FIRST SUPPLEMENT TO THE BASE PROSPECTUS FOR NON … · Date: 28/09/2016 Number: 243186 Description:...

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FIRST SUPPLEMENT TO THE BASE PROSPECTUS FOR NON-EQUITY

SECURITIES OF BANKIA REGISTERED IN THE OFFICIAL REGISTRIES OF

THE CNMV ON 19 JULY 2016

INTRODUCTION

This supplement (the “Supplement”) to the Base Prospectus for Non-Equity Securities of

Bankia registered in the official registries of the Spanish Securities Market Commission

(Comisión Nacional del Mercado de Valores; hereinafter, “CNMV”) on 19 July 2016, is

prepared to incorporate by reference the interim consolidated financial information for the

first half of 2016 of Bankia, S.A. (hereinafter also “Bankia”).

PERSONS RESPONSIBLE

Mr. Sergio Durá Mañas, with valid Spanish ID number 24271045-L, in exercise of the

authority granted to him by resolution of the Board of Directors of Bankia dated 30 June

2016, approves the incorporation by reference of the interim consolidated financial

information of Bankia for the first half of 2016 and, in representation of Bankia, which has its

registered office at C/ Pintor Sorolla, 8 in Valencia and Tax ID A-14010342, assumes

responsibility for this Supplement and declares, having taken all reasonable care to ensure that

such is the case, that the information contained in this Supplement is, to the best of his

knowledge, in accordance with the facts and does not omit anything likely to affect its import.

AMENDMENTS TO THE BASE PROSPECTUS FOR NON-EQUITY SECURITIES

This Supplement incorporates by reference into the Base Prospectus for Non-Equity

Securities the interim consolidated financial information of Bankia for the first half of 2016,

duly audited and unqualified, authorised by the Board of Directors of the Bank on 21 July

2016 and which may be consulted on the Bankia website (www.bankia.com) and on the

CNMV website (www.cnmv.es).

With no effect on the audit opinion, the audit report on the interim consolidated financial

information of Bankia for the first half of 2016 included this emphasis of matter paragraph:

“We draw attention to the information provided in Notes 1.9.1 and 14 to the accompanying

financial statements, which describe the uncertainties related to contingencies that exist in

relation to the Initial Public Offering of shares carried out in 2011 for the stock market listing

of Bankia, S.A. and to the provisions recorded by the Group in respect of those contingencies.

This matter does not modify our opinion.”

The Bankia interim financial information for the first half of 2016 incorporated into this

Supplement by reference may be consulted at the following link:

http://www.bankia.com/

http://www.cnmv.es/

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http://www.bankia.com/recursos/doc/corporativo/20160804/2016/grupo-bankia-cuentas-

consolidadas-auditadas-1s-2016.pdf

This document constitutes a supplement to the Base Prospectus for Non-Equity Securities of

Bankia for the purpose of article 22 of Royal Decree 1310/2005 of 4 November, partly

implementing Law 24/1988 of 28 July on the Securities Market, with regard to the admission

to trading of securities in regulated secondary markets, public offers for sale or subscription,

and the prospectus required for these purposes, and should be read in conjunction with said

Base Prospectus for Non-Equity Securities and any other supplement thereto that may be

published in the future.

UPDATE OF INFORMATION OF THE BASE PROSPECTUS FOR NON-EQUITY

SECURITIES REGISTERED IN THE OFFICIAL REGISTRIES OF THE CNMV ON

19 JULY 2016

From the date of filing of the Base Prospectus for Non-Equity Securities on 19 July 2016 until

the date of filing of this Supplement no other events have occurred that might materially

affect investors’ assessment other than those included in the financial information

incorporated by reference by this Supplement and those reported to the CNMV as Material

Disclosures, which are indicated below and are also incorporated by reference into the Base

Prospectus:

Identification of the Material

Disclosure

Headings of the Base Prospectus for Non-Equity Securities

affected by the Material Disclosure

Link to the publication of the

Material Disclosure

Date: 08/07/2016

Number: 240674

Description: The rating agency

DBRS Ratings Limited (DBRS)

assigns Bankia a long-term rating for its Senior Unsecured Long-

Term Debt & Deposit of “BBB

(high)” with a stable outlook.

Additional information that complements the following

sections:

- Section I (Summary), subsection B.17 (Credit ratings assigned to an issuer or its debt securities at the request,

or with the cooperation, of the issuer in the rating

process) and subsection D.3 (Key information on the main risks which are specific to the securities).

- Section II (Risk factors relating to the securities).

- Section III (Base Prospectus for Structured Fixed Income

Securities), section 7.5 (Ratings).

http://www.bankia.com/recursos/doc/corporativo/20160113/2016/2

0160708-hr-bkia-ratings-dbrs-y-

scope.pdf

Date: 05/08/2016

Number: 241917

Description: Fitch Ratings affirms

credit rating of the company's

mortgage covered bonds (cédulas hipotecarias).


sections:

- Section I (Summary), subsection B.17 (Credit ratings

assigned to an issuer or its debt securities at the request, or with the cooperation, of the issuer in the rating

process) and subsection D.3 (Key information on the

main risks which are specific to the securities).




http://www.bankia.com/recursos/

doc/corporativo/20160113/2016/20160805-hr-bkia-rating-cedulas-

fitch.pdf

Date: 23/09/2016

Number: 243040

Description: DBRS Ratings Limited affirms credit rating of

the company's mortgage covered

bonds (cédulas hipotecarias).

Additional information that complements the following sections:

- Section I (Summary), subsection B.17 (Credit ratings assigned to an issuer or its debt securities at the request,

or with the cooperation, of the issuer in the rating

process) and subsection D.3 (Key information on the

http://www.bankia.com/recursos/doc/corporativo/20160113/2016/2

0160923-hr-bkia-rating-dbrs-

cedulas.pdf

http://www.bankia.com/recursos/doc/corporativo/20160804/2016/grupo-bankia-cuentas-consolidadas-auditadas-1s-2016.pdf

http://www.bankia.com/recursos/doc/corporativo/20160804/2016/grupo-bankia-cuentas-consolidadas-auditadas-1s-2016.pdf

http://www.bankia.com/recursos/doc/corporativo/20160113/2016/20160708-hr-bkia-ratings-dbrs-y-scope.pdf




http://www.bankia.com/recursos/doc/corporativo/20160113/2016/20160805-hr-bkia-rating-cedulas-fitch.pdf




http://www.bankia.com/recursos/doc/corporativo/20160113/2016/20160923-hr-bkia-rating-dbrs-cedulas.pdf




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Identification of the Material

Disclosure

Headings of the Base Prospectus for Non-Equity Securities

affected by the Material Disclosure

Link to the publication of the

Material Disclosure

main risks which are specific to the securities).




Date: 28/09/2016

Number: 243186

Description: Study of alternatives for reorganisation of credit

institutions owned by the FROB.


subsections of Section I (Summary):

- Subsection B.4a (Most significant recent trends affecting

the Issuer and the sectors in which it operates).

- Subsection D.1 (Key information on the key risks that

are specific to the issuer or its industry), paragraph (B) (i) (The interests of the FROB, as a government entity,

may not be the same as those of Bankia and its minority

shareholders, especially considering that the FROB controls other banking groups, currently undergoing

restructuring that are competitors of Bankia).


doc/corporativo/20160113/2016/2

0160928-hr-bkia-estudio-posible-

fusion-bankia-bmn.pdf

Date: 28/09/2016

Number: 243189

Description: The FROB agrees to

implement necessary measures

for analysing the reorganisation of the credit institutions it owns.


subsections of Section I (Summary):

- Subsection B.4a (Most significant recent trends affecting

the Issuer and the sectors in which it operates).

- Subsection D.1 (Key information on the key risks that

are specific to the issuer or its industry), paragraph (B) (i) (The interests of the FROB, as a government entity,

may not be the same as those of Bankia and its minority

shareholders, especially considering that the FROB controls other banking groups, currently undergoing

restructuring that are competitors of Bankia).


doc/corporativo/20160113/2016/20160928-hr-frob-estudio-posible-

fusion-bankia-bmn.pdf

With the incorporation by reference of Bankia’s interim consolidated financial information

for the first half of 2016, and the other information referred to in this Supplement, the

resulting text of the Summary of the Base Prospectus is as follows:

I. SUMMARY

The items of information in this summary (the “Summary”) are grouped in five sections (A

to E), the subsections of which are numbered consecutively in accordance with the numbering

stipulated in Annex XXII to Commission Regulation (EC) No 809/2004 of 29 April 2004,

implementing Directive 2003/71/EC of the European Parliament and Council of 4 November

2003 as regards the information contained in prospectuses and the format, incorporation by

reference and publication of such prospectuses and dissemination of advertisements. Any

numbers omitted in this Summary refer to elements provided for in said Regulation for other

prospectus forms. Any elements that are required for this prospectus form but that are not

applicable on account of the nature of the transaction or of the issuer are marked “Not

applicable."

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SECTION A — INTRODUCTION AND WARNINGS

A.1 WARNING This Summary should be read as an introduction to the prospectus.

Any decision made by the investor to invest in the securities should be based on consideration of the

prospectus as a whole.

Where a claim relating to the information contained in the prospectus is brought before a court, the

plaintiff investor may, under the national legislation of the Member States, have to bear the costs of

translating the prospectus before the legal proceedings are initiated.

Civil liability may be imposed on the persons filing the summary, including any translation hereof,

only if the summary is misleading, inaccurate or inconsistent with other parts of the Prospectus, or

when read together with other parts of the Prospectus does not provide information essential to assist

investors when determining whether or not to invest in the aforesaid securities.

A.2 Information on

financial

intermediaries

Not applicable. The Company has not given its consent for any financial intermediary to use the

Prospectus in subsequent sale or final placement of the securities.

SECTION B — ISSUER AND POSSIBLE GUARANTORS

B.1 Legal and

commercial name

of the issuer

Bankia, S.A. (hereinafter, “Bankia”, the “Bank” or the “Issuer”), and in the commercial sphere

“Bankia”.

B.2 Issuer’s domicile,

legal form,

applicable law and

country of

establishment

Bankia is a Spanish company. It is a commercial organisation, incorporated in the form of a public

limited company (sociedad anónima), and has the status of a bank. Its shares are admitted to trading

in the Spanish stock exchanges through the stock exchange interconnection system (Sistema de

Interconexión Bursátil). As a result, it is subject to the regulation established by the Corporate

Enterprises Act, the Act on Structural Modifications of Commercial Companies and other related

legislation, as well as the specific legislation for credit institutions and the supervision, control and

rules of the Bank of Spain.

Since 4 November 2014 Bankia is under the supervision of the Single Supervisory Mechanism

(“SSM”). As a credit institution in the process of restructuring it is subject to Act 11/2015, of 18

June 2015, on the recovery and resolution of credit institutions and investment firms (“Act

11/2015”), which partially repealed Act 9/2012 of 14 November 2012, on restructuring and

resolution of credit institutions (“Act 9/2012”), and related legislation. Finally, as a listed company,

it is subject to the Securities Market Act and its implementing regulations.

Its registered office is in Spain, in Valencia at Calle Pintor Sorolla 8. Its tax identification number

(Número de Identificación Fiscal or “NIF”) is A-14010342.

