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BBVA Argentina (BBAR)

Filed: 27 Apr 20, 8:36am
Table of Contents

As filed with the Securities and Exchange Commission on April 27, 2020

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM20-F

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:001-12568

 

 

BANCO BBVA ARGENTINA S.A.

(Exact name of Registrant as specified in its charter)

 

 

BBVA ARGENTINE BANK

(Translation of Registrant’s name into English)

Republic of Argentina

(Jurisdiction of incorporation or organization)

Av. Córdoba 111, C1054AAA

Ciudad Autónoma de Buenos Aires, Argentina

(Address of principal executive offices)

Eduardo González Correas – 011-54-11-4348-0000 (ext. 14483) – egonzalezcorreas@bbva.com – Av. Córdoba 111 31° (C1054AAA)
Ciudad Autónoma de Buenos Aires, Republic of Argentina

(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares, each representing the right to receive three ordinary shares, par value Ps.1.00 per share New York Stock Exchange
Ordinary shares, par value Ps.1.00 per share New York Stock Exchange*

 

*

The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Title of class

 

Number of shares outstanding

Ordinary Shares, par value Ps.1.00 per share 612,710,079

 

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ☐  Yes    ☒  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   Accelerated filer  Non-accelerated filer 
     Emerging growth company 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐ International Financial Reporting Standards by the International Accounting Standards Board as issued      Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.     ☐  Item 17    ☐  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

 

 

 

 


Table of Contents

TABLE OF CONTENTS

 

   Page 

FORWARD-LOOKING STATEMENTS

   1 

PRESENTATION OF FINANCIAL INFORMATION

   1 

CERTAIN TERMS AND CONVENTIONS

   3 
PART I    

ITEM 1.

 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   3 

ITEM 2.

 OFFER STATISTICS AND EXPECTED TIMETABLE   3 

ITEM 3.

 KEY INFORMATION   3 

ITEM 4.

 INFORMATION ON THE COMPANY   30 

ITEM 4A.

 UNRESOLVED STAFF COMMENTS   108 

ITEM 5.

 OPERATING AND FINANCIAL REVIEW AND PROSPECTS   108 

ITEM 6.

 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   144 

ITEM 7.

 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   158 

ITEM 8.

 FINANCIAL INFORMATION   160 

ITEM 9.

 THE OFFER AND LISTING   161 

ITEM 10.

 ADDITIONAL INFORMATION   165 

ITEM 11.

 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   176 

ITEM 12.

 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   185 
PART II    

ITEM 13.

 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   187 

ITEM 14.

 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   187 

ITEM 15.

 CONTROLS AND PROCEDURES   187 

ITEM 16A.

 AUDIT COMMITTEE FINANCIAL EXPERT   189 

ITEM 16B.

 CODE OF ETHICS   189 

ITEM 16C.

 PRINCIPAL ACCOUNTANT FEES AND SERVICES   190 

ITEM 16D.

 EXEMPTIONS FROM LISTING REQUIREMENTS FOR AUDIT COMMITTEES   191 

ITEM 16E.

 PURCHASES OF EQUITY SECURITIES BY ONE ISSUER AND AFFILIATED PERSONS   191 

ITEM 16F.

 CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   191 

ITEM 16G.

 CORPORATE GOVERNANCE   191 
PART III    

ITEM 17.

 FINANCIAL STATEMENTS   194 

ITEM 18.

 FINANCIAL STATEMENTS   194 

ITEM 19.

 EXHIBITS   194 


Table of Contents

FORWARD-LOOKING STATEMENTS

This Form20-F contains words, such as “believe”, “expect”, “estimate”, “intend”, “plan”, “may” and “anticipate” and similar expressions that identify forward-looking statements, which reflect our views about future events and financial performance. Actual results could differ materially as a result of factors beyond our control, including but not limited to:

 

  

changes in general economic, business or political or other conditions in the Republic of Argentina (“Argentina” or “the Republic”) or changes in general economic or business conditions in Latin America;

 

  

effects of theCOVID-19 pandemic;

 

  

changes in exchange rates or capital markets in general that may affect policies towards or lending to Argentina or Argentine companies;

 

  

increased costs and decreased income related to macroeconomic variables such as exchange rates and the Consumer Price Index in Argentina (“CPI”);

 

  

unanticipated increases in financing and other costs or the inability to obtain additional debt, equity or wholesale financing on attractive terms or at all; and

 

  

the factors discussed under“Item 3. Key Information—D. Risk Factors”.

Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Banco BBVA Argentina S.A. (“BBVA Argentina” or the “Bank”), formerly BBVA Banco Francés S.A., undertakes no obligation to update or revise these forward-looking statements or to publicly release the results of any revisions to these forward-looking statements. The accompanying information in this annual report, including, without limitation, the information underItem 4. Information on the Company,Item 5. Operating and Financial Review and Prospects andItem 11. Quantitative and Qualitative Disclosures About Market Risk identifies important factors that could cause material differences between any forward-looking statements and actual results.

PRESENTATION OF FINANCIAL INFORMATION

General

The Bank’s audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 (the “Consolidated Financial Statements”) are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).

All 2019, 2018 and 2017 data included in this report have been prepared in accordance with IFRS-IASB for the sole purpose of filing this annual report on Form20-F with the U.S. Securities and Exchange Commission (“SEC”).

The statutory consolidated annual financial statements that the Bank prepares to comply with the requirements of the Argentine Central Bank (the “Central Bank” or “BCRA”) are prepared pursuant to the reporting framework established by the Central Bank requiring supervised entities to submit financial statements prepared pursuant to IFRS-IASB, (i) with temporary exceptions from the application of (A) the impairment model in Section 5.5 Impairment of IFRS 9 Financial Instrument and (B) IAS 29 Financial Reporting in Hyperinflationary Economies, both of which are applicable under the Central Bank’s rules for the fiscal years beginning on or after January 1, 2020; and (ii) in accordance with (A) the standards prescribed by Memorandum No. 6/2017 Financial Reporting Framework Established by the BCRA issued on May 29, 2017 regarding the treatment to be applied to uncertain tax positions and (B) the instructions provided in Memorandum No. 7/2019 issued by the BCRA dated April 29, 2019, which set forth the accounting treatment to be applied to the remaining investment held by the Bank in Prisma Medios de Pago S.A. Because of such differences, our statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 are not comparable with the Consolidated Financial Statements included herein. In addition, beyond those mentioned above, we will continue to have differences during the year 2020 between our statutory consolidated financial statements and the financial statements required by IFRS-IASB. We do not intend to report in accordance with IFRS-IASB on an interim basis during 2020. Consequently, our interim financial information for 2020 will not be comparable with the Consolidated Financial Statements and other information contained in this annual report on Form20-F. We refer in this annual report on Form20-F to IFRS-IASB as adjusted by the regulations of the BCRA as “IFRS-BCRA”.

 

1


Table of Contents

The Consolidated Financial Statements include entities in which the Bank holds control, directly or indirectly. See“Item 4. Information on the Company – C. Organizational Structure” for an organizational chart depicting BBVA Argentina and its subsidiaries.

In this annual report, references to “$”, “US$”, “U.S. dollars”, “US dollars” and “dollars” are to United States dollars and references to “Ps.”, “Pesos” and “pesos” are to Argentine pesos. Percentages and certain dollar and peso amounts have been rounded for ease of presentation. Unless otherwise stated, all market share and other industry information has been derived from information published by the Central Bank.

Unless otherwise indicated, financial information contained in this annual report reflects the consolidation of the following subsidiaries at the year end and for the fiscal years indicated below:

 

   As of December 31, 

Entity

  2019   2018   2017 

Volkswagen Financial Services Compañía Financiera S.A.

   X      X 

Consolidar AFJP S.A. (undergoing liquidation proceedings)

   X    X    X 

BBVA Francés Valores S.A.(1)

     X    X 

BBVA Asset Management Argentina S.A.

   X    X    X 

PSA Finance Argentina Compañía Financiera S.A.

   X     

 

(1)

Merged into the Bank as from October 1, 2019.

On September 25, 2018, BBVA Francés lost control of Volkswagen Financial Services Compañia Financiera S.A. (“VWFS”) due to the termination of the two year commitment by the Bank to provide financing to VWFS if it were unable to diversify its sources of funding. According to IAS 28 Investments in Associates and Joint Ventures, VWFS qualified thereafter as a joint venture and, as such, it was deconsolidated in 2018 as of the date of loss of control.

Pursuant to certain amendments to the relevant shareholders’ agreements, effective since July 1, 2019, the Bank has assumed the power to direct the relevant activities of VWFS and PSA Finance Argentina Compañía Financiera S.A. Pursuant to International Financial Reporting Standard (“IFRS”) 10, the Bank concluded that it controls such companies effective since July 1, 2019. Therefore, the Consolidated Financial Statements consolidate financial information for these companies since the date on which the Bank gained control over them.

Also on October 9, 2019 the Argentine National Securities Commission (“CNV”) issued Resolution No. 20484/2019 regarding the merger by absorption of the Bank with BBVA Francés Valores S.A.

IAS 29 Financial Reporting in Hyperinflationary Economies requires that an entity whose functional currency is the currency of a hyperinflationary economy must state its assets, liabilities, income and expenses in terms of the measuring unit current at the end of the reporting period (December 31, 2019). The Bank has applied IAS 29 as follows:

 

  

Restated the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and consolidated statements of cash flow for the years ended December 31, 2018 and 2017, including the calculation and separate disclosure of the gain or loss on the net monetary position.

 

  

Restated the consolidated statement of financial position as of December 31, 2018.

 

  

Adjusted the consolidated statement of financial position as of December 31, 2019.

 

  

Adjusted the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and consolidated statements of cash flow for the year ended December 31, 2019, including the calculation and separate disclosure of the gain or loss on the net monetary position.

For further information regarding the methodology and criteria applied see Note 3.2 to the Consolidated Financial Statements.

SeeItem 3. Key Information—A. Selected Financial Data—Exchange Rates for information regarding the evolution of rates of exchange since 2012.

All figures and percentages of variations in this annual report on Form20-F, unless otherwise stated, are presented in real terms based on the measuring unit current at December 31, 2019. All comparisons of the financial system contained in this annual report on Form20-F are presented in nominal terms.

 

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Table of Contents

CERTAIN TERMS AND CONVENTIONS

The terms below are used as follows throughout this report:

 

  

“BBVA Argentina”, the “Bank” or the “Company” and terms such as “we”, “us” and “our” mean Banco BBVA Argentina S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

 

  

“BBVA” or the “BBVA Group” means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

 

  

“Consolidated Financial Statements” means our audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, prepared in accordance with IFRS-IASB and included in this Form20-F.

- PART I -

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The financial information set forth below as of and for the years ended December 31, 2019, 2018 and 2017 has been selected from, and should be read together with, the Consolidated Financial Statements included herein.

For information concerning the preparation and presentation of the Consolidated Financial Statements, see“Presentation of Financial Information”. See also “D. Risk Factors—Risks Relating to Argentina”, and “D. Risk Factors—Risks Relating to the Argentine Financial System and to BBVA Argentina” below.

