BANCO BILBAO VIZCAYA ARGENTARIA, S.A....banco bilbao vizcaya argentaria, s.a. CHANGES IN TOTAL...

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

Financial statements for the year ended

December 31, 2008

Translation of financial statements originally issued in Spanish and prepared in accordance with generally accounting principles Spain (see Note 1 and 52). In the event of a discrepancy, the Spanish-language version prevails.

INDEX

FINANCIAL STATEMENTS

Balance sheets 3

Income statements 6

Statements of changes in total equity 7

Cash flow statements 9

NOTES TO THE FINANCIAL STATEMENTS

1. Introduction, basis of presentation of the financial statements and other information 10 2. Accounting policies and measurement bases applied 13 3. Allocation of profit or loss 25 4. Earnings per share 26 5. Risk exposure 26 6. Fair Value of financial instruments 39 7. Cash and balances with central banks 42 8. Financial assets and liabilities held for trading 42 9. Other financial assets and liabilities at fair value through profit or loss 43 10. Available-for-sale financial assets 44 11. Loans and receivables 46 12. Held-to-maturity investments 48 13. Hedging derivatives (receivable and payable) 49 14. Non-current assets held for sale and liabilities associated with non-current assets held for sale 50 15. Investments 52 16. Tangible assets 55 17. Intangible assets 56 18. Rest of assets and liabilities 57 19. Financial liabilities at amortized cost 57 20. Provisions 62 21. Commitments with personnel 62 22. Capital stock 67 23. Share premium 68 24. Reserves 69 25. Treasury shares 70 26. Capital ratio 70

27. Tax matters 70 28. Financial guarantees and drawable by third parties 73 29. Assets assigned to other own and third-party obligations 73 30. Other contingent assets and liabilities 73 31. Purchase and sale commitments 73 32. Transactions for the account of third parties 74 33. Interest income and expense and similar items 74 34. Income from equity instruments 75 35. Fee and commission income 75 36. Fee and commission expenses 76 37. Gains/Losses on financial assets and liabilities 76 38 Other operating income and expenses 76 39. Administration cost 77

1

40. Provision expense (net) 78

41. Impairment losses of financial assets (net) 79

42. Impairment losses of other assets (net) 79 43. Gains (losses) in written off assets not classified as non-current assets held for sale 79 44. Gains and losses in non-current assets held for sale not classified as discontinued operations 80

45. Statement of cash flows 80

46. Accountants fees and services 81

47. Related party transactions 81 48. Remuneration of the Bank’s directors and senior management 82 49. Detail of the Director’s holdings in companies with similar business activities 85 50. Other information 85 51. Subsequent events 85 52. Explanation added for translation in English 86

APPENDIX

I. Financial statements of Banco Bilbao Vizcaya Argentaria, S.A. 87

II. Additional information on consolidated subsidiaries composing the BBVA Group 94

III. BBVA’s securitization funds 99

IV. Additional information on jointly controlled companies accounted for using the equity method in the BBVA Group 100

V. Additional information on investments and jointly controlled companies accounted for using the equity method in the BBVA Group 101

VI. Changes and notification of investments in the BBVA Group in 2008 102

VII. Subsidiaries fully consolidated with more than 5% owned by non-Group shareholders 104 VIII. Detail of the most significant issuances, repurchases or refunds of debt instruments issued by the Bank in 2008 105

IX. Reconciliation of the financial statements of the year 2008, 2007 and 2006 elaborated in accordance with the models of Circular 6/2008 of the Bank of Spain with respect to those elaborated in accordance with Bank of Spain Circular 4/2004 106

X. Income statements of first half of 2008 and 2007 and second half of 2008 and 2007 113

XI. List of Agents 114

XII. Glossary 132

2


BANCO BILBAO VIZCAYA ARGENTARIA, S.A. BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007 (Notes 1 to 3)

2,687 12,21659,987 41,180

- - - -

14,953 17,0065,605 9,037

39,429 15,1375,012 5,919

- - - - - - - - - - - -

18,726 18,70911,873 9,142

6,853 9,5677,694 2,573

272,114 246,32245,274 35,199

226,836 211,1234 -

4,683 4,2405,282 5,584

729 2,085

- - 3,047 779

149 4921,668 21,668

452 5054 4

21,212 21,1591,996 2,0041,895 1,8701,884 1,8591,884 1,859

- - 11 11

- - 166 90

- - 166 90

3,568 3,227320 150

3,248 3,077735 768

392,020 354,466

DeferredOTHER ASSETS (Note 18)

Loans and advances to credit institutions

HEDGING DERIVATIVES (Note 13)

INVESTMENTS (Note 15)

Investment properties

Debt securitiesMemorandum item: Loaned and advanced as collateralHELD-TO-MATURITY INVESTMENTS (Note 12)

Property, plants and equipment

Current

Milliions of euros

Memorandum item: Loaned and advanced as collateral

Other assets leased out under an operating lease

Memorandum item: Loaned and advanced as collateralCHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN THE PORTFOLIO HEDGES OF INTESREST RATE RISK

NON-CURRENT ASSETS HELD FOR SALE (Note 14)

Associates

Loans and advances to other debtors

TAX ASSETS (Note 27)

INTANGIBLE ASSETS (Note 17)

Other intangible assets

For own use

Jointly controlled entities Group entitiesINSURANCE CONTRACTS LINKED TO PENSIONS

Goodwill

TANGIBLE ASSETS (Note 16)

Memorandum item: Loaned and advanced as collateralLOANS AND RECEIVABLES (Note 11)

Debt securities

Money market operations through counterparties Debt securities Other equity instrumentsMemorandum item: Loaned and advanced as collateralAVAILABLE-FOR-SALE FINANCIAL ASSETS (Note 10)

Other equity instruments

Trading derivativesMemorandum item: Loaned and advanced as collateralOTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 9) Loans and advances to credit institutions

TOTAL ASSETS

ASSETS 2008 2007 (*)

CASH AND BALANCES WITH CENTRAL BANKS (Note 7)FINANCIAL ASSETS HELD FOR TRADING (Note 8) Loans and advances to credit institutions Money market operations through counterparties Debt securities Other equity instruments

(*) Presented for comparison purposes only.

The accompanying Notes 1 to 52 and Appendices I to XII are an integral part of the balance sheet as of December 31, 2008.

3


BANCO BILBAO VIZCAYA ARGENTARIA, S.A. BALANCE SHEETS AS OF DECEMBER 31, 2008AND 2007 (Notes 1 to 3)

40,538 18,724- - - - - - - -

37,885 17,5622,653 1,162

- - - -- - - - - - - - - - - -

322,197 303,05113,697 22,98443,972 46,852

188,311 172,25358,837 44,24813,332 12,593

4,048 4,121

- - 824 1,766

- -7,071 6,6375,651 5,184

- - 387 525

1,033 928633 1,715

- - 633 1,715

1,044 968372,307 332,861

Other provisionsTAX LIABILITIES (Note 27) Current DeferredOTHER LIABILITIES (Note 18)TOTAL LIABILITIES

PROVISIONS (Note 20) Provisions for pensions and similar obligations Provisions for taxes Provisions for contingent exposures and commitments

HEDGING DERIVATIVES (Note 13)LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE (Note 14)

Debt certificates Subordinated liabilities Other financial liabilitiesCHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN THE PORTFOLIO HEDGESOF INTESREST RATE RISK

FINANCIAL LIABILITIES AT AMORTISED COST (Note 19) Deposits from central banks Deposits from credit institutions Deposits from other creditors

Deposits from other creditors Debt certificates Subordinated liabilities Other financial liabilities

Deposits from central banks Deposits from credit institutions

Other financial liabilitiesOTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Note 9)

Deposits from other creditors Debt certificates Trading derivatives Short positions