B.3 Description of the

issuer

Bankia’s registered corporate objects include the pursuit of all types of activities, operations, acts,

contracts and services which are proper to the banking business in general or which are directly or

indirectly related to banking and which Bankia is permitted to carry on under applicable law,

including the provision of investment and ancillary services and the performance of insurance

agency activities.

Bankia Group was formed from a merger process ended on 23 May 2011 between Caja de Ahorros y

Monte de Piedad de Madrid, Caja de Ahorros de Valencia, Castellón y Alicante, Caja Insular de

Ahorros de Canarias, Caja de Ahorros y Monte de Piedad de Ávila, Caixa d’Estalvis Laietana, Caja

de Ahorros y Monte de Piedad de Segovia and Caja de Ahorros de La Rioja (collectively, the

“Cajas”).

The merger process took place in two phases: (i) first, the Caja involved segregated all their banking

and quasi-banking assets and liabilities to an entity called Banco Financiero y de Ahorros, S.A.

(“BFA”); (ii) second BFA then spun off to Bankia its entire banking business (the First Spinoff”),

related investments and other assets and liabilities it received from the Savings Banks under the first

segregation or received in the form of other securities under the Merger Agreement, except for

certain assets and liabilities which continue to be owned by Banco Financiero y de Ahorros.

The main business segments are: Retail Banking, Business Banking and the Corporate Centre.

Bankia has investments in other companies, although in accordance with the Restructuring Plan in

subsection B.4a of this Summary, it is currently immersed in non-strategic divestitures.

Retail banking: comprises retail banking activities with individuals and companies (with annual

revenue of less than 6 million euros), and is conducted through a large multi-channel network in

Spain, with a focus on customer satisfaction and profitable management. Its goal is to build strong

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and lasting ties with customers by giving them better value in services and advice and better quality

in the customer relationship. This is done by segmenting the customers based on the need for

specialised attention and according to the needs of each type of customer. This segmentation, which

classifies these customers into five broad categories (Private Banking, Personal Banking, High-

Potential, SMEs and Self-Employed, Bankia Funds, Bankia Pensions and Bancassurance) allows

Bankia to assign specific customers to specialised managers, who take overall responsibility for their

relationship with the bank, thereby obtaining higher levels of customer satisfaction and generating

new sources of business. Retail Banking is a strategic business for Bankia, with a market share in

Households of 10.31% in loans (10.44% Dec/15 and 10.73% Dec/14) and of 9.11% in deposits

(9.16% Dec/15 and 9.44% Dec/14) (Source: Research Office of Bankia and Bank of Spain, May

2016), along with a sizeable presence in investment funds, pension plans and private banking.

Business Banking: the Business Banking area serves companies with annual turnover of more than

six million euros. This segment encompasses all the bank's activity with businesses and institutional

clients, and offers an extensive catalogue of products and services. Its business model is very

specialised, and comprises a number of segments and distribution channels: business banking,

corporate banking, and capital markets.

On the lending front, Bankia continues to step up its activity, both in working capital loans and in

credit facilities for investments. In 2015, the bank granted companies with revenues of more than 6

million euros a total of 10,526 million euros in loans, some 9.6% higher than the previous year. If to

this figure we add the 3,221 million euros in loans to SMEs and 216 million euros in loans to

independent contractors and self-employed professionals, the total credit extended amounts to

13,963 million euros, a full 16.6% more than the previous year. In addition, Bankia has made

available to businesses, whether or not they are already customers, preauthorised credit

totalling16,086 million euros for their short and long-term financing needs.

Bankia supported businesses in their foreign trade activity with a total of 8,733 million euros, 20.9%

more than in 2014. The bank managed to grow its active customer base by 19.8%. This growth was

made possible thanks to the 13.4% increase in import-export financing, which went from 5,428

million euros to 6,154 million euros, and to a 43.5% rise in international guarantees given, which

reached 2,573 million euros, compared to the 1,793 million euros issued in 2014.

The Group's strategy is based on a customer-focused distribution model, including resources

specifically devoted to providing service to businesses.

The aim of the SMEs Plan is to boost market share with small and medium enterprises by delivering

better services and granting more loans. As a result, since the inception of the Plan in 2013 and

through 31 December 2015 over 37,330 million euros in credit have been extended have been

extended to companies, independent contractors and SMEs, with a target of 43,500 million euros.

Taking into account that the Plan was rolled out at the end of 2012 and that the macro-economic

context has recorded worse-than-projected behaviour, the Plan can be considered to have met its

target.

Regarding investee companies, Bankia's portfolio of holdings in subsidiaries at 30 June 2016

included a total of 60 companies (33 of which were group companies, 2 jointly controlled entities

and 25 associates) engaged in diverse sectors, including insurance, asset management, lending,

services, and the development and management of property asses. At 30 June 2016, the balance of

the investment in associates and jointly controlled companies totalled 288 million euros (2014: 298

million euros).

Bankia continues to move forward in its disinvestment of non-strategic assets in compliance with the

commitments made in the Memorandum of Understanding (MoU). In this regard it is noted that the

investees deemed strategic are in the Insurance Group, Bankia Funds (Bankia Fondos), Bankia

Pensions (Bankia Pensiones) and Bankia Habitat.

Bankia is mainly active in Spain, with a retail network of 1,848 offices and 45 business banking

branches in Spain at 30 June 2016. To strengthen its competitive positioning, based on its

relationship with customers, since 2013 Bankia has been promoting a new business model

segmenting the network between different types of branches, including universal banking, business

banking, private banking centres and 'agile' branches. The agile branches are a new type of office,

pioneered by Bankia and a first in the Spanish financial system, which can provide a high-quality

fast response to customers who carry out more transactions. The new agile branches are open longer

hours, have high numbers of cashiers and quick service cash points. At 30 June 2016 Bankia had 136

agile branches.

At June 2016 Bankia also had 13 settlement and recovery centres. The branches are distributed in

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100 local areas, which in turn report to 10 regional head offices, with four large departments each:

risk control, commercial management, agency network and recoveries. Bankia is segmenting its

retail banking network into different types of offices to provide services ever more closely tailored to

the needs of its customer base. In addition to the universal banking service offices, it has the so-

called agile branches, outlying offices and Offices Plus +. The latter were opened in 2015 in the

provinces of Madrid, Valencia and Castellón, with the aim of increasing to 180 in 2016 (in 2016

there 130 branches of this type). There are also recovery centres, settlement centres and offices for

property developers.

B.4a Most significant

recent trends

affecting the

issuer and the

industries in

which it operates

Macro-economic and sectorial environment

The global scenario remained fairly stable throughout the first half of 2016, although the unexpected

victory of the “Leave” (Brexit) option in the United Kingdom’s EU referendum on 23 June brought

fresh complications. On the one hand, the fears of a global recession eased, thanks to the recovery in

the United States, while financial markets overcame the tensions experienced at the start of the year

and commodity prices made a strong recovery, especially oil, which helped to improve confidence in

the energy sector and the emerging economies. However, the Brexit vote augurs a long period of

uncertainty, which could have a significant adverse impact on Europe, though only a limited impact

on world growth (initially, Brexit is a regional shock).

In the main developed economies, inflation is generally still too low, especially in the euro area,

where it remains close to zero, although the significant rise in the oil price has reinforced

expectations that inflation has bottomed out. In this context, the ECB, at its March meeting, adopted

further expansionary measures: it cut its main refinancing rate to 0% and its deposit rate to -0.4%,

extended and reinforced its asset purchase programme and announced four new liquidity injections,

on very attractive terms.

The improvement in the behaviour of risk-bearing assets at the start of the second quarter gave way

to an increase in volatility and uncertainty with the holding of the UK referendum. The impact of

Brexit on the financial markets and, ultimately, on the real economy created expectations of further

monetary stimuli and purchases of haven assets, favouring government debt: the yields of a large

majority of bonds of the main countries hit new lows in June, most notably the German 10-year

bond, whose yield fell below 0% for the first time in history. The Spanish bond was also favoured by

the result of the general elections, with the yield on the 10-year bond falling below that of the Italian

bond for the first time in the last year.

In Spain, economic activity continued to expand in the first half, performing even better than initially

expected at the beginning of the year. GDP growth remained vigorous, reaching rates of around

0.7%/0.8% per quarter, fuelled by robust domestic demand, thanks to favourable financing

conditions and strong job creation (the number of registered employed is at a six-year high). The

trade balance continued to improve (the surplus on current account is at an all-time high), thanks to

healthy exports, coupled with a reduction in the energy bill.

The good performance of the Spanish economy has been reflected in the performance of the banking

system, which continued to improve over the year in fundamental aspects, such as the growth of

lending to households and SMEs, despite deleveraging; the steady decline in the NPL ratio, which is

back in single digits for the first time since June 2012; and the improvement in capital strength.

However, profitability remains weak due to the interest rate environment and reduced business

volumes, despite the return to more normal levels of provisioning, which requires greater cost

control. Brexit could also prove harmful to the sector, due to the high direct exposure to the United

Kingdom of some large institutions.

The global economic scenario expected for the second half of 2016 is marked by continuity

(moderate growth similar to the first half), but with complications, especially for Europe, due to the

renewed doubts stirring in the financial sector and, most particularly, to Brexit in the United

Kingdom. Brexit's effect on EU growth is likely to be modest in the rest of the year, but will surely

broaden in 2017: it reduces GDP growth by between 0.3 and 0.5 p.p., down to a bit above 1.0%

(estimated 1.5% for 2016). For the USA and the global economy, Brexit does not stand out as a very

significant risk and could be confined to shaving a couple of tenths of a point off world growth in

2017, although the risks are concentrated on the downside. Against this backdrop, central banks will

again step forward as key players. The Bank of England could reactivate its asset purchase

programme and cut its benchmark rate. The Federal Reserve will hold off on the possibility of a new

rate hike, which is now not to be expected this year. As for the ECB, the most likely scenario is for it

to widen its asset purchase programme, above all, to extend its duration, although we should not rule

out an increase in its volume or a broadening of the assets it purchases. It appears less likely to make

new cuts in its interest rates, although the market is discounting this.

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Spain is projected to see further expansion, though at gradually slower rates as the effects of certain

transitory drivers taper off, such as the price of crude oil and budget stimuli. Economic growth will

nonetheless continue to be buoyed by an expansive monetary policy and by advances in correcting

imbalances, such as improvements in competitiveness and reduction in deleveraging by households

and businesses.

As regards the risks on the horizon, political uncertainty appears to have decreased after the last

elections; however, given the close economic ties with the United Kingdom, the Spanish economy is

significantly susceptible to Brexit, although no large impact is immediately foreseeable. In this

context, we expect GDP growth for 2016 as a whole to come in at around 2.8%.

Compliance with the Restructuring Plan

Pursuant to Law 9/2012, on 15 November 2012, the BFA-Bankia Group presented its Restructuring

Plan to the Fund for Orderly Bank Restructuring (FROB) and the Bank of Spain, which was

approved by the Bank of Spain and the European Commission on 27 and 28 November 2012,

respectively. The BFA-Bankia Group must meet the commitments included in the Restructuring

Plan, (information in this section refers to the BFA-Bankia Group as the Restructuring Plan is based

on the BFA-Bankia Group consolidated scope) which are summarised below:

(i) Reduce the scope of consolidation of the Bank by transferring assets to the state-organised

asset management company SAREB (Sociedad de Gestión de Activos Procedentes de la

Reestructuración Bancaria), which took place in 2012.