 

   For the year ended December 31, 
   2019   2018   2017 
   (in thousands of pesos)(1) 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

      

Interest income

   114,857,754    86,873,096    54,939,993��

Interest expenses

   (48,252,005   (38,055,410   (18,397,317
  

 

 

   

 

 

   

 

 

 

NET INTEREST INCOME

   66,605,749    48,817,686    36,542,676 
  

 

 

   

 

 

   

 

 

 

Fee and commission income

   17,611,332    19,343,960    16,571,298 

Fee and commission expense

   (9,432,790   (8,463,097   (7,510,673

Gains on financial assets and liabilities at fair value through profit or loss, net

   11,462,033    178,204    6,709,089 

(Losses) gains on derecognition of financial assets not measured at fair value through profit or loss, net

   (59,405   (210,350   18,434 

Exchange differences, net

   10,302,892    9,982,224    5,195,194 

Other operating income

   8,801,349    3,241,213    2,989,237 

Other operating expenses

   (16,498,368   (12,282,040   (11,300,787
  

 

 

   

 

 

   

 

 

 

GROSS INCOME

   88,792,792    60,607,800    49,214,468 
  

 

 

   

 

 

   

 

 

 

Administration costs

   (30,650,811   (30,057,186   (30,199,780
  

 

 

   

 

 

   

 

 

 

Personnel benefits

   (16,672,841   (16,748,796   (17,262,857

Other administrative expenses

   (13,977,970   (13,308,390   (12,936,923

Depreciation and amortization

   (4,207,771   (2,957,059   (2,198,822

 

3


Table of Contents
   For the year ended December 31, 
   2019   2018   2017 
   (in thousands of pesos)(1) 

Impairment of financial assets

   (15,752,414   (5,897,990   (3,888,609

Loss on net monetary position

   (20,213,528   (17,927,987   (9,475,736
  

 

 

   

 

 

   

 

 

 

NET OPERATING INCOME

   17,968,268    3,767,578    3,451,521 
  

 

 

   

 

 

   

 

 

 

Share of profit of equity accounted investees

   128,119    488,453    520,435 
  

 

 

   

 

 

   

 

 

 

PROFIT BEFORE TAX

   18,096,387    4,256,031    3,971,956 
  

 

 

   

 

 

   

 

 

 

Income tax expense

   (2,072,167   (6,670,742   (1,111,427
  

 

 

   

 

 

   

 

 

 

PROFIT (LOSS) FOR THE YEAR

   16,024,220    (2,414,711   2,860,529 
  

 

 

   

 

 

   

 

 

 

Attributable to owners of the Bank

   16,027,533    (2,291,690   2,928,692 

Attributable tonon-controlling interest

   (3,313   (123,021   (68,163

Profit (Loss) for the year attributable to owners of the Bank per ordinary
share(2)(3)

   26.16    (3.74   5.14 

Profit (Loss) for the year attributable to owners of the Bank per ADS(2)(3)(5)

   78.48    (11.22   15.42 

Diluted profit (loss) for the year attributable to owners of the Bank per ordinary
share(2)(3)

   26.16    (3.74   5.14 

Diluted profit (loss) for the year attributable to owners of the Bank per ADS(2)(3)(5)

   78.48    (11.22   15.42 

Declared dividends per ordinary share(2)(3)(4)

   3.92870    3.92877    1.70202 

Declared dividends per ADS(2)(3)(4)(5)

   11.78610    11.78631    5.10606 

Net operating income per ordinary share(2)(3)

   29.33    6.15    6.06 

Net operating income per ADS(2)(3)(5)

   87.99    18.45    18.18 

Average ordinary shares outstanding (000s)(3)

   612,671    612,660    569,910 

 

   As of December 31, 
   2019  2018  2017 
   (in thousands of pesos)(1) 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

    

Cash and cash equivalents

   156,259,910   152,456,309   86,844,057 

Financial assets at fair value through profit or loss

   10,329,827   13,271,957   14,605,690 

Financial assets at amortized cost

   206,027,269   318,689,020   310,396,996 

Financial assets at fair value through Other Comprehensive Income (“OCI”)

   45,205,882   37,787,332   38,797,268 

Tangible assets

   27,488,775   26,245,661   27,337,180 

All other assets

   13,778,008   13,295,976   12,410,491 
  

 

 

  

 

 

  

 

 

 

TOTAL ASSETS

   454,171,021   556,169,426   490,391,682 
  

 

 

  

 

 

  

 

 

 

Financial liabilities at fair value through profit or loss

   3,653,749   3,183,607   521,881 

Financial liabilities at amortized cost

   336,281,179   454,903,926   388,310,028 

All other liabilities

   29,899,023   28,023,325   25,387,113 
  

 

 

  

 

 

  

 

 

 

TOTAL LIABILITIES

   369,833,951   486,110,858   414,219,022 
  

 

 

  

 

 

  

 

 

 

Share capital

   612,710   612,660   612,660 

Share premium

   19,382,148   19,372,417   19,372,417 

Inflation adjustment to share capital

   13,529,577   13,529,523   13,529,524 

Reserves

   67,963,345   46,726,021   40,698,060 

Accumulated (loss) gains

   (19,187,644  (10,275,106  1,170,978 

Accumulated other comprehensive income

   460,246   46,731   89,415 
  

 

 

  

 

 

  

 

 

 

Equity attributable to owners of the Bank

   82,760,382   70,012,246   75,473,054 

Non-controlling interests

   1,576,688   46,322   699,606 
  

 

 

  

 

 

  

 

 

 

TOTAL EQUITY

   84,337,070   70,058,568   76,172,660 
  

 

 

  

 

 

  

 

 

 

SELECTED RATIOS

    

Profitability and Performance

    

Return on average total assets(6)

   3.17  (0.44)%   0.63

 

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Table of Contents
   As of December 31, 
   2019  2018  2017 
   (in thousands of pesos)(1) 

Return on average total equity(7)

   20.98  (3.15)%   4.35

Capital

    

Total equity as a percentage of total assets

   18.57  12.60  15.53

Total liabilities as a multiple of total equity

   4.39x   6.94x   5.44x 

Credit Quality

    

Allowances for loan losses as a percentage of Financial assets at amortized cost

   5.74  2.01  1.37

Non-performing loans ratio(8)

   3.66  1.80  0.65

Coverage ratio(9)

   148.30  120.94  207.19

 

(1)

Except net income per ordinary share and net income per ADS data and financial ratios.

(2)

Based on the average number of ordinary shares outstanding during the year.

(3)

The average number of ordinary shares outstanding during a year was computed as the average number of shares outstanding during the twelve months taking into account the outstanding amounts as of the end of each month.

(4)

The Bank’s Board of Directors resolved to propose for shareholder approval the payment of a cash dividend of Ps.2,500 million for the year ended December 31, 2019. The ordinary and extraordinary shareholders’ meeting was initially called for April 7, 2020 and was rescheduled to May 15, 2020 as a virtual meeting due to theCOVID-19 pandemic. For the year ended December 31, 2018, the dividends in cash declared at the ordinary and extraordinary shareholders’ meeting on April 24, 2019 were Ps.2,407 million (nominal value). For the fiscal year ended December 31, 2017, the dividends in cash declared at the ordinary and extraordinary shareholders’ meeting on April 10, 2018 were Ps.970 million (nominal value). Dividends per ordinary share for each year are calculated taking into account dividends declared in such year and the number of outstanding shares at the end of such year. BCRA Communication “A” 6768, in force since August 30, 2019, provides that financial institutions must have the prior authorization of the Central Bank for the distribution of their results. Later, on March 19, 2020, BCRA issued Communication “A” 6939 whereby the banks may not distribute dividends until at least June 30, 2020.

(5)

Each ADR represents three ordinary shares.

(6)

Profit or loss for the year attributable to owners of the Bank as a percentage of average total assets, computed as the average of fiscal-year-beginning and fiscal-year-ending balances.

(7)

Profit or loss for the year attributable to owners of the Bank as a percentage of average stockholders’ equity, computed as the average of fiscal-year-beginning and fiscal-year-ending balances.

(8)

Non-performing loans and advances as a percentage of loans and advances before allowances.

(9)

Allowances for loan losses as a percentage ofnon-performing loans and advances.Non-performing loans and advances include all loans and advances to borrowers classified as Stage 3 in accordance with IFRS 9.

Dividends

The table below sets forth the dividends declared with respect to the years ended December 31, 2018, 2017 and 2016 on each ordinary share and the equivalent of those dividends expressed in terms of dividends per American Depositary Share, each representing three ordinary shares (the “ADSs”), in each case adjusted for all stock dividends during the relevant periods. For the year ended December 31, 2019, this table sets forth the dividends that have been approved by the Bank’s Board of Directors but which are pending shareholder approval. The Central Bank requires that we maintain 20% of our net income (according to IFRS-BCRA) in legal reserves.

 

   Declared Dividends
Per Ordinary Share(2)
   Declared Dividends
Per ADS(2)
 
   Ps.   US$   Ps.   US$ 

December 31, 2019(1)(3)

   4.08023    0.06153    12.24070    0.18458 

December 31, 2018(4)

   3.92877    0.08723    11.78631    0.26170 

December 31, 2017(5)

   2.13325    0.10433    6.39975    0.31298 

December 31, 2016(6)

   2.86925    0.18909    8.60775    0.56726 

 

(1)

The Bank’s Board of Directors resolved to propose for shareholder approval the payment of a cash dividend of Ps.2,500 million for the year ended December 31, 2019. The ordinary and extraordinary shareholders’ meeting was initially called for April 7, 2020 and was rescheduled to May 15, 2020 as a virtual meeting due to theCOVID-19 pandemic. As such, the dividend for the year ended December 31, 2019 will not be declared unless or until it is approved by the shareholders’ meeting. Furthermore, the BCRA issued Communication “A” 6768, in force since August 30, 2019, which provides that financial institutions must have the prior authorization of the Central Bank for the distribution of their results. Later, on March 19, 2020, BCRA issued Communication “A” 6939 whereby the banks may not distribute dividends until at least June 30, 2020.

(2)

For the fiscal year ended December 31, 2018, the dividends in cash declared at the ordinary and extraordinary shareholders’ meeting on April 24, 2019 were Ps.2,407 million (nominal value). For the fiscal year ended December 31, 2017, the dividends in cash declared at the ordinary and extraordinary shareholders’ meeting on April 10, 2018 were Ps.970 million (nominal value). For the fiscal year ended December 31, 2016, the dividends in cash declared at the ordinary and extraordinary shareholders’ meeting on March 30, 2017 were Ps.911 million (nominal value). As of December 31, 2019 the number of outstanding shares was 612,710,079. As of both December 31, 2018 and 2017 the number of outstanding shares was 612,659,638. During the fiscal year ended December 31, 2016 the number of outstanding shares was 536,877,850. Dividends per ordinary share for each year are calculated taking into account dividends declared in such year and the number of outstanding shares at the end of such year.

(3)

Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at April 21, 2020.

(4)

Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at May 8, 2019.

(5)

Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at April 26, 2018.

(6)

Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at April 12, 2017.

 

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Exchange Rates

The following tables show the annual high, low, average andperiod-end exchange rate for US$1.00 for the periods indicated. The exchange rate is calculated by the Central Bank based on the information provided by financial institutions on the exchange rate for trading of U.S. dollars for settled transactions in Argentine pesos and U.S. dollars. Such information must be representative of the prevailing market conditions. After gathering this information, the Central Bank calculates the daily exchange rate using the formula set out in Annex I of Communication “A” 3500.

The Federal Reserve Bank of New York does not report a noon buying rate for pesos.

 

Year /Period

  High(1)   Low(1)   Average (2)   Period-end 
  (in pesos per US$1.00) 

2016

   16.0392    13.0692    14.7738    15.8502 

2017

   18.8300    15.1742    16.5665    18.7742 

2018

   40.8967    18.4158    28.0937    37.8083 

October 2019

   60.0033    57.6967    58.5308    59.7267 

November 2019

   59.8783    59.5442    59.7381    59.8633 

December 2019

   59.9608    59.8170    59.8832    59.8950 

2019

   60.0033    37.0350    48.2423    59.8950 

January 2020

   60.3312    59.8152    60.0110    60.3312 

February 2020

   62.2080    60.4325    61.3484    62.2080 

March 2020

   64.4697    62.2503    63.1227    64.4697 

April 2020 (through April 23, 2020)

   66.3167    64.5295    65.4716    66.3167 

 

(1)

Source: BCRA.

(2)

For annual averages, this is the average of monthly average rates during the period.

Fluctuations in the exchange rate between pesos and dollars affect the dollar equivalent of the peso price of the ordinary shares on the Bolsa y Mercados Argentinos S.A. (“BYMA”) and as a result, would most likely affect the market price of the ADSs. Fluctuations in exchange rates also affect dividend income measured in dollars. The Bank of New York Mellon, as depositary for the ADSs, is required, subject to the terms of the deposit agreement, to convert pesos to dollars at the prevailing exchange rate at the time of making any dividend payments or other distributions. The following table shows the rate of devaluation of the peso compared with the dollar at year end, the rate of exchange (number of pesos per dollar prevailing in the Argentine foreign exchange market at year end) and the rate of inflation for consumer price for the fiscal years ended December 31, 2019, 2018, 2017 and 2016.

Since the repeal of the Convertibility Law in January 2002, the peso has devalued 6,531.7% compared with the dollar.

 

      As at December 31, 
   2019  2018  2017  2016 

Devaluation Rate(1)

   58.42  101.38  18.45  21.88

Exchange Rate(2)

   59.8950   37.8083   18.7742   15.8502 

Inflation Rate(3)

   53.83  47.65  24.80  34.59

 

(1)

For the twelve-month period then ending according to the Argentine Central Bank.

(2)

Pesos per dollar according to the Argentine Central Bank.

(3)

The inflation rate presented is for the Consumer Price Index published by the Argentine National Statistics and Censuses Institute (“INDEC”) and is calculated over the prior twelve months.