FINANCIAL LIABILITIES HELD FOR TRADING (Note 8) Deposits from central banks Deposits from credit institutions

LIABILITIES AND EQUITY 2007 (*)

Millions of euros

2008


4

18,562 18,7171,837 1,8371,837 1,837

- - 12,770 12,770

3,070 2,25771 49

- - 71 49

(143) (129)2,835 3,612

(1,878) (1,679)1,151 2,888

937 2,950141 (80)

- - 73 18

- - - -

19,713 21,605392,020 354,466

64,729 73,90369,671 76,246

TOTAL LIABILITIES AND EQUITY

CONTINGENT EXPOSURES (Note 28)CONTINGENT COMMITMENTS (Note 28)

Other valuation adjustmentsTOTAL EQUITY

Hedges of net investments in foreign operations Exchange differences Non-current liabilities held-for-sale

Less: Dividends and remunerationVALUATON ADJUSTMENTS Available-for-sale financial assets (Note 9) Cash flow hedges

Equity component of compound financial instruments Other Less: Treasury shares (Note 25) Income

Capital (Note 22) Issued Less: Unpaid and uncalled (-)


Share premium (Note 23) Reserves (Note 24)

STOCKHOLDER´S EQUITY

LIABILITIES AND EQUITY (Continuation )

2008 2007 (*)

Millions of euros

2008 2007 (*)

Millions of euros


The accompanying Notes 1 to 52 and Appendices I to XII are an integral part of the balance sheet as of December 31, 2008.

5


BANCO BILBAO VIZCAYA ARGENTARIA, S.A. INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Notes 1 to 3)

15,854 13,785(12,178) (10,933)

3,676 2,8522,318 1,8102,034 2,174(359) (381)

632 872(2) 465

- - 634 407

- - (20) 266

83 95(100) (101)8,264 7,587

(3,324) (3,420)(2,258) (2,238)(1,066) (1,182)

(219) (209)(1,327) (299)

(996) (598)(900) (602)

(96) 42,398 3,061

(8) (18)- -

(8) (18)

- 3- -

736 1,1653,126 4,247(291) (635)2,835 3,612

- - 2,835 3,612INCOME FOR THE YEAR

INCOME BEFORE TAXTAX EXPENSE (INCOME) (Note 27)INCOME FROM CONTINUED OPERATIONS INCOME FROM DISCONTINUED OPERATIONS (NET)

Other assets (Note 42)GAINS (LOSSES) IN WRITTEN OF ASSETS NOT CLASSIFIED AS NON-CURRENT ASSETS HELD FOR SALE (Note 43)NEGATIVE GOODWILL GAINS (LOSSES) IN NON-CURRENT ASSETS HELD FOR SALE NOT CLASSIFIED AS DISCONTINUED OPERATIONS (Note 44)

NET OPERATING INCOMEIMPAIRMENT LOSSES OF OTHER ASSETS (NET) (Note 42) Goodwill and other intangible asset (Note 17)

PROVISION EXPENSE (NET) (Note 40)IMPAIRMENT LOSSES (NET) (Note 41) Loans and receivables Other financial instruments not at fair value through profit or loss

ADMINISTRATIVE EXPENSES (Note 39) Personnel expenses Other administrative expensesAMORTISATION

GROSS INCOMEOTHER OPERATING EXPENSES (Note 38)

Other financial instruments not at fair value through profit or loss OtherEXCHANGE DIFFERENCES (NET)OTHER OPERATING INCOME (Note 38)

INTEREST EXPENSE AND SIMILAR CHARGES (Note 33)NET INTEREST INCOMEINCOME FROM EQUITY INSTRUMENTS (Note 34)

Other financial instruments at fair value through profit or loss

FEE AND COMMISSION INCOME (Note 35)FEE AND COMMISSION EXPENSES (Note 36)GAINS OR LOSSES ON FINANCIAL ASSETS AND LIABILITIES (NET) (Note 37) Held for trading

2008 2007 (*)

Millions of euros

INTEREST AND SIMILAR INCOME (Note 33)

9


The accompanying Notes 1 to 52 and Appendices I to XII are an integral part of the income statement for the year ended December 31, 2008.

6


BANCO BILBAO VIZCAYA ARGENTARIA, S.A. CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Notes 1 to 3)

Balance at January 1, 2008 1,837 12,770 2,257 49 129 3,612 1,679 18,717 2,888 21,605Effects of changes in accounting policies - - - - - - - - -Effect of correction of errors - - - - - - - - -Adjusted initial balance 1,837 12,770 2,257 49 129 3,612 1,679 18,717 2,888 21,605Total income/expense recognized - - - - - 2,835 - 2,835 (1,737) 1,098Other changes in equity - - 813 22 14 (3,612) 199 (2,990) - (2,990) Increased of capital - - - - - - - - - Capital reduction - - - - - - - - - Conversion of financial liabilities into capital - - - - - - - - - Increase of other equity instruments - - - 22 - - - 22 - Reclassification of financial liabilities to other equity instruments - - - - - - - - - Reclassification of other equity instruments to financial liabilities - - - - - - - - - Dividend distribution - - - - - 1,038 (1,878) 2,916 - 2,916 Transactions including treasury shares and other equity instruments (net) - - (74) - 14 - - (88) - (88) Transfers between total equity entries - - 895 - - (2,574) (1,679) - - - Increase/Reduction in business combinations - - - - - - - - - Payments with equity instruments - - - - - - - - - Rest of increase/reductions in total equity - - (8) - - - - (8) -Balance at December 31, 2008 1,837 12,770 3,070 71 143 2,835 1,878 18,562 1,151 19,713

Balance at January 1, 2007 1,740 9,579 2,085 26 40 2,440 1,364 14,466 2,264 16,730Effects of changes in accounting policies - - - - - - - - -Effect of correction of errors - - - - - - - - -Adjusted initial balance 1,740 9,579 2,085 26 40 2,440 1,364 14,466 2,264 16,730Total income/expense recognized - - - - - 3,612 - 3,612 624 4,236Other changes in equity 97 3,191 172 23 89 (2,440) 315 639 - 639 Increased of capital 97 3,191 (24) - - - - 3,264 - 3,264 Capital reduction - - - - - - - - - Conversion of financial liabilities into capital - - - - - - - - - Increase of other equity instruments - - - 23 - - - 23 - Reclassification of financial liabilities to other equity instruments - - - - - - - - - Reclassification of other equity instruments to financial instruments - - - - - - - - - Dividend distribution - - - - - 856 (1,679) 2,535 - 2,535 Transactions including treasury shares and other equity instruments (net) - - (24) - 89 - - (113) - (113) Transfers between total equity entries - - 220 - - (1,584) (1,364) - - - Increase/Reduction in business combinations - - - - - - - - - Payments with equity instruments - - - - - - - - - Rest of increase/reductions in total equity - - - - - - - - -

--

---

22

-

-

--

(8)

--

--

23

-

-

--

Balance at December 31, 2007 1,837 12,770 2,257 49 129 3,612 1,679 18,717 2,888 21,605

Valuation adjstmentsLess: Treasury

shares (Note 25)

Share premium


Share Capital (Nota 22)

Millions of eurosTotal equity

Total equityStockholder's equity

Total Stockholder's

equityReserves Profit for the year

Less: dividend and

remunerations

Millions of eurosTotal equity

Valuation adjstments Total equity

Stockholder's equity


Less: Treasury shares (Note

25)

Profit for the year

Less: dividend and

remunerations

Total Stockholder's

equity

Share Capital (Nota 22)

Share premium Reserves

-


The accompanying Notes 1 to 52 and Appendices I to XII are an integral part of the income statement for the year ended December 31, 2008.

