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Risk management
Credit risk
In addition to the significant macroeconomic
challenges posed by the COVID-19 pandemic, the global economy is currently facing a number of exceptional challenges. Russias invasion of Ukraine has caused significant disruption, instability and
volatility in the world markets, as well as increased inflation (including contributing to further increases in oil, gas and other commodity prices and further affecting supply chains), and lower economic growth, which has additionally led to
aggressive interest rate hikes by central banks that could affect the most leveraged companies, as well as strain the ability of individuals to pay.
In relation to the relief measures for customers affected by the pandemic, and in the second instance, affected by the economic effects derived from the
war in Ukraine, in Spain and Peru, the possibility of carrying out extensions both in the maturity period as well as in the grace period in financing with public guarantees are still in force. In Spain, they can be requested by companies and
self-employed from June 30, 2022, after the expiration of the Temporary State Aid Framework approved by the European Commission, and in Peru, the Decree was approved in May, with eligibility in this measure in place until June 30, 2023
after the extension of the initial period that ended on December 31, 2022.
In addition, on November 23, 2022, Royal Decree-Law 19/2022, of November 22, was published. It amends the Code of Good Practices, establishes a new Code of Good Practices easing the interest rates hike on mortgage loans agreements related to primary
residences, and provides for other structural measures aiming to improve the loan market. BBVA has adhered to the new Code of Good Practices with effect from January 1, 2023.
Regarding the direct exposure of the Group to Russia and Ukraine, this is limited for BBVA, although the Group has taken different measures aimed at
reducing its impact, among which are the initial lowering of limits followed by the suspension of operations with Russia, the lowering of internal ratings and the inclusion of the country and its borrowers as impaired for subjective reasons.
However, the indirect risk is greater due to the activity of customers in the affected area or sectors. The economic effects are mainly shown through
higher commodity prices, but also through financial and confidence channels, as well as a further deterioration of global supply chain issues.
Calculation of expected losses due to credit risk
In addition to the individualized and collective estimates of the expected losses and the macroeconomic estimates in accordance with what is described in
IFRS 9, the estimate at the end of the quarter includes the effect on the expected losses of the macroeconomic forecasts update, which considers the current global environment, which has been affected by the war in Ukraine, the evolution of
interest rates, inflation rates or the prices of commodities.
Additionally, the Group can supplement the expected losses either by the consideration
of additional risk drivers, the incorporation of sectorial particularities or that may affect a set of operations or borrowers, following a formal internal process established for the purpose.
During 2022, in the case of Spain, the expected losses of operations considered unlikely to pay were reviewed with an additional provision of 250 million in the income statement for the year 2022, of which 117 million euros correspond to the last quarter.
The complementary adjustments pending allocation to specific operations or clients as of December 31, 2022 totaled 302 million, of which 163 million correspond to Spain, 92 million to
Mexico, 25 million to Peru, 11 million to Colombia, 5 million to
Chile and 6 million to Rest of Business of the Group. In comparison, as of December 31, 2021, the complementary adjustments pending allocation to specific operations or clients
amounted to 311 million, of which 226 million corresponded to Spain,
68 million to Mexico and 18 million euros to Peru. The variation in the year is due to, on the one hand, the revision or partial
consumption of the adjustments that were deemed necessary in connection with payment deferrals, public guarantees or sectors most affected by the pandemic and, on the other hand, the additional losses amounting to 150 million relating to exposures to the corporate portfolios mainly of Spain, Mexico, Peru and Colombia (wholesale borrowers and small and medium enterprises) and Rest of Business of the Group,
which could be more affected by the economic context of high inflation, interest rates or energy prices.
BBVA Groups credit risk
indicators
The evolution of the Groups main credit risk indicators is summarized below:
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Credit risk declined by 1.0% (+2.6% at constant exchange rates) between October and December 2022, with an almost
generalized growth, at constant exchange rates at Group level, although Spain was affected by the lower volume of corporate and investment banking operations. |
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Reduction in the balance of non-performing loans at Group level between October
and December 2022 (-4.6% in current terms and -1.4% at constant rates), positively affected by a non-performing loan portfolio
sale in Spain and the foreign exchange rates evolution. Compared to the end of December 2021, the amount of non-performing loans decreased by 6.3% (-6.6% at constant
exchange rates). |