(ii) Focus the business on commercial banking. Bankia will centre its activity on being able to

offer the bank’s customers deposits, loans, current accounts, other money transfer services,

credit lines, lease arrangements, credit card transactions, bancassurance products, asset

management, private banking and investment services, trade finance, currency exchange and

online or telephone banking, among other services.

(iii) During the Restructuring Period the BFA-Bankia Group will not engage in the following

activities:

– Loans related to real estate development.

– Financing of foreign companies outside Spain.

– Banking activities with companies that have access to the capital market, except for

short-term activities such as working capital financing and short-term commercial and

transactional banking services.

In the course of applying the two foregoing points, in 2015 the BFA-Bankia Group fulfilled

practically all of the commitments established in the Restructuring Plan and the Strategic

Plan. In this regard, the most significant divestitures in 2015 and in 2016 up to the

registration date of this document were as follows:

– Realia Business S.A.: In March 2015, Corporación Industrial Bankia (entity wholly

owned by Bankia) signed a contract with Inmobiliaria Carso, S.A. de C.V. for sale of

its entire interest in Realia Business, S.A. (24.953% of its share capital). The sale-

purchase was priced at €0.58 per share, for a total price of 44 million euros. The sale

generated a capital gain of 9.6 million euros.

– Globalvía Infraestructuras S.A.: On 23 October 2015, Bankia and Fomento de

Construcciones y Contratas, S.A. (“FCC") signed a sale-purchase agreement with the

funds USS, OPTrust and PGGM for sale of 100% of the shares of Globalvía

Infraestructuras, S.A., a company owned 50-50 by Bankia and FCC. The sale was the

result of the exercise of the right of first refusal held by the aforesaid funds under a

convertible bond of 750 million euros that they held. The price of the sale-purchase

involved an initial payment of 166 million euros, paid when the share transfer was

formally executed, plus another deferred payment to be made in the first half of 2017,

for a maximum of 254 million euros, depending on the company's valuation at the time

the bond is converted. The sale-purchase agreement was executed on 17 March 2016

and had no impact on the Group's income statement. The holding had a net carrying

value of 128 million euros.

– City National Bank of Florida: On 16 October 2015, the definitive sale of City

National Bank of Florida was signed, through the transfer of 100% of the shares of

CM Florida Holdings Inc. by the investee company Bankia Inversiones Financieras,

S.A.U. to the Chilean Banco de Crédito e Inversiones, after clearance from the US

Federal Reserve (“FED”) and payment of the agreed price. The sale brought in a net

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capital gain of 117 million euros for the Bankia Group.

– Valdemont Rentas, S.L.: The most significant transaction in the first half of 2016 was

the sale of Valdemont Rentas, S.L., involving disposal of 50% of the rights, with an

approximate loss for Bankia of 2 million euros.

In addition, there were a number of sales of BFA-Bankia Group loan portfolios:

– Disinvestment of loan portfolios.

In June 2016, doubtful and non-performing loans of 386 million euros were sold, of

which 230 million euros were classified as doubtful and the rest as non-performing. In

2015, there were sold some 1,610 million euros in corporate loans in three transactions

carried out directly in the secondary market between mediators and funds:

A portfolio of 407 million euros, with collateral, on risk classified as doubtful in

the hotel sector.

A portfolio of 559 million euros with real estate developer exposure, of which

434 million euros were considered highly doubtful.

A portfolio of 645 million euros of industrial risk.

– Divestment of "granular" credit (loans of small amounts) reached 1,700 million euros,

including 1,206 million euros with collateral, of which 1,001 million euros were

considered doubtful and 205 million euros as highly doubtful.

– In all, the portfolios sold totalled a gross amount of approximately 3,310 million euros:

2,753 million euros were sold by Bankia (23% classified as highly doubtful) and 557

million euros by BFA (94% highly doubtful). In addition to these portfolios, the Group

also divested itself of 515 million euros, mainly in respect of property developer loans.

(iv) According to the financial projections in its Restructuring Plan the BFA-Bankia Group was

committed to complying with the following economic figures and financial ratios at 31

December 2015:

– The net loan portfolio will be no greater than 116 billion euros. At 31 December 2015,

the net loan portfolio amounted to 109 billion euros. In this regard, during 2015 the

BFA-Bankia Group sold doubtful loan portfolios with a gross value of 1.895 billion

euros, in seven different deals.

– Risk-weighted assets were not to exceed 93 billion euros according to the EBA

criteria. At 31 December 2015, the risk-weighted assets per the aforesaid EBA criteria

amounted to 75 billion euros.

– Total balance sheet assets were to be no greater than 257 billion euros. At 31

December 2015, total balance sheet assets amounted to 214 billion euros.

– The loans-to-deposit ratio was not to surpass 133%. At 31 December 2015, the ratio

reached 113%. At the same date, the ratio, calculated as net lending divided by retail

promissory notes, strict customer deposits, mediation-granted loans, and one-off non-

marketable mortgage-backed securities, amounted to 103%.

– The total number of branches was to be 1,950 in 2015. At 31 December 2015, there

were a total of 1,931 branches (the number of branches in the retail network stood at

1,887), plus a delegation in Shanghai. The BFA-Bankia Group has thus also met the

Restructuring Plan target of trimming the branch network (the target had nearly been

reached at 31 December 2013). The majority of closures took place in non-strategic

regions, thereby focusing mainly on the areas in which the Cajas de Ahorros that gave

rise to Bankia originated.

– The headcount was to be aligned with BFA-Bankia Group's new structure and updated

network of branches: the targeted headcount for 2015 was 14,500 employees. There

were 13,571 employees at 31 December 2015.

If any of the aforesaid commitments contemplated in the Restructuring Plan are not fulfilled,

the BFA-Bankia Group must offer corrective actions. The BFA-Bankia Group has also

covenanted that the number of branches and employees will not increase after 2015.

(v) Regarding branches subject to the reduction plan which have been shut down or are currently

in the process, as mentioned previously the BFA Bankia Group may not grant new financing

to existing customers unless:

– It is necessary to preserve the value of the secured loan.

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– It is granted to minimise capital loss or improve the expected recovery value of

the loan.

(vi) Mortgages in existence at offices pending closure at the date of the Restructuring Plan will be

managed to maximise their value. In particular, the BFA-Bankia Group may restructure the

mortgages that have been granted on the following terms: a) changing the conditions of the

loan; b) transferring the mortgages to new properties; and c) transferring the real estate asset.

(vii) Corporate governance measures:

– The BFA Bankia Group will not acquire new participations in or branches of business

of other companies while the Restructuring Plan is in effect.

– Dividend payments by BFA-Bankia Group were restricted until 31 December 2014,

when the restriction ended. Bankia's General Meeting of Shareholders of 22 April

2015 voted to pay a gross dividend of 0.0175 euros per share against 2014 profits.

Similarly, the Bankia General Meeting held on 15 March 2016 resolved to distribute a

gross dividend of 0.02625 euros per share against 2015 profits.

(viii) As regards actions carried out with hybrid instruments, the process took place in accordance

with the resolution proposed by the FROB Governing Committee, based on the conditions

set in the Memorandum of Understanding ("MOU") outlined by the European authorities

within the scope of the program for assisting Spanish banks.

(ix) Following BFA's loss of its banking licence the company (BFA) replaced all its ECB

financing with alternative sources of financing including the repo deal with Bankia. This

financing arrangement between BFA and Bankia is carried out on normal market terms,

applying the usual cost for such transactions and the usual haircuts that markets apply to

collateral provided and risks assumed by Bankia. The loss of BFA's banking licence has no

impact on Bankia's solvency, legal form, business or Bankia's relationship with its customers.

B.5 Group

Bankia is the controlling company of the Bankia Group, which belongs to the consolidated group of

credit institutions whose controlling company is BFA (the “BFA-Bankia Group”).

At 30 December 2016, the scope of consolidation included 60 companies (33 of which were Group

companies, 2 were jointly controlled companies, and the other 25 companies were associates)

engaged in diverse activities, including insurance, asset management, lending, services, and the

development and management of real estate assets. At 30 June 2016, there were a total of 26

companies classified as non-current assets held for sale.

In 2015, the Bankia Group continued to move forward in divestment of non-productive and non-

strategic assets, in compliance with the commitments outlined in the Group's Restructuring Plan

approved by the FROB and the European Commission.

B.6 Major

shareholders

Bankia's controlling shareholder is BFA, an entity fully owned by the bank restructuring fund, the

FROB (Fondo de Reestructuración Ordenada Bancaria). BFA owned 65.30% of Bankia's share

capital at the preparation date of this document.

Also, given below is a breakdown at the registration date of this document of the equity investments

held by the Board of Directors and executives in Bankia:

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Board Members

Direct Indirect Total

No. of shares % of

voting rights

No. of shares

% of voting rights

No. of shares

% of voting rights

Mr. José Ignacio

Goirigolzarri Tellaeche 1,036,680 0.009% 0 0.000% 1,036,680 0.009%

Mr. Antonio Greño

Hidalgo 65,000 0.001% 0 0.000% 65,000 0.001%

Mr. Álvaro Rengifo

Abbad 131,250 0.001% 0 0.000% 131,250 0.001%

Ms. Eva Castillo Sanz 100,000 0.001% 0 0.000% 100,000 0.001%

Mr. Fernando

Fernández Méndez de

Andés

65,434 0.001% 0 0.000% 65,434 0.001%

Mr. Francisco Javier

Campo García 201,260 0.002% 0 0.000% 201,260 0.002%

Mr. Joaquín Ayuso

García 220,060 0.002% 0 0.000% 220,060 0.002%

Mr. Jorge Cosmen

Menéndez-Castañedo(*) 86 0.000% 121,075 0.001% 121,161 0.001%

Mr. José Luis Feito

Higueruela 197,808 0.002% 0 0.000% 197,808 0.002%

Mr. José Sevilla

Álvarez 220,050 0.002% 0 0.000% 220,050 0.002%

Mr. Antonio Ortega

Parra 300,000 0.003% 0 0.000% 300,000 0.003%

Total 2,537,628 0.022% 121,075 0.001% 2,658,703 0.023%

(*) Jorge Cosmen owns his indirect interest in Bankia through the company QUINTORGE, S.L. (B60304284)

B.7 Selected historical

financial

information

There follows a summary of the key figures from the Bankia Group's interim financial statements

closed at 30 June 2016 and for the complete years closed at 31 December 2015, 2014 and 2013,

based on audited accounting data, with unaudited restated data as at 31 December 2013.

First half of 2016

The Bankia Group ended the first half of 2016 with attributable profit of 481 million euros, a decline

of 74 million euros (-13.4%) with respect to the same period of 2015.

The earnings performance was marked by continuation of the factors punishing the banking business

of late, namely, interest rates at all-time lows, which has depressed margins in the retail business and

in bond portfolios, along with other factors that apply to the Bankia Group in particular, such as the

October 2015 sale of City National Bank of Florida, and the implementation of commercial

strategies designed to strengthen customer loyalty, which cut the fee and commission income

obtained by the Group in the first half of 2016.

In this context, the strengths in Bankia's management continued to be a cost moderation policy that

has improved the Group's efficiency ratio to 46.6% at the end of June 2016, and advances in risk

management that translated into a significant reduction (-45.3%) in allocations to provisions

compared to the first half of 2015.