 

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B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk Factors

Risks Relating to Argentina

Overview

We are an Argentine corporation (sociedad anónima), and the vast majority of our operations, properties and customers are located in Argentina. Accordingly, the quality of our assets, our financial condition and our results of operations are significantly affected by macroeconomic and political conditions prevailing in Argentina.

Economic and political instability in Argentina may adversely and materially affect our business, results of operations and financial condition.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation. As a consequence, our business and operations have been, and could in the future be, affected from time to time to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as inflation, price controls, foreign exchange controls, fluctuations in foreign currency exchange rates and interest rates, governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement in business activities, and civil unrest and local security concerns.

In 2001 and 2002, the Argentine economy suffered a severe economic and political crisis. Among other consequences, the Argentine Crisis resulted in Argentina defaulting on its foreign debt obligations and introducing emergency measures and numerous changes in economic policies that affected utilities, financial institutions and many other sectors of the economy. Argentina also suffered a significant real devaluation of the peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. Restrictions on deposit withdrawals from the banking system were implemented, as dollar denominated loans and deposits were “pesified” (reclassified as peso denominated) and maturities reprogrammed. Although following that crisis, Argentina substantially increased its real gross domestic product (“GDP”), growing 8.9% in 2005, 8.0% in 2006, 9.0% in 2007 and 4.1% in 2008, in 2009 it was affected by an extended drought, which reduced agricultural production, and the effects of the global economic crisis which led to a contraction of the economy of 5.9% during that year. Real GDP growth was strong in 2010 and 2011, increasing to 10.1% and 6.0%, respectively, but economic performance was erratic in subsequent years and after another recession in 2014, GDP contracted by 2.5%, leading to a GDP level below that of 2011 in constant prices. The economy grew again by 2.7% in 2015, primarily driven by an increase in public expenditures and investment.

The economic and financial environment in Argentina was significantly influenced by the presidential elections held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. Mr. Macri’s administration (the “Macri Administration”) assumed office on December 10, 2015 and launched a wide array of measures intended to correct longstanding fiscal and monetary policies that had resulted in recurrent public sector deficits, high inflation, pervasive foreign exchange controls and limited foreign investment. In 2016, the elimination of foreign exchange restrictions and rebalancing of utility rates led to an increase in inflation to 41%year-on-year according to the City of Buenos Aires index at year end and a considerable decline in consumption. As a result, GDP fell by 1.8% in 2016. Once the main imbalances were eliminated, the economy picked up again in 2017, with GDP growing 2.9% and inflation slowing to 24.8%year-on-year, though higher than the goal defined by the Central Bank. The Macri Administration’s Cambiemos political party triumphed in the midterm elections of 2017, obtaining the necessary support to implement certain gradual tax and pension reforms, as well as a fiscal agreement with the provinces aimed at normalizing the finances of the provincial administrations.

The Macri Administration carried out a gradual approach intended to reduce the significant fiscal and current account deficit and to correct the macroeconomic imbalances received from the previous administration. This gradual approach ended abruptly in the second quarter of 2018 due to a combination of domestic impacts (mainly a severe drought), a deterioration of the global financial environment (including an increase in US interest rates and theUS-China trade war) coupled with policy errors (including

 

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a change to BCRA inflation targets and a capital gains tax), which brought about significant capital outflows from Argentina and the closing of global credit markets for Argentine issuers. From April 30 to July 31, 2018, the Argentine peso (based on the reference exchange rate of the Central Bank) depreciated 32.1% despite frequent exchange market interventions. Even after a strong adjustment of monetary policy and assistance from the International Monetary Fund (“IMF”) in the form of astand-by high-access agreement of US$ 50 billion signed inmid-June 2018, tensions in the foreign exchange market reemerged in August, and the peso devalued 35.8% during that month in a strongsell-off of Argentine assets. Between April and September 2018, nearly US$ 14 billion of international reserves were lost due to sales of U.S. dollars by the Central Bank in the foreign exchange market.

Monetary policy was highly influenced by the IMF plan, and by the end of September 2018, a new monetary and foreign exchange scheme was announced. It was adopted in order to control exchange rate volatility by absorbing all excess liquidity in pesos, holding the nominal monetary base constant until December 2018. It also set wide bands within which the foreign exchange rate could float. It allowed currency to be stabilized until February 2019. The peso appreciated 5% between September 30, 2018 and February 28, 2019 (from Ps. 40.89/US$ to Ps. 39.00/US$) and interest rates of Central Bank Liquidity Bills (Leliq) fell in that period more than 2,900 basis points from the peak. By the end of April 2019, the Central Bank changed its exchange rate scheme by eliminating intervention bands, which became exchange reference bands since intervention of the Central Bank in the exchange market was allowed at any level of the exchange rate of the peso, which led to the stability of the peso until the primary elections of August 11, 2019 (on August 9, 2019 the exchange rate closed at Ps. 45.40/US$, 1.6% above the value as of April 29, 2019). However, the unexpected loss by 15 points gap of President Macri to Alberto Fernández in those elections caused the exchange market to react negatively, and the reference exchange rate rose 10.3 pesos on Monday, August 12, 2019, a 22.8% increase over the value recorded the prior Friday, and finished 2019 at Ps. 59.89/US$ with high volatility. On August 28, 2019, Argentina announced a new schedule of payment on its short term local debt, including instruments like Lecap, Letes, Lecer and Lelink, where original dates of payment were postponed between three and six months.

During 2019 the IMF advanced disbursements planned to be made in 2020 and 2021 within the framework of a revised agreement that required an additional fiscal adjustment in 2019, including reaching the goal of a primary deficit of 0% of GDP, the strengthening of Central Bank reserves with the support of official creditors and the continuity of orthodox monetary and fiscal policies. This was part of a new program established in October 2018.

Inflation accelerated during the first quarter of 2019, with the CPI increasing 54.7% during the 12 months ended March 31, 2019 compared to inflation of 47.6% during the 12 months ended December 31, 2018. Early in 2019, prices were adversely affected as a result of the devaluation of the peso during 2018 and the adjustments to public utility rates, despite the restrictive Central Bank monetary policy during that period. However, following the peak of monthly inflation in March 2019 (4.7%), from April through July 2019 inflation registered four consecutive monthly declines (April: 3.4%; May: 3.1%, June: 2.7% and July: 2.2%). The depreciation of the peso after the primary elections once again accelerated inflation to over 4.2% per month on average, increasing it to 53.8% on an annual basis.

Gross domestic product increased 0.5% in the third quarter of 2019 as compared with the previous quarter, and decreased 1.7% compared to the third quarter of 2018. Additionally, the reaction of the markets after the result of the primary elections frustrated any expectations of improvement in the level of economic activity.

Presidential elections took place on October 27, 2019, and Alberto Fernández and Cristina Fernández de Kirchner’s “Frente de Todos” party was elected in the first round, confirming the results obtained in the August 2019 primary elections, which had precipitated an economic crisis with a significant impact on Argentine politics and economy.

On December 10, 2019, Alberto Fernández took office as president. The first measures of the new government (in particular, the Law on Social Solidarity and Productive Reactivation) implemented tax increases in 2020 of approximately 2% of GDP, and provided a wide margin of discretionary action for spending decisions.

Since the new administration took over on December 10, 2019, markets have been expecting a new round of debt restructuring, this time involving a wider scope of instruments. There is also a risk that Argentina cannot carry on this restructuring process in an orderly manner and the country will defaults on its debt again.

The Argentine economy has experienced significant volatility, with periods of low or negative growth, high levels of inflation and currency devaluation. Inflation, any decrease in GDP and/or other future economic, social and political developments in Argentina, over which the Bank has no control, have had an adverse effect in the past, and could, in the future, adversely affect its business, the results of its operations and its financial condition.

 

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The Macri Administration implemented significant changes in economic policy, but the ability to implement structural reforms was limited by the decrease in its approval ratings and the lack of support by Congress.

The Macri Administration took office in December 2015 and immediately implemented several significant economic and policy reforms, such as lifting foreign exchange restrictions, restoring the credibility of the Argentine National Institute of Statistics and Censuses (the “INDEC”), reducing foreign trade controls and resolving claims by bondholders who did not accept the 2005 debt exchange that allowed Argentina to emerge from default and access international financing markets again.

A tax reform passed by Congress at the end of 2017 established a gradual reduction in payroll taxes, corporate income tax benefits for investment projects and other taxes such as gross turnover tax collected by the provinces and a tax on debit and credit card transactions. Export duties on most products were eliminated in 2016, and the export duty on soybean products was significantly reduced. However, on October 5, 2018, a new tax on all exports of goods and services was introduced with the goal of achieving a zero primary deficit in 2019 (the actual primary deficit recorded for 2019 was 0.5%), despite its negative impact on the competitiveness of Argentine exports. Although this measure implied a setback in terms of the campaign promises of the Macri Administration to reduce fiscal pressure and improve productivity, the administration managed to resolve the monetary crisis of 2018 while avoiding capital controls and restrictions on the financial system and reinforced the commitment to a favorable environment for companies. This is particularly relevant in the case of Argentina, where currency crises have in the past led to restrictions on the withdrawal of deposits or access to foreign currency.

The ability of Macri Administration to implement legislative measures required the consensus of the opposition parties. After the 2017 legislative elections, “Cambiemos”, the party led by President Macri, increased its representation in both houses of the National Congress but did not have an absolute majority in either; therefore, it was necessary to keep on negotiating with opposition parties to pass any law in the National Congress. Furthermore, approval ratings of the Macri Administration began to fall in December 2017 with the amendment of the pension adjustment plan and the relaxation of monetary policy, which led to the weakening of the peso. This was reflected in the presidential elections that took place last October 27, 2019, in which the “Frente de Todos” ticket, with Alberto Fernández and Cristina Fernández de Kirchner, was elected in the first round confirming the result of the primary elections held in August 2019.

On December 10, 2019, Alberto Fernández took office. The first measures of the new government (in particular, through the Law on Social Solidarity and Productive Reactivation) were to increase taxes in 2020 by approximately 2% of GDP, and provide a wide margin of discretion for spending decisions.

Although the Macri Administration implemented significant changes in economic policy, it was generally unable to implement structural reforms due to lack of support by congress and the public. It is uncertain whether Alberto Fernández will maintain the changes implemented by the Macri Administration and what additional changes he may make to Argentine economic policy.

These developments are likely to negatively impact confidence in the economy, or the Argentine economy could otherwise be negatively affected, which, in turn, could have a substantially adverse effect on the business, the operating income and the financial condition of the Bank.

High inflation rates could negatively affect the Argentine economy in general, including access to the long-term financing market.

Historically, inflation has materially undermined the Argentine economy and the government’s ability to create conditions that permit growth. In recent years, Argentina has experienced high inflation rates that rose from 26.9%year-on-year in 2015 to 53.8%year-on-year in 2019 according to the City of Buenos Aires index.

High inflation rates have led to the loss of competiveness of Argentine exports in international markets and to a decline in private consumption, causing a negative effect on economic activity and employment. Moreover, high inflation rates have in the past and could in the future undermine confidence in the Argentine financial sector, in particular with respect to the peso deposit base, reducing the demand for pesos and leading to a portfolio dollarization, which would in turn cause a decrease in the deposit base. This would negatively affect the business volume of banks, including BBVA Argentina.

From 2007 tomid-2016, the CPI data for the Greater Buenos Aires area (the“CPI-GBA”) and for other Argentine regions/provinces published by the INDEC was not consistent with the CPI data published by private institutions. These inconsistencies created uncertainty regarding the Republic’s actual inflation rate and made it difficult to anchor inflation expectations.

 

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In 2017, the INDEC began publishing a national CPI index for the purpose of calculating Reference Stabilization Coefficient (“CER”) adjustments going forward. CER is an inflation index updated daily by the Central Bank. This new national CPI extended the methodology of the previousCPI-GBA, which had covered only the City of Buenos Aires and Greater Buenos Aires, utilizing December 2016 as its base of 100. In early 2016, the government’s adjustments to electricity and gas tariffs, as well as the increase in the price of gasoline impacted prices, created additional inflationary pressure which resulted in an acceleration of inflation in 2016. Further increases in energy tariffs and other regulated prices led to an inflation rate of 24.8%year-on-year in 2017, missing the Central Bank inflation targets of12-17% by a wide margin. These targets were changed at the end of 2017 to 15% for 2018, 10% for 2019 and 5% as along-run target to be reached by 2020, one year later than previously targeted. However, once again, these targets were widely missed in 2018 mainly due to the 50.3% depreciation of the peso which was partly passed through to domestic prices in spite of extremely tight monetary policies. Inflation, which had risen to 2.5% per month in the first half of 2018 due to increases in regulated prices, reached a maximum of 6.5%month-on-month in September 2018 and fell gradually in subsequent months to reach 47.6%year-on-year in December 2018.

