenses, etc.

In 2019, 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.

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D. Trend Information

The European financial services sector is expected to remain competitive in the current challenging environment. See “Item 4. Information on the Company―Competition”. 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. 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 more than 10 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, the lack of homogeneity at the European level makes it difficult for investors to evaluate financial institutions and often imposes 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.

Regarding consumer protection rules, MiFID II is the legislative framework instituted by the European Union (EU) to regulate financial markets in the bloc and improve protections for investors. Its aim is to standardize practices across the EU and restore confidence in the industry, especially after the 2008 financial crisis. A revised version of the original MiFID, was rolled out on January 3, 2018, more than six years after the European Commission, the EU's executive branch, adopted a legislative proposal for it. Technically, MiFID II applies to the legislative framework, and the rules it outlines are actually the Markets in Financial Instruments Regulation (MiFIR); but colloquially, the term MiFID is used to mean both.

Broadly speaking, 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 effort in terms of costs for regulators, supervisors and financial entities to adapt their systems to the new requirements.

In order to promote 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) 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.

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Another key regulation for consumer protection in Europe is the Packaged Retail and Insurance-based Investment Products (“PRIIPs”) that came into effect in January 2018. The PRIIPs regulation aims to increase 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 Regulatory Technical Standards (RTS) that define the Level 2 requirements of the PRIIPs Regulation are in effect as from January 1, 2018, including both presentation and content of the Key Investor Document (KIDs).

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.

In 2019, 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 on January 1, 2021, the date when it will become binding for the Group.

In June 2019, the CRD-IV entered into force in Europe, which reviews the prudential capital (CRR and CRD IV) and bank resolution (BRRD and SRM Regulation) frameworks. The purpose of this review is to implement the latest Basel standards (excluding Basel IV), the TLAC requirement and some technical adjustments identified in previous years. There will be a one and one-half to two year transposition process, although some elements will enter into force immediately (for example, TLAC for G-SIIs). In 2020, the focus will be on national transposition and the corresponding legislative changes, as well as the development of “level 2” norms by the EBA.

## E. Off-Balance Sheet Arrangements

Note 33 to the Consolidated Financial Statements provides information on loan commitments and financial guarantees given by the Group as of December 31, 2019, 2018 and 2017.

The following table provides information regarding assets under management as of the dates indicated:

| As of December 31,
| 2019 | 2018 | 2017
| (In Millions of Euros)
Mutual funds | 68,639 | 61,393 | 59,644
Pension funds | 36,630 | 33,807 | 33,985
Other resources | 2,534 | 2,949 | 3,081
Total assets under management | 107,803 | 98,150 | 96,710

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## F. Tabular Disclosure of Contractual Obligations

Our consolidated contractual obligations as of December 31, 2019 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)
Debt certificates (including bonds) | 10,435 | 15,990 | 10,872 | 9,032 | 46,329
Subordinated debt, subordinated deposits and preferred securities | 1,154 | 2,346 | 224 | 14,294 | 18,018
Customer deposits | 366,531 | 7,559 | 1,097 | 9,032 | 384,219
Capital lease obligations | - | - | - | - | -
Operating lease obligations | 279 | 253 | 554 | 1,879 | 2,965
Purchase obligations | 23 | - | - | - | 23
Post-employment benefits (1) | 764 | 1,297 | 991 | 2,018 | 5,070
Insurance commitments (2) | 1,571 | 1,197 | 1,806 | 6,032 | 10,606
Total (3) | 380,756 | 28,643 | 15,543 | 42,288 | 467,230

(1) 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.

(2) Liabilities under insurance and reinsurance contracts.

(3) 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, 2019. The financial cost of such issuances for 2019, 2018 and 2017 is included 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 ensuring 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 include 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 Board Regulations.

General shareholders’ meetings are subject to their own set of regulations on issues such as how they operate and what rights shareholders have at 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 2019, 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), under the “Shareholders and Investors” and “Corporate Governance and Remuneration Policy” sections.

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 Spanish 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 duties in the Bank or any of its Group companies, irrespective of the legal relationship they have with it. All other Board members will hold non-executive directorships, and may be proprietary, independent or other external directors.

Independent directors are those non-executive directors who have been appointed based on their personal and professional qualities and who may perform their duties without being constrained by their relationship with the Company, or its Group, its significant shareholders or managers. Under the Board Regulations, directors may not be considered independent in any of the following situations:

(a) they have been employees or have been executive directors of Group companies in the last three or five years, respectively;

(b) they receive from the Bank, or from Group companies, any amount or benefit for any item other than director’s remuneration, except for those which are not significant for such director. For the purposes of this item, neither dividends nor pension allowances received by directors relating to their previous professional or employment relations will be taken into account, provided that said allowances are unconditional in nature and, therefore, the company that provides said allowances may not suspend, modify or revoke their accrual at its discretion without breaching its obligations;

(c) they are, or have been in the past three years, a partner of an external auditor or have been responsible during this time for the auditor’s report of the Company or any other company within its Group;

(d) they are executive directors or senior managers of another company for which an executive director or senior manager of the Company is an external director;

(e) they have, or have had over the last year, a significant business relationship with the Bank or any company within its Group, whether in their own name or as a significant shareholder, director or senior manager of a company that has, or has had, such a relationship. Business relationships include supplying goods or services, including financial services, as well as acting as an adviser or consultant;

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(f) they are significant shareholders, executive directors or senior managers of a company that receives, or has received in the past three years, donations from the Company or from its Group. Those who are simply trustees of a foundation receiving donations will not be considered included in this item;

(g) they are spouses, partners in a similar relationship of affection or relatives up to the second degree of an executive director or senior manager of the Company;

(h) they have not been proposed for appointment or renewal by the Appointments and Corporate Governance Committee;

(i) they have been directors for a continuous period of more than twelve years; or

(j) in relation to a significant shareholder or shareholder represented on the Board of Directors, any of the circumstances referred to in items (a), (e), (f) or (g) above shall apply. In the event of the kinship relations referred to in item (g), the limitation will apply not only to the shareholder, but also to any proprietary directors of the company in which shares are held.

Directors with a shareholding in the Company may be considered independent provided that they do not meet the conditions above and, in addition, that their shareholding is not legally regarded as 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.

Moreover, the Board of Directors, at its meeting on April 29, 2019, approved amendments to the Regulations of the Board of Directors and to those of its committees. As a result, all Board committees have their own regulations with the following characteristics in common: (i) harmonized structure and content; (ii) the specific functions of the respective committee; and (iii) referral to the Regulations of the Board as regards the operation of the committee in all matters not provided for in each set of regulations.

The full text of the Board Regulations and those of the Board committees can be found on BBVA’s 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 fulfil the duties imposed by applicable law and the Bylaws with fidelity to the corporate interest, which is understood as the interest of the Company.

They will participate in the deliberations, discussions and debates on matters submitted for their consideration, and they should clearly express their opposition when they consider that any proposal submitted to the Bank’s corporate bodies may be contrary to the corporate interest and will be provided in advance with the information needed to form an opinion with respect to the matters within the remit of the Bank’s corporate bodies. They may ask for any additional information and advice required to perform their duties. They must devote to their duty the necessary time and effort to perform it effectively and are required to attend the meetings of the corporate bodies on which they sit, except for a justifiable reason.

The directors may also request the Board of Directors for external expert assistance for any matters submitted to their consideration whose special complexity or importance so requires.

Conflicts of Interest

The rules comprising the Board Regulations 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 Board Regulations are in line with the specific regulations established in the Spanish Corporate Enterprises Act.

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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 simultaneously hold more positions than those provided for in the following combinations: (i) one executive position and two non-executive positions; or (ii) four non-executive positions. Executive positions are understood to be those that undertake management duties irrespective of the legal bond attributed by those duties. The following will count as a single position: 1) executive or non-executive positions held within the same group; 2) executive or non-executive positions held within (i) entities that form part of the same institutional protection scheme or (ii) traded companies in which the entity holds a significant shareholding. Positions held in non-profit organizations or entities or companies pursuing non-commercial purposes will not count when determining the maximum number of positions. Nevertheless, the Bank of Spain may authorize members of the Board to hold an additional non-executive position if it deems that this would not interfere with the proper performance of the director’s activities in the credit institution.

In addition, pursuant to the provisions of Article 11 of Board Regulations, directors may not provide professional services to companies competing with the Bank or any of its Group companies, unless they have received express prior authorization from the Board of Directors or the general shareholders’ meeting, as appropriate, or unless these activities had been provided or conducted before the director joined the Bank, they had posed no effective competition and they had informed the Bank of such at that time.

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 Regulations establish an age limit for sitting on the Bank’s Board. Directors must submit their resignation at the first meeting of the Bank’s Board of Directors to be held after the general shareholders’ meeting approving the accounts for the financial year in which they reach the age of seventy-five years.

Appointment and Re-election of Directors

The proposals for appointment or re-election of directors submitted by the Board of Directors to the general shareholders’ meeting, as well as the appointments made directly to fill vacancies under its co-opting powers, will be approved at the proposal of the Appointments and Corporate Governance Committee for independent directors and prior report from this Committee for all other directors.

The proposal must be accompanied by an explanatory report by the Board of Directors assessing the skills, experience and merits of the candidate proposed, which will be added to the minutes of the general shareholders’ meeting or the Board of Directors meeting.

To such end, the Appointments and Corporate Governance Committee will evaluate the balance of knowledge, skills and experience of the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, assessing the dedication of time considered necessary to adequately carry out their duties, in view of the needs of the corporate bodies at any given time.

Directors’ Resignation and Dismissal

Furthermore, in the following circumstances, reflected in the Board Regulations, directors must offer their resignation to the Board of Directors and accept its decision regarding their continuity in office or not. Should the Board decide against their continuity, they are required to tender their resignation:

· when they are affected by circumstances of incompatibility or prohibition as defined under legislation in force, in the Bylaws or in the Board Regulations;

· when significant changes occur in their personal or professional situation that affect the status by virtue of which they were appointed as directors;

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· in the event of serious breach of their duties in the performance of their role as directors;

· when, for reasons attributable to the directors in their status as such, serious damage has been done to the Company’s equity, standing or reputation; or

· when they are no longer suitable to hold the status of director of the Bank.

Evaluation

Article 17 of the Board Regulations indicates that the Board of Directors will assess the quality and effectiveness of the operation of the Board of Directors, as well as will assess the performance of the duties of the Chairman of the Board, based in each case on the report submitted by the Appointments and Corporate Governance Committee (process which will be led by the Lead Director). Likewise, the Board will carry out the assessment of the operation of its Committees, based on the reports submit thereby. Furthermore, the Board of Directors will assess the performance of the Chief Executive Officer, based on the report submitted by the Appointments and Corporate Governance Committee, which will include the assessment made by the Executive Committee.

Moreover, Article 18 of the Board Regulations establishes that the Chairman 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 2019, the Board of Directors evaluated: (i) the quality and efficiency of the operation of the Board of Directors; (ii) the performance of the duties of the Chairman and the Chief Executive Officer; and (iii) the operation of the Board Committees.

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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 the date of this Annual Report, 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. Chairman of the Executive Committee and of the Technology and Cybersecurity Committee. Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 to December 2018. 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. Director of BBVA USA Bancshares, Inc., Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. President and CEO of BBVA USA and BBVA’s Country Manager in the U.S. from 2017 to December 2018. Deputy CEO at Garanti BBVA between 2015 and 2017 and Executive Vice President at Garanti BBVA between 2012 and 2015.
Tomás Alfaro Drake(4)(6) | 1951 | External Director | March 18, 2006 | March 17, 2017 | Director of Internal Development and Professor of the Finance Department at Universidad Francisco de Vitoria. Director of the bachelor’s degree in Business Management and Administration, of the degrees in Marketing and in Business Management and Administration at Universidad Francisco de Vitoria from 1998 to 2012.
José Miguel Andrés Torrecillas(2)(3)(5)(8) | 1955 | Deputy Chair; Independent Director | March 13, 2015 | March 16, 2018 | Deputy Chair of the BBVA Board of Directors since April 2019. Chairman of the Appointments and Corporate Governance Committee. Director of Zardoya Otis, S.A. 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.
Jaime Félix Caruana Lacorte(1)(2)(5) | 1952 | Independent Director | March 16, 2018 | Not applicable | Chairman of the Audit Committee since April 2019. Member of the Group of Thirty (G-30) and Trustee of the Spanish Aspen Institute Foundation. General Manager of the Bank of International Settlements (BIS) between 2009 and 2017. Between 2006 and 2009 he was Director of the Monetary and Capital Markets Department and Financial Counsellor and General Manager of the International Monetary Fund (IMF), between 2003 and 2006 he was Chairman of the Basel Committee on Banking Supervision, 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 Remunerations 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 Senior Executive Committee (ISEC) of PhRMA, (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 and Head of Global Economics and Public Affairs of BBVA. Chairman for Europe of the Trans-Atlantic Business Council, Chairman of the Fundación Consejo España-Perú, Chairman of European DataWarehouse GmbH and Professor at IESE Business School. 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 | Operating partner at Atlantic Bridge Capital, independent director of Stratio Big Data and non-executive director of iQuate Limited and advisor to mCloud. 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.
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)(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.
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, S.A. and of Inmobiliaria Colonial, SOCIMI, S.A. She was an independent member of the Board of Directors of Deutsche Bank SAE from 2014 to 2018 and Banco Etcheverría from 2013 to 2014. 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.
Juan Pi Llorens(3)(5)(6)(7) | 1950 | Independent Director | July 27, 2011 | March 16, 2018 | Lead Director and Chairman of the Risk and Compliance Committee. Chairman of the Board of Directors of Ecolumber, S.A. and non-executive director of Oesía Networks, S.L. and of Tecnobit, S.L.U. representing Relocation & Execution Services, S.L. Had a professional career at IBM holding various senior posts at a national and international level including Vice President for Sales at IBM Europe from 2005 to 2008, Vice President of Technology & Systems Group at IBM Europe from 2008 to 2010 and Vice President of the Finance Services Sector at GMU (Growth Markets Units) in China from 2009 to 2011. He was executive President of IBM Spain between 1998 and 2001.
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 Chief several positions in multinational companies, such as Vice President of Technology and Information Officer, in the EMEA region of Dell (1999-2004).
(*) Where no date is provided, the position is currently held. (1) Member of the Executive Committee. (2) Member of the Audit Committee. (3) Member of the Appointments and Corporate Governance Committee. (4) Member of the Remunerations Committee. (5) Member of the Risk and Compliance Committee. (6) Member of the Technology and Cybersecurity Committee. (7) Lead Director. (8) Deputy Chair.

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The Bank’s Board of Directors has also submitted to the general shareholders’ meeting, planned to be held on March 13, 2020, the appointment of three new directors, for the statutory period of three years:

· Raúl Catarino Galamba de Oliveira, with the status of independent director. His professional trajectory has been tied to McKinsey & Company, where he was appointed as a Partner in 1995 and Director of the Portuguese office in 2000. At this firm, he has also held other important positions of responsibility, including Managing Partner for Spain and Portugal between 2005 and 2011, Managing Partner of Global Risk practice between 2013 and 2016, member of the Global Shareholders Council from 2005 to 2011, member of the Partner Election and Evaluation Committees between 2011 and 2007, member of the Remunerations Committee from 2005 to 2013 and Chairman of the Global Learning Board from 2006 to 2011.

· Ana Leonor Revenga Shanklin, with the status of independent director. She is Senior Fellow at the Brookings Institution and President of the Board at the ISEAK Foundation since 2018 and Associate Professor at the Walsh School of Foreign Service at Georgetown University since 2019. She has undertaken much of her professional experience at the World Bank, having held several positions of responsibility including Senior Director Global of the Poverty and Equity Practice between 2014 and 2016 and Deputy Chief Economist in 2016 and 2017.

· Carlos Vicente Salazar Lomelín, with the status of external director. He is the Chairman of the Consejo Coordinador Empresarial de México (the Mexican Business Coordinating Council) since 2019 and independent director of Sukarne and Alsea since 2017 and 2019, respectively. He is also a director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and of BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. He spent a large part of his career working for Fomento Económico Mexicano S.A.B. de C.V. (Femsa) until 2019, assuming the role of General Manager of Cervecería Cuauhtémoc-Moctezuma and General Manager of Femsa between 2014 and 2017. He was Executive Chairman of Consejo Nuevo León and Chairman of the Comité de Propuesta Económica (Committee for Economic Proposal) of COPARMEX.

Each of these proposed appointments is subject to approval of the general shareholders’ meeting of BBVA and to verification, by the ECB, considering the regulatory suitability requirements for the performance of their duties as directors.

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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 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. Chairman of the Executive Committee and of the Technology and Cybersecurity Committee. Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 to December 2018. 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. Director of BBVA USA Bancshares, Inc., Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. President and CEO of BBVA USA and BBVA’s Country Manager in the U.S. from 2017 to December 2018. Deputy CEO at Garanti BBVA between 2015 and 2017 and Executive Vice President at Garanti BBVA between 2012 and 2015.
José Manuel González-Páramo Martínez-Murillo | Head of Global Economics & Public Affairs | Executive Director of BBVA since May 2013 and Head of Global Economics and Public Affairs of BBVA. Chairman for Europe of the Trans-Atlantic Business Council, Chairman of the Fundación Consejo España-Perú, Chairman of European DataWarehouse GmbH and Professor at IESE Business School. Member of the ECB Governing Council and Executive Committee from 2004 to 2012.
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. 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).
Pello Xabier Belausteguigoitia Mateache (**) | Spain Country Manager | Spain Country Manager since December 2019. Director of BBVA OP3N and of BBVA Seguros, S.A. Seguros y Reaseguros. Head of Business Development BBVA Spain from 2017 to 2019, Director of BBVA Spain’s Northern Region from 2015 to 2017, Director of BBVA Spain’s Eastern Region from 2014 to 2015, Local Director at BBVA Spain’s Northwestern Region between 2011 and 2014 and Director of Commercial Businesses at BBVA Spain’s Northwestern Region from 2008 to 2011.
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. Between 2010 and 2015, he worked on Process Re-engineering within the Innovation and Technology area. He worked at McKinsey & Company between 2000 and 2010, where he was an Associated Partner prior to leaving.
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).
Ana Fernández Manrique | Head of Regulation & Internal Control | Head of Regulation & Internal Control since July 2019. She has held several relevant positions within the BBVA Group such as Director of Non-Financial Risks during 2018, Director of Strategy and Finance at BBVA Real Estate Area from 2014 to 2017, Director of Strategy and Finance at Global Retail Area from 2011 to 2014, and Strategy & M&A Managing Director between 2008 and 2011.
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).
Ricardo Martín Manjón | Head of Data | Head of Data since April 2019. Director of BBVA Data & Analytics. Previously he was Global Head of Data Strategy & Data Science Innovation from 2017 to 2019, Head of Digital Transformation at BBVA Spain between 2013 and 2016, Marketing Director at BBVA Spain from 2011 to 2013. Also, he held the position of Global Head of Digital Banking at Nordea between 2016 and 2017.
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.
David Puente Vicente | Head of Client Solutions | Head of Client Solutions since April 2019. Previously, he was Head of Data from 2017 to 2019, Head of Business Development Spain from May 2015 to 2017. 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.
Jaime Sáenz de Tejada Pulido | Chief Financial Officer | Head of the Finance Area since May 2015 (which in December 2018 incorporated the Accounting Area). Director of Garanti BBVA. 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, Grupo Financiero BBVA Bancomer, of Grupo Financiero BBVA Bancomer, S.A. de C.V. and of BBVA USA Bancshares, Inc., and Vice President of Garanti BBVA. 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 BBVA. 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.
(*) Where no date is provided, positions are currently held. (**)Their position as Senior Manager of BBVA is pending to register on the Registry of Senior Officers of the Bank of Spain.

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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 2019, 2020 and 2021 was approved by the general shareholders’ meeting held on March 15, 2019, by a majority of 94.83%. This policy is available on 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.

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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 levels, 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.

· 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 solvency, capital, liquidity, funding or profitability, or to 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.

· Executive directors may not use personal hedging strategies or insurance in connection with their remuneration and responsibility if such personal hedging strategies or insurance may undermine their incentives to align 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, on 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;

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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 the achievement of any 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 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 as of the date the termination decision is taken, 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 according to 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.

Additionally, upon vesting of the shares, executive directors will not be allowed to transfer a number of shares equivalent in value 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.

Remuneration received by non-executive directors in 2019

The remuneration paid to the non-executive members of the Board of Directors during 2019 is indicated below, individually and itemized for each non-executive director.

| Board of Directors | Executive Committee | Audit Committee | Risk and Compliance Committee | Remunerations Committee | Appointments and Corporate Governance Committee | Technology and Cybersecurity Committee | Other Functions (1) | Total
(Thousands of Euros)
Tomás Alfaro Drake | 129 |  |  |  | 43 |  | 43 |  | 214
José Miguel Andrés Torrecillas | 129 |  | 104 | 107 |  | 111 |  | 33 | 483
Jaime Caruana Lacorte | 129 | 167 | 110 | 107 |  |  | 14 |  | 527
Belén Garijo López | 129 |  | 68 |  | 107 | 45 |  |  | 348
Sunir Kumar Kapoor | 129 |  |  |  |  |  | 43 |  | 172
Carlos Loring Martínez de Irujo | 129 | 167 |  | 107 | 43 |  |  |  | 445
Lourdes Máiz Carro | 129 |  | 68 |  | 43 | 14 |  |  | 253
José Maldonado Ramos | 129 | 167 |  |  |  | 45 |  |  | 340
Ana Peralta Moreno | 129 |  | 68 |  | 43 |  |  |  | 240
Juan Pi Llorens | 129 |  | 24 | 214 |  | 31 | 43 | 53 | 493
Susana Rodríguez Vidarte | 129 | 167 |  | 107 |  | 45 |  |  | 447
Jan Verplancke | 129 |  |  |  |  |  | 43 |  | 172
Total (2) | 1,545 | 667 | 442 | 642 | 278 | 289 | 186 | 87 | 4,134

(1) Includes amounts received during the 2019 financial year by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as Lead Director, positions for which they were appointed by resolution of the Board of Directors on April 29, 2019.

(2) Includes remuneration paid for membership on the Board and its various committees during the 2019 financial year. By resolution of the Board of Directors on April 29, 2019, the functions of some Board committees were redistributed, and their associated remunerations were adapted to these changes in some cases.

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Also, during the 2019 financial year, €104 thousand was paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors.

Remuneration received by executive directors in 2019

During the 2019 financial year, the executive directors received the amount of the annual fixed remuneration corresponding to such financial year, established for each director in the Directors’ Remuneration Policy, which was approved by the general shareholders’ meeting held on March 15, 2019.

In addition, the executive directors received their annual variable remuneration for the 2018 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to such year, was due to be paid to them during the 2019 financial year.

In application of this settlement and payment system:

· 40% of the 2018 annual variable remuneration for executive directors was paid in the 2019 financial year (the “upfront portion”), in equal parts in cash and in shares.

· The remaining 60% of the annual variable remuneration was deferred (40% in cash and 60% in shares) 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 will the deferred portion be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid, in cash and in BBVA shares, according to the following payment schedule: 60% in 2022, 20% in 2023 and the remaining 20% in 2024.

· All of the shares delivered to the executive directors as annual variable remuneration, including both as part of the upfront portion and the deferred portion, will be withheld for a one year lock-up period 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 payable 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 responsibility if such personal hedging strategies or insurance may undermine their incentives to align with sound risk management.

· The variable component of the remuneration for executive directors corresponding to 2018 is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the general shareholders’ meeting held during such financial year.

· Over the entire deferral and withholding period, the entire annual variable remuneration for the executive directors will be subject to “malus” and “clawback” arrangements.

Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number of shares equivalent in value to twice their annual fixed remuneration for at least three years after their delivery.

Moreover, during the 2019 financial year, in accordance with the Directors’ Remuneration Policy for 2015 and in application of the settlement and payment system of the annual variable remuneration for such financial year, the Group Executive Chairman and the Head of Global Economics & Public Affairs (“Head of GE&PA”) received the deferred portion of the annual variable remuneration for the 2015 financial year (50% of the annual variable remuneration), the vesting of which was due during the 2019 financial year after being adjusted downwards following the result of the TSR indicator. This remuneration was paid in equal parts in cash and in shares, together with the corresponding update in cash, thus concluding payment of the annual variable remuneration to the executive directors for the 2015 financial year.

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In accordance with the above, remunerations paid to executive directors during 2019 are indicated below, individually and itemized:

Annual Fixed Remuneration for 2019 (Thousands of Euros)
Group Executive Chairman | 2,453
Chief Executive Officer | 2,179
Head of GE&PA | 834
Total | 5,466

In addition, in accordance with the current Directors’ Remuneration Policy, during the 2019 financial year, the Chief Executive Officer (Consejero Delegado) received a corresponding amount of fixed remuneration in cash in lieu of pension (see “—Pension Commitments”), and for his mobility allowance. The Bank paid the Chief Executive Officer €654 thousand and €506 thousand, respectively, during the 2019 financial year.

Annual Variable Remuneration for 2018
| In cash (1) (Thousands of Euros) | In shares (1)
Group Executive Chairman | 479 | 100,436
Chief Executive Officer (2) | 200 | 41,267
Head of GE&PA | 79 | 16,641
Total | 758 | 158,344

(1) Represents remunerations corresponding to the upfront portion (40%) of the annual variable remuneration for the 2018 financial year (paid 50% in cash and 50% in BBVA shares). For the Group Executive Chairman and Chief Executive Officer, these variable remunerations are linked in their entirety to their previous positions as Chief Executive Officer of BBVA and President & CEO of BBVA USA, respectively.

(2) Remuneration received in U.S. dollars. Data in thousands of Euros is for information purposes.

Deferred Annual Variable Remuneration for 2015
| In cash (1) (Thousands of Euros) | In shares (1)
Group Executive Chairman | 612 | 79,157
Head of GE&PA | 113 | 14,667
Total | 725 | 93,824

(1) Represents remunerations corresponding to deferred portion of the annual variable remuneration for the 2015 financial year (50% of the annual variable remuneration for 2015 in equal parts in cash and shares), payment of which was due during the 2019 financial year, together with its corresponding update in cash, and after its downward adjustment following the result of the TSR indicator. For the Group Executive Chairman, this variable remuneration relates to his previous position as Chief Executive Officer of BBVA.

In addition, the executive directors received remuneration in kind during the 2019 financial year, including insurance premiums and others, amounting to a total of €411 thousand, of which €184 thousand was paid to the Group Executive Chairman, €144 thousand was paid to the Chief Executive Officer and €83 thousand was paid to the Head of GE&PA.

Remuneration received by Senior Management in 2019

During the 2019 financial year, the members of Senior Management, excluding executive directors, received the amount of the annual fixed remuneration corresponding to such financial year.

In addition, they received the annual variable remuneration for the 2018 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable for such financial year, was due to be paid to them during the 2019 financial year.

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Under this settlement and payment system, the same rules as set out above for executive directors are applicable. These include, among others, that the upfront portion (40% of the annual variable remuneration) will be paid in the financial year following the year to which it corresponds, in equal parts in cash and in shares, and the deferred portion (60% of the annual variable remuneration) will be deferred (40% in cash and 60% in shares) over a five-year period, with its accrual and payment being subject to compliance with a series of multi-year indicators, applying the same payment schedule established for executive directors. Any shares received, including both as part of the upfront portion and the deferred portion, will be withheld for a one year lock-up period after delivery, except for shares transferred to honor the payment of taxes accruing on the shares received. Likewise, members of Senior Management may not use personal hedging strategies or insurance in connection with their remuneration and responsibility if such personal hedging strategies or insurance may undermine their incentives to align with sound risk management. The variable component of the remuneration for Senior Management corresponding to the 2018 financial year will be limited to a maximum amount of 200% of the fixed component of the total remuneration. Over the entire deferral and withholding period, the annual variable remuneration will be subject to “malus” and “clawback” arrangements.

Moreover, during the 2019 financial year, in accordance with the remuneration policy applicable to Senior Management in 2015 and in application of the settlement and payment system of the annual variable remuneration for such financial year, the members of Senior Management who were beneficiaries of such remuneration received the deferred portion of the annual variable remuneration for the 2015 financial year, after being adjusted downwards following the result of the TSR indicator. This remuneration was paid in equal parts in cash and in shares, along with the corresponding update in cash, concluding the payment of this remuneration to the members of Senior Management for the 2015 financial year.

In accordance with the above, the remuneration paid during the 2019 financial year to members of the Senior Management as a whole, who held that position as of December 31, 2019 (15 members), excluding executive directors, is indicated and itemized below:

Annual fixed Remuneration for 2019 (Thousands of Euros)
Senior Management Total | 13,883

Annual variable Remuneration for 2018
| In cash (thousands of euro) (1) | In shares (1)
Senior Management Total | 887 | 185,888

(1) Represents remunerations corresponding to the upfront portion (40%) of the annual variable remuneration for the 2018 financial year (paid 50% in cash and 50% in BBVA shares). For those members of Senior Management who were appointed by the Board of Directors on December 20, 2018 and April 29, July 30 and December 19, 2019, this remuneration relates to their previous positions.

Deferred variable remuneration for 2015
| In cash (thousands of euro) (1) | In shares (1)
Senior Management Total | 1,263 | 163,215

(1) Represents remunerations corresponding to the deferred portion of annual variable remuneration for the 2015 financial year (50% of the annual variable remuneration for 2015 in equal parts in cash and in shares), payment of which was due during the 2019 financial year, together with its corresponding update in cash, and after its downward adjustment following the result of the TSR indicator.

In addition, all of the members of Senior Management, excluding executive directors, received remuneration in kind during the 2019 financial year, including insurance premiums and others, amounting to a total of €769 thousand.

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Remuneration to be received by executive directors in 2020 and subsequent financial years

Annual variable remuneration for executive directors for 2019

Following the end of the 2019 financial year, the annual variable remuneration for executive directors corresponding to such financial year was determined, applying the conditions set out in the Directors’ Remuneration Policy, which was approved by the general shareholders’ meeting on March 15, 2019. As in the previous financial year, the following settlement and payment system applies to this remuneration:

· The upfront portion (40% of the annual variable remuneration for the 2019 financial year) will be paid, provided that the conditions are met, during the first quarter of the 2020 financial year, in equal parts in cash and in shares, which amounts to €636 thousand and 126,470 BBVA shares in the case of the Group Executive Chairman; €571 thousand and 113,492 BBVA shares in the case of the Chief Executive Officer and €75 thousand and 14,998 BBVA shares in the case of the Head of GE&PA.

· The deferred portion (60% of the annual variable remuneration for the 2019 financial year) will be deferred (40% in cash and 60% in shares) over a five-year period, subject to compliance with the multi-year performance indicators determined by the Board of Directors at the start of the 2019 financial year, which may lead to a reduction of the deferred portion, even in its entirety, but in no event may such amount be increased. These multi-year performance indicators will be calculated over the first three years of deferral and, provided that the relevant conditions have been met, the resulting amount will then be paid, in cash and in BBVA shares, according to the following payment 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 set out in the Directors’ Remuneration Policy, which includes, among other terms and conditions, “malus” and “clawback” arrangements and retention periods for the shares.

Deferred annual variable remuneration for executive directors for 2016

Following the end of the 2019 financial year, the deferred portion of the annual variable remuneration of executive directors for the 2016 financial year (50%) was determined, with delivery, if conditions are met, during the 2020 financial year, subject to the conditions established for this purpose in the applicable remuneration policy.

Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 2016 to calculate the deferred portion of this remuneration, and in application of the relevant scales of achievement and their corresponding targets and weightings, the final amount of the deferred portion of the annual variable remuneration for the 2016 financial year was determined, with the corresponding downward adjustment following the result of the TSR indicator. As a result, such remuneration, including the corresponding updates, was determined in an amount of €656 thousand and 89,158 BBVA shares in the case of the Group Executive Chairman; €204 thousand and 31,086 BBVA shares in the case of the Chief Executive Officer; and €98 thousand and 13,355 BBVA shares in the case of the Head of GE&PA. Once these amounts are paid, there will be no more outstanding payments due to the executive directors in respect of annual variable remuneration for the 2016 financial year.

In addition, as of the end of the 2019 financial year, in addition to the abovementioned deferred portion of the annual variable remuneration of the executive directors for the 2019 financial year and in accordance with the conditions established in the remuneration policies applicable in previous years, 60% of the annual variable remuneration corresponding to the 2017 and 2018 financial years remains deferred and is pending payment to the executive directors, and will be received in future years if the applicable conditions are met.

Remuneration to be received by Senior Management in 2020 and subsequent financial years

Annual variable remuneration for Senior Management for 2019

Following the end of the 2019 financial year, the annual variable remuneration of Senior Management (15 members as of December 31, 2019, excluding executive directors) corresponding to such financial year was determined. The annual variable remuneration for all members of Senior Management, excluding executive directors, was determined to be a combined total amount of €6,363 thousand.

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The upfront portion of the annual variable remuneration for the 2019 financial year for each member of Senior Management will be paid in the first quarter of 2020, in accordance with the settlement and payment system applicable in each case and in accordance with the provisions of the BBVA Group’s Remuneration Policy, if the applicable conditions are met, in an amount equal to €1,291 thousand and 257,907 BBVA shares. The remaining amount will be deferred and subject to the remaining conditions of the settlement and payment system applicable in each case and in accordance with the provisions of the BBVA Group’s Remuneration Policy.

Deferred annual variable remuneration of Senior Management for financial year 2016

Following the end of the 2019 financial year, the deferred portion of the annual variable remuneration of Senior Management (15 members as of December 31, 2019, excluding executive directors) for the 2016 financial year was determined, with delivery, if conditions are met, taking place during the 2020 financial year, subject to the conditions established for this purpose in the applicable remuneration policy.

Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 2016 to calculate the deferred portion of this remuneration, and in application of the relevant scales of achievement and their corresponding targets and weightings, the final amount of the deferred portion of the annual variable remuneration for members of Senior Management for the 2016 financial year was determined, with the corresponding downward adjustment following the result of the TSR indicator. The combined total amount for the Senior Management, excluding executive directors, was determined to be €1,277 thousand and 196,899 BBVA shares, including the corresponding updates. With these amounts paid, there will be no more outstanding payments due to Senior Management in respect of the annual variable remuneration for the 2016 financial year.

In addition, as of the end of the 2019 financial year, in addition to the abovementioned deferred portion of the annual variable remuneration for the 2019 financial year and in accordance with the conditions established in the remuneration policies applicable in previous years, 60% of the annual variable remuneration corresponding to the 2017 and 2018 financial years remains deferred and is pending payment to the members of Senior Management and will be received in future years if the applicable conditions are met.

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 during the 2019 financial year to each non-executive director beneficiary of the remuneration system in “theoretical shares” with deferred delivery, corresponding to 20% of the total remuneration received in cash by such directors during the 2018 financial year, was as follows:

| Theoretical shares allocated in 2019 | Theoretical shares accumulated as of December 31, 2019
Tomás Alfaro Drake | 10,138 | 93,587
José Miguel Andrés Torrecillas | 19,095 | 55,660
Jaime Caruana Lacorte | 9,320 | 9,320
Belén Garijo López | 12,887 | 47,528
Sunir Kumar Kapoor | 6,750 | 15,726
Carlos Loring Martínez de Irujo | 17,515 | 116,391
Lourdes Máiz Carro | 11,160 | 34,320
José Maldonado Ramos | 15,328 | 94,323
Ana Peralta Moreno | 5,624 | 5,624
Juan Pi Llorens | 17,970 | 72,141
Susana Rodríguez Vidarte | 17,431 | 122,414
Jan Verplancke | 5,203 | 5,203
Total | 148,421 | 672,237

Pension commitments with directors and Senior Management

The Bank does not have pension commitments with non-executive directors.

With regard to the Group Executive Chairman, the Directors’ Remuneration Policy establishes a pension framework whereby he is eligible, provided that he does not leave his position as a result of a serious breach of duties, to receive a retirement pension, paid as a lump sum or in installments, when he reaches the legally established retirement age. The amount of this pension will be determined by the annual contributions made by the Bank, together with their corresponding accumulated yields as of that date.

The annual contribution to cover the retirement contingency for the Group Executive Chairman’s defined-contribution system, as established in the Directors’ Remuneration Policy, was determined as a result of the conversion of his previous defined-benefit rights into a defined-contribution system, in the annual amount of €1,642 thousand. The Board of Directors may update this amount during the term of the Directors’ Remuneration Policy, in the same way and under the same terms as it may update the annual fixed remuneration.

15% of the aforementioned agreed annual contribution will be based on variable components and considered “discretionary pension benefits”, and 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 Directors’ Remuneration Policy.

In the event the Group Executive Chairman’s contract terminates before reaching retirement age for reasons other than serious breach of duties, the retirement pension due to the Group Executive Chairman upon reaching the legally established retirement age will be calculated based on the funds accumulated through the 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 in any event from the time of termination.

With respect to the commitments to cover the contingencies for death and disability benefits for the Group Executive Chairman, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage of these contingencies.

In line with the above, during the 2019 financial year, €1,919 thousand was recorded to meet the pension commitments for the Group Executive Chairman. This amount includes the contribution to the retirement contingency (€1,642 thousand) and the payment of premiums for the death and disability contingencies (€278 thousand), as well as the negative adjustment of €1 thousand for “discretionary pension benefits” for the 2018 financial year, which were declared at the end of the 2018 financial year and had to be registered in the accumulated fund in the 2019 financial year.

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As of December 31, 2019, the total accumulated amount of the fund to meet the retirement commitments for the Group Executive Chairman amounted to €21,582 thousand.

With regard to the agreed annual contribution to the retirement contingency corresponding to the 2019 financial year, 15% (€246 thousand) was registered in that financial year as “discretionary pension benefits”. Following the end of the 2019 financial year, this amount was adjusted according to the criteria established to determine the Group Executive Chairman’s annual variable remuneration for the 2019 financial year. Accordingly, the “discretionary pension benefits” for the 2019 financial year were determined in an amount of €261 thousand, which will be included in the accumulated fund for the 2020 financial year, subject to the same conditions as the deferred portion of the annual variable remuneration for the 2019 financial year, as well as to the remaining conditions established for these benefits in the Directors’ Remuneration Policy.

With regard to the Chief Executive Officer, in accordance with the provisions of the current Directors’ Remuneration Policy and his contract, the Bank is not required to make any contributions to a retirement pension, although he is entitled to an annual cash sum instead of a retirement pension equal to 30% of his annual fixed remuneration. However, the Bank does have pension commitments to cover the death and disability contingencies, for which purpose the corresponding annual insurance premiums will be paid.

In accordance with the above, in the 2019 financial year the Bank paid the Chief Executive Officer the amount of fixed remuneration as cash in lieu of pension set out under “—Remuneration received by executive directors in 2019”. Furthermore, €141 thousand was recorded for the payment of the annual insurance premiums to cover the death and disability contingencies.

For the Head of GE&PA, the pension system provided for in the Directors’ Remuneration Policy establishes an annual contribution of 30% of the Head of GE&PA’s annual fixed remuneration to cover the retirement contingency. 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 the Directors’ Remuneration Policy.

The Head of GE&PA, upon reaching retirement age, will be entitled to receive, as a lump sum or in installments, the benefits arising from contributions made by the Bank to cover pension commitments, plus the corresponding yield accumulated up to that date, provided the Head of GE&PA does not leave said position due to serious breach of duties. In the event of voluntary termination of the 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, together with the corresponding accumulated yield, with no additional contributions to be made by the Bank in any event upon termination of the contractual relationship.

With respect to the commitments to cover the contingencies for death and disability benefits for the Head of GE&PA, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage of these contingencies.

In line with the above, during the 2019 financial year, €404 thousand was recorded to meet the pension commitments for the Head of GE&PA. This amount includes the contribution to the retirement contingency (€250 thousand) and the payment of premiums to cover the death and disability contingencies (€150 thousand), as well as €4 thousand corresponding to the adjustment made to the amount of “discretionary pension benefits” for the 2018 financial year, as declared at the end of the 2018 financial year and which had to be registered in the accumulated fund in the 2019 financial year.

As of December 31, 2019, the total accumulated amount of the fund to meet the retirement commitments for the Head of GE&PA amounted to € 1,404 thousand.

With regard to the annual contribution agreed for the retirement contingency, 15% (€38 thousand) was registered in the 2019 financial year as “discretionary pension benefits”. Following the end of the 2019 financial year, this amount was adjusted according to the criteria established to determine the Head of GE&PA’s annual variable remuneration for the 2019 financial year. Accordingly, the “discretionary pension benefits” for the 2019 financial year were determined in an amount of €40 thousand, which will be included in the accumulated fund for the 2020 financial year, subject to the same conditions as the deferred portion of the annual variable remuneration for the 2019 financial year, as well as the remaining conditions established for these benefits in the Directors’ Remuneration Policy.

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In addition, during the 2019 financial year, €3,281 thousand was recorded to meet the pension commitments for members of the Senior Management (15 members holding that position as of December 31, 2019, excluding executive directors). This amount includes both the contribution to the retirement contingency (€2,656 thousand) and the payment of premiums to cover the death and disability contingencies (€627 thousand), as well as the negative adjustment of €2 thousand for “discretionary pension benefits” for the 2018 financial year, as declared at the end of the 2018 financial year, and which had to be registered in the accumulated fund in the 2019 financial year.

At December 31, 2019, the total accumulated amount of the fund to meet the retirement commitments for members of the Senior Management amounted to €20,287 thousand.

15% of the agreed annual contributions for members of the Senior Management to cover retirement contingencies will be based on variable components and considered “discretionary pension benefits”, and 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 the Senior Management.

Accordingly, with regard to the agreed annual contribution for the retirement contingency registered in the 2019 financial year, an amount of €389 thousand was registered as “discretionary pension benefits” during the 2019 financial year and, following the end of the 2019 financial year, this amount was adjusted according to the same criteria established to determine the Senior Management’s annual variable remuneration for the 2019 financial year. Accordingly, the “discretionary pension benefits” for members of the Senior Management for the 2019 financial year were determined in an amount of €402 thousand, which will be included in the accumulated fund for the 2020 financial year, subject to the same conditions as the deferred portion of annual variable remuneration for the 2019 financial year, as well as the remaining conditions established for these benefits in the remuneration policy applicable to members of the Senior Management.

Extinction of contractual relationship

In accordance with the Directors’ Remuneration Policy, the Bank has no commitments to pay severance benefits to any executive directors.

With regard to Senior Management, excluding executive directors, the Bank paid out a total of €8,368 thousand during the 2019 financial year, resulting from the termination of employment of four senior managers with an average length of service in the Group of 25 years, pursuant to the terms of their employment contracts. These contracts include the right to receive the relevant legal severance payment, provided that termination of their contract is not due to voluntary leave, retirement, disability or serious breach of their duties. These amounts will be calculated in accordance with the provisions of applicable labor regulations. In some cases, the contracts also include the right to an amount in addition to the required legal severance payment, which will be considered variable remuneration in accordance with the solvency regulations that apply to these senior managers, as well as prior notice clauses.

In connection with the above, as of December 31, 2019, €1,199 thousand was pending payment and will be paid, if conditions are met, in accordance with the same schedule and regulations of the settlement and payment system applicable to the annual variable remuneration for the 2019 financial year, as established in the remuneration policy applicable to the members of Senior Management.

These payments comply with the conditions set out in the regulations applicable to the group of employees with a material impact on the Group's risk profile, to which these senior managers belonged.

## 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 Committee; the Appointments and Corporate Governance Committee; the Remunerations Committee; the Risk and Compliance 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, three external directors and one independent director, 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 Regulations of the Executive Committee, which were approved by the Board of Directors in April 2019, the Executive Committee will deal with matters delegated to it by the Board of Directors and, in particular, will have the following functions, among others:

Support functions to the Board of Directors in its decision-making:

· On strategy: (i) establishment of the bases and previous analysis of the proposals submitted to the Board of Directors in relation to the Bank’s Strategic Plan or other strategic decisions, including the Risk Appetite Framework; (ii) prior analysis of the strategic and financial aspects of the proposals submitted to the Board of Directors in relation to corporate transactions corresponding to its decision-making powers, in respect of which it will submit its report to the Board, accompanied, where necessary, by reports from the other Board committees on those matters within their respective remits.

· On budgets: (i) prior analysis of the proposals submitted to the Board of Directors in relation to the Bank’s budgets; (ii) adoption of the corresponding decisions for the implementation of the budget approved by the Board of Directors; (iii) analysis of deviations from the approved budget and, where appropriate, reporting such to the Board of Directors.

· On finances: (i) establishment of the bases and previous analysis of the proposals submitted to the Board of Directors relating to the Bank’s funding plan, its capital and liquidity structure, and its dividends policy; (ii) adoption of implementation decisions of mandates expressly conferred on it by the Board of Directors in these fields.

· Analysis of matters relating to business risk in the proposals and plans submitted to the Board of Directors.

· Analysis, assessment and management of matters relating to reputational risk.

Functions of prior reporting on policies submitted to the Board of Directors and approval of general Group and Company policies:

· Analyze, prior to their consideration by the Board of Directors, the general Group and Company policies that, in accordance with the law or internal regulations, must be approved by the Board of Directors, except for policies relating to issues within other Board committees’ remit, which will be approved or reported to the Board beforehand by the corresponding committee.

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Monitoring and control functions:

· The Committee will perform monitoring and control functions regarding the following matters, among others: (i) the Group’s activity and results; (ii) budget monitoring; (iii) progress of the Strategic Plan, through the key performance indicators established for this purpose; (iv) monitoring of the Group’s liquidity and funding plan and capital situation, as well as of the activity of the Assets and Liabilities Committee; (v) analysis of the markets in which the Group carries out its activities; (vi) progress of the projects and investments agreed upon within its remit.

Decision-making powers over the following issues, among others:

· Investments and divestments exceeding €50 million and not reaching €400 million, unless they are of a strategic nature due to their particular characteristics, in which case the decision will correspond to the Board of Directors.

· Plans and projects that are considered of importance to the Group and that arise from its activities, when they do not fall within the remit of the Board of Directors.

· The granting and revoking of the Bank’s powers of attorney.

· Proposals for the appointment and replacement of directors in the Bank’s subsidiaries or investee companies with more than €50 million in own funds.

The Executive Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2019, the Executive Committee met eighteen (18) times.

Audit Committee

The Audit Committee shall perform the duties required under applicable law, Board regulations, our Bylaws and its specific Regulations. Essentially, its mission is to assist the Board in overseeing the preparation of the financial statements and public information, and the relationship with the external auditor and the Internal Audit function.

The Board Regulations establish that the Audit Committee will be composed of a minimum of four directors to be appointed by the Board of Directors, which will also appoint its Chair, who will be replaced every four years and may be re-elected one year after ceasing to hold the position. The Audit Committee will be composed exclusively of independent directors. The Board of Directors will endeavor to ensure that the members of the Committee have the knowledge and experience appropriate to the duties they are called upon to perform. In any event, at least one member will be appointed taking into account his or her knowledge and experience in accounting, auditing or both. . See “Item 16.A. Audit Committee Financial Expert”.

As of the date of this Annual Report, the Audit Committee is comprised of five independent directors, who are the following:

Position | Name
Chairman | Mr. Jaime Félix Caruana Lacorte Mr. José Miguel Andrés Torrecillas
Members | Mrs. Belén Garijo López Mrs. Lourdes Máiz Carro Mrs. Ana Cristina Peralta Moreno

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Under the Regulations of the Audit Committee, which were approved in April 2019, the scope of its functions is as follows:

· Inform the general shareholders’ meeting on the questions raised in relation to the matters that are within the remit of the Committee and, in particular, on the result of the audit, explaining how the audit has contributed to the integrity of the financial information and the function performed by the Committee in this process;

· Oversee the process of preparing and reporting financial information and submit recommendations or proposals to the Board of Directors aimed at safeguarding the integrity thereof.

· Likewise, analyze, prior to their submission to the Board of Directors and in enough detail to guarantee their accuracy, reliability, sufficiency and clarity, the financial statements of the Bank and of its consolidated Group contained in the annual, six-monthly and quarterly reports, as well as in all other required financial and related non-financial information.

· Additionally, the Committee shall review the necessary consolidation perimeter, the correct application of accounting criteria, and all the relevant changes relating to the accounting principles used and to the presentation of the financial statements.

· Oversee the effectiveness of the Company’s internal control and risk management systems, in terms of the process of preparing and reporting financial information, including fiscal risks, and discuss with the auditor any significant weaknesses in the internal control system detected during the audit, without undermining its independence. For such purposes, and where appropriate, the Committee may submit recommendations or proposals to the Board of Directors, along with the deadline for their follow-up;

· With regard to the Internal Audit function:

a) Propose to the Board of Directors the selection, appointment, re-election and removal of the head of the Internal Audit function, based on candidates from within the executive level pre-selected by the Talent & Culture area.

b) Monitor the independence, effectiveness and operation of the Internal Audit function.

c) Analyze and establish objectives for the head of the Internal Audit function and assess his or her performance, submitting its proposal on both matters to the Remunerations Committee in order to ensure alignment with the remuneration model applicable to the Senior Management at any given time, submitting the corresponding proposals to the Board of Directors.

d) Ensure that the Internal Audit function has the necessary material and human resources for the effective performance of its functions, in terms of personnel, as well as material elements, systems, procedures and operation manuals.

e) Analyze and, where appropriate, approve the annual work plan for the Internal Audit function, as well as any other occasional or specific plans to be implemented as a result of regulatory changes or as required for the organization of the Group’s business.

· Receive monthly information from the head of the Internal Audit function regarding the activities carried out by the Internal Audit function, as well as regarding any incidents and obstacles that may arise, and verify that the Senior Management takes into account the conclusions and recommendations of his or her reports.

· Be apprised of the audited units’ degree of compliance with corrective measures previously recommended by Internal Audit, and report to the Board on those cases that may involve a significant risk for the Group.

· Submit to the Board of Directors proposals for 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 the hiring conditions of the external auditor, and to periodically obtain information from the external auditor on the external audit plan and its execution, in addition to preserving its independence in the performance of its functions;

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· Ensure the independence of the auditor in two senses: (i) avoiding that the auditor’s warnings, opinions or recommendations may be adversely influenced. To this end, ensuring that compensation for the auditor’s work does not compromise either its quality or independence, in compliance with the auditing legislation in force at any given moment; (ii) establishing incompatibility between the provision of audit and consulting services, unless they are tasks required by supervisors or the provision of which by the auditor is permitted by applicable legislation, and there are no alternatives on the market that are equal in terms of content, quality or efficiency to those provided by the auditor, in which case, conformity of the Committee will be required, and this decision may be delegated in advance to its Chair.

· Establish appropriate relations with the auditor in order to receive information on any matters that may jeopardize their independence and any other matters in connection with the auditing process, as well as those other communications provided for by law and in auditing standards. In any event, the Committee must receive from the external auditors, on an annual basis, a statement of their independence with regard to the Company or entities directly or indirectly associated with it, as well as detailed and individualized information on additional services of any kind provided and the corresponding fees received by the external auditor or by persons or entities associated with the external auditor, as provided for in auditing legislation;

· Where appropriate, authorize the provision of additional services other than prohibited services, by the auditor or associated persons or entities, the performance of which is required by applicable regulations in each case, under the terms provided for in auditing legislation.

· Issue, on an annual basis and before the audit report is issued, a report expressing an opinion on whether the auditor’s independence has been compromised. This report must, in all cases, contain a reasoned assessment of the provision of each and every additional service referred to in the preceding paragraph, considered individually and collectively, other than the legal audit, and relating to the framework of independence or the regulations on audit activity;

· Verify, with the appropriate frequency, that the external audit program is being carried out in accordance with the contract conditions and is thereby meeting the requirements of the competent official authorities and the corporate bodies. The Committee will also periodically – at least once per year – request from the auditor an evaluation of the quality of the internal control procedures regarding the preparation and reporting of the Group’s financial information;

· Ensure that the auditor holds an annual meeting with the full Board of Directors to inform it of the work carried out and the progress of the Company’s risks and accounting situations;

· Be apprised of any infringements, situations requiring adjustments, or anomalies that may be detected during the course of the external audit, provided that these are relevant;

· Be apprised of reports, documents or communications from external supervisory bodies related to the scope of the Committee’s functions in the terms set out above. The Committee will ensure that the instructions, requirements and recommendations received from the supervisory bodies are implemented in due time and form, in order to correct any irregularities, shortfalls or inadequacies that may be detected in the inspections performed, within the scope of their functions;

· Report on all matters within its remit as provided for in the law, the Bylaws and the Regulations of the Board of Directors prior to any decisions that the Board of Directors may be required to adopt regarding such matters, and in particular on: financial information that the Company is required to publish; economic conditions and accounting impact of relevant corporate transactions and structural modifications (modificaciones estructurales); the creation or acquisition of shares in special purpose vehicles or in entities domiciled in territories considered to be tax havens; and related-party transactions;

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The Audit Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2019, the Audit Committee met fifteen (15) times.

Executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, in particular, Accounting and Internal Audit areas and, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called. In any event, the Committee will endeavor to hold private meetings with the head of Internal Audit and with the external auditor, without the attendance of other persons and at appropriate intervals.

The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be provided by experts or technical staff within the Group on grounds of specialization or independence.

Furthermore, the Committee may solicit personal cooperation and reports from any employee or member of the Senior Management if deemed necessary in order to comply with its functions in relevant matters.

Appointments and Corporate Governance Committee

The Appointments and Corporate Governance Committee assists the Board of Directors in matters relating to the selection and appointment of members of the Board of Directors; the assessment of performance; the drafting of succession plans; the Bank’s corporate governance system; and the supervision of the conduct of directors and any conflicts of interest that may affect them.

In compliance with the Board Regulations, this Committee will be composed of a minimum of three directors who must be non-executive directors appointed by the Board of Directors, which will also appoint its Chair. The Chair and the majority of its members must be independent directors.

As of the date of this Annual Report, the Appointments and Corporate Governance Committee is composed 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 Mr. José Maldonado Ramos Mr. Juan Pi Llorens Mrs. Susana Rodríguez Vidarte

The functions of the Appointments and Corporate Governance Committee under the Regulations of the Appointments and Corporate Governance, which were approved by the Board of Directors in April 2019, are as follows:

· Submit proposals to the Board of Directors for the appointment, re-election or removal of independent directors and report on proposals for the appointment, re-election or removal of the remaining directors.

To this end, the Committee will evaluate the balance of knowledge, skills and experience of the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, assessing the dedication of time considered necessary to adequately carry out their duties, in view of the needs that the corporate bodies have at any given time.

The Committee will ensure that selection procedures are not implicitly biased in such a way that may entail any kind of discrimination and, in particular, that may hinder the selection of directors of the underrepresented gender, endeavoring that directors of said gender who display the professional profile sought are included amongst potential candidates.

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The Committee, when drafting the corresponding proposals for the appointment of directors, will take into consideration, in case they may be considered suitable, any requests that may be made by any member of the Board of Directors regarding potential candidates to fill the vacancies that have arisen;

· Submit proposals to the Board of Directors on policies on the selection and diversity of the members of the Board of Directors;

· Establish a target for representation of the underrepresented gender on 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 per year, when assessing its operation;

· Analyze the suitability of the members of the Board of Directors;

· Review the status of each director each year, so that this may be reflected in the Annual Corporate Governance Report;

· Report on proposals for the appointment of the Chairman of the Board and Secretary and, where appropriate, the Deputy Chair and the Deputy Secretary, as well as the Chief Executive Officer (Consejero Delegado);

· Submit to the Board of Directors proposals for the appointment, removal or re-election of the Lead Director;

· Determine the procedure for assessing the performance of the Chairman of the Board of Directors, the Chief Executive Officer, the Board of Directors as a whole and the Board’s committees, and to oversee its implementation;

· Report on the quality and efficiency of the performance of the Board of Directors.

· Report on the performance of the Chairman of the Board of Directors and of the Chief Executive Officer, integrating for the latter the assessment made in this regard by the Executive Committee, for the purpose of the periodic assessment of both by the Board of Directors;

· Examine and organize the succession of the Chairman of the Board of Directors, the Chief Executive Officer and, where applicable, the Deputy Chair, in coordination with the Lead Director in the case of the Chairman of the Board and, where appropriate, submit proposals to the Board of Directors to ensure that the succession takes place in an orderly and planned manner;

· Review the Board of Directors’ policy on the selection and appointment of members of the Senior Management, and submit recommendations to the Board when applicable;

· Report on proposals for the appointment and removal of senior managers;

· Regularly review and assess the Company’s corporate governance system and, where applicable, submit proposals to the Board of Directors, for approval or subsequent submission to the general shareholders’ meeting, on any amendments and updates that would contribute to its implementation and continuous improvement;

· Ensure compliance with the provisions applicable to directors contained in the Regulations of the Board of Directors or in the applicable legislation, as well as with the rules relating to conduct on the securities markets, and inform the Board of these if it deems it necessary; and

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· Report, prior to any decisions that may be made by the Board of Directors, on all matters within its remit as provided for in the law, the Bylaws, the Regulations of the Board of Directors and the Regulations of the Appointments and Corporate Governance Committee, and in particular on situations of conflict of interest of the directors.

In the performance of its duties, the Appointments and Corporate Governance Committee, through its Chair, will consult with the Chairman of the Board of Directors, particularly with respect to matters relating to executive directors and senior managers.

In accordance with the Regulations of the Appointments and Corporate Governance Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be provided by experts or technical staff within the Group on grounds of specialization or independence. Furthermore, the Committee may solicit personal cooperation and reports from any employee or member of the Senior Management if deemed necessary in order to comply with its functions in relevant matters.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2019, the Appointments and Corporate Governance Committee met eight (8) times.

Remunerations Committee

The Remunerations Committee, in accordance with the Board of Directors Regulations, assists the Board of Directors in remuneration matters within its remit and, in particular, those relating to the remuneration of directors, senior managers and those employees whose professional activities have a significant impact on the Group’s risk profile.

Under the Board Regulations, the Committee will be composed of a minimum of three directors appointed by the Board of Directors. All the members must be non-executive directors, with a majority of independent directors, including the Chair.

As of the date of this Annual Report, the Remunerations Committee is composed 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 Regulations of the Remunerations Committee, which were approved by the Board of Directors in April 2019, the scope of the functions of the Remunerations Committee is as follows:

· Propose to the Board of Directors, for submission to the general shareholders’ meeting, the remuneration policy for directors, and also submit its corresponding report, all in accordance with the terms established by applicable regulations at any given time;

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· Determine the remuneration of non-executive directors, as provided for in the remuneration policy for directors, submitting the corresponding proposals to the Board;

· Determine the extent and amount of the individual remunerations, rights and other economic rewards, as well as the remaining contractual conditions for executive directors, so that these can be contractually agreed, in accordance with the remuneration policy for directors, submitting the corresponding proposals to the Board of Directors;

· Determine the objectives and criteria for measuring the variable remuneration of the executive directors and assess the degree of achievement thereof, submitting the corresponding proposals to the Board of Directors, which, in the case of the Chief Executive Officer (Consejero Delegado), will take into account the assessment made by the Executive Committee and, in the case of other executive directors who may report to the Group Executive Chairman or to the Chief Executive Officer, the assessment made by these;

· Analyze, where appropriate, the need to make ex-ante or ex-post adjustments to variable remuneration, including the application of malus or clawback arrangements for variable remuneration, submitting the corresponding proposals to the Board of Directors, prior report of the corresponding committees in each case;

· Annually submit the proposal of the annual report on the remuneration of the Bank’s directors to the Board of Directors, which will then be submitted to the annual general shareholders’ meeting, in accordance with the provisions of the applicable law;

· Propose to the Board of Directors the remuneration policy for senior managers and employees whose professional activities have a significant impact on the Group’s risk profile. Likewise, oversee its implementation, including supervision of the process for identifying such employees;

· Submit a proposal to the Board of Directors, and supervise the implementation of, the Group’s remuneration policy, which may include the policy for senior managers and the policy for employees whose professional activities have a significant impact on the Group’s risk profile, stated in the previous paragraph;

· Submit to the Board of Directors the proposals for basic contractual conditions for senior managers, including their remuneration and severance indemnity in the event of termination;

· Directly oversee the remuneration of senior managers and determine, within the framework of the remuneration model applicable to Senior Management at any given time, the objectives and criteria for measuring variable remuneration of the heads of the Regulation and Internal Control function and of the Internal Audit function, submitting the corresponding proposals to the Board of Directors, on the basis of those submitted to it in this regard by the Risk and Compliance Committee and the Audit Committee, respectively;

· Ensure observance of the remuneration policies established by the Company and review them periodically, proposing, where appropriate, any modifications deemed necessary to ensure, amongst other things, that they are adequate for the purposes of attracting and retaining the best professionals, that they contribute to the creation of long-term value and adequate control and management of risks, and that they attend to the principle of pay equity. In particular, ensure that the remuneration policies established by the Company are subject to internal, central and independent review at least once a year;

· Verify the information on the remuneration of directors and senior managers contained in the various corporate documents, including the annual report on the remuneration of directors; and

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· Oversee the selection of external advisers, whose advice or support is required for the performance of their functions in remuneration matters, ensuring that any potential conflicts of interest do not impair the independence of the advice provided.

In the performance of its duties, the Committee, through its Chair, will consult with the Chairman of the Board of Directors, particularly with respect to matters relating to executive directors and senior managers.

Pursuant to the Regulations of the Remunerations Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Remunerations Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2019, the Remunerations Committee met on seven (7) occasions.