The first six months of 2016 saw the Bankia Group advance in its strategic drive to boost new

lending to businesses, SMEs and consumers. These gains in lending are nearly compensating in full

for the maturities of outstanding loans, so the decline recorded in the preceding years in outstanding

credit to customers slowed to a mere -0.7%.

Also of note are the healthy numbers recorded in strict customer deposits and in funds managed off-

balance sheet (mainly investment funds), which posted aggregate growth of 1.6% from December

2015. In this regard, the first half of 2016 saw consolidation of the shift in funds from savings

products to demand deposits or investments funds, which are capturing the transfer of customer

savings out of term deposits.

The Group's main risk indicators moved favourably in the first half of 2016, in line with the trend

seen in 2015. Along these lines, since December 2015 the NPL ratio was trimmed one percentage

point down to 9.6%.

Lastly, in regard to capital adequacy, the capital generation capacity of the Bankia Group allowed it

to close June 2016 with a CET 1 phased-in ratio of 14.57%, a 61 basis points improvement over the

level reached in December 2015.

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2015

Attributable profit amounted to 1,040 million euros, an increase of 39.2% with respect to 2014. The

main factors explaining this business performance in 2015 were:

– The resilience shown by the Group's net interest income despite the extraordinarily low market

interest rates.

– Continuation of a cost moderation policy after the conclusion of the Group's restructuring

process, which has contributed to stabilising earnings in a complex environment for the

banking industry. In this connection, the Bankia Group registered a year-end 2015 efficiency

ratio of 43.6%, one of the best amongst Spain's biggest financial institutions.

– The risk management focus, which has translated into a sizeable reduction in loan loss

provisions and in provisions and write-downs of property assets.

– Successful fulfilment of the Group's disinvestments plan, which culminated with the sale of

City National Bank of Florida in October, buoying the generation of earnings in 2015.

The capacity to generate profits, both organically and via disinvestments, has allowed the Group to

continue boosting its margins, lifting ROE to 9% at the close of 2015. Also, during 2015 the Group

allocated 424 million euros to strengthen the provisions set aside to cover the costs that could arise in

the future from the various court cases associated with Bankia's 2011 initial public offering. Part of

that provision (184 million euros) has been charged to the consolidated income statement, with the

remaining 240 million euros charged against own funds on the balance sheet. Stripping out that

provision, the Bankia ROE ratio would have reached 10.6%.

On the business front, new lending by the Group to strategic segments such as businesses, SMEs and

consumers continued growing. This rise in lending, together with a slowdown of deleveraging in the

private sector in Spain, contributed to stabilising the volume of Group loans and receivables, which

in 2015 recorded a decline of 1.9%, much smaller than the decrease in 2014. In addition, a large part

of this drop in lending has been concentrated in unproductive assets (doubtful loans), which has

taken the NPL ratio down 2.3 percentage points from December of the previous year to 10.6%. The

Group ended 2015 with total doubtful risks of 12,995 million euros (including loans and advances to

customers and contingent liabilities), a full 3,551 million euros lower than the year-end 2014 figure.

This reduction is explained by the decrease in new delinquencies, the risk in recoveries and the sale

of loan portfolios, including 7 sales of doubtful loan portfolios that brought the balance of doubtful

loans down by 1,885 million euros.

The volume of customer funds under management continued trending upward, as regards both strict

customer deposits and off-balance sheet funds, which recorded combined growth of 3,811 million

euros, a rise of 3.3%, with respect to December 2014. This reflected a solid performance in capturing

new deposits in the retail network and in the business banking network, as well as organic growth in

assets managed, primarily in investment funds.

In relation to disinvestments, the most important one was the sale of City National Bank of Florida,

which reduced the Group's non-current assets held for sale by 4,601 million euros with respect to

2014. This sale generated an extraordinary profit of 201 million euros in 2015.

2014

In 2014, Bankia Group improved on its prior year profits with general increases in all profit items

and prudent management of its balance sheet that resulted in a lower NPL rate (-1.8 percentage

points to 12.9%) and improvements in both solvency and liquidity.

Attributable profit was 747 million euros, a 340 million euro increase on 2013. These results were

driven by strong performances over the year not only in the core banking business – net interest

income and fee and commission income – but also in operating costs, reducing the Group's reliance

on less recurrent income sources such as Gains and losses on financial assets and liabilities and

Gains on the sale of equity investments, which had contributed a greater proportion of the Bankia

Group's 2013 profits. Another material factor was the lower volume of provisions and impairment

losses taken as a result of the lower NPL rate and the balance sheet restructuring carried out in the

two previous years.

In the current low-interest rate environment, the resilience of recurrent income items, the healthy

progress on costs and the return of provisions to more normal levels were key factors allowing the

Group to significantly grow its attributable profit, by 83.3% compared to 2013.

As regards loans, the Group's business generally was again affected by deleveraging in the private

sector (households and companies) although the phenomenon was less marked than the previous

year, as well as by the bank's strategy of focusing investment on the Group's strategic segments,

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cutting NPLs and continually strengthening solvency and liquidity. One positive factor to note was

the slowing decline in loans to customers compared to prior years (-5.4% in 2014 compared to –

11.2% in 2013). This reflected an incipient rise in demand for finance in Spain, higher volumes of

new loans granted by Bankia (mainly to SMEs, consumer credit and the self-employed) and a fall in

doubtful assets driven by fewer new defaults and stronger recoveries and portfolio sales. Also

noteworthy was the strong growth of strict customer deposits (+5.4% on the year) thanks to healthy

deposit capture despite the major downsizing of branch numbers by the Group in 2013.

Finally, in 2014 the Group's portfolio of available-for-sale financial assets was reduced by 5,932

million euros (-14.6%) as a result of debt maturing during the year, while non-current assets held for

sale fell by 4,437 million euros (-37.0%) due to the sale of equity investments and the

deconsolidation of Aseval assets following the sale of 51% of the company to Mapfre in October.

2013

In 2013 the Bankia Group returned to profitability, after completion in 2012 of the process of

cleaning up its balance sheet as provided for in the Restructuring Plan, which required a strong

provisioning and write-off effort.

Despite the difficult economic environment affecting the core banking business (net interest income

and fee and commission income) in 2013 the Group managed to cut operating costs significantly,

improving the cost-income ratio and sustaining Pre-provision profit at close to 2012 levels. Thanks

to these improving measures, the Bankia Group made attributable profit of 408 million euros in 2013

following a loss in 2012, thereby starting the process of generating the value envisaged in its

Restructuring and Strategic Plans.

As mentioned previously, the environment in which the Group carried out its activities in 2013 was

challenging for banks, with low volumes, scant demand for credit and a weak economy. Against this

backdrop, the Bankia Group carefully followed the road map marked out in the Restructuring Plan,

moving forward in its deleveraging while bolstering its solvency and liquidity. Thus, it reached its

key target in 2013: completion of the recapitalisation process during the period with two capital

increases in May, enabling it to end the year with own funds of 10,657 million euros.

At year-end 2013, the Group's total assets amounted to 251,569 million euros, down 10.9% on 2012,

with a business volume (comprised of loans and advances to customers, customer deposits, debt

securities, subordinated liabilities and off-balance sheet items, which includes investment funds,

pension funds, and savings insurance) amounting to 276,631 million euros, down 11.5% from 2012

due to decreased credit, cancellation of the Group's subordinated liabilities arising from the capital

increases taking place in May, as well as the maturity of wholesale debt. Part of the volume decline

during the year reflected a fall in the market value of trading derivatives due to the portfolio's rate

sensitivity as long-term curves suffered significant margin rises in 2013.

Off-balance sheet amounts rose 6,239 million euros in 2013, excluding discretionary portfolio

management. This notable upward trend permitted the BFA Bankia Group to compensate for the

drop in retail deposits which was mainly due to accelerated process of shutting down branch offices

as stipulated in the Restructuring Plan.

Selected financial information from the Bankia Group’s consolidated income statement

Interim income statement

(figures in millions of euros) 30/06/2016 (1) 30/06/2015 (1) Chg. (%)

Net interest income (%) 1,124 1,388 (19.0%)

Gross income 1,686 2,029 (16.9%)

Pre-provision profit 900 1,186 (24.1%)

Operating profit/(loss) 696 864 (19.4%)

Profit (loss) before tax from continuing operations 639 753 (15.1%)

Profit (loss) after tax from continuing operations 481 562 (14.4%)

Profit/(loss) attributed to the parent company 481 556 (13.5%)

(1) Figures have been adapted to the so-called FINREP financial reporting criteria as explained in 1.5 to the interim financial

statements closed at 30 June 2016

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Annual income statement

(figures in millions of euros)

31/12/2015 (1)

31/12/2014 (1)

31/12/2013

(1) (2)

Chg. (%)

2015 / 2014

Net interest income (%) 2,740 2,927 2,425 (6.4%)

Gross income 3,806 4,009 3,482 (5.1%)

Pre-provision profit 2,148 2,267 1,577 (5.2%)

Operating profit/(loss) 1,413 1,108 147 27.5%

Profit/(loss) before tax 1,452 912 131 59,2%

Consolidated profit/(loss) for the period 1,061 771 405 37.5%

Profit/(loss) attributed to the parent company 1,040 747 408 39.2%

(1) Historical data not adapted to FINREP financial reporting criteria

(2) Shown for comparative purposes only. Figures have been restated as explained in note 1.5 to the 2014 consolidated

financial statements to retrospectively reflect the impact of early adoption of IFRIC 21.

Selected financial information from the Bankia Group’s consolidated balance sheet

Assets


Cash and cash balances at central banks and other sight deposits 2,462 4,042 (39.1%)

Financial assets held for trading 11,697 12,202 (4.1%)

Available-for-sale financial assets 29,909 31,089 (3.8%)

Loans and receivables 115,820 116,713 (0.8%)

Of which: loans and advances to customers 109,794 110,570 (0.7%)

Held-to-maturity investments 25,043 23,701 5.7%

Derivatives – hedge accounting 4,141 4,073 1.7%

Non-current assets and disposable groups of assets held for sale 2,679 2,962 (9.6%)

Investments in joint ventures and associates 288 285 1.1%

Tangible and intangible assets 2,254 2,261 (0.3%)

Other assets 9,208 9,642 (4.5%)

TOTAL ASSETS 203,501 206,970 (1.7%)

Liabilities


Financial liabilities held for trading 12,245 12,408 (1.3%)

Financial liabilities at amortised cost 174,549 176,276 (1.0%)

Of which: customer deposits 107,908 108,702 (0.7%)

Derivatives - hedge accounting 944 978 (3.5%)

Provisions 1,484 2,898 (48.8%)

Other liabilities 1,485 1,714 (13.4%)

TOTAL LIABILITIES 190,706 194,274 (1.8%)

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Equity


Own funds 12,089 11,934 1.3%

Other comprehensive income accumulated in equity 659 696 (5.3%)

Minority interests (non-controlling interests) 47 66 (28.8%)

TOTAL EQUITY 12,795 12,696 0.8%

TOTAL LIABILITIES AND EQUITY 203,501 206,970 (1.7%)

(1) Figures have been adapted to the so-called FINREP financial reporting criteria as explained in 1.5 to the interim financial

statements closed at 30 June 2016

Assets


31/12/2015 (1)

31/12/2014 (1)

31/12/2013 (1) (2)

Chg. (%)

