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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. Russia’s
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 Group’s credit risk
indicators
The evolution of the Group’s 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).
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