Risk and Compliance Committee

The Board’s Risk and Compliance Committee’s essential function is to assist the Board of Directors in the determination and monitoring of the Group’s risk control and management policy, including risk internal control and non-financial risks, with the exception of those related to internal financial control, which are within the Audit Committee’s remit; those related to technological risk, which are within the Technology and Cybersecurity Committee’s remit; and those related to business and reputational risk, which are within the Executive Committee’s remit. It will also assist the Board of Directors in the oversight of the Compliance functions and the implementation of a risk and compliance culture in the Group.

The Risk and Compliance Committee will consist of a minimum of three directors appointed by the Board of Directors, which will also appoint its Chair. All the members of this Committee must be non-executive directors and the majority, including the Chair, must be independent directors. The Board of Directors will endeavor to ensure that the members of the Committee possess the appropriate knowledge, ability and experience to understand and control the risk strategy.

As of the date of this Annual Report, the Risk and Compliance Committee is composed 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 Regulations of the Risk and Compliance Committee, which were approved by the Board of Directors in April 2019, the Committee has the following duties:

· Based on the strategic elements established by either the Board of Directors or the Executive Committee at any given time, analyze and submit to the Board proposals regarding the Group’s risk strategy, management and control, identifying in particular:

a) The Group’s risk appetite; and

b) Determination of the level of risk considered acceptable in terms of risk profile and capital at risk, broken down by the Group’s businesses and areas of activity.

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The foregoing will include the Bank’s Risk Appetite Framework, the internal capital and liquidity adequacy assessment processes, which the Committee will analyze and submit to the Board of Directors, based on the strategic-financial approaches determined by both the Board of Directors and the Executive Committee;

· Address, in a manner consistent with the Risk Appetite Framework established by the Board of Directors, the control and management policies for the different risks, including financial risks, and, to the extent that they do not correspond to another Board committee, non-financial risks, as well as information and internal control systems;

· Oversee the effectiveness of the Regulation and Internal Control function (integrated by the Regulation, Supervisors and Compliance areas, as well as the Risk Internal Control and the Non-Financial Risks areas), which will hierarchically report to the Board of Directors, through the Committee, and in particular:

a) propose to the Board of Directors the appointment and removal of the head of Regulation and Internal Control function, based on candidates from within the executive level pre-selected by the Talent & Culture area;

b) analyze and establish objectives for the head of Regulation and Internal Control function and assess his or her performance, incorporating the assessment of the Chairman of the Board regarding the Regulation and Supervisors functions, submitting its proposal on both matters to the Remunerations Committee in order to ensure alignment with the remuneration model applicable to the Senior Management at any given time, submitting the corresponding proposals to the Board of Directors;

c) ensure that the Regulation and Internal Control function has the necessary material and human resources for the effective performance of its functions; and

d) analyze and, where appropriate, approve the annual work plan for the Regulation and Internal Control function, as well as its modifications, and monitor compliance thereof;

· Receive monthly information from the head of Regulation and Internal Control function regarding the activities carried out by this area, as well as regarding any incidents that may arise, and verify that the Senior Management takes into account the conclusions and recommendations of his or her reports. Notwithstanding the foregoing, the head of Regulation and Internal Control function will also report quarterly to the full Board of Directors.

The Committee will also receive periodic information, as often as appropriate, from the heads of the Compliance, Risk Internal Control and Non-Financial Risk areas, integrated in the Regulation and Internal Control function;

· Monitor the evolution of the Group’s risks and their degree of compatibility with established strategies and policies, and with the Group’s Risk Appetite Framework, and oversee procedures, tools and risk measurement indicators established at Group level to obtain a global view of the Bank’s and the Group’s risks. Likewise, monitor compliance with prudential regulation and supervisory requirements regarding risks.

Furthermore, analyze, where appropriate, the measures envisaged to mitigate the impact of identified risks, should these materialize, to be adopted by the Executive Committee or the Board of Directors, as appropriate;

· Analyze, within its remit, the risks associated with projects that are considered strategic for the Group or with corporate transactions to be submitted to consideration by the Board of Directors or, where appropriate, to consideration by the Executive Committee and, where necessary, submit the corresponding report;

· Analyze, prior to their submission to the Board of Directors or to the Executive Committee those risk operations to be submitted to their consideration;

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· Examine whether the prices of the assets and liabilities offered to customers fully take into account the Bank’s business model and risk strategy and, if not, submit a plan to the Board of Directors aimed at rectifying the situation;

· Participate in the process of establishing the remuneration policy, ascertaining that it is compatible with an adequate and effective risk management strategy and that it does not offer incentives to assume risks that exceed the level tolerated by the Bank;

· Verify that the Company and the Group have means, systems, structures and resources that are consistent with best practices that enable to implement their risk management strategy, ensuring that the Bank’s risk management mechanisms are adequate in relation thereto;

· Report, prior to any decisions that may have to be adopted by the Board of Directors, on all matters within its remit as provided for in the law, the Bylaws, the Regulations of the Board of Directors and these Regulations;

· Ensure compliance with applicable national or international regulations on matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to competition, and ensure that requests for information or action made by official authorities on these matters are dealt with in due time and in an appropriate manner;

· Be informed on any breach of the applicable internal or external regulations, as well as the relevant events that the areas reporting to the Committee may have identified within their oversight and control functions. Likewise, the Committee shall be informed on those issues related to legal risks which may arise in the course of Group’s activity;

· Examine draft codes of ethics and conduct and their respective modifications prepared by the corresponding area of the Group, and issue its opinion in advance of the proposals to be drawn up to the corporate bodies;

· Be apprised of reports, documents or communications from external supervisory bodies, notwithstanding any communication made with the remaining committees with regard to their respective remits. Likewise, verify that the instructions, requirements and recommendations received from the supervisory bodies in order to correct the irregularities, shortfalls or inadequacies identified in the inspections performed are fulfilled in due time and appropriate manner.

· Ensure the promotion of risk culture across the Group;

· Supervise the Group’s criminal risk prevention model; and

· Review and supervise the systems under which Group professionals may confidentially report any possible irregularities in the field of financial information or other matters.

Pursuant to the Regulations of the Risk and Compliance Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, in particular, Regulation and Internal Control area and Risks area, and, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. In 2019, it held twenty-one (21) meetings.

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Technology and Cybersecurity Committee

The Technology and Cybersecurity Committee’s essential function is to assist the Board of Directors in the oversight of technological risk and cybersecurity management and in monitoring the Group’s technology strategy.

The Technology and Cybersecurity Committee will consist of a minimum of three directors appointed by the Board of Directors, which will also appoint its Chair. The Board of Directors will endeavor to ensure that the members of the Committee have the knowledge and experience appropriate to the duties they are called upon to perform.

As of the date of this Annual Report, the Technology and Cybersecurity Committee is composed of one executive director, three independent directors and one external director, who are the following:

Position | Name
Chairman | Mr. Carlos Torres Vila
Members | Mr. Tomás Alfaro Drake Mr. Sunir Kumar Kapoor Mr. Juan Pi Llorens Mr. Jan Paul Marie Francis Verplancke

Under its regulations, which were approved in April 2019, the Technology and Cybersecurity Committee has the following functions:

- Oversight of technological risk and cybersecurity management:

· Review the Group’s exposures to the main technological risks, including the risks related to information security and cybersecurity, as well as the procedures adopted by the executive area to monitor and control such exposures.

· Review the policies and systems for the assessment, control and management of the Group’s technological infrastructures and risks, including the response and recovery plans in the event of cyber-attacks.

· Be informed of business continuity plans in matters of technology and technological infrastructure.

· Be informed, as appropriate, of:

a) compliance risks associated with information technologies;

b) procedures established to identify, assess, oversee, manage and mitigate these risks.

· Be informed of any relevant events that may have occurred with regard to cybersecurity, i.e. events that, either in isolation or as a whole, may cause significant impact or harm to the Group’s equity, results or reputation. In any case, such events will be communicated, as soon as they are identified, to the Chair of the Committee.

· Be informed, with the frequency required by the head of the Technological Security area, of the activities carried out thereby, as well as of any incidents that may arise.

- Monitoring the Technology Strategy:

· Be informed, as appropriate, of the technology strategy and trends that may affect the Group’s strategic plans, including the monitoring of general industry trends.

· Be informed, as appropriate, of the metrics established by the Group for the management and control in the technological field, including the Group’s developments and investments in this field.

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· Be informed, as appropriate, of matters related to new technologies, applications, information systems and best practices that may affect the Group’s technology strategy or plans.

· Be informed, as appropriate, of the main policies, strategic projects and plans defined by the Engineering area.

· Report to the Board of Directors and, where appropriate, to the Executive Committee, on information technology-related matters falling within its remit.

For a better performance of its functions, appropriate coordination systems will be established between the Technology and Cybersecurity Committee and the Audit Committee to facilitate:

a) That the Committee is aware of the conclusions of the work carried out by the Internal Audit area in technology and cybersecurity matters.

b) That the Audit Committee is informed of the information technology related systems and processes that are related to or affect the Group’s internal control systems and other matters within its remit.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agenda. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. In 2019 it held six (6) meetings.

## D. Employees

As of December 31, 2019, we had 126,973 employees. Approximately 89% 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.

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| As of December 31, 2019
Country | BBVA | Bank Subsidiaries | Non-bank Subsidiaries | Total
Spain | 24,921 | - | 5,362 | 30,283
United Kingdom | 120 | - | - | 120
France | 71 | - | - | 71
Italy | 49 | - | 2 | 51
Germany | 43 | 1 | - | 44
Switzerland | - | 116 | - | 116
Portugal | - | 458 | - | 458
Belgium | 23 | - | - | 23
“The Netherlands” (Holland) |  | 247 | - | 247
Russia | 3 | - | - | 3
Romania | - | 1267 | - | 1,267
Ireland | - | - | - | -
Luxembourg | - | - | - | -
Turkey | - | 20,759 | - | 20,759
Finland | - | - | 112 | 112
Total Europe | 25,230 | 22,848 | 5,476 | 53,554
The United States | 148 | 10,677 | - | 10,825
Argentina | - | 6,402 | - | 6,402
Brazil | - | - | 6 | 6
Colombia | - | 6,899 | - | 6,899
Venezuela | - | 2,532 | - | 2,532
Mexico | - | 37,724 | 81 | 37,805
Uruguay | - | 576 | - | 576
Paraguay | - | 428 | - | 428
Bolivia | - | - | 424 | 424
Chile | - | 956 | - | 956
Cuba | 1 | - | - | 1
Peru | - | 6,420 | - | 6,420
Total Latin America | 1 | 61,937 | 511 | 62,449
Hong Kong | 85 | - | - | 85
Japan | 3 | - | - | 3
China | 26 | 1 | 2 | 29
Singapore | 9 | - | - | 9
India | 2 | - | - | 2
South Korea | 2 | - | - | 2
United Arab Emirates | 2 | - | - | 2
Taiwan | 11 | - | - | 11
Indonesia | 2 | - | - | 2
Total Asia | 142 | 1 | 2 | 145
Total | 25,521 | 95,463 | 5,989 | 126,973

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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

The number of employees increased by 1.1% during 2019, while it decreased by 4.7% in 2018. The decrease in the number of employees in 2018 was mainly attributable to divestitures and restructuring plans.

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 was due to expire on December 31, 2018. However, it was subsequently extended until December 31, 2019. As of the date of this Annual Report, a new collective bargaining agreement is being negotiated among the Spanish Banking Association (AEB) and trade unions.

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As of December 31, 2019, 2018 and 2017, we had 1,212, 1,305 and 1,300 temporary employees in our Spanish offices, respectively.

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 government. See Note 2.2.12 and Note 25 to our Consolidated Financial Statements.

## E. Share Ownership

As of February 27, 2020, the members of the Board of Directors owned an aggregate of BBVA shares as shown in the table below:

Nam e | Directly owned shares | Indirectly owned shares | Total shares | % Capital Stock
Carlos Torres Vila | 775,359 | - | 775,359 | 0.012
Onur Genç * | 326,855 | - | 326,855 | 0.004
Tomás Alfaro Drake | 18,459 | - | 18,459 | -
José Miguel Andrés Torrecillas | 10,828 | - | 10,828 | -
Jaime Caruana Lacorte | - | - | - | -
Belén Garijo López | - | - | - | -
José Manuel González-Páramo Martínez-Murillo | 147,886 | - | 147,886 | 0.002
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 Peralta Moreno | - | - | - | -
Juan Pi Llorens | - | - | - | -
Susana Rodríguez Vidarte | 26,980 | - | 26,980 | 0.000
Jan Verplancke | - | - |  | -
TOTAL | 1,414,518 | - | 1,414,518 | 0.021

* Onur Genç and Sunir Kumar Kapoor owned 31,326 and 10,000 shares in the form of ADSs, respectively.

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BBVA has not granted options on its shares to any members of its administrative, supervisory or management bodies.

As of February 27, 2020 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
Domingo Armengol Calvo | 137,955 | - | 137,955 | 0.002
María Jesús Arribas de Paz | 101,932 | - | 101,932 | 0.002
Pello Belausteguigoitia Mateache | 94,273 | - | 94,273 | 0.001
Carlos Casas Moreno | 49,184 | - | 49,184 | 0.001
Victoria del Castillo Marchese | 30,572 | - | 30,572 | 0.000
Ana Fernández Manrique | 91,813 | 105,031 | 196,844 | 0.003
Ricardo Forcano García | 111,326 | - | 111,326 | 0.002
María Luisa Gómez Bravo | 185,384 | - | 185,384 | 0.003
Joaquín Gortari Díez | 75,441 | - | 75,441 | 0.001
Ricardo Martín Manjón | 50,050 | 8,026 | 58,076 | 0.001
Eduardo Osuna Osuna | 89,415 | - | 89,415 | 0.001
David Puente Vicente | 134,698 | - | 134,698 | 0.002
Jorge Sáenz-Azcúnaga Carranza | 131,699 | - | 131,699 | 0.002
Jaime Sáenz de Tejada Pulido | 464,315 | 211 | 464,526 | 0.007
Rafael Salinas Martínez de Lecea | 271,362 | 20,341 | 291,703 | 0.004
TOTAL | 2,019,419 | 133,609 | 2,153,028 | 0.032

As of February 27, 2020 a total of 19,161 employees (excluding the members of the Senior Management and executive directors) owned 58,104,820 shares, which represented 0.87% of our capital stock.

# ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

On February 5, 2020, Blackrock, Inc. reported to the SEC that it beneficially owned 6.3% of BBVA’s common stock.

On February 3, 2020, Norges Bank reported that it indirectly had voting power over 3.066% of BBVA’s common stock, of which 3.051% are voting rights attributed to shares, and 0.015%, voting rights through financial instruments.

As of February 24, 2020, 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 February 24, 2020, there were 864,696 registered holders of BBVA’s shares, with an aggregate of 6,667,886,580 shares, of which 694 shareholders with registered addresses in the United States held a total of 1,309,903,524 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

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 and service level agreements.

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They also engage in other similar transactions within the scope of the ordinary course of the banking business, such as loans and other banking services, with our shareholders, employees, associates and family members of all the above and other BBVA non-banking subsidiaries or affiliates. These transactions are 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 do not involve more than the normal risk of collectability or present other unfavorable features.

For information on these transactions as of December 31, 2019, 2018 and 2017, see Note 53 to our Consolidated Financial Statements.

C. Interests of Experts and Counsel

Not Applicable.

# 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 2015 to 2019. 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
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
2019 | € 0.100 | $ 0.112 | - | - | - | - | € 0.160 | $ 0.180 | € 0.260 | $ 0.292

(*) In execution of the 2015 and 2016 “Dividend Option” schemes 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.

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. 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 9, 2020, the final dividend for 2019 will be paid.

We have paid annual dividends to our shareholders since the date we were founded. “Final” dividends for a year are proposed by the Board of Directors to be approved by the annual general shareholders’ meeting following the end of the year to which they relate. Additionally, the Board of Directors may approve the payment of “interim” dividends on account of the year’s end profits following the fulfilment of certain requirements under Spanish law, which payment is endorsed by the annual general shareholders’ meeting. Interim and final dividends are payable to shareholders of record on the record date for the dividend payment. Any unclaimed cash dividends revert to BBVA five years after declaration.

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, 2019, BBVA had approximately €11.5 billion of reserves in excess of applicable capital and reserve requirements (based on a 12.77% 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 adversely impact the Group. See “Item 3. Key Information—Risk Factors—Legal, Regulatory, Tax and Reporting Risks—Legal Risks—The Group is party to a number of legal and regulatory actions and proceedings”, “Item 3. Key Information—Risk Factors—Legal, Regulatory, Tax and Reporting Risks—The Spanish judicial authorities are carrying out a criminal investigation relating to possible bribery, revelation of secrets and corruption by the Bank” and “Item 3. Key Information—Risk Factors—Internal Control Risks—Compliance Risks—The Group is exposed to compliance risks which may have a material adverse effect on the Group´s business, financial condition and results of operations, and may damage the Group´s reputation”.

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 business, financial position, results of operations or liquidity.

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”.

Apart from its quotation on the four Spanish Exchanges, BBVA is also currently included in 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.

BBVA´s 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.

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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, 2019, 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 11.68%, 2.03% and 6.64% 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, 2019 through December 31, 2019 the percentage of outstanding shares held by BBVA and its affiliates ranged between 0.138% and 0.746%, calculated on a daily basis. As of January 31, 2020, the percentage of outstanding shares held by BBVA and its affiliates was 0.222%.

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 2019, 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.

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 and which was further amended in September 2018 with respect to the minimum variation of share prices. 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 previously agreed and executed out of the order book) are also from 9:00 a.m. to 5:30 p.m.

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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 weighted average price and closing price for the day and 5% below the lower of the weighted 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; (iii) the purchase and the sale shall be the result of only one order; and (iv) 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.

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.

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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. On September 23, 2019, Iberclear made public that it had been granted the authorization to continue providing services as a Central Securities Depositary.

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.

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.

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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.

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 the MiFID II rules that became effective on January 3, 2018.

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.

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The new Prospectus Regulation (EU) 2017/1129 of the European Parliament and of the Council, of October 14, which became effective on July 21, 2019, aims to achieve greater harmonization of prospectus rules throughout the European Union. Such rules are applicable to issuers which offer debt or equity securities to the public or which seek admission to trading on a regulated market in the EU.

Directive 2014/65/EU 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 (MiFID II) 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 became applicable on January 3, 2018, affecting the Spanish securities market legislation, markets and infrastructures and 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.

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 (FTT), 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. While there is no assurance that the bill will be approved, 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.

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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.

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.

Organic Law 1/2019, of February 20, modifies, among other laws and regulations, the Spanish Criminal Code in order to implement in Spain Directive 2014/57/UE regarding applicable criminal sanctions related to market abuse, complementing the MAR framework.

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.

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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.

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-A, 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 establishes that directors must refrain from participating in deliberations and votes on resolutions or decisions in which they or a related party may have a direct or indirect conflict of interest 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”.

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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 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 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 issuance 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 issuance of new shares, it may only be carried out under the requirements established for the reduction of share capital by refunding contributions.

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. 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. If there are distributable earnings, the Company is obliged to agree to distribute the minimum divided mentioned above. If there are no distributable earnings or they are insufficient, the unpaid part of the minimum dividend will accumulate or not, pursuant to the terms agreed by the general shareholders’ meeting at the time of deciding to issue the shares. Holders of non-voting shares may exercise their pre-emptive subscription right should the general shareholders’ meeting and/or the Board of Directors so resolve at the time of issuing shares or share-convertible debentures. Recovery of voting rights must be resolved at the same time.

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 corporate 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.

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.

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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.

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”.

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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”.

C. Material Contracts

Joint Venture Agreement with Cerberus

On November 29, 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) 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

(ii) 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).

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(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.

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 Affairs and Digital Transformation 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;

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· 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.

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, 10% 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.

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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.

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).

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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.

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;

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• 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;

• 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.

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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.

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 and subject to applicable limitations, 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, including those 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 2019 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

For quantitative and qualitative disclosures about market risk, see Notes 7.2 and 7.3 to our Consolidated Financial Statements.

# 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.

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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) 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) 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

The Depositary may remit to us all or a portion of the 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, 2019, the Depositary reimbursed us $608,280 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 2019.

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Category of Expenses | Amount Reimbursed in the Year Ended December 31, 2019
| (In Dollars)
NYSE Listing Fees | 313,102
Investor Relations Marketing | 97,587
Professional Services | 13,061
Annual General Shareholders’ Meeting Expenses | 180,406
Other | 4,124

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, 2019, 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.

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.

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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, 2019, 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, 2019.

Our internal control over financial reporting as of December 31, 2019 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, 2019, 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, 2019, 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, 2019, 2018 and 2017, the related consolidated statements of income, recognized income and expense, changes in equity, and cash flows for the years then ended, and the related notes included on pages F-5 through F-169 (collectively, the consolidated financial statements), and our report dated February 28, 2020 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

February 28, 2020

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ITEM 16. [RESERVED]

# ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Regulations of the Audit Committee establish that committee members will be appointed by the Board of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their duties. In any event, at least one member will be appointed taking into account his or her knowledge and experience in accounting, auditing or both. As a whole, the Committee members will possess relevant technical knowledge in the financial sector.

We have determined that Mr. José Miguel Andrés Torrecillas, who was the Chairman of the Audit Committee until April 2019, Mr. Jaime Félix Caruana Lacorte, current Chairman of the Audit Committee, and the Audit Committee members Mrs. Belén Garijo López and Mrs. Ana Cristina Peralta Moreno are “audit committee financial experts” as such term is defined by the SEC.

Mr. José Miguel Andrés Torrecillas, Mr. Jaime Félix Caruana Lacorte, Mrs. Belén Garijo López and Mrs. Ana Cristina Peralta Moreno are independent within the meaning of Rule 10A-3 under the Exchange Act.

# 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.

# ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table provides information on the aggregate fees paid and payable to 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 | 2019 | 2018
| (In Millions of Euros)
Audit Fees(1) | 28.7 | 26.8
Audit-Related Fees(2) | 1.3 | 1.1
Tax Fees(3) | - | -
All Other Fees(4) | - | -
Total | 30.0 | 27.9

(1) Aggregate fees paid and payable by BBVA for professional services rendered by our principal accountants and its worldwide affiliates for the audit of BBVA’s annual financial statements, review of interim financial statements, SEC regulatory filings or services that are normally provided by our principal accountants and its worldwide affiliates in connection with statutory and regulatory filings or engagements for the relevant fiscal year.

(2) Aggregate fees paid and payable by BBVA 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. This includes work related to the corporate social responsibility report of certain Group entities and certain regulatory work rendered by the independent auditor.

(3) Aggregate fees paid and payable by BBVA 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 by BBVA 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 Committee’s Pre-Approval Policies and Procedures

In order to assist in ensuring the independence of our external auditor, the regulations of our Audit 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 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 Committee.

3. The Chairman of the Audit 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 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 Committee.

# ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

#

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# ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The below table shows the purchases of BBVA shares made by or on behalf of BBVA or any affiliated purchaser during 2019. These purchases were made in open-market transactions and none of the shares were purchased under a publicly announced plan or program.

2019 | 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 | 11,011,933 | 5.04 | — | — |
February 1 to February 28 | 28,962,449 | 5.19 | — | — |
March 1 to March 31 | 24,053,426 | 5.57 | — | — |
April 1 to April 30 | 15,369,421 | 5.39 | — | — |
May 1 to May 31 | 13,918,601 | 5.06 | — | — |
June 1 to June 30 | 18,963,324 | 5.08 | — | — |
July 1 to July 31 | 26,343,229 | 4.86 | — | — |
August 1 to August 31 | 13,492,000 | 4.36 | — | — |
September 1 to September 30 | 19,687,034 | 4.71 | — | — |
October 1 to October 31 | 13,708,084 | 4.64 | — | — |
November 1 to November 30 | 8,666,868 | 4.78 | — | — |
December 1 to December 31 | 20,749,330 | 5.51 | — | — |
Total | 214,925,699 | 5.06 | — | — |

During 2019, we sold a total of 249,566,201 shares for an average price of €5.20 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.

228

The 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 Act also establishes that such committees (i) shall be composed exclusively of 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.

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 based on their personal and professional qualities and who may perform their duties without being constrained by their relationship with the Company, or its Group, significant shareholders or managers. Directors may not be considered independent in any of the following situations:

a) they have been employees or have been executive directors of Group companies in the last three or five years, respectively;

b) they receive from the Bank, or from Group companies, any amount or benefit for any item other than remuneration for the directorship, except those amounts which are not significant for the relevant director. For the purposes of this requirement, neither dividends nor pension allowances received by directors relating to their previous professional or employment relations will be taken into account, provided that said allowances are unconditional in nature and, therefore, the company that provides said allowances may not suspend, modify or revoke their accrual at its discretion without breaching its obligations;

c) they are, or have been in the past three years, a partner of an external auditor or have been responsible during this time for the auditor's report for the Company or any other company within its Group;

d) they are executive directors or senior managers of another company for which an executive director or senior manager of the Company is an external director;

e) they have, or have had over the last year, a significant business relationship with the Bank or any company within its Group, whether in their own name or as a significant shareholder, director or senior manager of a company that has, or has had, such a relationship. Business relationships include supplying goods or services, including financial services, as well as acting as an adviser or consultant;

f) they are significant shareholders, executive directors or senior managers of a company that receives, or has received in the past three years, donations from the Company or from its Group. Those who are simply trustees of a foundation receiving donations will not be considered to be included in this category;

g) they are spouses, partners in a similar relationship of affection or relatives up to the second degree of an executive director or senior manager of the Company;

h) they have not been proposed for appointment or renewal by the Appointments and Corporate Governance Committee;

229

i) they have been directors for a continuous period of more than twelve years; or

j) in relation to a significant shareholder or shareholder represented on the Board of Directors, any of the circumstances referred to in items (a), (e), (f) or (g) above shall apply. In the event of the kinship relations referred to in item (g), the limitation will apply not only to the shareholder, but also to any proprietary directors of the company in which shares are held.

The directors with a shareholding in the Company may be considered independent provided that they do not meet the conditions above and, in addition, that their shareholding is not legally regarded as significant.

As of the date of this Annual Report, 13 of the 15 members of our Board of Directors are 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.

In addition, our Audit Committee is composed exclusively of independent directors and the Committee chairman has experience in accounting, auditing and technical knowledge in financial sector, in accordance with the specific regulations of the Audit Committee. Our Risk and Compliance Committee is composed exclusively of non-executive directors, the majority of whom (including its chairman) are independent directors. Also, in accordance with the Spanish Corporate Enterprises Act and with corporate governance non-binding recommendations, our Board of Directors has two separate committees: an Appointments and Corporate Governance Committee and a Remunerations Committee, which are composed exclusively of non-executive directors, the majority of whom (including their chairmen) 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 applicable law and in Article 21 of our Board Regulations. The Lead Director also maintains ongoing contact, holds meetings and has conversations with other Bank directors in order to seek their opinions on the corporate governance and operation of the Bank’s corporate bodies. In addition, in accordance with Article 37 of the Board Regulations, the Lead Director coordinated during 2019 various meetings with non-executive directors, which were held after each ordinary meeting of the Board of Directors.

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-224.

#

230

# ITEM 19 EXHIBITS

Exhibit Number | Description
1.1 | Amended and Restated Bylaws (Estatutos) of the Registrant (English translation) (*)
2.1 | Description of Registrant’s Securities Registered under Section 12 of the Exchange Act
4.1 | Information on Compensation Plans (**)
8.1 | Consolidated Companies Composing Registrant (see Appendix I to IX to our Consolidated Financial Statements included herein)
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
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 12, 2020 (SEC Accession No. 0001193125-20-034036). We will furnish to the Commission, upon request, copies of any unfiled instruments that define the rights of holders of our long-term debt.

231

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: February 28, 2020

232

Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm for the years 2019, 2018, and 201 7

Contents

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheets | F-5
Consolidated income statements | F-8
Consolidated statements of recognized income and expenses | F-9
Consolidated statements of changes in equity | F-10
Consolidated statements of cash flows | F-13

NOTES TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS

1. | Introduction, basis for the presentation of the Consolidated Financial Statements, Internal Control over Financial Reporting and other information | F-14
2. | Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements | F-17
3. | BBVA Group | F-41
4. | Shareholder remuneration system | F-43
5. | Earnings per share | F-45
6. | Operating segment reporting | F-45
7. | Risk management | F-47
8. | Fair value of financial instruments | F-84
9. | Cash, cash balances at central banks and other demand deposits | F-97
10. | Financial assets and liabilities held for trading | F-97
11. | Non-trading financial assets mandatorily at fair value through profit or loss | F-99
12. | Financial assets and liabilities designated at fair value through profit or loss | F-99
13. | Financial assets at fair value through other comprehensive income | F-99
14. | Financial assets at amortized cost | F-103
15. | Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk | F-105
16. | Investments in joint ventures and associates | F-107
17. | Tangible assets | F-109
18. | Intangible assets | F-112
19. | Tax assets and liabilities | F-115
20. | Other assets and liabilities | F-118
21. | Non-current assets and disposal groups classified as held for sale | F-119
22. | Financial liabilities at amortized cost | F-121
23. | Assets and liabilities under insurance and reinsurance contracts | F-126
24. | Provisions | F-128
25. | Post-employment and other employee benefit commitments | F-129
26. | Common stock | F-137
27. | Share premium | F-138
28. | Retained earnings, revaluation reserves and other reserves | F-138
29. | Treasury shares | F-139
30. | Accumulated other comprehensive income (loss) | F-141
31. | Non-controlling interest | F-142
32. | Capital base and capital management | F-142
33. | Commitments and guarantees given | F-147
34. | Other contingent assets and liabilities | F-147
35. | Purchase and sale commitments and future payment obligations | F-147
36. | Transactions on behalf of third parties | F-148
37. | Net interest income | F-148
38. | Dividend income | F-149
39. | Share of profit or loss of entities accounted for using the equity method | F-149
40. | Fee and commission income and expense | F-149
41. | Gains (losses) on financial assets and liabilities, hedge accounting and exchange differences, net | F-150
42. | Other operating income and expense | F-152
43. | Income and expense from insurance and reinsurance contracts | F-152
44. | Administration costs | F-153
45. | Depreciation and amortization | F-156
46. | Provisions or (reversal) of provisions | F-156
47. | Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | F-156
48. | Impairment or (reversal) of impairment on non-financial assets | F-157
49. | Gains (losses) on derecognition of non - financial assets and subsidiaries, net | F-157
50. | Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | F-157
51. | Consolidated statements of cash flows | F-158
52. | Accountant fees and services | F-159
53. | Related-party transactions | F-160
54. | Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management | F-162
55. | Other information | F-169
56. | Subsequent events | F-169

| APPENDICES |
| APPENDIX I Additional information on consolidated subsidiaries and structured entities composing the BBVA Group | F-171
| APPENDIX II Additional information on investments joint ventures and associates in the BBVA Group | F-179
| APPENDIX III Changes and notification of participations in the BBVA Group in 201 9 | F-180
| APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2019 | F-182
| APPENDIX V BBVA Group’s structured entities. Securitization funds | F-183
| 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, 2019, 2018 and 201 7 | F-185
| APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2019, 2018 and 2017 | F-189
| APPENDIX VIII. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012 | F-191
| APPENDIX IX Additional information on risk concentration | F-205

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, 2019, 2018 and 2017, the related consolidated statements of income, recognized income and expense, changes in equity, and cash flows for the years then ended, and the related notes, included on pages F-5 through F-169 (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, 2019, 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, 2019, 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 February 28, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1.3 to the consolidated financial statements, in 2018 the Company changed its method of accounting for financial instruments due to the adoption of International Financial Reporting Standard 9, Financial Instruments.

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.

F-1

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the expected credit loss related to loans and advances

As discussed in Notes 2.2.1 and 7.1 to the consolidated financial statements, the Company’s expected credit losses (ECL) related to loans and advances was €12,427 million as of December 31, 2019.

We identified the assessment of the ECL related to loans and advances as a critical audit matter because it involved significant measurement uncertainty requiring complex auditor judgment, as well as knowledge and experience in the industry. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. Specifically, the assessment of the ECL encompassed the evaluation of the overall ECL methodology, inclusive of the methodologies and assumptions used to estimate the probability of default (PD), exposure at default (EAD) and loss given default (LGD), as well as the future macroeconomic scenarios. It also included assessment of the qualitative criteria used to adjust the ECL as well as our assessment of the individual ECL, including the expected cash flows, discount rates, and related collateral valuation. The assessment also included an evaluation of the mathematical accuracy of the ECL calculations.

The primary procedures we performed to address the critical audit matter included the following:

· Tested certain internal controls over the Company’s ECL process, including controls related to (i) development and approval of the ECL methodology, (ii) determination of the methodologies and assumptions used to estimate the PD, EAD, LGD, and future macroeconomic scenarios, (iii) validation of models used to calculate the ECL, (iv) calculation of the ECL estimate, and (v) assessment of qualitative criteria used to adjust the ECL. We also tested controls over the Company’s process for the assessment of the individual ECL including controls over the expected cash flows, discount rates, and related collateral values.

· Evaluated the Company’s process to develop the ECL estimate. Specifically, we tested the sources of data, factors, and assumptions that the Company used by considering whether they are relevant and reliable.

· Involved credit risk professionals with specialized skills, industry knowledge and experience who assisted in (i) reviewing the Company’s ECL methodology for compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board, (ii) testing the models used to calculate the ECL, (iii) testing the methodologies and assumptions used in calculating the PD, EAD and LGD, (iv) testing the calculation of the ECL, and (v) evaluating the qualitative criteria used to adjust the ECL and the effect of those criteria on the ECL.

· Involved our economic specialists with specialized skills, industry knowledge and experience who assisted in assessing the future macroeconomic scenarios.

· Involved credit risk and valuation professionals with specialized skills, industry knowledge and experience who assisted in reviewing the ECL for certain individually evaluated loans, including assessing the expected cash flows, discount rates, and related collateral valuation.

We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the Company’s ECL related to loans and advances.

F-2

Assessment of the measurement of fair value of certain difficult-to-value financial instruments

As discussed in Notes 2.2.1 and 8 to the consolidated financial statements, the Company has recorded €172,371 million of financial assets measured at fair value (of which €81,025 million were considered Level 2 and €3,752 million were considered Level 3) and €101,876 million of financial liabilities measured at fair value (of which €74,717 million were considered Level 2 and €865 million were considered Level 3) as of December 31, 2019 (collectively, difficult-to-value financial instruments).

We identified the assessment of the measurement of fair value of certain difficult-to-value financial instruments as a critical audit matter. Specifically, there was a high degree of subjectivity and judgment involved in evaluating the models and methodologies used to estimate fair value of certain difficult-to-value financial instruments. Subjective auditor judgment was also required to evaluate the models’ significant inputs and assumptions which were not directly observable in financial markets, such as interest rates, recovery rates, issuer credit risk, correlations and volatility assumptions.

The primary procedures we performed to address the critical audit matter included the following:

· Tested certain internal controls over the Company’s process to measure fair value of certain difficult-to-value financial instruments. This included controls related to (i) development and approval and/or reassessment of the valuation models and methodologies, and (ii) relevance and reliability of the significant inputs and assumptions used to estimate fair values for certain difficult-to-value financial instruments.

· Involved valuation professionals with specialized skills and knowledge who assisted in (i) assessing the compliance of the Company’s valuation models with International Financial Reporting Standards as issued by the International Accounting Standards Board, (ii) testing the relevance and reliability of significant inputs and assumptions used to estimate fair values for certain difficult-to-value financial instruments, (iii) testing the Company’s process to develop the fair value of these certain difficult-to-value financial instruments, including evaluating whether the data, inputs and assumptions are relevant and reliable and whether the models and methodologies used are appropriate, and, where appropriate (iv) developing an independent fair value estimate and comparing it to the Company’s fair value estimate for a sample of certain difficult-to-value financial instruments.

Evaluation of goodwill impairment analysis for the United States cash generating unit

As discussed in Notes 2.2.8 and 18.1 to the consolidated financial statements, the goodwill balance as of December 31, 2019 was €4,955 million, of which €3,846 million related to the United States cash generating unit (CGU). In 2019, the Company recognized an impairment of €1,318 million related to goodwill of the United States CGU. The recoverable amount of the CGU used in the goodwill impairment testing was estimated using a discounted cash flow analysis.

We identified the evaluation of the goodwill impairment analysis for the United States CGU as a critical audit matter. The estimated recoverable amount of the United States CGU was below its carrying value as of December 31, 2019, resulting in the impairment of goodwill and involved a high degree of complex auditor judgment. Specifically, the forecasted net interest margin included in the five-year budget, the sustainable growth rate, and the discount rate used to calculate the recoverable amount of the CGU were challenging to test as minor changes to those assumptions had a significant effect on the Company’s estimate of the recoverable amount. In addition, auditor judgment was required to evaluate the sufficiency of the audit evidence obtained.

The primary procedures we performed to address this critical audit matter included the following:

· We tested certain internal controls over the Company’s goodwill impairment assessment process, including controls related to the development of the discount rate and sustainable growth rate, as well as over the forecasted net interest margin included in the five-year budget.

F-3

· We evaluated the Company’s forecasted net interest margin included in the five-year budget for the United States CGU by comparing (i) the current and past performance of the CGU and (ii) the consistency with external data. We also compared the Company’s historical forecasts to actual results to assess the Company’s ability to accurately forecast and considered the results of this comparison in a sensitivity analysis to evaluate the impact similar differences would have on the impairment analysis.

· In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

· Evaluating the discount rate used in the valuation by comparing it against a discount rate range that was independently developed using publicly available data for comparable entities; and

· Evaluating the sustainable growth rate used in the valuation by comparing it against a growth rate range that was independently developed using publicly available data for comparable entities.

We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the impairment of the United States CGU.

/s/ KPMG Auditores, S.L.

We have served as the Company’s auditor since 2017.

Madrid, Spain

February 28, 2020

F-4

Consolidated balance sheets for the years ended December 31, 2019, 2018 and 2017

ASSETS (Millions of Euros)
| Notes | 2019 | 2018 | 2017
CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS | 9 | 44,303 | 58,196 | 42,680
FINANCIAL ASSETS HELD FOR TRADING | 10 | 102,688 | 90,117 | 64,695
Derivatives |  | 33,185 | 30,536 | 35,265
Equity instruments |  | 8,892 | 5,254 | 6,801
Debt securities |  | 26,309 | 25,577 | 22,573
Loans and advances to central banks |  | 535 | 2,163 | -
Loans and advances to credit institutions |  | 21,286 | 14,566 | -
Loans and advances to customers |  | 12,482 | 12,021 | 56
NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS | 11 | 5,557 | 5,135 |
Equity instruments |  | 4,327 | 3,095 |
Debt securities |  | 110 | 237 |
Loans and advances to central banks |  | - | - |
Loans and advances to credit institutions |  | - | - |
Loans and advances to customers |  | 1,120 | 1,803 |
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 12 | 1,214 | 1,313 | 2,709
Equity instruments |  |  |  | 1,888
Debt securities |  | 1,214 | 1,313 | 174
Loans and advances to customers |  | - | - | 648
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 13 | 61,183 | 56,337 | 69,476
Equity instruments |  | 2,420 | 2,595 | 3,224
Debt securities |  | 58,731 | 53,709 | 66,251
Loans and advances to credit institutions |  | 33 | 33 | -
FINANCIAL ASSETS AT AMORTIZED COST | 14 | 439,162 | 419,660 | 445,275
Debt securities |  | 38,877 | 32,530 | 24,093
Loans and advances to central banks |  | 4,275 | 3,941 | 7,300
Loans and advances to credit institutions |  | 13,649 | 9,163 | 26,261
Loans and advances to customers |  | 382,360 | 374,027 | 387,621
DERIVATIVES - HEDGE ACCOUNTING | 15 | 1,729 | 2,892 | 2,485
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | 15 | 28 | (21) | (25)
JOINT VENTURES AND ASSOCIATES | 16 | 1,488 | 1,578 | 1,588
Joint ventures |  | 154 | 173 | 256
Associates |  | 1,334 | 1,405 | 1,332
INSURANCE AND REINSURANCE ASSETS | 23 | 341 | 366 | 421
TANGIBLE ASSETS | 17 | 10,068 | 7,229 | 7,191
Properties, plant and equipment |  | 9,816 | 7,066 | 6,996
For own use |  | 9,554 | 6,756 | 6,581
Other assets leased out under an operating lease |  | 263 | 310 | 415
Investment properties |  | 252 | 163 | 195
INTANGIBLE ASSETS | 18 | 6,966 | 8,314 | 8,464
Goodwill |  | 4,955 | 6,180 | 6,062
Other intangible assets |  | 2,010 | 2,134 | 2,402
TAX ASSETS | 19 | 17,083 | 18,100 | 16,888
Current tax assets |  | 1,765 | 2,784 | 2,163
Deferred tax assets |  | 15,318 | 15,316 | 14,725
OTHER ASSETS | 20 | 3,800 | 5,472 | 4,359
Insurance contracts linked to pensions |  | - | - | -
Inventories |  | 581 | 635 | 229
Other |  | 3,220 | 4,837 | 4,130
NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE | 21 | 3,079 | 2,001 | 23,853
TOTAL ASSETS |  | 698,690 | 676,689 | 690,059

The accompanying Notes are an integral part of the consolidated financial statements.

F-5

Consolidated balance sheets for the years ended December 31, 2019, 2018 and 2017

LIABILITIES AND EQUITY (Millions of Euros)
| Notes | 2019 | 2018 | 2017
FINANCIAL LIABILITIES HELD FOR TRADING | 10 | 89,633 | 80,774 | 46,182
Derivatives |  | 35,019 | 31,815 | 36,169
Short positions |  | 12,249 | 11,025 | 10,013
Deposits from central banks |  | 7,635 | 10,511 | -
Deposits from credit institutions |  | 24,969 | 15,687 | -
Customer deposits |  | 9,761 | 11,736 | -
Debt certificates |  | - | - | -
Other financial liabilities |  | - | - | -
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 12 | 10,010 | 6,993 | 2,222
Deposits from central banks |  | - | - | -
Deposits from credit institutions |  | - | - | -
Customer deposits |  | 944 | 976 | -
Debt certificates |  | 4,656 | 2,858 | -
Other financial liabilities |  | 4,410 | 3,159 | 2,222
Memorandum item: Subordinated liabilities |  | - | - | -
FINANCIAL LIABILITIES AT AMORTIZED COST | 22 | 516,641 | 509,185 | 543,713
Deposits from central banks |  | 25,950 | 27,281 | 37,054
Deposits from credit institutions |  | 28,751 | 31,978 | 54,516
Customer deposits |  | 384,219 | 375,970 | 376,379
Debt certificates |  | 63,963 | 61,112 | 63,915
Other financial liabilities |  | 13,758 | 12,844 | 11,850
Memorandum item: Subordinated liabilities |  | 18,018 | 18,047 | 17,316
DERIVATIVES - HEDGE ACCOUNTING | 15 | 2,233 | 2,680 | 2,880
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | 15 | - | - | (7)
LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS | 23 | 10,606 | 9,834 | 9,223
PROVISIONS | 24 | 6,538 | 6,772 | 7,477
Pensions and other post employment defined benefit obligations |  | 4,631 | 4,787 | 5,407
Other long term employee benefits |  | 61 | 62 | 67
Provisions for taxes and other legal contingencies |  | 677 | 686 | 756
Commitments and guarantees given |  | 711 | 636 | 578
Other provisions |  | 457 | 601 | 669
TAX LIABILITIES | 19 | 2,808 | 3,276 | 3,298
Current tax liabilities |  | 880 | 1,230 | 1,114
Deferred tax liabilities |  | 1,928 | 2,046 | 2,184
OTHER LIABILITIES | 20 | 3,742 | 4,301 | 4,550
LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE |  | 1,554 | - | 17,197
TOTAL LIABILITIES |  | 643,765 | 623,814 | 636,736

The accompanying Notes are an integral part of the consolidated financial statements.

F-6

Consolidated balance sheets for the years ended December 31, 2019, 2018 and 2017

LIABILITIES AND EQUITY (Continued) (Millions of Euros)
| Notes | 2019 | 2018 | 2017
SHAREHOLDERS’ FUNDS |  | 55,958 | 54,326 | 53,283
Capital | 26 | 3,267 | 3,267 | 3,267
Paid up capital |  | 3,267 | 3,267 | 3,267
Unpaid capital which has been called up |  | - | - | -
Share premium | 27 | 23,992 | 23,992 | 23,992
Equity instruments issued other than capital |  | - | - | -
Other equity |  | 56 | 50 | 54
Retained earnings | 28 | 26,402 | 23,076 | 23,746
Revaluation reserves | 28 | - | 3 | 12
Other reserves | 28 | (125) | (58) | (35)
Reserves or accumulated losses of investments in joint ventures and associates |  | (125) | (58) | (35)
Other |  | - | - | -
Less: treasury shares | 29 | (62) | (296) | (96)
Profit or loss attributable to owners of the parent |  | 3,512 | 5,400 | 3,514
Less: interim dividends |  | (1,084) | (1,109) | (1,172)
ACCUMULATED OTHER COMPREHENSIVE INCOME | 30 | (7,235) | (7,215) | (6,939)
Items that will not be reclassified to profit or loss |  | (1,875) | (1,284) | (1,183)
Actuarial gains (losses) on defined benefit pension plans |  | (1,498) | (1,245) | (1,183)
Non-current assets and disposal groups classified as held for sale |  | 2 | - | -
Share of other recognized income and expense of investments joint ventures and associates |  | - | - | -
Fair value changes of equity instruments measured at fair value through other comprehensive income |  | (403) | (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 |  | 24 | 116 |
Items that may be reclassified to profit or loss |  | (5,359) | (5,932) | (5,755)
Hedge of net investments in foreign operations (effective portion) |  | (896) | (218) | 1
Foreign currency translation |  | (6,161) | (6,643) | (7,297)
Hedging derivatives. Cash flow hedges (effective portion) |  | (44) | (6) | (34)
Financial assets available for sale |  |  |  | 1,641
Fair value changes of debt instruments measured at fair value through other comprehensive income |  | 1,760 | 943 |
Hedging instruments (non-designated items) |  | - | - |
Non-current assets and disposal groups classified as held for sale |  | (18) | 1 | (26)
Share of other recognized income and expense of investments in joint ventures and associates |  | 1 | (9) | (40)
MINORITY INTERESTS (NON-CONTROLLING INTERESTS) | 31 | 6,201 | 5,764 | 6,979
Accumulated other comprehensive income |  | (3,526) | (3,236) | (2,550)
Other items |  | 9,727 | 9,000 | 9,530
TOTAL EQUITY |  | 54,925 | 52,874 | 53,323
TOTAL EQUITY AND TOTAL LIABILITIES |  | 698,690 | 676,689 | 690,059
MEMORANDUM ITEM (OFF-BALANCE SHEET EXPOSURES) (Millions of Euros) |  |  |  |
| Notes | 2019 | 2018 | 2017
Loan commitments given | 33 | 130,923 | 118,959 | 94,268
Financial guarantees given | 33 | 10,984 | 16,454 | 16,545
Other commitments given | 33 | 39,209 | 35,098 | 45,738

The accompanying Notes are an integral part of the consolidated financial statements.

F-7

Consolidated income statements for the years ended December 31, 2019, 2018 and 2017

CONSOLIDATED INCOME STATEMENTS (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Interest and other income | 37.1 | 31,061 | 29,831 | 29,296
Interest expense | 37.2 | (12,859) | (12,239) | (11,537)
NET INTEREST INCOME |  | 18,202 | 17,591 | 17,758
Dividend income | 38 | 162 | 157 | 334
Share of profit or loss of entities accounted for using the equity method | 39 | (42) | (7) | 4
Fee and commission income | 40 | 7,522 | 7,132 | 7,150
Fee and commission expense | 40 | (2,489) | (2,253) | (2,229)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 41 | 239 | 216 | 985
Gains (losses) on financial assets and liabilities held for trading, net | 41 | 451 | 707 | 218
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 41 | 143 | 96 |
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 41 | (94) | 143 | (56)
Gains (losses) from hedge accounting, net | 41 | 59 | 72 | (209)
Exchange differences, net | 41 | 586 | (9) | 1,030
Other operating income | 42 | 671 | 949 | 1,439
Other operating expense | 42 | (2,006) | (2,101) | (2,223)
Income from insurance and reinsurance contracts | 43 | 2,890 | 2,949 | 3,342
Expense from insurance and reinsurance contracts | 43 | (1,751) | (1,894) | (2,272)
GROSS INCOME |  | 24,542 | 23,747 | 25,270
Administration costs |  | (10,303) | (10,494) | (11,112)
Personnel expense | 44.1 | (6,340) | (6,120) | (6,571)
Other administrative expense | 44.2 | (3,963) | (4,374) | (4,541)
Depreciation and amortization | 45 | (1,599) | (1,208) | (1,387)
Provisions or reversal of provisions | 46 | (617) | (373) | (745)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | 47 | (4,151) | (3,981) | (4,803)
Financial assets measured at amortized cost |  | (4,069) | (3,980) | (3,676)
Financial assets at fair value through other comprehensive income |  | (82) | (1) | (1,127)
NET OPERATING INCOME |  | 7,872 | 7,691 | 7,222
Impairment or reversal of impairment of investments in joint ventures and associates |  | (46) | - | -
Impairment or reversal of impairment on non-financial assets | 48 | (1,447) | (138) | (364)
Tangible assets |  | (94) | (5) | (42)
Intangible assets |  | (1,330) | (83) | (16)
Other assets |  | (23) | (51) | (306)
Gains (losses) on derecognition of non - financial assets and subsidiaries, net | 49 | (3) | 78 | 47
Negative goodwill recognized in profit or loss |  | - | - | -
Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 50 | 21 | 815 | 26
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS |  | 6,398 | 8,446 | 6,931
Tax expense or income related to profit or loss from continuing operations |  | (2,053) | (2,219) | (2,174)
PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS |  | 4,345 | 6,227 | 4,757
Profit (loss) after tax from discontinued operations |  | - | - | -
PROFIT FOR THE YEAR |  | 4,345 | 6,227 | 4,757
ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS) | 31 | 833 | 827 | 1,243
ATTRIBUTABLE TO OWNERS OF THE PARENT |  | 3,512 | 5,400 | 3,514
| Notes | 2019 | 2018 | 2017
EARNINGS PER SHARE (Euros) | 5 |  |  |
Basic earnings per share from continued operations |  | 0.47 | 0.75 | 0.46
Diluted earnings per share from continued operations |  | 0.47 | 0.75 | 0.46
Basic earnings per share from discontinued operations |  | - | - | -
Diluted earnings per share from discontinued operations |  | - | - | -

The accompanying Notes are an integral part of the consolidated financial statements.

F-8

Consolidated statements of recognized income and expense for the years ended December 31, 2019, 2018 and 2017

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE (Millions of Euros)
|  | 2019 | 2018 | 2017
PROFIT RECOGNIZED IN INCOME STATEMENT |  | 4,345 | 6,227 | 4,757
OTHER RECOGNIZED INCOME (EXPENSE) |  | (310) | (2,523) | (4,439)
ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT |  | (584) | (141) | (91)
Actuarial gains (losses) from defined benefit pension plans |  | (364) | (79) | (96)
Non-current assets and disposal groups held for sale |  | 2 | - | -
Share of other recognized income and expense of entities accounted for using the equity method |  | - | - | -
Fair value changes of equity instruments measured at fair value through other comprehensive income, net |  | (229) | (172) |
Gains (losses) from hedge accounting of equity instruments at fair value through other comprehensive income, net |  | - | - |
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk |  | (133) | 166 |
Income tax related to items not subject to reclassification to income statement |  | 140 | (56) | 5
ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT |  | 274 | (2,382) | (4,348)
Hedge of net investments in foreign operations (effective portion) |  | (687) | (244) | 80
Valuation gains (losses) taken to equity |  | (687) | (244) | 112
Transferred to profit or loss |  | - | - | -
Other reclassifications |  | - | - | (32)
Foreign currency translation |  | 132 | (1,537) | (5,080)
Translation gains (losses) taken to equity |  | 113 | (1,542) | (5,089)
Transferred to profit or loss |  | 1 | 5 | (22)
Other reclassifications |  | 18 | - | 31
Cash flow hedges (effective portion) |  | (109) | 27 | (67)
Valuation gains (losses) taken to equity |  | (99) | (32) | (122)
Transferred to profit or loss |  | (10) | 58 | 55
Transferred to initial carrying amount of hedged items |  | - | - | -
Other reclassifications |  | - | - | -
Available-for-sale financial assets |  |  |  | 719
Valuation gains (losses) taken to equity |  |  |  | 384
Transferred to profit or loss |  |  |  | 347
Other reclassifications |  |  |  | (12)
Debt securities at fair value through other comprehensive income |  | 1,278 | (901) |
Valuation gains (losses) taken to equity |  | 1,401 | (766) |
Transferred to profit or loss |  | (122) | (135) |
Other reclassifications |  | - | - |
Non-current assets and disposal groups held for sale |  | (19) | 20 | (20)
Valuation gains (losses) taken to equity |  | (8) | - | -
Transferred to profit or loss |  | - | 20 | -
Other reclassifications |  | (11) | - | (20)
Entities accounted for using the equity method |  | 10 | 9 | (14)
Income tax relating to items subject to reclassification to income statements |  | (332) | 244 | 35
TOTAL RECOGNIZED INCOME/EXPENSE |  | 4,036 | 3,704 | 318
Attributable to minority interest (non-controlling interests) |  | 543 | (420) | 127
Attributable to the parent company |  | 3,493 | 4,124 | 191

The accompanying Notes are an integral part of the consolidated financial statements.

F-9

Consolidated statements of changes in equity for the years ended December 31, 2019, 2018 and 2017

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)
| Capital (Note 26) | Share Premium (Note 27) | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares (Note 29) | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (Note 30) | Non-controlling interest | Total
2019 | Accumulated other comprehensive income (Note 31) | Other (Note 31)
Balances as of January 1, 2019 as originally filed (*) | 3,267 | 23,992 | - | 50 | 23,017 | 3 | (58) | (296) | 5,324 | (975) | (7,215) | (3,236) | 9,000 | 52,874
Effect of changes in accounting policies ( Note 1.3) | - | - | - | - | 58 | - | - | - | 76 | (134) | - | - | - | -
Balance as of January 1, 2019 | 3,267 | 23,992 | - | 50 | 23,076 | 3 | (58) | (296) | 5,400 | (1,109) | (7,215) | (3,236) | 9,000 | 52,874
Total income/expense recognized | - | - | - | - | - | - | - | - | 3,512 | - | (19) | (291) | 833 | 4,036
Other changes in equity | - | - | - | 6 | 3,327 | (3) | (68) | 234 | (5,400) | 25 | - | - | (106) | (1,985)
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 | - | - | - | - | (1,059) | - | (4) | - | - | (1,084) | - | - | (142) | (2,289)
Purchase of treasury shares | - | - | - | - | - | - | - | (1,088) | - | - | - | - | - | (1,088)
Sale or cancellation of treasury shares | - | - | - | - | 13 | - | - | 1,322 | - | - | - | - | - | 1,335
Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Transfers within total equity | - | - | - | - | 4,360 | (3) | (66) | - | (5,400) | 1,109 | - | - | - | -
Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Share based payments | - | - | - | (4) | - | - | - | - | - | - | - | - | - | (4)
Other increases or (-) decreases in equity | - | - | - | 11 | 14 | - | 1 | - | - | - | - | - | 36 | 62
Balances as of December 31, 2019 | 3,267 | 23,992 | - | 56 | 26,402 | - | (125) | (62) | 3,512 | (1,084) | (7,235) | (3,526) | 9,727 | 54,925

(*) Balances as of December 31, 2018 as originally reported in the consolidated Financial Statements for the year 2018.

The accompanying Notes are an integral part of the consolidated financial statements.

F-10

Consolidated statements of changes in equity for the years ended December 31, 2019, 2018 and 2017

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)
| Capital (Note 26) | Share Premium (Note 27) | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares (Note 29) | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (Note 30) | Non-controlling interest | Total
2018 | Accumulated other comprehensive income (Note 31) | Other (Note 31)
Balances as of January 1, 2018 as originally filed (*) | 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 | - | - | - | - | (2,579) | - | 9 | - | (5) | (129) | 1,756 | 850 | (822) | (919)
Of which: prospective changes in accounting policies (**) |  |  |  |  | (851) | - | - | - | - | - | (97) | 23 | 7 | (919)
Of which: retrospective changes in accounting policies |  |  |  |  | (1,728) | - | 9 | - | (5) | (129) | 1,853 | 828 | (828) | -
Adjusted initial balance (**) | 3,267 | 23,992 | - | 54 | 22,895 | 12 | (34) | (96) | 3,514 | (1,172) | (7,036) | (2,528) | 9,536 | 52,404
Total income/expense recognized | - | - | - | - | - | - | - | - | 5,400 | - | (1,276) | (1,247) | 827 | 3,704
Other changes in equity | - | - | - | (4) | 180 | (10) | (23) | (199) | (3,514) | 63 | 1,096 | 540 | (1,364) | (3,234)
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) | - | - | (1,109) | - | - | (378) | (2,483)
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) | - | - | - | - | 1,274 | (10) | (19) | - | (3,514) | 1,172 | 1,096 | 540 | (540) | -
Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Share based payments | - | - | - | (19) | - | - | - | - | - | - | - | - | - | (19)
Other increases or (-) decreases in equity | - | - | - | 15 | (77) | - | - | - | - | - | - | - | (446) | (508)
Balances as of December 31, 2018 | 3,267 | 23,992 | - | 50 | 23,076 | 3 | (58) | (296) | 5,400 | (1,109) | (7,215) | (3,236) | 9,000 | 52,874

(*) Balances as of December 31, 2017 as originally reported in the consolidated Financial Statements for the year 2017.

(**) The balance as of January 1, 2018, is the adjusted initial balance less the prospective changes in accounting policies.

The accompanying Notes are an integral part of the consolidated financial statements.

F-11

Consolidated statements of changes in equity for the years ended December 31, 2019, 2018 and 2017

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)
| Capital (Note 26) | Share Premium (Note 27) | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares (Note 29) | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (Note 30) | Non-controlling interest | Total
2017 | Accumulated other comprehensive income (Note 31) | Other (Note 31)
Balances as of January 1, 2017 as originally filed (*) | 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 | - | - | - | - | (1,813) | - | 7 | - | 82 | (111) | 1,836 | 817 | (817) | -
Balance as of January 1, 2017 | 3,218 | 23,992 | - | 54 | 21,875 | 20 | (60) | (48) | 3,557 | (1,621) | (3,622) | (1,429) | 9,493 | 55,428
Total income/expense recognized | - | - | - | - | - | - | - | - | 3,514 | - | (3,317) | (1,122) | 1,243 | 318
Other changes in equity | 50 | - | - | - | 1,872 | (8) | 25 | (48) | (3,557) | 449 | - | - | (1,207) | (2,423)
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) | - | - | (1,029) | - | - | (290) | (1,318)
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 | - | - | - | - | 1,902 | (8) | 41 | - | (3,557) | 1,621 | - | - | - | -
Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | - | -
Share based payments | - | - | - | (22) | - | - | - | - | - | - | - | - | - | (22)
Other increases or (-) decreases in equity | - | - | - | 22 | 9 | - | (6) | - | - | (144) | - | - | (917) | (1,035)
Balances as of December 31, 2017 | 3,267 | 23,992 | - | 54 | 23,746 | 12 | (34) | (96) | 3,514 | (1,172) | (6,939) | (2,551) | 9,529 | 53,323

(*) Balances as of December 31, 2016 as originally reported in the consolidated Financial Statements for the year 2016.

The accompanying Notes are an integral part of the consolidated financial statements.

