By Pietro Lombardi

Banco Bilbao Vizcaya Argentaria SA has a lot of capital to spend and will use it to remunerate shareholders through a mix of dividends and buybacks, while fostering growth and cutting costs.

The Spanish bank has emerged from a year marked by the impact of the coronavirus pandemic with roughly 8.5 billion euros ($10.30 billion) in capital to spend. The windfall comes from the $11.6 billion sale of its U.S. business, which it agreed to in November and should be completed around the middle of the year.

Part of the funds will be used to buy back around 10% of its shares, a plan the should be launched once the sale of the U.S. subsidiary is completed. Shareholders will also receive a cash dividend of EUR0.059 a share for 2020, while the bank will return to its policy of paying 35% to 40% of profits in dividends. Shareholders may also receive extraordinary dividends or a bigger buyback.

These moves come after merger talks with smaller peer Banco de Sabadell SA failed and the European Central Bank lifted its dividend ban, although with some restrictions remaining.

Capital returns is a key factor for European banks to attract investors. The region's lenders have struggled with low interest rates eating away at their profit margins for years, and the coronavirus pandemic has compounded these challenges, forcing them to set aside billions of dollars ahead of an expected wave of loan losses sparked by the crisis.

Chief Executive Onur Genc didn't exclude the possibility of looking at other M&A operations, but added that any deal would be considered just if it created value.

"We don't rule out anything," he said on M&A in a call with analysts. However, "we won't do M&A just because we have excess capital."

If no such a project will emerge, more resources could go toward shareholders returns, for example with a larger buyback.

BBVA will also use its firepower to tackle costs, with some measures expected in the first half of the year.

"We are exploring all alternatives on costs, including a fast restructuring program," Mr. Genc said.

BBVA raised its capital target, now targeting a core tier 1 ratio--a key measure of capital strength--of between 11.5% and 12%, from the previous 10.84% to 11.34%. The bank's core tier 1 ratio was 11.73% at the end of December from 11.52% in September.

The lender posted fourth-quarter net profit of EUR1.32 billion compared with a loss of EUR155 million a year earlier.

For the whole of 2020, profit fell roughly 63% to EUR1.31 billion. Excluding one-offs, the bottom line declined 36% to EUR3.08 billion.

Write to Pietro Lombardi at pietro.lombardi@wsj.com; @pietrolombard10

(END) Dow Jones Newswires

01-29-21 0731ET