7

BANCO BILBAO VIZCAYA ARGENTARIA, S.A. CHANGES IN TOTAL EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Notes 1 to 3)

(Continuation)

2,835 3,612(1,737) 624(2,838) 1,178(1,727) 1,892(1,111) (714)

- - 310 14298 1

12 13- - - - - - - - - - - -

86 33104 26(18) 7

- - - - - - - - - - - - - -

705 (601)1,098 4,236

2007 (*)Millions of euros

INCOME FOR THE YEAROTHER RECOGNIZED INCOME (EXPENSES)

CHANGES IN TOTAL EQUITY 2008

Available-for-sale financial assets Revaluation gains/losses

Amounts transferred to income statement Amounts transferred to the initial carrying amount of the hedged items

Amounts transferred to income statement ReclassificationsCash flow hedges Revaluation gains/losses

ReclassificationsHedges of net investment in foreign operations Revaluation gains/losses Amounts transferred to income statement ReclassificationsExchange differences

Revaluation gains/losses Amounts transferred to income statement Reclassifications

Revaluation gains/losses Amounts transferred to income statement ReclassificationsNon-current assets held for sale

TOTAL INCOME AND EXPENSES FOR THE YEAR

Rest of recognized income and expensesIncome tax

Actuarial gains and losses in post-employment plans


The accompanying Notes 1 to 52 and Appendices I to XII are an integral part of the statement of changes in equity for the year ended December 31, 2008.

8


BANCO BILBAO VIZCAYA ARGENTARIA, S.A. CASH FLOW STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (Notes 1 to 3)

(7,399) 14,8382,835 3,612

(2,232) 318219 209

(2,451) 10946,475 37,92318,807 5,325

- - (754) 816

25,792 33,4922,630 (1,710)

38,182 48,19621,814 5,066

- - 18,351 44,378(1,983) (1,248)

291 635(217) (6,799)

1,491 8,973282 266112 51696 7,890

- - 131 47

- - 270 719

1,274 2,17414 10

- - 7 4

- - 949 1,821284 300

20 -(1,912) 90811,360 16,7552,860 2,434

600 2,320- -

7,900 12,001- -

9,448 17,6631,295 2,442

- 3,27,747 11,888

406 70(1) 5

(9,529) 8,95212,216 3,2642,687 12,216

668 6302,019 11,586

- -- -

2,687 12,216TOTAL CASH OR CASH EQUIVALENTS AT END OF YEAR

Cash Balance of cash equivalent in central banks Other financial assets Less:bank overdraft refundable on demand

Net increase/decrease in operating assets

COMPONENTS OF CASH AND EQUIVALENT AT END OF YEAR 2008 2007 (*)

Financial assets held for traiding Other financial assets at fair value through profit or loss Available-for-sale financial assets Loans and receivables Other operating assetsNet increase/decrease in operating liabilities

2008 2007 (*)Millions of euros

CASH FLOW FROM OPERATING ACTIVITIES (1)Profit for the yearAdjustments to obtain the cash flow from operating activities: Amortisation Other adjustments

Financial liabilities Other financial liabilities at fair value through profit or loss Financial liabilities measured at amortised cost Other operating liabilitiesCollection/Payments for income taxCASH FLOWS FROM INVESTING ACTIVITIES (2) Investment Tangible assets Intangible assets Investments Subsidiaries and other business units Non-current assets held for sale and associated liabilities Held-to-maturity investments Other payments related to investing activities Divestments Tangible assets Intangible assets Investments Subsidiaries and other business units Non-current assets held for sale and associated liabilities Held-to-maturity investments Other collections related to investing activities

Investment CASH FLOWS FROM FINANCING ACTIVITIES (3)

CASH OR CASH EQUIVALENTS AT BEGINNING OF YEARCASH OR CASH EQUIVALENTS AT END OF YEAR

Issuance of own equity instruments Disposal of own equity instruments Other items relating to financing activitiesEFFECT OF EXCHANGE RATE CHANGES ON CASH OR CASH EQUIVALENTS (4)NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4)

Other items relating to financing activities Divestments Subordinated liabilities

Dividends Subordinated liabilities Amortisation of own equity instruments Acquisition of own equity instruments

3

63


The accompanying Notes 1 to 52 and Appendices I to XII are an integral part of the cash flow statement for the year ended December 31, 2007.

9


BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2008

1. INTRODUCTION, BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS AND OTHER INFORMATION 1.1. INTRODUCTION

Banco Bilbao Vizcaya Argentaria, S.A. (“the Bank” or “BBVA”) is a private-law entity governed by the rules and regulations applicable to banks operating in Spain. The Bank conducts its business through branches and offices located throughout Spain and abroad.

The articles of association and other public information on the Bank can be consulted both at its registered office (Plaza San Nicolás, 4, Bilbao) and on its official website, www.bbva.com.

In addition to the operations carried on directly by it, the Bank is the head of a group of subsidiaries, jointly controlled entities and associates that engage in various business activities and which compose, together with the Bank, the Banco Bilbao Vizcaya Argentaria Group (“the Group” or “BBVA Group”). Therefore, the Bank is obliged to prepare, in addition to its own financial statements, the Group’s financial statements.

The bank’s financial statements for 2007 were approved by the shareholders at the Bank’s Annual General Meeting on March 14, 2008. The 2008 financial statements of the Bank have not yet been approved by their shareholders at the respective Annual General Meeting. However, the Bank’s Board of Directors considers that the aforementioned financial statements will be approved without any changes.

1.2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

The Bank of Spain issued Circular 4/2004 of 22 December 2004 on Public and Confidential Financial Reporting Rules and Formats.

Circular 4/2004 modifies the accounting policies of Spain’s credit institutions to adapt them to the new accounting scenario established by the adoption by the European Union, with the legislation of several regulations, of the International Financial Reporting Standards (“EU-IFRS”) following stipulations established under Regulation (EC) no, 1606/2002 of the European Parliament and of the Council of July 19, 2002, relative to –International Accounting Standards.

The Bank of Spain issued Circular 6/2008 on November 26, 2008, which modified Circular 4/2004, in order to adapt it to the IFRS-EU requirements.

The Bank’s financial statements of 2008 were prepared by the Bank’s directors (at the Board Meeting on February 5, 2009) on the basis of the accounting records kept by the Bank in accordance with Bank of Spain Circular 4/2004, representing fairly the bank’s equity and financial position as of December 31, 2008, and the results of its operations, the changes in equity and the cash flows in 2008.

All accounting policies and measurement bases with a significant effect on the financial statements were applied in their preparation.

Due to the fact that the numerical information contained in the financial statements is expressed in million of euros, except in certain cases where it is necessary to lower unit, certain captions that do not present any balance in the condensed statements may present balance in euros. In addition, information regarding period-to-period changes is based on numbers not rounded.

1.3. COMPARATIVE INFORMATION

The annual financial statements for the year ended December 31, 2008 were prepared under the financial statements models established in Circular 6/2008 of the Bank of Spain, which represents modifications in the presentation format of the financial statements, and the accompanying notes, with respect to the format of Circular 4/2004 of the Bank of Spain that was used to prepare the financial statements of the Bank for the year 2007

The information relating to 2007 contained in these notes to the financial statements is presented, solely for comparison purposes, with information relating to 2008 and 2007.

Appendix IX includes reconciliation between the financial statements prepared in accordance to the models of Circular 6/2008 of Bank of Spain and the financial statements prepared in accordance with Circular 4/2004 of Bank of Spain for the year 2007.

10

1.4. RESPONSIBILITY FOR THE INFORMATION AND FOR THE ESTIMATES MADE

The information presented in the Bank’s financial statements is the responsibility of the bank directors. In preparing these financial statements estimates were occasionally made by the bank in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:

− The impairment losses on certain assets (Notes 5, 6, 9, 10, 12, 14 and 15).

− The assumptions used in the actuarial calculation of the post-employment benefit liabilities and commitments (Note 21)

− The useful life of tangible and intangible assets (Note 16 and 17).