F-12

Consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017

CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (Millions of Euros)
|  | 2019 | 2018 | 2017
A) CASH FLOWS FROM OPERATING ACTIVITIES (1 + 2 + 3 + 4 + 5) |  | (8,214) | 9,249 | 1,722
1. Profit for the year |  | 4,345 | 6,227 | 4,757
2. Adjustments to obtain the cash flow from operating activities |  | 9,582 | 7,619 | 8,531
Depreciation and amortization |  | 1,599 | 1,208 | 1,387
Other adjustments |  | 7,983 | 6,411 | 7,144
3. Net increase/decrease in operating assets |  | (36,747) | (12,094) | (5,227)
Financial assets held for trading |  | (11,664) | 1,379 | 5,662
Non-trading financial assets mandatorily at fair value through profit or loss |  | (318) | (643) |
Other financial assets designated at fair value through profit or loss |  | 99 | 349 | (783)
Financial assets at fair value through other comprehensive income |  | (3,755) | (206) | 5,032
Financial assets at amortized cost |  | (24,119) | (12,067) | (14,836)
Other operating assets |  | 3,010 | (906) | (302)
4. Net increase/decrease in operating liabilities |  | 16,208 | 10,286 | (3,916)
Financial liabilities held for trading |  | 8,061 | (466) | (6,057)
Other financial liabilities designated at fair value through profit or loss |  | 2,680 | 1,338 | 19
Financial liabilities at amortized cost |  | 8,016 | 10,481 | 2,111
Other operating liabilities |  | (2,549) | (1,067) | 11
5. Collection/Payments for income tax |  | (1,602) | (2,789) | (2,423)
B) CASH FLOWS FROM INVESTING ACTIVITIES (1 + 2) |  | 98 | 7,516 | 2,902
1. Investment |  | (1,494) | (2,154) | (2,339)
Tangible assets |  | (852) | (943) | (777)
Intangible assets |  | (528) | (552) | (564)
Investments in joint ventures and associates |  | (114) | (150) | (101)
Other business units |  | - | (20) | (897)
Non-current assets classified as held for sale and associated liabilities |  | - | (489) | -
Held-to-maturity investments |  |  |  | -
Other settlements related to investing activities |  | - | - | -
2. Divestments |  | 1,592 | 9,670 | 5,241
Tangible assets |  | 128 | 731 | 518
Intangible assets |  | - | - | 47
Investments in joint ventures and associates |  | 98 | 558 | 18
Subsidiaries and other business units |  | 5 | 4,268 | 936
Non-current assets classified as held for sale and associated liabilities |  | 1,198 | 3,917 | 1,002
Held-to-maturity investments |  |  |  | 2,711
Other collections related to investing activities |  | 162 | 196 | 9
C) CASH FLOWS FROM FINANCING ACTIVITIES (1 + 2) |  | (2,702) | (5,092) | (98)
1. Payments |  | (7,418) | (8,995) | (5,763)
Dividends |  | (2,147) | (2,107) | (1,698)
Subordinated liabilities |  | (3,571) | (4,825) | (2,098)
Treasury stock amortization |  | - | - | -
Treasury stock acquisition |  | (1,088) | (1,686) | (1,674)
Other items relating to financing activities |  | (612) | (377) | (293)
2. Collections |  | 4,716 | 3,903 | 5,665
Subordinated liabilities |  | 3,381 | 2,451 | 4,038
Treasury shares increase |  | - | - | -
Treasury shares disposal |  | 1,335 | 1,452 | 1,627
Other items relating to financing activities |  | - | - | -
D) EFFECT OF EXCHANGE RATE CHANGES |  | (258) | (2,498) | (4,266)
E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A+B+C+D) |  | (11,077) | 9,175 | 261
F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR |  | 54,167 | 44,992 | 44,978
G) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (E+F) |  | 43,090 | 54,167 | 45,239
COMPONENTS OF CASH AND EQUIVALENT AT END OF THE YEAR (Millions of Euros) |  |  |  |
| Notes | 2019 | 2018 | 2017
Cash | 9 | 7,060 | 6,346 | 6,220
Balance of cash equivalent in central banks | 9, 14 | 36,031 | 47,821 | 39,018
Other financial assets |  | - | - | -
Less: Bank overdraft refundable on demand |  | - | - | -
TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR |  | 43,090 | 54,167 | 45,239

The accompanying Notes are an integral part of the consolidated financial statements.

F-13

Notes to the accompanying 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, 2019, the BBVA Group had 288 consolidated entities and 54 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, 2019 have been authorized for issue on February 28, 2020.

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, 2019, considering the Bank of Spain Circular 4/2017, and with any other legislation governing financial reporting applicable to the Group in Spain (see Note 1.3).

The BBVA Group’s accompanying Consolidated Financial Statements for the year ended December 31, 2019 were prepared by the Group’s Directors (through the Board of Directors meeting held on February 10, 2020) 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, 2019, together with the consolidated results of its transactions and cash flows generated during the year ended December 31, 2019.

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.

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.

F-14

1.3 Comparative information

Leases

As of January 1, 2019, IFRS 16 “Leases” replaced IAS 17 “Leases” and includes changes in the lessee accounting model (see Note 2.2.19). This amendment was applied using the modified retrospective method and the previous years have not been restated for comparison purposes as allowed by the standard (see Note 2.3).

Income taxes

As mentioned in Note 2.3 and derived from the Annual improvements cycle to IFRSs 2015-2017, the amendment to IAS 12 – “Income Taxes” requires that the tax impacts of the distribution of dividends should be recorded under "Tax expense or income related to profit or loss from continuing operations" in the consolidated income statement for the year. Previously they were recorded under total equity.

In order for the information to be comparable, the information for the years 2018 and 2017 has been restated, recognizing a €76 million profit and a €5 million loss in the consolidated financial statements for such years, respectively, under “Retained earnings“ and “Less: Interim dividends”. This has meant an increase of 1.4% and a decrease of 0.1% in the “Profit or loss attributable to owners of the parent” for the years 2018 and 2017, respectively with respect to amounts previously presented in the consolidated Financial Statements for the year ended December 31, 2018 and 2017. This reclassification has had no impact on the consolidated total equity.

Operating segments

During 2019, there have been changes to the BBVA Group business segments in comparison to the segment structure in 2018 (See Note 6). The information related to business segments as of and for the years ended December 31, 2018 and 2017 has been restated in order to make them comparable, as required by IFRS 8 “Information by business segments”.

Hyperinflationary economies

In 2018, the information as of December 31, 2017 was restated for comparative purposes taking into account the change in accounting policies for hyperinflationary economies in accordance with IAS 29 "Financial information in hyperinflationary economies" (see Note 2.2.20).

Application of IFRS 9

As of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and included 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 was not applied retrospectively for previous years. As a consequence of the application of IFRS 9, the comparative information for the financial year 2017 included in these Consolidated Financial Statements was subject to some non-significant modifications in order to improve the comparability.

1.4 Seasonal nature of income and expense

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, and 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, expense and commitments. These estimates relate mainly to the following:

· Loss allowances on certain financial assets (see Notes 7, 12, 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).

F-15

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 2019 there were no significant changes to the assumptions and estimations performed as of December 31, 2018, 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 support that the transactions are processed in accordance with the applicable laws and regulations.

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 support 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 organi zed into three lines of defense that has been updated and strengthened in 2019 :

· The first line of defense (1LoD) is located within the business and support units, which are responsible for identifying risks associated with their processes, as well as for implementing and executing the necessary controls to mitigate them. In 2019, in order to reinforce the adequate risk management in each areas processes, the role of the Risk Control Assurer was created.

· The second line of defense (2LoD) comprises the specialized control units for each type of risk (Legal, IT, Third Party, Finance, Compliance or Processes among others). This second line defines the mitigation and control frameworks for their areas of responsibility across the entire organization and performs challenge to the control model (supervises the implementation and design of the controls and assesses their effectiveness).

· The third line of defense (3LoD) is the Internal Audit unit, which conducts an independent review of the model, verifying the compliance and effectiveness of the model.

· A committee structure, called Corporate Assurance, which enables the escalation of possible weaknesses and 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 within Finance comply with a common and standard methodology established at the 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 Committee of the Bank’s Board of Directors.

F-16

The BBVA Group is also required to comply with the 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 support the quality and accuracy of the financial information.

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 of the accompanying consolidated Financial Statements.

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 (for definition of control, see Glossary). 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, 2019. Appendix I includes other significant information on all entities.

· Joint ventures

Joint ventures are those entities for 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 as of December 31, 2019.

· 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” or “Non-trading financial assets mandatorily at fair value through profit or loss”

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, 2019, 2018 and 2017 these entities are not significant to 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).

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.

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Such methods and procedures determine whether there is control by the Group, considering how the decisions are made about the relevant activities, assessing whether the Group has control over the relevant elements, exposure to variable returns from involvement with the investee and the ability to use control 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.

This type of entities include 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.

For additional information on the accounting treatment for the transfer and derecognition of financial instruments, see Note 2.2.2. “Transfers and derecognition of financial assets and liabilities”.

· 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, 2019, 2018 and 2017 there was no material financial support from the Bank or its subsidiaries to unconsolidated structured entities.

The Group does not consolidate any of the mutual funds it manages since the necessary control conditions are not met. 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 carrying 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 year only include 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, 2019, financial statements as of December 31 of all Group entities were utilized except for the case of the consolidated financial statements of 6 associates deemed non-significant for which financial statements as of November 30, 2019 were used for 5 of them and the financial statements as of October 31, 2019 were used for 1 of them.

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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

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. Currently, the Group has elected to continue the application of IAS 39 for hedge accounting, as permitted by IFRS 9. The disclosures for the financial year 2017 related to the measurement of financial assets and liabilities, the definition of impaired financial assets, and the method for calculating the impairment on financial assets, which are presented for the purpose of comparability, are based on the accounting policies and valuation criteria applicable under IAS 39.

The main aspects regarding IAS 39, applicable until December 31, 2017, are as follows:

Measurement of financial instruments

IAS 39 established the following three categories for the recognition of financial assets, not applicable under IFRS 9, valued as follows:

· “Available-for-sale financial assets”: Assets recognized under this heading were measured at their fair value. Subsequent changes in fair value (gains or losses) were recognized temporarily net of tax effect, under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss -Available-for-sale financial assets”.

· “Loans and receivables” and “Held-to-maturity investments”: Assets and liabilities recognized under these headings were subsequently measured at “amortized cost” using the “effective interest rate” method. This was because the consolidated entities generally intend to hold such financial instruments to maturity.

· Equity instruments whose fair value could not 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 were recorded at acquisition cost; adjusted, where appropriate, for any impairment loss.

Impairment losses on financial assets

The method for calculating the impairment of financial assets under IAS 39 was based on incurred losses; impairment losses were recognized only if there was objective evidence of impairment. In other words, an event of a loss had to occur after initial recognition, so that the impairment loss could have been recognized.

First, the Group would determine whether there was objective evidence of impairment individually for individually significant debt instruments, and collectively for debt instruments that were not individually significant. If the Group determined that there was no objective evidence of impairment, the assets were classified in groups of debt instruments based on similar risk characteristics and impairment was assessed collectively.

The impairment on financial assets was determined by type of instrument and other circumstances that could have affected it, taking into account the guarantees received to assure (in part or in full) the performance of the financial assets.

The information used under such model was past information, adjusted in order to reflect the effect of the conditions in such reporting period, which did not affect the period matching past information, and avoid the effect of the conditions that did not exist. The model did not allow the use of prospective information.

In the case of equity instruments classified as available for sale, valued at fair value, when there was objective evidence that the negative differences that arose on measurement of these equity instruments were due to impairment, they were no longer registered as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” and were recognized in the consolidated income statement. In general, the Group considered that there was objective evidence of impairment on equity instruments classified as available-for-sale when significant unrealized losses had 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 took into account the volatility in the price of each individual equity instrument to determine whether it was a percentage that could be recovered through its sale in the market; other different thresholds could have existed for certain equity instruments or specific sectors. In addition, for individually significant investments, the Group compared the valuation of the most significant equity instruments against valuations performed by independent experts.

Classification and measurement of financial assets

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.

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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 maturity, 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 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.

Measurement of financial assets

All financial instruments are initially recognized at fair value, plus those transaction costs which are directly attributable to the issue of the particular instrument for those cases in which financial assets are not classified at fair value through profit or loss.

Excluding all 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.

“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. Financial assets are classified in “Financial assets designated at fair value through profit or loss” 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 sheet are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the headings “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit and loss, net” and “Gains (losses) on financial assets designated at fair value through profit or loss, net” in the accompanying consolidated income statement (see Note 41). 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. This category of valuation implies the recognition of the information in the income statement as if it were an instrument valued at amortized cost, while the instrument is valued at fair value in the balance sheet. Thus, both the interests of these instruments and the exchange differences and impairment that arise in their case are recorded in the profit and loss account, while subsequent changes in its fair value (gains or losses) are recognized temporarily (by the amount 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).

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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” continue to form part of the Group's consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until a loss allowance 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” (see Note 41).

The net loss allowances in “Financial assets at fair value through other comprehensive income” over the year are recognized under the heading “Loss allowances on financial assets, net – Financial assets at fair value through other comprehensive income” (see Note 47) in the consolidated income statement for that period.

Interests of these instruments are recorded in the consolidated profit and loss account (see Note 37). Changes in foreign exchange rates 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”.

“Financial assets at amortized cost”

The assets under this category are subsequently measured at amortized cost, using the effective interest rate method.

Net loss allowances 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

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 the initial moment of 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.

Measurement of financial liabilities

All financial instruments are initially recognized at fair value except for those transaction costs which are directly attributable to the issue of the particular financial liability, for those cases in which financial liabilities are not classified at fair value through profit or loss.

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 headings “Gains (losses) on financial assets and liabilities held for trading, net” and “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, 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”. 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.

“Derivatives-Hedge Accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets 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 (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, except for interest-rate risks hedges (which are almost all of the hedges used by the Group), for which 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, with counterpart on the headings “Derivatives-Hedge Accounting” 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 (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 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 (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).

Loss allowances on financial assets

Definition of impaired financial assets

The 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.

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The 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:

· 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. 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, 2019, 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, or

· 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 the age of transactions at the time of 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, 2019, 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 Risk 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 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 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 derived from defaults.

· Stage 2– significant increases in credit risk

When the credit risk of a financial asset has increased significantly since the initial recognition, the loss allowances 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.

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.

Method for calculating expected credit loss

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 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.

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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 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 monitors 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 have to be considered, even though the possibility of a loss may be very low. 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), interest rates, unemployment rate and price of real estate properties.

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.

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· 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 expense of the new financial liability continue to be recognized.

Treatment of securitizations

The securitizations to which the Group entities transfer their credit portfolios are consolidated entities of the Group. For more information, refer to Note 2.1 “Principles of consolidation”.

The Group considers that the risks and benefits of the securitizations are substantially retained if the subordinated bonds are held and/ or if subordination funding has been granted to those securitization funds, which means that the credit loss risk of the securitized assets will be assumed. Consequently, the Group is not derecognizing those transferred loan portfolios.

On the other hand, the Group has carried out synthetic securitizations, which are transactions where risk is transferred through derivatives or financial guarantees and in which the exposure of these securitizations remains in the balance sheet of the Group. The Group has established the synthetic securitizations through received financial guarantees. As for the commissions paid, they are accrued during the term of the financial guarantee.

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 recognizes 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.

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 loss allowances on debt instruments measured at amortized cost (see Note 2.2.1).

The provisions recognized for financial guarantees 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).

Synthetic securitizations made by the Group to date meet the requirements of the accounting regulations for accounting as guarantees. Consideration as a financial guarantee means recognition of the commission paid for it over the period.

2.2.4 Non-current assets and 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 classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheet include 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 classified as 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 sheet reflects the balances payable arising from disposal groups and discontinued operations.

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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.

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 classified as 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 classified as 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 “Gains (losses) 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 expense 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 (loss) after tax 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 lease terms (right to use), 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 which are expected to be held for continuing use.

For more information regarding the accounting treatment of right to use assets under lease terms, see Note 2.2.19 "Leases".

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, during the useful life of the asset, 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 (defined 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 previously impaired 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 analyses are performed for these CGUs to check whether sufficient cash flows are generated to support the value of the assets comprised within.

Operating and maintenance expense 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 expense - Property, fixtures and materials" (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 such date. This fair value will be determined taking as references the valuations performed by independent experts.

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 net realizable value of the property, 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).

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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 for the year in which they are incurred (see Note 48).

In the case of the above mentioned real-estate assets, if the net realizable value 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 expense – Change in inventories” in the year in which the income from its sale is recognized. This income is recognized under the heading “Other operating income – Gains from sales of 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.

In a business combination achieved in stages, the acquirer shall measure 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 CGUs that expect to be the beneficiaries of the synergies derived from the business combinations. The CGUs 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.

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· 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.

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 amortization 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 losses 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).

The income or expense 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.

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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.

· 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. These amounts are registered by applying to each temporary difference the tax rates that are expected to apply when the asset is realized or the liability settled (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).

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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 probable that the consolidated entities will generate enough taxable profits to make deferred tax assets settle and do not correspond to those from initial recognition (except in the case of business combinations), which also does not affect the fiscal outcome.

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. 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 expense 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).

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 expense.

Costs are charged and recognized under the heading “Administration costs – Personnel expense – Other personnel expense” of the consolidated income statement (see Note 44.1).

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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 expense– 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 is charged and recognized under the heading “Administration costs – Personnel expense – 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.

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).

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2.2.13 Equity-settled share-based payment transactions

Equity –settled share-based payment transactions, provided they constitute the delivery of such equity instruments once completion of a specific period of services has occurred, 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.

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.

· Monetary items are converted to the functional currency at the closing exchange rate.

· Income and expense 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 recorded to equity under the heading “Accumulated other comprehensive income or loss - Items not subject to reclassification to income statement - Fair value changes of equity instruments measured at fair value through other comprehensive income” 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 expense 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 during the year.

· 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. Venezuela is a country with strong exchange restrictions that has different rates officially published, and, since December 31, 2015, the Board of Directors considers that the use of these 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 this country. Therefore, since the year ended December 31, 2015, the exchange rate for converting bolivars into euros is an estimation taking into account the evolution of the estimated inflation in Venezuela.

As of December 31, 2019, 2018 and 2017, 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 (see Note 2.2.20).

2.2.17 Recognition of income and expense

The most significant policies used by the BBVA Group to recognize its income and expense are as follows.

· Interest income and expense and similar items:

As a general rule, interest income and expense and similar items are recognized on the basis of their period of accrual using the effective interest rate method.

T hey shall be recognized within the consolidated income statement according to the following criteria, independently from the financial instruments’ portfolio which generates the income or expense:

· 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.

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· 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.

· Commissions, fees and similar items:

Income and expense 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 expense:

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

Effective January 1, 2019, IFRS 16 replaced IAS 17 “Leases” (see Note 2.3). The single lessee accounting model requires the lessee to record assets and liabilities for all lease contracts. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has elected to apply both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings ‘‘ Tangible assets – Property plants and equipment’’ and‘‘ Tangible assets – Investment properties’’ of the consolidated balance sheet (see Note 17) and a lease liability representing its obligation to make lease payments which is recorded under the heading ‘‘ Financial liabilities at amortized cost – Other financial liabilities’’ in the consolidated balance sheet (see Note 22.5).

At the initial date of the lease, the lease liability represents the present value of all lease unpaid payments. The liabilities registered under this heading of the consolidated balance sheets are measured after their initial recognition at amortized cost, this being determined in accordance with the “effective interest rate” method.

The right to use assets are initially recorded at cost. This cost consists of the initial measurement of the lease liability, any payment made before the initial date less any lease incentives received, all direct initial expenses incurred, as well as an estimate of the expenses to be incurred by the lessee, such as expenses related to the removal and dismantling of the underlying asset. The right to use assets recorded under this heading of the consolidated balance sheets are measured after their initial recognition at cost less:

· The accumulated depreciation and accumulated impairment

· Any remeasurement of the lease liability.

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The interest expense on the lease liability is recorded in the consolidated income statements under the heading “Interest expense” (see note 37). Variable payments not included in the initial measurement of the lease liability are recorded under the heading “Administration costs – Other administrative expense” (see Note 44).

Amortization is calculated using the straight-line method over the lifetime of the lease contract, on the basis of the cost of the assets. The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading "Depreciation and Amortization" (see Note 45).

In case of electing one of the exceptions in order not to recognize the corresponding right to use and the liability in the consolidated balance sheets, payments related to the corresponding lease are recognized in the consolidated income statements, over the contract period, lineally, or in the way that best represents the structure of the lease operation, under the heading "Other administrative expense” (see Note 44).

Operating lease and sublease incomes are recognized in the consolidated income statements under the headings “Other operating income” (see Note 42).

As a lessor, 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 income” and "Other operating expense" (see Note 42).

If a fair value sale and leaseback results in a lease, the profit or loss generated from the effectively transferred part of the sale is recognized in the consolidated income statement at the time of sale (only for the effective transmitted part).

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-IASB 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

Since 2018, the economy of Argentina has been considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Argentina have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “Financial reporting in hyperinflationary economies“.

During 2019 and 2018, the increase in the reserves of Group entities located in Argentina derived from the re-expression for hyperinflation (IAS 29) amounts to €470 and €703 million, respectively, of which €313 and €463 million, respectively, have been recorded within “Shareholders’ funds - Retained earnings” and €157 and €240 million, respectively, within “Minority interests – Other”. Furthermore, during 2019 and 2018 the decrease in the reserves of Group entities located in Argentina derived from the conversion (IAS 21) amounted to €460 and €773 million, respectively, of which €305 and €515 million, respectively, have been recorded within “Shareholders’ funds - Retained earnings”, and €155 and €258 million, respectively, 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 years ended December 31, 2019 and 2018. The net loss in the profit attributable to the parent company of the Group in 2019 and 2018 derived from the application of IAS 29 amounted to €190 and €209 million, respectively. In addition, there is a net loss in the profit attributable to the parent company of the Group in 2019 and 2018 derived from the application of IAS 21 which amounted to €34 and €57 million, respectively.

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The breakdown of the General Price Index (“GPI”) and the inflation index used as of December 31, 2019 and 2018 for the inflation restatement of the financial statements of the Group companies located in Argentina is as follows:

General Price Index
| 2019 | 2018
GPI | 285 | 184
Average GPI | 233 | 152
Inflation of the period | 55% | 48%

Venezuela

Since 2009, the economy of Venezuela has been 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“.

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 €8, €12 and €13 million in 2019, 2018 and 2017, respectively (see Note 2.2.16).

2.3 Recent IFRS pronouncements

Standards and interpretations that became effective in 2019

The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) became effective in 2019.

IFRS 16 – “Leases”

Effective January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has elected to apply both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets – Property plants and equipment” or “Tangible assets – Investment properties” of the consolidated balance sheet (see Note 17) and a lease liability representing its obligation to make lease payments which is recorded under the heading “Financial liabilities at amortized cost – Other financial liabilities” in the consolidated balance sheet (see Note 22.5). In the consolidated income statement, the amortization of the right to use assets is recorded in the heading “Depreciation and amortization – tangible asset” (see Note 45) and the financial cost associated with the lease liability is recorded in the heading “Interest expense” (see Note 37.2).

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 to account for those two types of leases differently.

At the transition date, the Group decided to apply the modified retrospective approach which requires recognition of a lease liability equal to the present value of the future payments committed to as of January 1, 2019. Regarding the measurement of the right-of-use asset, the Group elected to record an amount equal to the lease liability, adjusted for the amount of any advance or accrued lease payment related to that lease recognized in the balance sheet before the date of initial application.

The Group´s lease liabilities, as a consequence of the first application of IFRS 16, correspond to the present value of the future lease payments obligations during the lease term (see Note 22.5). This liability on January 1, 2019 does not match with the future minimum payments for operating leases which had been disclosed in Note 35 of the consolidated financial statements for the year 2018 and which were calculated under the previous standard IAS 17. The difference is mainly the result of the discount rate used to determine the present value of the future lease payments as well as the lease term which includes the options to extend and/or early terminate, provided that it is reasonably certain that this option will/will not be exercised. The discount rate used in Spain, the geography which represents the biggest part of the IFRS 16 impact was 1,67% at the moment of the first application.

As of January 1, 2019, the Group recognized assets for the right-of-use and lease liabilities for an amount of €3,419 and €3,472 million, respectively. The impact in terms of capital (CET1) of the Group amounted to -11 basis points.

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 implementation of this standard as of January 1, 2019 has not had a significant impact on the Group’s consolidated financial statements.

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 implementation of this standard as of January 1, 2019 has not had a significant impact on the Group’s consolidated financial statements.

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”. The implementation of these standards as of January 1, 2019 has not had a significant impact on the Group’s consolidated financial statements.

Additionally, this project has introduced an amendment to IAS 12 that became effective on January 1, 2019 and meant that the tax impact of the distribution of generated benefits must be recorded in the "Tax expense or income related to profit or loss from continuing operations" line of the consolidated income statement for the year. The amount derived from this amendment to IAS 12 resulted in a credit of €91 million in the consolidated income statement for the year 2019 (see Note 1.3).

Amended IAS 19 – “Plan Amendment, Curtailment or Settlement”

The minor amendments in IAS 19 concern the cases if an employee benefit 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 implementation of this standard as of January 1, 2019 has not had a significant impact on the Group´s consolidated financial statements.

Standards and interpretations issued but not yet effective as of December 31, 2019

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, 2019. Although in some cases the International Accounting Standards Board (“IASB”) allows early adoption before their effective date, the BBVA Group has not proceeded with this option for any such new standards.

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”.

This Standard will be applied to the accounting years starting on or after January 1, 2020. No significant impact on the consolidated financial statements is expected.

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.

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· 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.

This Standard will be applied to the accounting years starting on or after January 1, 2020. No significant impact on the consolidated financial statements is expected.

Amendments to IFRS 9, IAS 39 and IFRS 7- IBOR Reform

The IBOR Reform (Phase 1) refers to the amendments to IFRS 9, IAS 39 and IFRS 7 issued by the IASB to prevent some hedge accounting from having to be discontinued in the period before the reform of the interest rate references takes place.

In some cases and / or jurisdictions, there may be uncertainty about the future of some interest rate references or their impact on the contracts held by the entity, which directly causes uncertainty about the timing or amounts of the cash flows of the hedged instrument or hedging instrument. Due to such uncertainties, some entities may be forced to discontinue their hedge accounting, or not be able to designate new hedging relationships.

For this reason, the amendments include several reliefs that apply to all hedging relationships that are affected by the uncertainty arising from the IBOR reform; A hedging relationship is affected by the reform if it generates uncertainty about the timing or amount of the cash flows of the hedged instrument or that of a hedging instrument referenced to the particular interest rate benchmark.

Since the purpose of the modification is to provide some relief to the application of certain specific requirements of hedge accounting, these exceptions must end once the uncertainty will be resolved or the hedging relationship ceases to exist.

The modifications will be applicable to the accounting years beginning on or after January 1, 2020 although early application is allowed. The Group has not applied these modifications in advance as of December 31, 2019 because it considers that the existing uncertainty does not affect its hedging relationships to the point that some had to be discontinued. Since 2020, they are not expected to have a significant impact on the consolidated financial statements of the Group.

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, 2022. During 2019, the Group has established an IFRS 17 implementation project with the objective of harmonizing the criteria in the Group and with the participation of all the affected areas.

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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 and asset management. The Group also operates in the insurance sector.

The following information is detailed in the appendices of these consolidated financial statements of the Group for the year ended December 31, 2019:

· Appendix I shows relevant information related to the consolidated subsidiaries and structured entities.

· Appendix II shows relevant information related to investments in 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, 2019, 2018 and 2017, broken down by the Group’s entities according to their activity:

Contribution to Consolidated Group total assets. Entities by main activities (Millions of euros)
|  | 2019 | 2018 | 2017
Banking and other financial services |  | 667,319 | 647,164 | 659,414
Insurance and pension fund managing companies |  | 29,300 | 26,732 | 26,134
Other non-financial services |  | 2,071 | 2,793 | 4,511
Total |  | 698,690 | 676,689 | 690,059

The total assets and results of operations broken down by operating segments 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 carried out through Banco Bilbao Vizcaya Argentaria, S.A. The Group also has other entities that mainly operate in Spain’s banking sector and insurance sector.

· Mexico

The BBVA Group operates in Mexico, not only in the banking sector, but also in the insurance sector through BBVA Mexico.

· 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, Colombia, Peru, 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, 2019, 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 USA Bancshares, Inc. at their head, as well as through the New York BBVA, S.A. branch and a representative office in Silicon Valley (California).

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· Turkey

The Group’s activity in Turkey is mainly carried out through the Garanti BBVA Group.

· Rest of Europe

The Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany, 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 the Bank branches (in Taipei, Tokyo, Hong Kong, Singapore and Shanghai) and representative offices (in Beijing, Seoul, Mumbai, Abu Dhabi and Jakarta).

Significant transactions in the Group in 2019

Divestitures

Sale of BBVA’s stake in BBVA Paraguay

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of its wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”).

The consideration for the acquisition of BBVA Paraguay’s shares amounts to approximately $270 million. The above mentioned consideration is subject to regular adjustments for these kind of transactions between the signing and closing dates of the transaction. It is expected that the transaction would result in a capital gain, net of taxes, calculated as of the date of this Annual Report, of approximately €40 million and in a positive impact on the BBVA Group’s Common Equity Tier 1 of approximately 6 basis points. The closing of the transaction is expected during the first quarter of 2020 after obtaining regulatory authorizations from the competent authorities.

Significant 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 amounted to, approximately, USD 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 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.

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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 (REOs) remains subject to the fulfilment of certain conditions precedent. The final price payable by Cerberus will be adjusted depending on the volume of REOs effectively contributed.

The transaction did not have a significant impact on BBVA Group’s attributable profit of 2018 or the Common Equity Tier 1 as of December 31, 2018.

Significant 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”), 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 as of December 31, 2017 amounts to 49.85% (See Note 31).

4. Shareholder remuneration system

As announced on February 1, 2017, BBVA’s Board of Directors, at its meeting held on March, 29, 2017, 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.

This fully in-cash shareholders’ remuneration policy would be composed 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”

Until 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” in that 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- Interim dividends” of the consolidated balance sheet as of December 31, 2017.

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Cash Dividends

Throughout 2017, 2018 and 2019, 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” and “Total Equity – Retained earnings” of the consolidated balance sheet of the relevant year:

· 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 headings “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- Retained earnings” 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) per BBVA share, as gross interim dividend against 2018 results. The total amount paid to shareholders on October 10, 2018, after deducting treasury shares held by the Group's companies, amounted to €663 million and is recognized under the heading “Total equity- Interim dividends” of the consolidated balance sheet as of December 31, 2018.

· The Annual General Meeting of BBVA held on March 15, 2019, approved, under item 1 of the Agenda, the payment of a final dividend for 2018, in addition to other dividends previously paid, in cash for an amount equal to €0.16 (€0.1296 withholding tax) per BBVA share. The total amount paid to shareholders on April 10, 2019, after deducting treasury shares held by the Group’s Companies, amounted to €1,064 million and is recognized under the heading “Total equity- Retained earnings” of the consolidated balance sheet as of December 31, 2019.

· The Board of Directors, at its meeting held on October 2, 2019, 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 2019 results. The total amount paid to shareholders on October 15, 2019, after deducting treasury shares held by the Group´s companies, amounted to €665 million and is recognized under the heading “Total equity- Interim dividends” of the consolidated balance sheet as of December 31, 2019.

The unaudited accounting statements prepared in accordance with legal requirements evidencing the existence of sufficient liquidity for the distribution of the amounts agreed on October 2, 2019, mentioned above are as follows:

Available amount for Interim dividend payments (Millions of Euros)
| August, 31, 2019
Profit of BBVA, S.A., after the provision for income tax | 1,137
Additional Tier I capital instruments remuneration | 276
Maximum amount distributable | 861
Amount of proposed interim dividend | 667
BBVA cash balance available to the date | 6,691

Proposal on allocation of earnings for 2019

The allocation of earnings for 2019 subject to the approval of the Board of Directors at the Annual Shareholders Meeting is presented below:

Allocation of earnings of BBVA, S.A. (Millions of Euros)
| December 2019
Profit for year | 2,241
Distribution |
Interim dividends | 667
Final dividend | 1,067
Additional Tier 1 securities | 419
Voluntary reserves | 88

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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
| 2019 | 2018 (4) | 2017 (4)
Numerator for basic and diluted earnings per share (millions of euros) |  |  |
Profit attributable to parent company | 3,512 | 5,400 | 3,514
Adjustment: Additional Tier 1 securities (1) | (419) | (447) | (430)
Profit adjusted (millions of euros) (A) | 3,093 | 4,953 | 3,084
Of which: 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 | 6,668 | 6,642
Weighted average number of shares outstanding x corrective factor (3) | 6,668 | 6,668 | 6,642
Adjusted number of shares - Basic earnings per share (C) | 6,648 | 6,636 | 6,642
Adjusted number of shares - diluted earnings per share (D) | 6,648 | 6,636 | 6,642
Earnings per share (*) | 0.47 | 0.75 | 0.46
Basic earnings per share from continued operations (Euros per share)A-B/C | 0.47 | 0.75 | 0.46
Diluted earnings per share from continued operations (Euros per share)A-B/D | 0.47 | 0.75 | 0.46
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 year.

(3) Corrective factor, due to the capital increase with pre-emptive subscription right, applied for the previous years.

(4) The figures corresponding to 2018 and 2017 have been restated (see Note 1.3)

(*) In 2019 the weighted average number of shares outstanding was 6,668 million (6,668 million and 6,642 million in 2018 and 2017, respectively) and the adjustment of additional Tier 1 securities amounted to €419 million (€447 and €430 million in 2018 and 2017, respectively).

As of December 31, 2019, 2018 and 2017, 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.

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 2019, the reporting structure of the BBVA Group’s business areas differs from the one presented at the end of the year 2018, as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which has been renamed “Spain”. Additionally, balance sheet intra-group adjustments between Corporate Center and the operating segments have been reallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the 2019 information comparable as required by IFRS 8 “Information by business segments”, figures as of December 31, 2018 and 2017 have been restated in conformity with the new segment reporting structure. The BBVA Group's operating segments are summarized below:

· Spain

Includes mainly the banking and insurance business that the Group carries out in Spain.

· The United States

Includes the financial business activity of BBVA USA in the country and the activity of the branch of BBVA, S.A., in New York.

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· Mexico

Includes banking and insurance businesses in this country as well as the activity of its branch in Houston.

· Turkey

Reports the activity of Garanti BBVA group that is mainly carried out in this country and, to a lesser extent, in Romania and the Netherlands.

· South America

Primarily includes the Group´s banking and insurance businesses in the region. In relation to the sale of BBVA Paraguay, the closing is expected to take place during the first quarter of 2020 (see Note 3).

· Rest of Eurasia

Includes the banking business activity carried out by the Group in Europe and Asia, excluding Spain.

Lastly, Corporate Center performs centralized Group functions, including: the costs of the head offices with a corporate function; management of structural exchange rate positions; some equity instruments issuances to support an adequate management of the Group's global solvency. It also includes portfolios whose management is not linked to customer relationships, such as industrial holdings, certain tax assets and liabilities; funds due to commitments to employees; goodwill and other intangible assets.

The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2019, 2018 and 2017, is as follows:

Total assets by operating segments (Millions of Euros)
| 2019 | 2018 (1) | 2017 (1)
Spain | 365,374 | 354,901 | 350,520
The United States | 88,529 | 82,057 | 75,775
Mexico | 109,079 | 97,432 | 90,214
Turkey | 64,416 | 66,250 | 78,789
South America | 54,996 | 54,373 | 75,320
Rest of Eurasia | 23,248 | 18,834 | 17,265
Subtotal assets by Operating Segments | 705,641 | 673,848 | 687,884
Corporate Center and adjustments | (6,951) | 2,841 | 2,175
Total assets BBVA Group | 698,690 | 676,689 | 690,059

(1) The figures corresponding to 2018 and 2017 have been restated (see Note 1.3).

The following table sets forth certain summarized information relating to the income of each operating segment and Corporate Center for the years ended December 31, 2019, 2018 and 2017 and reconciles the income statement of the various operating segments to the consolidated income statement of the Group:

|  | BBVA Group | Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center
2019 | Notes |  |  |  |  |  |  |  |
Net interest income |  | 18,202 | 3,645 | 2,395 | 6,209 | 2,814 | 3,196 | 175 | (233)
Gross income |  | 24,542 | 5,734 | 3,223 | 8,029 | 3,590 | 3,850 | 454 | (339)
Operating profit /(loss) before tax |  | 6,398 | 1,878 | 705 | 3,691 | 1,341 | 1,396 | 163 | (2,775)
Profit |  | 3,512 | 1,386 | 590 | 2,699 | 506 | 721 | 127 | (2,517)
2018 (1) |  |  |  |  |  |  |  |  |
Net interest income |  | 17,591 | 3,698 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (269)
Gross income |  | 23,747 | 5,968 | 2,989 | 7,193 | 3,901 | 3,701 | 414 | (420)
Operating profit /(loss) before tax |  | 8,446 | 1,840 | 920 | 3,269 | 1,444 | 1,288 | 148 | (463)
Profit |  | 5,400 | 1,400 | 736 | 2,367 | 567 | 578 | 96 | (343)
2017 (1) |  |  |  |  |  |  |  |  |
Net interest income |  | 17,758 | 3,810 | 2,119 | 5,476 | 3,331 | 3,200 | 180 | (357)
Gross income |  | 25,270 | 6,162 | 2,876 | 7,122 | 4,115 | 4,451 | 468 | 74
Operating profit /(loss) before tax |  | 6,931 | 1,189 | 749 | 2,960 | 2,143 | 1,671 | 181 | (1,962)
Profit |  | 3,514 | 877 | 486 | 2,170 | 823 | 847 | 128 | (1,817)

(1) The figures corresponding to 2018 and 2017 have been restated (see Note 1.3).

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7. Risk management

7.1 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.

The general principles governing credit risk management in the BBVA Group are:

· Risks taken should comply with the general risk policy established by the Board of Directors of BBVA.

· Risks taken should be in line with the level of equity and generation of recurring revenue of the BBVA Group prioritizing risk diversification and avoiding relevant concentrations.

· Risks taken should be identified, measured and assessed and there should be management and monitoring procedures, in addition to sound mitigation and control mechanisms.

· Risks should be managed in a prudent and integrated manner during their life cycle and their treatment should be based on the type of risk. In addition, portfolios should be actively managed on the basis of a common metric (economic capital).

· The main criterion when granting credit risks is the capability of the borrower or obligor to fulfill on a timely basis all financial obligations with its business income or source of income without depending upon guarantors, bondsmen or pledged assets.

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 channels, 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 channel:

· 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.

The risk function has a decision-making process supported by a structure of committees with a solid governance scheme, which describes their purposes and functioning for a proper performance of their tasks.

7.1.1 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.

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· Step 3: Select the best conditional forecasting model from the set of candidates defined in Step 2, based on their forecasting capacity.

How economic scenarios are reflected in calculation of ECL

The forward looking component is added to the calculation of the ECL through the introduction of macroeconomic scenarios as an input. Inputs highly depend on the particular combination of region and portfolio, so inputs are adapted to available data regarding each of them.

Based on economic theory and analysis, the main indicators most directly relevant for explaining and forecasting the selected risk parameters (PD, LGD and EAD) are:

· The net income of families, corporates or public administrations.

· The outstanding payment amounts on the principal and interest on the financial instruments.

· 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 one of the following core macroeconomic indicators should be chosen as first option:

· The real GDP growth for the purpose of conditional forecasting can be seen as the only “factor” required for capturing the influence of all potentially relevant macro-financial scenarios on internal PDs and LGD.

· The most representative short term interest rate (typically the policy rate or the most liquid sovereign yield or interbank rate) or exchange rates expressed in real terms.

· A comprehensive and representative index of the price of real estate properties expressed in real terms in the case of mortgage loans and a representative and real term index of the price of the relevant commodity for corporate loan portfolios concentrated in exporters or producer of such commodity.

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.

· BBVA Research tracks, analyzes and forecasts the economic environment to provide a consistent forward looking assessment about the most likely scenario and risks that impact BBVA’s footprint. To build economic scenarios, BBVA Research combines official data, econometric techniques and expert knowledge.

· 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 non-linearity overlay is defined as the ratio between the probability-weighted ECL under the alternative scenarios and the baseline scenario, where the scenario’s probability depends on the distance of the alternative scenarios from the base one.

· BBVA Group establishes equally weighted scenarios, being the probability 34% for the baseline scenario, 33% for the worst alternative scenario and 33% for the best alternative scenario.

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BBVA Group considers three prospective macroeconomic scenarios which are updated periodically (currently every three months). BBVA Research projects a maximum of five years for the macroeconomic variables. The estimation for the next five years of the GDP used in the estimation of the measurement of expected credit loss as of December 31, 2019 is as follows:

GDP for the main geographies:

GDP for the main geographies
| Spain | Mexico | Turkey | The United States
Date | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario
2019 | 0.96% | 1.54% | 2.15% | -0.58% | 0.23% | 1.06% | -0.60% | 3.32% | 7.06% | 1.16% | 2.12% | 3.13%
2020 | 1.35% | 1.87% | 2.42% | 0.93% | 1.66% | 2.39% | -0.68% | 2.48% | 5.27% | 1.00% | 1.81% | 2.62%
2021 | 2.01% | 2.10% | 2.19% | 2.05% | 2.14% | 2.23% | 4.60% | 4.74% | 4.91% | 1.84% | 1.92% | 2.03%
2022 | 1.85% | 1.89% | 1.88% | 2.07% | 2.14% | 2.19% | 4.28% | 4.38% | 4.47% | 1.83% | 1.86% | 1.91%
2023 | 1.81% | 1.85% | 1.85% | 2.11% | 2.15% | 2.17% | 4.31% | 4.38% | 4.50% | 1.88% | 1.91% | 1.94%

| Peru | Argentina | Colombia
Date | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario
2019 | 0.34% | 2.92% | 5.43% | -7.41% | -2.47% | 2.40% | 1.93% | 3.29% | 4.58%
2020 | 0.32% | 2.46% | 4.56% | -6.62% | -2.57% | 0.85% | 1.71% | 2.73% | 3.74%
2021 | 3.07% | 3.28% | 3.49% | 2.08% | 2.30% | 2.51% | 3.61% | 3.61% | 3.61%
2022 | 3.39% | 3.39% | 3.39% | 1.64% | 1.78% | 1.88% | 3.59% | 3.59% | 3.59%
2023 | 3.86% | 3.86% | 3.86% | 1.95% | 2.10% | 2.23% | 3.59% | 3.59% | 3.59%

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.

7.1.2 Credit risk exposure

In accordance with IFRS 7 “Financial instruments: Disclosures”, the BBVA Group’s credit risk exposure by headings in the balance sheets as of December 31, 2019 and 2018 is provided below. It does not consider the loss allowances and the availability of collateral or other credit enhancements to enable compliance with payment obligations. The details are broken down by financial instruments and counterparties:

Maximum credit risk exposure (Millions of Euros)
| Notes | December 2019 | Stage 1 | Stage 2 | Stage 3
Financial assets held for trading |  | 69,503 |  |  |
Debt securities | 10 | 26,309 |  |  |
Equity instruments | 10 | 8,892 |  |  |
Loans and advances | 10 | 34,303 |  |  |
Non-trading financial assets mandatorily at fair value through profit or loss |  | 5,557 |  |  |
Loans and advances | 11 | 1,120 |  |  |
Debt securities | 11 | 110 |  |  |
Equity instruments | 11 | 4,327 |  |  |
Financial assets designated at fair value through profit or loss | 12 | 1,214 |  |  |
Derivatives (trading and hedging) |  | 39,462 |  |  |
Financial assets at fair value through other comprehensive income |  | 61,293 |  |  |
Debt securities | 13 | 58,841 | 58,590 | 250 | -
Equity instruments | 13 | 2,420 |  |  |
Loans and advances to credit institutions | 13 | 33 | 33 | - | -
Financial assets at amortized cost |  | 451,640 | 402,024 | 33,624 | 15,993
Loans and advances to central banks |  | 4,285 | 4,285 | - | -
Loans and advances to credit institutions |  | 13,664 | 13,500 | 158 | 6
Loans and advances to customers |  | 394,763 | 345,449 | 33,360 | 15,954
Debt securities |  | 38,930 | 38,790 | 106 | 33
Total financial assets risk |  | 628,670 |  |  |
Total loan commitments and financial guarantees | 33 | 181,116 | 169,663 | 10,452 | 1,001
Total maximum credit exposure |  | 809,786 |  |  |

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Maximum credit risk exposure (Millions of Euros)
| Notes | December 2018 | Stage 1 | Stage 2 | Stage 3
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 |  |  |
Financial assets at fair value through other comprehensive income |  | 56,365 |  |  |
Debt securities | 13 | 53,737 | 53,734 | 3 | -
Equity instruments | 13 | 2,595 |  |  |
Loans and advances to credit institutions | 13 | 33 | 33 | - | -
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 |  | 592,571 |  |  |
Total loan commitments and financial guarantees | 33 | 170,511 | 161,404 | 8,120 | 987
Total maximum credit exposure |  | 763,082 |  |  |

The maximum credit exposure presented in the table above is determined by type of financial asset as explained below:

· In the case of financial instruments recognized in the consolidated balance sheets, exposure to credit risk is considered equal to its carrying amount (not including loss allowances) with the only exception of trading and hedging derivatives.

· The maximum credit risk exposure on financial commitments and guarantees granted is the maximum that the Group would be liable for if these guarantees were called in, or the higher amount pending to be disposed from the customer in the case of commitments.

· 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 breakdown by geographical location and Stage of the maximum credit risk exposure, the accumulated allowances recorded and the carrying amount of the loans and advances to customers as of December 31, 2019 and 2018 is shown below:

December 2019
| Gross exposure | Accumulated allowances | Carrying amount
| Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3
Spain (*) | 197,058 | 173,843 | 14,599 | 8,616 | (5,311) | (712) | (661) | (3,939) | 191,747 | 173,131 | 13,939 | 4,677
The United States | 57,387 | 49,744 | 7,011 | 632 | (688) | (165) | (342) | (182) | 56,699 | 49,580 | 6,670 | 450
Mexico | 60,099 | 54,748 | 3,873 | 1,478 | (2,013) | (697) | (404) | (912) | 58,087 | 54,052 | 3,469 | 566
Turkey (**) | 43,113 | 34,536 | 5,127 | 3,451 | (2,613) | (189) | (450) | (1,974) | 40,500 | 34,347 | 4,677 | 1,477
South America (***) | 36,265 | 31,754 | 2,742 | 1,769 | (1,769) | (366) | (323) | (1,079) | 34,497 | 31,388 | 2,419 | 690
Others | 839 | 824 | 7 | 9 | (8) | (1) | (1) | (6) | 832 | 823 | 6 | 2
Total (****) | 394,763 | 345,449 | 33,360 | 15,954 | (12,402) | (2,129) | (2,181) | (8,093) | 382,360 | 343,320 | 31,179 | 7,861

(*) Spain includes all countries where BBVA, S.A. operates.

(**) Turkey includes all countries in which Garanti BBVA operates.

(***) In South America, BBVA Group operates in Argentina, Colombia, Peru, Uruguay and Venezuela.

(****) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2019, the remained balance was €433 million). These valuation adjustments are recognized in the income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.

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December 2018
| Gross exposure | Accumulated allowances | Carrying amount
| Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3
Spain (*) | 195,447 | 172,599 | 12,827 | 10,021 | (5,874) | (713) | (877) | (4,284) | 189,574 | 171,886 | 11,951 | 5,737
The United States | 57,321 | 50,665 | 5,923 | 733 | (658) | (206) | (299) | (153) | 56,663 | 50,459 | 5,624 | 580
Mexico | 52,858 | 48,354 | 3,366 | 1,138 | (1,750) | (640) | (373) | (737) | 51,107 | 47,714 | 2,992 | 401
Turkey (**) | 43,718 | 34,883 | 6,113 | 2,722 | (2,241) | (171) | (591) | (1,479) | 41,479 | 34,712 | 5,523 | 1,244
South America (***) | 36,098 | 31,947 | 2,436 | 1,715 | (1,656) | (338) | (234) | (1,084) | 34,442 | 31,609 | 2,202 | 631
Others | 783 | 756 | 8 | 19 | (19) | - | (1) | (18) | 763 | 755 | 7 | 1
Total (****) | 386,225 | 339,204 | 30,673 | 16,348 | (12,199) | (2,070) | (2,374) | (7,755) | 374,027 | 337,134 | 28,299 | 8,593

(*) Spain includes all countries where BBVA, S.A. operates.

(**) Turkey includes all countries in which Garanti BBVA operates.

(***) In South America, BBVA Group operates in Argentina, Chile, Colombia, Peru, Uruguay and Venezuela.

(****) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2018 the remained balance was €540 million). These valuation adjustments are recognized in the income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.

The breakdown by counterparty of the maximum credit risk exposure, the accumulated allowances recorded, as well as the carrying amount by stages of loans and advances to customers as of December 31, 2019 and 2018 is shown below:

December 2019 (Millions of Euros)
| Gross exposure | Accumulated allowances | Net amount
| Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3
Public administrations | 28,281 | 27,511 | 682 | 88 | (59) | (15) | (22) | (21) | 28,222 | 27,496 | 660 | 66
Other financial corporations | 11,239 | 11,085 | 136 | 17 | (31) | (19) | (2) | (10) | 11,207 | 11,066 | 134 | 8
Non-financial corporations | 173,254 | 148,768 | 16,018 | 8,468 | (6,465) | (811) | (904) | (4,750) | 166,789 | 147,957 | 15,114 | 3,718
Individuals | 181,989 | 158,085 | 16,523 | 7,381 | (5,847) | (1,283) | (1,252) | (3,312) | 176,142 | 156,801 | 15,272 | 4,069
Loans and advances to customers | 394,763 | 345,449 | 33,360 | 15,954 | (12,402) | (2,129) | (2,181) | (8,093) | 382,360 | 343,320 | 31,179 | 7,861

December 2018 (Millions of Euros)
| Gross exposure | Accumulated allowances | Net amount
| Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3
Public administrations | 28,632 | 27,740 | 764 | 128 | (84) | (21) | (25) | (38) | 28,549 | 27,719 | 739 | 91
Other financial corporations | 9,490 | 9,189 | 291 | 11 | (22) | (13) | (4) | (4) | 9,468 | 9,176 | 286 | 6
Non-financial corporations | 169,764 | 145,875 | 15,516 | 8,372 | (6,260) | (730) | (1,190) | (4,341) | 163,503 | 145,145 | 14,327 | 4,031
Individuals | 178,339 | 156,400 | 14,102 | 7,838 | (5,833) | (1,305) | (1,155) | (3,372) | 172,506 | 155,094 | 12,946 | 4,466
Loans and advances to customers | 386,225 | 339,204 | 30,673 | 16,348 | (12,199) | (2,070) | (2,374) | (7,755) | 374,027 | 337,134 | 28,299 | 8,593

The breakdown by counterparty and product of loans and advances, net of loss allowances, as well as the gross carrying amount by type of product, classified in different headings of the assets, as of December 31, 2019, 2018 and 2017 is shown below:

December 2019 (Millions of Euros)
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total | Gross carrying amount
By product |  |  |  |  |  |  |  |
On demand and short notice | - | 9 | - | 118 | 2,328 | 595 | 3,050 | 3,251
Credit card debt | - | 10 | 1 | 3 | 1,940 | 14,401 | 16,355 | 17,608
Commercial debtors |  | 971 | - | 230 | 15,976 | 99 | 17,276 | 17,617
Finance leases | - | 227 | - | 6 | 8,091 | 387 | 8,711 | 9,095
Reverse repurchase loans | - | - | 1,817 | - | 26 | - | 1,843 | 1,848
Other term loans | 4,240 | 26,734 | 4,121 | 7,795 | 137,934 | 160,223 | 341,047 | 351,230
Advances that are not loans | 35 | 865 | 7,743 | 3,056 | 951 | 506 | 13,156 | 13,214
LOANS AND ADVANCES | 4,275 | 28,816 | 13,682 | 11,208 | 167,246 | 176,211 | 401,438 | 413,863
By secured loans |  |  |  |  |  |  |  |
Of which: mortgage loans collateralized by immovable property |  | 1,067 | 15 | 261 | 23,575 | 111,085 | 136,003 | 139,317
Of which: other collateralized loans | - | 10,447 | 93 | 2,106 | 29,009 | 6,893 | 48,548 | 49,266
By purpose of the loan |  |  |  |  |  |  |  |
Of which: credit for consumption |  |  |  |  |  | 46,356 | 46,356 | 49,474
Of which: lending for house purchase |  |  |  |  |  | 110,178 | 110,178 | 111,636
By subordination |  |  |  |  |  |  |  |
Of which: project finance loans |  |  |  |  | 12,259 |  | 12,259 | 12,415

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December 2018 (Millions of Euros)
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total | Gross carrying amount
By product |  |  |  |  |  |  |  |
On demand and short notice | - | 10 | - | 151 | 2,833 | 648 | 3,641 | 3,834
Credit card debt | - | 8 | 1 | 2 | 2,328 | 13,108 | 15,446 | 16,495
Commercial debtors |  | 948 | - | 195 | 16,190 | 103 | 17,436 | 17,716
Finance leases | - | 226 | - | 3 | 8,014 | 406 | 8,650 | 9,077
Reverse repurchase loans | - | 293 | 477 | - | - | - | 770 | 772
Other term loans | 3,911 | 26,839 | 2,947 | 7,030 | 133,573 | 157,760 | 332,060 | 342,264
Advances that are not loans | 29 | 1,592 | 5,771 | 2,088 | 984 | 498 | 10,962 | 11,025
LOANS AND ADVANCES | 3,941 | 29,917 | 9,196 | 9,468 | 163,922 | 172,522 | 388,966 | 401,183
By secured loans |  |  |  |  |  |  |  |
Of which: mortgage loans collateralized by immovable property |  | 1,056 | 15 | 219 | 26,784 | 111,809 | 139,883 | 144,005
Of which: other collateralized loans | - | 7,179 | 285 | 1,389 | 31,393 | 6,835 | 47,081 | 47,855
By purpose of the loan |  |  |  |  |  |  |  |
Of which: credit for consumption |  |  |  |  |  | 40,124 | 40,124 | 42,736
Of which: lending for house purchase |  |  |  |  |  | 111,007 | 111,007 | 112,952
By subordination |  |  |  |  |  |  |  |
Of which: project finance loans |  |  |  |  | 13,973 |  | 13,973 | 14,286

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

7.1.3 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.

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This is carried out through a prudent risk policy that consists of the analysis of the financial risk, based on the capacity for reimbursement or generation of resources of the borrower, the analysis of the guarantee, assessing, among others, the efficiency, the robustness and the risk, the adequacy of the guarantee with the operation and other aspects such as the location, currency, concentration or the existence of limitations. Additionally, the necessary tasks for the constitution of guarantees must be carried out - in any of the generally accepted forms (collaterals, personal guarantees and financial hedge instruments) - appropriate to the risk assumed.

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 criteria for the systematic, standardized and effective treatment of collateral in credit transaction procedures in BBVA Group’s wholesale and retail banking are included in the Specific Collateral Rules.

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:

· Debt instruments held for trading: The guarantees or credit enhancements obtained directly from the issuer or counterparty are implicit in the clauses of the instrument (mainly guarantees of the issuer).

· 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 (mainly collaterals).

· The summary of the compensation effect (via netting and collateral) for derivatives and securities operations is presented in Note 7.2.2.

· 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 (mainly personal guarantees).

· As of December 31, 2019 and 2018, BBVA Group had no credit risk exposure of impaired financial assets at fair value through other comprehensive income (see Note 7.1.2).

· Financial assets at amortized cost:

· Loans and advances to credit institutions: These usually have the counterparty’s personal guarantee or pledged securities in the case of repos.

· 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 or insurances).

· Debt securities: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.

· Financial guarantees, other contingent risks and drawable by third parties: these have the counterparty’s personal guarantee or other types of collaterals.

The disclosure of impaired loans and advances at amortized cost covered by collateral (see Note 7.1.2), by type of collateral, as of December 31, 2019 and 2018, is the following:

December 2019 (Millions of Euros)
| Maximum exposure to credit risk | Of which secured by collateral
| Residential properties | Commercial properties | Cash | Others | Financial
Impaired loans and advances at amortized cost | 15,959 | 3,396 | 939 | 35 | 221 | 542
Total | 15,959 | 3,396 | 939 | 35 | 221 | 542

December 2018 (Millions of Euros)
| Maximum exposure to credit risk | Of which secured by collateral
| Residential properties | Commercial properties | Cash | Others | Financial
Impaired loans and advances at amortized cost | 16,359 | 3,484 | 1,255 | 13 | 317 | 502
Total | 16,359 | 3,484 | 1,255 | 13 | 317 | 502

The value of guarantees received as of December 31, 2019 and 2018, is the following:

Guarantees received (Millions of Euros)
| 2019 | 2018
Value of collateral | 152,454 | 158,268
Of which: guarantees normal risks under special monitoring | 14,623 | 14,087
Of which: guarantees non-performing risks | 4,590 | 5,068
Value of other guarantees | 35,464 | 16,897
Of which: guarantees normal risks under special monitoring | 3,306 | 1,519
Of which: guarantees non-performing risks | 542 | 502
Total value of guarantees received | 187,918 | 175,165

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The maximum credit risk exposure of impaired financial guarantees and other commitments at December 31, 2019 and 2018 amounts to €1,001 and €987 million, respectively (see Note 7.1.2).

7.1.4 Credit quality of financial assets that are neither past due nor impaired

The BBVA Group has tools 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.

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-approve 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.

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The table below shows the abridged scale used to classify the BBVA Group’s outstanding risk as of December 31, 2019:

External rating | Internal rating | Probability of default (basic points)
Standard&Poor's List | Reduced List (22 groups) | Average | Minimum from >= | Maximum
AAA | AAA | 1 | 0 | 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

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 terms of the BBVA Group as of December 31, 2019 and 2018:

Probability of default (basis points)
| December 2019 | December 2018
| Subject to 12 month ECL (Stage 1) | Subject to lifetime ECL (Stage 2) | Subject to 12 month ECL (Stage 1) | Subject to lifetime ECL (Stage 2)
| % | % | % | %
0 to 2 | 5.5 | - | 9.6 | -
2 to 5 | 6.3 | - | 10.8 | 0.1
5 to 11 | 14.6 | 0.2 | 6.3 | -
11 to 39 | 24.5 | 0.8 | 20.9 | 0.4
39 to 194 | 24.5 | 1.6 | 30.1 | 1.8
194 to 1,061 | 14.0 | 3.6 | 12.2 | 3.6
1,061 to 2,121 | 1.4 | 1.2 | 1.6 | 1.2
> 2,121 | 0.4 | 1.5 | 0.2 | 1.2
Total | 91.0 | 9.0 | 91.7 | 8.3

7.1.5 Impaired secured loan risks

T he breakdown of loans and advances, within financial assets at amortized cost, non-performing and accumulated impairment, as well as the gross carrying amount, by counterparties as of December 31, 2019, 2018 and 2017 is as follows:

December 2019 (Millions of Euros)
| Gross carrying amount | Non-performing loans and advances | Accumulated impairment | Non-performing loans and advances as a % of the total
Central banks | 4,285 | - | (9) | 0.0%
General governments | 28,281 | 88 | (60) | 0.3%
Credit institutions | 13,664 | 6 | (15) | 0.0%
Other financial corporations | 11,239 | 17 | (31) | 0.2%
Non-financial corporations | 173,254 | 8,467 | (6,465) | 4.9%
Agriculture, forestry and fishing | 3,758 | 154 | (124) | 4.1%
Mining and quarrying | 4,669 | 100 | (86) | 2.1%
Manufacturing | 39,517 | 1,711 | (1,242) | 4.3%
Electricity, gas, steam and air conditioning supply | 12,305 | 684 | (575) | 5.6%
Water supply | 900 | 14 | (16) | 1.6%
Construction | 10,945 | 1,377 | (876) | 12.6%
Wholesale and retail trade | 27,467 | 1,799 | (1,448) | 6.6%
Transport and storage | 9,638 | 507 | (392) | 5.3%
Accommodation and food service activities | 8,703 | 279 | (203) | 3.2%
Information and communications | 6,316 | 95 | (65) | 1.5%
Financial and insurance activities | 6,864 | 191 | (140) | 2.8%
Real estate activities | 19,435 | 782 | (527) | 4.0%
Professional, scientific and technical activities | 4,375 | 167 | (140) | 3.8%
Administrative and support service activities | 3,415 | 118 | (134) | 3.4%
Public administration and defense; compulsory social security | 282 | 5 | (6) | 1.7%
Education | 903 | 41 | (38) | 4.5%
Human health services and social work activities | 4,696 | 66 | (55) | 1.4%
Arts, entertainment and recreation | 1,396 | 47 | (39) | 3.4%
Other services | 7,671 | 331 | (360) | 4.3%
Households | 181,989 | 7,381 | (5,847) | 4.1%
LOANS AND ADVANCES | 412,711 | 15,959 | (12,427) | 3.9%

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December 2018 (Millions of Euros)
| Gross carrying amount | Non-performing loans and advances | Accumulated impairment | Non-performing loans and advances as a % of the total
Central Banks | 3,947 | - | (6) | -
General governments | 28,198 | 128 | (84) | 0.4%
Credit institutions | 9,175 | 10 | (12) | 0.1%
Other financial corporations | 9,490 | 11 | (22) | 0.1%
Non-financial corporations | 170,182 | 8,372 | (6,260) | 4.9%
Agriculture, forestry and fishing | 3,685 | 122 | (107) | 3.3%
Mining and quarrying | 4,952 | 96 | (70) | 1.9%
Manufacturing | 36,772 | 1,695 | (1,134) | 4.6%
Electricity, gas, steam and air conditioning supply | 13,853 | 585 | (446) | 4.2%
Water supply | 1,061 | 19 | (15) | 1.8%
Construction | 11,899 | 1,488 | (1,007) | 12.5%
Wholesale and retail trade | 25,833 | 1,624 | (1,259) | 6.3%
Transport and storage | 9,798 | 459 | (374) | 4.7%
Accommodation and food service activities | 7,882 | 315 | (204) | 4.0%
Information and communication | 5,238 | 113 | (72) | 2.1%
Financial and insurance activities | 6,929 | 147 | (128) | 2.1%
Real estate activities | 17,272 | 834 | (624) | 4.8%
Professional, scientific and technical activities | 5,096 | 204 | (171) | 4.0%
Administrative and support service activities | 3,162 | 128 | (125) | 4.0%
Public administration and defense, compulsory social security | 319 | 5 | (7) | 1.6%
Education | 912 | 31 | (31) | 3.4%
Human health services and social work activities | 4,406 | 63 | (63) | 1.4%
Arts, entertainment and recreation | 1,323 | 59 | (41) | 4.5%
Other services | 9,791 | 386 | (382) | 3.9%
Households | 178,355 | 7,838 | (5,833) | 4.4%
LOANS AND ADVANCES | 399,347 | 16,359 | (12,217) | 4.1%

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December 2017 (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 | 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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The changes during the years 2019, 2018 and 2017 of impaired financial assets and contingent risks are as follow:

Changes in impaired financial assets and contingent risks (Millions of Euros)
| 2019 | 2018 | 2017
Balance at the beginning | 17,134 | 20,590 | 23,877
Additions | 9,857 | 9,792 | 10,856
Decreases (*) | (5,874) | (6,909) | (7,771)
Net additions | 3,983 | 2,883 | 3,085
Amounts written-off | (3,803) | (5,076) | (5,758)
Exchange differences and other | (544) | (1,264) | (615)
Balance at the end | 16,770 | 17,134 | 20,590

(*) 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 Note 21).