2015 / 2014

Cash and deposits at central banks 2,979 2,927 3,449 1.8%

Financial assets held for trading 12,202 18,606 22,244 (34.4%)

Of which: loans and advances to customers - - 3 -

Available-for-sale financial assets 31,089 34,772 40,704 (10.6%)

Loans and receivables 117,776 125,227 129,918 (6.0%)

Of which: loans and advances to customers 110,570 112,691 119,116 (1.9%)

Held-to-maturity investments 23,701 26,661 26,980 (11.1%)

Hedging derivatives 4,073 5,539 4,260 (26.5%)

Non-current assets held for sale 2,962 7,563 12,000 (60.8%)

Equity investments 285 298 150 (4.3%)

Tangible and intangible assets 2,261 2,058 2,006 9.8%

Other assets 9,642 9,997 9,858 (3.6%)

TOTAL ASSETS 206,970 233,649 251,569 (11.4%)

Liabilities


31/12/2015 (1)

31/12/2014 (1)

31/12/2013

(1) (2)

Chg. (%)

2015/2014

Financial liabilities held for trading 12,408 18,124 20,218 (31.5%)

Financial liabilities at amortised cost 176,276 193,082 208,033 (8.7%)

Of which: customer deposits 108,702 106,807 108,543 1.8%

Hedging derivatives 978 2,490 1,897 (60.7%)

Liabilities under insurance contracts - - 238 -

Provisions 2,898 1,706 1,706 69.9%

Other liabilities 1,714 5,714 8,117 (70.0%)

TOTAL LIABILITIES 194,274 221,115 240,209 (12.1%)

Equity


31/12/2015 (1)

31/12/2014 (1)

31/12/2013

(1) (2)

Chg. (%)

2015 / 2014

Own funds 11,934 11,331 10,657 5.3%

Valuation adjustments 696 1,216 742 (42.8%)

Non-controlling interests 66 (13) (40) -

TOTAL EQUITY 12,696 12,533 11,360 1.3%

TOTAL LIABILITIES AND EQUITY 206,970 233,649 251,569 (11.4%)

(1) Historical data not adapted to FINREP financial reporting criteria

(2) Solely for purposes of comparison, shown at 31 December 2013 are the restated data that were included in the 2014

consolidated financial statements to retrospectively reflect the impact of early adoption of IFRIC 21.

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Business volume

Business volume

(figures in millions of euros) 30/06/2016 31/12/2015 31/12/2014 31/12/2013

Chg. (%)

2015 / 2014

Net loans and advances to customers (1) 109,794 110,570 112,691 119,119 (1.9%)

Customer deposits 107,908 108,702 106,807 108,543 1.8%

Marketable debt securities 23,382 22,881 23,350 28,139 (2.0%)

Subordinated liabilities 1,033 1,046 1,043 - 0.2%

Customer funds managed off the balance

sheet (2) 23,038 22,773 21,042 20,831 8.2%

TOTAL BUSINESS VOLUME 265,155 265,972 264,933 276,631 0.4%

(1) Includes loans to customers and financial assets held for trading

(2) Investment funds and companies, pension funds and bancassurance savings policies

Main solvency indicators

The table below shows Bankia Group's main solvency ratios according to the current BIS III

prudential rules on solvency, which affect the first half of 2016 and years 2015 and 2014. In this

connection, pro forma ratios have been estimated for 2013, which are shown solely for purposes of

comparison with previous years.

Solvency (%) 30/06/2016 31/12/2015 31/12/2014 31/12/2013 (2)

Chg. (p.p.)

2015 / 2014

BIS III (CRR and CRD IV)

Common Equity Tier I ratio - BIS III Phase In (1)

14.57% 13.96% 12.28% 10.45% 1.68 p.p.

Tier I Capital ratio - BIS III Phase In (1) 14.57% 13.96% 12.28% 10.45% 1.68 p.p.

Total Capital ratio - BIS III Phase In (1) 15.89% 15.24% 13.82% 10.82% 1.42 p.p.

(1) Solvency ratios include profit/(loss) attributable to the Group and discount the regulatory adjustment for the future

dividend. At 30/06/2016 they discount the proportional part of the dividends distributed against 2015 earnings (302 million

euros), i.e., 168 million euros.

Minimum requirements applicable to the Bankia Group:

- At 31 December 2015: Common equity tier 1 capital (CET-1): 10.25% (includes Pillar I, Pillar II and capital conservation

buffer).

- At 31 December 2014: Common equity tier 1 capital (CET-1): 4.5 % and Total Capital: 8% (includes Pillar I).

- At 31 December 2013, there was no regulatory minimum associated with BIS III, as these rules came into effect on 1 January

2014.

Risk management

Risk management

(figures in millions of euros and %) 30/06/2016 31/12/2015 31/12/2014 31/12/2013

Chg.

(% and

p.p.)

2015 / 2014

Total risks(1) 122,109 122,929 128,584 136,660 (4.4%)

NPLs(2) 11,751 12,995 16,547 20,022 (21.5%)

Loan loss provisions 7,141 7,794 9,527 11,312 (18.2%)

NPL ratio (%) (2) 9.6% 10.6% 12.9% 14.7% (2.3) p.p.

Coverage ratio (%) (3) 60.8% 60.0% 57.6% 56.5% 2.4 p.p.

(1) Includes loans and advances to customers and contingent liabilities

(2) NPLs / Total risks. At 30 June 2016 and 31 December 2015, the ratio includes the balances with BFA as part of total risks.

In January 2015 those balances were reclassified from deposits in credit institutions to loans and advances to customers as a

result of the change in the sector classification of BFA. If the balances with BFA are excluded from total risks, the NPL ratio

would be 9.8% at the end of June 2016 and 10.8% at the end of December 2015, ratios that are more comparable with those

recorded in the two previous years (2014 and 2013).

(3) Loan loss provisions / NPLs

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Profitability and efficiency

Profitability and efficiency

(figures in millions of euros and %) 30/06/2016 31/12/2015 31/12/2014

31/12/2013 (1)

Chg.

(% and

p.p.)

2015 / 2014

Average total assets(2) 204,133 222,397 248,770 268,666 (10.6%)

Average own funds(3) 11,761 11,537 11,256 10,657 2.5%

Gross income 1,686 3,806 4,009 3,482 (5.1%)

Administrative expenses 711 1,511 1,586 1,729 (4.7%)

Amortisation and depreciation 76 147 156 175 (5.8%)

Consolidated profit/(loss) after tax 481 1,061 771 405 37.5%

Attributable profit/(loss) 481 1,040 747 408 39.2%

ROA (%)(4) 0.5% 0.5% 0.3% 0.2% 0.2 p.p.

ROE (%)(5) 8.2% 9.0% 6.6% 3.8% 2.4 p.p.

Efficiency ratio (%)(6) 46.6% 43.6% 43.5% 54.7% 0.1 p.p.

(1) 2013 figures are restated figures from the 2013 consolidated financial statements.

(2) Average monthly closing balances of total assets.

(3) Average monthly closing balances of own funds.

(4) Consolidated profit/(loss) after tax / Average total assets. In June 2016, this was calculated using the annualised consolidated

profit after tax.

(5) Profit/(loss) attributed to parent company / Average own funds. In 2013 own funds at year-end is used because it was negative

until the capitalisation in May. In June 2016, this was calculated using the annualised attributable profit.

(6) (Administrative expenses + depreciation and amortisation) / Gross income

Share information

Share information 30/06/2016 31/12/2015 31/12/2014 31/12/2013 (2)

Chg.

2015 / 2014

Number of shareholders(1) 333,710 435,755 457,377 477,683 (4.7%)

Number of shares (millions) 11,517 11,517 11,517 11,517 -

Price at end of reporting period (euros) 0.646 1.074 1.238 1.234 (13.2%)

Market capitalisation (million euros) 7,440 12,370 14,258 14,212 (13.2%)

Earnings per share (euros)(3) 0.08 0.09 0.07 0.06 28.6%

(1) According to register of shareholders.

(2) 2013 data are subsequent to capitalisation process in May that year.

(3) In June 2016, this is calculated using annualised attributable profit. (3) December 2013 EPS are calculated as restated

attributable profit divided by the weighted average number of shares after the reverse split held in May 2013 on shares

outstanding at 1 January 2013.

In accordance with the guidelines on Alternative Performance Measures (“APM”) contained in the

report issued by the European Securities and Markets Authority (ESMA) on 5 October 2015, and

which took effect on 3 July 2016, broken down below are the unaudited alternative performance

measures:

Bankia Group alternative performance measures:

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Alternative performance measures

(figures in millions of euros and %) 30/06/2016 31/12/2015 31/12/2014

31/12/2013 (1)

Chg.

(% and

p.p.)

2015 / 2014

Pre-provision profit(2) 900 2,148 2,267 1,577 (5.2%)

Average total assets(3) 204,133 222,397 248,770 268,666 (10.6%)

Average own funds(4) 11,761 11,537 11,256 10,657 2.5%

ROA (%)(5) 0.5% 0.5% 0.3% 0.2% 0.2 p.p.

ROE (%)(6) 8.2% 9.0% 6.6% 3.8% 2.4 p.p.

Efficiency ratio (%)(7) 46.6% 43.6% 43.5% 54.7% 0.1 p.p.

Customer margin(8) 1.52% 1.51% 1.31% 0.93% 0.20 p.p.

Average return on assets(9) 1.39% 1.65% 1.88% 2.00% (0.23 p.p.)

LTD ratio (%)(10) 100.2% 101.9% 105.5% 115.4% (3.6 p.p.)

(1) 2013 figures are restated figures from the 2013 consolidated financial statements.

(2) Gross income less administrative expenses and amortisation and depreciation charges.

(3) Average monthly closing balances of total assets.

(4) Average monthly closing balances of total own funds.

(5) Consolidated profit/(loss) after tax for the period/ Average total assets. In June 2016, this was calculated using the annualised

consolidated profit after tax.

(6) Profit/(loss) attributed to the parent company for the period / Average own funds. In June 2016, this was calculated using the

annualised attributable profit. In 2013 own funds at year-end is used because it was negative until the capitalisation in May.

(7) (Administrative expenses + depreciation and amortisation) / Gross income.

(8) Annual average return on loans and advances to customers less annual average yield on customer deposits.

(9) Interest and similar income / Average total assets. In June 2016, this was calculated using the annualised interest and returns

for the period.

(10) Net loans and advances to customers excluding assets acquired under repos and balances with BFA / (customer deposits

excluding repo sale of assets + funds for mediated loans).

Millions of euros 30.06.2016 31.12.2015 31.12.2014 31.12.2013

Balances with BFA 462 1,105 -- --

Repo purchase of assets 1,851 1,096 27 26

Repo sale of assets 3,885 5,237 4,145 9,319

Funds for mediated loans 3,196 2,928 4,083 3,988

B.8 Selected pro

forma financial

information

Not applicable, as the company's Registration Document contains no pro-forma information

B.9 Profit forecasts or

estimates

Not applicable. The Company has opted not to include forecasts or estimates of future profits in the

Registration Document.

B.10 Qualifications in

audit reports

Not applicable.

The interim financial statements for the period ended 30 June 2016 and the individual and

consolidated financial statements for the years 2013, 2014 and 2015 have been audited by the

external audit firm Ernst & Young, S.L., which issued favourable unqualified audit opinions.