In the first seven months of 2019, prices increased 25.1% as compared with December 2018, began to decline following March 2019, in which prices increased 4.7%month-on-month, to 3.4% in April, 3.1% in May, 2.7% in June and 2.2% in July. However, following the primary elections held in August 2019, the National CPI for that month reached 4.0% and increased to 5.9% in September, ending the optimism of restricting inflation to less than 2%month-on-month. There was a slight decrease to 3.3% in October as a result of the actions taken by the government to control the exchange rate and the freezing of regulated prices, mainly utilities. However, in November prices accelerated again, reaching 4.3%month-on-month, due to several increases in regulated prices. Then in December, inflation reached 3.4%month-on-month; and accumulated 53.8% for the year. Inflation remains a significant challenge for Argentina given its persistent nature in recent years.

As a result, continued inflation could have a material adverse effect on the business, operating income and financial condition of the Bank.

Failure by the Argentine Republic to comply with the fiscal targets agreed with the IMF could negatively affect the Argentine economy and its access to international financial markets.

Starting in 2005, public expenditures began to increase faster than public revenues and the primary fiscal balance of the national publicnon-financial sector went from a surplus of 3.2% of GDP in 2004 to a deficit of 3.8% of GDP in 2015. In 2016, the primary deficit was Ps. 343.5 billion, which represented an increase of 52.9% compared with the previous year, because the reduction of export duties and the income tax reform had a negative impact on revenue growth while the reduction in subsidies to the energy and transport sectors was slower than expected. In 2017, fiscal tightening proceeded at a stronger pace and the Macri Administration met the primary fiscal deficit target of 4.2% of GDP by lowering the primary fiscal deficit to 3.8% of GDP.

However, due to the loss of credibility and access to capital markets, in the midst of the 2018 currency crisis, the Macri Administration was forced to target a faster reduction in the primary fiscal deficit. The National Treasury outperformed the revised primary fiscal deficit target of 2.6% of GDP in 2018 by posting a deficit of 2.3% of GDP. The target for 2019 was a more ambitious zero primary deficit, becoming more flexible to 0.5% taking into consideration the adjustments for social and capital expenditure agreed with the IMF. Most of the adjustments came from an increase in export duties and the elimination of subsidies for the energy and transport sectors, a reduction in capital spending and efficiency gains in primary spending. However, the emergency measures adopted by President Macri in order to mitigate the economic consequences of the response of the markets upon the result of the primary elections and their subsequent conformation in the general elections of October 27, 2019, resulted in anon-fulfillment of the goal as proposed, having recorded a primary fiscal deficit of 0.5% of GDP.

After the primary elections, the Macri Administration announced a reprofiling plan for local debt, under which the Argentine government would unilaterally postpone maturity, but continue making interest payments. In that way, they assured liquidity as well as avoided a local debt default.

On December 10, 2019 the Alberto Fernández Administration took office. The government has expressed its goal of fiscal responsibility, subject to not compromising the economic situation of the most vulnerable. After taking office, the Fernández Administration announced new fiscal deficit targets.

The Fernández Administration started negotiations among the Argentine Republic’s international creditors in an attempt to reach an agreement. Meanwhile, debt under Argentine law denominated in dollars maturing in 2020 was again reprofiled.

Any deterioration of the government’s fiscal position will negatively affect its ability to access debt markets in the future and could in turn result in greater restrictions on accessing such markets by Argentine companies, including BBVA Argentina.

 

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In 2016, and after several years, the government began issuing both peso and dollar-denominated debt in the local Argentine market, which Argentine private banks, such as BBVA Argentina, often purchase. The purchase of government debt exposes the Bank to the Argentine public sector.

A weaker fiscal position could have a substantial adverse effect on the government’s ability to obtain long-term financing and repay the current debt and adversely affect Argentina’s economic conditions, which could adversely affect the business, the results of operations and the financial condition of the Bank.

The Argentine economy is vulnerable to external events that may result from serious economic difficulties of Argentina’s major regional trading partners, particularly Brazil, or by more general “contagion” effects, including those precipitated by the economic policy of the United States, which could have a material adverse effect on the economic growth of Argentina and its ability to pay its public debt, and, therefore, on the Bank’s business.

Weak, flat or negative economic growth of any of Argentina’s major trading partners, such as Brazil, could adversely affect Argentina’s balance of payments and, consequently, Argentina’s economic growth.

In 2015 and 2016, the economy of Brazil, Argentina’s largest export market and the main source of imports, experienced heightened negative pressure due to uncertainties arising from its political crisis, including the removal from office of President Dilma Rousseff. Although the Brazilian economy began to recover in 2017 as GDP grew by 1%, inflation fell to 2.9%year-on-year and the Brazilian real appreciated 1.5%year-on-year in December 2017. In 2018, the Brazilian Real depreciated 17.2% in the context of uncertainty regarding presidential elections but inflation only rose to 3.7% and GDP increased 1.1%. Political instability has decreased after the 2018 elections when Jair Bolsonaro was elected President. Even though the process for approval of the pension reform is advanced, tax reforms required to ensure debt sustainability are still pending and could face opposition in the National Congress of Brazil and create uncertainty about the fiscal solvency of Brazil. Any deterioration of economic conditions in Brazil may reduce demand for Argentine exports and increase demand in Argentina for Brazilian imports.

The Argentine economy may also be affected by “contagion” effects. International investors’ reactions to events occurring in one developing country sometimes appear to follow a “contagion” pattern, in which an entire region or investment class is disfavored by international investors. In the past, the Argentine economy has been adversely affected by such contagion effects on a number of occasions, including the 1994 Mexican financial crisis, the 1997 Asian financial crisis, the 1998 Russian financial crisis, the 1999 devaluation of the Brazilian Real, the 2001 collapse of Turkey’s fixed exchange rate regime, the global financial crisis that began in 2008 and the sharp depreciation of the Turkish Lira in 2018.

The Argentine economy may also be affected by conditions in developed economies, such as the United States, that are significant trading partners of Argentina or have influence over world economic cycles. A more protectionist trade policy from the United States could affect world trade with negative repercussions for Argentina. If interest rates increase sharply in developed economies, or if tighter global financial conditions prevail due to trade and geopolitical tensions, as occurred in 2018, Argentina and its trade partners, such as Brazil, might find it more difficult and expensive to borrow capital and refinance existing debt, which could adversely affect economic growth in those countries. The withdrawal of the United Kingdom from the European Union (often referred to as “Brexit”) and uncertainty regarding such process may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. Furthermore, Brexit could lead to additional political, legal and economic instability in the European Union.

Any of these factors could adversely affect economic conditions in Argentina which in turn would adversely affect the business, the results of operations and the financial condition of the Bank.

A decline in international prices for Argentina’s principal commodity exports could have a material adverse effect on Argentina’s economy and public finances, and, as a result, on our business.

Historically, the commodities market has been characterized by high volatility. Despite the volatility of prices of most of Argentina’s commodities exports, commodities have significantly contributed to the government’s revenues during the 2000s due to the imposition of export duties on agricultural products in 2002. Although most duties were eliminated and the export tax on soy was reduced from 35% to 30% by the Macri Administration in 2016, and was further reduced in 2018 by 0.5% per month, the Argentine economy is still relatively dependent on the price of its main agricultural exports, primarily soy. This dependence, in turn, renders the Argentine economy vulnerable to commodity prices fluctuations. International soybean prices decreased slightly during 2017 and further in 2018 due to growing trade tensions between the United States and China. During 2019, soybean prices reached their lowest prices over the prior five years, but recovered from US$305.5 per ton in May 2019 to US$335.0 per ton in December 2019. The average price for soybeans was US$326.9 per ton in 2019, down from US$345.0 per ton in 2018. During the first months of 2020 prices have demonstrated a downward trend.

 

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Declines in commodity prices may adversely affect the Argentine economy and the government´s fiscal revenues, which could in turn adversely impact the business, results of operations and financial condition of the Bank.

Exchange controls and restrictions on capital inflows and outflows could have a material adverse effect on Argentine public sector activity, and, as a result, our business.

In 2001 and 2002, following a run on the financial sector triggered by the public’s lack of confidence in the continuity of the convertibility regime that resulted in massive capital outflows, the government introduced exchange controls and restrictions on the transfer of foreign currency in an attempt to prevent capital flight and a further depreciation of the peso. These exchange controls substantially limited the ability of issuers of debt securities, among others, to accumulate or maintain foreign currency in Argentina or make payments abroad.

Although several of such exchange controls and transfer restrictions were subsequently suspended or terminated, in June 2005 the government issued a decree that established new controls on capital flows, which resulted in a decrease in the availably of international credit for Argentine companies.

From 2011 until the Macri Administration took office in December 2015, the government increased controls on the sale of foreign currency and the acquisition of foreign assets by local residents, limiting the possibility of transferring funds abroad. Together with regulations established in 2012 that subjected certain foreign exchange transactions to prior approval by Argentine tax authorities or the Central Bank, these measures significantly curtailed access to the foreign exchange market. In response, an unofficial U.S. dollar trading market developed in which thepeso-U.S. dollar exchange rate differed substantially from the officialpeso-U.S. dollar exchange rate.

After taking office, the Macri Administration substantially eliminated all foreign exchange restrictions implemented under the previous administration. However, on September 1, 2019, due to the economic instability and the significant devaluation of the peso in August 2019 after the primary elections, the government issued DNU (emergency decree without prior Congress approval) 609/19 together with Central Bank Communication “A” 6770 (supplemented by Communications “A” 6776, 6780, 6787 and 6804), which established, until December 31, 2019, the requirement of the Central Bank’s prior approval for legal persons and individuals to access the foreign exchange market in order to purchase foreign assets whenever the amount exceeds US$10,000 per month, as well as the obligation to present and declare new financial debts and the prior approval of the Central Bank for the payment of profits and dividends, among other provisions. Furthermore, to make any payment on foreign financial debt, it must be proved by evidence, if appropriate, that the transaction has been declared under the Survey of Foreign Assets and Liabilities. Additionally, in order to strengthen these controls and avoid further loss of reserves by the Central Bank following the presidential elections held on October 27, 2019, the Central Bank issued Communication “A” 6815 to strengthen foreign exchange controls and later issued Communication “A” 6823 in order to establish tighter restrictions. As of the date of this annual report, the maximum purchase amount allowed per individual is US$ 200 per month.

Additionally, the national government might promulgate further foreign exchange controls, stronger restrictions on transfers abroad, requirements for repatriation of funds obtained through capital market transactions performed abroad, new restrictions on capital movements, measures in response to capital outflows or a significant depreciation of the peso, any of which could limit the ability of companies to access international capital markets. Such measures could adversely affect Argentina’s international competitiveness, discourage foreign investments and increase foreign capital outflows, which could have an adverse effect on Argentina’s economic activity and have a material adverse effect on the business, the results of operations and the financial condition of the Bank.

Any failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentina’s economy and financial condition.

The lack of a sound institutional framework and corruption have been identified as, and continue to be, serious problems for Argentina. Argentina ranked 65 out of 180 countries in the 2019 Corruption Perceptions Index published by Transparency International. In the World Bank’s Doing Business 2020 report, Argentina ranked 126 out of 190 countries, as compared with 119 in 2019.

 

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Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentina’s international reputation and ability to attract foreign investment, the Macri Administration announced several measures aimed at strengthening Argentina’s institutions and reducing corruption. These measures included reducing criminal sentences in exchange for cooperation with the government in corruption investigations, increasing access to public information, seizing assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The government’s ability to implement these initiatives is uncertain as it requires the involvement of the judicial branch, which is independent, as well as legislative support from opposition parties. In 2018, a thorough investigation of a corruption scandal linked to a public works bribery scheme implemented by the previous administration led to the arrest of several prominent individuals. Public perception of the independence of the judicial system has been strengthened by these actions, but we cannot assure that the implementation of these measures will be successful. Moreover, it is uncertain whether President Fernández will continue the Macri Administration’s efforts to address actual and perceived risks of institutional deterioration and corruption in Argentina.

If the actual and perceived risks of institutional deterioration and corruption are not adequately addressed, Argentina’s economy and financial situation might be adversely affected, which could have a material adverse effect on the business, the results of operations and the financial condition of the Bank.