The changes during the years 2019, 2018 and 2017 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely ("write-offs"), is shown below:

Changes in impaired financial assets written-off from the balance sheet (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Balance at the beginning |  | 32,343 | 30,139 | 29,347
Acquisition of subsidiaries in the year |  | - | - | -
Increase |  | 4,712 | 6,164 | 5,986
Decrease: |  | (11,039) | (4,210) | (4,442)
Re-financing or restructuring |  | (2) | (10) | (9)
Cash recovery | 47 | (919) | (589) | (558)
Foreclosed assets |  | (617) | (625) | (149)
Sales (*) |  | (8,325) | (1,805) | (2,284)
Debt forgiveness |  | (493) | (889) | (1,121)
Time-barred debt and other causes |  | (682) | (292) | (321)
Net exchange differences |  | 230 | 250 | (752)
Balance at the end |  | 26,245 | 32,343 | 30,139

(*) Includes principal and interest.

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 a time-barred financial asset, the financial asset is condoned, or other reasons.

7.1.6 Loss allowances

Movements in gross accounting balances and accumulated allowances for loan losses during 2019 are recorded on the accompanying consolidated balance sheet as of December 31, 2019, in order to cover the estimated loss allowances in loans and advances and debt securities measured at amortized cost. As for the years ended December 31, 2018 and 2017, the changes in the accumulated allowances are presented):

Changes in gross accounting balances of loans and advances at amortized cost. December 2019 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total
Opening balance | 352,282 | 30,707 | 16,359 | 399,347
Transfers of financial assets: | (9,021) | 6,279 | 2,741 | -
Transfers from stage 1 to Stage 2 | (13,546) | 13,546 | - | -
Transfers from stage 2 to Stage 1 | 5,656 | (5,656) | - | -
Transfers to Stage 3 | (1,571) | (2,698) | 4,269 | -
Transfers from Stage 3 | 440 | 1,087 | (1,527) | -
Net annual origination of financial assets | 20,296 | (2,739) | 246 | 17,804
Becoming write-offs | (152) | (349) | (3,407) | (3,908)
Changes in model / methodology | - | - | - | -
Foreign exchange | 1,611 | 35 | 16 | 1,662
Modifications that do not result in derecognition | (1) | (27) | 15 | (13)
Other | (1,782) | (388) | (11) | (2,180)
Closing balance | 363,234 | 33,518 | 15,959 | 412,711

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Changes in allowances of loans and advances at amortized cost. December 2019 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total
Opening balance | (2,082) | (2,375) | (7,761) | (12,217)
Transfers of financial assets: | 176 | (227) | (1,574) | (1,626)
Transfers from stage 1 to Stage 2 | 126 | (649) | - | (523)
Transfers from stage 2 to Stage 1 | (38) | 273 | - | 235
Transfers to Stage 3 | 89 | 234 | (1,810) | (1,487)
Transfers from Stage 3 | (1) | (86) | 236 | 149
Net annual origination of allowances | (542) | (116) | (1,711) | (2,370)
Becoming write-offs | 130 | 337 | 2,789 | 3,256
Changes in model / methodology | - | - | - | -
Foreign exchange | (30) | (18) | 69 | 20
Modifications that do not result in derecognition | (15) | (149) | (89) | (254)
Other | 215 | 366 | 183 | 764
Closing balance | (2,149) | (2,183) | (8,094) | (12,427)

Financial assets at amortized cost. December 2018 (Millions of Euros)
| Not credit-impaired | Credit-impaired | Total
| Stage 1 | Stage 2 | Credit-impaired (Stage 3)
| Loss allowances | Loss allowances (collectively assessed) | Loss allowances (individually assessed) | Loss allowances | Loss allowances
Opening balance | (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)
Of which: Loans and advances | - | - | - | - | (12,217)
Of which: Debt certificates | - | - | - | - | (46)

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Financial assets at amortized cost. December 2017 (Millions of Euros) (*)
| Opening balance | Increases due to amounts set aside for estimated loan losses during the year | Decreases due to amounts reversed for estimated loan losses during the year | Decreases due to amounts taken against allowances | Transfers between allowances | Other adjustments | Closing balance | Recoveries recorded directly to the statement of profit or loss
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.

7.1.7 Refinancing and restructuring transactions

Group policies and principles with respect to refinancing and restructuring transactions

Refinancing and restructuring transactions (see definition in the Glossary) are carried out with customers who have requested such a transaction 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 transaction 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 transaction, 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 transactions do not in general increase the amount of the customer’s loan, except for the expense inherent to the transaction itself.

· The capacity to refinance and restructure a 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.

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In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing and restructuring a loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of the 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 transactions 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 transaction in all cases. No arrangements may be concluded that involve a grace period for both principal and interest.

· Refinancing and restructuring of transactions is only allowed on those loans in which the BBVA Group originally entered into.

· Customers subject to refinancing and restructuring transactions are excluded from marketing campaigns of any kind.

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 transaction does not mean the loan is reclassified from "impaired" or "significant increase in credit risk" to normal 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 assets classified as "Impaired assets" should comply with the following conditions in order to be reclassified to "Significant increase in credit risk":

· The customer has to have paid a significant part of the pending exposure.

· At least one year must have elapsed since its classification as "Impaired asset".

· The customer does not have past due payments.

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.

· 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; and

· 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).

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7.1.8 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.

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).

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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 cyclical.

Specific policies for analysis and granting of new developer risk transactions

In the analysis of new transactions, the assessment of the commercial operation in terms of the economic and financial viability of the project has been linear.

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 transactions. 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 assures 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 transactions. 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.

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 developments, 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.

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.

BBVA has a classification of debtors according to the provisions in each country, in general, categorizing the degree of problem of each risk.

The volume of restructurings during 2019 and 2018 has not been significant, being close to zero.

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 development 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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7.2 Market risk

7.2.1 Market risk in trading portfolios

Market risk originates in the possibility that there may be losses in the value of positions held due to 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 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 assess market risk in the 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 various risks, such as credit spread risk, basis risk, as well as volatility and correlation risk.

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 BBVA, S.A. and BBVA Mexico trading book, which jointly accounted for around 72%, 76% and 70% of the Group’s trading-book market risk as of December 31, 2019, 2018 and 2017. For the rest of the geographical areas where the Group operates (applicable mainly to the Group´s South America subsidiaries, Garanti BBVA and BBVA USA), bank capital for the risk positions in the trading book is calculated using the Standardized Approach defined by the Basel Committee on Banking Supervision (which is referred to herein as the "standard model”).

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The main headings in the consolidated balance sheet of the Group which are exposed to market risk, are positions whose main metric to measure the market risk is the VaR. The table below shows, by accounting line of the consolidated balance sheet as of December 31, 2019, 2018 and 2017, the traded financial products and assets of trading for those geographical areas that use Internal Model (BBVA, S.A. and BBVA Mexico):

Headings of the balance sheet under market risk (Millions of Euros)
| December 2019 | December 2018 | December 2017
| 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 | 96,461 | 1,671 | 114,156 | 124 | 59,008 | 441
Financial assets at fair value through other comprehensive income | 7,089 | 24,691 | 5,652 | 19,125 | 5,661 | 24,083
Of which: Equity instruments | - | 1,783 | - | 2,046 | - | 2,404
Derivatives - Hedge accounting | 628 | 840 | 688 | 1,061 | 829 | 1,397
Liabilities subject to market risk | - | - | - | - | - | -
Financial liabilities held for trading | 74,967 | 12,677 | 67,859 | 11,011 | 42,468 | 2,526
Derivatives - Hedge accounting | 671 | 1,183 | 550 | 910 | 1,157 | 638

(*) Includes mainly assets and liabilities managed by ALCO.

Although the table above provides information on certain 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.

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.

VaR figures are estimated with the following 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.

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., BBVA, S.A. and BBVA Mexico). 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.

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 supporting measure, backtesting is conducted at a trading desk level in order to enable more specific monitoring of the validity of the measurement models.

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Market risk in 2019

The Group’s market risk related to its trading portfolio remained at low levels compared to other risks managed by BBVA, particularly credit risk. This is due to the nature of the business. In 2019 the average VaR was €19 million, below the figure of 2018, with a high on September 13, 2019 of €25 million. The evolution in the BBVA Group’s market risk during 2019, 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 continued to be that linked to interest rates, with a weight of 58% of the total at December 31, 2019 (this figure includes the spread risk). The relative weight of this risk has increased compared with the close of 2018 (55%). Exchange-rate risk accounted for 13% of the total risk, decreasing its weight with respect to December 2018 (14%), while equity, volatility and correlation risk has decreased, with a weight of 29% at the close of 2019 (vs. 31% at the close of 2018).

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As of December 31, 2019, 2018 and 2017 the VaR was €20 million, €17 million and €22 million, respectively. The total VaR figures for 2019, 2018 and 2017 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 2019 |  |  |  |  |  |
VaR average in the year | 21 | 6 | 4 | 9 | (20) | 19
VaR max in the year | 28 | 6 | 3 | 9 | (21) | 25
VaR min in the year | 13 | 5 | 5 | 9 | (18) | 14
End of period VaR | 24 | 5 | 5 | 8 | (22) | 20
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

(*) 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 internal market risk model

The internal market risk model is validated on a regular basis by backtesting in both, BBVA, S.A. and Global Markets Mexico (BBVA Mexico). 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 BBVA Mexico is adequate and precise.

Two types of backtesting have been carried out in 2019, 2018 and 2017:

· "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.

For the period between the year ended December 31, 2018 and the year ended December 31, 2019, the backtesting of the internal VaR calculation model was carried out, comparing the daily results obtained to the risk level estimated 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.

Stress testing

A number of stress tests are carried out on the 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.

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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 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 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).

The impact of the stress test under multivariable simulation of the risk factors of the portfolio based on the expected shortfall (expected shortfall calculated at a 95% confidence level, 20 days) as of December 31, 2019 is as follows:

Impact of the stress test (Millions of Euros)
| Europe | Mexico | Peru | Venezuela | Argentina | Colombia | Turkey | The United States
Expected shortfall | (112) | (68) | (23) | - | (4) | (5) | (9) | (3)

7.2.2 Financial Instruments offset

Financial assets and liabilities may be netted in certain cases. In particular, they are presented for a net amount on the consolidated balance sheet only when the Group's entities satisfy 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 the net amount. 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 the most widespread having been 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 counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty.

Moreover, many of the transactions involving assets purchased or sold under a repurchase agreement are transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signing of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by the 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 offsetting (via netting and collateral) for derivatives and securities operations is presented below as of December 31, 2019, 2018 and 2017:

December 2019 (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 | 37,302 | 2,388 | 34,914 | 25,973 | 8,210 | 731
Reverse repurchase, securities borrowing and similar agreements |  | 35,805 | 21 | 35,784 | 35,618 | 204 | (39)
Total Assets |  | 73,107 | 2,409 | 70,698 | 61,591 | 8,415 | 692
Trading and hedging derivatives | 10, 15 | 39,646 | 2,394 | 37,252 | 25,973 | 10,613 | 667
Repurchase, securities lending and similar agreements |  | 45,977 | 21 | 45,956 | 45,239 | 420 | 297
Total Liabilities |  | 85,623 | 2,414 | 83,209 | 71,212 | 11,033 | 964

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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

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

The amount of recognized financial instruments within derivatives includes the effect in case of compensation with counterparties with which the Group holds netting agreements, while, for repos, it reflects the market value of the collateral associated with the transaction.

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## 7.3 Structural risk – Non-trading activities

The structural risks are defined, in general terms, as the possibility of sustaining losses due to adverse movements in market risk factors as a result of mismatches in the financial structure of an entity´s balance sheet.

In the Group, the following types of structural risks are defined, according to the nature and the following market factors: interest rate, exchange rate and equity.

The scope of structural risks in the Group is limited to the banking book, excluding market risks in the trading book that are clearly delimited and separated and make up the Market Risks.

The Assets and Liabilities Committee (ALCO) is the main responsible body for the management of structural risks regarding liquidity/ funding interest rate, currency, equity and solvency. Every month, with the participation of the CEO and representatives from the areas of Finance, Risks and Business Areas, this committee monitors the structural 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 achieving recurrent earnings and financial stability and preserving the entity's solvency. All balance management units have a local ALCO, which is permanently attended by members of the corporate center, and there is a corporate ALCO where management strategies are monitored and presented in the Group's subsidiaries.

Global Risk Management (GRM) area acts as an independent unit, enabling adequate separation between the management and risk control functions, and is responsible for assisting the goal that the structural risks in the Group are managed according to the strategy approved by the Board of Directors.

Consequently, GRM deals with the identification, measurement, monitoring and control of those risks and their reporting to the corresponding corporate bodies. Through the Global Risk Management Committee (GRMC), it performs the function of control and risk assessment and is responsible for developing the strategies, policies, procedures and infrastructure necessary to identify, evaluate, measure and manage the significant risks that the BBVA Group faces. To this end, GRM, through the corporate unit of Structural Risks, proposes a scheme of limits and alerts that defines the risk appetite set for each of the relevant structural risk types, both at Group level and by management units, which will be reviewed annually, reporting the situation periodically to the Group’s corporate bodies as well as to the GRMC.

In addition, both, the management as well as the control and measurement system of the structural risks need to be adjusted necessarily to the Group’s internal control model, in compliance with the related evaluation and certification processes. In this regard, the required tasks and controls have been identified and documented, which allows the Bank to have a regulatory framework that includes precise processes and measures for structural risks with a global perspective from a geographical point of view.

BBVA’s internal control model, which is based on high standards, is included within the three lines of defense. The Finance area is the first line of defense, by being in charge of the structural risk management, whereas GRM is in charge of the identification of the risks and establishes policies and control models, which are periodically evaluated with regard to their performance.

Within the second line of defense there is Internal Risk Control, which independently reviews the structural risk controls, and one entity of Internal Financial Control, which reviews the design and the effectiveness of the operating management controls.

Internal Audit, which works with total independence, represents the third line of defense and reviews specific controls and processes.

### 7.3.1 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 with an integral vision, combining two complementary points of view: net interest income (short term) and economic value (long term).

The exposure of a financial entity to adverse interest rates movements is a risk inherent to the development of the banking business, which is also, in turn, an opportunity to create economic value. Therefore, interest rate risk must be effectively managed so that it is limited in accordance with the entity’s equity and in line with the expected economic result.

This function falls to the Global ALM (Asset & Liability Management) unit, within the Finance area, who, through ALCO, aims to support the recurrence of results and preserve the solvency of the entity, always adhering to the risk profile defined by the management bodies of the BBVA Group. The interest rate risk management of the balance sheet aims to promote the stability of the net interest income and book value with respect to changes in market interest rates in the different balance-sheets, while respecting solvency and internal limits, as well as complying with current and future regulatory requirements. Likewise, a specific monitoring of the banking book instruments registered at market value (fair value) is developed, which due to their accounting treatment have an impact on results and / or equity.

In this regard, the BBVA Group maintains an exposure to fluctuations on interest rates according to its objective strategy and risk profile, being carried out in a decentralized and independent manner in each of the banking entities that compose its structural balance-sheet.

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The management is carried out in accordance with the guidelines established by the European Banking Authority (EBA), with a monitoring of interest rate risk metrics, with the aim of analyzing the potential impact that could be derived from the range of scenarios in the different balance-sheets of the Group.

Nature of Interest Rate Risk

Repricing risk arises due to the difference between the repricing or maturity terms of the assets and liabilities, and represents the most frequent interest rate risk faced by financial entities. However, other sources of risk as changes in the slope and shape of the yield curve, the reference to different indexes and the optionality risk embedded in certain banking transactions, are also taken into account by the risk control system.

BBVA's structural interest-rate risk management process is formed by a set of metrics and tools that allows for the precise monitorization of the risk profile of the Group, backed-up by an assumptions set that aims to characterize the behavior of the balance sheet items with the maximum accuracy.

The IRRBB measurement is carried out on a monthly basis, and includes probabilistic measures based on methods of scenario simulation, which enables to capture additional sources of risk to the parallel shifts, as the changes in slope and shape of the yield curve. Additionally, sensitivity analysis to multiple parallel shocks of different magnitude are also assessed on a regular basis. The process is run separately for each currency to which the Group is exposed, considering, at a later stage, the diversification effect among currencies and business units.

The risk measurement model is complemented by the assessment of ad-hoc scenarios and stress tests. As stress testing has become more relevant during the recent years, the evaluation of extreme scenarios of rupture of historical interest rates levels, correlations and volatility has continued to be enhanced, while assessing, also, BBVA Research market scenarios.

During 2019 the Group has worked on the enhancement of the control and management model according to the guidelines established by the EBA on the management of interest rate risk in the banking book. It is worth highlighting, among other aspects, the reinforcement of stress analysis incorporating the assessment of the impacts on the main balance sheets of the Group that could derive from the range of interest rate scenarios defined in accordance with the aforementioned EBA guidelines.

Key assumptions of the model

In order to measure structural interest rate risk, the setting of assumptions on the evolution and behavior of certain balance sheet items is particularly relevant, especially those related to products without an explicit or contractual maturity.

The assumptions that characterize these balance sheet items must be understandable for the areas and bodies involved in risk management and control and remain duly justified and documented. The modeling of these assumptions must be conceptually reasonable and consistent with the evidence based on historical experience, reviewed at least once a year.

In view of the heterogeneity of the financial markets and the availability of historical data, each one of the entities of the Group is responsible for determining the behavior assumptions to be applied to the balance sheet items, always under the guidelines and the applicability of the corporate models existing in the Group.

Among the balance sheet assumptions stand out those established for the treatment of items without contractual maturity, mainly for demand customer deposits, and those related to the expectations on the exercise of interest rate options, especially those relating to loans and deposits subject to prepayment risk.

For the modeling of demand deposits, a segmentation of the accounts in several categories is previously carried out depending on the characteristics of the customer (retail / wholesale) and the product (type of account / transactionality / remuneration), in order to outline the specific behavior of each segment.

In order to establish the remuneration of each segment, the relationship between the evolution of market interest rates and the interest rates of managed accounts is analyzed, with the aim of determining the translation dynamic (percentages and lags) of interest rates variations to the remuneration of the accounts.

The behavior assigned to each category of accounts is determined by an analysis of the historical evolution of the balances and the probability of cancellation of the accounts. For this, the volatile part of the balance assigned to a short-term maturity is isolated, thus avoiding fluctuations in the level of risk caused by specific variations in the balances and promoting stability in the management of the balance. Once the stable part is identified, a medium / long term maturity model is applied through a decay distribution based on the average term of the accounts and the conditional cancellation probabilities throughout the life of the product.

Additionally, the relationship of the evolution of the balance of deposits with the levels of market interest rates is taken into account, where appropriate, including the potential migration between the different types of deposits (on demand / time deposits) in the different interest rate scenarios.

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Equally relevant is the treatment of early cancelation options embedded in credit loans, mortgage portfolios and customer deposits. The evolution of market interest rates may condition, along with other variables, the incentive that customers have to prepay loans or deposits, modifying the future behavior of the balance amounts with respect to the forecasted contractual maturity schedule.

The detailed analysis of the historical information related to prepayment data, both partial and total prepayment, combined with other variables such as interest rates, allows estimating future amortizations and, where appropriate, their behavior linked to the evolution of such variables.

The approval and updating of the risk behavior models of structural interest rate risk are subject to corporate governance under the scope of GRM-Analytics. In this way, the models must be properly inventoried and cataloged and comply with the requirements established in the internal procedures for their development, updating and management of the changes. The models are also subject to the corresponding internal validations based on their relevance and the established monitoring requirements.

The table below shows the profile of average interest rate risk in terms of sensitivities of the main banks in the BBVA Group in 2019:

Sensitivity to interest-rate analysis - December 2019
| 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%) | - (0% - 5%) | + (0% - 5%) | - (0% - 5%)
Mexico | + (0% - 5%) | - (0% - 5%) | + (0% - 5%) | - (0% - 5%)
The United States | + (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, includes falling interest rates at more negative level than current rates.

In 2019 in Europe monetary policy has remained expansionary, implementing in the last part of the year a new package of measures to boost the economy and the financial system in response to a weaker global economic environment. This environment, coupled with uncertainty about trade policy and low inflation led the Federal Reserve of the United States to begin a process of interest rate cuts. Both monetary authorities, taking into account the recent signals regarding a stabilization of the economic growth, have not changed the interest rates during the last months. In Mexico and Turkey, a bearish cycle was initiated in the second half of the year due to economic weakness and inflation prospects. In South America, monetary policy has been expansive, with declines in the economies of Chile and Peru, caused by the slowdown of the activity and the contained inflation, while in Colombia interest rates have remained flat. On the other hand, in Argentina there is a restrictive monetary policy, with a strong increase in interest rates due to the strong volatility of the markets after the election result.

BBVA maintains, at the aggregate level, a favorable position in net interest income in the event of an increase in interest rates, as well as a moderate risk profile, in line with its target, through effective management of structural balance sheet risk. The higher net interest income sensitivities are observed in, particularly the Euro and USD.

· In Europe, the risk of a decrease in interest rates is limited given the current levels, preventing extremely adverse scenarios.

· In the United States, the net interest margin sensitivity has decreased during 2019 due to the downward trend of interest rates, showing therefore a moderate risk profile.

· Mexico shows a high level of stability between the balance sheets referenced to fixed and variable interest rates, keeping limited net interest income sensitivity throughout 2019.

· In Turkey, the evolution of the balance sheets in Turkish lira and USD has been positive, with very moderate interest rate risk, which has allowed to reduce sensitivity during the year.

· In South America, the balance sheet profiles in the countries which this business area comprises have remained stable, showing a low interest rate risk with an almost stable sensitivity during the year.

### 7.3.2 Structural exchange-rate risk

Structural exchange rate risk, inherent to the business of international banking groups that develop their activities in different geographies and currencies, is defined as the possibility of impacts on solvency, equity value and results driven by fluctuations in the exchange rates due to exposures in foreign currencies.

In the 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 management of permanent foreign currency exposures, taking diversification into account.

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The corporate Global ALM unit, through ALCO, designs and executes hedging strategies with the main purpose of preserving the stability of consolidated capital ratios and income flows generated in a currency other than the euro in the BBVA Group, keeping a value generation perspective to preserve the Group’s equity in the long term. To this end, a dynamic management strategy is carried out, considering hedge transactions according to market expectations and their costs.

The risk monitoring metrics included in the framework of limits, in line with the Risk Appetite Framework, 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 (“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.

The suitability of these risk assessment metrics is reviewed on a regular basis through back-testing exercises. The final element of structural exchange-rate risk control is the stress and scenario analysis aimed to assess the vulnerabilities of foreign currency structural exposure not contemplated by the risk metrics and to serve as an additional tool when making management decisions. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

As of December 31, 2019, it is worth mentioning the appreciation of the main currencies of the geographies where the Group operates against the euro, especially the Mexican peso (6%) and the US Dollar (2%). The Turkish lira (-9%) and the Argentinian peso (-36%) have depreciated, the latter being affected by idiosyncratic factors.

The Group's structural exchange-rate risk exposure level has slightly increased since the end of 2018 driven by the effect of currencies appreciation. The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging markets currencies against the euro and focuses mainly on the Mexican peso and the Turkish lira. The risk mitigation level in the capital ratio due to the book value of the BBVA Group's holdings in foreign emerging markets currencies stood at around 65% and, as of the end of 2019, CET1 ratio sensitivity to the depreciation of 10% in the euro exchange rate for each currency was: USD +11 bp; Mexican peso -4 bps; Turkish Lira -2 bps; other currencies -1 bp (excluding hyperinflation economies). On the other hand, hedging of emerging markets currency denominated earnings in 2019 was 52%, concentrated in Mexican peso, Turkish lira and the main Latin American currencies.

### 7.3.3 Structural equity risk

Structural equity risk refers to the possibility of suffering losses in the value of positions in shares and other equity instruments held in the banking book with long or medium term investment horizons due to fluctuations in the value of equity indexes or shares.

BBVA Group's exposure to structural equity risk arises largely from minority shareholdings held on industrial and financial companies. This exposure is modulated in some portfolios with positions held on 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 Global ALM and other 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 structural equity risk metrics, designed by GRM according to the corporate model, contribute to the effective monitoring of the risk by estimating the sensitivity and the capital necessary to cover the possible unexpected losses due to changes in the value of the shareholdings in the Group's investment portfolio, with a level of confidence that corresponds to the objective rating of the entity, taking into account the liquidity of the positions and the statistical behavior of the assets to be considered.

In order to analyze the risk profile in depth, stress tests and scenario analysis of sensitivity to different simulated scenarios are carried out. They are based on both past crisis situations and forecasts made by BBVA Research. These analyses are carried out regularly to assess the vulnerabilities of structural equity exposure not contemplated by the risk metrics and to serve as an additional tool when making management decisions.

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 2019 with generalized gains and volatility moderation in a macro environment of global growth slowdown.

Structural equity risk, measured in terms of economic capital, has remained fairly stable in the period. 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 decreased to -€26 million as of December 31, 2019, compared to -€29 million as of December 31, 2018. 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 portfolios) and the net delta-equivalent positions in derivatives on the same underlyings.

## 7.4 Liquidity and funding risk

Liquidity and funding risk is defined as the incapacity of a bank to meet its payment commitments for missing resources or that, to face those commitments, should have to make use of funding under burdensome terms.

###

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### 7.4.1 Liquidity and Funding Strategy and Planning

The BBVA Group is a multinational financial institution whose business is focused mainly on retail and commercial banking activities. In addition to the retail business model, which forms the core of its business, the Group engages in corporate and investment banking, through the global CIB (Corporate & Investment Banking) division.

Liquidity and funding risk management aims to maintain a solid balance sheet structure which allows a sustainable business model. The Group’s liquidity and funding strategy is based on the following pillars:

· The principle of the funding self-sufficiency of its subsidiaries, meaning that each of the Liquidity Management Units (LMUs) must cover its funding needs independently on the markets where it operates. This avoids possible contagion due to a crisis affecting one or more of the Group’s LMUs.

· Stable customer deposits as the main source of funding in all the LMUs, in accordance with the Group’s business model.

· Diversification of the sources of wholesale funding, in terms of maturity, market, instruments, counterparties and currencies, with recurring access to the markets.

· Compliance with regulatory requirements, enabling the availability of ample liquidity buffers, as well as sufficient instruments as required by regulations with the capacity to absorb losses.

· Compliance with the internal Liquidity Risk and Funding metrics, while adhering to the Risk Appetite level established for each LMU at any time.

Liquidity and funding risk management aims to support that in the short term a bank does not have any difficulties in meeting its payment commitments in due time and form, and that it does not have to make use of funding under burdensome terms, or conditions that deteriorate its image or reputation.

In the medium term the aim is to support that the Group’s financing structure is ideal and that it is moving in the right direction with respect to the economic situation, the markets and regulatory changes.

This management of structural and liquidity funding is based on the principle of financial self-sufficiency of the entities that make it up. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability during periods of high risk. This decentralized management prevents possible contagion from a crisis affecting only one or a few Group entities, which must act independently to meet their liquidity requirements in the markets where they operate.

As one aspect of this strategy, BBVA Group is organized into eleven LMUs composed of the parent and the banking subsidiaries in each geographical area, plus the independent branches.

In addition, the policy for managing liquidity and funding risk is also based on the model’s robustness and on the planning and integration of risk management into the budgeting process of each LMU, according to the appetite for funding risk it decides to assume in its business.

Liquidity and funding planning is drawn up as part of the strategic processes for the Group’s budgetary and business planning. It allows a recurring growth of the banking business with suitable maturities and costs within the established risk tolerance levels by using a wide range of instruments which allow the diversification of the funding sources and the maintenance of a high volume of available liquid assets.

### 7.4.2 Governance and monitoring

The responsibility for liquidity and funding management in normal business activity lies with the Finance area as a first line of defense in managing the risks inherent to this activity, in accordance with the principles established by the European Banking Authority EBA and in line with the standards, policies, procedures and controls in the framework established by the governing bodies. The Finance department, through the Balance-Sheet Management area, plans and executes the funding of the structural long-term gap of each LMU and proposes to the Assets and Liabilities Committee (ALCO) the actions to be taken on this matter, in accordance with the policies established by the Risk and Compliance Committee in line with the metrics of the Risk Appetite Framework approved by the Board of Directors.

The Finance area, in its regulatory liquidity reporting function, coordinates the processes necessary to meet any reporting requirements that may be generated at corporate and regulatory level, with the areas responsible for this reporting in each LMU, thereby monitoring the integrity of the information supplied.

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GRM is responsible for promoting that liquidity and funding risk in the Group is managed according to the strategy approved by the Board of Directors. It is also responsible for identifying, measuring, monitoring and controlling those risks and reporting to the proper corporate governing bodies. To carry out this work adequately, the risk function in the Group has been set up as a single, global function that is independent of the management areas.

In addition, the Group has an Internal Risk Control unit that conducts an independent review of Liquidity and Funding Risk control and management, independently of the functions performed in this area by Internal Audit. Additionally, the Group has in its second line of defense an Internal Risk Control unit, which performs independent reviews of the Liquidity and Funding risk controls, and an Internal Financial Control unit, which reviews the design and effectiveness of the operating management controls and the liquidity reporting.

As a third line of defense in the Group’s internal control model, Internal Audit is in charge of reviewing specific controls and processes in accordance with an annual work plan.

The Group’s fundamental objectives regarding the liquidity and funding risk are determined through the Liquidity Coverage Ratio (LCR) and through the Loan-to-Stable Customer Deposits (LtSCD) ratio.

The LCR ratio is a regulatory metric that aims to enable the resilience of entities in a scenario of liquidity tension within a time horizon of 30 days. Within its risk appetite framework and system of limits and alerts, BBVA has established a required LCR compliance level for the entire Group and for each individual LMU. The required internal levels aim to comply efficiently and sufficiently in advance with the implementation of the regulatory requirement at a level above 100%.

The LtSCD ratio measures the relationship between net lending and stable customer funds. The aim is to preserve a stable funding structure in the medium term for each LMU making up the BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile. In geographical areas with balance sheets with two currencies, the indicator is also controlled by currency to manage the mismatches that might occur.

Stable customer funds can be considered as those obtained and managed by the LMUs among their target customers. Those funds are characterized by their low sensitivity to market changes and by their less volatile behavior at aggregated level per operation due to the loyalty of the customer to the entity. The stable resources are calculated by applying to each identified customer segment a haircut determined by the analysis of the stability if the balances by which different aspects are evaluated (concentration, stability, level of loyalty). The main source of stable resources arises from wholesale funding and retail customer funds.

In order to establish the target (maximum) levels of LtSCD in each LMU and provide an optimal funding structure reference in terms of risk appetite, the corporate Structural Risks unit of GRM identifies and assesses the economic and financial variables that condition the funding structures in the different geographical areas.

Additionally, liquidity and funding risk management aims to achieve a proper diversification of the funding structure, avoiding excessive reliance on short-term funding by establishing a maximum level for the short-term funds raised, including both wholesale funding and customer funds. The residual maturity profile of long-term wholesale funding has no significant concentrations, which matches the schedule of planned issues to the best possible financial conditions of markets, as shown in the table below. Finally, concentration risk is monitored at LMU level, with the aim of allowing a correct diversification of both the counterparty and type of instrument.

One of the fundamental metrics within the general management framework of the liquidity and funding risk is the maintaining of a liquidity buffer consisting of high quality assets free of charges which can be sold or offered as guarantees to obtain funding, either under normal market conditions or in stress situations.

The Finance area is responsible for the collateral management and determining the liquidity buffer within the BBVA Group. According to the principle of auto-sufficiency of the subsidiaries, every LMU is responsible for the holding of a buffer of liquid assets which comply with the regulatory requirements applicable under each jurisdiction. In addition, the liquidity buffer of each LMU should be aligned with the liquidity and funding risk tolerance as well as the management limits set and approved for each case.

In this context, the short-term resistance of the liquidity risk profile is promoted, enabling that each LMU has sufficient collateral to deal with the risk of the close of wholesale markets. 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 up to one year, with special relevance being given to 30-day 90-day maturities, in order to maintain the survivability period above the 3 months with the available buffer, not taking into consideration the inflows of the balance sheet.

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Stress tests are carried out as a fundamental element of the liquidity and funding risk monitoring scheme. They enable anticipating deviations from the liquidity targets and the limits set in the appetite, and establishing tolerance ranges in the different management areas. They also play a major role in the design of the Liquidity Contingency Plan and the definition of specific measures to be adopted to rectify the risk profile if necessary.

For each scenario, it is checked whether BBVA has a sufficient stock of liquid assets to assist its capacity to meet the liquidity commitments/outflows in the different periods analyzed. The analysis considers four scenarios: one central 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 entity’s customers; and a mixed scenario, as a combination of the two aforementioned scenarios). Each scenario considers the following factors: existing market liquidity, customer behavior and sources of funding, the impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the development of the LMU’s asset quality.

The stress tests conducted on a regular basis reveal that BBVA maintains a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario resulting from the combination of a systemic crisis and an unexpected internal crisis, during a period of longer than 3 months in general for the different LMUs, including in the scenario of a significant downgrade of the Bank’s rating by up to three notches.

Together with the results of the stress tests and the risk metrics, the early warning indicators play an important role within the corporate model and the Liquidity Contingency Plan. They are mainly indicators of the funding structure, in relation to asset encumbrance, counterparty concentration, flights of customer deposits, unexpected use of credit facilities, and of the market, which help anticipate possible risks and capture market expectations.

Finance is the area responsible for the elaboration, monitoring, execution and update of the liquidity and funding plan and of the market access strategy to assist and improve the stability and diversification of the wholesale funding sources.

In order to implement and establish management in an anticipated manner, limits are set on an annual basis for the main management metrics that form part of the budgeting process for the liquidity and funding plan. This framework of limits contributes to the planning of the joint future performance of:

· The loan book, considering the types of assets and their degree of liquidity, as well as their validity as collateral in collateralized funding.

· Stable customer funds, based on the application of a methodology for establishing which segments and customer balances are considered to be stable or volatile funds based on the principle of sustainability and recurrence of these funds.

· Projection of the credit gap, in order to require a degree of self-funding that is defined in terms of the difference between the loan-book and stable customer funds.

· Incorporating the planning of securities portfolios into the banking book, which include both fixed-interest and equity securities, and are classified as financial assets at fair value through other comprehensive income and at amortized cost, and additionally on trading portfolios.

· The structural gap projection, as a result of assessing the funding needs generated both from the credit gap and by the securities portfolio in the banking book, together with the rest of on-balance-sheet wholesale funding needs, excluding trading portfolios. This gap therefore needs to be funded with customer funds that are not considered stable or on wholesale markets.

As a result of these funding needs, BBVA Group plans the target wholesale funding structure according to the tolerance set in each LMU target.

Thus, once the structural gap has been identified and after resorting to wholesale markets, the amount and composition of wholesale structural funding is established in subsequent years, in order to maintain a diversified funding mix and support that there is not a high reliance on short-term funding (short-term wholesale funding plus volatile customer funds).

In practice, the execution of the principles of planning and self-funding at the different LMUs results in the Group’s main source of funding being customer deposits, which consist mainly of demand deposits, savings deposits and time deposits.

As sources of funding, customer deposits are complemented by access to the interbank market and the domestic and international capital markets in order to address additional liquidity requirements, implementing domestic and international programs for the issuance of commercial paper and medium and long-term debt.

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The process of analysis and assessment of the liquidity and funding situation and of the inherent risks is a process carried out on an ongoing basis in the BBVA Group, with the participation of all the Group areas involved in liquidity and funding risk management. This process is carried out at both local and corporate level. It is incorporated into the decision- making process for liquidity and funding management, with integration between the risk appetite strategy and establishment and the planning process, the funding plan and the limits scheme.

### 7.4.3 Liquidity and funding performance

During 2019, the BBVA Group has maintained a robust and dynamic funding structure with a predominantly retail nature, where customer resources represent the main source of funding.

The performance of the indicators show that the funding structure remained steady during 2019, 2018 and 2017, in the sense that all LMUs held self-funding levels with stable customer resources above the requirements.

LtSCD by LMU
| December 2019 | December 2018 | December 2017
Group (average) | 108% | 106% | 110%
Eurozone | 108% | 101% | 108%
BBVA Mexico | 116% | 114% | 109%
BBVA USA | 111% | 119% | 109%
Garanti BBVA | 99% | 110% | 122%
Other LMUs | 103% | 99% | 108%

With respect to LCR, the Group has maintained a liquidity buffer at both consolidated and individual level in 2019. This has maintained the ratio above 100%, with the consolidated ratio as of December 2019 standing at 129%.

Although this requirement is only established at Group level and for banks in the Eurozone, the minimum level required was exceeded in all the subsidiaries. It should be noted that the calculation of the Consolidated LCR does not allow for the transfer of liquidity between subsidiaries, so no excess of liquidity is transferred from entities abroad to the consolidated ratio. If the impact of these highly liquid assets was excluded, the LCR would be 158%, or +29 basis points above the required level.

LCR main LMU
0 | December 2019 | December 2018 | December 2017
Group | 129% | 127% | 128%
Eurozone | 147% | 145% | 151%
BBVA Mexico | 147% | 154% | 148%
BBVA USA (*) | 145% | 143% | 144%
Garanti BBVA | 206% | 209% | 134%

(*)BBVA USA LCR calculated according to local regulation (Fed Modified LCR).

Each entity maintains an individual liquidity buffer, both BBVA, S.A. and each of its subsidiaries, including BBVA USA, BBVA Mexico, Garanti BBVA and the Latin American subsidiaries.

The table below shows the liquidity available by instrument as of December 31, 2019, 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 2019 (Millions of Euros)
| BBVA Eurozone | BBVA Mexico | BBVA USA | Garanti BBVA | Other
Cash and withdrawable central bank reserves | 14,516 | 6,246 | 4,949 | 6,450 | 6,368
Level 1 tradable assets | 41,961 | 7,295 | 11,337 | 7,953 | 3,593
Level 2A tradable assets | 403 | 316 | 344 | - | -
Level 2B tradable assets | 5,196 | 219 | - | - | 12
Other tradable assets | 22,213 | 1,269 | 952 | 669 | 586
Non tradable assets eligible for central banks | - | - | 2,935 | - | -
Cumulated counterbalancing capacity | 84,288 | 15,344 | 20,516 | 15,072 | 10,559

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December 2018 (Millions of Euros)
| BBVA Eurozone | BBVA Mexico | BBVA USA | Garanti BBVA | 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 (*) | 8,772 | 1,372 | 1,043 | 499 | 617
Non tradable assets eligible for central banks | - | - | 2,314 | - | -
Cumulated counterbalancing capacity | 69,705 | 14,475 | 16,024 | 14,634 | 10,946

(*) The balance of “BBVA Eurozone” has been reexpressed including the available funding in the European Central Bank (ECB)

December 2017 (Millions of Euros)
| BBVA Eurozone (1) | BBVA Mexico | BBVA USA | Garanti BBVA | 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 (*) | 10,192 | 1,703 | 1,252 | 962 | 1,573
Non tradable assets eligible for central banks | - | - | 2,800 | - | -
Cumulated counterbalancing capacity | 70,163 | 14,644 | 15,983 | 13,359 | 13,828

(1) Includes Banco Bilbao Vizcaya Argentaria, S.A. and Banco Bilbao Vizcaya Argentaria (Portugal), S.A.

(*) The balance of “BBVA Eurozone” has been reexpressed including the available funding in the European Central Bank (ECB)

The Net Stable Funding Ratio (NSFR), defined as the ratio between the amount of stable funding available and the amount of stable funding required, is one of the Basel Committee's essential reforms, and requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities. This ratio should be at least 100% at all times.

The NSFR of BBVA Group and its main LMUs at December 31, 2019, calculated based on the Basel requirements, is the following:

NSFR main LMU
| December 2019
Group | 120%
BBVA Eurozone | 113%
BBVA Mexico | 130%
BBVA USA | 116%
Garanti BBVA | 151%

Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2019, 2018 and 2017:

December 2019. 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 | 20,954 | 20,654 | - | - | - | - | - | - | - | - | 41,608
Deposits in credit entities | - | 3,591 | 283 | 488 | 585 | 503 | 189 | 24 | 120 | 432 | 6,216
Deposits in other financial institutions | - | 1,336 | 1,120 | 796 | 589 | 991 | 1,420 | 1,072 | 672 | 2,089 | 10,084
Reverse repo, securities borrowing and margin lending | - | 21,612 | 3,858 | 2,287 | 561 | 808 | 4,121 | 1,838 | 411 | 803 | 36,299
Loans and advances | 157 | 22,015 | 25,056 | 24,994 | 15,777 | 16,404 | 42,165 | 35,917 | 54,772 | 122,098 | 359,354
Securities' portfolio settlement | - | 1,622 | 3,873 | 6,620 | 2,017 | 7,292 | 21,334 | 6,115 | 13,240 | 46,022 | 108,136

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December 2019. 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 | 1,393 | 1,714 | 4,208 | 1,645 | 4,386 | 8,328 | 10,608 | 10,803 | 27,840 | 70,927
Deposits in financial institutions | 7,377 | 7,608 | 493 | 1,122 | 172 | 1,514 | 386 | 614 | 206 | 510 | 20,004
Deposits in other financial institutions and international agencies | 10,177 | 3,859 | 867 | 381 | 367 | 257 | 982 | 503 | 499 | 952 | 18,843
Customer deposits | 271,638 | 43,577 | 18,550 | 10,013 | 7,266 | 6,605 | 3,717 | 2,062 | 854 | 1,039 | 365,321
Security pledge funding | - | 45,135 | 3,202 | 15,801 | 1,456 | 653 | 3,393 | 7,206 | 759 | 1,308 | 78,914
Derivatives, net | - | (66) | (25) | 29 | (11) | 1,097 | (830) | (278) | (333) | (420) | (838)

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)

The matrix shows the retail nature of the funding structure, with a loan portfolio being mostly funded by customer deposits. 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 receive a better treatment.

In the Euro Liquidity Management Unit (LMU), the liquidity and funding position continued to be solid and stable with a slightly increase of the credit gap in 2019. During 2019, BBVA, S.A. made 7 issues in the public market for an aggregate of €5,750 million and USD 1,000 million; two issues of Senior Non Preferred (“SNP”) securities at 5 years for €1,000 million each and another one at 7 years for €1,000 million; a T2 issue at 10 years with an early amortization option after the fifth year for €750 million; two AT1 issues for €1,000 million and USD 1,000 million respectively with an early amortization option after five and a half years for the first and 5 years for the second; and a Senior Preferred securities issue at 7 years for €1,000 million.

In Mexico, there was a sound liquidity position despite the credit gap increase in 2019. This increase is mainly due to a lower increase in deposits as a result of higher market competition. During the financial year 2019, BBVA Mexico made a Tier II issuance on international markets for USD 750 million as well as carried out a repurchase for the same amount as part of two subordinated issuances with a maturity in 2020 and 2021 which were no longer computing in capital ratios. They also made an issuance on the local market for 10,000 million of Mexican pesos in 2 tranches: 5,000 million at 3 years and 5,000 million at 8 years.

In the United States, a positive liquidity situation has been maintained with a decrease in the credit gap during the year mainly as a result of an increase in the deposits which has allowed to reduce the dependency on brokered deposits. During the third quarter of 2019, BBVA USA issued successfully a Senior debt note of USD 600 million at 5 years.

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In Turkey we closed the year with a satisfactory liquidity situation, with Garanti BBVA showing an evolution of the credit gap in foreign currency and therefore reducing the wholesale financing, allowing throughout a passable buffer of liquid assets. The main operations during the year were two syndicated loans for USD 1,600 million, a subordinated issuance for an amount of 252 million of Turkish lira (€39 million) and a securitization (Diversified Payment Rights) for USD 150 million. In addition, Garanti BBVA financed itself with a bilateral loan for an amount of USD 322 million and issued a green bond for USD 50 million in December 2019. Furthermore, additional bilateral funds for USD 110 million have been signed in December 2019.

Argentina was affected by the change in the political situation generating a reduction of deposits and credits in foreign currency in the banking system. In this context, BBVA Argentina has maintained at any time a satisfactory liquidity position supported by higher requirements of regulatory reserve regulations. BBVA Argentina issued 1,619 million of Argentine pesos (€24 million) in the local market in the first quarter of 2019 and later, in the fourth quarter, issued an additional 1,967 million of Argentine pesos (€29 million).

The liquidity position of the rest of subsidiaries has continued to be sound, maintaining a satisfactory liquidity position in all the jurisdictions in which the Group operates.

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 enabling 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.

### 7.4.4 Asset encumbrance

As of December 31, 2019, 2018 and 2017, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:

December 2019 (Millions of Euros)
| Encumbered assets | Non-encumbered assets
| Book value | Market value | Book value | Market value
Assets | 101,792 |  | 596,898 |
Equity instruments | 3,526 | 3,526 | 12,113 | 12,113
Debt securities | 29,630 | 29,567 | 95,611 | 95,611
Loans and advances and other assets | 68,636 |  | 489,174 |

December 2018 (Millions of Euros)
| Encumbered assets | Non-encumbered assets
| Book value | Market value | Book value | Market value
Assets | 107,950 |  | 567,573 |
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 | Market value | Book value | Market value
Assets | 110,600 |  | 579,459 |
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 |

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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 22.4) 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 enable derivative transactions is also included as committed assets.

As of December 31, 2019, 2018 and 2017, collateral pledges received mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:

December 2019. 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 | 38,496 | 9,208 | 48
Equity instruments | 65 | 70 | -
Debt securities | 38,431 | 9,130 | 38
Loans and advances and other assets | - | 8 | 10
Own debt securities issued other than own covered bonds or ABSs | - | 82 | -

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 | -

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, 2019, 2018 and 2017, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:

Sources of encumbrance (Millions of Euros)
| December 2019 | December 2018 | December 2017
| Matching liabilities, contingent liabilities or securities lent | Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered | Matching liabilities, contingent liabilities or securities lent | Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered | 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 | 124,252 | 135,500 | 113,498 | 131,172 | 118,704 | 133,312
Derivatives | 19,066 | 20,004 | 8,972 | 11,036 | 11,843 | 11,103
Loans and advances | 87,906 | 94,240 | 85,989 | 97,361 | 87,484 | 98,478
Outstanding subordinated debt | 17,280 | 21,256 | 18,538 | 22,775 | 19,377 | 23,732
Other sources | 449 | 4,788 | 3,972 | 4,330 | 305 | 1,028

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## 7.5 Legal risk factors

The financial sector is exposed to increasing litigation, so the financial institutions face a large number of proceedings of every kind, civil, criminal, administrative, litigation, as well as investigations from the supervisor or other governmental authorities, along several jurisdictions, which consequences are difficult to determine (including those procedures in which an undetermined number of applicants is involved, in which damages claimed are not easy to estimate, in which an exorbitant amount is claimed, in which new jurisdictional issues are introduced under creative non – contrasted legal arguments and those which are at a very initial stage).

In Spain, in many of the existing procedures, applicants claim, both at Spanish courts and through preliminary rulings towards the European Union Court of Justice that various clauses usually included under a mortgage loan with credit institutions are stated abusive (including mortgage fees clauses, early redemption right clause, referenced interest rate type and opening fee).

In particular, with regards to consumer mortgage loan agreements linked to the mortgage loan reference index (Índice de Referencia de los Préstamos Hipotecarios — mortgage loan reference index) (IRPH), which is the average interest rate calculated by the Bank of Spain and published in the Official Spanish Gazette (Boletín Oficial del Estado) for mortgage loans of more than three years for freehold housing purchases granted by Spanish credit institutions and which is considered the “official interest rate” by mortgage transparency regulations, on 14th December, 2017 the Spanish Supreme Court, in its Ruling No 669/2017 (the Ruling), held that it was not possible to determine that a loan's interest rate was not transparent simply due to it making reference to one official rate or another, nor can its terms then be confirmed as unfair under the provisions of Directive 93/13/EEC of 5th April, 1993. As of the date of this Annual Report, a preliminary ruling is pending in which the Ruling is being challenged before the Court of Justice of the European Union. BBVA considers that the Ruling is clear and well founded.

On 10th September, 2019, the Advocate General of the Court of Justice of the European Union issued a report on this matter.

In that report, the Advocate General of the Court of Justice of the European Union concluded that the bank to which the preliminary ruling relates (Bankia, S.A.) complied with the requirement of transparency imposed by the applicable European regulation. The Advocate General also indicated that it is for the national courts to carry out the checks they consider necessary in order to analyze compliance with the applicable transparency obligations in each individual case.

The Advocate General's report does not bind the decision which the Court of Justice of the European Union may take finally on this matter in the future.

It is therefore necessary to await the Court of Justice of the European Union’s ruling on the matter referred in the preliminary ruling in order to determine whether it may have any effect on BBVA.

The impact of any potential unfavorable ruling by the Court of Justice of the European Union is difficult to predict at this time, but could be material. The impact of such a resolution may vary depending on matters such as (i) the decision of the Court of Justice of the European Union on what interest rate should be applied to the applicable loans; and (ii) whether the effects of the judgment are applied retroactively. According to the latest available information, the amount of mortgage loans to individuals linked to IRPH and up to date with the payment is approximately €2,800 million.

In addition, there are also claims before the Spanish courts challenging the application of certain interest rates and other mandatory rules to certain revolving credit card agreements. The resolutions in this type of proceedings against the Group or other banking entities may directly or indirectly affect the Group.

The Group is involved in several competition investigations and other legal actions related to competition initiated by third parties in various countries which may give raise to penalties and claims by third parties.

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Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (“Cenyt”). Such investigation includes the provision of services by Cenyt to the Bank. On July 29, 2019, the Bank was named as an investigated party (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could represent the crimes of bribery, revelation of secrets and corruption. As at the date of this Annual Report, no formal accusation against the Bank has been made. Certain current and former officers and employees of the Group, as well as former directors of the Bank, have also been named as investigated parties in connection with this investigation. The Bank has been and continues to be proactively collaborating with the Spanish judicial authorities, including sharing with the courts information from its on-going forensic investigation regarding its relationship with Cenyt. The Bank has also testified before the judge and prosecutors at the request of the Central Investigating Court No. 6 of the National High Court.

On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings.

This criminal judicial proceeding is at a preliminary stage. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the Group, including any fines, damages or harm to the Group’s reputation caused thereby.

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 support 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 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 valuation global area and using models that have been validated and approved by the responsible areas.

Fair value hierarchy

The fair value of financial instruments is commonly 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 (market-based measurement).

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 such 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, 2019, the affected instruments at fair value accounted for approximately 0.57% of financial assets and 0.14% of the Group’s financial liabilities. Model selection and validation is undertaken by control areas outside the business areas.

8.1 Fair value of financial instruments

The fair value of the Group’s financial instruments in the accompanying consolidated balance sheets and its corresponding carrying amounts, as of December 31, 2019, 2018 and 2017 are presented below:

Fair Value and carrying amount (Millions of euros)
|  | 2019 | 2018
| Notes | Carrying amount | Fair value | Carrying amount | Fair value
ASSETS |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 9 | 44,303 | 44,303 | 58,196 | 58,196
Financial assets held for trading | 10 | 102,688 | 102,688 | 90,117 | 90,117
Non-trading financial assets mandatorily at fair value through profit or loss | 11 | 5,557 | 5,557 | 5,135 | 5,135
Financial assets designated at fair value through profit or loss | 12 | 1,214 | 1,214 | 1,313 | 1,313
Financial assets at fair value through other comprehensive income | 13 | 61,183 | 61,183 | 56,337 | 56,337
Financial assets at amortized cost | 14 | 439,162 | 442,788 | 419,660 | 419,857
Hedging derivatives | 15 | 1,729 | 1,729 | 2,892 | 2,892
LIABILITIES |  |  |  |  |
Financial liabilities held for trading | 10 | 89,633 | 89,633 | 80,774 | 80,774
Financial liabilities designated at fair value through profit or loss | 12 | 10,010 | 10,010 | 6,993 | 6,993
Financial liabilities at amortized cost | 22 | 516,641 | 515,910 | 509,185 | 510,300
Hedging derivatives | 15 | 2,233 | 2,233 | 2,680 | 2,680

Fair value and carrying amount (Millions of Euros)
|  | 2017
| Notes | Carrying amount | Fair value
ASSETS |  |  |
Cash, cash balances at central banks and other demand deposits | 9 | 42,680 | 42,680
Financial assets held for trading | 10 | 64,695 | 64,695
Financial assets designated at fair value through profit or loss | 12 | 2,709 | 2,709
Available-for-sale financial assets | - | 69,476 | 69,476
Loans and receivables | - | 431,521 | 438,991
Held-to-maturity investments | - | 13,754 | 13,865
Derivatives – Hedge accounting | 15 | 2,485 | 2,485
LIABILITIES |  |  |
Financial liabilities held for trading | 10 | 46,182 | 46,182
Financial liabilities designated at fair value through profit or loss | 12 | 2,222 | 2,222
Financial liabilities at amortized cost | 22 | 543,713 | 544,604
Derivatives – Hedge accounting | 15 | 2,880 | 2,880

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).

8.1.1 Fair value of financial instruments 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.

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Furthermore, BBVA would consider as traded in an “Organized Market” quotations for assets or liabilities from Over The Counter (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 level used to determine their fair value:

Fair value of financial instruments by levels (Millions of Euros)
| 2019 | 2018
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3
ASSETS- |  |  |  |  |  |
Financial assets held for trading | 31,135 | 70,045 | 1,508 | 26,730 | 62,983 | 404
Loans and advances | 697 | 32,321 | 1,285 | 47 | 28,642 | 60
Debt securities | 18,076 | 8,178 | 55 | 17,884 | 7,494 | 199
Equity instruments | 8,832 | - | 59 | 5,194 | - | 60
Derivatives | 3,530 | 29,546 | 109 | 3,605 | 26,846 | 85
Non-trading financial assets mandatorily at fair value through profit or loss | 4,305 | 92 | 1,160 | 3,127 | 78 | 1,929
Loans and advances | 82 | - | 1,038 | 25 | - | 1,778
Debt securities | - | 91 | 19 | 90 | 71 | 76
Equity instruments | 4,223 | 1 | 103 | 3,012 | 8 | 75
Financial assets designated at fair value through profit or loss | 1,214 | - | - | 1,313 | - | -
Loans and advances | - | - | - | - | - | -
Debt securities | 1,214 | - | - | 1,313 | - | -
Equity instruments | - | - | - | - | - | -
Financial assets at fair value through other comprehensive income | 50,896 | 9,203 | 1,084 | 45,824 | 9,323 | 1,190
Loans and advances | 33 | - | - | 33 | - | -
Debt securities | 49,070 | 9,057 | 604 | 43,788 | 9,211 | 711
Equity instruments | 1,794 | 146 | 480 | 2,003 | 113 | 479
Hedging derivatives | 44 | 1,685 | - | 7 | 2,882 | 3
LIABILITIES- |  |  |  |  |  |
Financial liabilities held for trading | 26,266 | 62,541 | 827 | 22,932 | 57,573 | 269
Deposits | 9,595 | 32,121 | 649 | 7,989 | 29,945 | -
Trading derivatives | 4,425 | 30,419 | 175 | 3,919 | 27,628 | 267
Other financial liabilities | 12,246 | 1 | 2 | 11,024 | - | 1
Financial liabilities designated at fair value through profit or loss | - | 9,984 | 27 | - | 4,478 | 2,515
Customer deposits | - | 944 | - | - | 976 | -
Debt certificates | - | 4,629 | 27 | - | 2,858 | -
Other financial liabilities | - | 4,410 | - | - | 643 | 2,515
Derivatives – Hedge accounting | 30 | 2,192 | 11 | 223 | 2,454 | 3

Fair value of financial instruments by levels (Millions of euros)
| 2017
| Level 1 | Level 2 | Level 3
ASSETS- |  |  |
Financial assets held for trading | 29,057 | 35,349 | 289
Loans and advances to customers | - | 56 | -
Debt securities | 21,107 | 1,444 | 22
Equity instruments | 6,688 | 33 | 80
Derivatives | 1,262 | 33,815 | 187
Financial assets designated at fair value through profit or loss | 2,061 | 648 | -
Loans and advances to customers | - | 648 | -
Loans and advances to credit institutions | - | - | -
Debt securities | 174 | - | -
Equity instruments | 1,888 | - | -
Available-for-sale financial assets | 57,381 | 11,082 | 544
Debt securities | 54,850 | 10,948 | 454
Equity instruments | 2,531 | 134 | 90
Hedging derivatives | - | 2,483 | 2
LIABILITIES- |  |  |
Financial liabilities held for trading | 11,191 | 34,866 | 125
Derivatives | 1,183 | 34,866 | 119
Short positions | 10,008 | - | 6
Financial liabilities designated at fair value through profit or loss | - | 2,222 | -
Derivatives – Hedge accounting | 274 | 2,606 | -

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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, 2019 and 2018:

Fair value of financial Instruments by levels. December 2019 (Millions of euros)
| Level 2 | Level 3 | Valuation technique(s) | Observable inputs | Unobservable inputs
ASSETS |  |  |  |  |
Financial assets held for trading | 70,045 | 1,508 |  | - Issuer´s credit risk - Current market interest rates - Funding interest rates observed in the market or in consensus services - Exchange rates | - Prepayment rates - Issuer´s credit risk - Recovery rates - Funding interest rates not observed in the market or in consensus services
Loans and advances | 32,321 | 1,285 | Present-value method (Discounted future cash flows)
Debt securities | 8,178 | 55 | 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 | - | 59 | Comparable pricing (Observable price in a similar market) Present-value method | - Brokers quotes - Market operations - NAVs published | - NAV not published
Derivatives | 29,546 | 109 |  |  |
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 | - 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 | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and discounted cash flows |
Non-trading financial assets mandatorily at fair value through profit or loss | 92 | 1,160 |  |  |
Loans and advances | - | 1,038 | Specific liquidation criteria regarding losses of the EPA proceedings PD and LGD of the internal models, valuations and specific criteria of the EPA proceedings Discounted future cash flows |  | - Prepayment rates - Business plan of the underlying asset, WACC, macro scenario - Property valuation
Debt securities | 91 | 19 | Present-value method (Discounted future cash flows) | - Issuer credit risk - Current market interest rates | - Prepayment rates - Issuer credit risk - Recovery rates
Equity instruments | 1 | 103 | 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
Financial assets at fair value through other comprehensive income | 9,203 | 1,084 |  |  |
Debt securities | 9,057 | 604 | 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 | 146 | 480 | 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 | 1,685 | - |  |  |
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 |
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment |
Credit |  |  | Credit Derivatives: Default model and Gaussian copula |
Commodities |  |  | Commodities: Momentum adjustment and Discounted cash flows |

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Fair Value of financial Instruments by Levels. December 2019 (Millions of euros)
| Level 2 | Level 3 | Valuation technique(s) | Observable inputs | Unobservable inputs
LIABILITIES |  |  |  |  |
Financial liabilities held for trading | 62,541 | 827 |  |  |
Deposits | 32,121 | 649 | Present-value method (Discounted future cash flows) | - Interest rate yield - Funding interest rates observed in the market or in consensus services - Exchange rates | - Funding interest rates not observed in the market or in consensus services
Derivatives | 30,419 | 175 |  |  |
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 | - Volatility of volatility - Assets correlation
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment | - Volatility of volatility - Assets correlation
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and discounted cash flows |
Short positions | 1 | 2 | Present-value method (Discounted future cash flows) |  | - Prepayment rates - Issuer´s credit risk - Current market interest rates
Financial liabilities designated at fair value through profit or loss | 9,984 | 27 | 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 | 2,192 | 11 |  |  |
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 | - 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 | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and discounted cash flows |

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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 |  | - Issuer´s credit risk - Current market interest rates - Funding interest rates observed in the market or in consensus services - Exchange rates | - Prepayment rates - Issuer´s credit risk - Recovery rates
Loans and advances | 28,642 | 60 | Present-value method (Discounted future cash flows)
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 funds
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 | - 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 | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and discounted cash flows |
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 |
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment |
Credit |  |  | Credit Derivatives: Default model and Gaussian copula |
Commodities |  |  | Commodities: Momentum adjustment and Discounted cash flows |

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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
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 | - Volatility of volatility - Assets correlation
Foreign exchange and gold |  |  | Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment | - Volatility of volatility - Assets correlation
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and discounted cash flows |
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 | - 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 | - Volatility of volatility - Implicit assets correlations - Long term implicit correlations
Credit |  |  | Credit Derivatives: Default model and Gaussian copula | - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility
Commodities |  |  | Commodities: Momentum adjustment and discounted cash flows |

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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 financial instrument, 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.