Nevertheless, note should be taken of the uncertainties associated with the final outcome of the

lawsuits related to the 2011 initial public offering of shares of Bankia, S.A. and the provisions set

aside by the Bank in respect of those cases.

B.17 Credit ratings

assigned to an

issuer or its debt

securities at the

request, or with

the cooperation, of

the issuer in the

rating process

Bankia has been assigned the following ratings by Standard & Poor’s and Fitch Ratings:

Bankia

Agency Long term Outlook Short term

Fitch Ratings España, S.A.U.(1) BBB- Stable F3

Standard & Poor’s Credit Market Services

Europe Limited, Branch in Spain (2) BB+ Positive B

DBRS Rating Limited BBB (high) Stable R-1 (low)

(1) Rating at 23 February 2016

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(2) Rating at 5 April 2016

(3) Rating at 8 July 2016

The aforesaid rating agencies have been registered with the European Securities and Markets

Authority in accordance with the provisions of Regulation (EC) 1060/2009 of the European

Parliament and the Council, of 16 September 2009, on credit rating agencies.

SECTION C – SECURITIES

C.1 Type and class of

securities being

offered

- Class of Securities: [straight bonds / straight debentures / subordinated bonds / subordinated

debentures / Tier 2 subordinated bonds / Tier 2 subordinated debentures / mortgage covered bonds /

mortgage bonds / public sector covered bonds / structured securities] (delete as applicable, based on

the Final Terms).

- These are securities which

– constitute a debt of the Issuer, bear interest, and may be redeemed early or at maturity; have

no in rem guarantees or third-party guarantees, and the interest is backed by all the assets

and liabilities of the issuer. (retain only in the case of Straight Bonds and Straight

Debentures).

– constitute a debt of the Issuer, bear interest, and may be redeemed early or at maturity; have

no in rem guarantees or third-party guarantees, and the interest is backed by all the assets

and liabilities of the issuer. However, given their subordinated nature, for the purpose of

priority of claims they rank behind all priority and ordinary creditors. (retain only in the

case of Subordinated Bonds, Subordinated Debentures, Tier 2 Subordinated Bonds and Tier

2 Subordinated Debentures).

– are backed by the portfolio of mortgage loans granted by the issuing company, in

accordance with the relevant legislation, bear interest, and may be redeemed early or at

maturity. (retain only in the case of Mortgage Covered Bonds and Mortgage Bonds).

– are backed in accordance with the relevant legislation by the portfolio of loans and credits

granted by the issuing company to:

(a) The national government, Autonomous Communities, local entities, and local

governments and public entities controlled by them in accordance with the

relevant legislation.

(b) Central and regional administrations, local authorities, as well as regional

agencies, public-sector enterprises and other entities of a similar nature of the

European Economic Area, as long as the loans are not linked to the financing of

contracts related to the export of goods and services or to business

internationalisation.

(retain only in the case of Public Sector Covered Bonds)

– constitute a debt of the Issuer, bear interest, may be redeemed early or at maturity, have a

return that is linked to the performance of an underlying or underlyings and may therefore

have a negative return. (retain only in the case of Structured Securities).

- The securities to be issued are not covered by the Deposit Guarantee Fund

- ISIN code: […..] (complete according to the Final Terms).

- Form of the securities: Book entries in Iberclear.

C.2 Issue currency The issue is denominated in […..] (complete according to the Final Terms).

C.3 Number of

shares issued

and paid in

Bankia's share capital at 30 June 2016 was represented by 11,517,328,544 shares, each with a face

value of 0.80 euros, fully subscribed and paid in.

C.5 Restrictions on

the free

transferability of

the securities

Under current law, there are no specific or general restrictions on the free transferability of the

securities expected to be issued, although restrictions may apply under the laws of the countries in

which the securities are offered.

C.7 Description of In accordance with the EC decision of 20 July 2012, Bankia suspended dividend distributions to its

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the dividend

policy

shareholders until 31 December 2014. Accordingly, the Bank paid out no dividends in 2011, 2012 and

2013. The restriction on dividend distributions ended 31 December 2014. As a result, Bankia's

General Meeting of Shareholders of 22 April 2015 voted to pay a gross dividend of 0.0175 euros per

share against 2014 profits. Given that at 31 December 2014 the share capital of Bankia, S.A.

comprised 11,517,328,544 registered shares, the total dividend payout against 2014 earnings

amounted to 201.6 million euros. That dividend payment was made on 7 July 2015.

Afterwards, pursuant to the resolutions adopted by the General Meeting of Shareholders of 15 March

2016, on 31 March 2016 Bankia paid out the dividend against 2015 profits to the shares entitled to

dividend as at the payment date, for an aggregate of 300.72 million euros (2.625 cents per share), an

increase of nearly 50% with respect to the dividends paid against the 2014 earnings.

Based on its capacity for organic generation of capital and the increasing strength of its balance sheet,

over the coming years the Bankia Group aims to continuing paying out dividends as one more step

toward achieving normalisation of its entire business and returning the State aid received.

C.8 Description of

the rights

attached to the

securities, the

ranking of the

securities and

any limitations

to those rights

Under applicable law the securities will not entitle investors who acquire them to any present or future

voting rights in the Issuer.

The economic and financial rights for the investor associated with the acquisition and holding of the

securities will be those arising from the terms and conditions regarding interest rate, returns and

redemption prices with which the securities are issued, which are summarised in section C.9 of this

Summary.

[A syndicate of [debenture/ bond/ covered bond] holders has been formed / No syndicate of

[debenture/ bond/ covered bond] holders has not been formed]. (Delete as applicable, based on the

Final Terms).

As regards ranking,

– In accordance with the amendment to Law 22/2003 of 9 July (the "Insolvency Law") by Law

11/2015, in the event of insolvency of the Issuer, the claims of investors will rank behind those of

any preferred creditors Bankia may have at that time, in accordance with the classification and

ranking of claims established in the Insolvency Law as amended and other applicable laws and

regulations (retain only in the case of straight bonds, straight debentures and structured securities).

– The claims of investors rank behind those of all ordinary creditors. The different subordinated

debt issues will be subject to the following rules on priority within Bankia’s subordinated debt:

(1) the principal of subordinated debt that is not additional Tier 1 or 2 capital; (2) the principal of

Tier 2 capital instruments; and (3) the principal of the additional Tier 1 capital instruments. It

ranks ahead of any equivalent of capital, mandatorily convertible debentures, preferred shares,

other preferred interests, all in accordance with the provisions of the Bankruptcy Act (keep only in the case of Subordinated Bonds or Subordinated Debentures).

– Principal and interest on the issues of mortgage covered notes will be specially guaranteed

without need of registration, by a mortgage on all those that at any time are registered in favour

of Bankia and not dedicated to the issue of mortgage bonds, without prejudice to the liability

thereof based on all of its assets and, if there are any, by replacement assets and cash flows

generated by the derivative financial instruments tied to each issue, in accordance with the

provisions of Mortgage Market Regulation Act 2/1981 of 25 March 1981, amended by Act

41/2007 of 7 December 2007 (“Act 2/198”) and of Royal Decree 716/2009 of 24 April 2009,

developing certain aspects of Act 2/1981 without prejudice to its liability based on all of its assets

(“Royal Decree 716/2009”). The holders of the mortgage covered notes will be creditors with a

special priority (keep only in the case of Mortgage Covered Notes).

– Principal and interest on the public sector covered notes will be specially guaranteed, without

need of registration, by the loans and credits extended by Bankia to:

(a) The national government, Autonomous Communities, local entities, and local

governments and public entities controlled by them in accordance with the

relevant legislation.

(b) Central and regional administrations, local authorities, as well as regional

agencies, public-sector enterprises and other entities of a similar nature of the

European Economic Area, as long as the loans are not linked to the financing of

contracts related to the export of goods and services or to business

internationalisation.

The holders of the public sector covered notes will have special priority (keep only in the case of

20/27

Public Sector Covered Notes).

The principal and interest on the issues of mortgage bonds will be specially guaranteed without need

of registration, by a mortgage on the loans and credits specified in public deeds, without prejudice to

the unlimited liability of the Issuer based on all of its assets and, if they exist, by the replacement

assets suitable to serve as collateral and the cash flows generated by the derivative financial

instruments tied to each issue, on the terms set by regulation, in accordance with the provisions of Act

2/1981 and Royal Decree 716/2009. The holders of the mortgage bonds will be creditors with a

special priority (keep only in the case of Mortgage Bonds).

C.9 Issue date of the

securities,

interest rate,

redemption, and

representation of

the holders of the

securities issued

Issue Date: (include as determined in the Final Terms)

Provisions with regard to the interest rate: (include the information contained in sections 7, 8, 9,

10 or 11 of the Final Terms, as applicable to the particular issue)

Provisions with regard to early redemption or automatic cancellation: (include only if there are

early redemption or cancellation options. Where this is the case, include the applicable elements

from section 12 of the Final Terms)

Provisions with regard to final redemption: (include the applicable elements from section 13 of

the Final Terms)

Relevant calendar for payments in relation to the issue:

Effective interest rate for the subscriber: […….] (include as determined in the Final Terms).

Representation of the holders: The syndicate of [debenture/ bond/ covered bond] holders (delete

as applicable, based on the Final Terms) for this issue has been formed and [….] (complete as

specified in the Final Terms) has been appointed Trustee.

The holders of the securities issued hereunder will be represented by an Assembly of debenture /

bond / cover bond holders. (delete as applicable according to the Final Terms).

No syndicate of [debenture/ bond/ covered bond] holders for this issue has been formed. (Delete

if the Final Terms specifically provide for the formation of a syndicate for issues of Mortgage

Covered Bonds, Mortgage Bonds or Public Sector Covered Bonds.)

C.10 Derivative

instruments

Not applicable. (where the return is not linked to an underlying)

As the return of the securities is linked to an underlying, it cannot be determined in advance and so

investors cannot know the return of the investment in advance, as it will depend on the performance of

the underlying asset on the terms of section C.9 above (applicable only when the return is linked to an

underlying asset or assets and the securities are not structured securities).

For more details, see section C.9 of this Summary. (applicable only when the return is linked to an

underlying asset or assets and the securities are not structured securities).

See section C.15 of this Summary (applicable only in the case of Structured Securities)

C.11 Admission to

trading

An application will be filed for admission to trading of the securities on the AIAF Fixed Income

Market (AIAF Mercado de Renta Fija) within a maximum of thirty (30) business days after the

closing date and in all cases before the maturity date.

C.15 Description of

how the value of

the investment is

affected by the

value of the

underlying

Not applicable as this Summary does not refer to structured securities (when the Final Terms do not

relate to Structured Securities)

Not applicable because [the securities have a minimum unit value of 100,000 euros / the minimum

subscription amount is 100,000 euros] (Where the unit face value of the securities is less than 100,000

euros or the minimum amount per subscription is 100,000 euros. Eliminate what is not applicable)

Structured securities are high-risk securities, as they may incorporate complex structures and their

performance will depend on the performance of the underlying instrument(s) over the life of the

investment. This may result in the loss of all or part of the nominal value of the security. Therefore,

the investor cannot know the yield of the investment in advance.

