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BBVA : Implementation of IAS 29 to BBVA Turkey Financial Statements

06/28/2022 | 01:22pm EST

Implementation of IAS 29 to BBVA Turkey Financial Statements

June 28th, 2022

2

Disclaimer

This document is only provided for information purposes and does not constitute, nor should it be interpreted as, an offer to sell or exchange or acquire, or an invitation for offers to buy securities issued by any of the aforementioned companies. Any decision to buy or invest in securities in relation to a specific issue must be made solely and exclusively on the basis of the information set out in the pertinent prospectus filed by the company in relation to such specific issue. No one who becomes aware of the information contained in this document should regard it as definitive, because it is subject to changes and modifications.

This document contains or may contain forward looking statements (in the usual meaning and within the meaning of the US Private Securities Litigation Reform Act of 1995) regarding intentions, expectations or projections of BBVA or of its management on the date thereof, that refer to or incorporate various assumptions and projections, including projections about the future earnings of the business. The statements contained herein are based on our current projections, but the actual results may be substantially modified in the future by various risks and other factors that may cause the results or final decisions to differ from such intentions, projections or estimates. These factors include, without limitation, (1) the market situation, macroeconomic factors, regulatory, political or government guidelines, (2) domestic and international stock market movements, exchange rates and interest rates, (3) competitive pressures, (4) technological changes, (5) alterations in the financial situation, creditworthiness or solvency of our customers, debtors or counterparts. These factors could cause or result in actual events differing from the information and intentions stated, projected or forecast in this document or in other past or future documents. BBVA does not undertake to publicly revise the contents of this or any other document, either if the events are not as described herein, or if such events lead to changes in the information contained in this document.

This document may contain summarized information or information that has not been audited, and its recipients are invited to consult the documentation and public information filed by BBVA with stock market supervisory bodies, in particular, the prospectuses and periodical information filed with the Spanish Securities Exchange Commission (CNMV) and the Annual Report on Form 20-F and information on Form 6-K that are filed with the US Securities and Exchange Commission.

Distribution of this document in other jurisdictions may be prohibited, and recipients into whose possession this document comes shall be solely responsible for informing themselves about, and observing any such restrictions. By accepting this document you agree to be bound by the foregoing restrictions.

3

Background Information on Hyperinflation Accounting

CONTEXT

In a hyperinflationary economy, the currency loses purchasing power.

Hyperinflationary accounting aims to show the Financial Statements in real terms, allowing for a proper comparison with previous periods.

WHEN TO APPLY IT?

According to IAS 29, the need to adopt hyperinflationary accounting is determined by the economic environment. Among others, there is one criteria (necessary but not sufficient) that refers to a higher than 100% cumulative inflation in a 3 year period.

SITUATION IN TURKEY:

As of Feb 2022, cumulative inflation in Turkey during the last 3 years had already surpassed 100%. Audit firms have publicly stated that hyperinflation accounting should be applied in Turkey as of June 30th, 2022. IAS 29 prefers all affected entities to apply it at the same time (previous consensus among stakeholders).

BBVA Group will apply hyperinflationary accounting in Turkey1 in 2Q22 with effects from

Jan 1st, 2022 according to IAS 29 accounting standard.

  • BBVA will apply IAS 29 to its Group entities in Turkey. IAS 29 will not apply to the operations outside Turkey, in particular to the financial statements of Garanti Bank in Romania and Garantibank International N.V in the Netherlands.

4

Hyperinflation Accounting (HA) main implications

BALANCE SHEET REVALUATION

1st implementation (Jan 1st, 2022): Positive in Equity & Capital (net of tax effect).

  • Non-MonetaryAssets (NMA) revaluation from historical value based on accumulated inflation, with the limit of its fair value.
  • The value of the inflation linked bonds (CPI linkers) in the Held To Collect portfolio is updated according to the inflation rate by year end 2021 (vs as of Oct'21 previously).

On-goingquarterly revaluation of NMA based on inflation rate in the period, with the limit of its fair value. Positive in Equity & Capital (net of tax effect).

P&L RE-EXPRESSION

Net Monetary Position (NMP) value loss due to the inflation in the period is registered in the P&L ("Other operating income and expenses" heading) with positive adjustment in "Other Comprehensive Income" (OCI). Negative on P&L. Neutral on

Equity and Capital.

CPI linkers accrual based on current period inflation is registered in "Other Operating Income and Expenses" heading (reclassified from NII) as they are considered a protective asset against inflation, partially offsetting the value loss of the NMP.

Re-expression of all P&L headings according to end of period inflation.

Re-expressed P&L is converted into € using the closing exchange rate (vs. average FX previously).

Balance Sheet

NON MONETARY ASSETS

EQUITY

NMP = Net Monetary Position

MONETARY ASSETS

MONETARY

including CPI Linkers

LIABILITIES

Net Monetary Position (NMP) =

Monetary Assets - Monetary Liabilities

5

BBVA Turkey hyperinflation accounting impacts as of Mar'22 (pro-forma):

Positive on Book Value, Negative on P&L

Positive impact on Book Value

Negative impact on P&L from the Net Monetary Position loss

(neutral on capital), partially offset by CPI linkers revenue

BBVA Turkey: Book Value (€ Mn)

BBVA Turkey: Net Attributable Profit (€ Mn)

+254 Mn€

Accrual in 1Q22

at 22.8% vs.

previous 8.8%

As of March 31st, 2022:

  • Net Monetary Position: ~ 4.7 Bn€

CPI linkers portfolio: ~ 3.6 Bn€

  1. The NMP loss is not tax deductible.

In 2022, earnings contribution from BBVA Turkey is expected to be non material

according to our year end inflation forecast (around 60%)

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

BBVA - Banco Bilbao Vizcaya Argentaria SA published this content on 28 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 June 2022 17:21:06 UTC.


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