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 observable data of probabilities of default and recoveries used in the calculation.

These adjustments are calculated by estimating Exposure At Default, Probability of Default and Loss Given Default, which are based on the recovery levels for all derivative products on any instrument, deposits and repos at the legal entity level (all counterparties under a same ISDA / CMOF), in which BBVA has exposure.

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.

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, 2019 and 2018 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) was €-106 and €-163 million respectively, and the valuation adjustments to the derivative liabilities as “Debit Valuation Adjustment” (DVA) was €117 million and €214 million respectively . The impact recorded under “Gains or (-) losses on financial assets and liabilities held for trading, net” in the consolidated income statement as of December, 2019 and 2018 corresponding to the mentioned adjustments was a net impact of €67 million and €-24 million respectively.

Additionally, as of December, 2019 and 2018, €-8 and €-12 million related to the “Funding Valuation Adjustments” (“FVA”) were recognized in the consolidated balance sheet, being the impact on results €4 million and €-2 million, respectively.

Unobservable inputs

Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below as of December 31, 2019 and 2018:

December 31, 2019:

Financial instrument | Valuation technique(s) | Significant unobservable inputs | Min | Average | Max | Units
Loans and advances (*) | Present value method | Repo funding curve | (6) | 16 | 100 | b.p
Debt securities | Net present value | Credit spread | 18 | 83 | 504 | b.p
Recovery rate | 0.00% | 28.38% | 40.00% | %
Comparable pricing |  | 0.01% | 98.31% | 135.94% | %
Equity instruments (**) | Net asset Value |  |
Comparable pricing |
Credit option | Gaussian Copula | Correlation default | 19.37% | 44.33% | 61.08% | %
Corporate Bond option | Black 76 | Price volatility | - | - | - | Vegas
Equity OTC option | Heston | Forward volatility skew | 35.12 | 35.12 | 35.12 | Vegas
Local volatility | Dividends (***) |
Volatility | 2.49 | 23.21 | 60.90 | Vegas
FX OTC options | Black Scholes/Local Vol | Volatility | 3.70 | 6.30 | 10.05 | Vegas
Interest rate options | Libor Market Model | Beta | 0.25 | 2.00 | 18.00 | %
Correlation rate/Credit | (100) |  | 100 | %
Credit default Volatility | - | - | - | Vegas

(*) Other valuation techniques such as specific liquidation criteria regarding losses of the EPA proceedings, PD and LGD of the internal models, valuations and specific criteria of the EPA proceedings or Discounted future cash flows are used for specific financial instruments.

(**) Due to the diversity of valuation models of equity instruments, we don’t include all the unobservable inputs or the quantitative ranges of them.

(***) The range of non-observable dividends has too wide range to be relevant.

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 options | Libor Market Model | Beta | 0.25 | 9.00 | 18.00 | %

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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 are as follows:

Financial assets Level 3: Changes in the year (Millions of Euros)
| 2019 | 2018 | 2017
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities
Balance at the beginning | 3,527 | 2,787 | 835 | 125 | 822 | 116
Group additions | - | - | - | - | - | -
Changes in fair value recognized in profit and loss (*) | 112 | 44 | (167) | (95) | (24) | (21)
Changes in fair value not recognized in profit and loss | 2 | - | (4) | - | (45) | -
Acquisitions, disposals and liquidations (**) | 5 | 595 | 2,102 | 2,710 | 32 | 320
Net transfers to Level 3 | 77 | (2,751) | 761 | 47 | 106 | (39)
Exchange differences and others | 31 | 189 | - | - | (55) | (250)
Balance at the end | 3,753 | 865 | 3,527 | 2,787 | 835 | 125

(*) Profit or loss that is attributable to gains or losses relating to those financial assets and liabilities held as of December 31, 2019, 2018 and 2017. Valuation adjustments are recorded under the heading “Gains (losses) on financial assets and liabilities (net)”.

(**) Of which, in 2019, the assets roll forward is comprised of €1,525 million of acquisitions, €1,102 million of disposals and €417 million of liquidations. The liabilities roll forward is comprised of €858 million of acquisitions, €53 million of sales and €210 million of liquidations.

During 2019, certain interest rate yields have been adapted to those observable in the market, which mainly affects the valuation of certain deposit classes recorded under “Financial liabilities at amortized cost” and certain insurance products recorded under “Financial liabilities designated at fair value through profit or loss - Other financial liabilities”, and, a result thereof, their classification as instruments has changed from Level 3 to Level 2. Additionally, in Level 3, €1,285 million in assets held for trading and €649 in liabilities held for trading have been classified, mainly due to certain reverse repurchase and repurchase agreements, due to the non-observability and liquidity in the interest rate yield for the financing of assets applied in the calculation of its fair value.

As of December 31, 2019, 2018 and 2017, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying consolidated income statement was not material.

Transfers between levels

The Global Valuation Area, in collaboration with the Group, has established the rules for a proper financial instruments held for trading classification according to the fair value hierarchy defined by IFRS.

On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the subsidiaries. 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, 2019 and 2018, are at the following amounts in the accompanying consolidated balance sheets as of December 31, 2019 and 2018:

Transfer between Levels. December 2019 (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 |  | 74 | - | 1,119 | 502 | 1 | 160
Non-trading financial assets mandatorily at fair value through profit or loss |  | - | - | 23 | 2 | - | 44
Financial assets designated at fair value through profit or loss |  | - | - | - | - | 1 | -
Financial assets at fair value through other comprehensive income |  | 6 | 6 | 4 | 209 | - | 454
Derivatives |  | - | - | - | 26 | - | 10
Total |  | 79 | 6 | 1,145 | 739 | 2 | 667
LIABILITIES |  |  |  |  |  |  |
Derivatives |  | - | - | - | 27 | - | 125
Financial liabilities held for trading |  | 1 | - | - | - | - | -
Financial liabilities designated at fair value through profit or loss |  | - | - | - | 27 | - | 2,679
Total |  | 1 | - | - | 54 | - | 2,804

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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 during the year ended December 31, 2019, 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 securities 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 transactions of financial assets held for trading, derivatives and financial liabilities designated at fair value through profit or loss.

· Transfers from Level 3 to Level 2 generally affect derivative and debt securities transactions, for which inputs observable in the market have been obtained.

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, 2019 and 2018, the effect on profit for the year 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 instruments Level 3 2019: Sensitivity analysis (Millions of Euros)
| Potential impact on consolidated income statement | Potential impact on other comprehensive income
| Most favorable hypothesis | Least favorable hypothesis | Most favorable hypothesis | Least favorable hypothesis
ASSETS |  |  |  |
Financial assets held for trading | 5 | (60) | - | -
Loans and Advances | - | (10) | - | -
Debt securities | 3 | - | - | -
Equity instruments | 1 | (48) | - | -
Derivatives | 2 | (2) | - | -
Non-trading financial assets mandatorily at fair value through profit or loss | 367 | (66) | - | -
Loans and advances | 354 | (61) | - | -
Debt securities | 7 | - | - | -
Equity instruments | 5 | (6) | - | -
Financial assets designated at fair value through profit or loss | - | - | - | -
Financial assets at fair value through other comprehensive income | - | - | 10 | (1)
Total | 372 | (126) | 10 | (1)
LIABILITIES |  |  |  |
Financial liabilities held for trading | 3 | (3) | - | -
Total | 3 | (3) | - | -

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Financial instruments Level 3 2018: 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 | - | - | 10 | (1)
LIABILITIES |  |  |  |
Financial liabilities held for trading | 1 | (1) | - | -
Total | 297 | (194) | - | -

## 8.2 Fair value of financial instruments carried at cost, by valuation criteria

The valuation technique used to calculate the fair value of financial assets and liabilities carried at cost as of December 31, 2019 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.

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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, 2019 and 2018, 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)
| 2019 | 2018
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3
ASSETS |  |  |  |  |  |
Cash, cash balances at central banks and other demand deposits | 44,111 | - | 192 | 58,024 | - | 172
Financial assets at amortized cost | 29,391 | 217,279 | 196,119 | 21,419 | 204,619 | 193,819
LIABILITIES |  |  |  |  |  |
Financial liabilities at amortized cost | 67,229 | 289,599 | 159,082 | 58,225 | 269,128 | 182,948

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, 2019 and 2018:

Fair Value of financial Instruments at amortized cost by valuation technique. December 2019 (Millions of Euros)
| Level 2 | Level 3 | Valuation technique(s) | Main inputs used
ASSETS |  |  |  |
Financial assets at amortized cost | 217,279 | 196,119 | Present-value method (Discounted future cash flows) |
Central banks | - | 2 | - Credit spread - Prepayment rates - Interest rate yield
Loans and advances to credit institutions | 9,049 | 4,628 | - Credit spread - Prepayment rates - Interest rate yield
Loans and advances to customers | 194,897 | 190,144 | - Credit spread - Prepayment rates - Interest rate yield
Debt securities | 13,333 | 1,345 | - Credit spread - Interest rate yield
LIABILITIES |  |  |  |
Financial liabilities at amortized cost | 289,599 | 159,082 |  |
Deposits from central banks | 129 | - | Present-value method (Discounted future cash flows) | - Issuer´s credit risk - Prepayment rates - Interest rate yield
Deposits from credit institutions | 21,575 | 6,831
Deposits from customers | 245,720 | 135,514
Debt certificates | 14,194 | 11,133
Other financial liabilities | 7,981 | 5,604

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 | Present-value method (Discounted future cash flows) |
Central banks | - | 1 | - Credit spread - Prepayment rates - Interest rate yield
Loans and advances to credit institutions | 4,934 | 4,291 | - Credit spread - Prepayment rates - Interest rate yield
Loans and advances to customers | 190,666 | 183,645 | - Credit spread - Prepayment rates - Interest rate yield
Debt securities | 9,019 | 5,881 | - 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
Loans and advances to customers | 240,547 | 135,270
Debt securities | 6,104 | 25,096
Other financial liabilities | - | 12,730

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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 million, as of December 31, 2017.

9. Cash, cash balances at central banks and other demand deposits

The breakdown of the balance under the heading “Cash, cash balances at central banks and other demand deposits” in the accompanying consolidated balance sheets is as follows:

Cash, cash balances at central banks and other demand deposits (Millions of Euros)
| 2019 | 2018 | 2017
Cash on hand | 7,060 | 6,346 | 6,220
Cash balances at central banks | 31,755 | 43,880 | 31,718
Other demand deposits | 5,488 | 7,970 | 4,742
Total | 44,303 | 58,196 | 42,680

The change in “Cash balances at central banks” is mainly due to the decrease in cash held at the Bank of Spain.

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 | 2019 | 2018 | 2017
ASSETS |  |  |  |
Derivatives |  | 33,185 | 30,536 | 35,265
Equity instruments | 7.1.2 | 8,892 | 5,254 | 6,801
Credit institutions |  | 1,037 | 880 | 962
Other sectors |  | 7,855 | 4,374 | 5,839
Debt securities | 7.1.2 | 26,309 | 25,577 | 22,573
Issued by central banks |  | 840 | 1,001 | 1,371
Issued by public administrations |  | 23,918 | 22,950 | 19,344
Issued by financial institutions |  | 679 | 790 | 816
Other debt securities |  | 872 | 836 | 1,041
Loans and advances | 7.1.2 | 34,303 | 28,750 | 56
Loans and advances to central banks |  | 535 | 2,163 | -
Reverse repurchase agreement | 35 | 535 | 2,163 | -
Loans and advances to credit institutions |  | 21,286 | 14,566 | -
Reverse repurchase agreement | 35 | 21,219 | 13,305 | -
Loans and advances to customers |  | 12,482 | 12,021 | 56
Reverse repurchase agreement | 35 | 12,187 | 11,794 | -
Total assets |  | 102,688 | 90,117 | 64,695
LIABILITIES |  |  |  |
Derivatives |  | 35,019 | 31,815 | 36,169
Short positions |  | 12,249 | 11,025 | 10,013
Deposits |  | 42,365 | 37,934 | -
Deposits from central banks |  | 7,635 | 10,511 | -
Repurchase agreement | 35 | 7,635 | 10,511 | -
Deposits from credit institutions |  | 24,969 | 15,687 | -
Repurchase agreement | 35 | 24,578 | 14,839 | -
Customer deposits |  | 9,761 | 11,736 | -
Repurchase agreement | 35 | 9,689 | 11,466 | -
Total liabilities |  | 89,633 | 80,774 | 46,182

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As of December 31, 2019, 2018 and 2017 “Short positions” include €11,649 million, 10,255 million and 7,243 million, respectively, held with general governments.

## 10.2 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, 2019, 2018 and 2017, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties, consisting primarily of foreign credit institutions and other non financial corporations, 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 and by product or by type of market (Millions of Euros)
| 2019 | 2018 | 2017
| Assets | Liabilities | Notional amount - Total | Assets | Liabilities | Notional amount - Total | Assets | Liabilities | Notional amount - Total
Interest rate | 21,479 | 20,853 | 3,024,794 | 19,146 | 18,769 | 2,929,371 | 22,606 | 22,546 | 2,152,490
OTC | 21,479 | 20,852 | 2,997,443 | 19,146 | 18,769 | 2,910,016 | 22,606 | 22,546 | 2,129,474
Organized market | - | 1 | 27,351 | - | - | 19,355 | - | - | 23,016
Equity instruments | 2,263 | 3,499 | 84,140 | 2,799 | 2,956 | 114,184 | 1,778 | 2,336 | 95,573
OTC | 353 | 1,435 | 40,507 | 631 | 463 | 39,599 | 578 | 1,207 | 42,298
Organized market | 1,910 | 2,065 | 43,633 | 2,168 | 2,492 | 74,586 | 1,200 | 1,129 | 53,275
Foreign exchange and gold | 9,086 | 10,266 | 472,194 | 8,355 | 9,693 | 432,283 | 10,371 | 10,729 | 380,404
OTC | 9,049 | 10,260 | 463,662 | 8,344 | 9,638 | 426,952 | 10,337 | 10,688 | 373,303
Organized market | 37 | 6 | 8,532 | 11 | 55 | 5,331 | 34 | 40 | 7,101
Credit | 353 | 397 | 29,077 | 232 | 393 | 25,452 | 489 | 517 | 30,181
Credit default swap | 338 | 283 | 26,702 | 228 | 248 | 22,791 | 480 | 507 | 27,942
Credit spread option | - | 2 | 150 | 2 | - | 500 | - | - | 200
Total return swap | 14 | 113 | 2,225 | 2 | 145 | 2,161 | 9 | 9 | 2,039
Other | - | - | - | - | - | - | - | - | -
Commodities | 4 | 4 | 64 | 3 | 3 | 67 | 3 | 3 | 36
Other | - | - | - | - | - | - | 18 | 38 | 561
DERIVATIVES | 33,185 | 35,019 | 3,610,269 | 30,536 | 31,815 | 3,501,358 | 35,265 | 36,169 | 2,659,246
Of which: OTC - credit institutions | 20,706 | 23,717 | 1,000,243 | 16,979 | 18,729 | 897,384 | 21,016 | 22,804 | 898,209
Of which: OTC - other financial corporations | 6,153 | 6,214 | 2,370,988 | 7,372 | 7,758 | 2,355,784 | 8,695 | 9,207 | 1,548,919
Of which: OTC - other | 4,378 | 3,016 | 159,521 | 4,005 | 2,780 | 148,917 | 4,316 | 2,986 | 128,722

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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 | 2019 | 2018 | 2017
Equity instruments | 7.1.2 | 4,327 | 3,095 |
Debt securities | 7.1.2 | 110 | 237 |
Loans and advances to customers | 7.1.2 | 1,120 | 1,803 |
Total |  | 5,557 | 5,135 |

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 | 2019 | 2018 | 2017
ASSETS |  |  |  |
Equity instruments |  |  |  | 1,888
Debt securities |  | 1,214 | 1,313 | 174
Loans and advances |  | - | - | 648
Total assets | 7.1.2 | 1,214 | 1,313 | 2,709
LIABILITIES |  |  |  |
Deposits |  | 944 | 976 | -
Debt certificates |  | 4,656 | 2,858 | -
Other financial liabilities: Unit-linked products |  | 4,410 | 3,159 | 2,222
Total liabilities |  | 10,010 | 6,993 | 2,222

As of December 31, 2019, 2018 and 2017, within “Financial liabilities designated at fair value through profit or loss”, liabilities linked to insurance products where the policyholder bears the risk ("Unit-Link") are recorded. 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.

In addition, the assets and liabilities are included in these headings to reduce inconsistencies (asymmetries) in the valuation of those operations and those used to manage their risk.

13. Financial assets at fair value through other comprehensive income

13.1 B reakdown of the balance

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 | 2019 | 2018 | 2017
Equity instruments | 7.1.2 | 2,420 | 2,595 | 4,488
Loss allowances |  | - | - | (1,264)
Subtotal |  | 2,420 | 2,595 | 3,224
Debt securities | 7.1.2 | 58,841 | 53,737 | 66,273
Loss allowances |  | (110) | (28) | (21)
Subtotal |  | 58,731 | 53,709 | 66,251
Loans and advances to credit institutions | 7.1.2 | 33 | 33 | -
Total |  | 61,183 | 56,337 | 69,476

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13.2 Equity instruments

The breakdown of the balance under the heading "Equity instruments" of the accompanying consolidated financial statements as of December 31, 2019 and 2018 is as follows:

Financial assets at fair value through other comprehensive income. Equity instruments. (Millions of Euros)
| 2019 | 2018
| Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value
Equity instruments |  |  |  |  |  |  |  |
Spanish companies shares | 2,181 | - | (507) | 1,674 | 2,172 | - | (210) | 1,962
Foreign companies shares | 136 | 87 | (11) | 213 | 90 | 43 | (12) | 121
The United States | 30 | 47 | - | 78 | 20 | 17 | - | 37
Mexico | 1 | 33 | - | 34 | 1 | 25 | - | 26
Turkey | 3 | 2 | - | 5 | 3 | - | (1) | 2
Other countries | 102 | 5 | (11) | 96 | 66 | 1 | (11) | 56
Subtotal equity instruments listed | 2,317 | 87 | (518) | 1,886 | 2,262 | 43 | (222) | 2,083
Equity instruments |  |  |  |  |  |  |  |
Spanish companies shares | 5 | 1 | - | 5 | 6 | 1 | - | 7
Foreign companies shares | 450 | 79 | (1) | 528 | 453 | 54 | (1) | 506
The United States | 387 | 32 | - | 419 | 388 | 23 | - | 411
Mexico | - | - | - | - | - | - | - | -
Turkey | 5 | 4 | - | 9 | 6 | 4 | - | 10
Other countries | 57 | 43 | (1) | 99 | 59 | 27 | (1) | 85
Subtotal unlisted equity instruments | 454 | 80 | (1) | 533 | 459 | 55 | (1) | 513
Total | 2,772 | 167 | (519) | 2,420 | 2,721 | 98 | (223) | 2,595

The breakdown of the balance under the heading "Equity instruments" of the accompanying consolidated financial statements as of December 31, 2017 is as follows:

Available-for-sale financial assets. Equity instruments. December 2017 (Millions of Euros)
|  | Amortized cost | Unrealized gains | Unrealized losses | Fair value
Equity instruments listed |  |  |  |  |
Spanish companies shares |  | 2,189 | - | (1) | 2,188
Foreign companies shares |  | 215 | 33 | (7) | 241
United States |  | 11 | - | - | 11
Mexico |  | 8 | 25 | - | 33
Turkey |  | 4 | 1 | - | 5
Other countries |  | 192 | 7 | (7) | 192
Subtotal equity instruments listed |  | 2,404 | 33 | (8) | 2,429
Unlisted equity instruments |  |  |  |  |
Spanish companies shares |  | 33 | 29 | - | 62
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 unlisted equity instruments |  | 698 | 106 | (8) | 796
Total |  | 3,102 | 139 | (16) | 3,224

F-100

13.3 Debt securities

The breakdown of the balance under the heading “Debt securities” of the accompanying consolidated financial statements as of December 31, 2019 and 2018, broken down by issuers, is as follows:

Financial assets at fair value through other comprehensive income. (Millions of Euros)
| 2019 | 2018
| Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value
Domestic debt securities |  |  |  |  |  |  |  |
Government and other government agency debt securities | 20,740 | 830 | (20) | 21,550 | 17,205 | 661 | (9) | 17,857
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 959 | 65 | - | 1,024 | 793 | 63 | - | 855
Other issuers | 907 | 40 | - | 947 | 804 | 37 | (1) | 841
Subtotal | 22,607 | 935 | (21) | 23,521 | 18,802 | 761 | (10) | 19,553
Foreign debt securities |  |  |  |  |  |  |  |
Mexico | 7,790 | 22 | (26) | 7,786 | 6,299 | 6 | (142) | 6,163
Government and other government agency debt securities | 6,869 | 18 | (19) | 6,868 | 5,286 | 4 | (121) | 5,169
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 77 | 2 | - | 78 | 35 | - | (1) | 34
Other issuers | 843 | 2 | (6) | 840 | 978 | 2 | (20) | 961
The United States | 11,376 | 68 | (51) | 11,393 | 14,507 | 47 | (217) | 14,338
Government securities | 8,570 | 42 | (12) | 8,599 | 11,227 | 37 | (135) | 11,130
Treasury and other government agencies | 5,595 | 32 | (2) | 5,624 | 7,285 | 29 | (56) | 7,258
States and political subdivisions | 2,975 | 10 | (10) | 2,975 | 3,942 | 8 | (79) | 3,872
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 122 | 2 | - | 124 | 49 | 1 | - | 50
Other issuers | 2,684 | 24 | (39) | 2,670 | 3,231 | 9 | (82) | 3,158
Turkey | 3,752 | 38 | (76) | 3,713 | 4,164 | 20 | (269) | 3,916
Government and other government agency debt securities | 3,752 | 38 | (76) | 3,713 | 4,007 | 20 | (256) | 3,771
Central banks | - | - | - | - | - | - | - | -
Credit institutions | - | - | - | - | 157 | - | (13) | 145
Other issuers | - | - | - | - | - | - | - | -
Other countries | 11,870 | 554 | (106) | 12,318 | 9,551 | 319 | (130) | 9,740
Other foreign governments and other government agency debt securities | 6,963 | 383 | (78) | 7,269 | 4,510 | 173 | (82) | 4,601
Central banks | 1,005 | 9 | (4) | 1,010 | 987 | 2 | (4) | 986
Credit institutions | 1,795 | 109 | (12) | 1,892 | 1,856 | 111 | (20) | 1,947
Other issuers | 2,106 | 53 | (12) | 2,147 | 2,197 | 33 | (25) | 2,206
Subtotal | 34,788 | 681 | (259) | 35,210 | 34,521 | 392 | (758) | 34,157
Total | 57,395 | 1,617 | (280) | 58,731 | 53,323 | 1,153 | (768) | 53,709

The breakdown of the balance under the heading “Debt securities” of the accompanying consolidated financial statements as of December 31, 2017, broken down by issuers, is as follows:

Available-for-sale financial assets. December 2017 (Millions of Euros)
|  | Amortized cost | Unrealized gains | Unrealized losses | Fair value
Domestic debt securities |  |  |  |  |
Government and other government agency debt securities |  | 22,765 | 791 | (17) | 23,539
Central banks |  | - | - | - | -
Credit institutions |  | 891 | 72 | - | 962
Other issuers |  | 1,061 | 43 | - | 1,103
Subtotal Spanish debt securities |  | 24,716 | 906 | (17) | 25,605
Foreign debt securities |  |  |  |  |
Mexico |  | 9,755 | 45 | (142) | 9,658
Government and other government agency debt securities |  | 8,101 | 34 | (120) | 8,015
Central banks |  | - | - | - | -
Credit institutions |  | 212 | 1 | (3) | 209
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
Treasury and other government agencies |  | 3,052 | - | (34) | 3,018
States and political subdivisions |  | 5,573 | 8 | (99) | 5,482
Central banks |  | - | - | - | -
Credit institutions |  | 56 | 1 | - | 57
Other issuers |  | 3,798 | 26 | (65) | 3,759
Turkey |  | 5,052 | 48 | (115) | 4,985
Government and other government agency debt securities |  | 5,033 | 48 | (114) | 4,967
Central banks |  | - | - | - | -
Credit institutions |  | 19 | - | (1) | 19
Other issuers |  | - | - | - | -
Other countries |  | 13,271 | 533 | (117) | 13,687
Other foreign governments and other government agency debt securities |  | 6,774 | 325 | (77) | 7,022
Central banks |  | 1,330 | 2 | (1) | 1,331
Credit institutions |  | 2,535 | 139 | (19) | 2,654
Other issuers |  | 2,632 | 66 | (19) | 2,679
Subtotal |  | 40,557 | 661 | (572) | 40,647
Total |  | 65,273 | 1,567 | (589) | 66,251

F-101

The credit ratings of the issuers of debt securities as of December 31, 2019, 2018, and 2017 are as follows:

Debt securities by rating
| 2019 | 2018 | 2017
| Fair value (Millions of Euros) | % | Fair value (Millions of Euros) | % | Fair value (Millions of Euros) | %
AAA | 3,669 | 6.2% | 531 | 1.0% | 687 | 1.0%
AA+ | 7,279 | 12.4% | 13,100 | 24.4% | 10,738 | 16.2%
AA | 317 | 0.5% | 222 | 0.4% | 507 | 0.8%
AA- | 265 | 0.5% | 409 | 0.8% | 291 | 0.4%
A+ | 3,367 | 5.7% | 632 | 1.2% | 664 | 1.0%
A | 12,895 | 22.0% | 687 | 1.3% | 683 | 1.0%
A- | 10,947 | 18.6% | 18,426 | 34.3% | 1,330 | 2.0%
BBB+ | 9,946 | 16.9% | 9,195 | 17.1% | 35,175 | 53.1%
BBB | 2,966 | 5.1% | 4,607 | 8.6% | 7,958 | 12.0%
BBB- | 1,927 | 3.3% | 1,003 | 1.9% | 5,583 | 8.4%
BB+ or below | 4,712 | 8.0% | 4,453 | 8.3% | 1,564 | 2.4%
Without rating | 441 | 0.8% | 445 | 0.8% | 1,071 | 1.6%
Total | 58,731 | 100.0% | 53,709 | 100.0% | 66,251 | 100.0%

13.4 Gains/losses

Changes in gains / losses

The changes in the gains/losses (net of taxes) in December 31, 2019 and 2018 of debt securities recognized under the equity 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” and equity instruments recognized under the equity heading “Accumulated other comprehensive income – Items that will not be reclassified to profit or loss – Changes in fair value of equity instruments designated at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:

Other comprehensive income - Changes in gains / losses (Millions of euros)
|  | Debt securities | Equity instruments
| Notes | 2019 | 2018 | 2019 | 2018
Balance at the beginning |  | 943 | 1,557 | (155) | 84
Effect of changes in accounting policies (IFRS 9) |  | - | (58) | - | (40)
Valuation gains and losses |  | 1,267 | (640) | (238) | (174)
Amounts transferred to income |  | (119) | (137) |  |
Other reclassifications |  | - | - | - | -
Income tax |  | (331) | 221 | (10) | (25)
Balance at the end | 30 | 1,760 | 943 | (403) | (155)

F-102

In 2019, 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 net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €83 million (see Note 47) as a result of the decrease in the rating of debt securities in BBVA Argentina during the last quarter of 2019.

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 net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €1 million (see Note 47).

During 2019 and 2018 there has been no significant impairment registered in equity instruments under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss net gains by modification- Financial assets at fair value through other comprehensive income” (see Note 47).

14. Financial assets at amortized cost

14.1 Breakdown of the balance

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) |  |  |  |
| Notes | 2019 | 2018 | 2017
Debt securities |  | 38,877 | 32,530 | 24,093
Government |  | 31,526 | 25,014 | 17,030
Credit institutions |  | 719 | 644 | 1,152
Other sectors |  | 6,632 | 6,872 | 5,911
Loans and advances to central banks |  | 4,275 | 3,941 | 7,300
Loans and advances to credit institutions |  | 13,649 | 9,163 | 26,261
Reverse repurchase agreements | 35 | 1,817 | 478 | 13,861
Other loans and advances |  | 11,832 | 8,685 | 12,400
Loans and advances to customers |  | 382,360 | 374,027 | 387,621
Government |  | 28,222 | 28,114 | 31,645
Other financial corporations |  | 11,207 | 9,468 | 18,173
Non-financial corporations |  | 166,789 | 163,922 | 164,510
Other |  | 176,142 | 172,522 | 173,293
Total |  | 439,162 | 419,660 | 445,275
Of which: impaired assets of loans and advances to customers |  | 15,954 | 16,349 | 19,390
Of which: loss allowances of loans and advances |  | (12,427) | (12,217) | (12,784)
Of which: loss allowances of debt securities |  | (52) | (51) | (15)

During financial years 2019 and 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 Debt securities

The breakdown of the balance under the heading “Debt securities” in the accompanying consolidated balance sheets, according to the issuer of the debt securities, is as follows:

Financial assets at amortized cost. (Millions of Euros)
| 2019 | 2018
| Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value
Domestic debt securities |  |  |  |  |  |  |  |
Government and other government agencies | 12,755 | 630 | (21) | 13,363 | 10,953 | 458 | (265) | 11,146
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 26 | - | - | 26 | 53 | - | - | 53
Other issuers | 4,903 | 38 | (10) | 4,931 | 5,014 | 41 | (25) | 5,030
Subtotal | 17,684 | 668 | (31) | 18,320 | 16,019 | 499 | (290) | 16,228
Foreign debt securities |  |  |  |  |  |  |  |
Mexico | 6,374 | 168 | (18) | 6,525 | 5,148 | 10 | - | 5,157
Government and other government agencies debt securities | 5,576 | 166 | - | 5,742 | 4,571 | 9 | - | 4,579
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 526 | 2 | - | 529 | 350 | 1 | - | 351
Other issuers | 272 | - | (18) | 254 | 227 | - | - | 227
The United States | 6,125 | 111 | (20) | 6,217 | 2,559 | 15 | (3) | 2,570
Government securities | 5,690 | 111 | (18) | 5,783 | 2,070 | - | - | 2,070
Treasury and other government agencies | 1,161 | 50 | (17) | 1,193 | 118 | - | - | 118
States and political subdivisions | 4,530 | 61 | (1) | 4,590 | 1,952 | - | - | 1,952
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 25 | - | (1) | 25 | 23 | 9 | (2) | 30
Other issuers | 410 | - | (1) | 409 | 466 | 6 | (1) | 470
Turkey | 4,113 | 48 | (65) | 4,097 | 4,062 | - | (261) | 3,801
Government and other government agencies debt securities | 4,105 | 47 | (65) | 4,088 | 4,054 | - | (261) | 3,793
Central banks | - | - | - | - | - | - | - | -
Credit institutions | 7 | 1 | - | 8 | 7 | - | - | 7
Other issuers | 1 | - | - | 1 | 1 | - | - | 1
Other countries | 4,581 | 82 | (26) | 4,637 | 4,741 | 32 | (152) | 4,622
Other foreign governments and other government agency debt securities | 3,400 | 82 | (22) | 3,459 | 3,366 | 27 | (152) | 3,242
Central banks | - | - | - | - | 64 | - | - | 64
Credit institutions | 135 | - | - | 135 | 147 | - | - | 147
Other issuers | 1,047 | - | (4) | 1,043 | 1,164 | 5 | - | 1,169
Subtotal | 21,194 | 409 | (129) | 21,476 | 16,510 | 57 | (416) | 16,150
Total | 38,877 | 1,077 | (160) | 39,796 | 32,530 | 556 | (706) | 32,378

F-103

As of December 31, 2019 and 2018, the credit ratings of the issuers of debt securities classified as follows:

Debt securities by rating
| 2019 | 2018
| Carrying amount (Millions of Euros) | % | Carrying amount (Millions of Euros) | %
AAA | 39 | 0.1% | 49 | 0.2%
AA+ | 6,481 | 16.7% | 1,969 | 6.1%
AA | 14 | - | 62 | 0.2%
AA- | 713 | 1.8% | - | -
A+ | - | - | 607 | 1.9%
A | 16,806 | 43.2% | 21 | 0.1%
A- | 607 | 1.6% | 6,117 | 18.8%
BBB+ | 3,715 | 9.6% | 13,894 | 42.7%
BBB | 551 | 1.4% | 1,623 | 5.0%
BBB- | 3,745 | 9.6% | 2,694 | 8.3%
BB+ or below | 5,123 | 13.2% | 4,371 | 13.4%
Without rating | 1,083 | 2.8% | 1,123 | 3.5%
Total | 38,877 | 100.0% | 32,530 | 100.0%

F-104

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 | 2019 | 2018 | 2017
On demand and short notice |  | 3,050 | 3,641 | 10,560
Credit card debt |  | 16,354 | 15,445 | 15,835
Trade receivables |  | 17,276 | 17,436 | 22,705
Finance leases |  | 8,711 | 8,650 | 8,642
Reverse repurchase agreements | 35 | 26 | 294 | 11,554
Other term loans |  | 332,160 | 324,767 | 313,336
Advances that are not loans |  | 4,784 | 3,794 | 4,989
Total |  | 382,360 | 374,027 | 387,621

The following table sets forth a breakdown of the gross carrying amount "Loans and advances to customers" with maturity greater than one year by fixed and variable rate as of December 31, 2019:

'Interest sensitivity of outstanding loans and advances maturing in more than one year (Millions of Euros)
| Domestic | Foreign | Total
Fixed rate | 55,920 | 68,915 | 124,835
Variable rate | 79,329 | 97,765 | 177,095
Total | 135,249 | 166,680 | 301,929

As of December 31, 2019, 2018 and 2017, 41%, 38% and 38%, respectively, of "Loans and advances to customers" with maturity greater than one year have fixed-interest rates and 59%, 62% and 62%, 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)
| 2019 | 2018 | 2017
Securitized mortgage assets | 26,169 | 26,556 | 28,950
Other securitized assets | 4,249 | 3,221 | 4,143
Total securitized assets | 30,418 | 29,777 | 33,093

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)
|  | 2019 | 2018 | 2017
ASSETS |  |  |  |
Derivatives - Hedge accounting |  | 1,729 | 2,892 | 2,485
Fair value changes of the hedged items in portfolio hedges of interest rate risk |  | 28 | (21) | (25)
LIABILITIES |  |  |  |
Hedging derivatives |  | 2,233 | 2,680 | 2,880
Fair value changes of the hedged items in portfolio hedges of interest rate risk |  | - | - | (7)

F-105

As of December 31, 2019, 2018 and 2017, 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:

Derivatives - Hedge accounting breakdown by type of risk and type of hedge. (Millions of Euros)
| 2019 | 2018 | 2017
| Assets | Liabilities | Assets | Liabilities | Assets | Liabilities
Interest rate | 920 | 488 | 982 | 513 | 1,141 | 850
OTC | 920 | 488 | 982 | 513 | 1,141 | 850
Organized market | - | - | - | - | - | -
Equity | - | 3 | 6 | - | - | -
OTC | - | 3 | 6 | - | - | -
Organized market | - | - | - | - | - | -
Foreign exchange and gold | 420 | 316 | 587 | 398 | 625 | 511
OTC | 420 | 316 | 587 | 398 | 625 | 511
Organized market | - | - | - | - | - | -
Credit | - | - | - | - | - | -
Commodities | - | - | - | - | - | -
Other | - | - | - | - | - | -
FAIR VALUE HEDGES | 1,341 | 808 | 1,575 | 912 | 1,766 | 1,362
Interest rate | 224 | 850 | 221 | 562 | 244 | 533
OTC | 224 | 839 | 219 | 562 | 242 | 533
Organized market | - | 11 | 2 | - | 2 | -
Equity | - | - | - | - | - | -
OTC | - | - | - | - | - | -
Organized market | - | - | - | - | - | -
Foreign exchange and gold | 115 | 18 | 955 | 873 | 119 | 714
OTC | 115 | 18 | 955 | 873 | 119 | 714
Organized market | - | - | - | - | - | -
Credit | - | - | - | - | - | -
Commodities | - | - | - | - | - | -
Other | - | - | - | - | - | -
CASH FLOW HEDGES | 339 | 868 | 1,176 | 1,435 | 363 | 1,247
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION | 12 | 242 | 92 | 231 | 301 | 15
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK | 37 | 216 | 33 | 90 | 46 | 256
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK | 1 | 99 | 15 | 12 | 9 | -
DERIVATIVES-HEDGE ACCOUNTING | 1,729 | 2,233 | 2,892 | 2,680 | 2,485 | 2,880
of which: OTC - credit institutions | 1,423 | 1,787 | 2,534 | 2,462 | 1,829 | 2,527
of which: OTC - other financial corporations | 306 | 426 | 355 | 216 | 651 | 234
of which: OTC - other | - | 8 | 2 | 2 | 2 | 120

F-106

The cash flows forecasts for the coming years for cash flow hedging recognized on the accompanying consolidated balance sheet as of December 31, 2019 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 | 447 | 488 | 2,076 | 2,061 | 5,071
Payable cash outflows | 395 | 411 | 2,223 | 2,003 | 5,032

The above cash flows will have an impact on the Group’s consolidated income statements until 2057.

In 2019, 2018 and 2017, 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, 2019, 2018 and 2017 were not material.

16. Investments in joint ventures and associates

## 16.1 Joint ventures and associates

The breakdown of the balance of “Investments in joint ventures and associates” in the accompanying consolidated balance sheets is as follows:

Joint ventures and associates. Breakdown by entities (Millions of Euros)
| 2019 | 2018 | 2017
Joint ventures |  |  |
Altura Markets S.V., S.A. | 73 | 69 | 64
RCI Colombia | 37 | 32 | 19
Desarrollo Metropolitanos del Sur, S.L. | 14 | 13 | 12
Other | 30 | 59 | 160
Subtotal | 154 | 173 | 256
Associates |  |  |
Divarian Propiedad, S.A.U. | 630 | 591 | -
Metrovacesa, S.A. | 443 | 508 | 697
ATOM Bank PLC | 136 | 138 | 66
Solarisbank AG | 36 | 37 | -
Cofides | 23 | 22 | 21
Redsys servicios de procesamiento, S.L. | 14 | 12 | 10
Servicios Electrónicos Globales S.A. de CV | 11 | 9 | 6
Other | 41 | 88 | 533
Subtotal | 1,334 | 1,405 | 1,332
Total | 1,488 | 1,578 | 1,588

F-107

Details of the joint ventures and associates as of December 31, 2019 are shown in Appendix II.

The following is a summary of the changes in the in December 31, 2019, 2018 and 2017 under this heading in the accompanying consolidated balance sheets:

Joint ventures and associates. Changes in the year (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Balance at the beginning |  | 1,578 | 1,588 | 765
Acquisitions and capital increases |  | 161 | 309 | 868
Disposals and capital reductions |  | (149) | (516) | (8)
Transfers and changes of consolidation method |  | (27) | 211 | -
Share of profit and loss | 39 | (42) | (7) | 4
Exchange differences |  | 10 | 2 | (29)
Dividends, valuation adjustments and others |  | (43) | (8) | (12)
Balance at the end |  | 1,488 | 1,578 | 1,588

The variation during the year 2017 was 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).

The variation during the year 2018 was mainly explained by the decrease of BBVA Group stakes in Testa Residencial, S.A., Metrovacesa Suelo y Promoción, S.A. and the contribution of assets and subsequent sale to Cerberus of 80% of the capital stake in Divarian Propiedad, S.A.U., (see Note 3 and Appendix III).

During the year 2019, there was no significant change in the heading “Investment in joint ventures and associates”.

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.

## 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, 2019, 2018 and 2017 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, 2019, 2018 and 2017 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, 2019, 2018 and 2017, there were no significant impairments recognized.

F-108

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 2019. (Millions of Euros)
|  |  |  | Right to use asset(*) | Investment properties | Assets leased out under an operating lease | Total
| Notes | Land and buildings | Work in progress | Furniture, fixtures and vehicles |  | Own use | Investment properties
Cost |  |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 5,939 | 70 | 6,314 |  | - | - | 201 | 386 | 12,910
Additions |  | 90 | 63 | 335 |  | 3,574 | 101 | 12 | - | 4,175
Retirements |  | (44) | (20) | (302) |  | (57) | - | (10) | - | (433)
Acquisition of subsidiaries in the year |  | - | - | - |  | - | - | - | - | -
Disposal of entities in the year |  | - | - | - |  | - | - | - | - | -
Transfers |  | (41) | (51) | (8) |  | (1) | - | 13 | - | (88)
Exchange difference and other |  | 57 | (6) | 12 |  | - | - | - | (49) | 14
Balance at the end |  | 6,001 | 56 | 6,351 |  | 3,516 | 101 | 216 | 337 | 16,578
Accrued depreciation |  |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 1,138 | - | 4,212 |  | - | - | 11 | 76 | 5,437
Additions | 45 | 126 | - | 457 |  | 381 | 11 | 4 | - | 979
Retirements |  | (38) | - | (255) |  | (3) | - | - | - | (296)
Acquisition of subsidiaries in the year |  | - | - | - |  | - | - | - | - | -
Disposal of entities in the year |  | - | - | - |  | - | - | - | - | -
Transfers |  | (16) | - | (13) |  | (1) | - | - | - | (30)
Exchange difference and other |  | 43 | - | (57) |  | (7) | - | - | (2) | (23)
Balance at the end |  | 1,253 | - | 4,344 |  | 370 | 11 | 15 | 74 | 6,067
Impairment |  |  |  |  |  |  |  |  |  |
Balance at the beginning |  | 217 | - | - |  | - | - | 27 | - | 244
Additions | 48 | 14 | - | 20 |  | 60 | - | - | - | 94
Retirements |  | (3) | - | - |  | - | - | - | - | (3)
Acquisition of subsidiaries in the year |  | - | - | - |  | - | - | - | - | -
Disposal of entities in the year |  | - | - | - |  | - | - | - | - | -
Transfers |  | (16) | - | - |  | 127 | 14 | (4) | - | 121
Exchange difference and other |  | - | - | (20) |  | 4 | - | 3 | - | (13)
Balance at the end |  | 212 | - | - |  | 191 | 14 | 26 | - | 443
Net tangible assets |  | - | - | - |  | - | - | - | - | -
Balance at the beginning |  | 4,584 | 70 | 2,102 |  | - | - | 163 | 310 | 7,229
Balance at the end |  | 4,536 | 56 | 2,007 |  | 2,955 | 76 | 175 | 263 | 10,068

(*) The right to use is included at the date of implementation of IFRS 16 as of January 1, 2019. The right to use asset consists mainly of the rental of commercial real estate premises for central services and the network branches located in the countries where the Group operates whose average term is between 5 and 20 years. The clauses included in rental contracts correspond to a large extent to rental contracts under normal market conditions in the country where the property is rented (see Note 2.3). During 2019, there have been no significant changes in the right to use assets for leases.

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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 |

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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 |

As of December 31, 2019, 2018 and 2017, the cost of fully amortized tangible assets that remained in use were €2,658 €2,624 and €2,660 million respectively while its recoverable residual value was not significant.

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, 2019, 2018 and 2017:

Tangible assets by Spanish and foreign subsidiaries. Net assets values (Millions of euros)
|  | 2019 | 2018 | 2017
BBVA and Spanish subsidiaries |  | 4,865 | 2,705 | 2,574
Foreign subsidiaries |  | 5,203 | 4,524 | 4,617
Total |  | 10,068 | 7,229 | 7,191

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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 unit (hereinafter “CGU”) to which goodwill has been allocated, 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, 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
Additions | - | - | - | - | - | - | -
Exchange difference | 98 | (36) | 31 | 3 | (2) | (1) | 93
Impairment | (1,318) | - | - | - | - | - | (1,318)
Other | - | - | - | - | - | - | -
Balance as of December 31, 2019 | 3,846 | 346 | 550 | 164 | 27 | 22 | 4,955

Goodwill in business combinations

There were no significant business combinations during 2019, 2018 and 2017.

Impairment Test

As mentioned in Note 2.2.8, the 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.

The BBVA Group performs estimations on the recoverable amount of certain CGU´s by calculating the value in use through the discounted value of future cash flows method.

The main hypotheses used for the value in use calculation are the following:

· The forecast cash flows, including net interest margin, estimated by the Group's management, and based on the latest available budgets for the next 3 to 5 years, considering the macroeconomic variables of each CGU, regarding the existing balance structure as well as macroeconomic variables such as the evolution of interest rates and the CPI of the geography where the CGU is located, among others.

· The constant sustainable growth rate for extrapolating cash flows, starting in the third or fifth year, 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 assumptions is based both on its projections and past experience. These values are verified and use external sources of information, wherever possible. Additionally, the valuations of the goodwill of the CGUs of The United States and Turkey have been reviewed by independent experts (not the Group's external auditors). However, certain changes to the valuation assumptions used could cause differences in the impairment test result.

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As a result of the goodwill impairment tests performed by the Group as of December 31, 2019, the Group estimated impairment losses in the United States CGU, which have been recognized under “Impairment or reversal of impairment on non-financial assets - Intangible assets” in the accompanying consolidated income statement as of December 31, 2019, assigned to the Group Corporate Center. This impairment had a net negative impact on the “Profit for the year – attributable to owners of the parent” of €1,318 million, which is mainly as a result of the negative evolution of interest rates, especially in the second half of the year, which accompanied by the slowdown of the economy causes the expected evolution of results below the previous estimation. This recognition does not affect the Tangible Net Equity or the solvency ratio of the BBVA Group.

As of December 31, 2018 and 2017, no impairment has been identified in any of the main CGUs.

Goodwill - The United States CGU

The Group’s most significant goodwill corresponds to the CGU in the United States, the main significant assumptions used in the impairment test of this mentioned CGU are:

Impairment test assumptions CGU goodwill in the United States
| 2019 | 2018 | 2017
Discount rate | 10.0% | 10.5% | 10.0%
Sustainable growth rate | 3.5% | 4.0% | 4.0%

In accordance with paragraph 33.c of IAS 36, as of December 31, 2019, the Group used a steady growth rate of 3.5% based on the real GDP growth rate of the United States, the expected inflation and the potential growth of the banking sector in the United States. This 3.5% rate is lower 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 have a greater impact 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 CGU recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions as of December 31, 2019:

Sensitivity analysis for main assumptions - The United States (Millions of Euros)
| Increase of 50 basis points (*) | Decrease of 50 basis points (*)
Discount rate | (871) | 1,017
Sustainable growth rate | 340 | (292)

(*) 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.

Below is shown the increased (or decreased) amount of the CGU recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions as of December 31, 2018 and 2017:

Sensitivity analysis for main assumptions - The United States (Millions of Euros)
| Increase of 50 basis points 2018 (*) | Decrease of 50 basis points 2018 (*) | Increase of 50 basis point 2017 (*) | Decrease of 50 basis point 2017 (*)
Discount rate | (1,009) | 1,176 | (1,159) | 1,371
Sustainable growth rate | 526 | (451) | 661 | (559)

(*) 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 - Turkey CGU

The main significant assumptions used in the impairment test of the CGU of Turkey are:

Impairment test assumptions CGU goodwill in Turkey
| 2019 | 2018 | 2017
Discount rate | 17.4% | 24.3% | 18.0%
Sustainable growth rate | 7.0% | 7.0% | 7.0%

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Given the potential growth of the sector in Turkey, in accordance with paragraph 33.c of IAS 36, as of December 31, 2019, 2018 and 2017 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 as of December 31, 2019:

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 | (192) | 212
Sustainable growth rate | 31 | (28)

Below is shown the increased (or decreased) amount of the CGU recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions as of December 31, 2018 and 2017:

Sensitivity analysis for main assumptions - Turkey (Millions of euros)
| Increase of 50 basis points 2018 (*) | Decrease of 50 basis points 2018 (*) | Increase of 50 basis point 2017 (*) | Decrease of 50 basis point 2017 (*)
Discount rate | (149) | 158 | (298) | 327
Sustainable growth rate | 40 | (37) | 214 | (196)

(*) 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 - Other CGUs

The sensitivity analysis on the main hypotheses carried out for the rest of the CGUs of the Group indicate that their value in use would continue to exceed their book value.

## 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)
|  | 2019 | 2018 | 2017
Computer software acquisition expense |  | 1,598 | 1,605 | 1,682
Other intangible assets with an infinite useful life |  | 11 | 11 | 12
Other intangible assets with a definite useful life |  | 401 | 518 | 708
Total |  | 2,010 | 2,134 | 2,402

The changes of this heading in December 31, 2019, 2018 and 2017, are as follows:

Other intangible assets (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Balance at the beginning |  | 2,134 | 2,402 | 2,849
Additions |  | 533 | 552 | 564
Amortization in the year | 45 | (620) | (614) | (694)
Exchange differences and other |  | (25) | (123) | (305)
Impairment | 48 | (12) | (83) | (12)
Balance at the end |  | 2,010 | 2,134 | 2,402

As of December 31, 2019, 2018 and 2017, the cost of fully amortized intangible assets that remained in use were €2,702 million, €2,412 million, and €1,969 million respectively, while their recoverable value was not significant.

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19 Tax assets and liabilities

19.1 Consolidated tax group

Pursuant to current legislation, BBVA consolidated tax group in Spain 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 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 in Spain as of December 31, 2019 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. These inspections did not result in any material amount to record in the Consolidated Annual accounts as their impact was previously provisioned for.

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 year (Millions of Euros)
| 2019 | 2018 | 2017
| Amount | Effective tax % | Amount | Effective tax % | Amount | Effective tax %
Profit or (-) loss before tax | 6,398 |  | 8,446 |  | 6,931 |
From continuing operations | 6,398 |  | 8,446 |  | 6,931 |
From discontinued operations | - |  | - |  | - |
Taxation at Spanish corporation tax rate 30% | 1,920 |  | 2,534 |  | 2,079 |
Lower effective tax rate from foreign entities (*) | (381) |  | (234) |  | (307) |
Mexico | (112) | 27% | (78) | 28% | (100) | 27%
Chile | (2) | 27% | (18) | 21% | (29) | 21%
Colombia | 6 | 32% | 10 | 33% | (3) | 29%
Peru | (12) | 28% | (12) | 28% | (16) | 27%
Turkey | (86) | 23% | (132) | 20% | (182) | 21%
Others (***) | (175) |  | (4) |  | 23 |
Revenues with lower tax rate (dividends/capital gains) | (49) |  | (57) |  | (53) |
Equity accounted earnings | 18 |  | 3 |  | (2) |
Other effects (**) | 545 |  | (27) |  | 457 |
Income tax | 2,053 |  | 2,219 |  | 2,174 |
Of which: Continuing operations | 2,053 |  | 2,219 |  | 2,174 |
Of which: 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 amount of 2019 is generated as a result of the impact of the impairment of goodwill in The United States' CGU (see Note 18.1).

(***) Includes mainly the United States.

The effective income tax rate for the Group in the years ended December 31, 2019, 2018 and 2017 is as follows:

Effective tax rate (Millions of Euros)
|  | 2019 | 2018 | 2017
Income from: |  |  |  |
Consolidated tax group in Spain |  | (718) | 1,482 | (678)
Other Spanish entities |  | 7 | 33 | 29
Foreign entities |  | 7,109 | 6,931 | 7,580
Gains (losses) before taxes from continuing operations |  | 6,398 | 8,446 | 6,931
Tax expense or income related to profit or loss from continuing operations |  | 2,053 | 2,219 | 2,174
Effective tax rate |  | 32.1% | 26.3% | 31.4%

In the year 2019, in the main countries in which the Group has presence, there has been no changes in the nominal tax rate on corporate income tax except for Colombia, where the applicable tax rate is 33% compared to the 37% of the previous year. In the year 2018, the changes in the nominal tax rate on corporate income tax, in comparison with those existing in the previous years, in the main countries in which the Group has a presence, have been in the 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%).

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)
|  | 2019 | 2018 | 2017
Charges to total equity |  |  |  |
Debt securities and others |  | (130) | (87) | (355)
Equity instruments |  | (40) | (56) | (74)
Subtotal |  | (170) | (143) | (429)
Total |  | (170) | (143) | (429)

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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)
| 2019 | 2018 | 2017
Tax assets |  |  |
Current tax assets | 1,765 | 2,784 | 2,163
Deferred tax assets | 15,318 | 15,316 | 14,725
Pensions | 456 | 405 | 395
Financial Instruments | 1,386 | 1,401 | 1,453
Other assets (investments in subsidiaries) | 204 | 302 | 357
Loss allowances | 1,636 | 1,375 | 1,005
Other | 841 | 990 | 870
Secured tax assets (*) | 9,363 | 9,363 | 9,433
Tax losses | 1,432 | 1,480 | 1,212
Total | 17,083 | 18,100 | 16,888
Tax liabilities |  |  |
Current tax liabilities | 880 | 1,230 | 1,114
Deferred tax liabilities | 1,928 | 2,046 | 2,184
Financial Instruments | 1,014 | 1,136 | 1,427
Other | 914 | 910 | 757
Total | 2,808 | 3,276 | 3,298

(*) Law guaranteeing the deferred tax assets has been approved in Spain in 2013. In 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.

The most significant variations of the deferred assets and liabilities in the years 2019, 2018 and 2017 derived from the followings causes:

Deferred tax assets and liabilities. Annual variations (Millions of Euros)
|  | 2019 | 2018 | 2017
|  | Deferred assets | Deferred liabilities | Deferred assets | Deferred liabilities | Deferred assets | Deferred liabilities
Balance at the beginning |  | 15,316 | 2,046 | 14,725 | 2,184 | 16,391 | 3,392
Pensions |  | 51 | - | 10 | - | (795) | -
Financials instruments |  | (15) | (122) | (52) | (291) | 82 | (367)
Other assets |  | (98) | - | (55) | - | (305) | -
Loss allowances |  | 261 | - | 370 | - | (385) | -
Others |  | (149) | 4 | 120 | 153 | (366) | (841)
Guaranteed tax assets |  | - | - | (70) | - | 2 | -
Tax losses |  | (48) | - | 268 | - | 101 | -
Balance at the end |  | 15,318 | 1,928 | 15,316 | 2,046 | 14,725 | 2,184

With respect to the changes in assets and liabilities due to deferred tax in 2019 contained in the above table, the following should be pointed out:

· Secur ed tax assets maintain the same balance as in the previous year.

· The decrease in tax losses occurs as a result of the review of the balance of booked deferred taxes carried out on every accounting closing.

· The evolution of the deferred tax assets and liabilities (without taking into consideration the secured deferred tax asset and the tax losses) in net terms is a decrease of €168 million mainly due to 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, 2019, 2018 and 2017, 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 473 million euros, 443 million euros and 376 million euros, respectively.

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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)
|  | 2019 | 2018 | 2017 (*)
Pensions |  | 1,924 | 1,924 | 1,947
Loss allowances |  | 7,439 | 7,439 | 7,486
Total |  | 9,363 | 9,363 | 9,433

(*) In 2017 guaranteed deferred tax assets also existed in Portugal but in 2018 they lost the guarantee.

As of December 31, 2019, non-guaranteed net deferred tax assets of the above table amounted to €4,027 million (€3,907 and €3,108 million as of December 31, 2018 and 2017 respectively), which broken down by major geographies is as follows:

· Spain: Net deferred tax assets recognized in Spain totaled €2,447 million as of December 31, 2019 (€2,653 and €2,052 million as of December 31, 2018 and 2017, respectively). €1,420 million of the figure recorded in the year ended December 31, 2019 for net deferred tax assets related to tax credits and tax loss carry forwards and €1,027 million relate to temporary differences.

· Mexico: Net deferred tax assets recognized in Mexico amounted to €1,083 million as of December 31, 2019 (€826 and €615 million as of December 31, 2018 and 2017, respectively). Practically all of deferred tax assets as of December 31, 2019 relate to temporary differences. The remainders are tax credits carry forwards.

· South America: Net deferred tax assets recognized in South America amounted to €84 million as of December 31, 2019 (€0.4 and €26 million as of December 31, 2018 and 2017, respectively). Practically all the deferred tax assets are related to temporary differences.

· The United States: Net deferred tax assets recognized in the United States amounted to 122 million as of December 31, 2019 (€164 and €180 as of December 31, 2018 and 2017, respectively). All the deferred tax assets relate to temporary differences.

· Turkey: Net deferred tax assets recognized in Turkey amounted to €278 million as of December 31, 2019 (€250 and €224 million as of December 31, 2018 and 2017 respectively). As of December 31, 2019, all the deferred tax assets correspond to €10 million of tax credits related to tax losses carry forwards and deductions and €268 million relate to temporary differences.

Based on the information available as of December 31, 2019, including historical levels of benefits and projected results available to the Group for the coming 15 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 € 2,207 million euros, 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)
|  | 2019 | 2018 | 2017
Assets |  |  |  |
Inventories |  | 581 | 635 | 229
Of which: Real estate |  | 579 | 633 | 226
Transactions in progress |  | 138 | 249 | 156
Accruals |  | 804 | 702 | 768
Prepaid expense |  | 573 | 465 | 509
Other prepayments and accrued income |  | 231 | 237 | 259
Other items |  | 2,277 | 3,886 | 3,207
Total other assets |  | 3,800 | 5,472 | 4,359
Liabilities |  |  |  |
Transactions in progress |  | 39 | 39 | 165
Accruals |  | 2,456 | 2,558 | 2,490
Accrued expense |  | 2,064 | 2,119 | 1,997
Other accrued expense and deferred income |  | 392 | 439 | 493
Other items |  | 1,247 | 1,704 | 1,894
Total other liabilities |  | 3,742 | 4,301 | 4,550

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21. Non-current assets and disposal groups classified as 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)
|  | 2019 | 2018 | 2017
Foreclosures and recoveries (*) |  | 1,647 | 2,211 | 6,207
Foreclosures |  | 1,553 | 2,135 | 6,047
Recoveries from financial leases |  | 94 | 76 | 160
Assets from tangible assets |  | 310 | 433 | 447
Business sale - Assets (**) |  | 1,716 | 29 | 18,623
Accrued amortization (***) |  | (51) | (44) | (77)
Impairment losses |  | (543) | (628) | (1,348)
Total non-current assets and disposal groups classified as held for sale |  | 3,079 | 2,001 | 23,853

(*) Corresponds mainly to the agreement with Cerberus to transfer the "Real Estate" business in Spain in 2018 (see Note 3).

(**) The 2019 balance corresponds mainly to the BBVA´s stake in BBVA Paraguay and 2017 balance corresponds mainly to the BBVA´s stake in BBVA Chile sold in 2018 (see Note 3).

(***) Amortization accumulated until related asset reclassified as “non-current assets and disposal groups classified as held for sale”.

The changes in the balances of “Non-current assets and disposal groups classified as held for sale” in 2019, 2018 and 2017 are as follows:

Non-current assets and disposal groups classified as held for sale. Changes in the year 2019 (Millions of Euros)
|  | Foreclosed assets | From own use assets (*) | Other assets (**) | Total
| Notes | Foreclosed assets through auction proceeding | Recovered assets from financial leases
Cost (1) |  |  |  |  |  |
Balance at the beginning |  | 2,135 | 76 | 389 | 29 | 2,629
Additions |  | 597 | 68 | 10 | 1,676 | 2,351
Contributions from merger transactions |  | 2 | - | - | - | 2
Retirements (sales and other decreases) |  | (967) | (56) | (206) | - | (1,229)
Transfers, other movements and exchange differences |  | (214) | 7 | 65 | 11 | (131)
Balance at the end |  | 1,553 | 95 | 258 | 1,716 | 3,622
Impairment (2) |  |  |  |  |  |
Balance at the beginning |  | 482 | 22 | 124 | - | 628
Additions | 50 | 66 | 6 | 5 | - | 77
Contributions from merger transactions |  | - | - | - | - | -
Retirements (sales and other decreases) |  | (160) | (4) | (22) | - | (186)
Other movements and exchange differences |  | (5) | 4 | 25 | - | 24
Balance at the end |  | 383 | 28 | 132 | - | 543
Balance at the end of net carrying value (1)-(2) |  | 1,170 | 67 | 126 | 1,716 | 3,079

(*) Net of amortization accumulated until assets were reclassified as non-current assets classified as held for sale.

(**) The variation corresponds mainly to the agreement of the sale of BBVA Paraguay (see Note 3).

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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 financial 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 classified as 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 2017 (Millions of Euros)
|  | Foreclosed assets | From own use assets (*) | Other assets (**) | Total
| Notes | Foreclosed assets through auction proceeding | Recovered assets from financial 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 classified as 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).

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, 2019, practically all of the carrying amount of the assets recorded at fair value on a non-recurring basis coincides with their fair value.

Assets from foreclosures or recoveries

As of December 31, 2019, 2018 and 2017, assets from foreclosures and recoveries, net of impairment losses, by nature of the asset, amounted to €871, €1,072 and €1,924 million in assets for residential use; €259, €182 and €491 million in assets for tertiary use (industrial, commercial or office) and €28 €19 and €29 million in assets for agricultural use, respectively.

In December 31, 2019, 2018 and 2017, the average sale time of assets from foreclosures or recoveries was between 2 and 3 years.

During the years 2019, 2018 and 2017, 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 €79, €82 and €207 million, respectively; with an average financing of 27.5% of the sales price during 2019.