− The fair value of certain unquoted assets (Note 6).

Although these estimates were made on the basis of the best information available as of December 31, 2008 on the events analysed, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years.

1.5. ENVIRONMENTAL IMPACT

Given the activities to which the Bank is involved, it has no environmental liabilities, expenses, assets, or provisions or contingencies that could have a significant effect on its equity, financial position and profits. Consequently, as of December 31, 2008 the Group’s consolidated financial statements did not disclose any item that should be included in the environmental information document envisaged in the related Ministry of the Economy Order dated October 8, 2001 and no specific breakdowns in this report with respect to environmental issues.

1.6. DETAIL OF AGENTS OF CREDIT INSTITUTIONS

Exhibit XI contains an inventory of the agents of the banks as required in accordance to the article 22 of the Royal Decree 1245/1995, of July 14 of the Ministry of Economy.

1.7. REPORT ON THE ACTIVITY OF THE CUSTOMER CARE DEPARTMENT AND THE CUSTOMER OMBUDSMAN

The report on the activity of the Customer Care Department and the Customer Ombudsman required pursuant to Article 17 of Ministry of Economy and Finance Order ECO/734/2004 of 11 March is included in the management report accompanying these financial statements.

1.8. CAPITAL MANAGEMENT AND MINIMUM EQUITY REQUIRED

Capital requirements

Bank of Spain Circular 3/2008, of 22 May, on the calculation and control of minimum capital requirements, regulates the minimum capital requirements for Spanish credit institutions –both as individual entities and as consolidated groups– 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.

This Circular is the final implementation, for credit institutions, of the legislation on capital and consolidated supervision of financial institutions, which was contained in Law 36/2007, of 16 November, amending Law 13/1985, of 25 May, on the investment ratios, capital and reporting requirements of financial intermediaries, and other financial regulations, which also includes Royal Decree 216/2008, of 15 February, on the capital of financial institutions. Bank of Spain Circular 3/2008 also culminates the process of adaptation of Spanish legislation to Directive 2006/48/EC of the European Parliament and of the Council, of 14 June 2006, and Directive 2006/49/EC of the European Parliament and of the Council, of 14 June 2006. The minimum capital requirements for credit institutions and their consolidable groups were thoroughly revised in both Directives, based on the new Capital Accord adopted by the Basel Committee on Banking Supervision (“Basel II”).

The minimum capital requirements established by Bank of Spain Circular 3/2008 are calculated on the basis of the Bank’s exposure to credit risk and dilution risk (on the basis of the assets, obligations and other memorandum items that present these risks, depending on their amounts, characteristics, counterparties, guarantees, etc.), to counterparty risk and position and settlement risk in the trading book, to foreign exchange risk (on the basis of the overall net foreign currency position) and to operational risk. Additionally, the Bank is subject to compliance with the risk concentration limits established in the aforementioned Circular and with the requirements concerning internal corporate governance, internal capital adequacy assessment, measurement of interest rate risk and information to be disclosed to the market also set forth therein. With a view to guaranteeing compliance with the aforementioned objectives, the Bank performs integrated management of these risks, in accordance with its internal policies (see Note 5).

11

As of December 31 2008, 2007 and 2006, the eligible capital of the Bank exceeded the minimum required under the regulations then in force.

The calculation of the minimum regulatory capital requirements under the new standards, the so-called Pillar 1, is supplemented with an internal capital adequacy assessment and supervisory review process, also called Pillar 2. The Bank’s internal capital adequacy assessment process is based on the internal model for the quantification of the economic capital required on the basis of the Bank’s overall risk profile. Finally, Basel II standards establish, through Pillar 3, strict transparency requirements regarding the information on risks to be disclosed to the market.

Capital management

New Basel Capital Accord - Basel II - Economic Capital

The Group's capital management is performed at both regulatory and economic level.

Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using Basel (“BIS”) and Bank of Spain criteria.

The aim is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitisations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments.

The Bank has obtained the approval of its internal model of capital estimation (IRB) in 2008 for certain portfolios.

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

The Group allocates economic capital commensurate with the risks incurred by each business (CER). 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. These targets are applied at two levels: the first is core equity, which determines the allocated capital. The Bank uses this amount as a basis for calculating the return generated on the equity in each business (ROE). The second level is total capital, which determines the additional allocation in terms of subordinate debt and preference shares. The CER calculation combines lending risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk and fixed asset and technical risks in the case of insurance companies.

Stockholders’ equity, as calculated under BIS rules, is an extremely important reference to the entire Group. However, for the purpose of allocating capital to business areas the Bank prefers CeR. It is risk-sensitive and thus linked to the management policies for the individual businesses and the business portfolio. This procedure anticipates the approach likely to be adopted by the future Basel II rules on capital. These provide an equitable basis for assigning capital to businesses according to the risks incurred and make it easier to compare returns.

To internal effects of management and pursuit of the business areas, the Group realizes a capital allocation to each business area (Note 6).

1.9. “FONDO DE GARANTIA DE DEPOSITOS”

The Bank is part of the “Fondo de Garantía de Depósitos”. The expensive incurred by the contributions made to this Agency in 2008 and 2007 amounted to €45 and €43 million, respectively, which are recorded in the heading "Other operating expenses" of income statement (see Note 38).

1.10. SEASONAL NATURE OF INCOME AND EXPENSES

The nature of the most significant activities and transactions carried out by the Bank is mainly related to traditional activities carried out by financial institutions that are not affected by seasonal or cyclical factors.

1.11. CONSOLIDATION

The consolidated financial statements of Group BBVA correspondent to the year finished on December 31, 2008 were prepared in accordance with the EU-IFRS’s, taking into account Bank of Spain Circular 4/2004 and Circular 6/2008. The board of directors on its February 5, 2009 meeting approved this consolidated financial statements.

The management of the Group’s operations is carried out on a consolidated basis, independently of the individual allocation of the correspondent equity changes and its related results. In consequence, the annual financial statements of the Bank have to be considering inside the context of the Group, due to the fact that they don’t reflect the financial and equity changes that result from the application of the consolidation policies (full consolidation or proportionate consolidation methods) or by the equity method.

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These changes are reflected in the consolidated financial statements of the Banco Bilbao Vizcaya Argentaria Group correspondent to the year 2008, which the Bank prepares as well. In appendix I is the Groups consolidated financial statements.

2. ACCOUNTING POLICIES AND MEASUREMENT BASES APPLIED

Glossary included in Annex XII is related definitions of financial and economic terms referred in Note 2 "Accounting policies and measurement bases applied”

The accounting policies and measurement bases used in preparing these financial statements were as follows:

2.1. FINANCIAL INSTRUMENTS

a) Measurement of financial instruments and recognition of changes arising from the measurement

All financial instruments are initially recognized at fair value which, in the absence of evidence to the contrary, shall be the transaction price. These instruments will subsequently be measured on the basis of their classification. The recognition of changes arising subsequent to the initial recognition is described below.

The change produced, except for derivatives, during the year arising from the accrual of interests and similar items are recorded under the headings “Interest and Similar Income” or “Interest Expense and Similar Charges”, as appropriate, in the income statement of this period. The dividend accrued in the period are recorded under the heading “Income from equity instruments” in the income statement.

The changes in the measurements after the initial recognition, for reasons other than those of the preceding paragraph, are described below according to the categories of financial assets and liabilities:

- “Financial assets held for trading” and “Financial assets and liabilities at fair value through profit or loss”

Assets and liabilities recognized in these headings in the accompanying balance sheets are valued at fair value.

Changes arising from the valuation to fair value (gains or losses) are recognized under the heading “Gains or losses on financial assets and liabilities (net)” in the accompanying income statements. On the other hand, Valuation adjustments by changes in foreign exchange rates are recognized under the heading “Exchange Differences (net)” in the income statements.

The fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price in an active market. 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 instrument, discounted at the measurement date (“present value” or “theoretical close”); these derivatives are measured using methods recognized by the financial markets, including the net present value (NPV) method and option price calculation models.

Financial derivatives that have as their underlying equity instruments, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost.

- “Available-for-Sale Financial Assets” and “Financial liabilities at fair value through equity”


Changes arising from the valuation to fair value (gains or losses) are recognized temporarily, net amount, under the heading “Valuation Adjustments - Available-for-Sale Financial Assets” in the accompanying balance sheets.

Valuation adjustments arising from non-monetary items by changes in foreign exchange rates are recognized temporarily under the heading “Valuation Adjustments - Exchange Differences” in the balance sheet. Valuation adjustments arising from monetary items by changes in foreign exchange rates are recognized under the heading “Exchange Differences (net)” in the income statements.

The amounts recognized in the headings “Valuation Adjustments - Available-for-Sale Financial Assets” and “Valuation Adjustments - Exchange Differences” remain in the equity until the asset is derecognized from the balance sheet, at which time those amounts are recognized under the headings “Gains or losses on financial assets and liabilities” or “Exchange Differences (net)” in the income statement.

On the other hand, the impairment losses (net) in the available-for-sale financial assets during the period are recognized under the heading “Impairment losses (net) – Other financial instruments not at fair value through profit or loss” in the income statements.

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- “Loans and receivables”, “Held-to-maturity investments” and “Financial liabilities at amortized cost”

Assets and liabilities recognized in these headings in the accompanying balance sheets are measured at “amortized cost” using the “effective interest rate” method due to the companies’ intentions are to keep these financial instruments to its final maturity.

Impairment losses (net) arising in the period are recognized under the heading “Impairment losses (net) – Loans and receivables” or “Impairment losses (net) – Other financial instruments not at fair value through profit or loss” in the income statements.

-“Hedging derivatives”


Changes produced subsequent to the designation in the valuation of financial instruments designated as hedged items as well as financial instruments designated as hedging items are recognized based on the following criteria:

1. In the fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized in the heading “Gains or losses on financial assets and liabilities (Net)” in the income statement.

2. In the cash flow hedges, the differences produced in the effective portions of hedging items are recognized temporarily under the heading "Valuation adjustments – Cash flow hedges”. These valuation changes are recognized in the heading “Gains or losses on financial assets and liabilities (Net)” in the income statement in the same period or periods during which the hedged instrument affects profit or loss, when forecast transaction occurs or at the maturity date of the item hedged.

Differences in valuation of the hedging item for ineffective portions of cash flow hedges are recognized directly in the heading “Gains or losses on financial assets and liabilities (Net)” in the income statement.

Other financial instruments

In relation to the aforementioned general criteria, we must highlight the following exceptions:

1. Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of those instruments are measured at acquisition cost adjusted, where appropriate, by any related impairment loss.

2. Valuation adjustments arising on financial instruments classified at balance sheet date as non-current assets held for sale and the liabilities associated with them are recognized with a balancing entry under the heading “Valuation Adjustments - Non-Current Assets Held for Sale” of the balance sheet.

b) Impairment financial assets

Definition

A financial asset is considered to be impaired – and therefore its carrying amount is adjusted to reflect the effect of its impairment – when there is objective evidence that events have occurred which:

• In the case of debt instruments (loans and debt securities), give rise to a negative impact on the future cash flows that were estimated at the time the transaction was arranged.

• In the case of equity instruments, mean that the carrying amount of these instruments cannot be recovered.

As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the income statement for the year in which the impairment becomes known, and the recoveries of previously recognized impairment losses are recognized in the income statement for the year in which the impairment is reversed or reduced, with the exception that any recovery of previously recognized impairment losses for an investment in an equity instrument classified as available for sale which are not recognized through profit or loss but recognized under the heading “Valuation Adjustments – Available for sale Financial Assets” in the balance sheet.

Balances are considered to be impaired, and accrual of the interest thereon is suspended, when there are reasonable doubts that the balances will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the entity to assure (in part or in full) the performance of transactions. Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the principal not yet paid.

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

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Calculation of impairment on financial assets

The impairment on financial assets is determined by type of instrument and the category in which they are recognized. The Bank recognizes impairment charges directly against the impaired asset when the likelihood of recovery is deemed remote, and uses an offsetting or allowance account when it records non-performing loan provisions.

The amount of impairment losses of debt securities at amortized cost is measured as a function of whether the impairment losses are determined individually or collectively.

Impairment losses determined individually

The quantification of impairment losses on assets classified as impaired is done on an individual basis in connection with customers whose operations are equal to or exceed €1 million.

The amount of the impairment losses incurred on these instruments relates to the positive difference between their respective carrying amounts and the present values of their expected future cash flows.

The following is to be taken into consideration when estimating the future cash flows of debt instruments:

All the amounts that are expected to be obtained over the residual life of the instrument; including, where appropriate, those which may result from the collaterals and other credit enhancements provided for the instrument (after deducting the costs required for foreclosure and subsequent sale).

The various types of risk to which each instrument is subject.

The circumstances in which collections will foreseeably be made.

These cash flows are discounted using the original effective interest rate. If a financial instrument has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.

As an exception to the rule described above, the market value of quoted debt instruments in an active market is deemed to be a fair estimate of the present value of their future cash flows.

Impairment losses determined collectively

The quantification of impairment losses is determined on a collective basis in the following two cases:

• Assets classified as impaired of customers in which the amount of their operations is less than €1 million.

• Asset portfolio not impaired but which presents an inherent loss.

To estimate the collective loss of credit risk, the BBVA uses the parameters set by Annex IX of the Circular 4/2004 from Bank of Spain on the base of its experience and the Spanish banking sector information in the quantification of impairment losses and provisions for insolvencies for credit risk. These parameters will be used as far as the Bank of Spain validates internal models based on historical experience of the Bank.

Following is a description of the methodology to estimate the collective loss of credit risk:

1. Specific allowance or provision for insolvency risk of the portfolio doubtful

The debt instruments, whoever the obligor and whatever the guarantee or collateral, that have past-due amounts with more than three months, shall be analyzed individually, taking into account the age of the past-due amounts, the guarantees or collateral provided and the economic situation of the customer and the guarantors.

In the case of unsecured transactions and taking into account the age of the past-due amounts, the allowance percentages are as follow:

Over 18 months and up to 24 months between 93.3% and 95.8%Over 24 months 100%

Over 6 months and up to 12 months between 27.4% and 27.8%Over 12 months and up to 18 months between 60.5% and 65.1%

Age of the past-due amount Allowance percentage

Up to 6 months between 4.5% and 5.3%

In the case of transactions secured by completed houses when the total exposure is equal or exceeds 80% of the value of the guarantee or collateral and taking into account the age of the past-due amounts, the allowance percentages are as follow:

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Over 5 years and up to 6 years 75%Over 6 years 100%

Over 3 years and up to 4 years 25%Over 4 years and up to 5 years 50%


Less than 3 years 2%

In the rest of transactions secured by real property taking into account the age of the past-due amounts, the allowance percentages are as follow:

Over 18 months and up to 24 months between 79.3% and 81.4%Over 24 months 100%

Over 6 months and up to 12 months between 23.3% and 23.6%Over 12 months and up to 18 months between 47.2% and 55.3%


Up to 6 months between 3.8% and 4.5%

Debt instruments for which, without qualifying as doubtful in terms of criteria for classification as past-due, there is reasonable doubt that they will be recovered on the initially agreed terms are analyzed individually.

2. Portfolio into force

The debt instruments, whoever the obligor and whatever the guarantee or collateral, that do not have individually objective of impairment are collectively assesses, including the assets in a group with similar credit risk characteristics, sector of activity of the debtor or the type of guarantee.