Fluctuations in the value of the peso could adversely affect the Argentine economy and the Republic’s ability to service its debt obligations.

Fluctuations in the value of the peso may adversely affect the Argentine economy. A devaluation of the peso may adversely affect the government’s revenues (measured in U.S. dollars), fuel inflation and significantly reduce real wages. After several years of moderate variations in the nominal exchange rate, the peso lost 35.3% of its value in 2014 and 33.7% in 2015. Persistent high inflation during this period, with formal and “de facto” exchange controls, resulted in an increasingly overvalued real official exchange rate. Compounded by the effects of foreign exchange controls and restrictions on foreign trade, these highly distorted relative prices resulted in a loss of competitiveness of Argentine production, impeded investment and resulted in economic stagnation during this period.

After the foreign exchange controls were lifted at the end of 2015, the peso depreciated by 38.5% in 2016 considering the average foreign exchange rate in December of 2016 compared with the average foreign exchange rate in December of 2015. In 2017, the depreciation of the peso fell to 11.8%, well below inflation, raising doubts about potential appreciation of the peso in real terms once again. In this scenario, the vulnerability of the Argentine economy to a tightening of international financial conditions was reflected in a current account deficit of 4.9% of GDP in 2017 and a low level of international reserves compared to other countries in the region. Whenten-year U.S. treasury rates began to rise and the U.S. dollar strengthened, these vulnerabilities resulted in a negative differentiation of Argentina compared with other emerging countries, which led to a prolonged run on the currency despite frequent interventions by the Central Bank and a sizeable loan from the IMF signed in June 2018. Finally, after anothersell-off of Argentine assets in August 2018 and a strong depreciation, in early October 2018 a revised program with the IMF which further tightened fiscal and monetary policy managed to stabilize the foreign exchange market and the peso appreciated by 7.5% in the last quarter of 2018. Considering the full year, the peso depreciated by 50.3% in nominal terms in 2018. Together with the decline in economic activity, the real depreciation of the peso resulted in a strong reduction in imports and a correction of the external deficit in the fourth quarter of 2018.

According to the revised IMF agreement, the Argentine peso floated freely within an accepted band of exchange rates, but the Central Bank may intervene to a limited extent in the foreign exchange market selling reserves if the exchange rate rises above a certain level, defined initially at Ps.44/US$ (and subsequently adjusted by inflation) which is the upper threshold of the accepted band in which the peso floats freely without intervention of the Central Bank. Conversely the Central Bank was charged with purchasing reserves if the foreign exchange rate fell below the lower threshold of thenon-intervention band.

In early 2019, the peso crossed the lower threshold, prompting purchases by the Central Bank and a strong decline in interest rates pursuant to the monetary program. As the level of inflation has remained high, a stronger nominal appreciation of the peso could lead to renewed doubts regarding the appreciation of the peso against the U.S. dollar in real terms. This presents risks for the Argentine economy, including the possibility of a reduction in exports as a consequence of the loss of external competitiveness and deterioration of the current account deficit. Any such appreciation could also have a negative effect on economic growth and employment, reduce tax revenues in real terms and also raise fears regarding the impact of a sudden stop in capital flows

However, by the end of April 2019, exchange rate tensions, together with negative inflation reports of March 2019, led the Central Bank to agree with the IMF the possibility of an intervention even within the (then) exchange reference zone. The announcement of the measure significantly reduced volatility in the exchange rate and helped to contain inflation expectations. It further deepened the contractive profile of the monetary policy since the pesos obtained from the sales of dollars were notre-injected and instead, the monetary base objective was reduced. Thus, the supply of foreign currency from exporters increased and demand decreased. In spite of this, the adverse reaction of the markets to the primary elections in August 2019 led to a decline in exchange rates, and lack of confidence in Argentine assets increased. The prices of Argentine government securities fell by 20%

 

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while the value of local companies’ shares declined more than 40% over a few days, while the U.S. dollar exchange rate exceeded Ps. 60, which implied a depreciation of more than 25% in just four days. The Central Bank intervened in the market, with relatively little success, by selling foreign currency, which brought about a fall in the international reserves of around US$ 2 billion. For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives. This measure was enacted in order to help control the exchange rate without using reserves.

Political uncertainty or changes in liquidity in international markets are likely to lead to greater volatility, and the depreciation of the peso or a reduction in the reserves of the Central Bank as a result of intervention in the exchange market could adversely affect inflation expectations, economic performance and the ability of the Republic of Argentina to service its debt.

Any of these factors could substantially and adversely affect the business, the results of operations and the financial condition of the Bank.

There can be no assurances that the Republic will be able to obtain financing on satisfactory terms in the future, which could have a material adverse effect on its ability to make payments on its outstanding public debt.

The Republic’s future tax revenue and fiscal results may be insufficient to meet its debt service obligations and the Republic may have to rely in part on additional financing from domestic and international capital markets in order to meet future debt service obligations. However, the Republic may not be able to access international or domestic capital markets at acceptable prices or at all, and, if that is the case, the Republic’s ability to service its outstanding public debt could be adversely affected, which could in turn adversely affect Argentina’s economy and financial condition and thereby have a material adverse effect on our business, results of operations and financial condition.

Amendments to the Central Bank’s Charter and the Convertibility Law may adversely affect the economy of Argentina.

In March 2012, Law No. 26,739 was passed amending both the Central Bank’s Charter and the Convertibility Law. This law amended the mission of the Central Bank (as established in its Charter) and eliminated certain provisions previously in force. In accordance with the law, the Central Bank must promote monetary and financial stability, as well as promote development with social equity. Furthermore, the concept of “freely available reserves” was eliminated, allowing the Argentine government to use additional reserves to cancel debts. Additionally, this law establishes that the Central Bank may set the interest rate and the terms of the loans granted by financial institutions. As regards reserves, should the government use them to repay public debt or finance public spending, this may result in an increase in inflation, which would hinder economic growth. Moreover, a decrease in the reserves of the Central Bank might adversely affect the ability of the Argentine financial system to resist and overcome the effects of an economic crisis (whether domestic or international), negatively affecting economic growth and therefore the business, results of operations and financial condition of the Bank.

TheCOVID-19 pandemic is affecting the Bank.

TheCOVID-19 pandemic, which originated in China and subsequently spread to many other countries in the world, including Argentina and other countries where our clients operate, is adversely impacting the global economy as well as the Argentine economy and our business. In addition to the impact on human lives and the health of more than one and a half million people globally, the pandemic has resulted in the following, among others: emergency actions by governmental authorities worldwide, including the shutdown of national borders and directives for residents in many countries, including Argentina, to shelter at home and for certain business to suspend some or all of their business activities; disruption of supply chains worldwide; falls in production and demand, which is expected to lead to sharp declines in the GDP of those countries which are most affected by the pandemic and have an overall negative impact on global GDP in 2020; increases in unemployment levels; a sharp deterioration in the valuation of financial assets and investments; increased volatility in the financial markets, including with respect to the value and trading of our shares and other securities of the Bank; exchange rate volatility; an increase in loan defaults by both companies and individuals; and increases in public debt due to actions taken by governmental authorities in response to the pandemic. The pandemic struck Argentina in early March, as the country was still struggling to pull out of a recession in its third year and managing a large external debt.

In several countries, governmental authorities are taking measures to mitigate the economic effects of the pandemic. In Argentina, several measures have been adopted to encourage bank lending through, among others, (i) lower reserve requirements on bank lending to households and micro-, small- andmedium-sized enterprises (SMEs); (ii) limitations on banks’ holdings of BCRA notes (LELIQ) in order to make available liquidity and encourage the provision of credit lines to SMEs, with loans granted thereunder guaranteed in part by a State agency, Fondo de Garantías Argentino (FoGAr); and (iii) temporary easing of bank loan classification rules (providing an additional 60 days ofnon-payment before a loan is required to be

 

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classified asnon-performing). Other measures aimed at protecting vulnerable persons include, among others, (i) a temporary prohibition on charging fees related to ATM services; (ii) mortgage relief by freezing, until September 30, 2020, the amount of mortgage payments based on those calculated as of March 2020, and postponing any foreclosures until such date; (iii) the postponement of payments on credit card loans for three months, with such postponed payments to be made up over the subsequent nine months; (iv) the suspension of account closures; (v) the reduction of maximum credit card interest rates from 49% to 43%; (vi) the postponement of all loan payments due during the second quarter without punitive interest; and (vii) the provision of credit lines guaranteed by FoGAr to support the maintenance of payroll payments. Moreover, banks may not distribute dividends until at least June 30, 2020 or carry out wrongful dismissals until at least May 30, 2020, and a 1,250% of capital requirement over the exposure to credit card loans corresponding to tourism-related purchases made outside Argentina has been issued by the Central Bank. It is difficult to predict what effect these measures will have on banks operating in Argentina, including the Bank, or how effective these and other measures taken to mitigate the economic effects of the pandemic will be.

This pandemic and actions taken in response thereto are adversely affecting, and are expected to continue to adversely affect, economic conditions and business activity in Argentina, and therefore the Bank. We had to close all of our branches in Argentina during most of the second half of March. While we were allowed tore-open our branches in April, initially branches were only open on certain specified dates. Although our branches reopened on April 13, 2020, we could generally provide only a limited number of services in our branches, and only by prior appointment, with teller services initially restricted to pensioners and social plan beneficiaries, and with teller services later being available to the general public for withdrawals of foreign currency. In addition, a significant number of Bank personnel, including the teams who provide central services, have been working remotely, disrupting our normal operations. In addition, we face various risks arising from the pandemic, such as a higher risk of impairment of our assets (including financial instruments valued at fair value, which may suffer significant fluctuations), a possible significant increase in loan defaults and credit losses, a decrease in our business activity, such as new retail lending (which has decreased significantly since the nationwide lockdown that began on March 20, 2020). These risks may continue to affect us while the lockdown continues or thereafter, including if the Argentine economy is not able to recover quickly from the pandemic. Moreover, the spread ofCOVID-19 could also negatively impact the business and operations of third-party service providers who perform critical services for us. In addition, remote working has increased cybersecurity risks given greater use of computer networks outside the corporate environment. Furthermore, the application of IFRS 9 (pursuant to which we adopted as of January 1, 2018 a new impairment model based on expected credit losses, replacing the incurred loss model) could accelerate the recognition of loss provisions.

As a result of the above, the pandemic is adversely affecting us. The ultimate magnitude of the impact on our business, financial condition and results of operations, which could be material, will depend on future developments, which are uncertain, including among others, the intensity and duration of the consequences derived from the pandemic in Argentina and the different geographies in which our clients and counterparties operate.

Risks Relating to the Argentine Financial System and to BBVA Argentina

The short-term structure of the deposit base of the Argentine financial system, including the deposit base of the Bank, could lead to a reduction in liquidity levels and limit the long-term expansion of financial intermediation.

In recent years, growth of the Argentine financial sector has been heavily dependent on deposit levels because of the relatively small size of the Argentine capital markets and the lack of access to foreign capital markets. After the Macri Administration took office, access to foreign capital markets was again possible, supporting credit growth in addition to the deposit base, but since 2018 international and local markets have been closed for Argentine companies due to growing risk aversion toward emerging markets generally, and to Argentina in particular, after the foreign exchange crisis that began in May 2018. There can be no assurance regarding when access to foreign credit markets may resume and, if resumed, access may be disrupted again in the future.

From 2016, the implementation of the tax amnesty regime and restored investor confidence resulted in a significant growth of U.S. dollar deposits. That process came to a halt in the first half of 2018 during the currency crisis due to fears that these deposits might be immobilized by the government and financial institutions indeed suffered a slight withdrawal of these kind of deposits in September 2018. After the primary elections that were held on August 11, 2019, withdrawals of U.S. dollar denominated deposits accelerated, with deposits falling more than 40%. Banks, including BBVA Argentina, had sufficient liquidity to be able to repay them. Moreover, loans denominated in U.S. dollars had short terms, and banks quickly began to collect them.

While banks’ liquidity in foreign currency is high, a significant share of it is deposited at the Central Bank, and as a result banks have to rely on the Central Bank in order to access those funds. If we continue to experience significant withdrawals by depositors, it could have a material adverse effect on our business, results of operations and financial condition.