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As of December 31, 2019, 2018 and 2017, 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 million 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)
| 2019 | 2018 | 2017
Deposits | 438,919 | 435,229 | 467,949
Deposits from central banks | 25,950 | 27,281 | 37,054
Demand deposits | 23 | 20 | 2,588
Time deposits | 25,101 | 26,885 | 28,311
Repurchase agreements | 826 | 375 | 6,155
Deposits from credit institutions | 28,751 | 31,978 | 54,516
Demand deposits | 7,161 | 8,370 | 3,731
Time deposits | 18,896 | 19,015 | 25,941
Repurchase agreements | 2,693 | 4,593 | 24,843
Customer deposits | 384,219 | 375,970 | 376,379
Demand deposits | 280,391 | 260,573 | 240,583
Time deposits | 103,293 | 114,188 | 126,716
Repurchase agreements | 535 | 1,209 | 9,079
Debt certificates | 63,963 | 61,112 | 63,915
Other financial liabilities | 13,758 | 12,844 | 11,850
Total | 516,641 | 509,185 | 543,713

## 22.2 Deposits from credit institutions

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 2019 (Millions of Euros)
| Demand deposits | Time deposits & other (*) | Repurchase agreements | Total
Spain | 2,104 | 1,113 | 1 | 3,218
The United States | 2,082 | 4,295 | - | 6,377
Mexico | 432 | 1,033 | 168 | 1,634
Turkey | 302 | 617 | 4 | 924
South America | 394 | 2,285 | 161 | 2,840
Rest of Europe | 1,652 | 5,180 | 2,358 | 9,190
Rest of the world | 194 | 4,374 | - | 4,568
Total | 7,161 | 18,896 | 2,693 | 28,751

(*) Subordinated deposits are included amounting €195 million.

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Deposits from credit institutions. December 2018 (Millions of Euros)
| Demand deposits | Time deposits & other (*) | 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

(*) Subordinated deposits are included amounting €191 million.

Deposits from credit institutions. December 2017 (Millions of Euros)
| Demand deposits | Time deposits & other (*) | 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

(*) Subordinated deposits are included amounting €233 million.

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## 22.3 Customer deposits

The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:

Customer deposits. December 2019 (Millions of Euros)
| Demand deposits | Time deposits & other (*) | Repurchase agreements | Total
Spain | 146,651 | 24,958 | 2 | 171,611
The United States | 46,372 | 19,810 | - | 66,181
Mexico | 43,326 | 12,714 | 523 | 56,564
Turkey | 13,775 | 22,257 | 10 | 36,042
South America | 22,748 | 13,913 | - | 36,661
Rest of Europe | 6,610 | 8,749 | - | 15,360
Rest of the world | 909 | 892 | - | 1,801
Total | 280,391 | 103,293 | 535 | 384,219

(*) Subordinated deposits are included amounting to €189 million.

Customer deposits. December 2018 (Millions of Euros)
| Demand deposits | Time deposits and other (*) | 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

(*) Subordinated deposits are included amounting to €220 million.

Customer deposits. December 2017 (Millions of Euros)
| Demand deposits | Time deposits & other (*) | 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

(*) Subordinated deposits are included amounting to €194 million.

##

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## 22.4 Debt certificates

The breakdown of the balance under this heading, by financial instruments and by currency, is as follows:

Debt certificates (Millions of Euros)
| 2019 | 2018 | 2017
In Euros | 40,185 | 37,436 | 38,735
Promissory bills and notes | 737 | 267 | 1,309
Non-convertible bonds and debentures | 12,248 | 9,638 | 9,418
Covered bonds (*) | 15,542 | 15,809 | 16,425
Hybrid financial instruments | 518 | 814 | 807
Securitization bonds | 1,354 | 1,630 | 2,295
Wholesale funding | 1,817 | 142 | -
Subordinated liabilities | 7,968 | 9,136 | 8,481
Convertible perpetual certificates | 5,000 | 5,490 | 4,500
Convertible subordinated debt | - | - | -
Non-convertible preferred stock | 83 | 107 | 107
Other non-convertible subordinated liabilities | 2,885 | 3,540 | 3,875
In foreign currencies | 23,778 | 23,676 | 25,180
Promissory bills and notes | 1,210 | 3,237 | 3,157
Non-convertible bonds and debentures | 10,587 | 9,335 | 11,109
Covered bonds (*) | 362 | 569 | 650
Hybrid financial instruments | 1,156 | 1,455 | 1,809
Securitization bonds | 17 | 38 | 47
Wholesale funding | 780 | 544 | -
Subordinated liabilities | 9,666 | 8,499 | 8,407
Convertible perpetual certificates | 1,782 | 873 | 2,085
Convertible subordinated debt | - | - | -
Non-convertible preferred stock | 76 | 74 | 55
Other non-convertible subordinated liabilities | 7,808 | 7,552 | 6,268
Total | 63,963 | 61,112 | 63,915

(*) Including mortgage-covered bonds.

As of December 31, 2019, 71% of “Debt certificates” have fixed-interest rates and 29% have variable interest rates.

Most of the foreign currency issues are denominated in U.S. dollars.

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22.4.1 Subordinated liabilities

The breakdown of this heading, is as follows:

Memorandum item: Subordinated liabilities at amortized cost
| 2019 | 2018 | 2017
Subordinated deposits | 384 | 411 | 427
Subordinated certificates | 17,635 | 17,635 | 16,889
Preferred stock | 159 | 181 | 161
Compound convertible financial instruments | 6,782 | 6,363 | 6,585
Other non-convertible subordinated liabilities (*) | 10,693 | 11,092 | 10,143
Total | 18,018 | 18,047 | 17,316

(*) The €40 million subordinated issuances of BBVA Paraguay as of December 2019 are recorded in the heading "Liabilities included in disposal groups classified as held for sale".

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

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 enable the nominal amount of the capital increases resolved or effectively carried out to cover the conversion of mandatory convertible issuances made under 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.

Under that delegation, BBVA made the following issuances that qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation (EU) 575/2013:

· In May and November 2017, BBVA carried out both issuances 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 and $1,000 million, respectively. These issuances are listed in the Global Exchange Market of Euronext Dublin and 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.

· In September 2018 and March 2019, BBVA carried out both issuances 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 each. These issuances are listed in the AIAF Fixed Income Securities Market and were targeted only at professional clients and eligible counterparties, and not being offered or sold to any retail clients.

· On September 5, 2019, BBVA carried out an 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 Euronext Dublin and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents.

Additionally, other issuances:

· The additional issuances of perpetual contingent convertible securities (additional tier 1 instruments) with exclusion of pre-emptive subscription rights of shareholders were carried out, by virtue of other delegations conferred by the AGM, in February 2015 for an amount of €1.5 billion 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. These issuances are listed in the Global Exchange Market of Euronext Dublin and qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation (EU) 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.

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· On February 19, 2019 the Bank early redeemed 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.

· Additionally, on December 23, 2019, the Bank has notified its irrevocable decision to early redeem next February 18, 2020 the issuance of preferred securities contingently convertible (additional tier 1 instrument), carried out by the Bank on February 18, 2015, 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)
| 2019 | 2018 | 2017
BBVA International Preferred, S.A.U. (1) | 37 | 35 | 36
Unnim Group (2) | 83 | 98 | 98
BBVA USA | 19 | 19 | 19
BBVA Colombia | 20 | 19 | 1
Other | - | 9 | 9
Total | 159 | 181 | 163

(1) Listed on the London stock exchange.

(2) Unnim Group: Issuances prior to the acquisition by BBVA.

These issuances were fully subscribed at the moment of the issue by qualified/institutional investors outside the Group and are redeemable, totally or partially, at the issuer’s option after five years from the issue date, depending on the terms of each issuance and with the prior consent from the Bank of Spain or the relevant authority.

Redemption of preferred securities

BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series B preferred securities on March 20, 2017, for an outstanding amount of €164,350,000; on March 22, 2017, the early redemption in full of its Series A preferred securities for an outstanding amount of €85,550,000; and on April 18, 2017 the early redemption in full of its Series C preferred securities for an outstanding amount of USD 600,000,000, once the prior consent was obtained.

## 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)
| 2019 | 2018 | 2017
Lease liabilities (*) | 3,335 |  |
Creditors for other financial liabilities | 2,623 | 2,891 | 2,835
Collection accounts | 3,306 | 4,305 | 3,452
Creditors for other payment obligations | 4,494 | 5,648 | 5,563
Total | 13,758 | 12,844 | 11,850

(*) Lease liabilities are recognized after the implementation of IFRS 16 (see Note 2.1).

A breakdown of the maturity of the lease liabilities, due after December 31, 2019 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
Leases |  | 269 | 500 | 535 | 2,031 | 3,335

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.

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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 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, 2019, 2018 and 2017, the balance under this heading amounted to €341, €366 million and €421 million respectively.

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.

The breakdown of the balance under this heading is as follows:

Technical reserves (Millions of Euros)
| 2019 | 2018 | 2017
Mathematical reserves | 9,247 | 8,504 | 7,961
Individual life insurance (1) | 6,731 | 6,201 | 5,359
Savings | 5,906 | 5,180 | 4,392
Risk | 825 | 1,021 | 967
Group insurance (2) | 2,517 | 2,303 | 2,601
Savings | 2,334 | 2,210 | 2,455
Risk | 182 | 93 | 147
Provision for unpaid claims reported | 641 | 662 | 631
Provisions for unexpired risks and other provisions | 718 | 668 | 631
Total | 10,606 | 9,834 | 9,223

(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
2019 | 1,571 | 1,197 | 1,806 | 6,032 | 10,606
2018 | 1,686 | 1,041 | 1,822 | 5,285 | 9,834
2017 | 1,560 | 1,119 | 1,502 | 5,042 | 9,223

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 support 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, 2019, 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, GKMF 80/95. PASEM, PERMF 2000 | Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual | 0.25% -2.91% | 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.

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 | 2019 | 2018 | 2017
Provisions for pensions and similar obligations | 25 | 4,631 | 4,787 | 5,407
Other long term employee benefits | 25 | 61 | 62 | 67
Provisions for taxes and other legal contingencies |  | 677 | 686 | 756
Provisions for contingent risks and commitments |  | 711 | 636 | 578
Other provisions (*) |  | 457 | 601 | 669
Total |  | 6,538 | 6,772 | 7,477

(*) Individually insignificant provisions or contingencies, for various concepts in different geographies.

The change in provisions for pensions and similar obligations for the years ended December 31, 2019, 2018, and 2017 is as follows:

Provisions for pensions and similar obligations. Changes over the year (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Balance at the beginning |  | 4,787 | 5,407 | 6,025
Add |  |  |  |
Charges to income for the year |  | 330 | 126 | 391
Interest expense and similar charges |  | 65 | 78 | 71
Personnel expense | 44.1 | 50 | 58 | 62
Provision expense |  | 215 | (10) | 258
Charges to equity (1) | 25 | 329 | 41 | 140
Transfers and other changes |  | (32) | 95 | (264)
Less |  |  |  |
Benefit payments | 25 | (718) | (779) | (861)
Employer contributions | 25 | (65) | (103) | (25)
Balance at the end |  | 4,631 | 4,787 | 5,407

(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 contingencies and other provisions. Changes over the year (Millions of Euros)
| 2019 | 2018 | 2017
Balance at beginning | 1,286 | 1,425 | 2,028
Additions | 396 | 455 | 868
Acquisition of subsidiaries | - | - | -
Unused amounts reversed during the year | (96) | (184) | (164)
Amount used and other variations | (453) | (410) | (1,306)
Balance at the end | 1,134 | 1,286 | 1,425

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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 derives 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 standalone Bank. The Group Management considers that the provisions made in connection with these legal proceedings are adequate.

As mentioned in Note 7.5 Legal 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 business, the financial situation and the results of the Group.

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 net defined benefit liability recorded on the balance sheet as of December 31, 2019, 2018 and 2017 is provided below:

Net defined benefit liability (asset) on the consolidated balance sheet (Millions of Euros)
| 2019 | 2018 | 2017
Pension commitments | 5,050 | 4,678 | 4,969
Early retirement commitments | 1,486 | 1,793 | 2,210
Medical benefits commitments | 1,580 | 1,114 | 1,204
Other long term employee benefits | 61 | 62 | 67
Total commitments | 8,177 | 7,647 | 8,451
Pension plan assets | 1,961 | 1,694 | 1,892
Medical benefit plan assets | 1,532 | 1,146 | 1,114
Total plan assets (1) | 3,493 | 2,840 | 3,006
Total net liability / asset | 4,684 | 4,807 | 5,445
Of which: Net asset on the consolidated balance sheet (2) | (8) | (41) | (27)
Of which: +Net liability on the consolidated balance sheet for provisions for pensions and similar obligations (3) | 4,631 | 4,787 | 5,407
Of which: Net liability on the consolidated balance sheet for other long term employee benefits (4) | 61 | 62 | 67

(1) In Turkey, the foundation responsible for managing the benefit commitments holds an additional asset of €252 million as of December 31, 2019 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 (see Note 24).

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The amounts relating to benefit commitments charged to consolidated income statement for the years 2019, 2018 and 2017 are as follows:

Consolidated income statement impact (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Interest and similar expense |  | 65 | 78 | 71
Interest expense |  | 307 | 295 | 294
Interest income |  | (242) | (217) | (223)
Personnel expense |  | 163 | 147 | 149
Defined contribution plan expense | 44.1 | 113 | 89 | 87
Defined benefit plan expense | 44.1 | 50 | 58 | 62
Provisions (net) | 46 | 214 | 125 | 343
Early retirement expense |  | 190 | 141 | 227
Past service cost expense |  | 18 | (33) | 3
Remeasurements (*) |  | 7 | (10) | 31
Other provision expense |  | (2) | 28 | 82
Total impact on consolidated income statement: debit (credit) |  | 441 | 350 | 563

(*) 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, 2019, 2018 and 2017 are as follows:

Equity impact (Millions of Euros)
| 2019 | 2018 | 2017
Defined benefit plans | 254 | 81 | (40)
Post-employment medical benefits | 74 | (47) | 179
Total impact on equity: debit (credit) | 329 | 34 | 140

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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, 2019, 2018 and 2017 is presented below:

Defined benefits (Millions of Euros)
|  | 2019 |  |  | 2018 |  |  | 2017 |
| 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 | 7,585 | 2,839 | 4,746 | 8,384 | 3,006 | 5,378 | 8,851 | 3,022 | 5,829
Current service cost | 53 | - | 53 | 61 | - | 61 | 64 | - | 64
Interest income/expense | 304 | 242 | 62 | 292 | 217 | 76 | 290 | 223 | 68
Contributions by plan participants | 4 | 4 | - | 4 | 3 | 1 | 4 | 4 | -
Employer contributions | - | 65 | (65) | - | 103 | (103) | - | 25 | (25)
Past service costs (1) | 210 | - | 210 | 109 | - | 109 | 231 | - | 231
Remeasurements: | 783 | 454 | 329 | (263) | (286) | 21 | 331 | 161 | 171
Return on plan assets (2) | - | 454 | (454) | - | (286) | 286 | - | 161 | (161)
From changes in demographic assumptions | (15) | - | (15) | 14 | - | 14 | 100 | - | 100
From changes in financial assumptions | 688 | - | 688 | (274) | - | (274) | 220 | - | 220
Other actuarial gain and losses | 110 | - | 110 | (3) | - | (3) | 12 | - | 12
Benefit payments | (905) | (187) | (718) | (979) | (200) | (779) | (1,029) | (169) | (861)
Settlement payments | - | - | - | - | - | - | - | - | -
Business combinations and disposals | - | - | - | - | - | - | - | - | -
Effect on changes in foreign exchange rates | 63 | 69 | (6) | (31) | (9) | (22) | (278) | (258) | (19)
Conversions to defined contributions | - | - | - | - | - | - | (82) | - | (82)
Other effects | 19 | 6 | 13 | 10 | 6 | 4 | (1) | (1) | -
Balance at the end | 8,116 | 3,493 | 4,623 | 7,585 | 2,840 | 4,745 | 8,384 | 3,006 | 5,378
Of which: Spain | 4,592 | 266 | 4,326 | 4,807 | 260 | 4,547 | 5,442 | 320 | 5,122
Of which: Mexico | 2,231 | 2,124 | 107 | 1,615 | 1,587 | 28 | 1,661 | 1,602 | 60
Of which: The United States | 375 | 323 | 52 | 326 | 287 | 39 | 360 | 309 | 51
Of which: Turkey | 444 | 359 | 86 | 422 | 339 | 83 | 520 | 424 | 96

(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, 2019 includes €351 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 enable 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 assist 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, 2019, 2018 and 2017:

Actuarial assumptions (Millions of Euros)
| 2019 | 2018 | 2017
| Spain | Mexico | The United States | Turkey | Spain | Mexico | The United States | Turkey | Spain | Mexico | The United States | Turkey
Discount rate | 0.68% | 9.04% | 3.24% | 12.50% | 1.28% | 10.45% | 4.23% | 16.30% | 1.24% | 9.48% | 3.57% | 11.60%
Rate of salary increase | - | 4.75% | - | 9.70% | - | 4.75% | - | 14.00% | - | 4.75% | - | 9.90%
Rate of pension increase | - | 2.47% | - | 8.20% | - | 2.51% | - | 12.50% | - | 2.13% | - | 8.40%
Medical cost trend rate | - | 7.00% | - | 12.40% | - | 7.00% | - | 16.70% | - | 7.00% | - | 12.60%
Mortality tables | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001 | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001 | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001

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In Spain, the discount rate shown as of December, 31, 2019, corresponds to the weighted average rate, the actual discount rates used are 0% and 1% 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 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 | 2019 | 2018
| Increase | Decrease | Increase | Decrease
Discount rate | 50 | (367) | 405 | (298) | 332
Rate of salary increase | 50 | 3 | (3) | 3 | (3)
Rate of pension increase | 50 | 27 | (26) | 19 | (18)
Medical cost trend rate | 100 | 338 | (266) | 229 | (181)
Change in obligation from each additional year of longevity | - | 137 | - | 108 | -

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, 2019, 2018 and 2017, the actuarial liabilities for the outstanding awards amounted to €61, €62 million and €67 million, respectively. These commitments are recorded under the heading "Provisions - Other long-term employee benefits" of the accompanying consolidated balance sheet (see Note 24).

### 25.1.1 Post-employment commitments and similar obligations

These commitments relate mostly to pension payments, 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 2019, 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 616 employees (489 and 731 during years 2018 and 2017, 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, 2019, 2018 and 2017, the value of these commitments amounted to €1,486, €1,793 million and €2,210 million, respectively.

The change in the benefit plan obligations and plan assets during the year ended December 31, 2019 was as follows:

Post-employment commitments 2019 (Millions of Euros)
| Defined benefit obligation
| Spain | Mexico | The United States | Turkey | Rest of the world
Balance at the beginning | 4,807 | 512 | 326 | 422 | 402
Current service cost | 4 | 4 | 1 | 20 | 3
Interest income or expense | 45 | 53 | 14 | 64 | 11
Contributions by plan participants | - | - | - | 3 | 1
Employer contributions | - | - | - | - | -
Past service costs (1) | 190 | 15 | - | 3 | 2
Remeasurements: | 298 | 99 | 44 | (3) | 49
Return on plan assets (2) | - | - | - | - | -
From changes in demographic assumptions | - | - | - | (13) | (2)
From changes in financial assumptions | 239 | 87 | 42 | (41) | 52
Other actuarial gain and losses | 59 | 12 | 2 | 51 | (1)
Benefit payments | (766) | (50) | (15) | (21) | (14)
Settlement payments | - | - | - | - | -
Business combinations and disposals | - | - | - | - | -
Effect on changes in foreign exchange rates | - | 32 | 6 | (44) | 1
Conversions to defined contributions | - | - | - | - | -
Other effects | 14 | - | (1) | - | 6
Balance at the end | 4,592 | 664 | 375 | 444 | 460
Of which: Vested benefit obligation relating to current employees | 86 | - | - | - | -
Of which: Vested benefit obligation relating to retired employees | 4506 | - | - | - | -

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Post-employment commitments 2019 (Millions of Euros)
| Plan assets
| Spain | Mexico | The United States | Turkey | Rest of the world
Balance at the beginning | 260 | 441 | 287 | 339 | 366
Current service cost | - | - | - | - | -
Interest income or expense | 3 | 44 | 12 | 53 | 8
Contributions by plan participants | - | - | - | 3 | 1
Employer contributions | - | 47 | 3 | 14 | 1
Past service costs (1) | - | - | - | - | -
Remeasurements: | 67 | 90 | 28 | (5) | 50
Return on plan assets (2) | 67 | 90 | 28 | (5) | 50
From changes in demographic assumptions | - | - | - | - | -
From changes in financial assumptions | - | - | - | - | -
Other actuarial gains and losses | - | - | - | - | -
Benefit payments | (64) | (50) | (13) | (10) | (11)
Settlement payments | - | - | - | - | -
Business combinations and disposals | - | (7) | - | - | -
Effect on changes in foreign exchange rates | - | 27 | 6 | (34) | -
Conversions to defined contributions | - | - | - | - | -
Other effects | - | - | - | - | 6
Balance at the end | 266 | 592 | 323 | 359 | 422

(1) Including gains and losses arising from settlements.

(2) Excluding interest, which is recorded under "Interest income or expense".

Post-employment commitments 2019 (Millions of euros)
| Net liability (asset)
| Spain | Mexico | The United States | Turkey | Rest of the world
Balance at the beginning | 4,547 | 71 | 39 | 83 | 36
Current service cost | 4 | 4 | 1 | 20 | 3
Interest income or expense | 42 | 9 | 2 | 11 | 3
Contributions by plan participants | - | - | - | - | -
Employer contributions | - | (47) | (3) | (14) | (1)
Past service costs (1) | 190 | 15 | - | 3 | 2
Remeasurements: | 231 | 9 | 16 | 2 | (1)
Return on plan assets (2) | (67) | (90) | (28) | 5 | (50)
From changes in demographic assumptions | - | - | - | (13) | (2)
From changes in financial assumptions | 239 | 87 | 42 | (41) | 52
Other actuarial gain and losses | 59 | 12 | 2 | 51 | (1)
Benefit payments | (702) | (1) | (2) | (11) | (3)
Settlement payments | - | - | - | - | -
Business combinations and disposals | - | 7 | - | - | -
Effect on changes in foreign exchange rates | - | 5 | - | (9) | 1
Conversions to defined contributions | - | - | - | - | -
Other effects | 14 | - | (1) | - | -
Balance at the end | 4,326 | 72 | 52 | 86 | 38

(1) Including gains and losses arising from settlements.

(2) Excluding interest, which is recorded under "Interest income or expense".

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The change in net liabilities (assets) during the years ended 2018 and 2017 was as follows:

Post-employment commitments (Millions of Euros)
| 2018: Net liability (asset) | 2017: Net liability (asset)
| Spain | Mexico | The United States | Turkey | Rest of the world | Spain | Mexico | The United States | Turkey | Rest of the world
Balance at the beginning | 5,122 | (18) | 51 | 96 | 36 | 5,799 | (59) | 46 | 99 | 43
Current service cost | 4 | 5 | - | 21 | 4 | 4 | 5 | 3 | 21 | 5
Interest income or expense | 59 | (2) | 2 | 8 | 2 | 73 | (6) | 1 | 9 | 2
Contributions by plan participants | - | - | - | - | 1 | - | - | - | - | -
Employer contributions | - | - | (2) | (13) | (18) | - | (1) | - | (16) | (8)
Past service costs (1) | 148 | (1) | - | 2 | 2 | 235 | 1 | - | 4 | 3
Remeasurements: | (28) | 88 | (11) | 3 | 14 | (67) | 38 | 9 | 12 | (1)
Return on plan assets (2) | 4 | 70 | 17 | 21 | 11 | (21) | (10) | (11) | (101) | 2
From changes in demographic assumptions | - | - | (1) | - | 15 | - | 22 | (2) | - | (3)
From changes in financial assumptions | - | (9) | (28) | (45) | (12) | (33) | 18 | 22 | 81 | 4
Other actuarial gain and losses | (32) | 27 | 1 | 29 | - | (13) | 7 | - | 32 | (4)
Benefit payments | (763) | - | (2) | (11) | (3) | (842) | (1) | (2) | (11) | (3)
Settlement payments | - | - | - | - | - | - | - | - | - | -
Business combinations and disposals | - | - | - | - | - | - | - | - | - | -
Effect on changes in foreign exchange rates | - | (1) | 2 | (26) | (1) | - | 5 | (5) | (21) | (5)
Conversions to defined contributions | - | - | - | - | - | (82) | - | - | - | -
Other effects | 5 | - | (1) | - | - | 2 | - | (1) | - | (1)
Balance at the end | 4,547 | 71 | 39 | 83 | 36 | 5,122 | (18) | 51 | 96 | 36

(1) Includes gains and losses from settlements.

(2) Excludes interest which is reflected in the line item “Interest income and expense”.

In Spain, local regulation requires that pension and death benefit commitments must be funded, either through a qualified pension plan or an insurance contract.

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, 2019 the value of these separate assets was €2,620 million, (€2,543 and €2,689 million as of December 31, 2018 and 2017, respectively) 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. 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, 2019, 2018 and 2017, the value of the aforementioned insurance policies (€266, €260 and €320 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 enable that benefits can be met when due, enabling 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 two defined benefit plans, 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 registered an obligation amounting to €286 million as of December 31, 2019 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.

###

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### 25.1.2 Medical benefit commitments

The change in defined benefit obligations and plan assets during the years 2019, 2018 and 2017 was as follows:

Medical benefits commitments
| 2019 | 2018 | 2017
| 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 | 1,114 | 1,146 | (32) | 1,204 | 1,114 | 91 | 1,015 | 1,113 | (98)
Current service cost | 21 | - | 21 | 27 | - | 27 | 26 | - | 26
Interest income or expense | 119 | 123 | (4) | 116 | 109 | 8 | 101 | 112 | (11)
Contributions by plan participants | - | - | - | - | - | - | - | - | -
Employer contributions | - | - | - | - | 71 | (71) | - | - | -
Past service costs (1) | - | - | - | (42) | - | (42) | (11) | - | (11)
Remeasurements: | 298 | 224 | 74 | (210) | (164) | (47) | 200 | 21 | 179
Return on plan assets (2) | - | 224 | (224) | - | (164) | 164 | - | 21 | (21)
From changes in demographic assumptions | - | - | - | - | - | - | 83 | - | 83
From changes in financial assumptions | 311 | - | 311 | (182) | - | (182) | 128 | - | 128
Other actuarial gain and losses | (13) | - | (13) | (28) | - | (28) | (10) | - | (10)
Benefit payments | (39) | (39) | (1) | (34) | (33) | (1) | (35) | (33) | (2)
Settlement payments | - | - | - | - | - | - | - | - | -
Business combinations and disposals | - | 7 | (7) | - | - | - | - | - | -
Effect on changes in foreign exchange rates | 68 | 71 | (2) | 62 | 59 | 3 | (92) | (100) | 8
Other effects | (1) | - | (1) | (9) | (9) | - | - | - | -
Balance at the end | 1,580 | 1,532 | 48 | 1,114 | 1,146 | (32) | 1,204 | 1,114 | 91

(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, 2019, 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)
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025-2029
Commitments in Spain | 621 | 544 | 449 | 360 | 288 | 903
Commitments in Mexico | 106 | 110 | 117 | 125 | 132 | 808
Commitments in the United States | 17 | 18 | 19 | 19 | 20 | 107
Commitments in Turkey | 20 | 22 | 18 | 22 | 25 | 200
Total | 764 | 694 | 603 | 526 | 465 | 2,018

### 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.

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.

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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, 2019, 2018 and 2017:

Plan assets breakdown (Millions of Euros)
| 2019 | 2018 | 2017
Cash or cash equivalents | 56 | 26 | 68
Debt securities (government bonds) | 2,668 | 2,080 | 2,178
Property | - | - | 1
Mutual funds | 2 | 2 | 1
Insurance contracts | 142 | 132 | 4
Other investments | - | - | 10
Total | 2,869 | 2,241 | 2,261
Of which: Bank account in BBVA | 4 | 3 | 5
Of which: Debt securities issued by BBVA | - | - | 3
Of which: 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, 2019, 2018 and 2017:

Investments in listed markets
| 2019 | 2018 | 2017
Cash or cash equivalents | 56 | 26 | 68
Debt securities (Government bonds) | 2,668 | 2,080 | 2,178
Mutual funds | 2 | 2 | 1
Total | 2,727 | 2,109 | 2,247
Of which: Bank account in BBVA | 4 | 3 | 5
Of which: Debt securities issued by BBVA | - | - | 3
Of which: Property occupied by BBVA | - | - | -

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, 2019, almost all of the assets related to employee 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).

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26. Common stock

As of December 31, 2019, 2018 and 2017, 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, 2019, the shares of Banco BBVA Peru, S.A.; Banco Provincial, S.A.; Banco BBVA Colombia, S.A.; Banco BBVA Argentina, S.A. and Garanti BBVA A.S., were listed on their respective local stock markets. Banco BBVA Argentina, S.A. was also quoted in the Latin American market (Latibex) of the Madrid Stock Exchange and the New York Stock Exchange. Also, the Depositary Receipts (“DR”) of Garanti BBVA, A.S. are listed in the London Stock Exchange

As of December 31, 2019, 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 11.68%, 2.03%, and 6.64% 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 5, 2020, Blackrock, Inc. reported to the SEC that, as of December 31, 2019, it beneficially owned 6.3% of BBVA’s common stock.

On February 3, 2020, Norges Bank reported to the Spanish Securities and Exchange Commission (CNMV) that it had an indirect holding of BBVA S.A. common stock totaling 3.066%, of which 3.051% are voting rights attributed to shares, and 0.015% are voting rights through financial instruments.

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.

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.

Resolutions adopted by the Annual General Meeting

Capital increase

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, 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 also 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 and this limit not being applicable to contingent convertible issues) 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.

“Dividend Option” Program 2017:

Note 4 introduces the details of the remuneration system “Dividend Option”.

Convertible and/or exchangeable securities:

Note 22.4 introduces the details of the convertible and/or exchangeable securities.

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27. Share premium

As of December 31, 2019, 2018 and 2017, 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

28.1 Breakdown of the balance

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of Euros)
|  | 2019 | 2018 | 2017
Legal reserve |  | 653 | 653 | 644
Restricted reserve |  | 124 | 133 | 159
Reserves for regularizations and balance revaluations |  | - | 3 | 12
Voluntary reserves |  | 8,331 | 8,010 | 8,643
Total reserves holding company |  | 9,108 | 8,799 | 9,458
Consolidation reserves attributed to the Bank and dependent consolidated companies. |  | 17,169 | 14,222 | 14,266
Total |  | 26,277 | 23,021 | 23,724

28.2 Legal reserve

Under the amended Spanish 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.

28.3 Restricted reserves

As of December 31, 2019, 2018 and 2017, the Bank’s restricted reserves are as follows:

Restricted reserves. Breakdown by concepts (Millions of Euros)
|  | 2019 | 2018 | 2017
Restricted reserve for retired capital |  | 88 | 88 | 88
Restricted reserve for parent company shares and loans for those shares |  | 34 | 44 | 69
Restricted reserve for redenomination of capital in euros |  | 2 | 2 | 2
Total |  | 124 | 133 | 159

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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28.4 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. Breakdown by concepts (Millions of Euros)
|  | 2019 | 2018 | 2017
Retained earnings (losses) and revaluation reserves |  |  |  |
Holding Company |  | 16,623 | 14,701 | 15,759
BBVA Mexico Group |  | 10,645 | 10,014 | 9,442
Garanti BBVA Group |  | 1,985 | 1,415 | 751
BBVA Colombia Group |  | 1,130 | 998 | 926
Corporación General Financiera S.A. |  | 932 | 1,084 | 1,202
BBVA Perú Group |  | 848 | 756 | 681
BBV América, S.L. |  | 247 | 217 | 195
Catalunyacaixa Inmobiliaria, S.A. |  | 225 | 233 | 11
BBVA Chile Group |  | 597 | 552 | 951
BBVA Paraguay |  | 130 | 119 | 108
Bilbao Vizcaya Holding, S.A. |  | 62 | 49 | (73)
Compañía de Cartera e Inversiones, S.A. |  | 47 | 108 | (20)
Gran Jorge Juan, S.A. |  | 27 | (33) | (47)
Banco Industrial de Bilbao, S.A. |  | (13) | - | 25
BBVA Luxinvest, S.A. |  | (48) | (48) | 25
Pecri Inversión S.L. |  | (50) | (74) | (76)
BBVA Suiza, S.A. |  | (52) | (53) | (57)
BBVA Portugal Group |  | (59) | (66) | (436)
BBVA Seguros, S.A. |  | (99) | (127) | (215)
BBVA Venezuela Group |  | (125) | (124) | (113)
Grupo BBVA USA Bancshares |  | (317) | (586) | (794)
BBVA Argentina Group |  | 35 | 103 | 999
Anida Grupo Inmobiliario, S.L. |  | (587) | 363 | 515
Unnim Real Estate |  | (594) | (587) | (576)
Anida Operaciones Singulares, S.L. |  | (5,375) | (5,317) | (4,881)
Other |  | 188 | (618) | (544)
Subtotal |  | 26,402 | 23,079 | 23,758
Other reserves or accumulated losses of investments in joint ventures and associates |  |  |  |
Metrovacesa, S.A. |  | (75) | (61) | (53)
ATOM Bank PLC |  | (56) | (28) | (12)
Other |  | 6 | 31 | 30
Subtotal |  | (125) | (58) | (35)
Total |  | 26,277 | 23,021 | 23,724

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.

29. Treasury shares

In the years ended December 31, 2019, 2018 and 2017 the Group entities performed the following transactions with shares issued by the Bank:

Treasury shares (Millions of euros)
| 2019 | 2018 | 2017
| Number of Shares | Millions of Euros | Number of Shares | Millions of Euros | Number of Shares | Millions of Euros
Balance at beginning | 47,257,691 | 296 | 13,339,582 | 96 | 7,230,787 | 48
+ Purchases | 214,925,699 | 1,088 | 279,903,844 | 1,683 | 238,065,297 | 1,674
- Sales and other changes | (249,566,201) | (1,298) | (245,985,735) | (1,505) | (231,956,502) | (1,622)
+/- Derivatives on BBVA shares | - | (23) | - | 23 | - | (4)
+/- Other changes | - | - | - | - | - | -
Balance at the end | 12,617,189 | 62 | 47,257,691 | 296 | 13,339,582 | 96
Of which: | - | - | - | - | - | -
Held by BBVA, S.A. | - | - | - | - | - | -
Held by Corporación General Financiera, S.A. | 12,617,189 | 62 | 47,257,691 | 296 | 13,339,582 | 96
Held by other subsidiaries | - | - | - | - | - | -
Average purchase price in Euros | 5.06 | - | 6.11 | - | 7.03 | -
Average selling price in Euros | 5.20 | - | 6.25 | - | 6.99 | -
Net gain or losses on transactions (Shareholders' funds-Reserves) |  | 13 |  | (24) |  | 1

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The percentages of treasury shares held by the Group in the years ended December 31, 2019, 2018 and 2017 are as follows:

Treasury Stock
| 2019 | 2018 | 2017
| Min | Max | Closing | Min | Max | Closing | Min | Max | Closing
% treasury stock | 0.138% | 0.746% | 0.213% | 0.200% | 0.850% | 0.709% | 0.004% | 0.278% | 0.200%

The number of BBVA shares accepted by the Group in pledge of loans as of December 31, 2019, 2018 and 2017 is as follows:

Shares of BBVA accepted in pledge
|  | 2019 | 2018 | 2017
Number of shares in pledge |  | 43,018,382 | 61,632,832 | 64,633,003
Nominal value |  | 0.49 | 0.49 | 0.49
% of share capital |  | 0.65% | 0.92% | 0.97%

The number of BBVA shares owned by third parties but under management of a company within the Group as of December 31, 2019, 2018 and 2017 is as follows:

Shares of BBVA owned by third parties but managed by the Group
|  | 2019 | 2018 | 2017
Number of shares owned by third parties |  | 23,807,398 | 25,306,229 | 34,597,310
Nominal value |  | 0.49 | 0.49 | 0.49
% of share capital |  | 0.36% | 0.38% | 0.52%

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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 | 2019 | 2018 | 2017(*)
Items that will not be reclassified to profit or loss |  | (1,875) | (1,284) | (1,183)
Actuarial gains (losses) on defined benefit pension plans |  | (1,498) | (1,245) | (1,183)
Non-current assets and disposal groups classified as held for sale |  | 2 | - | -
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 | (403) | (155) |
Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income |  | - | - |
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk |  | 24 | 116 |
Items that may be reclassified to profit or loss |  | (5,359) | (5,932) | (5,755)
Hedge of net investments in foreign operations (effective portion) |  | (896) | (218) | 1
Foreign currency translation |  | (6,161) | (6,643) | (7,297)
Hedging derivatives. Cash flow hedges (effective portion) |  | (44) | (6) | (34)
Financial assets available for sale |  |  |  | 1,641
Fair value changes of debt instruments measured at fair value through other comprehensive income | 13.4 | 1,760 | 943 |
Hedging instruments (non-designated items) |  | - | - | -
Non-current assets and disposal groups classified as held for sale |  | (18) | 1 | (26)
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates |  | 1 | (9) | (40)
Total |  | (7,235) | (7,215) | (6,939)

(*) See Note 1.3

The balances recognized under these headings are presented net of tax.

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31. Non-controlling interest

The table below is a 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: breakdown by subgroups (Millions of Euros)
| 2019 | 2018 | 2017
Garanti BBVA | 4,240 | 4,058 | 4,903
BBVA Peru | 1,334 | 1,167 | 1,059
BBVA Argentina | 422 | 352 | 420
BBVA Colombia | 76 | 67 | 65
BBVA Venezuela | 71 | 67 | 78
Other entities | 57 | 53 | 454
Total | 6,201 | 5,764 | 6,979

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)
| 2019 | 2018 | 2017
Garanti BBVA | 524 | 585 | 883
BBVA Peru | 236 | 227 | 208
BBVA Argentina | 60 | (18) | 93
BBVA Colombia | 11 | 9 | 7
BBVA Venezuela | (1) | (5) | (2)
Other entities | 4 | 30 | 55
Total | 833 | 827 | 1,243

Dividends distributed to non-controlling interest of the Group during the year 2019 are: BBVA Peru Group €115 million, BBVA Argentina Group €16 million, BBVA Colombia Group €3 million and other Group entities accounted for €8 million.

32. Capital base and capital management

32.1 Capital base

As of December 31, 2019, 2018 and 2017, equity is calculated in accordance to the applicable regulation of each year 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.

With regard to BBVA, after the supervisory review and evaluation process (“SREP”) carried out by the ECB, the Group has received the communication to maintain, from January 1, 2020 on a consolidated basis, a CET1 capital ratio of 9.27% and a total capital ratio of 12.77%.

This total capital requirement at consolidated level includes: i) a Pillar 1 requirement of 8% that should be fulfilled by a minimum of 4.5% of CET1; ii) a Pillar 2 requirement of 1.5% of CET1 that remains at the same level as the one included in the previous SREP decision; iii) a Capital Conservation buffer of 2.5% of CET1; iv) the Other Systemic Important Institution buffer (OSII) of 0.75% of CET1; and v) the Countercyclical Capital buffer 0.02% of CET1.

The ECB Pillar 2 requirement remains at the same level as the one established in the last SREP decision, being the sole difference the evolution of the Countercyclical Capital buffer of 0.01% approximately.

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A reconciliation of the main figures between the accounting and regulatory own funds as of December 31, 2019, 2018 and 2017 is shown below:

Eligible capital resources (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Capital | 26 | 3,267 | 3,267 | 3,267
Share premium | 27 | 23,992 | 23,992 | 23,992
Retained earnings, revaluation reserves and other reserves | 28 | 26,277 | 23,021 | 23,724
Other equity instruments, net |  | 56 | 50 | 54
Treasury shares | 29 | (62) | (296) | (96)
Attributable to the parent company | 6 | 3,512 | 5,400 | 3,514
Attributable dividend |  | (1,084) | (1,109) | (1,172)
Total equity |  | 55,958 | 54,326 | 53,283
Accumulated other comprehensive income | 30 | (7,235) | (7,215) | (6,939)
Non-controlling interest | 31 | 6,201 | 5,764 | 6,979
Shareholders' equity |  | 54,925 | 52,874 | 53,323
Goodwill and other intangible assets |  | (6,803) | (8,199) | (6,627)
Direct and synthetic treasury shares |  | (422) | (135) | (182)
Deductions |  | (7,225) | (8,334) | (6,809)
Temporary CET 1 adjustments |  | - | - | (273)
Capital gains from the Available-for-sale debt instruments portfolio |  | - | - | (256)
Capital gains from the Available-for-sale equity portfolio |  | - | - | (17)
Differences from solvency and accounting level |  | (215) | (176) | (189)
Equity not eligible at solvency level |  | (215) | (176) | (462)
Other adjustments and deductions (1) |  | (3,832) | (4,049) | (3,711)
Common Equity Tier 1 (CET 1) |  | 43,653 | 40,313 | 42,341
Additional Tier 1 before Regulatory Adjustments |  | 6,048 | 5,634 | 6,296
Total Regulatory Adjustments of Additional Tier 1 |  | - | - | (1,657)
Tier 1 |  | 49,701 | 45,947 | 46,980
Tier 2 |  | 8,304 | 8,756 | 8,798
Total Capital (Total Capital=Tier 1 + Tier 2) |  | 58,005 | 54,703 | 55,778
|  | - | - | -
Total Minimum equity required |  | 46,540 | 41,576 | 40,370

(1) Other adjustments and deductions includes the amount of minority interest not eligible as capital, amount of dividends not distributed and other deductions and filters set by the CRR.

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The Group’s bank capital in accordance with the aforementioned applicable regulation as of December 31, 2019, 2018 and 2017 is shown below:

Amount of capital CC1 (Millions of Euros)
| 2019 | 2018 | 2017
Capital and share premium | 27,259 | 27,259 | 27,259
Retained earnings and equity instruments | 26,960 | 23,773 | 23,791
Other accumulated income and other reserves | (7,157) | (7,143) | (6,863)
Minority interests | 4,404 | 3,809 | 5,446
Net interim attributable profit | 1,316 | 3,188 | 1,302
Ordinary Tier 1 (CET 1) before other reglamentary adjustments | 52,783 | 50,887 | 50,935
Goodwill and intangible assets | (6,803) | (8,199) | (6,627)
Direct and indirect holdings in equity | (484) | (432) | (278)
Deferred tax assets | (1,420) | (1,260) | (755)
Other deductions and filters | (423) | (682) | (933)
Total common equity Tier 1 reglamentary adjustments | (9,130) | (10,573) | (8,594)
Common equity TIER 1 (CET1) | 43,653 | 40,313 | 42,341
Equity instruments and share premium classified as liabilities | 5,400 | 5,005 | 5,893
Qualifying Tier 1 capital included in consolidated AT1 capital issued by subsidiaries and held by third parties | 648 | 629 | 403
Additional Tier 1 (CET 1) before regulatory adjustments | 6,048 | 5,634 | 6,296
Temporary CET 1 adjustments | - | - | (1,657)
Total regulatory adjustments of additional equity l Tier 1 | - | - | (1,657)
Additional equity Tier 1 (AT1) | 6,048 | 5,634 | 4,639
Tier 1 (Common equity TIER 1+ additional TIER 1) | 49,701 | 45,947 | 46,980
Equity instruments and share premium accounted as Tier 2 | 3,064 | 3,768 | 1,759
Eligible equity instruments | 4,690 | 4,409 | 6,438
Credit risk adjustments | 550 | 579 | 601
Tier 2 before regulatory adjustments | 8,304 | 8,756 | 8,798
Tier 2 reglamentary adjustments | - | - | -
Tier 2 | 8,304 | 8,756 | 8,798
Total capital (Total capital=Tier 1 + Tier 2) | 58,005 | 54,703 | 55,778
Total RWA's | 364,448 | 348,264 | 362,875
CET 1 (phased-in) | 12.0% | 11.6% | 11.7%
Tier 1 (phased-in) | 13.6% | 13.2% | 12.9%
Total capital (phased-in) | 15.9% | 15.7% | 15.4%

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As of December 2019 Common Equity Tier 1 (CET1) phased-in ratio(1) stood at 11.98%, including the impact of IFRS 16 standard’s implementation that entered into force on January 1, 2019 (-11 basis points). Compared to December 2018, the ratio increased by +40 basis points supported by the profit generation, net of dividend payments and remuneration of contingent convertible capital instruments (CoCos), notwithstanding the moderate growth of risk-weighted assets.

In addition, the impairment of the goodwill in the United States CGU recognized by the Group amounting to €1,318 million has had no impact on the regulatory own funds (see Note 18.1).

Risk-weighted assets (RWAs) increased by approximately €16,100 million in 2019 as a result of activity growth, mainly in emerging markets, and the impact of regulatory changes (the application of IFRS 16 and TRIM - Targeted Review of Internal Models) for approximately €7,600 million (with an impact on the CET1 ratio of -25 basis points. It should be noted that during the second quarter of 2019, the recognition by the European Commission of Argentina as a country whose supervisory and regulatory requirements(2) are considered equivalent had a positive effect on the evolution of the RWAs.

The Additional tier 1 capital (AT1) phased-in ratio stood at 1.66% as of December 31, 2019. In this regard, BBVA S.A. carried out an issue of €1,000 million CoCos, registered at the Spanish Securities Market Commission (CNMV) and another issue of the same type of instruments, registered in the Securities and Exchange Commission (hereinafter, SEC) for USD 1,000 million.

On the other hand, in February 2020 the CoCos issuance of € 1,500 million issued in February 2015 will be amortized. As of December 31, 2019, it is no longer included in the capital ratios.

Finally, in terms of issues eligible as Tier 2 capital, BBVA S.A. issued € 750 million of subordinated debt and carried out the early redemption of two subordinated-debt issues; one for €1,500 million redeemed in April 2019, and another issued in June 2009 by Caixa d'Estalvis de Sabadell with an outstanding nominal amount of €4.9 million and redeemed in June 2019.

With regard to the subsidiaries of the Group, BBVA Mexico carried out a Tier 2 issuance of USD 750 million and partially repurchased two subordinated debt issuances ($250 million due in 2020 and $500 million due in 2021). Meanwhile, Garanti BBVA issued another Tier 2 issuance of TRY 253 million.

All of this, together with the evolution of the remaining elements eligible as Tier 2 capital, set the Tier 2 phased in ratio at 2.28% as of December 31, 2019. In addition, during the beginning of 2020, two subordinated debts were issued, BBVA, S.A. issued €1,000 million, and Garanti BBVA issued 750 million of Turkish Liras. These issuances will be included in the capital ratios for the first quarter of 2020 with an estimated impact of approximately +28 basis points on the T2 capital ratio.

These levels are above the requirements established by the supervisor in its SREP letter applicable in 2019, also above the applicable requirements from January 1, 2020.

In November 2019, BBVA received a new communication from the Bank of Spain regarding its minimum requirement for own funds and eligible liabilities (MREL), as determined by the Single Resolution Board, that was calculated taking into account the financial and supervisory information as of December 31, 2017.

In accordance with such communication, BBVA has to reach, by January 1, 2021, an amount of own funds and eligible liabilities equal to 15.16% of the total liabilities and own funds of its resolution group, on sub-consolidated basis (the MREL requirement). Within this MREL, an amount equal to 8.01% of the total liabilities and own funds shall be met with subordinated instruments (the subordination requirement), once the relevant allowance is applied.

This MREL requirement is equal to 28.50% in terms of risk-weighted assets (RWAs), while the subordination requirement included in the MREL requirement is equal to 15.05% in terms of RWAs, once the relevant allowance has been applied.

In order to comply with this requirement, BBVA has continued its issuance program during 2019 by closing three senior non-preferred debt issuances, for a total of € 3,000 million, of which one consists in green bonds (€ 1,000 million). In addition, BBVA issued €1,000 million of senior preferred debt.

The Group estimates that the current own funds and eligible liabilities structure of the resolution group meets the MREL requirement, as well as the new subordination requirement.

(1) This 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, which implementation is voluntary, which seek to phase-in the impact of IFRS 9 on capital ratios. BBVA has informed the supervisory board of its adherence to these arrangements.

(2) On April 1, 2019, the Official Journal of the European Union published Commission Implementing Decision (EU) 2019/536, which includes Argentina within the list of third countries and territories whose supervisory and regulatory requirements are considered equivalent for the purposes of the treatment of exposures in accordance with Regulation (EU) No. 575/2013.

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32.2 Leverage ratio

The leverage ratio (LR) is a regulatory measure complementing capital designed to guarantee the soundness and financial strength of institutions in terms of indebtedness. This measurement can be used to estimate the percentage of the assets and off-balance sheet arrangements financed with Tier 1 capital, the carrying amount of the assets used in this ratio is adjusted to reflect the bank’s current or potential leverage with a given balance-sheet position (Leverage ratio exposure).

Breakdown of capital base as of December 31, 2019, 2018 and 2017, calculated according to CCR, is as follows:

Capital Base
|  | 2019 | 2018 | 2017
Tier 1 (millions of euros) (a) |  | 49,701 | 45,947 | 46,980
Exposure (millions of euros) (b) |  | 731,087 | 705,299 | 709,758
Leverage ratio (a)/(b) (percentage) |  | 6.80% | 6.51% | 6.62%

32.3 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 subordinated 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:

Commitments and guarantees given (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Loan commitments given | 7.1.2 | 130,923 | 118,959 | 94,268
Of which: defaulted |  | 270 | 247 | 537
Central banks |  | - | - | 1
General governments |  | 3,117 | 2,318 | 2,198
Credit institutions |  | 11,742 | 9,635 | 946
Other financial corporations |  | 4,578 | 5,664 | 3,795
Non-financial corporations |  | 65,475 | 58,405 | 58,133
Households |  | 46,011 | 42,936 | 29,195
Financial guarantees given (*) | 7.1.2 | 10,984 | 16,454 | 16,545
Of which: defaulted |  | 224 | 332 | 278
Central banks |  | - | 2 | -
General governments |  | 125 | 159 | 248
Credit institutions |  | 995 | 1,274 | 1,158
Other financial corporations |  | 583 | 730 | 3,105
Non-financial corporations |  | 8,986 | 13,970 | 11,518
Households |  | 295 | 319 | 516
Other commitments given | 7.1.2 | 39,209 | 35,098 | 45,738
Of which: defaulted |  | 506 | 408 | 461
Central banks |  | 1 | 1 | 7
General governments |  | 521 | 248 | 227
Credit institutions |  | 5,952 | 5,875 | 15,330
Other financial corporations |  | 2,902 | 2,990 | 3,820
Non-financial corporations |  | 29,682 | 25,723 | 25,992
Households |  | 151 | 261 | 362
Total commitments and guarantees given | 7.1.2 | 181,116 | 170,511 | 156,551

(*) Non-performing financial guarantees given amounted to €730, €740 and €739 million, respectively, as of December 31, 2019, 2018 and 2017.

As of December 31, 2019, the provisions for loan commitments given, financial guarantees given and other commitments given, recorded in the consolidated balance sheet amounted €341 million, €219 million and €151 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 to be the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.

In the years 2019, 2018 and 2017, 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, 2019, 2018 and 2017 there were no material contingent assets or liabilities other than those disclosed in the accompanying Notes to the consolidated financial statements.

35. Purchase and sale commitments and future payment obligations

The breakdown of purchase and sale commitments of the BBVA Group as of December 31, 2019, 2018 and 2017 is as follows:

Purchase and sale commitments (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Financial instruments sold with repurchase commitments |  | 45,956 | 42,993 | 40,077
Financial liabilities held for trading |  | 41,902 | 36,815 | -
Central banks | 10 | 7,635 | 10,511 | -
Credit institutions | 10 | 24,578 | 14,839 | -
Customer deposits | 10 | 9,689 | 11,466 | -
Financial liabilities at amortized cost |  | 4,054 | 6,178 | 40,077
Central banks | 22 | 826 | 375 | 6,155
Credit institutions | 22 | 2,693 | 4,593 | 24,843
Customer deposits | 22 | 535 | 1,209 | 9,079
Financial instruments purchased with resale commitments |  | 35,784 | 28,034 | 26,368
Financial assets held for trading |  | 33,941 | 27,262 | -
Central banks | 10 | 535 | 2,163 | -
Credit institutions | 10 | 21,219 | 13,305 | -
Loans and advances to customers | 10 | 12,187 | 11,794 | -
Financial assets at amortized cost |  | 1,843 | 772 | 26,368
Central banks |  | - | - | 305
Credit institutions | 14 | 1,817 | 478 | 13,861
Loans and advances to customers |  | 26 | 294 | 12,202

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A breakdown of the maturity of other payment obligations, not included in previous notes, due after December 31, 2019 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
Purchase commitments | 23 | - | - | - | 23
Technology and systems projects | 4 | - | - | - | 4
Other projects | 19 | - | - | - | 19
Total | 23 | - | - | - | 23

36. Transactions on behalf of third parties

As of December 31, 2019, 2018 and 2017 the details of the relevant transactions on behalf of third parties are as follows:

Transactions on behalf of third parties. Breakdown by concepts (Millions of Euros)
| 2019 | 2018 | 2017
Financial instruments entrusted to BBVA by third parties | 693,377 | 628,417 | 624,822
Conditional bills and other securities received for collection | 13,133 | 13,484 | 14,775
Securities lending | 7,129 | 4,866 | 5,485
Total | 713,639 | 646,768 | 645,081

37. Net interest income

37.1 Interest and other income

The breakdown of the interest and other income recognized in the accompanying consolidated income statement is as follows:

Interest and other income. Breakdown by origin (Millions of Euros)
| 2019 | 2018 | 2017
Financial assets held for trading | 2,041 | 2,057 | 1,306
Financial assets designated at fair value through profit or loss | 159 | 148 | 73
Financial assets at fair value through other comprehensive income | 1,815 | 1,846 | 1,485
Financial assets at amortized cost | 25,698 | 24,572 | 24,485
Insurance activity | 1,079 | 1,141 | 1,058
Adjustments of income as a result of hedging transactions | (74) | (201) | 415
Other income | 343 | 268 | 474
Total | 31,061 | 29,831 | 29,296

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The amounts recognized in consolidated equity in connection with hedging derivatives for the years ended December 31, 2019, 2018 and 2017 and the amounts derecognized from the consolidated equity and taken to the consolidated income statements during those years are included 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 expense. Breakdown by origin (Millions of Euros)
| 2019 | 2018 | 2017
Financial liabilities held for trading | 1,230 | 1,211 | 87
Financial liabilities designated at fair value through profit or loss | 6 | 41 | -
Financial liabilities at amortized cost (*) | 10,805 | 10,321 | 9,729
Adjustments of expense as a result of hedging transactions | (246) | (352) | 665
Insurance activity | 753 | 832 | 732
Cost attributable to pension funds | 86 | 73 | 79
Other expense | 224 | 113 | 245
Total | 12,859 | 12,239 | 11,537

(*) Includes €114 million as of December 31, 2019 corresponding to interest expense on leases (see Note 22.5).

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 39), as can be seen in the breakdown below:

Dividend income (Millions of Euros)
|  | 2019 | 2018 | 2017
Dividends from: |  |  |  |
Non-trading financial assets mandatorily at fair value through profit or loss |  | 26 | 19 | 145
Financial assets at fair value through other comprehensive income |  | 136 | 138 | 188
Total |  | 162 | 157 | 334

39. Share of profit or loss of entities accounted for using the equity method

Results from “Share of profit or loss of entities accounted for using the equity method” resulted in a negative impact of €42 million as of December 31, 2019, compared with the negative impact of €7 and the positive impact of €4 million recorded as of December 31, 2018 and 2017, respectively.

40. Fee and commission income and expense

The breakdown of the balance under these headings in the accompanying consolidated income statements is as follows:

Fee and commission income (Millions of Euros)
|  | 2019 | 2018 | 2017
Bills receivables |  | 39 | 39 | 46
Demand accounts |  | 526 | 451 | 507
Credit and debit cards and TPVs |  | 3,083 | 2,900 | 2,834
Checks |  | 203 | 194 | 212
Transfers and other payment orders |  | 735 | 689 | 648
Insurance product commissions |  | 172 | 178 | 200
Loan commitments given |  | 222 | 223 | 231
Other commitments and financial guarantees given |  | 392 | 390 | 396
Asset management |  | 1,066 | 1,023 | 923
Securities fees |  | 319 | 325 | 385
Custody securities |  | 123 | 122 | 122
Other fees and commissions |  | 642 | 598 | 645
Total |  | 7,522 | 7,132 | 7,150

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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)
|  | 2019 | 2018 | 2017
Demand accounts |  | 36 | 39 | 45
Credit and debit cards |  | 1,662 | 1,502 | 1,458
Transfers and other payment orders |  | 150 | 96 | 123
Commissions for selling insurance |  | 54 | 48 | 60
Custody securities |  | 30 | 29 | 38
Other fees and commissions |  | 557 | 539 | 506
Total |  | 2,489 | 2,253 | 2,229

41. Gains (losses) on financial assets and liabilities, hedge accounting and exchange differences, net

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, hedge accounting and exchange differences, net. Breakdown by heading (Millions of Euros)
|  | 2019 | 2018 | 2017
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net |  | 239 | 216 | 985
Financial assets at amortized cost |  | 65 | 51 | 133
Other financial assets and liabilities |  | 173 | 164 | 852
Gains (losses) on financial assets and liabilities held for trading, net |  | 451 | 707 | 218
Reclassification of financial assets from fair value through other comprehensive income |  | - | - |
Reclassification of financial assets from amortized cost |  | - | - |
Other gains (losses) |  | 451 | 707 |
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net |  | 143 | 96 |
Reclassification of financial assets from fair value through other comprehensive income |  | - | - |
Reclassification of financial assets from amortized cost |  | - | - |
Other gains (losses) |  | 143 | 96 |
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net |  | (94) | 143 | (56)
Gains (losses) from hedge accounting, net |  | 59 | 72 | (209)
Subtotal gains (losses) on financial assets and liabilities |  | 798 | 1,234 | 938
Exchange differences |  | 586 | (9) | 1,030
Total |  | 1,383 | 1,223 | 1,968

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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)
|  | 2019 | 2018 | 2017
Debt instruments |  | 972 | 354 | 545
Equity instruments |  | 1,337 | (253) | 845
Trading derivatives and hedge accounting |  | (1,098) | 927 | (470)
Loans and advances to customers |  | 103 | (172) | 97
Customer deposits |  | (26) | 240 | (96)
Other |  | (490) | 138 | 18
Total |  | 798 | 1,234 | 938

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)
|  | 2019 | 2018 | 2017
Derivatives |  | - | - | -
Interest rate agreements |  | (64) | 90 | 165
Securities agreements |  | (1,079) | 294 | (139)
Commodity agreements |  | 6 | (2) | 99
Credit derivative agreements |  | 74 | (109) | (564)
Foreign-exchange agreements |  | (60) | 606 | 315
Other agreements |  | (35) | (24) | (137)
Subtotal |  | (1,158) | 856 | (261)
Hedging derivatives ineffectiveness |  | - | - | -
Fair value hedges |  | 59 | 87 | (177)
Hedging derivative |  | 14 | (150) | (236)
Hedged item |  | 45 | 237 | 59
Cash flow hedges |  | - | (15) | (32)
Subtotal |  | 59 | 72 | (209)
Total |  | (1,098) | 927 | (470)

In addition, in the years ended December 31, 2019, 2018 and 2017, under the heading “Exchange differences, net” in the accompanying consolidated income statements amounts of negative €225 million, positive €113 million and positive €235 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)
|  | 2019 | 2018 | 2017
Gains from sales of non-financial services |  | 258 | 458 | 1,109
Of which: Real estate |  | 91 | 283 | 884
Other operating income |  | 413 | 491 | 330
Of which: Hyperinflation adjustment (*) |  | 146 | 120 | -
Total |  | 671 | 949 | 1,439

(*) See Note 2.2.20.

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)
|  | 2019 | 2018 | 2017
Change in inventories |  | 107 | 292 | 886
Of which: Real estate |  | 68 | 248 | 816
Other operating expense |  | 1,899 | 1,808 | 1,337
Of which: Contributions to guaranteed banks deposits funds |  | 770 | 727 | 703
Of which: Hyperinflation adjustment (*) |  | 538 | 494 | 31
Total |  | 2,006 | 2,101 | 2,223

(*) See Note 2.2.20.

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)
|  | 2019 | 2018 | 2017
Income on insurance and reinsurance contracts |  | 2,890 | 2,949 | 3,342
Expense on insurance and reinsurance contracts |  | (1,751) | (1,894) | (2,272)
Total |  | 1,138 | 1,055 | 1,069

The table below shows the contribution of each insurance product to the Group´s income for the years ended December 31, 2019, 2018 and 2017:

Income by type of insurance product (Millions of Euros)
| 2019 | 2018 | 2017
Life insurance | 631 | 682 | 604
Individual | 477 | 486 | 346
Savings | 116 | 56 | 38
Risk | 361 | 430 | 308
Group insurance | 154 | 196 | 258
Savings | 26 | 39 | (4)
Risk | 127 | 157 | 263
Non-Life insurance | 508 | 373 | 464
Home insurance | 90 | 110 | 118
Other non-life insurance products | 418 | 263 | 346
Total | 1,138 | 1,055 | 1,069

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44. Administration costs

44.1 Personnel expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Personnel expense (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Wages and salaries |  | 4,920 | 4,786 | 5,163
Social security costs |  | 780 | 722 | 761
Defined contribution plan expense | 25 | 113 | 89 | 87
Defined benefit plan expense | 25 | 50 | 58 | 62
Other personnel expense |  | 478 | 465 | 497
Total |  | 6,340 | 6,120 | 6,571

44.1.1 Share-based employee remuneration

The amounts recognized under the heading “Administration costs - Personnel expense - Other personnel expense” in the consolidated income statements for the year ended December 31, 2019, 2018 and 2017, corresponding to the remuneration plans based on equity instruments in each year, amounted to €31 million, €29 million and €38 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

BBVA has a specific remuneration system applicable to those employees whose professional activities may have a material impact on the risk profile of the Group (hereinafter “Identified Staff”), designed within the framework of applicable regulations to credit institutions and considering best practices and recommendations at the local and international levels in this matter.