The allowance percentages of hedge are as follows:

0.06% 0.75%0.15% 1.88%0.18% 2.25%0.20% 2.50%0.25% 3.13%

0%

Medium riskMedium-high riskHigh risk

Negligible riskLow riskMedium-low risk

3. Country Risk Allowance or Provision

Country risk is understood as the risk associated with customers resident in a specific country due to circumstances other than normal commercial risk. Country risk comprises sovereign risk, transfer risk and other risks arising from international financial activity. On the basis of the economic performance, political situation, regulatory and institutional framework, and payment capacity and record, the Bank classifies the transactions in different groups, assigning to each group the provisions for insolvencies percentages, which are derived from those analyses.

Impairment of other debt instruments

The impairment losses on debt securities included in the “Available-for-sale financial asset” portfolio are equal to the positive difference between their acquisition cost (net of any principal repayment) and their fair value after deducting any impairment loss previously recognized in the income statement.

When there is objective evidence that the negative differences arising on measurement of these assets are due to impairment, they are no longer considered as “Valuation Adjustments - Available-for-Sale Financial Assets” and are recognized in the income statement. If all or part of the impairment losses are subsequently recovered, the amount is recognized in the income statement for the year in which the recovery occurred.

Similarly, in the case of debt instruments classified as “non-current assets held for sale”, losses previously recorded in equity are considered to be realised – and are recognized in the income statement – on the date the instruments are so classified.

Impairment of equity instruments

The amount of the impairment in the equity instruments is determinated by the category where is recognized:

Equity instruments measured at fair value: The criteria for quantifying and recognising impairment losses on equity instruments are similar to those for other debt instruments, with the exception that any recovery of previously recognized impairment losses for an investment in an equity instrument classified as available for sale which are not recognized through profit or loss but recognized under the heading “Valuation Adjustments – Available for sale Financial Assets” in the balance sheet.

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Equity instruments measured at cost: The impairment losses on equity instruments measured at acquisition cost are equal to the difference between their carrying amount and the present value of expected future cash flows discounted at the market rate of return for similar securities. These impairment losses are determined taking into account the equity of the investee (except for valuation adjustments due to cash flow hedges) for the last approved balance sheet, adjusted for the unrealised gains at the measurement date.

Impairment losses are recognized in the income statement for the period in which they arise as a direct reduction of the cost of the instrument. These losses may only be reversed subsequently in the event of the sale of the assets.

2.2 RECOGNITION OF INCOME AND EXPENSES

The most significant criteria used by the Bank to recognize its income and expenses are summarised as follows:

Interest income and expenses and similar items:

As a general rule, interest income and expenses and similar items are recognized on the basis of their period of accrual using the effective interest rate method.

Specifically, the financial fees and commissions that arise on the arrangement of loans, basically origination and analysis fees must be deferred and recognized in the income statement over the expected life of the loan. The direct costs incurred in arranging these transactions can be deducted from the amount thus recognized. Bank of Spain’s Circular 4/2004 establishes that, when there are no analytic accounting data to determine those direct costs, they can be compensated with the arrangement commission up to a 0.4% of the amount of the loan with a maximum limit of €400 per operation, which will be credited in the date of arrangement to the income statement and that will diminish the accrued commissions mentioned before. On the other hand, dividends received from other companies are recognized as income when the Bank’ right to receive them arises.

However, when a debt instrument is deemed to be impaired individually or is included in the category of instruments that are impaired because of amounts more than three months past-due, the recognition of accrued interest in the income statement is interrupted. This interest is recognized for accounting purposes when it is received.

Commissions, fees and similar items:

Income and expenses relating to commissions and similar fees are recognized in the income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:

- Those relating linked to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected.

- 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 single act, which is recognized when the single act is carried out.

Non-financial income and expenses:

These are recorded for accounting purposes on an accrual basis.

Deferred collections and payments:

These are recorded for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

2.3 POST-EMPLOYMENT BENEFITS AND OTHER LONG TERM COMMITMENTS TO EMPLOYEES

Following is a description of the most significant accounting criteria relating to the commitments to employees, related to post-employment benefits and other commitments, of the Bank and branch abroad (Note 21).

Commitments valuation: assumptions and gains/losses recognition

The present values of the commitments are quantified on a case-by-case basis. The valuation method used for current employees is the projected unit credit method, which views each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately.

In adopting the actuarial assumptions, it is taken into account that:

- They are unbiased, in that they are neither imprudent nor excessively conservative.

- They are mutually compatible, reflecting the economic relationships between factors such as inflation, rates of salary increase and discount rates.

- The future levels of salaries and benefits are based on market expectations at the balance sheet date for the period over which the obligations are to be settled.

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- The discount rate used is determined by reference to market yields at the balance sheet date on high quality corporate bonds.

The Bank recognizes all actuarial differences under “Provisions” in the income statement for the year in which they arise in connection with commitments assumed by the Bank in connection with personnel availing of early retirement schemes, benefits awarded for seniority, pre-retirement widowhood and disability benefits awarded as a function of years of employee service in the Bank, and other similar concepts.

The Bank recognizes the actuarial gains or losses arising on all other defined benefit post-employment commitments directly in ”Reserves” within the Bank’s equity, in accordance with standard 35 of Bank of Spain Circular 4/2004 (as amended by Circular 6/2008).

The Bank does not apply the option of deferring actuarial gains and losses in equity using the so-called corridor approach.

Post-employment benefits

- Pensions

Post-employment benefits include defined contribution and defined obligation commitments.

- Defined contribution commitments

The amounts of these commitments are determined, on a case-by-case basis, as a percentage of certain remuneration items and/or as a pre-established annual amount. The current contributions made by the Bank for defined contribution retirement commitments, which are recognized with a charge to the heading “Personnel Expenses – Contributions to external pension funds” in the accompanying income statements (Notes 21 and 39).

- Defined benefit commitments:

The Bank has defined benefit commitments for permanent disability and death of current employees and early retirees; for death of certain retired employees; and defined-benefit retirement commitments applicable only to certain groups of serving employees (unvested benefits), or early retired employees (vested benefits) and of retired employees (ongoing benefits). Defined benefit commitments are funded by insurance contracts and internal provisions.

Entities that have covered their pension commitments with insurance policies shall recognise those commitments as follows:

(i) Pension commitments to employees shall be recorded as pension provisions.

(ii) The insurance policy shall be recorded on the asset side as an insurance contract linked to pensions.

(iii) The expense for the period shall be recorded in the item “personnel expenses” net of the amount relating to the insurance contracts.

- Early retirements

In 2008, the Bank offered certain employees in Spain the possibility of taking early retirement before the age stipulated in the collective labor agreement in force. The corresponding provisions by the Bank were recognized with a charge to the heading “Provision Expense (Net) - Transfers to Funds for Pensions and Similar Obligations—Early Retirements” in the accompanying income statements (Note 21). The present values are quantified on a case-by-case basis and they are recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” in the accompanying balance sheets (Note 20).

The commitments to early retirees include the compensation and indemnities and contributions to external pension funds payable during the year of early retirement. The commitments relating to this group of employees after they have reached the age of effective retirement are included in the employee welfare system.

- Post-employment welfare benefits

The Bank has welfare benefit commitments the effects of which extend beyond the retirement of the employees entitled to the benefits. These commitments relate to certain current employees and retirees, depending upon the employee group to which they belong.

The present values of the vested obligations for post-employment welfare benefits are quantified on a case-by-case basis. They are recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” in the accompanying balance sheets (Note 20) and they are charged to the heading “Personnel expenses – Other personnel expenses” in the accompanying income statements (Note 39).

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Other commitments to employees

The Bank is obliged to deliver partially or fully subsidised goods and services. The most significant employee welfare benefits granted, in terms of the type of compensation and the event giving rise to the commitment are: loans to employees, life insurance, study aid and long-service bonuses.