 

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The local currency deposit base is mostly short-term and transactional. Deposits represent a small fraction of GDP when compared with other emerging countries. Deposits in pesos grew in line with inflation until August 2019. Following the reintroduction of currency controls after the primary elections, banks suffered a short run on local currency retail time deposits, with a decrease of approximately 15% to 20%, which came to an end after the amount of foreign currency individuals could purchase was reduced to US$ 200 a month, on October 28. In periods of financial stress, customers typically buy foreign currency with their local currency deposits to protect against a possible devaluation of the peso. After that, deposits in pesos stabilized, and they have begun to grow slightly.

The liquidity in local currency of the Argentine financial sector is currently relatively high, in part due to the level of minimum cash requirements applicable to Argentine financial institutions, which the Central Bank raised several times beginning in 2018, and in part due to a slowing demand for loans after interest rates were raised sharply in 2018. Peso-denominated loan demand has started to improve since August 2019, in part because companies substituted U.S. dollar-denominated loans for peso-denominated loans.

Notwithstanding the above, because most deposits are short-term deposits, a substantial part of loans must also have short-term maturities to match the terms of the deposits. The proportion of long-term credit lines, such as mortgages, is small, and long term loan origination fell sharply during 2019 as a consequence of high interest rates and the difficult financial environment.

We have a continuous demand for liquidity to fund our business activities. Our profitability or solvency could be adversely affected if access to liquidity and funding is constrained or made more expensive for a prolonged period of time. Furthermore, withdrawals of deposits or other sources of liquidity may make it more difficult or costly for us to fund our business on favorable terms. Although we believe that deposit liquidity levels are currently reasonable, no assurance can be given that those levels will not be reduced due to future negative economic conditions or otherwise. If depositors lose confidence as a result of negative economic conditions or otherwise and withdraw significant funds from financial institutions, there will be a substantial negative impact on the manner in which financial institutions, including us, conduct their business and on their and our ability to operate as financial intermediaries. If we are unable to access adequate sources of medium and long-term funding or if we are required to pay high costs in order to obtain the same and/or if we cannot generate profits and/or maintain our current volume and/or scale of our business, whether due to a decline in deposits or otherwise, our liquidity position and ability to honor our debts as they come due may be adversely affected, which could have a material adverse effect on our business, results of operations and financial condition.

Significant growth of peso cash (banknotes) positions in the Bank could have an adverse impact on our results of operations.

The Central Bank has made it a key policy to try to minimize the use of physical bills (banknotes) in the economy as a way to reduce informal activity and improve efficiency. This policy involves numerous sectors of the Argentine economy, including banks, and is likely to require significant time to realize significant changes. Since 2012, the Argentine Central Bank’s charter states that peso cash balances in physical bills (banknotes) cannot be used by financial institutions to comply with statutory reserve requirements. As a result, the Bank has sought to minimize its peso cash balances in physical bills (banknotes), as they yield no income. Since the second half of 2016, the Central Bank began refusing to receive physical bills from financial institutions in order to further decrease their use in the Argentine economy. As a consequence, BBVA Argentina’s balance of physical bills increased above normal levels, mainly through the first half of 2017, as a result of our business strategy of collecting a substantial amount of physical bills from large retail corporations as a way to promote business within the retail sector. Collecting bills generates a surplus of bills that the Bank used to deposit in its current account in the Central Bank and then allocated to profitable assets. This policy affected adversely our net income through these periods. Although the Bank took measures to offset this impact, such as raising the fees we charge for the collection service or reducing the net amount of bills we receive from customers every month, and banknotes balances declined to more reasonable levels from the third quarter of 2017 and stayed at those levels for most part of 2018 and 2019, no assurance can be given that our peso cash balances in physical bills (banknotes) will not arise again in the future. Moreover, since May 2019, banks are not allowed to collect fees on cash deposits of small andmid-size companies, thus reducing our ability to offset the negative financial effect that these deposits produce. A significant growth of peso cash balances in physical bills (banknotes) positions in the Bank could have an adverse impact on our business, results of operations and financial condition.

 

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Reduced spreads between interest rates received on loans and those paid on deposits could adversely affect our profitability.

The spread between the interest rates on loans and deposits could be affected as a result of increased competition in the banking sector and the government’s tightening or loosening of monetary policy in response to inflation concerns. During recent years, as a consequence of higher inflation, interest rates have significantly increased in Argentina.

After the Macri Administration took office, expectations were of a decline in both inflation and interest rates and therefore banking spreads. However, since 2018 devaluation of the peso and higher inflation led the Central Bank to substantially raise interest rates, ending the margin contraction trend. Since late December 2019, the Central Bank has resumed a process of reducing rates, and inflation expectations have been reduced slightly, although they remain high. If the Central Bank is successful in keeping the pace of inflation reduction, it could result in a renewed pressure on banking spreads. Moreover, a change in the composition of the source of funding, which is currently heavily weighted bynon-interest-bearing deposits, could also put downward pressure on margins. A change in the composition of the source of funding could result from lower interest rates, higher demand of credit and therefore a need to increase the amount of time deposits or other types of bearing interest liabilities. Further reduction in spreads could have a material adverse effect on our business, results of operation and financial condition.

Our business is particularly vulnerable to volatility in interest rates.

Our results of operations are substantially dependent upon the level of our net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond our control, including fiscal and monetary policies of governments and central banks, regulation of the financial sector in the market in which we operate, domestic and international economic and political conditions and other factors.

In the current Argentine scenario where the government seeks to stabilize high inflation rates, there is a risk of volatility in the interest rates. This scenario could adversely affect our financial margin as a result of differential movements in interest rates for deposits, loans or other bank assets and liabilities. In addition, a high proportion of loans referenced to variable interest rates makes debt service on such loans more vulnerable to changes in interest rates. In addition, high interest rates could reduce the demand for credit and our ability to generate credit for our clients, as well as contribute to an increase in the credit default rate. As a result of these and the above factors, significant changes or volatility in interest rates could have a material adverse effect on our business, results of operations and financial condition.

Mismatch between UVA loans and UVA deposits could adversely affect our profitability.

During 2017, new UVA (inflation-adjusted) mortgages grew significantly. At the same time, the Bank launched UVA deposits, but such deposits grew at a slower pace, leading to a mismatch in this activity. During 2018, as a consequence of the peso devaluation, higher inflation and interest rates, growth in both UVA loans and liabilities slowed and during 2019 new origination came to a halt. Independently of how this activity may develop in the future, a mismatch among UVA assets and liabilities will remain, which could have a material adverse effect on our business, results of operations and financial condition, particularly in the event that interest rates turn positive in real terms.

Our estimates and established reserves for credit risk and potential credit losses may prove to be inaccurate and/or insufficient, which may materially and adversely affect our results of operations and financial condition.

A number of our products expose us to credit risk, including consumer loans, commercial loans and other receivables. Changes in the income levels of our borrowers, increases in the inflation rate or an increase in interest rates could have a negative effect on the quality of our loan portfolio, causing us to increase provisions for loan losses and resulting in reduced profits or in losses. Ournon-performing loan portfolio amounted to Ps.7,781.8 million at December 31, 2019 representing a 34.8% increase compared with Ps.5,774.1 million at December 31, 2018 which in turn represented a 182.4% increase compared with Ps.2,044.9 million at December 31, 2017. Thenon-performing loan ratio increased to 3.7% at December 31, 2019 from 1.8% at December 31, 2018 which in turn increased from 0.7% at December 31, 2017.

We estimate and establish reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. We may not be able to timely detect these risks before they occur, which may increase our exposure to credit risk. Overall, if we are unable to effectively control the level ofnon-performing or poor credit quality loans in the future, or if our loan loss reserves are insufficient to cover future loan losses, this could have a material adverse effect on our business, results of operations and financial condition.

 

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Increased competition in the banking industry may adversely affect the Bank’s operations.

The markets in which we operate are highly competitive and this trend will likely continue with new business models likely to be developed in coming years whose impact is unforeseeable. The markets in which we operate are highly competitive and this trend will likely continue. In particular, we expect that competition with respect to small- andmedium-sized businesses is likely to increase. As a result, even if the demand for financial products and services from these markets continues to grow, competition may adversely affect our results of operations by decreasing the net margins we are able to generate. In addition, the trend towards consolidation in the Argentine banking industry has created larger and stronger banks with which we must now compete.

We also face competition fromnon-bank competitors, such as payment platforms,e-commerce businesses, department stores (for some credit products), automotive finance corporations, leasing companies, factoring companies, investment funds, pension funds, insurance companies, and public debt. In recent years, the financial services sector has experienced a significant transformation, closely linked to the development of the internet and mobile technologies. Part of that transformation involves the entrance of new players, such asnon-bank digital providers that compete (and cooperate) between them and with banks in most of the areas of financial services as well as large digital players such as Google, Facebook or Apple, who have also started to offer financial services (mainly, payments and credit) ancillary to their core business. However, as of the date of this annual report, there is an uneven playing field between banks and suchnon-bank players. For example, banking groups are subject to prudential regulations that have implications for most of their businesses, including those in which they compete withnon-bank players that are only subject to activity-specific regulations or benefit from regulatory uncertainty. Existing loopholes in the regulatory framework are another source of uneven playing fields between banks andnon-bank players. Some new services or business models are not yet covered under existing regulations. In these cases, asymmetries between players arise since regulated providers often face obstacles to engage in unregulated activities.

Our future success may depend, in part, on our ability to use technology to provide products and services that provide convenience to customers. Despite the technological capabilities that we have been developing and our commitment to digitalization, as a result of the uneven playing field referred to above or for other reasons, we may not be able to effectively implement new technology-driven products and services or be successful in marketing or delivering these products and services to our customers, which would adversely affect our business, financial condition and results of operations.

In addition, companies offering new applications and financial-related services based on artificial intelligence are becoming more competitive. The often lower cost and higher processing speed of these new applications and services can be especially attractive to technologically-adept purchasers. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, machine learning and other advances outside of our control. If we are not able to successfully keep pace with these technological advances, our business may be adversely affected.

We are a subsidiary of BBVA Group, and activities across BBVA Group could adversely affect us.

We are a part of a highly diversified international financial group which offers a wide variety of financial and related products and services including retail banking, asset management, private banking and wholesale banking. The BBVA Group strives to foster a culture in which its employees act with integrity and feel comfortable reporting instances of misconduct. The BBVA Group employees are essential to this culture, and acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the BBVA Group and the Bank’s reputation among existing and potential clients and other stakeholders. Negative public opinion could result from actual or alleged conduct by the BBVA Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the use and protection of data and systems, and the satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.

For example, Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (“Cenyt”). Such investigation includes the provision of services by Cenyt to BBVA. On July 29, 2019, BBVA was named as an investigated party (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could represent the crimes of bribery, revelation of secrets and corruption. As at the date of this annual report on Form20-F, no formal accusation against BBVA has been made. Certain current and former officers and employees of the BBVA Group, as well as former directors of BBVA, have also been named as investigated parties in connection with this investigation. BBVA has been and continues to be proactively collaborating with the Spanish judicial authorities, including sharing with the courts information from itson-going forensic investigation regarding its relationship with Cenyt. BBVA has also testified before the judge and prosecutors at the request of the Central Investigating Court No. 6 of the National High Court. On February 3, 2020, BBVA was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. This matter or any similar matters arising across the BBVA Group could damage our reputation and adversely affect the confidence of our clients, rating agencies, regulators, bondholders and other parties and could have a material adverse effect on our business, results of operations and financial condition.

 

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Our credit ratings depend on Argentine sovereign credit ratings, and such dependence limits our access to international financial markets.

Our credit ratings are based on Argentina’s sovereign rating, which has fluctuated considerably since the Argentine Crisis. As a result, our ratings have also fluctuated in this period, although they have tended to be higher than the sovereign rating. These fluctuations impact our costs of funding, our collateral obligations and our ability to access international markets. Argentina is no longer in default following the final agreement reached with certain of the holders of bonds issued by the Republic (holdouts), and as a result between 2016 and 2017 Argentina’s sovereign ratings were upgraded, but from 2018 onwards, that trend was reversed, and the country was either downgraded or had its outlook put under review with negative outlook.

A further decrease in Argentina’s sovereign rating could limit our access to financing or make such financing more expensive for us, even if available, which could have a material adverse effect on our business, results of operations and financial condition.

The financial industry is increasingly dependent on information technology systems, which may fail, may not be adequate for the tasks at hand or may no longer be available.

Banks and their activities are increasingly dependent on highly sophisticated information technology (“IT”) systems. IT systems are vulnerable to a number of problems, such as software or hardware malfunctions, computer viruses, hacking and physical damage to vital IT centers. IT systems need regular upgrading and banks, including us, may not be able to implement necessary upgrades on a timely basis or upgrades may fail to function as planned.