Whether the price of the security on the redemption date is below its nominal value will depend

essentially on the type of underlying, the performance of the underlying, [the capital barriers

(condition for recovery of the initial investment or with the possibility of limiting losses on the initial

investment)] (delete if the structured security does not include capital barriers), [the cancellation

barriers] (delete if the structured security does not include cancellation barriers), the maturity of the

securities and the final settlement. On the other hand, the amount of the coupons the investor receives

will also depend essentially on the type of underlying and its performance [as well as on the coupon

barriers (condition for receipt of coupons)] (delete if the structured security does not include coupon

21/27

barriers) (applicable only to structured securities).

For more details, see section C.9 of this Summary. (applicable only to structured securities).

C.16 Expiration or

maturity date of

the derivative

securities

Not applicable, as this Summary does not refer to structured securities (when the Final Terms do not


For more details, see section C.9 of this Summary (applicable only to structured securities).

C.17 Description of

the settlement

procedure of the

derivative

securities



The securities will be settled in cash. (where the Final Terms refer to structured securities)


C.18 Description of

the payment of

derivative

securities




C.19 Final reference

price of the

underlying




C.20 Description of

the type of the

underlying and

where

information on

the underlying

asset can be

found

Not applicable, as the present summary does not refer to structured securities (where the Final Terms

do not refer to structured securities)


SECTION D — RISKS

D.1 Key information

on the key risks

that are specific

to the issuer or

its industry

Bankia, S.A., Bankia, S.A. states that in the information contained in this section it has taken into

account any instructions and recommendations received (from its prudential supervisors; i.e. the

European Central Bank and the Bank of Spain) capable of having material impact on the financial

statements and on the risks described below.

(A) Requirements on solvency, capital and eligible liabilities

(i) Regulatory solvency and capital requirements are increasingly stiff and possible new

requirements could negatively affect the operations of the Bankia Group and its businesses

The current rules on solvency, known as Basel III (“BIS III”), have strengthened the minimum capital

requirements of Pillar I, add new capital requirements in the form of capital buffers, lay down stricter

criteria for inclusion and eligibility of capital items and increases the items that reduce own funds,

especially Common Equity Tier 1 capital (CET1).

In addition, after the supervisory review process known as “SREP” carried out by the ECB for the

first time in 2015, European financial institutions were notified of a new regulatory minimum

requirement known as Pillar II, which is in addition to the Pillar I requirements established in the CRR

and on top of which there come the additional capital buffer requirements.

(ii) European regulations on resolution of financial institutions provide further requirements on

capital and eligible liabilities that may increase funding costs and reduce the Bankia

Group's margins.

Since 1 January 2016, European rules on resolution of banks (Directive 2014/59/EU or "BRRD")

have implemented new requirements on capital and eligible liabilities called Minimum Required

Eligible Liabilities (“MREL”) so that banks have the liabilities needed to absorb losses in 'bail-in'

situations (internal mechanism to ensure loss-sharing with the shareholders and creditors of a non-

viable bank, without drawing on the Single Resolution Fund (SRF)). However, there remains

indefinition as to the potential negative impact of the MREL requirements and as to the eligible

liabilities.

(iii) Lack of continuity of a stable solvency regulatory framework could have a negative effect on

the business model, future earnings and financial position of the Bank and could therefore

22/27

render incorrect the solvency ratios calculated and planned by the institution.

The Bank is subject to a broad regulatory and supervisory framework that is still in the development

and implementation phase. Two key points bear emphasis: both Regulation No 575/2013 on

prudential requirements for credit institutions and investment firms (“CRR”) and Directive

2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit

institutions and investment firms (“CRD IV”) must be complemented by the development of

regulatory technical standards (RTS) and a review of the BIS III regulatory framework.

(B) Acquisition by the FROB of BFA’s capital and Restructuring Plan

(i) The interests of the FROB, as a government entity, may not be the same as those of Bankia

and its minority shareholders, especially considering that the FROB controls other banking

groups, currently undergoing restructuring that are competitors of Bankia.

(ii) Bankia is in the midst of a restructuring process; if it fails to comply with the Restructuring

Plan, the Bank of Spain could order its resolution.

On 15 November 2012, the BFA-Bankia Group submitted to the FROB and the Bank of Spain its

restructuring plan (“Restructuring Plan”). In the event of a major failure by Bankia to meet the

deadlines or implement the measures laid down in the Restructuring Plan or other serious non-

compliance, the Bank of Spain could, in the last instance, initiate the resolution of Bankia, which

could eventually entail the sale of its business or the transfer of its assets and liabilities to another

entity.

(iii) Any adjustments to the valuation of assets transferred to SAREB could negatively impact the

Bankia Group

On 31 December 2012, the Bankia Group executed an asset transfer agreement with SAREB whereby

it assigned to the latter resident loans to construction and property development companies as from

250,000 euros and foreclosed real estate assets in Spain of more than 100,000 euros, thereby reducing

the real estate exposure of the BFA-Bankia Group.

(iv) An adverse outcome of the ongoing administrative, legal and arbitration procedures relating

to the marketing and management of hybrid instruments and the Restructuring Plan could

have a negative impact on Bankia's financial position.

In the event of an unfavourable outcome for the BFA-Bankia Group in the civil suits currently in

progress in relation to hybrid instruments (preferred participating securities and subordinated

debentures) and in the applications brought in commercial courts for injunctions in relation to certain

issues of those instruments, the BFA-Bankia Group could be required to bear new costs in the

execution of the possible unfavourable judgments that could be handed down with respect to those

securities.

(v) Risk of losses from legal and regulatory proceedings

The most significant legal and regulatory proceedings in which Bankia is involved are the criminal

and civil cases brought against the Company in relation to (i) the acquisition of Bankia shares in its

initial public offering in July 2011, including those relating to subsequent purchases and claims by

institutional investors, including qualified investors, (ii) the management of the hybrid instruments

(preferred participating securities and subordinated debt) and (iii) 'floor interest rate' clauses in

mortgage loans. Such events could have a negative effect on the Group's business, financial position

and the results of its operations.

(C) New regulations on resolution of banks and investment firms

(i) The Bankia Group in the future could find itself subject to a new resolution procedure under

the new bank resolution rules

(D) Credit risk, real estate, liquidity, market and interest rate risks

(i) Credit risk

(ii) Impact of reclassification of refinancing and restructuring operations

(iii) Risk deriving from the elimination of floor clauses

(iv) Impact on Bankia of the entry into force of Circular 4/2016

(v) Exposure to real estate construction and development risk in Spain makes the Bankia Group

vulnerable to changes in Spanish real estate prices

(vi) Liquidity risk

(vii) Market risk

(viii) Bankia’s business is sensitive to interest rates

23/27

(ix) Ratings

(E) Risk factors associated with the macroeconomic environment in which Bankia

operates

(i) Sovereign risk within the European Union

(ii) Bankia's activity is concentrated in Spain, so a loss of confidence in the Spanish economy

and financial system could affect the business and its results

(F) Other risks

(i) Risk of increased cost of and dependence on retail funding

(ii) Risk of increased cost of and a lack of access to wholesale funding

(iii) Operational risk

(iv) Risk of reduced fee income

(v) Risk of equity investments

(vi) The Bank’s success is based on its executives and skilled employees

(vii) Risks not identified or foreseen in the risk management and control policy

(viii) Changes in regulatory frameworks and regulatory risk

(ix) Exposure to the risk of insolvency of other financial institutions

D.3 Key information

on the main risks

which are

specific to the

securities

Liquidity risk or representativeness of the securities in the market

Liquidity risk is the risk that investors will not find a counterparty for the securities. The securities

issued under this Base Prospectus will be newly issued and so may not be very widely distributed,

with the result that there may not yet be an active trading market for them. The securities issued under

this Base Prospectus are expected to be listed and traded on the AIAF fixed income market and

possibly on other official secondary markets, although no assurance can be given that they will be

actively traded in the market. Nor can assurances be given as to the development or liquidity of

trading markets for each issue in particular.

Risk of changes in the credit quality of the issuer and of the securities

A company’s credit quality is measured by its capacity to meet its financial obligations and may

deteriorate as a result of an increase in borrowing or deterioration in the company’s financial ratios, in

which case the Issuer would be unable to meet its contractual obligations.

Credit ratings are a way of measuring risk and the greater the risk, the higher the return required by

investors in the market. In particular, investors should assess the likelihood of a downgrade of the

Issuer or the securities (if they have a rating), which could result in a loss of liquidity in the market

and a loss of value.

Bankia has been assigned the following ratings by Standard & Poor’s and Fitch Ratings:

Bankia

Agency Long term Outlook Short term

Fitch Ratings España, S.A.U.(1) BBB- Stable F3

Standard & Poor’s Credit Market Services

Europe Limited, Branch in Spain (2) BB+ Positive B

DBRS BBB (high) Stable R-1 (low) (1) Rating at 23 February 2016 (2) Rating at 5 April 2016

(3) Rating at 8 July 2016

The abovementioned rating agencies have been registered with the European Securities and Markets

Authority (ESMA) as required under Regulation (EC) no. 1060/2009 of the European Parliament and

of the Council of 16 September 2009 on credit rating agencies.

However, there can be no assurance that the above ratings assigned by the credit risk rating agencies

will be maintained throughout the period of validity of the Base Prospectus.

The risk of changes in the Issuer’s credit rating is due to the possibility that the credit rating may

revised upward or downward, suspended or even withdrawn by the rating agency at any time.

A downgrade, suspension or withdrawal of a credit rating by a rating agency could make it difficult

for Bankia to access international debt markets and so could affect its wholesale funding capacity. A

24/27

rating downgrade could also give rise to new contractual obligations linked to Bankia’s credit rating.

Subordinated and straight debentures and bonds are subject to loss absorption measures should

they no longer be viable

On 15 April 2014, the European Parliament approved the Bank Recovery and Resolution Directive

2014/59/EU (“BRRD”), effective as from January 2015. The new Directive lays down the 'bail-in'

internal mechanism for allocating losses to shareholders and creditors when a bank faces severe

difficulties, with the aim of minimising the impact and the cost for taxpayers when a bank is

considered non-viable.

BRRD modifies the legal rules on loss absorption in Spain laid down in Law 9/2012 of 14 November

on restructuring and resolution of credit institutions (“Law 9/2012”). In accordance with Law 9/2012,

the Group submitted its restructuring plan to the Fund for Orderly Bank Restructuring (“FROB”) and

to the Bank of Spain.

BRRD has been transposed into Spanish law by Law 11/2015, which, save as provided for in its

transitional provisions, repeals Law 9/2012, and by Royal Decree 1012/2016 of 6 November, which

implements Law 11/2015 (“RD 1012/2015”).

Notwithstanding the introduction of Law 11/2015, Bankia's restructuring and process and

restructuring plan will continued to be governed by that Law and Law 9/2012, in accordance with the

provisions of the First Transitional Provision of Law 11/2015 which states that "The restructuring and

resolution procedures initiated before the Law comes into force and all accompanying accessory

measures, including the instruments of financial support and management of hybrid instruments, will

remain in force until complete, under the regulations applying prior to this Law coming into force".