The present values of the vested obligations for commitments with personnel are quantified on a case-by-case basis. They are recognized in the heading “Provisions - Funds for Pensions and Similar Obligations” in the accompanying balance sheets (see Note 20). The post-employment welfare benefits delivered by the Bank to active employees are recognized in the heading “Personnel expenses – Other personnel expenses” in the accompanying income statements (see Note 39).

Other commitments for current employees accrue and are settled on a yearly basis, it is not necessary to record a provision in this connection.

2.4 FOREIGN CURRENCY TRANSACTIONS AND EXCHANGE DIFFERENCES

Assets, liabilities and futures transactions

The assets and liabilities in foreign currencies, including those of branches abroad, and the unmatured hedging forward foreign currency purchase and sale transactions were translated to euros at the average exchange rates on the Spanish spot currency market (or based on the price of the U.S. dollar on local markets for the currencies not listed on this market) at the end of each period, with the exception of:

I. non-current investments in securities denominated in foreign currencies and financed in euros or in a currency other than the investment currency, which were translated at historical exchange rates.

II. unmatured non-hedging forward foreign currency purchase and sale transactions, which are translated at the exchange rates on the forward currency market at the end of each period published by the Bank of Spain for this purpose.

Structural currency positions

As a general policy, the Bank’s investments in foreign subsidiaries and the endowment funds provided to branches abroad are financed in the same currency as the investment in order to eliminate the future currency risk arising from these transactions. However, the investments made in countries whose currencies do not have a market which permits the obtainment of unlimited, lasting and stable financing at long-term are financed in another currency.

The breakdown of the balances in foreign currency of the balance sheet as of December 31, 2008 and 2007, based on the nature of the related items and the foreign currency, was as follows:

30,471 2,936 21,662 55,0692,795 551 313 3,6591,415 52 1,830 3,297

23,289 2,218 4,501 30,0082,757 - 14,988 17,745

4 2 2211 113 28 352

66,998 12,165 4,218 83,381698 88 181 967

66,264 12,009 4,039 82,31236 68 (2) 102

Millions of euros

2008 American dollars Pound sterlingOther

currency TOTAL

Assets -

Other

Financial liabilities at amortised cost

Liabilities -

Other

Financial held-for-traidingAvailable-for-sale financial assets

InvestmentsTangible assets

Loans and receivables

Financial held-for-traiding

8

19

25,855 3,592 20,711 50,1585,484 786 250 6,5201,341 111 2,369 3,821

16,269 2,575 2,890 21,7342,589 - 15,164 17,753

3 3 1169 117 37 323

49,696 11,607 5,153 66,456462 55 42 559

49,147 11,478 4,129 64,75487 74 982 1,143

Financial liabilities at amortised cost

Liabilities -

Other

Financial held-for-traiding

InvestmentsTangible assetsOther

Loans and receivables

Millions of euros

American dollars Poung sterlingOther

currency TOTAL

Financial held-for-traidingAvailable-for-sale financial assets

Assets -

2007

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2.5. ENTITIES AND BRANCHES LOCATED IN COUNTRIES WITH HYPERINFLATIONARY ECONOMIES

None of the functional currencies of the branches located abroad relate to hyperinflationary economies as defined by EU-IFRSs. Accordingly, as of December 31, 2008 and 2007 it was not necessary to adjust the financial statements of any branch to correct for the effect of inflation.

2.6 NON-CURRENT ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE

The heading “Non-current Assets Held for Sale” in the accompanying balance sheets reflects the carrying amount of the assets that are not included in operating activities i.e., assets where an active program to locate a buyer and complete the plan has been initiated and approved at the appropriate level of management and it is highly probable they will be sold in their current condition within one year from the date on which are classified as such. Therefore, the carrying amount of these assets – which can be financial or non-financial but are not included in Bank’s operating activities – will foreseeably be recovered through the price obtained on their sale.

Within this heading, a distinction is made between individual assets and groups of assets that are to be disposed of along with related liabilities (“disposal groups”) and disposal groups that form part of a major business unit and are being held for sale as part of a disposal plan (“discontinued operations”).

The individual headings include the assets received by the entities from their debtors in full or partial settlement of the debtors’ payment obligations (assets foreclosed or donated in repayment of debt) are treated as non-current assets held for sale, unless the consolidated entities have decided to make continuing use of these assets.

Symmetrically, the heading “Liabilities Associated with Non-current Assets Held for Sale” in the accompanying balance sheets reflects the balances payable arising on disposal groups and discontinued operations.

Non-current assets held for sale are generally measured at the lower of fair value less costs to sell and their carrying amount upon classification within this category. Non-current assets held for sale are not depreciated while included under this heading. As a general rule, gains and losses generated on the disposal of assets and liabilities classified as held for sale, and related impairment losses and subsequent recoveries, where pertinent, are recognized in “Gains/(losses) on non-current assets held for sale not classified as discontinued operations” and gains. The remaining income and expense items associated with these assets and liabilities are classified within the corresponding income statement headings.

2.7. SALES AND INCOME FROM THE PROVISION OF NON-FINANCIAL SERVICES

The heading “Other operating income” includes the carrying amount of the sales of assets and income from the non-financial services that are mainly relate to real estate.

2.8 TANGIBLE ASSETS

Non-current tangible assets for own use

The heading Non-Current Tangible Assets for own use relates to the assets, under ownership or acquired under finance leases, intended to the future or current use, that it is expected to be held for more than one year. It also includes tangible assets received by the entities in full or part settlement of financial assets representing receivables from third parties and those assets expected to be held for continuing use.

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Non-Current tangible assets for own use are presented in the balance sheets at acquisition cost less any accumulated depreciation and, where appropriate, any estimated impairment losses (net carrying amount higher than fair value).

If there are foreclosed assets for own use, their acquisition cost is equal to the carrying amount of the financial assets delivered in exchange for their foreclosure.

Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated.

The period tangible asset depreciation charge is recognized with a balancing entry in the income statement and is 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):

Buildings for own use 1.33% a 4%

Annual Percentage

Office supplies and computerisation

Furniture 8% a 10%Fixtures 6% a 12%

8% a 25% At each close, the entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the entity then analyzes whether the indicated impairment actually exists by comparing the asset’s carrying amount with its recoverable amount. 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. The BBVA’s criteria for determining the recoverable amount of these assets is based on up-to-date independent appraisals, performed within the last 3-5 years at most, absent other indications of impairment.

Similarly, if there is any indication that the value of a tangible asset has been recovered , the Bank will estimate the recoverable amounts of the asset and recognised it in the income statement, recording the reversal of the impairment loss recorded in previous periods and, consequently, adjust the future depreciation charges. In 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 periods.

Upkeep and maintenance expenses relating to tangible assets held for continued use are charged to the income statement for the period in which they are incurred.

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 record the impairment losses thereon are the same as those described in relation to tangible assets for continued use.

Investment property

The heading “Tangible assets - Investment Property” in the balance sheet reflects the net values of the land, buildings and other structures held either to earn rentals or for capital appreciation at the disposal date and are neither expected to be sold off in the ordinary course of the business nor are destined for own use.

The criteria used by the BBVA to determine their recoverable value is based on updated independent appraisals performed in the last 3-5 years at most, absent other indications of impairment.

2. 9 INTANGIBLE ASSETS

These assets can have an “indefinite useful life” – when, 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 Bank – or a “finite useful life”, in all other cases.

Intangible assets with indefinite useful life are not amortized, while, for each accounting closure, the Bank revised their useful lifes remaining in order to ensure that they remain undefined or, if not, proceed accordingly.

Intangible assets with finite useful life are amortized over those useful lives using methods similar to those used to depreciate tangible assets.

The Bank has not recognized any intangible assets with indefinite useful life.