Furthermore, we are under continuous threat of loss due to cyber-attacks, especially as we continue to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that we face aree-fraud and breach of sensitive customer data. Loss frome-fraud occurs when cybercriminals breach and extract funds directly from customers’ or our accounts. A breach of sensitive customer data, such as account numbers, could present significant reputational impact and significant legal and/or regulatory costs to us.

Over the past few years, there have been a series of distributed denial of service attacks on financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Generally, these attacks have not been conducted to steal financial data, but meant to interrupt or suspend a company’s internet service. While these events may not result in a breach of client data and account information, the attacks can adversely affect the performance of a company’s website and in some instances have prevented customers from accessing a company’s website. Distributed denial of service attacks, hacking and identity theft risks could cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. We may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.

Additionally, fraud risk may increase as we offer more products online or through mobile channels.

In addition to costs that may be incurred as a result of any failure of our IT systems, we could face fines from bank regulators if we fail to comply with applicable banking or reporting regulations as a result of any such IT failure or otherwise. Any of the above risks could have a material adverse effect on our business, results of operations and financial condition.

We face security risks, including denial of service attacks, hacking, social engineering attacks targeting its colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.

Our computer systems and network infrastructure and those of third parties, on which we are highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Our business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in its computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.

 

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We, our customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of us, our employees, our customers or of third parties, damage our systems or otherwise materially disrupt our or our customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches and the measures we implement may not be sufficient. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage ofweb-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and “spear phishing” attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of our systems to disclose sensitive information in order to gain access to its data or that of our clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to our data may not be disclosed to it in a timely manner.

We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we does business or upon whom we rely to facilitate or enable our business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our business.

During the year 2019, the Bank undertook projects associated with corporate security, with initiatives based on cybersecurity, data security and protection, anti-fraud measures, physical security, and the implementation of security measures and business continuity, compliance with the regulatory framework, and protection of equipment and people. In addition, a cybersecurity training exercise was carried out by different areas of the Bank, with the aim of continuing to evaluate the effectiveness of the security measures deployed, the Bank’s crisis management procedures, and its capacity to react to actual disruptive scenarios.

Cyber-attacks or other information or security breaches, whether directed at us or at third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause us serious negative consequences, including loss of customers and business opportunities, significant business disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our or our customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.

 

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An increase in fraud or transaction errors may adversely affect our reputation, results of operations and financial condition.

Due to the large number of transactions that occur in a financial institution such as the Bank, errors can occur and worsen before being detected and corrected. In addition, some of our transactions are not fully automated, which may increase the risk of human error, or manipulation, and it may be difficult to detect losses quickly. If we are unable to effectively and timely detect and remedy fraudulent and erroneous transactions, it could damage our reputation, entail serious costs and affect our transactions, as well as have a material adverse effect on our business, results of operations and financial condition.

Because we are a financial institution, any insolvency proceeding against us would be subject to the powers of, and intervention by, the Central Bank, which may limit remedies otherwise available and extend the duration of the proceedings.

Under Argentine law, the liquidation and commencement of bankruptcy proceedings against financial institutions, until their banking license has been revoked by the Central Bank, may only be commenced by the Central Bank. If BBVA Argentina were unable to pay its debts as they come due, the Central Bank could intervene and revoke our banking license, and file a bankruptcy petition before a commercial court. If the Central Bank intervenes, the reorganization proceeding could take longer and it is likely that the shareholders’ remedies would be restricted. During any such process, the Central Bank would have to consider its interests as a regulator and could well prioritize the claims of other creditors and third parties against us. As a result of any such intervention, shareholders may realize substantially less on the claims than they would in a bankruptcy proceeding of anon-financial institution in Argentina or a financial institution ornon-financial institution in the United States or any other country.

Lawsuits brought against us outside Argentina, the enforcement of foreign judgments and complaints based on foreign legal concepts may be unsuccessful.

We are a commercial bank organized under the laws of Argentina. Most of our shareholders, directors, members of the supervisory committee and officers and certain experts named herein reside outside the United States (principally in Argentina). Substantially all of our assets are located outside the United States. If any shareholder were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce in Argentina a judgment against them obtained in the courts of the United States based upon the civil liability provisions of the United States federal securities laws, due to specific requirements of Argentine law regarding procedural law issues and principles of public policy.

Class actions against financial institutions for an indeterminate amount may adversely affect the profitability of the financial sector and of the Bank.

The Argentine national Constitution and the Argentine Consumer Protection Law No. 24,240, as supplemented or amended (the “Consumer Protection Law”), contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases is limited. Nonetheless, Argentine courts have admitted class actions in certain cases, including various lawsuits against financial institutions related to “collective interests” such as alleged overcharging on products, interest rates, life insurance required in relation to loans, and advice in the sale of public securities. In recent years, some of these lawsuits have been settled by the parties out of court, with courts approving such settlement agreements. These settlements have typically involved an undertaking by the financial institution to adjust its fees and charges.

In February 2020, we were notified of a class action for the alleged damage suffered by investors in certain investment funds managed by the Bank, following the unilateral modification of the price of certain future dollar contracts in which the affected funds were invested. These modifications were carried out by the organized market in which these future dollar contracts were negotiated, and the class action plaintiffs allege a failure by the Bank to contest the unilateral modifications carried out by the organized market in order to defend the fund investors’ financial interests.

If class action plaintiffs were to prevail in these or other matters against financial institutions generally, or against us specifically, this could have an adverse effect on the financial industry generally and on our business, results of operations and financial condition in particular.

In the future, court and administrative decisions may increase the degree of protection afforded to our debtors and other customers, or be favorable to the claims brought by consumer groups or associations. This could affect the ability of financial institutions, including us, to freely determine charges, fees or expenses for their services and products, thereby affecting our business and results of operations.

 

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BBVA, our controlling shareholder, has the ability to direct our business and its interests could conflict with yours.

As of December 31, 2019, our parent company, BBVA, directly or beneficially owned 66.55% of our capital stock. As a result, BBVA controls virtually all decisions with respect to our company made by shareholders. It may, for example, without the concurrence of the remaining shareholders, elect a majority of our directors, effect or prevent a merger, sale of assets or other business acquisition or disposition, cause us to issue additional equity securities and determine the timing and amounts of dividends, if any, always subject to the applicable legal framework. Its interests may conflict with your interests as a holder of our shares or ADSs, and it may take actions that might be desirable to BBVA but not to our other shareholders.

Our ability to grow our business depends on our ability to manage our relationships with partners and grow our deposit base.

We seek to grow our business by, among other means, increasing our client base. Our strategic partnerships are important components of our client acquisition strategy. We have various strategic partnerships, including those with LATAM Airlines, the soccer teams River Plate and Boca Junior, and insurance companies, such as La Caja, as well as the agreements with the automobile companies Peugeot, Renault and Volkswagen, which we depend on to expand our client reach cost-effectively, further expand our points of presence and enhance our value proposition. Any deterioration in our relationships with our strategic partners could adversely affect our strategy and materially and adversely affect our business, results of operations and financial condition.

In addition, the successful growth of our business depends on our ability to grow our deposit base. Political, economic or legal developments in Argentina or other factors could lead customers to withdraw funds from the Argentine financial system, adversely affecting us. If there are improvements in the Argentine economy, including lower inflation and increased bancarization and lending activity in the Argentine banking sector, we expect this would contribute to the growth of our business and profitability. However, we can provide no assurance regarding the future performance of the Argentine economy or how any improvements will affect us. If the Argentine economy fails to improve, it could have a material adverse effect on our business, results of operations and financial condition.

We may enter into one or more acquisitions which could adversely affect the value of the Bank.

We regularly explore consolidation opportunities in the ordinary course of business and believe there are significant opportunities to expand our footprint in the Argentine banking sector. In the event that we choose to make an acquisition in the future, any such transaction would involve a number of risks and uncertainties, including:

 

  

the possibility that we pay more than the value we will derive from any such transaction;

 

  

the possibility that Argentine economic and political conditions will not develop in the manner we expect;

 

  

the possibility that the Argentine financial services market will not develop in the manner we expect;

 

  

a reduction in our cash available for operations and other uses;

 

  

the potential incurrence of indebtedness to finance any such transaction;

 

  

delays in achieving or our failure to achieve successfully achieve the anticipated benefits of any acquisition;

 

  

difficulties in integrating any business acquired, including difficulties in harmonizing the companies’ operating practices, technology platforms, internal controls and other policies, procedures and processes;

 

  

diversion of management time and resources in coordinating a larger or more geographically dispersed organization;

 

  

the quality of the assets of the acquired business may be lower than we anticipate; and

 

  

the assumption of certain liabilities, whether known or unknown.

Any of the foregoing or other risks and uncertainties related to any acquisition could have a material adverse effect on our business, results of operations and financial condition or the value of the Bank.

 

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We may suffer adverse consequences related to our calculation of income tax for the years ended December 31, 2018, 2017 and 2016.

As discussed in our Form6-K furnished to the SEC on June 30, 2017, on May 12, 2017, we filed a request for declaratory judgment with the Contentious Administrative Federal Court No. 12, Secretariat No. 23, seeking that such court declare unconstitutional certain provisions of Argentine law that prevented us from applying an inflation adjustment mechanism. On May 12, 2017, we filed our income tax return for 2016 giving effect to an adjustment for inflation, in 2018 we filed our income tax return for 2017, and in 2019 we filed our income tax return for 2018, also giving effect to an adjustment for inflation. Our requests for declaratory judgment for 2017 and 2018 were filed with the Contentious Administrative Federal Court No. 12, Secretariat No. 23, and our request for 2019 was filed with the Contentious Administrative Federal Court No. is No. 2, Secretariat No. 3. As of the date of this annual report on Form20-F, our request for declaratory judgment remains pending before the Contentious Administrative Federal Court No. 12, Secretariat No. 23 and the Contentious Administrative Federal Court No. is No. 2, Secretariat No. 3.

At the request of the Central Bank, the Bank recognized an income tax provision of Ps.1,185.8 million in nominal terms for the year ended December 31, 2016 in our statutory consolidated annual financial statements presented to the Central Bank. Subsequently, based on our consideration of the technical merits of the tax deduction, which was confirmed by the Bank’s legal and tax advisors, such provision was eliminated in the preparation of our Consolidated Financial Statements under IFRS-IASB included herein, positively affecting our results of operations for the year ended December 31, 2017. The Bank followed the same methodology in respect of the years ended December 31, 2017 and 2018, recording a provision of Ps.1,021.5 million and Ps. 3,239.8 million in nominal terms in respect of such years, respectively, in our statutory consolidated annual financial statements, which in turn was eliminated in the preparation of our Consolidated Financial Statements under IFRS-IASB included herein, positively affecting our results of operations for the years ended December 31, 2018 and 2019.

We cannot predict the outcome of this legal action or whether we will be required to amend our income tax returns for 2016, 2017 and 2018 or any subsequent year (as applicable) in the future or make any provisions with respect thereto in our financial statements prepared under IFRS-IASB. If we are required to amend our income tax returns for 2016, 2017 and 2018 or any subsequent year (as applicable), we may be required to pay interest and charges to the Argentine tax authorities, and could be subject to other consequences. We cannot predict with certainty the outcome of our request for declaratory judgment pending before the Contentious Administrative Federal Court No. 12, Secretariat No. 23 and the Contentious Administrative Federal Court No. is No. 2, Secretariat No. 3, or whether it would have a material adverse effect on our business, results of operations or financial condition, or the trading prices of our ordinary shares and ADSs.

The Argentine economy qualifies as a hyperinflationary economy under IAS 29. Given that the peso is our functional currency, we apply IAS 29 for periods ending after July 1, 2018, and our Consolidated Financial Statements and other financial information are presented in terms of the measuring unit current at December 31, 2019.

IAS 29 requires that financial statements of any entity whose functional currency is the currency of a hyperinflationary economy, whether based on the historical cost method or on the current cost method, be adjusted in terms of the measuring unit current at the end of the reporting period. IAS 29 does not establish a set inflation rate beyond which an economy is deemed to be experiencing hyperinflation. However, hyperinflation is commonly understood to occur when changes in price levels are close to or exceed 100% on a cumulative basis over the prior three years, when presented together with certain other qualitative macroeconomic factors.