In 2019, this remuneration scheme is reflected in the following remuneration policies:

· BBVA Group Remuneration Policy, approved by the Board of Directors on 29 of November 2017, that applies in general to all employees of BBVA and of its subsidiaries that form part of the consolidated group. This policy includes in a specific chapter the remuneration system applicable to the members of BBVA Group Identified Staff, including Senior Management.

· BBVA Directors’ Remuneration Policy, approved by the Board of Directors and by the General Shareholders’ Meeting held on March 15, 2019, that it’s applicable to BBVA Directors. The remuneration system for executive directors corresponds, generally, with the applicable system to the Identified Staff, to which they belong, incorporating some particularities of their own, derived from their condition of directors.

The Annual Variable Remuneration for the Identified Staff members is subject to specific rules for settlement and payment established in their corresponding remuneration policies, specifically:

· Variable remuneration for Identified Staff members for each financial year will be subject to ex ante adjustments, so that it shall be reduced at the time of the performance assessment in the event of negative performance of the Group’s results or other parameters such as the level of achievement of budgeted targets, and it shall not accrue or it will accrue in a reduced amount, should certain level of profits and capital ratios not be achieved.

· 60% of the Annual Variable Remuneration will be paid, if conditions are met, in the year following that to which it corresponds (the “Upfront Portion”). For executive directors, members of the Senior Management and Identified Staff members with particularly high variable remuneration, the Upfront Portion will be 40% of the Annual Variable Remuneration. The remaining portion will be deferred in time (hereinafter, the “Deferred Component”) for a 5 year-period for executive directors and members of the Senior Management, and 3 years for the remaining Identified Staff.

· 50% of the Annual Variable Remuneration, both the Upfront Portion and the Deferred Component, shall be established in BBVA shares. As regards executive directors and Senior Management, 60% of the Deferred Component shall be established in shares.

· Shares received as Annual Variable Remuneration shall be withheld for a one-year period after delivery, except for the transfer of those shares required to honor the payment taxes.

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· The Deferred Component of the Annual Variable Remuneration may be reduced in its entirety, 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, profitability or to the share performance and the recurring results of the Group.

· Resulting cash portions of the Deferred Component of Annual Variable Remuneration and subject to the multi-year performance indicators, finally delivered, shall be updated following the Consumer Price Index (CPI), measured as the year-on-year change prices, as agreed by the Board of Directors.

· The entire Annual Variable Remuneration shall be subject to malus and clawback arrangements during the whole deferral and withholding period, both linked to a downturn in the financial performance of the Bank as a whole, of a specific unit or area, or of exposure generated by an Identified Staff member, when such a downturn in financial performance arises from any of the circumstances expressly named in the remuneration policies.

· No personal hedging strategies or insurances shall be used in connection with remuneration or liability that may undermine the effects of alignment with sound risk management.

· The variable component of the remuneration for a financial year shall be limited to a maximum amount of 100% of the fixed component of the total remuneration, unless the General Meeting resolves to increase this percentage up to a maximum of 200%.

In this regard, the General Meeting held on March, 15, 2019 resolved to increase this limit to a maximum level of 200% of the fixed component of the total remuneration for a given number of the Identified Staff members, in the terms indicated in the report issued for this purpose by the Board of Directors dated February 11, 2019.

According to the settlement and payment scheme indicated, during 2019, a total amount of 5,236,123 BBVA shares corresponding to the Upfront Portion of 2018 Annual Variable Remuneration has been delivered to the Identified Staff.

Additionally, according to the Remuneration Policy applicable in 2015, during 2019 a total amount of 3,575,777 BBVA shares corresponding to the Deferred Component of 2015 Variable Remuneration has been delivered to the Identifies Staff. This amount has been subject to a downward adjustment due to the multi-year performance evaluation of one of the long-time indicators, relative TSR, which scale has determined a downward adjustment of the Deferred Component linked to this indicator in a 10%.

Likewise, the aforesaid policy established that the deferred amounts in shares of the Annual Variable Remuneration finally vested, subject to multi-year performance indicators, will be updated in cash, based on the terms established by the Board of Directors. In this regard, during 2019 a total amount of 3,003,646 euros has been delivered to the Identified Staff as updates of the corresponding shares of the Deferred Component of 2015 Annual Variable Remuneration.

Detailed information on the delivery of shares to executive directors and Senior Management is included in Note 54.

Lastly, in line with specific regulation applicable in Portugal and Brazil, BBVA has identified the staff in these countries whose Annual Variable Remuneration should be subject to a specific settlement and payment scheme, more specifically:

· A percentage of the Annual Variable Remuneration is subject to a three years deferral that shall be paid yearly over the mentioned period.

· 50% of the Annual Variable Remuneration, both the Upfront Portion and Deferred Component, shall be established in BBVA Shares.

· Both the Upfront Portion and the Deferred Component of the Annual Variable Remuneration may be subject to update adjustments in cash.

According to this remuneration scheme, during financial year 2019 a total of 21,916 BBVA shares corresponding to the Upfront Portion of 2018 Annual Variable Remuneration have been delivered to this staff in Portugal and Brazil.

Additionally, during 2019 there have been delivered to this staff in Portugal and Brazil a total of 9,717 BBVA shares corresponding to the first third of the Deferred Component of 2017 Annual Variable Remuneration, as well as 2,435 euros as adjustments for updates. A total of 12,365 BBVA shares corresponding to the second third of the Deferred Component of 2016 Annual Variable Remuneration and 5,810 euros as adjustments for updates; and a total of 10,460 BBVA shares corresponding to the last third of the Deferred Component of 2015 Annual Variable Remuneration and 8,786 euros as adjustments for updates.

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## 44.2 Other administrative expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Other administrative expense (Millions of Euros)
|  | 2019 | 2018 | 2017
Technology and systems |  | 1,216 | 1,133 | 1,018
Communications |  | 218 | 235 | 269
Advertising |  | 317 | 336 | 352
Property, fixtures and materials |  | 552 | 982 | 1,033
Of which: Rent expense (*) |  | 106 | 552 | 581
Taxes other than income tax |  | 401 | 417 | 456
Other expense |  | 1,258 | 1,271 | 1,412
Total |  | 3,963 | 4,374 | 4,541

(*) The change is mainly due to the implementation of IFRS 16 on January 1, 2019 (see Note 2.1).

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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 | 2019 | 2018 | 2017
Tangible assets | 17 | 979 | 594 | 694
For own use |  | 584 | 589 | 680
Investment properties |  | 3 | 5 | 13
Right-of-use assets (*) |  | 392 |  |
Other Intangible assets | 18.2 | 620 | 613 | 694
Total |  | 1,599 | 1,208 | 1,387

(*) The change is mainly due to the implementation of IFRS 16 on January 1, 2019 (see Note 2.1).

46. Provisions or (reversal) of provisions

For the years ended December 31, 2019, 2018 and 2017, the net provisions recognized in this income statement line item were as follows:

Provisions or (reversal) of provisions (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Pensions and other post employment defined benefit obligations | 25 | 214 | 125 | 343
Commitments and guarantees given |  | 93 | (48) | (313)
Pending legal issues and tax litigation |  | 170 | 133 | 318
Other provisions |  | 140 | 163 | 397
Total |  | 617 | 373 | 745

47. Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

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 or net gains by modification (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Financial assets at fair value through other comprehensive income |  | 82 | 1 | 1,127
Debt securities |  | 82 | 1 | (4)
Equity instruments |  |  |  | 1,131
Financial assets at amortized cost |  | 4,069 | 3,980 | 3,677
Of which: recovery of written-off assets | 7.1.5 | 919 | 589 | 558
Held to maturity investments |  |  |  | (1)
Total |  | 4,151 | 3,981 | 4,803

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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 | 2019 | 2018 | 2017
Tangible assets | 17 | 94 | 5 | 42
Intangible assets (*) |  | 1,330 | 83 | 16
Others | 20 | 23 | 51 | 306
Total |  | 1,447 | 138 | 364

(*) The balance of 2019 mainly corresponds to the impairment of the CGU in The United States (see Note 18).

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)
|  | 2019 | 2018 | 2017
Gains |  | - | - | -
Disposal of investments in non-consolidated subsidiaries |  | 9 | 55 | 38
Disposal of tangible assets and other |  | 27 | 81 | 69
Losses |  | - | - | -
Disposal of investments in non-consolidated subsidiaries |  | (2) | (13) | (27)
Disposal of tangible assets and other |  | (37) | (45) | (33)
Total |  | (3) | 78 | 47

50. Gain (losses) 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:

Gain (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of Euros)
| Notes | 2019 | 2018 | 2017
Gains on sale of real estate |  | 89 | 129 | 102
Impairment of non-current assets held for sale | 21 | (77) | (208) | (158)
Gains (losses) on sale of investments classified as non-current assets held for sale (*) |  | 10 | 894 | 82
Gains on sale of equity instruments classified as non-current assets held for sale |  | - | - | -
Total |  | 21 | 815 | 26

(*) The variation in year 2018 is mainly due to 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, balance of “Cash equivalent in central banks” includes short-term deposits at central banks recorded 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".

The variation between 2019 and 2018 of the financial liabilities from financing activities is the following:

Liabilities from financing activities (Millions of Euros)
| December 31, 2018 | Cash flows | Non-cash changes | December 31, 2019
| Acquisition | Disposal | Foreign exchange movement | Fair value changes
Liabilities at amortized cost: Debt certificates | 61,112 | 2,643 | - | - | 209 | - | 63,963
Of which: Issuances of subordinated liabilities (*) | 17,635 | (190) | - | - | 229 | - | 17,675

(*) Additionally, there are €384 million of issuances of subordinated liabilities as of December 2019 (see Note 22 and Appendix VI). The €40 million subordinated issuances of BBVA Paraguay as of December 2019 are recorded in the heading "Liabilities included in disposal groups classified as held for sale".

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
Liabilities at amortized cost: Debt certificates | 61,649 | 2,152 | - | (1,828) | (862) | - | 61,112
Of which: Issuances of subordinated liabilities (*) | 17,443 | 857 | - | (694) | 29 | - | 17,635

(*) Additionally, there were €411 million of issuances of subordinated liabilities as of December 2019 (see Note 22 and Appendix VI). The €574 million subordinated issuances of BBVA Chile as of December 2019 were recorded in the heading "Liabilities included in disposal groups classified as held for sale".

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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, 2019, 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) (**)
| 2019 | 2018 | 2017
Audits of the companies audited by firms belonging to the KPMG worldwide organization and other reports related with the audit (*) | 28.1 | 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 | 1.5 | 1.9
Fees for audits conducted by other firms | - | 0.1 | 0.1

(*) Including fees pertaining to annual legal audits (€24.1, €22.4 and €22.6 million as of December 31, 2019, 2018 and 2017, respectively).

(**) Regardless of the billed year.

In the years ended December 31, 2019, 2018 and 2017, certain entities in the BBVA Group contracted other services (other than audits) as follows:

Other services rendered (Millions of Euros)
| 2019 | 2018 | 2017
Firms belonging to the KPMG worldwide organization | 0.3 | 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)
| 2019 | 2018 | 2017
Legal audit of BBVA, S.A. or its companies under control | 6.5 | 6.7 | 6.8
Other audit services of BBVA, S.A. or its companies under control | 5.5 | 5.9 | 5.0
Limited Review of BBVA, S.A. or its companies under control | 0.9 | 1.1 | 0.9
Reports related to issuances | 0.3 | 0.3 | 0.4
Assurance services and other required by the regulator | 0.8 | 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. These transactions are not relevant and are carried out under normal market conditions. As of December 31, 2019, 2018, and 2017 the following are the transactions with related parties:

## 53.1 Transactions with significant shareholders

As of December 31, 2019, 2018 and 2017, there were no shareholders considered significant (see Note 26).

## 53.2 Transactions with BBVA Group entities

The balances of the main captions 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)
|  | 2019 | 2018 | 2017
Assets |  |  |  |
Loans and advances to credit institutions |  | 26 | 132 | 91
Loans and advances to customers |  | 1,682 | 1,866 | 510
Liabilities |  |  |  |
Deposits from credit institutions |  | 3 | 2 | 5
Customer deposits |  | 453 | 521 | 428
Debt certificates |  | - | - | -
Memorandum accounts |  |  |  |
Contingent commitments |  | 166 | 152 | 114
Other contingent commitments given |  | 1,042 | 1,358 | 1,175
Financial guarantees given |  | 106 | 78 | 78

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 consolidated income statement arising from transactions with entities of the Group (Millions of Euros)
|  | 2019 | 2018 | 2017
Income statement |  |  |  |
Interest and other income |  | 19 | 55 | 26
Interest expense |  | 1 | 2 | 1
Fee and commission income |  | 4 | 5 | 5
Fee and commission expense |  | 53 | 48 | 49

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 commitments (see Note 25) and the derivatives 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.

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## 53.3 Transactions with members of the Board of Directors and Senior Management

The amount and nature of the transactions carried out with members of the Board of Directors and Senior Management of BBVA is given below. These transactions belong to the Bank's ordinary business or traffic, are of little relevance and are carried out under normal market conditions.

As of December 31, 2019 and 2018, the amount availed against the loans granted by the Group’s entities to the members of the Board of Directors amounted to €607 and €611 thousand, respectively. As of December 31, 2017, there were no loans granted by the Group’s entities to the members of the Board of Directors.

As of December 31, 2019, 2018 and 2017, there were no loans granted to parties related to the members of the Board of Directors.

As of December 31, 2019, 2018 and 2017, the amount availed against the loans granted by the Group’s entities to the members of Senior Management (excluding the executive directors) amounted to €4,414, €3,783 and €4,049 thousand, respectively. The amount availed against the loans granted to parties related to members of the Senior Management on those same dates amounted to €57, €69 and €85 thousand, respectively.

As of December 31, 2019, 2018 and 2017 no guarantees had been granted to any member of the Board of Directors.

As of December 31, 2019, 2018 and 2017, the amount availed against guarantees arranged with members of the Senior Management amounted to €10, €38 and €28 thousand, respectively.

As of December 31, 2019 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 to €25 thousand. 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 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.

The information on the remuneration of the members of the BBVA Board of Directors and Senior Management is included in Note 54.

## 53.4 Transactions with other related parties

As of December 31, 2019, 2018 and 2017, 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.

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54. Remuneration and other benefits for the Board of Directors and members of the Bank's Senior Management

Remuneration received by non-executive directors in 2019

The remunerations paid to non-executive members of the Board of Directors during the 2019 financial year are indicated below, individualized and itemized:

Remuneration for non-executive directors (Thousands of Euros)
| Board of Directors | Executive Committee | Audit Committee | Risk and Compliance Committee | Remunerations Committee | Appointments and Corporate Governance Committee | Technology and Cybersecurity Committee | Other functions (1) | Total
Tomás Alfaro Drake | 129 | - | - | - | 43 | - | 43 | - | 214
José Miguel Andrés Torrecillas | 129 | - | 104 | 107 | - | 111 | - | 33 | 483
Jaime Caruana Lacorte | 129 | 167 | 110 | 107 | - | - | 14 | - | 527
Belén Garijo López | 129 | - | 68 | - | 107 | 45 | - | - | 348
Sunir Kumar Kapoor | 129 | - | - | - | - | - | 43 | - | 172
Carlos Loring Martínez de Irujo | 129 | 167 | - | 107 | 43 | - | - | - | 445
Lourdes Máiz Carro | 129 | - | 68 | - | 43 | 14 | - | - | 253
José Maldonado Ramos | 129 | 167 | - | - | - | 45 | - | - | 340
Ana Peralta Moreno | 129 | - | 68 | - | 43 | - | - | - | 240
Juan Pi Llorens | 129 | - | 24 | 214 | - | 31 | 43 | 53 | 493
Susana Rodríguez Vidarte | 129 | 167 | - | 107 | - | 45 | - | - | 447
Jan Verplancke | 129 | - | - | - | - | - | 43 | - | 172
Total (2) | 1,545 | 667 | 442 | 642 | 278 | 289 | 186 | 87 | 4,134

(1) Amounts received during the 2019 financial year by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as Lead Director, positions for which they were appointed by resolution of the Board of Directors on 29 April 2019.

(2) This includes the amounts corresponding to the position of member of the Board and of the various committees during the 2019 financial year. By resolution of the Board of Directors on 29 April 2019, the functions of some Board committees were redistributed, and their associated remunerations adapted to these changes in some cases.

Also, during the 2019 financial year, €104 thousand have been paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors.

Remuneration received by executive directors in 2019

Over the course of financial year 2019, the executive directors have received the amount of the Annual Fixed Remuneration corresponding to said financial year, established for each director in the Remuneration Policy for BBVA Directors, which was approved by the General Meeting held on 15 March 2019.

In addition, the executive directors have received their Annual Variable Remuneration (AVR) for the 2018 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to said year, was due to be paid to them during the 2019 financial year.

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In application of this settlement and payment system:

· 40% of the 2018 Annual Variable Remuneration corresponding to executive directors has been paid in the 2019 financial year (the "Upfront Portion"); in equal parts in cash and BBVA shares.

· The remaining 60% of the Annual Variable Remuneration has been deferred (40% in cash and 60% in shares) 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 such amount be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid, in cash and in BBVA shares, according to the following payment schedule: 60% in 2022, 20% in 2023 and the remaining 20% in 2024.

· All the shares delivered to the executive directors as Annual Variable Remuneration, both as part 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 payable 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 to the 2018 financial year is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the General Shareholders' Meeting held during that financial year.

· Over the entire deferral and withholding period, the Annual Variable Remuneration for the executive directors will be subject to variable remuneration reduction and recovery arrangements (malus and clawback).

Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number equivalent to twice their Annual Fixed Remuneration for at least three years after their delivery.

Similarly, in accordance with the Remuneration Policy for BBVA Directors applicable in 2015 and in application of the settlement and payment system of the Annual Variable Remuneration for said financial year, the Group Executive Chairman and the executive director Head of Global Economics & Public Affairs ("Head of GE&PA") have received in 2019 the deferred Annual Variable Remuneration for the 2015 financial year, delivery of which was due that year (50% of the Annual Variable Remuneration), after being adjusted downwards following the result of the TSR indicator. This remuneration has been paid in equal parts in cash and in shares, together with the corresponding update in cash, thus concluding payment of the Annual Variable Remuneration to the executive directors for the 2015 financial year.

In accordance with the above, the remunerations paid to executive directors during the 2019 financial year are indicated below, individualized and itemized:

Annual Fixed Remuneration for 2019 (Thousands of Euros)
Group Executive Chairman | 2,453
Chief Executive Officer | 2,179
Director de GE&PA | 834
Total |  | 5,466

In addition, in accordance with the current Remuneration Policy for BBVA Directors, during the 2019 financial year, the Chief Executive Officer (Consejero Delegado) has received the corresponding amounts of fixed remuneration for the concepts of cash in lieu of pension, given that he does not have a retirement pension (see the Pension Commitments section of this Note), and mobility allowance. The Bank therefore paid the Chief Executive Officer the amount of €654 thousand and €506 thousand, respectively, for these concepts during the 2019 financial year.

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Annual Variable Remuneration for 2018
| In cash (1) | In shares (1)
(thousands of Euros)
Group Executive Chairman | 479 | 100,436
Chief Executive Officer (2) | 200 | 41,267
Head of GE&PA | 79 | 16,641
Total | 758 | 158,344

(1) Remunerations corresponding to the upfront portion (40%) of the AVR for the 2018 financial year (50% paid in cash and 50% in BBVA shares). For the Group Executive Chairman and Chief Executive Officer, these variable remunerations are linked to their previous positions as Chief Executive Officer and President & CEO of BBVA USA, respectively.

(2) Remuneration received in US dollars. Data in thousands of Euros is for information purposes.

Deferred Annual Variable Remuneration for 2015
| In cash (1) | In shares (1)
(thousands of Euros)
Group Executive Chairman | 612 | 79,157
Head of GE&PA | 113 | 14,667
Total | 725 | 93,824

(1) Remunerations corresponding to deferred AVR for financial year 2015 (50% of the AVR for 2015, in equal parts in cash and shares), payment of which was due in 2019, together with its corresponding update in cash, and after its downward adjustment following the result of the TSR indicator. For the Group Executive Chairman, these variable remunerations relate to his previous position as Chief Executive Officer.

In addition, the executive directors received remuneration in kind throughout financial year 2019, including insurance premiums and others, amounting to a total of €411 thousand, of which €184 thousand correspond to the Group Executive Chairman, €144 thousand to the Chief Executive Officer and €83 thousand to the executive director Head of GE&PA.

Remuneration received by Senior Management in 2019

During the 2019 financial year, the members of Senior Management, excluding executive directors, have received the amount of the Annual Fixed Remuneration corresponding to that financial year.

In addition, they have received the Annual Variable Remuneration for financial year 2018, which, in accordance with the settlement and payment system set out in the remuneration policy applicable for said financial year, was due to be paid to them during financial year 2019.

Under this settlement and payment system, the same rules as set out above for executive directors are applicable. These include, among others: 40% of the Annual Variable Remuneration, in equal parts in cash and in BBVA shares, will be paid in the financial year following the year to which it corresponds (the "Upfront Portion"), and the remaining 60% will be deferred (40% in cash and 60% in shares) for a five-year period, with its accrual and payment being subject to compliance with a series of multi-year indicators (the "Deferred Portion"), applying the same payment schedule established for executive directors. The shares received will be withheld for a period of one year (this will not apply to those shares transferred to honour the payment of taxes arising therefrom). Likewise, senior management may not use personal hedging strategies or insurance in connection with the remuneration; the variable component of the remuneration for Senior Management corresponding to financial year 2018 will be limited to a maximum amount of 200% of the fixed component of the total remuneration; and over the entire deferral and withholding period, the Annual Variable Remuneration will be subject to reduction and recovery (malus and clawback) arrangements.

Similarly, in accordance with the remuneration policy applicable to the executive directors in 2015 and in application of the settlement and payment system of the Annual Variable Remuneration for said financial year, the members of the Senior Management who were beneficiaries of such remuneration, have received in 2019 the deferred portion of the Annual Variable Remuneration for financial year 2015, after being adjusted downwards following the result of the TSR indicator, in equal parts in cash and in shares, along with its update in cash, concluding the payment of this remuneration to the members of the Senior Management.

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In accordance with the above, the remuneration paid during the 2019 financial year to all members of the Senior Management as a whole, who held that position as of 31 December 2019 (15 members), excluding executive directors, is indicated below (itemized):

Annual Fixed Remuneration for 2019 (thousands of Euros)
Senior Management total | 13,883

Annual Variable Remuneration for 2018
| In cash | In shares
(thousands of Euros)
Senior Management total | 887 | 185,888

(1) Remunerations corresponding to the upfront portion (40%) of the AVR for financial year 2018 (paid 50% in cash and 50% in BBVA shares). For those members of the Senior Management who were appointed by the Board of Directors on 20 December 2018 and 29 April, 30 July and 19 December 2019, this remuneration relates to their previous positions.

Annual Variable Remuneration for 2015
| In cash | In shares
(thousands of Euros)
Senior Management total | 1,263 | 163,215

(1) Remunerations corresponding to deferred AVR for financial year 2015 (50% of the AVR for 2015, in equal parts in cash and in shares), payment of which was due in 2019, together with its corresponding update in cash, and after its downward adjustment following the result of the TSR indicator.

In addition, all members of Senior Management, excluding executive directors, have received remuneration in kind throughout the 2019 financial year, including insurance premiums and others, amounting to a total of €769 thousand.

Remunerations of executive directors due in 2020 and subsequent financial years

· Annual Variable Remuneration for executive directors for the 2019 financial year

Following year-end 2019, the Annual Variable Remuneration for executive directors corresponding to said period has been determined, applying the conditions set out in the Remuneration Policy for BBVA Directors approved by the General Meeting on 15 March 2019. As in the previous financial year, the following settlement and payment system applies to this remuneration:

· The Upfront Portion (40% of the 2019 Annual Variable Remuneration) will be paid, provided that the conditions are met, during the first quarter of 2020, in equal parts in cash and in shares, which amounts to €636 thousand and 126,470 BBVA shares in the case of the Group Executive Chairman; €571 thousand and 113,492 BBVA shares in the case of the Chief Executive Officer and €75 thousand and 14,998 BBVA shares in the case of the Head of GE&PA.

· The remaining 60% of the 2019 Annual Variable Remuneration will be deferred (40% in cash and 60% in shares) over a five-year period (Deferred Portion), subject to compliance with the multi-year performance indicators determined by the Board of Directors at the start of financial year 2019, which may lead to a reduction in the Deferred Portion, even in its entirety, but in no event may such amount be increased. These multi-year performance indicators will be calculated over the first three years of deferral and, provided that the relevant conditions have been met, the resulting amount will then be paid, in cash and in BBVA shares, according to the following payment 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 set out in the Remuneration Policy for BBVA Directors, which includes, among others, malus and clawback arrangements and retention periods for the shares.

The amounts corresponding to the deferred shares are detailed in the section "Other capital instruments – Remunerations based on Capital Instruments" and the cash part in "Other Liabilities/Other Accruals" in the consolidated balance sheet as of 31 December 2019.

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· Deferred Annual Variable Remuneration of executive directors for financial year 2016

Following year-end 2019, the deferred Annual Variable Remuneration of executive directors for financial year 2016 (50%) has been determined, with delivery, if conditions are met, during financial year 2020, subject to the conditions established for this purpose in the remuneration policy applicable in that financial year.

Thus, based on the result of each of the multi-year performance indicators set by the Board in 2016 to calculate the deferred portion of this remuneration, and in application of the relevant scales of achievement and their corresponding targets and weightings, the final amount of the deferred Annual Variable Remuneration for financial year 2016 has been determined, following the corresponding downward adjustment as a consequence of the result of the TSR indicator. As a result, such remuneration, including the corresponding updates, has been determined in an amount of €656 thousand and 89,158 BBVA shares in the case of the Group Executive Chairman; €204 thousand and 31,086 BBVA shares in the case of the Chief Executive Officer; and €98 thousand and 13,355 BBVA shares in the case of the Head of GE&PA. With these amounts paid, there will be no more outstanding payments due to the executive directors in respect of Annual Variable Remuneration for the 2016 financial year.

Lastly, as at year-end 2019, in addition to the abovementioned Deferred Portion of the Annual Variable Remuneration of the executive directors for financial year 2019 and in accordance with the conditions established in the remuneration policies applicable in previous years, 60% of the Annual Variable Remuneration corresponding to financial years 2017 and 2018 has been deferred and is pending payment to the executive directors and will be received in future years, if the applicable conditions are met.

Remunerations of Senior Management due in 2020 and subsequent financial years

· Annual Variable Remuneration of Senior Management for financial year 2019

Following year-end 2019, the Annual Variable Remuneration of Senior Management corresponding to said financial year has been determined (15 members as of 31 December 2019, excluding executive directors). The Annual Variable Remuneration for all members of the Senior Management, excluding executive directors, has been determined to be a combined total amount of €6,363 thousand.

The 2019 Annual Variable Remuneration for each member of Senior Management will be paid, in the first quarter of 2020, in accordance with the settlement and payment system applicable in each case and in accordance with the provisions of the BBVA Group's Remuneration Policy, if the applicable conditions are met, in an amount equal to €1,291 thousand and 257,907 BBVA shares (Upfront Portion). The remaining amount will be deferred and subject to the remaining conditions of the settlement and payment system of the applicable Annual Variable Remuneration.

· Determination of the Deferred Annual Variable Remuneration of Senior Management for financial year 2016

Following year-end 2019, the deferred Annual Variable Remuneration of Senior Management (15 members as of 31 December 2019, excluding executive directors) for financial year 2016 has been determined, with delivery, if conditions are met, taking place during financial year 2020, subject to the conditions established for this purpose in the applicable remuneration policy.

Thus, based on the result of each of the multi-year performance indicators set by the Board in 2016 to calculate the deferred portion of this remuneration, and in application of the relevant scales of achievement and their corresponding targets and weightings, the final amount of the deferred portion of the Annual Variable Remuneration for members of the Senior Management for financial year 2016 has been determined, following the corresponding downward adjustment as a consequence of the result of the TSR indicator. The combined total amount, excluding executive directors, has been determined to be €1,277 thousand and 196,899 BBVA shares, including the corresponding updates. With these amounts paid, there will be no more outstanding payments due to the Senior Management in respect of the Annual Variable Remuneration for the 2016 financial year.

Lastly, in addition to the abovementioned Deferred Portion of the Annual Variable Remuneration for financial year 2019, as at year-end 2019 and in accordance with the conditions established in the remuneration policies applicable in previous years, 60% of the Annual Variable Remuneration corresponding to financial years 2017 and 2018 has been deferred and is pending payment to the members of the Senior Management and will be received in future years if the applicable conditions are met.

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 Meetings held on 11 March 2011 and 11 March 2016 for an additional period of five years in each case.

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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 by each of them 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 annual 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 to non-executive directors who are beneficiaries of the remuneration system in shares with deferred delivery in financial year 2019, corresponding to 20% of the total remuneration in cash received by each of them in financial year 2018, are as follows:

| Theoretical shares allocated in 2019 | Theoretical shares accumulated as at 31 December 2019
Tomás Alfaro Drake | 10,138 | 93,587
José Miguel Andrés Torrecillas | 19,095 | 55,660
Jaime Caruana Lacorte | 9,320 | 9,320
Belén Garijo López | 12,887 | 47,528
Sunir Kumar Kapoor | 6,750 | 15,726
Carlos Loring Martínez de Irujo | 17,515 | 116,391
Lourdes Máiz Carro | 11,160 | 34,320
José Maldonado Ramos | 15,328 | 94,323
Ana Peralta Moreno | 5,624 | 5,624
Juan Pi Llorens | 17,970 | 72,141
Susana Rodríguez Vidarte | 17,431 | 122,414
Jan Verplancke | 5,203 | 5,203
Total | 148,421 | 672,237

Pension commitments with directors and Senior Management

The Bank has not made pension commitments with non-executive directors.

With regard to the Group Executive Chairman, the Remuneration Policy for BBVA Directors establishes a pension framework whereby he is eligible, provided that he does not leave his position as a result of a serious breach of duties, to receive a retirement pension, paid in either income or capital, when he reaches the legally established retirement age. The amount of this pension will be determined by the annual contributions made by the Bank, together with their corresponding accumulated yields as of that date.

The annual contribution to cover the retirement contingency in the Group Executive Chairman's defined-contribution system, as established in the Remuneration Policy for BBVA Directors, was determined as a result of the conversion of his previous defined-benefit rights into a defined-contribution system, in the annual amount of €1,642 thousand. The Board of Directors may update this amount during the term of the Policy, in the same way and under the same terms as it may update the Annual Fixed Remuneration.

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 the Remuneration Policy for BBVA Directors.

In the event the contractual relationship terminates before reaching retirement age for reasons other than serious breach of duties, the retirement pension due to the Group Executive Chairman upon reaching the legally established retirement age will be calculated based on the funds accumulated through the 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 in any event from the time of termination.

With respect to the commitments to cover the contingencies for death and disability benefits for the Group Executive Chairman, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage of these contingencies.

In line with the above, during the 2019 financial year, €1,919 thousand were recorded to meet the pension commitments for the Chairman. This amount includes the contribution to the retirement contingency (€1,642 thousand) and the payment of premiums for the death and disability contingencies (€278 thousand), as well as the negative adjustment of €1 thousand for “discretionary pension benefits” for the 2018 financial year, which were declared at 2018 year-end and had to be registered in the accumulated fund in 2019.

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As of 31 December 2019, the total accumulated amount of the fund to meet the retirement commitments for the Group Executive Chairman was €21,582 thousand.

With regard to the agreed annual contribution to the retirement contingency corresponding to the 2019 financial year, 15% (€246 thousand) has been registered in that financial year as "discretionary pension benefits". Following year-end 2019, this amount has been adjusted according to the criteria established to determine the Group Executive Chairman's Annual Variable Remuneration for 2019. Accordingly, the "discretionary pension benefits" for the 2019 financial year have been determined in an amount of €261 thousand, which will be included in the accumulated fund for financial year 2020, subject to the same conditions as the Deferred Portion of the Annual Variable Remuneration for financial year 2019, as well as to the remaining conditions established for these benefits in the Remuneration Policy for BBVA Directors.

With regard to the Chief Executive Officer, in accordance with the provisions of the current Remuneration Policy for BBVA Directors and his contract, the Bank has not made any retirement commitments, although he is entitled to an annual cash sum instead of a retirement pension (cash in lieu of pension), equivalent to 30% of his Annual Fixed Remuneration. The Bank has also made pension commitments to cover the death and disability contingencies, for which purpose the corresponding annual insurance premiums will be paid.

In accordance with the above, in the 2019 financial year the Bank has paid the Chief Executive Officer the amount of fixed remuneration as cash in lieu of pension set out in the “Remuneration received by executive directors in 2019” section of this Note. Furthermore, €141 thousand were recorded for the payment of the annual insurance premiums to cover the death and disability contingencies.

For the executive director Head of GE&PA, the pension system provided for in the Remuneration Policy for BBVA Directors establishes an annual contribution of 30% of the Head of GE&PA's Annual Fixed Remuneration to cover the retirement contingency. 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 the Policy.

The executive director Head of GE&PA, 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 the executive director Head of GE&PA does not leave said position due to serious breach of duties. In the event of voluntary termination of the 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, together with the corresponding accumulated yield, with no additional contributions to be made by the Bank in any event upon termination of the contractual relationship.

With respect to the commitments to cover the contingencies for death and disability benefits for the executive director Head of GE&PA, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage under their pension system.

In line with the above, during the 2019 financial year, €404 thousand have been recorded to meet the pension commitments for the executive director Head of GE&PA. This amount includes the contribution to the retirement contingency (€250 thousand) and the payment of premiums to cover the death and disability contingencies (€150 thousand), as well as €4 thousand corresponding to the adjustment made to the amount of "discretionary pension benefits" for financial year 2018, as declared at 2018 year-end and which had to be registered in the accumulated fund in 2019.

As of 31 December 2019, the total accumulated amount of the fund to meet the retirement commitments for the executive director Head of GE&PA amounts to €1,404 thousand.

With regard to the annual contribution agreed for the retirement contingency, 15% (€38 thousand) has been registered in 2019 as "discretionary pension benefits" and, following year-end 2019, this amount has been adjusted according to the criteria established to determine the executive director Head of GE&PA's Annual Variable Remuneration for 2019. Accordingly, the "discretionary pension benefits" for the financial year have been determined in an amount of €40 thousand, which will be included in the accumulated fund for financial year 2020, subject to the same conditions as the Deferred Portion of the Annual Variable Remuneration for financial year 2019, as well as the remaining conditions established for these benefits in the Remuneration Policy for BBVA Directors.

In addition, during the 2019 financial year, €3,281 thousand have been recorded to meet the pension commitments for members of the Senior Management (15 members holding that position as of 31 December 2019, excluding executive directors). This amount includes both the contribution to the retirement contingency (€2,656 thousand) and the payment of premiums to cover the death and disability contingencies (€627 thousand), as well as the negative adjustment of €2 thousand for “discretionary pension benefits” for the 2018 financial year, as declared at 2018 year-end, and which had to be registered in the accumulated fund in 2019.

At 31 December 2019, the total accumulated amount of the fund to meet the retirement commitments for members of the Senior Management amounts to €20,287 thousand.

15% of the agreed annual contributions for members of the Senior Management to cover retirement contingencies 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 the Senior Management.

F-168

Accordingly, with regard to the agreed annual contribution for the retirement contingency registered in the 2019 financial year, an amount of €389 thousand has been registered as "discretionary pension benefits" during the 2019 financial year and, following year-end 2019, this amount has been adjusted according to the same criteria established to determine the Senior Management's Annual Variable Remuneration for 2019. Accordingly, the "discretionary pension benefits" for members of the Senior Management for the financial year have been determined in an amount of €402 thousand, which will be included in the accumulated fund for financial year 2020, subject to the same conditions as the Deferred Portion of Annual Variable Remuneration for financial year 2019, as well as the remaining conditions established for these benefits in the remuneration policy applicable to members of the Senior Management.

Payments for the termination of the contractual relationship

In accordance with the Remuneration Policy for BBVA Directors, the Bank has no commitments regarding severance payments to executive directors.

With regard to Senior Management, excluding executive directors, the Bank has paid out a total of €8,368 thousand during financial year 2019, resulting from the termination of the contractual relationship with four senior managers with an average length of service in the Group of 25 years, in execution of their contracts. These contracts include the right to receive the relevant legal indemnity, provided that termination of their contract is not due to voluntary leave, retirement, disability or serious breach of their duties. The amount of this pay will be calculated in accordance with the provisions of applicable labor regulations. In some cases, the contracts also include the right to an amount additional to the legal indemnity, which will be considered variable remuneration in accordance with the solvency regulations that apply to this group, as well as notice clauses.

In line with the above, as of 31 December 2019, €1,199 thousand is pending payment and will be paid, if conditions are met, in accordance with the same schedule and regulations of the settlement and payment system applicable to the Annual Variable Remuneration for financial year 2019, as established in the remuneration policy applicable to the members of Senior Management.

All these payments comply with the conditions set out in the regulations applicable to the group of employees with a material impact on the Group's risk profile, to which senior managers belong.

55. Other information

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, 2019, there is no item included that requires disclosure in an environmental information report pursuant to Ministry JUS/318/2018, of March 21, by which the new model for the presentation in the Commercial Register of the consolidated annual accounts of the subjects obliged to its publication is approved.

56. Subsequent events

On January 31, 2020 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 2020 as final dividend for 2019 (see Note 4).

From January 1, 2020 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-169

Appendices

F-170

APPENDIX I. Additional information on subsidiaries and structured entities composing the BBVA Group

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
ACTIVOS MACORP SL | SPAIN | REAL ESTATE | 50.63 | 49.37 | 100.00 | 21 | 21 | 1
ALCALA 120 PROMOC. Y GEST.IMMOB. S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 19 | 17 | 1
ANIDA GRUPO INMOBILIARIO SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 1,538 | 1,625 | (73)
ANIDA INMOBILIARIA, S.A. DE C.V. | MEXICO | INVESTMENT COMPANY | - | 100.00 | 100.00 | 99 | 71 | 9
ANIDA OPERACIONES SINGULARES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1,444 | 1,504 | (57)
ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 43 | 42 | 1
ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA | PORTUGAL | REAL ESTATE | - | 100.00 | 100.00 | 27 | 8 | (1)
ANTHEMIS BBVA VENTURE PARTNERSHIP LLP | UNITED KINGDOM | INVESTMENT COMPANY | - | 100.00 | 100.00 | 4 | 4 | (2)
APLICA NEXTGEN OPERADORA S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - | (3) | 4
APLICA NEXTGEN SERVICIOS S.A. DE C.V | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | -
APLICA TECNOLOGIA AVANZADA SA DE CV | MEXICO | SERVICES | 100.00 | - | 100.00 | 203 | 219 | 8
ARIZONA FINANCIAL PRODUCTS, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 872 | 872 | -
ARRAHONA AMBIT, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 12 | 24 | (2)
ARRAHONA IMMO, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 53 | 114 | -
ARRAHONA NEXUS, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 58 | 64 | 1
ARRAHONA RENT, S.L.U. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 9 | 11 | -
ARRELS CT FINSOL, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 64 | 79 | -
ARRELS CT LLOGUER, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 | 6 | -
ARRELS CT PATRIMONI I PROJECTES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 22 | 24 | -
ARRELS CT PROMOU SA | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 28 | 37 | (4)
AZLO BUSINESS, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 5 | 19 | (14)
BAHIA SUR RESORT S.C. | SPAIN | INACTIVE | 99.95 | - | 99.95 | - | 1 | -
BANCO BBVA ARGENTINA S.A. | ARGENTINA | BANKING | 39.97 | 26.58 | 66.55 | 157 | 963 | 214
BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY SA | URUGUAY | BANKING | 100.00 | - | 100.00 | 110 | 164 | 41
BANCO INDUSTRIAL DE BILBAO SA | SPAIN | BANKING | - | 99.93 | 99.93 | 47 | 45 | 2
BANCO OCCIDENTAL SA | SPAIN | BANKING | 49.43 | 50.57 | 100.00 | 17 | 18 | -
BANCO PROVINCIAL OVERSEAS NV | CURAÇAO | BANKING | - | 100.00 | 100.00 | 51 | 45 | 6
BANCO PROVINCIAL SA - BANCO UNIVERSAL | VENEZUELA | BANKING | 1.46 | 53.75 | 55.21 | 36 | 132 | (7)
BBV AMERICA SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 79 | 611 | 16
BBVA (SUIZA) SA | SWITZERLAND | BANKING | 100.00 | - | 100.00 | 98 | 114 | 7
BBVA AGENCIA DE SEGUROS COLOMBIA LTDA | COLOMBIA | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | -
BBVA ASSET MANAGEMENT SA SAF | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 10 | 6 | 4
BBVA ASSET MANAGEMENT SA SGIIC | SPAIN | OTHER INVESTMENT COMPANIES | 100.00 | - | 100.00 | 43 | (58) | 114
BBVA ASSET MANAGEMENT SA SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA) | COLOMBIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 31 | 21 | 10
BBVA AUTOMERCANTIL COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS LDA. | PORTUGAL | FINANCIAL SERVICES | 100.00 | - | 100.00 | 6 | 4 | 1
BBVA BANCO CONTINENTAL SA (1) | PERU | BANKING | - | 46.12 | 46.12 | 1,139 | 2,041 | 439
BBVA BANCOMER GESTION, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 19 | 11 | 8

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1) Full consolidation method is used according to accounting rules (see Glossary)

F-171

Additional information on subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
BBVA BANCOMER OPERADORA SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | 21 | 4 | 23
BBVA BANCOMER SA INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER | MEXICO | BANKING | - | 100.00 | 100.00 | 10,124 | 7,549 | 2,244
BBVA BANCOMER SEGUROS SALUD SA DE CV | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 13 | 14 | (1)
BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 50 | 53 | 18
BBVA BOLSA SOCIEDAD AGENTE DE BOLSA S.A. | PERU | SECURITIES DEALER | - | 100.00 | 100.00 | 5 | 4 | 1
BBVA BRASIL BANCO DE INVESTIMENTO SA | BRAZIL | BANKING | 100.00 | - | 100.00 | 16 | 25 | -
BBVA BROKER CORREDURIA DE SEGUROS Y REASEGUROS SA | SPAIN | FINANCIAL SERVICES | 99.94 | 0.06 | 100.00 | - | 10 | 5
BBVA BROKER SA | ARGENTINA | INSURANCES SERVICES | - | 99.96 | 99.96 | - | 3 | 4
BBVA COLOMBIA SA | COLOMBIA | BANKING | 77.41 | 18.06 | 95.47 | 355 | 1,186 | 229
BBVA CONSOLIDAR SEGUROS SA | ARGENTINA | INSURANCES SERVICES | 87.78 | 12.22 | 100.00 | 8 | 21 | 12
BBVA CONSULTING ( BEIJING) LIMITED | CHINA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 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 | 26 | 20 | 5
BBVA DATA & ANALYTICS SL | SPAIN | SERVICES | - | 100.00 | 100.00 | 6 | 3 | -
BBVA DISTRIBUIDORA DE SEGUROS S.R.L. | URUGUAY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 5 | 3 | 2
BBVA FINANCIAL CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 231 | 227 | 2
BBVA FINANZIA SPA | ITALY | IN LIQUIDATION | 100.00 | - | 100.00 | 3 | 4 | -
BBVA FOREIGN EXCHANGE INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 22 | 17 | 5
BBVA FRANCES ASSET MANAGMENT S.A. SOCIEDAD GERENTE DE FONDOS COMUNES DE INVERSIÓN. | ARGENTINA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 14 | 11 | 2
BBVA FUNDOS S.GESTORA FUNDOS PENSOES SA | PORTUGAL | PENSION FUNDS MANAGEMENT | 100.00 | - | 100.00 | 8 | 6 | 2
BBVA GLOBAL FINANCE LTD | CAYMAN ISLANDS | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 5 | -
BBVA GLOBAL MARKETS BV | NETHERLANDS | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | - | -
BBVA HOLDING CHILE SA | CHILE | INVESTMENT COMPANY | 61.22 | 38.78 | 100.00 | 139 | 299 | 54
BBVA INFORMATION TECHNOLOGY ESPAÑA SL | SPAIN | SERVICES | 76.00 | - | 76.00 | 1 | 1 | 1
BBVA INSTITUIÇAO FINANCEIRA DE CREDITO SA | PORTUGAL | FINANCIAL SERVICES | 49.90 | 50.10 | 100.00 | 39 | 52 | 3
BBVA INSURANCE AGENCY, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 47 | 38 | 9
BBVA INTERNATIONAL PREFERRED SOCIEDAD ANONIMA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | - | -
BBVA IRELAND PLC | IRELAND | FINANCIAL SERVICES | 100.00 | - | 100.00 | 2 | 3 | -
BBVA LEASING MEXICO SA DE CV | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 51 | 133 | 15
BBVA MEDIACION OPERADOR DE BANCA-SEGUROS VINCULADO, S.A. | SPAIN | FINANCIAL SERVICES | - | 100.00 | 100.00 | 10 | 18 | 18
BBVA MORTGAGE CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2,989 | 2,907 | 77
BBVA NEXT TECHNOLOGIES OPERADORA, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | -
BBVA NEXT TECHNOLOGIES SLU | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 31 | 22 | 4
BBVA NEXT TECHNOLOGIES, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 2 | -
BBVA OP3N S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 2 | 2 | (1)
BBVA OPEN PLATFORM INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 3 | 8 | (6)
BBVA PARAGUAY SA | PARAGUAY | BANKING | 100.00 | - | 100.00 | 23 | 139 | 31
BBVA PENSIONES SA ENTIDAD GESTORA DE FONDOS DE PENSIONES | SPAIN | PENSION FUNDS MANAGEMENT | 100.00 | - | 100.00 | 13 | 19 | 8

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-172

Additional information on subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
BBVA PERU HOLDING SAC | PERU | INVESTMENT COMPANY | 100.00 | - | 100.00 | 124 | 947 | 199
BBVA PLANIFICACION PATRIMONIAL SL | SPAIN | FINANCIAL SERVICES | 80.00 | 20.00 | 100.00 | - | 1 | -
BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES | BOLIVIA | PENSION FUNDS MANAGEMENT | 75.00 | 5.00 | 80.00 | 1 | 5 | 8
BBVA PROCESSING SERVICES INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA | CHILE | SERVICES | - | 100.00 | 100.00 | 6 | 6 | -
BBVA RE INHOUSE COMPAÑIA DE REASEGUROS, S.E. | SPAIN | INSURANCES SERVICES | - | 100.00 | 100.00 | 39 | 43 | -
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 | 206 | 193 | 13
BBVA SEGUROS COLOMBIA SA | COLOMBIA | INSURANCES SERVICES | 94.00 | 6.00 | 100.00 | 10 | 15 | 9
BBVA SEGUROS DE VIDA COLOMBIA SA | COLOMBIA | INSURANCES SERVICES | 94.00 | 6.00 | 100.00 | 14 | 104 | 34
BBVA SEGUROS SA DE SEGUROS Y REASEGUROS | SPAIN | INSURANCES SERVICES | 99.96 | - | 99.96 | 713 | 532 | 298
BBVA SERVICIOS, S.A. | SPAIN | COMMERCIAL | - | 100.00 | 100.00 | - | - | -
BBVA SOCIEDAD TITULIZADORA S.A. | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
BBVA TRADE, S.A. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 10 | 5 | 6
BBVA TRANSFER HOLDING INC | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 96 | 81 | 16
BBVA TRANSFER SERVICES INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 73 | 63 | 10
BBVA USA | UNITED STATES | BANKING | - | 100.00 | 100.00 | 11,063 | 10,997 | 107
BBVA USA BANCSHARES, INC. | UNITED STATES | INVESTMENT COMPANY | 100.00 | - | 100.00 | 11,424 | 11,755 | 135
BBVA VALORES COLOMBIA SA COMISIONISTA DE BOLSA | COLOMBIA | SECURITIES DEALER | - | 100.00 | 100.00 | 5 | 5 | -
BBVA WEALTH SOLUTIONS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 12 | 8 | 4
BILBAO VIZCAYA HOLDING SA | SPAIN | INVESTMENT COMPANY | 89.00 | 11.00 | 100.00 | 41 | 87 | 15
CAIXA MANRESA IMMOBILIARIA ON CASA SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | -
CAIXA MANRESA IMMOBILIARIA SOCIAL SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 4 | 3 | -
CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | 1 | 1 | -
CAIXASABADELL PREFERENTS SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 1 | -
CARTERA E INVERSIONES SA CIA DE | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 92 | 27 | 77
CASA DE BOLSA BBVA BANCOMER SA DE CV | MEXICO | SECURITIES DEALER | - | 100.00 | 100.00 | 46 | 26 | 21
CATALONIA GEBIRA, S.L. (IN LIQUIDATION) | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | - | - | -
CATALONIA PROMODIS 4, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
CATALUNYACAIXA CAPITAL SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 82 | 81 | 1
CATALUNYACAIXA IMMOBILIARIA SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 321 | 317 | -
CATALUNYACAIXA SERVEIS SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 2 | 2 | -
CDD GESTIONI S.R.L. | ITALY | REAL ESTATE | 100.00 | - | 100.00 | 5 | 10 | -
CETACTIUS SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 1 | 1 | -
CIDESSA DOS, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 15 | 15 | -
CIDESSA UNO SL | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 5 | (38) | 65
CIERVANA SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 53 | 54 | -

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-173

Additional information on subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
CLUB GOLF HACIENDA EL ALAMO, S.L.( IN LIQUIDATION) | SPAIN | IN LIQUIDATION | - | 97.87 | 97.87 | 1 | 1 | -
COMERCIALIZADORA CORPORATIVA SAC | PERU | FINANCIAL SERVICES | - | 50.00 | 50.00 | - | - | -
COMERCIALIZADORA DE SERVICIOS FINANCIEROS, S.A. | COLOMBIA | SERVICES | - | 100.00 | 100.00 | 5 | 4 | 1
COMPAÑIA CHILENA DE INVERSIONES SL | SPAIN | INVESTMENT COMPANY | 99.97 | 0.03 | 100.00 | 221 | 239 | 11
COMPASS CAPITAL MARKETS, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 7,429 | 7,344 | 85
COMPASS GP, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 44 | 44 | -
COMPASS INSURANCE TRUST | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | -
COMPASS LIMITED PARTNER, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 6,512 | 6,429 | 84
COMPASS LOAN HOLDINGS TRS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 74 | 73 | 1
COMPASS MORTGAGE FINANCING, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | -
COMPASS SOUTHWEST, LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 5,380 | 5,323 | 66
COMPASS TEXAS MORTGAGE FINANCING, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | -
CONSOLIDAR A.F.J.P SA | ARGENTINA | IN LIQUIDATION | 46.11 | 53.89 | 100.00 | 1 | 1 | -
CONTENTS AREA, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 6 | 7 | -
CONTINENTAL DPR FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | -
CONTRATACION DE PERSONAL, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 8 | 7 | 1
CORPORACION GENERAL FINANCIERA SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 510 | 1,433 | 20
COVAULT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 1 | 3 | (3)
DALLAS CREATION CENTER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 2 | 4 | (1)
DATA ARCHITECTURE AND TECHNOLOGY MEXICO SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
DATA ARCHITECTURE AND TECHNOLOGY S.L. | SPAIN | SERVICES | - | 51.00 | 51.00 | - | 2 | -
DATA ARCHITECTURE AND TECHNOLOGY OPERADORA SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | -
DENIZEN FINANCIAL, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 1 | 3 | (2)
DENIZEN GLOBAL FINANCIAL SAU | SPAIN | PAYMENT ENTITIES | 100.00 | - | 100.00 | - | 5 | (3)
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 | 113 | 150 | (5)
ECASA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 30 | 18 | 12
EL ENCINAR METROPOLITANO, S.A. | SPAIN | REAL ESTATE | - | 99.05 | 99.05 | - | - | -
EL MILANILLO, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 7 | 7 | -
EMPRENDIMIENTOS DE VALOR S.A. | URUGUAY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 3 | (1)
ENTRE2 SERVICIOS FINANCIEROS E.F.C SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | 9 | 9 | -
ESPAIS SABADELL PROMOCIONS INMOBILIARIES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 8 | (1)
EUROPEA DE TITULIZACION SA SGFT . | SPAIN | FINANCIAL SERVICES | 88.24 | - | 88.24 | 2 | 20 | 3
EXPANSION INTERCOMARCAL SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 16 | 17 | -
F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION (1) | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | - | 1 | -
F/253863 EL DESEO RESIDENCIAL | MEXICO | REAL ESTATE | - | 65.00 | 65.00 | - | 1 | -

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1) Full consolidation method is used according to accounting rules (see Glossary).

F-174

Additional information on subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
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 | 3 | 2 | -
FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 50 | 45 | 5
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 | 5 | 3 | 2
FIDEICOMISO INMUEBLES CONJUNTO RESIDENCIAL HORIZONTES DE VILLA CAMPESTRE | COLOMBIA | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
FIDEICOMISO LOTE 6.1 ZARAGOZA | COLOMBIA | REAL ESTATE | - | 59.99 | 59.99 | - | 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 | - | (3) | 3
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 | - | 1 | 1
FIDEICOMISO SCOTIABANK INVERLAT S A F100322908 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 3 | 2 | 1
FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 5 | 6 | (1)
FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. (IN LIQUIDATION) | SPAIN | IN LIQUIDATION | - | 60.00 | 60.00 | - | - | -
FORUM COMERCIALIZADORA DEL PERU SA | PERU | SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
FORUM DISTRIBUIDORA DEL PERU SA | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 6 | 5 | 1
FORUM DISTRIBUIDORA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 43 | 35 | 6
FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 246 | 187 | 49
FUTURO FAMILIAR, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
G NETHERLANDS BV | NETHERLANDS | INVESTMENT COMPANY | - | 100.00 | 100.00 | 340 | 291 | (3)
GARANTI BANK SA | ROMANIA | BANKING | - | 100.00 | 100.00 | 262 | 293 | 25
GARANTI BBVA AS (1) | TURKEY | BANKING | 49.85 | - | 49.85 | 4,967 | 7,219 | 968
GARANTI BBVA EMEKLILIK AS | TURKEY | INSURANCES SERVICES | - | 84.91 | 84.91 | 173 | 129 | 71
GARANTI BBVA FACTORING AS | TURKEY | FINANCIAL SERVICES | - | 81.84 | 81.84 | 20 | 21 | 4
GARANTI BBVA FILO AS | TURKEY | SERVICES | - | 100.00 | 100.00 | 1 | 5 | 5
GARANTI BBVA LEASING AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 152 | 137 | 16
GARANTI BBVA PORTFOY AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 20 | 14 | 6
GARANTI BBVA YATIRIM AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 48 | 26 | 23
GARANTI BILISIM TEKNOLOJISI VE TIC TAS | TURKEY | SERVICES | - | 100.00 | 100.00 | 15 | 12 | 4
GARANTI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | (5) | (14)
GARANTI FILO SIGORTA ARACILIK HIZMETLERI A.S. | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | -
GARANTI HOLDING BV | NETHERLANDS | INVESTMENT COMPANY | - | 100.00 | 100.00 | 263 | 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 | - | 3 | -
GARANTI YATIRIM ORTAKLIGI AS | TURKEY | INVESTMENT COMPANY | - | 91.40 | 91.40 | - | 6 | 1
GARANTIBANK BBVA INTERNATIONAL N.V. | NETHERLANDS | BANKING | - | 100.00 | 100.00 | 587 | 577 | 7
GARRAF MEDITERRANIA, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | -
GESCAT GESTIO DE SOL SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 11 | 12 | (1)

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1) Full consolidation method is used according to accounting rules (see Glossary)

F-175

Additional information on subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
GESCAT LLEVANT, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 3 | 3 | -
GESCAT LLOGUERS SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 3 | 4 | -
GESCAT POLSKA SP ZOO | POLAND | REAL ESTATE | 100.00 | - | 100.00 | - | - | -
GESCAT SINEVA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | -
GESCAT VIVENDES EN COMERCIALITZACIO SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 91 | 92 | (2)
GESTION DE PREVISION Y PENSIONES SA | SPAIN | PENSION FUNDS MANAGEMENT | 60.00 | - | 60.00 | 9 | 21 | 5
GESTION Y ADMINISTRACION DE RECIBOS, S.A. - GARSA | SPAIN | SERVICES | - | 100.00 | 100.00 | 1 | 2 | -
GRAN JORGE JUAN SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 423 | 409 | 14
GRUPO FINANCIERO BBVA BANCOMER SA DE CV | MEXICO | FINANCIAL SERVICES | 99.98 | - | 99.98 | 6,678 | 8,586 | 2,645
GUARANTY BUSINESS CREDIT CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 33 | 33 | -
GUARANTY PLUS HOLDING COMPANY | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | - | - | -
HABITATGES FINVER, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
HABITATGES JUVIPRO, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U. (IN LIQUIDATION) | SPAIN | IN LIQUIDATION | - | 100.00 | 100.00 | - | 1 | -
HOLVI DEUTSCHLAND SERVICE GMBH ( IN LIQUIDATION) | GERMANY | IN LIQUIDATION | - | 100.00 | 100.00 | - | - | -
HOLVI PAYMENT SERVICE OY | FINLAND | FINANCIAL SERVICES | - | 100.00 | 100.00 | 55 | 22 | (17)
HUMAN RESOURCES PROVIDER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 349 | 342 | 6
HUMAN RESOURCES SUPPORT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 343 | 337 | 6
INMESP DESARROLLADORA, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 35 | 21 | 14
INMUEBLES Y RECUPERACIONES CONTINENTAL SA | PERU | REAL ESTATE | - | 100.00 | 100.00 | 44 | 42 | 2
INPAU, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 25 | 25 | -
INVERAHORRO SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 98 | 102 | -
INVERPRO DESENVOLUPAMENT, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 4 | 8 | 2
INVERSIONES ALDAMA, C.A. | VENEZUELA | IN LIQUIDATION | - | 100.00 | 100.00 | - | - | -
INVERSIONES BANPRO INTERNATIONAL INC NV (1) | CURAÇAO | INVESTMENT COMPANY | 48.00 | - | 48.01 | 16 | 46 | 6
INVERSIONES BAPROBA CA | VENEZUELA | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 1 | (1)
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 | 2 | -
JALE PROCAM, S.L. (IN LIQUIDATION) | SPAIN | IN LIQUIDATION | - | 50.00 | 50.00 | - | (53) | (2)
L'EIX IMMOBLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | -
LIQUIDITY ADVISORS LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1,154 | 1,144 | 17
MADIVA SOLUCIONES, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 9 | 2 | -
MICRO SPINAL LLC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | -
MISAPRE, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | (1)
MOMENTUM SOCIAL INVESTMENT HOLDING, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 7 | 7 | -
MOTORACTIVE IFN SA | ROMANIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 36 | 25 | 3
MOTORACTIVE MULTISERVICES SRL | ROMANIA | SERVICES | - | 100.00 | 100.00 | - | 1 | 1

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1) Full consolidation method is used according to accounting rules (see Glossary)

F-176

Additional information on subsidiaries and structured entities composing the BBVA Group (Continued)

|  |  | % share of participation (**) | Millions of Euros (*)
|  |  | Affiliate entity data
Company | Location | Activity | Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
MULTIASISTENCIA OPERADORA S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | -
MULTIASISTENCIA SERVICIOS S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | -
MULTIASISTENCIA, S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 27 | 18 | 9
NOIDIRI SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | - | - | -
NOVA TERRASSA 3, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | -
OPCION VOLCAN, S.A. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 2 | 1 | 1
OPENPAY COLOMBIA SAS | COLOMBIA | PAYMENT ENTITIES | - | 100.00 | 100.00 | - | - | -
OPENPAY S.A.P.I DE C.V. | MEXICO | PAYMENT ENTITIES | - | 100.00 | 100.00 | 18 | 4 | (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 | 1 | -
OPPLUS OPERACIONES Y SERVICIOS SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 1 | 30 | 6
OPPLUS SAC (IN LIQUIDATION) | PERU | IN LIQUIDATION | - | 100.00 | 100.00 | 1 | 1 | -
P.I. HOLDINGS NO. 3, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
PARCSUD PLANNER, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
PECRI INVERSION SA | SPAIN | OTHER INVESTMENT COMPANIES | 100.00 | - | 100.00 | 169 | 166 | 3
PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 245 | 211 | 90
PHOENIX LOAN HOLDINGS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 288 | 285 | 5
PI HOLDINGS NO. 1, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 84 | 84 | -
PORTICO PROCAM, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 26 | 26 | -
PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 8 | 8 | -
PROMOTORA DEL VALLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 36 | 37 | (1)
PROMOU CT 3AG DELTA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
PROMOU CT EIX MACIA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 4 | 5 | (1)
PROMOU CT GEBIRA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | -
PROMOU CT OPENSEGRE, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 | 7 | (2)
PROMOU CT VALLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | -
PROMOU GLOBAL, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 18 | 18 | -
PRONORTE UNO PROCAM, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | - | - | -
PROPEL VENTURE PARTNERS GLOBAL, S.L | SPAIN | FINANCIAL SERVICES | - | 99.50 | 99.50 | 52 | 64 | 15
PROPEL VENTURE PARTNERS US FUND I, L.P. | UNITED STATES | VENTURE CAPITAL | - | 100.00 | 100.00 | 107 | 90 | 17
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 | 1 | -
PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA CA | VENEZUELA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | -
PROV-INFI-ARRAHONA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | -
PROVIVIENDA ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A. | BOLIVIA | PENSION FUNDS MANAGEMENT | - | 100.00 | 100.00 | 2 | 2 | -
PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 50.00 | 50.00 | 8 | 21 | (4)
PUERTO CIUDAD LAS PALMAS, S.A. | SPAIN | REAL ESTATE | - | 96.64 | 96.64 | - | (24) | (1)

(*) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-177

Additional information on 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 | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
QIPRO SOLUCIONES S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 5 | 12 | 2
RALFI IFN SA | ROMANIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 38 | 16 | 2
RPV COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | (1)
RWHC, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 772 | 753 | 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 | -
SATICEM HOLDING SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 5 | 5 | -
SATICEM IMMOBILIARIA SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 16 | 15 | 1
SATICEM IMMOBLES EN ARRENDAMENT SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | -
SEGUROS BBVA BANCOMER SA DE CV GRUPO FINANCIERO BBVA BANCOMER | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 413 | 336 | 282
SEGUROS PROVINCIAL CA | VENEZUELA | INSURANCES SERVICES | - | 100.00 | 100.00 | 8 | 8 | -
SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 5 | 6 | -
SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 2 | 6 | 1
SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 16 | 12 | 4
SIMPLE FINANCE TECHNOLOGY CORP. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 56 | 78 | (23)
SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 71 | 76 | (5)
SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO SA | SPAIN | INACTIVE | 77.20 | - | 77.20 | - | - | -
SPORT CLUB 18 SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 8 | 12 | (3)
TEXAS LOAN SERVICES LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1,170 | 1,151 | 20
TMF HOLDING INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 16 | 15 | 1
TRIFOI REAL ESTATE SRL | ROMANIA | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | -
TUCSON LOAN HOLDINGS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 30 | 30 | 1
UNIVERSALIDAD TIPS PESOS E-9 | COLOMBIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 29 | 1
UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 336 | 543 | (18)
UPTURN FINANCIAL INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 4 | (3)
URBANIZADORA SANT LLORENC SA | SPAIN | INACTIVE | 60.60 | - | 60.60 | - | - | -
VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. | SPAIN | SERVICES | - | 51.00 | 51.00 | - | - | 1
VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 51.00 | 51.00 | 15 | 29 | 1

(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2019.