Notwithstanding the above, in the future, Bankia could be subject to a new resolution plan which may

be approved under the new framework established by Law 11/2015. The Issuer could request that

these loss absorption measures be applied or the Bank of Spain could impose them as the Spanish

preventive resolution authority, pursuant to Act 11/2015, or the FROB as the executive resolution

authority, pursuant to Act 11/2015, if: (i) the Issuer or its group breached (or there was sufficient

objective grounds to reasonably consider that it could be in breach of) the statutory requirements

concerning solvency, liquidity, internal structure and internal controls; (ii) if the Issuer needs public

funding support to guarantee its viability; or (iii) if the Issuer is not viable. In any of the above cases,

the Issuer may be subject to early action, preventative resolution phase or resolution processes (in

accordance with the definitions outlined in Law 11/2015).

Restructuring and resolution procedures may involve the application of loss absorption measures

which might include the following, among others: (i) the extension, suspension, elimination, or

modification of certain rights, obligations, terms, and conditions of any subordinated or

unsubordinated debentures (except secured debt such as public sector or international covered or

mortgage bonds), (ii) the repurchase of any subordinated or unsubordinated debt (except secured debt

such as public sector or international covered or mortgage bonds) at a price established by the Bank of

Spain or the FROB, (iii) the exchange of subordinated or unsubordinated debentures or bonds (except

secured debt such as public sector or international covered or mortgage bonds) issued for the Issuer's

equity instruments, (iv) the amortisation of interest and/or principal amounts of the subordinated or

unsubordinated bonds and debentures (except secured debt such as public sector or international

covered or mortgage bonds), and (v) the bailout of any subordinated or unsubordinated debt (except

secured debt such as public sector or international covered or mortgage bonds).

According to Law 11/2015, the adoption of any early intervention measure, restructuring or resolution

procedure of such nature will not on its own trigger a default event. But this does not limit a

counterparty's capacity to declare some other event of default and enforce its rights subsequent to a

default event, whether before or after the application of any early intervention, restructuring or

resolution measure.

Enforcement of the rights of a holder of bonds or debentures in a default event after the application of

any resolution procedure will be subject to the relevant provisions of the BRRD, Law 11/2015 and RD

1012/2015 in relation to exercise of the measures and rights according to said procedure, including the

resolution instruments. Any claim arising from a default event would therefore be limited by the

application of any provision under Law 11/2015 and RD 1012/2015. No assurances can be given that

the adoption of such measure will not negatively affect the rights of the holders of the debt securities,

the price or value of their investment in the securities and/or the issuer's capacity to meet its

obligations under the notes, and exercise by debtholders of the rights they would otherwise have in a

default event might be limited in these circumstances.

Hence, subordinated or unsubordinated bonds and debentures (except secured debt such as public

25/27

sector or international covered or mortgage bonds) are subject to depreciation or loss absorption if

they reach the point of non-viability, or in cases of recapitalisation or in conformity with loss abortion

measures set forth in Law 11/2015, by virtue of which holders of these debentures or bonds might lose

all or a part of their investment. Therefore, the exercise or mere suggestion of exercise of these rights

may lead to significant loss in value of the bonds and debentures (except secured debt such as public

sector or international covered or mortgage bonds). Nonetheless, determining whether an entity is or is

not viable depends on a number of factors which might escape its control.

Notwithstanding the enactment of Law 11/2015, application of the capital and loss-absorption

requirements of the BRRD in Spain is still pending and subject to the interpretation by the Bank of

Spain.

Risks of subordination and ranking of investors in the event of insolvency

If the Issuer becomes insolvent, the risk for investors will depend on whether the bonds and

debentures are subordinated or not.

In accordance with amendments made to the Insolvency Law by Law 11/2015, of 18 June, on

recovery and resolution of credit institutions and investment firms ("Law 11/2015"), straight bonds

and debentures and structured securities will rank behind privileged creditors, pari passu with all other

ordinary creditors, and ahead of subordinated creditors. The holders of bonds and debentures,

whatever the issue date of the securities, will have no preference over other senior debt, in whatever

form and on whatever date this debt may be issued.

Subordinated bonds and debentures will rank behind ordinary and privileged creditors and ahead of

any type of instruments similar to capital, mandatorily convertible debentures, preference shares and

preferred participating securities. The subordinated bonds and debt will have the following preference

among themselves:

– The principal of the subordinated debt that is not additional Tier 1 or 2 capital in accordance

with Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26

June2013 on prudential requirements for credit institutions and investment firms and

amending Regulation (EU) 648/2012 and its implementing regulations.

– The principal of Tier 2 capital instruments and

– The principal of additional Tier 1 capital instruments.

Subordinated debt issued under this Base Prospectus cannot qualify as additional Tier 1 capital by

virtue of the characteristics required.

In accordance with article 14 of Law 2/1981 of 25 March on the mortgage market, the holders of

mortgage bonds will have the status of special preferred creditors indicated by article 1923.3 of the

Civil Code, vis-à-vis all other creditors, in respect of any mortgage loans and credits in the cover pool,

any substitute assets and any cash flows generated by the financial derivatives linked to each issue.

The holders of the mortgage bonds included in an issue will be senior to the holders of mortgage

covered bonds when their claims in respect of a loan or credit backing said issue coincide. If the Issuer

becomes insolvent, the holders of mortgage bonds will have a special senior claim to the proceeds of

the mortgage loans of the Issuer, in accordance with article 90.1.1 of the Insolvency Law.

In accordance with article 14 of Law 2/1981 of 25 March on the mortgage market, the holders of

mortgage covered bonds (cédulas hipotecarias) will also have the status of special preferred creditors

indicated by article 1923.3 of the Civil Code, vis-à-vis all other creditors, in respect of all the

mortgage loans and credits registered in favour of Bankia that are not already used as collateral for

mortgage bonds and/or mortgage participations and/or mortgage transfer certificates, in relation to

substitute assets and to cash flows generated by the financial derivatives linked to each issue, if such

exist. If the Issuer becomes insolvent, the holders of mortgage bonds will have a special senior claim

to the proceeds of the mortgage loans of the Issuer, in accordance with article 90.1.1 of the Insolvency

Law. All holders of covered bonds, whatever the date of issue, will have the same priority of claim in

respect of the loans and credits in the cover pool, any substitute assets and any cash flows generated

by the financial derivatives linked to each issue.

Pursuant to article 13 of Law 44/2002 of 22 November on Financial System Reform Measures (“Law

44/2002”), the holders of public sector covered bonds (cédulas territoriales) will have a preferential

claim to amounts payable to Bankia by central, regional and local government, non-government

agencies and any public-sector enterprises controlled by them, and by any other entities of a similar

nature in the European Economic Area, on the terms of article 1922 of the Civil Code. Said claim will

be enforceable on the terms set forth in the Civil Procedure Act. If the Issuer becomes insolvent, the

holders of public sector covered bonds will have a special senior claim to amounts payable to the

issuer by public-sector entities, in accordance with article 90.1.1 of the Insolvency Law. All holders of

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covered bonds, whatever the date of issue, will have the same priority of claim in respect of the loans

and credits in the cover pool

[Establishment of a floating interest rate / Fixed interest rate of securities subject to subsequent

fluctuations] (delete as applicable) might affect the market value of securities

Interest rate changes [updatable fixed/floating] (delete as applicable) may result in an interest rate

which is lower than at first, which might affect the securities' market value

(Delete when the issue does not have a floating or updatable interest rate)

Risk of [early redemption/ early cancellation] (delete as applicable) of the securities

[The issuer may redeem the securities early / The securities may be cancelled automatically (see

summary of grounds for early cancellation in section C.9 of this Summary)]. In this case, the investor

may not be able to reinvest the early [redemption / cancellation] proceeds in similar securities at the

same interest rate (delete as applicable. Delete if the issue includes no early redemption or automatic

cancellation option).

Market risk

Market risk refers to the risk generated by variations in general market conditions compared to the

investment conditions. Issues of straight bonds and debentures, subordinated bonds and debentures,

mortgage and public sector covered bonds and structured securities are subject to possible fluctuations

in market price, mainly due to interest rate behaviour and investment duration (a rise in interest rates

would entail a fall in market prices), and may fall below their face value or their acquisition or

subscription price.

Currency risk

The securities may be denominated in any currency of legal tender in the OECD. Investors in

securities denominated in a currency other than their local currency bear the additional risk of

variations in the exchange rate. The Government or monetary authorities may impose controls on

exchange rates that could have a negative effect on an applicable exchange rate or on the issuer's

capacity to make payments in respect of the securities. Investors may suffer losses in the amount they

invest even if the redemption price is at par or higher if the exchange rate moves unfavourably.

D.6 Key information

on the main risks

which are

specific to the

securities

Risk of loss of principal for structured securities

Not applicable, as they are not structured securities (Delete if they are structured securities).

Investors are warned that they may lose up to [X] % of their investment. (complete according to

the chosen structure, as described in the Final Terms) (applicable only when the securities are

structured)

Structured securities are high-risk securities (they have complex structures, which in many cases

involve trading in derivatives) which can generate positive returns but also losses of principal. If at the

redemption date the redemption price is below the nominal value and/or the cash price paid by the

investors, investors may lose part of the principal amount they invested. If the redemption price is

zero, 100% of the principal may be lost. (only applicable for structured securities)

SECTION E — OFFER

E.2

b

Reasons for the

offer and use of

proceeds

The reasons for the issue and use of the proceeds are [.....] (Complete as specified in the Final Terms)

E.3 Conditions of the

offer

Amount of the Offer

Aggregate nominal amount:

Aggregate cash amount:

Nominal amount per security:

Number of securities:

Issue price

Subscription:

– Potential subscribers to whom the Issue is addressed: [……..] (Complete as specified in the

Final Terms)

– Minimum/Maximum subscription amount: (Complete as specified in the Final Terms)

Distribution and placement:

– Processing of subscriptions: [……..] (Complete as specified in the Final Terms)

– Procedure for allotment and placement of the securities [……..] [……..] (Complete as

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specified in the Final Terms)

– Closing date: [……..] (Complete as specified in the Final Terms)

– Lead managers: [……..] (Complete as specified in the Final Terms)

– Underwriters: [……..] (Complete as specified in the Final Terms)

Dealers: [……..] (Complete as specified in the Final Terms)

E.4 Interests that are

material to the

offer, including

conflicting

interests

(Complete as specified in the Final Terms)

E.7 Expenses

charged to the

investor

No subscription fees or expenses will be charged to subscribers, as they will be borne by the Issuer.

Nor will Bankia, as the issuer, charge any redemption fee. For all other fees the Schedule of Fees will

apply (available at www.bankia.es).

The securities will be represented by book entries and all expenses arising from registration at the

central register of Iberclear will be for the account of the Issuer or, where applicable, the entity

responsible for keeping the accounting register for the issue. In accordance with applicable law, the

affiliated entities of Iberclear may establish such fees and charges for administration of the securities

as they freely determine, so long as the fees and charges are notified to the Bank of Spain or the

CNMV and are paid by the holders of the securities.

Investors may consult the applicable fees and charges in the schedules of fees and charges that all

entities supervised by the Bank of Spain and the CNMV are required by law to publish. Copies of

these schedules of fees and charges may be consulted at the abovementioned supervisory bodies.

In Madrid, 6 October 2016

Bankia, S.A.

_____________________________

Mr. Sergio Durá Mañas

Chief Accounting and Information Officer

FIRST SUPPLEMENT TO THE BASE PROSPECTUS FOR NON … · Date: 28/09/2016 Number: 243186 Description:...

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Transcript of FIRST SUPPLEMENT TO THE BASE PROSPECTUS FOR NON … · Date: 28/09/2016 Number: 243186 Description:...