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In both cases the Bank recognizes any impairment loss on the carrying amount of these assets with charge to the heading “Impairment losses of other assets (net) – Goodwill and other intangible asset” in the income statement. The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior periods are similar to those used for tangible assets.

2.10 TAX ASSETS AND LIABILITIES

The Spanish corporation tax expense is recognized in the income statement, except when they result from transactions the profits or losses on which are recognized directly in equity, in which case the related tax effect is also recognized in equity.

The current income tax expense is calculated by aggregating the current tax arising from the application of the related tax rate to the taxable profit (or tax loss) for the period (after deducting the tax credits allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the income statement.

Deferred tax assets and liabilities include temporary differences, measured at the amount expected to be payable or recoverable for the differences between the carrying amounts of assets and liabilities and their tax bases, and tax loss and tax credit carry forwards. These amounts are measured applying to the temporary difference the tax rates that are expected to apply in the period when the asset is realised or the liability settled (Note 27).

Deferred tax assets are recognized to the extent that it is considered probable that the Bank will have sufficient taxable profits in the future against which the deferred tax assets can be utilized.

The deferred tax assets and liabilities recognized are reassessed by the Bank at each balance sheet date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.

2.11. FINANCIAL GUARANTEES

Financial guarantees are considered those contracts that oblige their issuer to make specific payments to reimburse the lender for a loss incurred when a specific borrower breaches its payment obligations on the terms - original or as modified – of a debt instrument, irrespective of its instrumentation. These guarantees may take the form of a deposit, financial guarantee, insurance contract or credit derivative, among others.

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. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost (see Note 2.1).

The provisions made for financial guarantees classified as substandard are recognized under “Provisions - Provisions for Contingent Liabilities and Commitments” on the liability side in the accompanying balance sheet (Note 20). These provisions are recognized and reversed with a charge or credit, respectively, to “Provisions Expense” (Note 40) in the income statement.

2.12 LEASES

Leases are classified as finance when they transfer substantially 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 Bank act as the lessor of an asset in 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 recorded as financing provided to third parties and, therefore, are included under the heading “Loans and Receivables” in the accompanying balance sheets.

When the Bank acts as the lessor of an asset in operating leases, the acquisition cost of the leased assets is recognized in "Tangible assets" in the accompanying balance sheets. 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 income statement on a straight line basis within "Other operating income”. If a fair value sale and leaseback results in an operating lease, the profit or loss generated is recognized at the time of sale. If such a transaction gives rise to a finance lease, the corresponding gains or losses are amortized over the lease period.

2.13 PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES

Provisions include amounts recognized to cover the Bank’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, settlement of which is deemed

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likely to entail an outflow of resources embodying economic benefits. The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Bank relative to third parties in relation to the assumption of certain responsibilities or virtually certain developments of particular aspects of applicable regulation, specifically draft legislation to which the Bank will certainly be subject.

Provisions are recognized in the balance sheet when each and every one of the following requirements is met: the Bank has an existing obligation resulting from a past event and, at the balance sheet date, it is more likely than not that the obligation will have to be settled; it is probable that to settle the obligation the entity will have to give up resources embodying economic benefits; and a reliable estimate can be made of the amount of the obligation. This heading includes provisions for restructuring charges and litigation, including tax 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 bank. Contingent assets are not recognized in the balance sheet or in the income statement; however, they are disclosed in the notes to financial statements, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.

Contingent liabilities are possible obligations of the Bank 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 entity. They include the existing obligations of the entity 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.

2.14 TRANSFERS OF FINANCIAL ASSETS AND DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties. If substantially all the risks and rewards are transferred to third parties, the transferred financial asset is derecognized and, at the same time, any right or obligation retained or created as a result of the transfer is recognized.

If substantially all the risks and rewards associated with the transferred financial asset are retained, the transferred financial asset is not derecognized and continues to be measured using the same criteria as those used before to the transfer.

The financial assets are derecognized from the balance sheet only if their cash flows are extinguished or the risks and rewards associated with the financial assets are substantially transferred. Similarly, the financial liabilities are derecognized of the balance sheet only if their obligations are extinguished or acquired (with a view to subsequent cancellation or renewed placement).

BBVA is considered to have transferred substantially all the risks and rewards if such risks and rewards account for the majority of the risks and rewards incidental to ownership of the securitized assets.

If substantially all the risks and rewards associated with the transferred financial asset are retained:

• The transferred financial asset is not derecognized and continues to be measured using the same criteria as those used before the transfer in the balance sheet.

• A financial liability is recognized in the amount of compensation received, which is subsequently measured at amortized cost and included under “Deposits from credit institutions”. As these liabilities do not constitute a current obligation, when measuring such a financial liability the entity deducts those financial instruments owned by it which constitute financing for the entity to which the financial assets have been transferred, in so far as these instruments are deemed to specifically finance the assets transferred.

• Both the income generated on the transferred (but not derecognized) financial asset and the expenses of the new financial liability.

Securitizations

The BBVA has applied the most stringent prevailing criteria in determining whether or not it retains substantially all the risk and rewards incidental to ownership for all securitizations performed since 1 January 2004. As a result of this analysis, the Bank has concluded that none of the securitizations undertaken since that date meet the prerequisites for derecognizing the underlying assets from the accompanying balance sheets (Note 11) as it retains substantially all the risks and benefits embodied by expected loan losses or associated with the possible variation in net cash flows, as it retains the subordinated loans extended by BBVA to the same securitization funds.

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2.15 OWN EQUITY INSTRUMENTS

The balance of the heading “Stockholders’ Equity - Treasury Shares” in the accompanying balance sheets relates mainly to Bank shares held by himself as of December 31, 2008 and 2007. These shares are carried at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Stockholders’ Equity-Reserves” in the accompanying balance sheets (Note 25).

2.16 EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

Equity-settled share-based payment transactions, when the instruments granted do not vest until the counterparty completes a specified period of service, shall be accounted for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity. The entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, at grant date.

Market conditions shall be taken into account when estimating the fair value of the equity instruments granted, thus, their evolution will not be reflected on the profit and loss account. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares at the measurement date. Instead, vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognized for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. As a consequence the effect of vesting conditions other than market condition, will be recognized on the profit and loss account with the corresponding increase in equity.

2.17 TERMINATION BENEFITS

Termination benefits must be recognized when the company is committed to severing its contractual relationship with its employees and, to this end, has a formal detailed redundancy plan. There were no redundancy plans in the Bank, so it is not necessary to recognize a provision for this issue.

2.18. STATEMENTS OF CASH FLOWS

For the preparation of the statement of cash flows has been used the indirect method. This method starts from the entity’s profit or loss 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 investing or financing cash flows.

For these purposes, in addition to cash on hand, cash equivalents include very short term, highly liquid investments subject to very low risk of impairment.

The reconciliation between the various headings in the balance sheet respect to the cash flow statement is set out following the 2008 cash flow statement.

For the development of statement of cash flows is taken into consideration the following concepts:

a. Cash flows: Inflows and outflows of cash and cash equivalents, the latter being short-term, highly liquid investments subject to a low risk of changes in value, such as balances with central banks, short-term Treasury bills and notes, and demand balances with other credit institutions.

b. Operating activities: The typical activities of credit institutions and other activities that cannot be classified as investing or financing activities.

c. Investing activities: The acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents.

d. Financing activities: Activities that result in changes in the size and composition of equity and of liabilities that do not form part of operating activities

2.19. STATEMENT OF CHANGES IN TOTAL EQUITY

According to the new models of the statements of the Circular 6/2008, the Statement of changes in total equity consists of two parts: Statement of recognized income and expense and Statement of changes in total equity.

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BANCO BILBAO VIZCAYA ARGENTARIA, S.A....banco bilbao vizcaya argentaria, s.a. CHANGES IN TOTAL...

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