(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-178

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 31.12.19 | Liabilities 31.12.19 | Equity excluding profit (loss) 31.12.19 | Profit (loss) 31.12.19
ASSOCIATES |  |  |  |  |  |  |  |  |  |
ADQUIRA ESPAÑA, S.A. | SPAIN | COMMERCIAL | - | 40.00 | 40.00 | 3 | 19 | 11 | 7 | 1
ATOM BANK PLC | UNITED KINGDOM | BANKING | 39.02 | - | 39.02 | 136 | 3,285 | 3,024 | 350 | (90)
AUREA, S.A. (CUBA) | CUBA | REAL ESTATE | - | 49.00 | 49.00 | 5 | 10 | - | 9 | 1
COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO SA | SPAIN | PUBLIC ENTITIES AND INSTITUTIONS | 16.67 | - | 16.67 | 23 | 146 | 6 | 131 | 9
COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU) | PERU | ELECTRONIC MONEY ENTITIES | - | 21.03 | 21.03 | 3 | 103 | 89 | 5 | 9
DIVARIAN PROPIEDAD, S.A.U. | SPAIN | REAL ESTATE | 20.00 | - | 20.00 | 630 | 3,252 | 101 | 3,199 | (48)
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 | 2 | 8 | - | 13 | (4)
METROVACESA SA | SPAIN | REAL ESTATE | 9.44 | 11.41 | 20.85 | 443 | 2,622 | 280 | 2,343 | (1)
REDSYS SERVICIOS DE PROCESAMIENTO SL | SPAIN | FINANCIAL SERVICES | 20.00 | - | 20.00 | 14 | 128 | 56 | 60 | 11
ROMBO COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 40.00 | 40.00 | 10 | 118 | 93 | 28 | (4)
SERVICIOS ELECTRONICOS GLOBALES SA DE CV | MEXICO | SERVICES | - | 46.14 | 46.14 | 11 | 23 | - | 20 | 3
SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO SA | ESPAÑA | FINANCIAL SERVICES | 28.72 | - | 28.72 | 8 | 31 | 3 | 27 | 1
SOLARISBANK AG | GERMANY | BANKING | - | 22.22 | 22.22 | 36 | 416 | 369 | 65 | (18)
TELEFONICA FACTORING ESPAÑA SA | SPAIN | FINANCIAL SERVICES | 30.00 | - | 30.00 | 4 | 60 | 46 | 7 | 7
TF PERU SAC | PERU | FINANCIAL SERVICES | - | 24.30 | 24.30 | 1 | 6 | 1 | 3 | 2
JOINT VENTURES |  |  |  |  |  |  |  |  |  |
ADQUIRA MEXICO SA DE CV | MEXICO | COMMERCIAL | - | 50.00 | 50.00 | 2 | 6 | 2 | 4 | -
ALTURA MARKETS SOCIEDAD DE VALORES SA | SPAIN | SECURITY DEALER | 50.00 | - | 50.00 | 73 | 2,448 | 2,301 | 138 | 9
COMPAÑIA MEXICANA DE PROCESAMIENTO SA DE CV | MEXICO | SERVICES | - | 50.00 | 50.00 | 9 | 17 | - | 16 | 1
CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A. (1) | SPAIN | INVESTMENT COMPANY | - | 50.00 | 50.00 | 29 | 63 | 5 | 58 | -
DESARROLLOS METROPOLITANOS DEL SUR, S.L. | SPAIN | REAL ESTATE | - | 50.00 | 50.00 | 14 | 81 | 53 | 27 | 2
FIDEICOMISO DE ADMINISTRACION REDETRANS | COLOMBIA | FINANCIAL SERVICES | - | 25.07 | 25.07 | 1 | 4 | - | 4 | -
FIDEICOMISO F/402770-2 ALAMAR | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | 8 | 18 | - | 18 | -
FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA (1) | MEXICO | REAL ESTATE | - | 32.25 | 32.25 | 12 | 182 | - | 182 | -
PROMOCIONS TERRES CAVADES, S.A. | SPAIN | REAL ESTATE | - | 39.11 | 39.11 | 4 | 15 | - | 15 | -
RCI COLOMBIA SA COMPAÑIA DE FINANCIAMIENTO | COLOMBIA | FINANCIAL SERVICES | - | 49.00 | 49.00 | 37 | 514 | 439 | 67 | 8
VITAMEDICA ADMINISTRADORA, S.A. DE C.V | MEXICO | SERVICES | - | 51.00 | 51.00 | 5 | 19 | 10 | 9 | -

(*) In foreign companies the exchange rate of December 31, 2019 is applied.

(1) Classified as Non-current asset in seld.

F-179

APPENDIX III. Changes and notification of participations in the BBVA Group in 2019

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
DATA ARCHITECTURE AND TECHNOLOGY MEXICO SA DE CV | FOUNDING | SERVICES | 1 | - | 100.00% | 100.00% | 22-Jul-19 | SUBSIDIARY
DATA ARCHITECTURE AND TECHNOLOGY OPERADORA SA DE CV | FOUNDING | SERVICES | - | - | 100.00% | 100.00% | 22-Jul-19 | SUBSIDIARY
ANTHEMIS BBVA VENTURE PARTNERSHIP LLP | CAPITAL INCREASE | INVESTMENT COMPANY | 4 | - | 25.00% | 100.00% | 25-Nov-19 | SUBSIDIARY
BBVA PROCUREMENT AMERICA SA DE CV (1) | FOUNDING | SERVICES | - | - | 100.00% | 100.00% | 4-Mar-19 | SUBSIDIARY
FIDEICOMISO INMUEBLES CONJUNTO RESIDENCIAL HORIZONTES DE VILLA CAMPESTRE | FOUNDING | REAL ESTATE | 1 | - | 100.00% | 100.00% | 1-Sep-19 | SUBSIDIARY
OPENPAY COLOMBIA SAS | FOUNDING | PAYMENT INSTITUTIONS | - | - | 100.00% | 100.00% | 9-Oct-19 | SUBSIDIARY

(1) Company incorporated and liquidated in the same year.

Changes and notification of participations in the BBVA Group in 2019 (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
BBVA FRANCES VALORES, S.A. | MERGER | SECURITIES DEALER | - | - | 100.00% | - | 31-Oct-19 | SUBSIDIARY
ENTIDAD DE PROMOCION DE NEGOCIOS SA | LIQUIDATION | OTHER HOLDING | - | - | 99.88% | - | 14-Jun-19 | SUBSIDIARY
BBVA NOMINEES LIMITED ( IN LIQUIDATION) | LIQUIDATION | SERVICES | - | - | 100.00% | - | 2-Apr-19 | SUBSIDIARY
BBVA LUXINVEST SA | LIQUIDATION | INVESTMENT COMPANY | - | - | 100.00% | - | 2-Sep-19 | SUBSIDIARY
BBVA CONSULTORIA, S.A. | LIQUIDATION | SERVICES | - | - | 100.00% | - | 18-Feb-19 | SUBSIDIARY
RENTRUCKS ALQUILER Y SERVICIOS DE TRANSPORTE SA | LIQUIDATION | FINANCIAL SERVICES | - | - | 100.00% | - | 30-Apr-19 | SUBSIDIARY
FIDEICOMISO Nº 711 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 1ª EMISION) | MERGER | FINANCIAL SERVICES | - | - | 100.00% | - | 30-May-19 | SUBSIDIARY
FIDEICOMISO Nº 752 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 2ª EMISION) | MERGER | FINANCIAL SERVICES | - | - | 100.00% | - | 30-Nov-19 | SUBSIDIARY
RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V. | MERGER | REAL ESTATE | - | - | 100.00% | - | 29-Nov-19 | SUBSIDIARY
FINANCEIRA DO COMERCIO EXTERIOR SAR. | LIQUIDATION | COMMERCIAL | - | - | 100.00% | - | 21-Jan-19 | SUBSIDIARY
ANIDA GERMANIA IMMOBILIEN ONE, GMBH | LIQUIDATION | REAL ESTATE | - | - | 100.00% | - | 9-May-19 | SUBSIDIARY
SERVICIOS TECNOLOGICOS SINGULARES, S.A. | LIQUIDATION | SERVICES | - | - | 100.00% | - | 25-Feb-19 | SUBSIDIARY
COPROMED SA DE CV | LIQUIDATION | SERVICES | - | - | 100.00% | - | 18-Oct-19 | SUBSIDIARY
INVERSIONES DE INNOVACION EN SERVICIOS FINANCIEROS, S.L. | MERGER | INVESTMENT COMPANY | - | - | 100.00% | - | 16-Sep-19 | SUBSIDIARY
PERSONAL DATA BANK SLU | LIQUIDATION | SERVICES | - | - | 100.00% | - | 31-Dec-19 | SUBSIDIARY
BBVA PROCUREMENT AMERICA SA DE CV (1) | LIQUIDATION | SERVICES | - | - | 100.00% | - | 11-Dec-19 | SUBSIDIARY
GARANTI HIZMET YONETIMI AS | LIQUIDATION | FINANCIAL SERVICES | - | - | 100.00% | - | 23-Dec-19 | SUBSIDIARY

F-180

Changes and notification of participations in the BBVA Group in 2019 (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
PRIVACYCLOUD S.L. | ACQUISITION | SERVICES | 1 | - | 18.10% | 20.00% | 11-Oct-19 | ASSOCIATED

Changes and notification of participations in the BBVA Group in 2019 (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
REAL ESTATE DEAL II SA | LIQUIDATION | REAL ESTATE | - | 20.06% | - | 11-Nov-19 | JOINT VENTURE
CANCUN SUN & GOLF COUNTRY CLUB, S.A.P.I. DE C.V. | DISPOSAL | REAL ESTATE | 10 | 33.33% | - | 31-Dec-19 | ASSOCIATED
BANK OF HANGZHOU CONSUMER FINANCE CO LTD | DILUTION EFFECT | BANKING | 7 | 18.10% | 11.90% | 29-Jul-19 | ASSOCIATED
AXIACOM-CRI, S.L. (IN LIQUIDATION) | LIQUIDATION | REAL ESTATE | - | 50.00% | - | 30-Oct-19 | JOINT VENTURE
HABITATGES LLULL, S.L. | LIQUIDATION | REAL ESTATE | - | 50.00% | - | 20-Nov-19 | JOINT VENTURE
PROMOCIONS CAN CATA, S.L. (IN LIQUIDATION) | LIQUIDATION | REAL ESTATE | - | 64.29% | - | 17-Jun-19 | JOINT VENTURE
RESIDENCIAL SARRIA-BONANOVA, S.L. EN LIQUIDACIÓN | LIQUIDATION | REAL ESTATE | - | 27.22% | - | 31-Dec-19 | ASSOCIATED
INNOVA 31, S.C.R., S.A.( EN LIQUIDACION) | LIQUIDATION | FINANCIAL SERVICES | - | 27.04% | - | 01-Mar-19 | ASSOCIATED
PROVIURE CZF, S.L. | LIQUIDATION | REAL ESTATE | - | 50.00% | - | 31-Dec-19 | JOINT VENTURE
PROVIURE CZF PARC D'HABITATGES, S.L. | LIQUIDATION | REAL ESTATE | - | 100.00% | - | 31-Dec-19 | JOINT VENTURE

F-181

APPENDIX IV. Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2019

|  | % 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
BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES | PENSION FUND MANAGEMENT | 75.00 | 5.00 | 80.00
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
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
VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA | BANKING | - | 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 BBVA EMEKLILIK AS | INSURANCES | - | 84.91 | 84.91
FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. EN LIQUIDACION | IN LIQUIDATION | - | 60.00 | 60.00
BBVA INFORMATION TECHNOLOGY ESPAÑA SL | SERVICES | 76.00 | - | 76.00
JALE PROCAM, S.L. (IN LIQUIDATION) | IN LIQUIDATION | - | 50.00 | 50.00
PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA | BANKING | - | 50.00 | 50.00

F-182

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, 2019 (*)
AYT HIPOTECARIO MIXTO IV, FTA | BBVA, S.A. | 06/2005 | 100 | 15
AYT HIPOTECARIO MIXTO, FTA | BBVA, S.A. | 03/2004 | 100 | 10
BBVA CONSUMER AUTO 2018-1 | BBVA, S.A. | 06/2018 | 800 | 736
BBVA CONSUMO 7 FTA | BBVA, S.A. | 07/2015 | 1,450 | 350
BBVA CONSUMO 8 FT | BBVA, S.A. | 07/2016 | 700 | 337
BBVA CONSUMO 9 FT | BBVA, S.A. | 03/2017 | 1,375 | 850
BBVA EMPRESAS 4 FTA | BBVA, S.A. | 07/2010 | 1,700 | 25
BBVA LEASING 1 FTA | BBVA, S.A. | 06/2007 | 2,500 | 25
BBVA RMBS 1 FTA | BBVA, S.A. | 02/2007 | 2,500 | 897
BBVA RMBS 10 FTA | BBVA, S.A. | 06/2011 | 1,600 | 1,076
BBVA RMBS 11 FTA | BBVA, S.A. | 06/2012 | 1,400 | 940
BBVA RMBS 12 FTA | BBVA, S.A. | 12/2013 | 4,350 | 2,959
BBVA RMBS 13 FTA | BBVA, S.A. | 07/2014 | 4,100 | 2,908
BBVA RMBS 14 FTA | BBVA, S.A. | 11/2014 | 700 | 447
BBVA RMBS 15 FTA | BBVA, S.A. | 05/2015 | 4,000 | 2,945
BBVA RMBS 16 FT | BBVA, S.A. | 05/2016 | 1,600 | 1,245
BBVA RMBS 17 FT | BBVA, S.A. | 11/2016 | 1,800 | 1,460
BBVA RMBS 18 FT | BBVA, S.A. | 11/2017 | 1,800 | 1,582
BBVA RMBS 2 FTA | BBVA, S.A. | 03/2007 | 5,000 | 1,664
BBVA RMBS 3 FTA | BBVA, S.A. | 07/2007 | 3,000 | 1,312
BBVA RMBS 5 FTA | BBVA, S.A. | 05/2008 | 5,000 | 2,187
BBVA RMBS 9 FTA | BBVA, S.A. | 04/2010 | 1,295 | 788
BBVA VELA SME 2018 | BBVA, S.A. | 03/2018 | 1,950 | 873
BBVA-6 FTPYME FTA | BBVA, S.A. | 06/2007 | 1,500 | 8
FTA TDA-22 MIXTO | BBVA, S.A. | 12/2004 | 112 | 22
FTA TDA-27 | BBVA, S.A. | 12/2006 | 275 | 79
FTA TDA-28 | BBVA, S.A. | 07/2007 | 250 | 76
GAT ICO FTVPO 1, F.T.H | BBVA, S.A. | 06/2009 | 358 | 64
HIPOCAT 10 FTA | BBVA, S.A. | 07/2006 | 1,500 | 253
HIPOCAT 11 FTA | BBVA, S.A. | 03/2007 | 1,600 | 263
HIPOCAT 7 FTA | BBVA, S.A. | 06/2004 | 1,400 | 192
HIPOCAT 8 FTA | BBVA, S.A. | 05/2005 | 1,500 | 227
HIPOCAT 9 FTA | BBVA, S.A. | 11/2005 | 1,000 | 176
TDA 19 FTA | BBVA, S.A. | 03/2004 | 200 | 21
TDA 20-MIXTO, FTA | BBVA, S.A. | 06/2004 | 100 | 12
TDA 23 FTA | BBVA, S.A. | 03/2005 | 300 | 45
TDA TARRAGONA 1 FTA | BBVA, S.A. | 12/2007 | 397 | 103
VELA CORPORATE 2018-1 | BBVA, S.A. | 12/2018 | 1,000 | 469
BBVA Consumo 10FT | BBVA, S.A. | 07/2019 | 2,000 | 1,946
BBVA RMBS 19 FT | BBVA, S.A. | 11/2019 | 2,000 | 1,983

F-183

|  |  | Millions of Euros
Securitization fund (not consolidated) | Company | Origination date | Total securitized exposures at the origination date | Total securitized exposures as of December 31, 2019 (*)
FTA TDA-18 MIXTO | BBVA, S.A. | nov.-03 | 91 | 10
HIPOCAT 6 FTA | BBVA, S.A. | jul.-03 | 850 | 93

(*) Solvency scope.

F-184

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, 2019, 2018 and 201 7

Outstanding as of December 31, 2019, 2018, and 2017 of subordinated issues

|  | Millions of Euros |  |
Issuer entity and issued date | Currency | December 2019 | December 2018 | December 2017 | Prevailing Interest Rate as of December 31, 2019 | Maturity Date
Issues in Euros |  |  |  |  |  |
BANCO BILBAO VIZCAYA ARGENTARIA, S.A |  |  |  |  |  |
February-07 | EUR | - | - | 255 | 0.47% | 16-Feb-22
March-08 | EUR | 125 | 125 | 125 | 6.03% | 03-Mar-33
July-08 | EUR | 100 | 100 | 100 | 6.20% | 4-Jul-23
February-14 | EUR | - | 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 | 1,000 | 997 | 3.50% | 10-Feb-27
February-17 | EUR | 165 | 165 | 165 | 4.00% | 24-Feb-32
May-17 | EUR | 150 | 150 | 150 | 2.54% | 24-May-27
May-17 | EUR | 500 | 500 | 500 | 5.88% | Perpetual
September-18 | EUR | 1,000 | 990 | - | 5.88% | Perpetual
February-19 | EUR | 750 | - | - | 2.58% | 22-Feb-29
March-19 | EUR | 1,000 | - | - | 6.00% | Perpetual
Different issues | EUR | 379 | 384 | 386 |  |
Subtotal | EUR | 7,668 | 8,906 | 8,171 |  |
BBVA SUBORDINATED CAPITAL, S.A.U. (*) |  |  |  |  |  |
October-05 | EUR | - | - | 99 | 0.47% | 13-Oct-20
July-08 | EUR | - | - | 20 | 6.11% | 22-Jul-18
Subtotal | EUR | - | - | 119 |  |
Total issues in euros | EUR | 7,668 | 8,906 | 8,290 |  |

(*) The issuances of BBVA Subordinated Capital, S.A.U. are jointly, severally and unconditionally guaranteed by the Bank.

F-185

Outstanding as of December 31, 2019, 2018, and 2017 of subordinated issues (continued)

|  |  | Millions of Euros |
Issuer entity and issued date | Currency | December 2019 | December 2018 | December 2017 | Prevailing Interest Rate as of December 31, 2019 | Maturity Date
Issues in foreign currency |  |  |  |  |  |
BANCO BILBAO VIZCAYA ARGENTARIA, S.A |  |  |  |  |  |
May-13 | USD | - | - | 1,251 | 9.00% | Perpetual
March-17 | USD | 107 | 105 | 100 | 5.70% | 31-Mar-32
November-17 | USD | 890 | 873 | 834 | 6.13% | Perpetual
May-18 | USD | 265 | 260 | - | 5.25% | 29-May-33
September-19 | USD | 890 | - | - | 6.50% | Perpetual
Subtotal | USD | 2,152 | 1,238 | 2,185 |  |
May-17 | CHF | 18 | 18 | 17 | 1.60% | 24-May-27
Subtotal | CHF | 18 | 18 | 17 |  |
BBVA GLOBAL FINANCE, LTD. (*) |  |  |  |  |  |
December-95 | USD | 177 | 169 | 162 | 7.00% | 01-Dec-25
Subtotal | USD | 177 | 169 | 162 |  |
BANCO BILBAO VIZCAYA ARGENTARIA, CHILE (**) |  |  |  |  |  |
Different issues | CLP | - | - | 574 |  |
Subtotal | CLP | - | - | 574 |  |
BBVA BANCOMER, S.A. INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER |  |  |  |  |  |
April-10 | USD | 667 | 874 | 831 | 7.25% | 22-Apr-20
March-11 | USD | 667 | 1,092 | 1,039 | 6.50% | 10-Mar-21
July-12 | USD | 1,333 | 1,311 | 1,247 | 6.75% | 30-Sep-22
November-14 | USD | 178 | 175 | 166 | 5.35% | 12-Nov-29
January-18 | USD | 889 | 874 | - | 5.13% | 18-Jan-33
September-19 | USD | 667 | - | - | 5.875% | 13-Sep-34
Subtotal | USD | 4,401 | 4,325 | 3,283 |  |
BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY |  |  |  |  |  |
Different issues | USD | 2 | - | - |  |
Subtotal | USD | 2 | - | - |  |
BBVA PARAGUAY (***) |  |  |  |  |  |
November-14 | USD | 18 | 19 | 17 | 6.75% | 05-Nov-21
November-15 | USD | 22 | 23 | 21 | 6.70% | 18-Nov-22
Subtotal | USD | 40 | 42 | 38 |  |

(*) The issuances of BBVA Global Finance, Ltd, are guaranteed (secondary liability) by the Bank

(**) The €574 million subordinated issuances of BBVA Chile as of December 2017 were recorded in the heading "Liabilities included in disposal groups classified as held for sale".

(***) The amount of 2019 is recorded under the heading “Liabilities included in disposal groups classified as held for sale”.

F-186

Outstanding as of December 31, 2019, 2018, and 2017 of subordinated issues

|  | Millions of Euros |  |
Issuer entity and issued date (continued) | Currency | December 2019 | December 2018 | December 2017 | Prevailing Interest Rate as of December 31, 2019 | Maturity Date
COMPASS BANK |  |  |  |  |  |
March-05 | USD | 203 | 199 | 190 | 5.50% | 01-Apr-20
March-06 | USD | 63 | 62 | 59 | 5.90% | 01-Apr-26
April-15 | USD | 623 | 611 | 584 | 3.88% | 10-Apr-25
Subtotal | USD | 889 | 872 | 833 |  |
BBVA COLOMBIA, S.A. |  |  |  |  |  |
September-11 | COP | - | - | 28 | 8.31% | 19-Sep-18
September-11 | COP | 29 | 28 | 30 | 8.48% | 19-Sep-21
September-11 | COP | 42 | 42 | 44 | 8.72% | 19-Sep-26
February-13 | COP | 54 | 53 | 56 | 7.65% | 19-Feb-23
February-13 | COP | 45 | 44 | 46 | 7.93% | 19-Feb-28
November-14 | COP | 24 | 24 | 25 | 8.53% | 26-Nov-29
November-14 | COP | 34 | 43 | 45 | 8.41% | 26-Nov-34
Subtotal | COP | 229 | 233 | 273 |  |
April-15 | USD | 333 | 332 | 313 | 4.88% | 21-Apr-25
Subtotal | USD | 333 | 332 | 313 |  |
BANCO CONTINENTAL, S.A. |  |  |  |  |  |
June-07 | PEN | 22 | 20 | 20 | 3.47% | 18-Jun-32
November-07 | PEN | 19 | 18 | 18 | 3.56% | 19-Nov-32
July-08 | PEN | 17 | 16 | 16 | 3.06% | 08-Jul-23
September-08 | PEN | 18 | 17 | 17 | 3.09% | 09-Sep-23
December-08 | PEN | 11 | 10 | 10 | 4.19% | 15-Dec-33
Subtotal | PEN | 87 | 82 | 80 | - | -
May-07 | USD | 18 | 17 | 17 | 6.00% | 14-May-27
February-08 | USD | 18 | 18 | 17 | 6.47% | 28-Feb-28
October-13 | USD | 41 | 40 | 38 | 6.53% | 02-Oct-28
September-14 | USD | 269 | 252 | 244 | 5.25% | 22-Sep-29
Subtotal | USD | 346 | 328 | 315 |  |
TURKIYE GARANTI BANKASI A.S. |  |  |  |  |  |
May-17 | USD | 664 | 652 | 623 | 6.13% | 24-May-27
Subtotal | USD | 664 | 652 | 623 |  |
October-19 | TRY | 38 | - | - | 13.64% | 07-Oct-29
Subtotal | TRY | 38 | - | - | - | -
Total issues in foreign currencies(Millions of Euros) | EUR | 9,376 | 8,291 | 8,695 |  |

F-187

Outstanding as of December 31, 2019, 2018, and 2017 of subordinated issues (Millions of euros)

| December 2019 | December 2018 | December 2017
Issuer entity and issued date | Currency | Amount Issued | Currency | Amount Issued | Currency | Amount Issued
BBVA COLOMBIA SA |  |  |  |  |  |
December-93 | COP | 20 | COP | 19 | COP | -
BBVA International Preferred, S.A.U. |  |  |  |  |  |
July-07 | GBP | 37 | GBP | 35 | GBP | 35
Phoenix Loan Holdings Inc. |  |  |  |  |  |
November-00 | USD | 19 | USD | 18 | USD | 18
Caixa Terrasa Societat de Participacion |  |  |  |  |  |
August-05 | EUR | 28 | EUR | 52 | EUR | 51
Caixasabadell Preferents, S.A. |  |  |  |  |  |
July-06 | EUR | 56 | EUR | 56 | EUR | 56
Others | - | - | - | - | - | -

F-188

APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2019, 2018 and 2017.

December 2019 (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 | 16,930 | 4,414 | 499 | 5,330 | 27,173
Financial assets held for trading | 5,549 | 18,543 | 242 | 5,257 | 29,591
Non- trading financial assets mandatorily at fair value through profit or loss | 900 | 3,509 | 4 | 116 | 4,529
Financial assets at fair value through comprehensive income | 14,269 | 6,178 | 2,748 | 5,541 | 28,735
Financial assets at amortized cost | 107,865 | 56,963 | 29,125 | 35,906 | 229,859
Joint ventures and associates | 5 | 20 | - | 252 | 277
Tangible assets | 921 | 2,214 | 1,050 | 1,026 | 5,211
Other assets | 1,946 | 2,147 | 1,174 | 5,508 | 10,775
Total | 148,384 | 93,989 | 34,842 | 58,934 | 336,149
Liabilities |  |  |  |  |
Financial liabilities held for trading | 4,063 | 16,064 | 170 | 2,465 | 22,762
Financial liabilities at amortized cost | 136,661 | 54,733 | 20,681 | 36,758 | 248,834
Other liabilities | 5,555 | 6,757 | 881 | 8,172 | 21,365
Total | 146,280 | 77,555 | 21,732 | 47,394 | 292,961

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-189

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-190

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, 2019, 2018 and 2017 is as follows:

| DECEMBER 2019 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 | 73 | 93 | 64 | 64 | 49 | - | 11
Other financial corporations and individual entrepreneurs (financial business) | 387 | 8 | 62 | 4 | 3 | - | 6
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 68,121 | 5,085 | 18,283 | 3,646 | 1,810 | 178 | 3,252
Of which: financing the construction and property (including land) | 1,131 | 400 | 1,314 | 688 | 393 | 32 | 428
Other households (*) | 173,403 | 1,510 | 67,513 | 5,827 | 4,414 | 33 | 1,519
Total | 241,984 | 6,696 | 85,922 | 9,541 | 6,276 | 211 | 4,788

| 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 | 45 | 41 | 30 | 21 | 16 | - | 7
Other financial corporations and individual entrepreneurs (financial business) | 241 | 6 | 30 | 2 | 1 | - | 6
Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 39,380 | 3,148 | 11,706 | 2,466 | 1,020 | 50 | 2,923
Of which: financing the construction and property (including land) | 819 | 321 | 790 | 445 | 210 | 4 | 392
Other households (*) | 96,429 | 758 | 34,463 | 2,908 | 2,006 | 17 | 1,229
Total | 136,095 | 3,954 | 46,229 | 5,396 | 3,044 | 67 | 4,164

(*) Number of operations does not include Garanti BBVA.

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 €624 million of collective loss allowances and €4,164 million of specific loss allowances.

F-191

| 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
Other households (*) | 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
Other households (*) | 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 BBVA.

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 loss allowances and €4,202 million of specific loss allowances.

F-192

| 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
Other households (*) | 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
Other households (*) | 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 BBVA.

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 loss allowances and €4,612 million of specific loss allowances.

F-193

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 breakdown by segments of the forbearance operations (net of provisions) as of December 31, 2019, 2018 and 2017:

Forbearance operations. Breakdown by segments (Millions of Euros)
| December 2019 | December 2018 | December 2017
Credit institutions | - | - | -
Central governments | 147 | 160 | 518
Other financial corporations and individual entrepreneurs (financial activity) | 6 | 13 | 24
Non-financial corporations and individual entrepreneurs (non-financial activity) | 5,479 | 5,512 | 7,351
Of which: Financing the construction and property development (including land) | 660 | 702 | 1,416
Households | 5,818 | 6,600 | 8,428
Total carrying amount | 11,450 | 12,284 | 16,321
Financing classified as non-current assets and disposal groups held for sale | - | - | -

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, 2019 and December 31, 2018, the non-performing ratio for each of the portfolios of renegotiated loans is as follows:

December 2019. NPL ratio renegotiated loan portfolio |
| Ratio of impaired loans - past due
General governments | 39%
Commercial | 64%
Of which: Construction and developer | 70%
Other consumer | 50%

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%

F-194

b). Qualitative information on the concentration of risk by activity and guarantees

Loans and advances to customers by activity (carrying amount)

December 2019 (Millions of Euros)
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Mortgage loans | 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%
General governments | 29,257 | 1,067 | 10,886 | 4,914 | 1,510 | 1,077 | 3,651 | 801
Other financial institutions | 23,114 | 281 | 13,699 | 1,856 | 219 | 103 | 11,688 | 115
Non-financial institutions and individual entrepreneurs | 176,474 | 26,608 | 30,313 | 22,901 | 10,082 | 8,478 | 5,270 | 10,190
Construction and property development | 15,171 | 4,497 | 2,114 | 2,313 | 1,765 | 1,476 | 457 | 600
Construction of civil works | 7,146 | 756 | 468 | 499 | 248 | 152 | 106 | 219
Other purposes | 154,157 | 21,355 | 27,731 | 20,089 | 8,069 | 6,850 | 4,707 | 9,371
Large companies | 104,661 | 8,665 | 19,058 | 12,647 | 3,620 | 3,828 | 2,727 | 4,901
SMEs (**) and individual entrepreneurs | 49,496 | 12,690 | 8,673 | 7,442 | 4,449 | 3,022 | 1,980 | 4,470
Rest of households and NPISHs (***) | 167,117 | 108,031 | 5,582 | 23,057 | 27,714 | 32,625 | 20,529 | 9,688
Housing | 110,178 | 104,796 | 2,332 | 20,831 | 26,639 | 31,707 | 18,701 | 9,250
Consumption | 46,356 | 507 | 2,075 | 450 | 316 | 174 | 1,502 | 140
Other purposes | 10,583 | 2,728 | 1,175 | 1,776 | 759 | 744 | 326 | 298
TOTAL | 395,962 | 135,987 | 60,480 | 52,728 | 39,525 | 42,283 | 41,138 | 20,794
MEMORANDUM ITEM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 11,450 | 7,396 | 256 | 1,547 | 1,427 | 1,572 | 1,247 | 1,859

(*) The amounts included in this table are net of loss allowances.

(**) Small and medium enterprises.

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-195

December 2018 (Millions of Euros)
|  |  |  | Collateralized loans and receivables -Loans and advances to customers. Loan to value
| Total (*) | Mortgage loans | 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%
General governments | 30,488 | 1,056 | 7,750 | 1,729 | 1,856 | 1,119 | 3,514 | 588
Other financial institutions | 20,802 | 233 | 12,549 | 1,167 | 221 | 93 | 11,209 | 92
Non-financial institutions and individual entrepreneurs | 173,493 | 29,001 | 32,371 | 25,211 | 11,121 | 9,793 | 5,087 | 10,160
Construction and property development | 14,323 | 5,226 | 2,539 | 1,979 | 2,556 | 2,140 | 486 | 605
Construction of civil works | 7,775 | 1,082 | 620 | 703 | 285 | 195 | 200 | 319
Other purposes | 151,394 | 22,694 | 29,212 | 22,529 | 8,281 | 7,459 | 4,401 | 9,235
Large companies | 97,132 | 9,912 | 19,069 | 13,918 | 3,979 | 4,019 | 2,245 | 4,820
SMEs (**) and individual entrepreneurs | 54,262 | 12,782 | 10,143 | 8,611 | 4,302 | 3,440 | 2,156 | 4,416
Rest of households and NPISHs (***) | 163,068 | 109,578 | 5,854 | 21,974 | 27,860 | 33,200 | 21,490 | 10,908
Housing | 111,007 | 105,817 | 2,419 | 19,981 | 26,384 | 32,122 | 19,345 | 10,404
Consumption | 40,124 | 522 | 2,600 | 489 | 587 | 306 | 1,597 | 142
Other purposes | 11,938 | 3,239 | 835 | 1,505 | 888 | 772 | 547 | 362
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 loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-196

December 2017 (Millions of Euros)
|  |  |  | Collateralized credit risk. Loan to value
| Total (*) | Mortgage loans | 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%
General governments | 32,294 | 998 | 7,167 | 1,540 | 179 | 475 | 532 | 5,440
Other financial institutions | 18,669 | 319 | 12,910 | 314 | 277 | 106 | 11,349 | 1,183
Non-financial institutions and individual entrepreneurs | 172,338 | 39,722 | 24,793 | 11,697 | 5,878 | 5,183 | 9,167 | 32,591
Construction and property development | 14,599 | 10,664 | 1,066 | 1,518 | 876 | 1,049 | 1,313 | 6,974
Construction of civil works | 7,733 | 1,404 | 521 | 449 | 358 | 289 | 162 | 667
Other purposes | 150,006 | 27,654 | 23,206 | 9,729 | 4,644 | 3,845 | 7,692 | 24,950
Large companies | 93,604 | 10,513 | 16,868 | 2,769 | 1,252 | 1,023 | 3,631 | 18,706
SMEs (**) and individual entrepreneurs | 56,402 | 17,142 | 6,338 | 6,960 | 3,392 | 2,823 | 4,061 | 6,244
Rest of households and NPISHs (***) | 165,024 | 114,558 | 8,395 | 19,762 | 22,807 | 25,595 | 22,122 | 32,667
Housing | 114,709 | 111,604 | 128 | 18,251 | 22,222 | 25,029 | 21,154 | 25,076
Consumption | 40,705 | 670 | 4,784 | 1,058 | 256 | 192 | 316 | 3,632
Other purposes | 9,609 | 2,284 | 3,483 | 452 | 330 | 374 | 652 | 3,959
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 loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-197

The information of the main geographic areas is as follows:

December 2019 (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 | 15,689 | 360 | 439 | 59 | 209 | 63 | 461 | 8
2 Other financial institutions | 17,439 | 194 | 11,591 | 45 | 36 | 3 | 11,636 | 64
3 Non-financial institutions and individual entrepreneurs | 78,459 | 10,338 | 1,936 | 4,543 | 2,951 | 2,169 | 1,067 | 1,543
3.1 Construction and property development | 2,033 | 1,907 | 21 | 729 | 546 | 405 | 124 | 124
3.2 Construction of civil works | 4,501 | 676 | 155 | 277 | 206 | 134 | 48 | 167
3.3 Other purposes | 71,925 | 7,754 | 1,760 | 3,537 | 2,199 | 1,629 | 896 | 1,253
3.3.1 Large companies | 48,462 | 1,446 | 621 | 953 | (66) | 344 | 212 | 624
3.3.2 SMEs (**) and individual entrepreneurs | 23,463 | 6,308 | 1,139 | 2,584 | 2,265 | 1,285 | 684 | 629
4 Rest of households and NPISHs (***) | 92,757 | 76,735 | 408 | 15,995 | 20,442 | 21,173 | 11,812 | 7,720
4.1 Housing | 76,339 | 74,272 | 121 | 15,176 | 19,692 | 20,493 | 11,560 | 7,473
4.2 Consumption | 11,976 | 116 | 177 | 63 | 72 | 101 | 32 | 24
4.3 Other purposes | 4,442 | 2,347 | 109 | 757 | 677 | 579 | 220 | 223
TOTAL | 204,344 | 87,626 | 14,374 | 20,642 | 23,638 | 23,409 | 24,976 | 9,335
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 8,043 | 6,162 | 43 | 1,024 | 1,152 | 1,285 | 1,054 | 1,691

(*) The amounts included in this table are net of loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-198

December 2019 (Millions Of Euros) BBVA MEXICO
|  |  |  | 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 | 6,817 | - | 6,172 | 3,913 | 775 | 126 | 793 | 565
2 Other financial institutions | 1,607 | 5 | 1,502 | 1,387 | 5 | 55 | 42 | 18
3 Non-financial institutions and individual entrepreneurs | 24,086 | 1,014 | 16,376 | 11,832 | 988 | 1,136 | 1,044 | 2,390
3.1 Construction and property development | 1,094 | 216 | 878 | 619 | 174 | 195 | 65 | 41
3.2 Construction of civil works | 161 | 3 | 157 | 133 | 4 | 6 | 4 | 15
3.3 Other purposes | 22,831 | 795 | 15,340 | 11,080 | 810 | 936 | 975 | 2,335
3.3.1 Large companies | 16,315 | 64 | 9,556 | 8,009 | 393 | 469 | 354 | 394
3.3.2 SMEs (**) and individual entrepreneurs | 6,516 | 731 | 5,784 | 3,071 | 417 | 467 | 620 | 1,941
4 Rest of households and NPISHs (***) | 24,378 | 10,366 | 668 | 1,776 | 2,191 | 4,500 | 2,284 | 285
4.1 Housing | 10,366 | 10,366 | 1 | 1,109 | 2,191 | 4,500 | 2,284 | 283
4.2 Consumption | 12,822 | - | - | - | - | - | - | -
4.3 Other purposes | 1,190 | - | 668 | 666 | - | - | - | 1
TOTAL | 56,887 | 11,385 | 24,718 | 18,908 | 3,958 | 5,817 | 4,162 | 3,258
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 440 | 223 | 132 | 91 | 45 | 87 | 89 | 43

(*) The amounts included in this table are net of loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-199

December 2019 (Millions Of Euros) BBVA USA
|  |  |  | 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 | 906 | 126 | 710 | 130 | 229 | 138 | 285 | 54
2 Other financial institutions | 1,881 | 44 | 300 | 299 | 7 | 24 | 3 | 10
3 Non-financial institutions and individual entrepreneurs | 27,878 | 4,579 | 9,953 | 3,695 | 3,644 | 3,111 | 1,443 | 2,638
3.1 Construction and property development | 9,236 | 1,159 | 1,135 | 689 | 711 | 632 | 148 | 115
3.2 Construction of civil works | 201 | 5 | 146 | 76 | 27 | 4 | 44 | -
3.3 Other purposes | 18,440 | 3,414 | 8,672 | 2,931 | 2,906 | 2,475 | 1,251 | 2,523
3.3.1 Large companies | 16,434 | 2,995 | 7,622 | 2,570 | 2,516 | 2,174 | 1,113 | 2,244
3.3.2 SMEs (**) and individual entrepreneurs | 2,006 | 419 | 1,050 | 360 | 390 | 302 | 139 | 279
4 Rest of households and NPISHs (***) | 21,275 | 11,367 | 2,816 | 2,599 | 2,424 | 5,495 | 3,623 | 41
4.1 Housing | 13,484 | 11,164 | 2,188 | 2,183 | 2,275 | 5,338 | 3,536 | 18
4.2 Consumption | 4,313 | - | 336 | 168 | 109 | 20 | 34 | 4
4.3 Other purposes | 3,478 | 203 | 292 | 248 | 40 | 137 | 52 | 19
TOTAL | 51,939 | 16,116 | 13,779 | 6,723 | 6,305 | 8,768 | 5,354 | 2,744
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 403 | 155 | 57 | 35 | 63 | 60 | 53 | 1

(*) The amounts included in this table are net of loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

F-200

December 2019 (Millions Of Euros) Garanti BBVA
|  |  |  | 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 | 107 | 1 | - | - | - | 1 | - | -
2 Other financial institutions | 1,299 | 26 | - | - | 4 | 19 | 3 | 1
3 Non-financial institutions and individual entrepreneurs | 23,461 | 5,099 | 443 | 1,513 | 1,619 | 1,270 | 361 | 779
3.1 Construction and property development | 1,768 | 690 | 51 | 222 | 242 | 161 | 30 | 86
3.2 Construction of civil works | 1,961 | - | - | - | - | - | - | -
3.3 Other purposes | 19,732 | 4,409 | 392 | 1,291 | 1,377 | 1,108 | 331 | 693
3.3.1 Large companies | 10,759 | 1,966 | 94 | 763 | 420 | 490 | 123 | 263
3.3.2 SMEs (**) and individual entrepreneurs | 8,973 | 2,443 | 299 | 528 | 957 | 618 | 208 | 430
4 Rest of households and NPISHs (***) | 11,023 | 2,675 | 27 | 1,182 | 1,370 | 124 | 25 | 2
4.1 Housing | 2,965 | 2,537 | - | 1,128 | 1,318 | 90 | 1 | 1
4.2 Consumption | 7,826 | 42 | 25 | 31 | 17 | 13 | 5 | 1
4.3 Other purposes | 232 | 96 | 2 | 23 | 35 | 21 | 18 | -
TOTAL | 35,890 | 7,800 | 471 | 2,695 | 2,993 | 1,413 | 388 | 781
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 1,789 | 400 | 2 | 210 | 56 | 89 | 11 | 36

(*) The amounts included in this table are net of loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

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December 2019 (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 | 5,739 | 579 | 3,565 | 812 | 297 | 749 | 2,113 | 174
2 Other financial institutions | 888 | 14 | 307 | 125 | 167 | 2 | 5 | 22
3 Non-financial institutions and individual entrepreneurs | 22,591 | 5,579 | 1,604 | 1,318 | 879 | 792 | 1,354 | 2,840
3.1 Construction and property development | 1,040 | 525 | 29 | 54 | 92 | 83 | 91 | 234
3.2 Construction of civil works | 322 | 71 | 9 | 14 | 11 | 7 | 10 | 38
3.3 Other purposes | 21,229 | 4,983 | 1,566 | 1,250 | 776 | 701 | 1,254 | 2,567
3.3.1 Large companies | 12,690 | 2,195 | 1,165 | 352 | 357 | 350 | 925 | 1,376
3.3.2 SMEs (**) and individual entrepreneurs | 8,539 | 2,789 | 401 | 898 | 419 | 350 | 329 | 1,191
4 Rest of households and NPISHs (***) | 17,685 | 6,889 | 1,664 | 1,505 | 1,288 | 1,333 | 2,785 | 1,641
4.1 Housing | 7,023 | 6,458 | 22 | 1,235 | 1,164 | 1,286 | 1,320 | 1,475
4.2 Consumption | 9,418 | 349 | 1,537 | 187 | 117 | 40 | 1,430 | 111
4.3 Other purposes | 1,242 | 82 | 103 | 82 | 6 | 8 | 35 | 55
TOTAL | 46,902 | 13,060 | 7,138 | 3,759 | 2,631 | 2,876 | 6,257 | 4,675
MEMORANDUM: |  |  |  |  |  |  |  |
Forbearance operations (****) | 776 | 455 | 23 | 187 | 110 | 50 | 42 | 89

(*) The amounts included in this table are net of loss allowances.

(**) Small and medium enterprises

(***) Nonprofit institutions serving households.

(****) Net of provisions.

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c). Information on the concentration of risk by activity and geographical areas

December 2019 (Millions of Euros)
| TOTAL(*) | Spain | European Union Other | America | Other
Credit institutions | 109,471 | 23,127 | 40,332 | 31,851 | 14,161
General governments | 134,929 | 56,478 | 9,861 | 57,174 | 11,416
Central Administration | 96,639 | 39,573 | 9,505 | 36,287 | 11,274
Other | 38,290 | 16,905 | 356 | 20,887 | 142
Other financial institutions | 52,406 | 13,822 | 19,828 | 15,749 | 3,007
Non-financial institutions and individual entrepreneurs | 232,034 | 70,762 | 25,963 | 92,198 | 43,111
Construction and property development | 18,915 | 3,538 | 361 | 11,688 | 3,328
Construction of civil works | 10,607 | 5,403 | 1,303 | 1,431 | 2,470
Other purposes | 202,512 | 61,821 | 24,299 | 79,079 | 37,313
Large companies | 147,643 | 37,402 | 23,310 | 61,858 | 25,073
SMEs and individual entrepreneurs | 54,869 | 24,419 | 989 | 17,221 | 12,240
Other households and NPISHs | 167,379 | 90,829 | 3,180 | 62,098 | 11,272
Housing | 110,178 | 75,754 | 725 | 30,557 | 3,142
Consumer | 46,358 | 11,954 | 675 | 25,897 | 7,832
Other purposes | 10,843 | 3,121 | 1,780 | 5,644 | 298
TOTAL | 696,219 | 255,018 | 99,165 | 259,070 | 82,967

(*) 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 loss allowances.

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 loss allowances.

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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 loss allowances.

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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, 2019, 2018 and 2017 by type of counterparty and the country of residence of such counterparty. The below figures do not take into account accumulated other comprehensive income, loss allowances or loan-loss provisions:

Risk exposure by countries (Millions of Euros)
| Sovereign risk
| December 2019 | December 2018 | December 2017
Spain | 55,575 | 52,970 | 54,625
Italy | 7,810 | 9,249 | 9,827
Turkey | 7,999 | 7,998 | 9,825
Portugal | 924 | 529 | 722
Germany | 224 | 362 | 259
United Kingdom | 43 | 51 | 41
France | 93 | 122 | 383
Netherlands | 1 | 9 | 16
Romania | 480 | 493 | 417
Rest of Europe | 142 | 197 | 229
Subtotal Europe | 73,291 | 71,981 | 76,343
Mexico | 32,630 | 26,562 | 25,114
The United States | 19,802 | 18,645 | 14,059
Colombia | 1,828 | 2,577 | 2,320
Argentina | 1,557 | 628 | 1,192
Peru | 582 | 750 | 535
Venezuela | 7 | 1 | 137
Rest of countries | 3,726 | 955 | 1,761
Subtotal rest of countries | 60,131 | 50,118 | 45,119
Total exposure to financial instruments | 133,421 | 122,099 | 121,462

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.

The table below provides a breakdown of the exposure of the Group’s credit institutions to sovereign risk as of December 31, 2019 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 2019 (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 |  | 23,925 | 26,980 | 800 | 30 | (17) | (877) | 1,191 | (2,195) | 49,836 | 39%
Italy |  | 4,887 | 3,183 | - | - | - | (722) | 287 | (1,088) | 6,547 | 5%
Portugal |  | 1,854 | 180 | - | - | (77) | 377 | 1,788 | (1,347) | 2,775 | 2%
Germany |  | 486 | - | - | - | - | 199 | 6 | (16) | 675 | 1%
United Kingdom |  | - | 37 | - | - | - | - | - | - | 37 | 0%
France |  | 468 | 35 | - | - | - | 388 | 208 | (17) | 1,082 | 1%
Netherlands |  | - | - | - | - | - | - | - | - | - | 0%
Romania |  | 479 | - | - | - | - | - | - | - | 480 | 0%
Rest of European Union |  | 370 | 61 | 142 | - | (2) | (35) | 2 | (2) | 537 | 0%
Total Exposure to Sovereign Counterparties (European Union) |  | 32,467 | 30,476 | 942 | 30 | (96) | (670) | 3,482 | (4,665) | 61,967 | 48%
Mexico |  | 21,399 | 8,414 | 1,492 | 2 | (104) | 8 | - | (6) | 31,204 | 24%
The United States |  | 8,741 | 11,023 | 29 | 1 | - | 112 | 45 | (45) | 19,906 | 15%
Turkey |  | 3,739 | 4,234 | - | - | - | (7) | - | (8) | 7,957 | 6%
Rest of other countries |  | 5,376 | 2,212 | 2,463 | 46 | (200) | (572) | 3,593 | (4,766) | 8,152 | 6%
Total other countries |  | 39,255 | 25,883 | 3,983 | 49 | (304) | (459) | 3,638 | (4,826) | 67,219 | 52%
Total |  | 71,722 | 56,359 | 4,925 | 79 | (400) | (1,129) | 7,120 | (9,491) | 129,186 | 100%

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This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of European countries of the Group’s insurance companies (€11,614 million as of December 31, 2019) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

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, 2019, 2018 and 2017, exposure to the construction sector and real-estate activities in Spain stood at €9,943 €11,045 and €11,981 million, respectively. Of that amount, risk from loans to construction and real-estate development activities accounted for €2,649, €3,183 and €5,224 million, respectively, representing 1.4%, 1.7% and 2.9% of loans and advances to customers of the balance of business in Spain (excluding the general governments) and 0.4%, 0.5% and 0.8% of the total assets of the Consolidated Group, respectively.

Lending for real estate development of the loans as of December 31, 2019, 2018 and 2017is shown below:

December 2019. 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) | 2,649 | 688 | (286)
Of which: Impaired assets | 567 | 271 | (252)
Memorandum item: |  |  |
Write-offs | 2,265 |  |
Memorandum item: | - |  |
Total loans and advances to customers, excluding the General Governments (Business in Spain) (book value) | 185,893 |  |
Total consolidated assets (total business) (book value) | 698,690 |  |
Impairment and provisions for normal exposures | (4,934) |  |

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) (book value) | 183,196 |  |
Total consolidated assets (total business) (book value) | 676,689 |  |
Impairment and provisions for normal exposures | (4,938) |  |

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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) (book Value) | 174,014 |  |
Total consolidated assets (total business) (book value) | 690,059 |  |
Impairment and provisions for normal exposures | (5,843) |  |

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)
| December 2019 | December 2018 | December 2017
Without secured loan | 298 | 324 | 552
With secured loan | 2,351 | 2,859 | 4,672
Terminated buildings | 1,461 | 1,861 | 2,904
Homes | 1,088 | 1,382 | 2,027
Other | 373 | 479 | 877
Buildings under construction | 545 | 432 | 462
Homes | 348 | 408 | 439
Other | 197 | 24 | 23
Land | 345 | 566 | 1,306
Urbanized land | 240 | 364 | 704
Rest of land | 105 | 202 | 602
Total | 2,649 | 3,183 | 5,224

As of December 31, 2019, 2018 and 2017, 55.2%, 58.5%, and 55.6% of loans to developers were guaranteed with buildings (74.5%, 74.3% and 69.8%, are homes), and only 13.0%, 17.8% and 25.0% by land, of which 69.6%, 64.3% and 53.9% % are in urban locations, respectively.

The table below provides the breakdown of the financial guarantees given as of December 31, December 31, 2019, 2018 and 2017:

Financial guarantees given (Millions of Euros)
| December 2019 | December 2018 | December 2017
Houses purchase loans | 44 | 48 | 64
Without mortgage | 5 | 24 | 12

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The information on the retail mortgage portfolio risk (housing mortgage) as of December 31, December 31, 2019, 2018 and 2017is as follows:

December 2019. 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 | 76,961 | 2,943
Without mortgage | 1,672 | 22
With mortgage | 75,289 | 2,921

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

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 2019 | 15,105 | 19,453 | 20,424 | 11,827 | 8,480 | 75,289
Of which: Impaired loans | 182 | 313 | 506 | 544 | 1,376 | 2,921
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

Outstanding home mortgage loans as of December 31, 2019, 2018 and 2017 had an average LTV of 47%, 49%, and 51% 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:

Information about assets received in payment of debts (Business in Spain) (Millions of euros)
|  | December 2019
|  | 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. |  | 1,048 | 555 | 266 | 493
Terminated buildings |  | 378 | 150 | 58 | 228
Homes |  | 221 | 81 | 33 | 140
Other |  | 157 | 69 | 25 | 88
Buildings under construction |  | 79 | 44 | 24 | 35
Homes |  | 78 | 43 | 24 | 35
Other |  | 1 | 1 | - | -
Land |  | 591 | 361 | 184 | 230
Urbanized land |  | 547 | 338 | 167 | 209
Rest of land |  | 44 | 23 | 17 | 21
Real estate assets from mortgage financing for households for the purchase of a home |  | 1,192 | 612 | 153 | 580
Rest of foreclosed real estate assets |  | 451 | 233 | 37 | 218
Equity instruments, investments and financing to non-consolidated companies holding said assets |  | 1,380 | 293 | 255 | 1,087
Total |  | 4,071 | 1,693 | 711 | 2,378

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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
Finished 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
Foreclosed equity instruments |  | 1,135 | 325 | 273 | 810
Total |  | 12,821 | 7,684 | 4,036 | 5,137

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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

As of December 31, 2019, 2018 and 2017, the gross book value of the Group’s real-estate assets from corporate financing of real-estate construction and development was €1,048, €2,165 and €6,429 million, respectively, with an average coverage ratio of 53.0%, 57.8% and 67.7%, respectively.

The gross book value of real-estate assets from mortgage lending to households for home purchase as of December 31, 2019, 2018 and 2017, amounted to €1,192, €1,797 and €3,592 million, respectively, with an average coverage ratio of 51.3%, 51.9% and 58.6%.

As of December 31, 2019, 2018 and 2017, 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 €2,691, €4,310 and €11,686 million, respectively. The coverage ratio was 52.0%, 55.1% and 63.0%, respectively.

## c) Concentration of risk by geography

Below is a breakdown of the balances of financial instruments registered in the accompanying consolidated balance sheets by their concentration in geographical areas and according to the residence of the customer or counterparty. As of December 31, 2019, 2018 and 2017 it does not take into account loss allowances or loan-loss provisions:

Risks by geographical areas. December 2019 (Millions of Euros)
| Spain | Europe, excluding Spain | Mexico | The United States | Turkey | South America | Other | Total
Derivatives | 5,346 | 17,251 | 1,344 | 6,425 | 189 | 1,854 | 777 | 33,185
Equity instruments (*) | 3,745 | 6,184 | 3,829 | 1,311 | 55 | 268 | 247 | 15,639
Debt securities | 48,806 | 13,283 | 28,053 | 17,733 | 7,934 | 5,383 | 4,210 | 125,403
Central banks | - | - | - | - | - | 1,785 | 70 | 1,855
General governments | 41,510 | 9,403 | 25,852 | 14,465 | 7,921 | 2,732 | 2,846 | 104,728
Credit institutions | 1,237 | 1,672 | 658 | 150 | 9 | 263 | 611 | 4,600
Other financial corporations | 5,643 | 1,001 | 317 | 2,085 | 3 | 433 | 136 | 9,619
Non-financial corporations | 416 | 1,207 | 1,226 | 1,034 | 1 | 170 | 548 | 4,602
Loans and advances | 171,668 | 52,024 | 63,505 | 65,044 | 45,872 | 40,787 | 9,267 | 448,166
Central banks | 14 | (3) | - | - | 3,647 | 684 | 478 | 4,820
General governments | 14,477 | 394 | 6,820 | 5,342 | 111 | 1,536 | 637 | 29,316
Credit institutions | 6,621 | 20,544 | 2,050 | 648 | 1,996 | 1,012 | 2,112 | 34,982
Other financial corporations | 3,103 | 13,351 | 1,611 | 2,313 | 1,248 | 704 | 752 | 23,082
Non-financial corporations | 50,718 | 14,215 | 24,823 | 34,960 | 26,099 | 17,963 | 5,130 | 173,907
Households | 96,735 | 3,523 | 28,201 | 21,781 | 12,773 | 18,888 | 158 | 182,059
Total risk in financial assets | 229,564 | 88,742 | 96,731 | 90,512 | 54,050 | 48,292 | 14,501 | 622,393
Loan commitments given | 33,146 | 26,687 | 17,361 | 35,185 | 8,665 | 8,060 | 1,819 | 130,923
Financial guarantees given | 3,182 | 1,605 | 656 | 754 | 3,170 | 911 | 705 | 10,984
Other commitments given | 16,204 | 9,125 | 1,534 | 2,075 | 5,065 | 2,808 | 2,397 | 39,209
Off-balance sheet exposures | 52,532 | 37,417 | 19,551 | 38,014 | 16,900 | 11,779 | 4,922 | 181,116
Total risks in financial instruments | 282,096 | 126,159 | 116,282 | 128,526 | 70,950 | 60,072 | 19,423 | 803,508

(*) Equity instruments are shown net of valuation adjustment.

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Risks by geographical areas. December 2018 (Millions of Euros)
| Spain | Europe, excluding Spain | Mexico | The United States | 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-211

Risks by geographical areas. December 2017 (Millions of Euros)
| Spain | Europe, excluding Spain | Mexico | The United States | 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.

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix VII.

The breakdown of loans and advances in the heading of “Loans and receivables”, impaired by geographical area as December 31, 2019, 2018 and 2017is as follows:

Impaired financial assets by geographic area (Millions of Euros)
| December 2019 | December 2018 | December 2017
Spain | 8,616 | 10,025 | 13,318
Rest of Europe | 175 | 225 | 549
Mexico | 1,478 | 1,138 | 1,124
South America | 1,769 | 1,715 | 1,468
The United States | 632 | 733 | 631
Turkey | 3,289 | 2,520 | 2,311
Rest of the world | 2 | 2 | -
IMPAIRED RISKS | 15,959 | 16,359 | 19,401

F-212

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.

F-213

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.

F-214

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.

F-215

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.
Domestic activity | Domestic balances are those of BBVA´s Group entities domiciled in Spain, which reflect BBVA´s domestic activities, being the allocation of assets and liabilities based on the domicile of the Group entity at which the relevant asset or liability is accounted for.
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.

F-216

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.
Foreign activity | International balances are those of BBVA´s Group entities domiciled outside of Spain, which reflect our foreign activities, being the allocation of assets and liabilities based on the domicile of the Group entity at which the relevant asset or liability is accounted for.
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.

F-217

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.

F-218

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.
Lease liability | Lease that represents the lessee’s obligation to make lease payments during the lease term.
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.
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.

F-219

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.

F-220

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. In any case, these definitions are adapted to the local terminology, so that they are integrated into the management.
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. In any case, these definitions are adapted to the local terminology, so that they are integrated into the management.
Retained earnings | Accumulated net profits or losses recognized in the income statement in prior years and retained in equity upon distribution.
Right of use asset | Asset that represents the lessee’s right to use an underlying asset during the lease term.
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.

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Territorial bonds | Financial assets or fixed asset security issued with the guarantee of portfolio loans of the public sector of the issuing entity.
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.
Write- off | 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.
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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