During thesix-month period ended June 30, 2018, the decreasing trend of inflation in Argentina noted in recent prior periods reversed, with variations in different indexes being higher than in previous months. The total cumulative inflation in Argentina in the 36 months prior to December 31, 2019, as measured by both consumer and wholesale price indexes published by INDEC, exceeded 100%. Qualitative macroeconomic factors, including the depreciation of the peso in recent months, also support the conclusion that Argentina is now a hyperinflationary economy for accounting purposes. Accordingly, IAS 29 is applicable to any financial statements as from July 1, 2018 included in any of our filings with the SEC under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended (the “Exchange Act”). Argentine accounting standards authorities have reached a consensus that the “general price index” for IAS 29 purposes is determined considering the wholesale price index (WPI) up to December 2016 and the consumer price index (CPI) onwards. These indexes have been determined or referred to the National Institute of Statistics and Census (INDEC). Therefore, our Consolidated Financial Statements included in this annual report are adjusted by applying the relevant indexes and presented in terms of the measuring unit current at December 31, 2019.

In December 2018, the Congress approved Law No. 27,468, which included the possibility of adjusting for inflation. Likewise, Law No. 27,468 delegated to the Central Bank, in the case of financial entities, the entry into force of the new regulations. We have not applied IAS 29 Financial Reporting in Hyperinflationary Economies to our statutory consolidated annual financial statements presented to the Central Bank. In addition,

 

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the financial statements provided to the Central Bank are prepared in accordance with IFRS BCRA, which differs in significant respects from IFRS-IASB. See “Presentation of Financial Information”. As such, the Consolidated Financial Statements included in this annual report are not comparable with our financial statements furnished to the Central Bank. The application of IAS 29 Financial Reporting in Hyperinflationary Economies to our financial statements presented to the Central Bank is required for fiscal years beginning on or after January 1, 2020 as set forth by the BCRA through Communication “A” 6651 issued on February 22, 2019.

The statutory consolidated financial statements for the fiscal year ended December 31, 2019 were prepared pursuant to the reporting framework established by the Central Bank requiring supervised entities to submit financial statements prepared pursuant to IFRS-IASB, (i) with temporary exceptions from the application of (A) the impairment model in Section 5.5 Impairment of IFRS 9 Financial Instrument and (B) IAS 29 Financial Reporting in Hyperinflationary Economies, both of which are applicable under the Central Bank’s rules for the fiscal years beginning on or after January 1, 2020; and (ii) in accordance with (A) the standards prescribed by Memorandum No. 6/2017 Financial Reporting Framework Established by the BCRA issued on May 29, 2017 regarding the treatment to be applied to uncertain tax positions and (B) the instructions provided in Memorandum No. 7/2019 issued by the BCRA dated April 29, 2019, which set forth the accounting treatment to be applied to the remaining investment held by the Bank in Prisma Medios de Pago S.A. Because of such differences, our statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 are not comparable with the Consolidated Financial Statements included herein. In addition, beyond those mentioned above, we will continue to have differences during the year 2020 between our statutory consolidated financial statements and the financial statements required by IFRS-IASB. We do not intend to report in accordance with IFRS-IASB on an interim basis during 2020. Consequently, our interim financial information for 2020 will not be comparable with the Consolidated Financial Statements and other information contained in this annual report on Form20-F. The Consolidated Financial Statements included in this annual report on Form20-F have been prepared in accordance with IFRS-IASB.

We are subject to numerous restrictions on our ability to pay dividends.

We are subject to legal and other restrictions on our ability to pay dividends. In Argentina, financial institutions may distribute dividends provided that (i) they are not covered by the terms of sections 34 “Regularization and recovery” and 35 bis “Institution restructuring to safeguard lending and bank deposits” of the Law on Financial Institutions (Law No. 21,526); (ii) they are not receiving financial assistance from the BCRA; (iii) they are not in arrears ornon-compliance with the information regime established by the BCRA; and (iv) they meet minimum capital requirements and cash requirements. See “Item 8. Financial Information—A. Financial Statements and other Financial Information—Dividends”. Amounts available for distribution as dividends are determined pursuant to Argentine law and IFRS-BCRA. As a result, dividends may be paid when we have no income as determined under IFRS-IASB and, conversely, dividends may not be payable even if we have income as determined under IFRS-IASB. Moreover, BBVA as our majority shareholder has the power to approve or fail to approve any proposed dividends.

BCRA Communication “A” 6768, in force since August 30, 2019, provides that financial institutions must have the prior authorization of the Central Bank for the distribution of their results. On March 19, 2020, the BCRA issued Communication A 6939 whereby the distribution of dividends by financial institutions, including the Bank, was suspended until at least June 30, 2020.

Legal, Regulatory and Compliance Risks

We identified material weaknesses in our internal control in the past over financial reporting as part of management’s assessment, which have already been remediated. If we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of disclosure controls and procedures, investor confidence in the Bank and the market price of our ordinary shares and ADSs may be adversely affected.

We maintain disclosure controls and procedures designed to ensure that we timely report information as specified in applicable Argentine and U.S. rules. Within such disclosure controls and procedures, we maintain a system of internal control over financial reporting.

Our management previously concluded, in its report on its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018, that we did not maintain effective internal control over financial reporting as a result of material weaknesses. These material weaknesses related to the preparation of the Bank’s consolidated financial statements in accordance with IFRS-IASB. Our management also previously concluded as of December 31, 2017 that we did not maintain effective internal control over financial reporting as a result of certain material weaknesses. We adopted remediation plans for these material weaknesses and believe that these material weaknesses were remediated.

 

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Our management has issued a report on its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019 and concluded the Bank’s internal control over financial reporting was effective as of such date. See“Item 15. Controls and Procedures”.

We can provide no assurance that we will be able to maintain effective internal control over financial reporting in the future, that misstatements due to error or fraud or otherwise will not occur, that all control issues have been detected or that we will be able to prepare our financial information on a timely basis. If our disclosure controls and procedures, including internal control over financial reporting, are not effective, it could have a material adverse effect on our business, results of operations and financial condition. Moreover, it could have an adverse effect on the price of our ordinary shares and ADSs and could subject us to regulatory scrutiny.

We operate in a highly regulated environment, and our operations are subject to regulations adopted, and measures taken, by several regulatory agencies.

Financial institutions in Argentina are subject to significant regulation relating to functions that historically have been determined by the Central Bank and other regulatory authorities (for capital requirements see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Requirements”). The Central Bank may penalize us, in case of any breach of applicable regulations. Similarly, the Argentine National Securities Commission (“CNV”), which authorizes securities offerings and regulates the public securities markets in Argentina, has the authority to impose sanctions on us and our Board of Directors for breaches of corporate governance. The Financial Information Unit (Unidad de Información Financiera, or “UIF”) regulates matters relating to anti-money laundering and has the ability to monitor compliance with any such regulations by financial institutions and, eventually, impose sanctions. Any such regulatory agencies could initiate proceedings and impose sanctions against us, our shareholders or our directors.

The Central Bank has also imposed restrictions on the positive foreign currency net global position of financial institutions, which have been modified several times, to prevent the Central Bank’s foreign currency reserves from further decreasing. As of the date of this annual report, the positive foreign currency net global position may not exceed 5% of the lesser of the financial institution’s total capital computed for the relevant preceding month or the financial institution’s own liquid assets.

In addition, pursuant to Communication “A” 6129, sanctions imposed by the Central Bank, the UIF, the CNV and/or the Superintendencia de Entidades Financieras y Cambiarias (the Superintendence of Financial Institutions and Exchanges, referred to as the “Superintendence”) and/or their authorities, may result in the revocation of the licenses to operate as financial institutions. Such revocation may occur when, in the opinion of the board of directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of (i) the members of a financial institution’s board of directors (directors, counselors or equivalent authorities), (ii) its shareholders, (iii) the members of its supervisory committee or (iv) others, such as its managers.

The absence of a stable regulatory framework or the imposition of measures that may affect the profitability of financial institutions in Argentina and limit the capacity to hedge against currency fluctuations could result in significant limits to financial institutions’ decision-making ability. In turn, this could cause uncertainty and negatively affect our future financial activities and result of operations. In addition, existing or future legislation and regulation could require material expenditures or otherwise have a material adverse effect on our business, results of operations and financial conditions.

In addition to regulations specific to our industry, we are subject to a wide range of federal, provincial and municipal regulations and supervision generally applicable to businesses operating in Argentina, including laws and regulations pertaining to labor, social security, public health, consumer protection, the environment, competition and price controls.

These or any other future governmental measures or regulations could have a material adverse effect on our business, results of operations and financial condition.

The instability of the regulatory framework, in particular the regulatory framework affecting financial institutions, could have a material adverse effect on financial institutions such as BBVA Argentina.

During Cristina Kirchner’s second term as President (from 2011 to 2015) a series of new regulations were issued affecting financial institutions, mainly regulating the foreign exchange market and imposing new capital requirements for financial institutions. In this regard, Communications “A” 5272 and 5273 of the Central Bank, dated January 27, 2012, increased the capital requirements for financial institutions operating in Argentina. These Communications required certain minimum capital levels in order to support operational risks and the distribution of dividends, and an additional capital buffer equivalent to 75% of the total capital requirements. For more information regarding capital requirements for Argentine banks please see“Item 4. Information on the Company—F. The Argentine Banking System and its Regulatory Framework”.

 

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Moreover, a new law was approved by the Congress introducing amendments to the Central Bank’s charter. The principal issues addressed by this bill were the use of Central Bank’s reserves for the cancellation of public debt together with the implementation of polices by the Central Bank in order to interfere in the determination of interest rates and terms of loans to financial institutions.

The Central Bank issued Communications “A” 5319 and “A” 5380, dated July 5, 2012 and December 21, 2012, respectively, and Communication “A” 5516, dated December 27, 2013, making it mandatory for banks to provide credit lines for productive purposes. This requirement has been renewed every six months since then. The purpose of these measures implemented by the former government was to foster investment and growth. Finally, on November 3, 2017 the Central Bank determined that mandatory credit lines for productive financing and financial inclusion will continue to be required until December 2018. The quota for 2018 was a percentage of monthlynon-financial private deposits in pesos as of November 30, 2017, according to the following schedule: January 2018: 16.5%, decreasing by 1.5 percentage points monthly until reaching 0% in December 2018. This is a significant development for banks given that the portion of deposits that financial institutions must loan at low interest rates was significantly reduced, allowing banks to allocate such funds in a more profitable way.

On November 29, 2012, the Argentine Congress passed the new “Securities Law”, which modified the public offer regime set forth by Law No. 17,811, as amended. One of the most significant amendments introduced by the Securities Law referred to the powers of the CNV. The adoption of Section 20 of the Securities Law raised concern in the market, especially among listed companies, since it entitles the CNV to (i) appoint supervisors with veto power over the resolutions adopted by the board of directors of listed companies and (ii) disqualify the board of directors of listed companies for a period of 180 days when, as determined by the CNV, the interests of the minority shareholders and/or security holders are adversely affected.

On October 1, 2013, the Central Bank issued Communication “A” 5460, granting broad protections to consumers of financial services, including, among other aspects, the regulation of fees and commissions charged by financial institutions for their services. As a result, fees and charges must represent a real, direct and demonstrable cost and should have technical and economic justification. Communication “A” 5514 introduced an exception to the application of Communication “A” 5460 for certain credit agreements that have pledges as collateral and are entered into before September 30, 2019.

On December 23, 2014, the Central Bank amended Communication “A” 5460 through Communication “A” 5685. As a result of this amendment, any increase in commissions for new products or services for retail customers must have the prior authorization of the Central Bank.

While the Macri Administration repealed part of the regulatory framework enacted by the Kirchner Administration, such as (i) the restrictions on the foreign exchange market, (ii) the regulations concerning minimum and maximum interest rates on certain loans and deposits, (iii) the requirements governing the flow of capital into Argentina, (iv) the percentage of foreign currency positions of financial institutions, (v) the monthly contributions that banks must set aside each month to fund the deposit guarantee fund, (vi) additional capital requirements for the dividend distribution, and (vii) the requirement of prior authorizations to increase commissions, it is still unclear whether the new regulatory framework will be stable and the impact that the new regulatory framework may have on our business.

Since the Fernández Administration assumed office, numerous new laws have been enacted and rules modified, among the most relevant of which are (i) the enactment of the Law of Social Solidarity and Productive Reactivation within the framework of the public emergency, providing for a 30% tax on foreign transactions; (ii) the obligation for banks to open universal free accounts to certain people (who have no bank account, and who wish to have access to ano-fee free savings account in pesos); (iii) a special treatment forUVA-adjusted mortgage loans designed to limit the impact of inflation and generally limit payments to a maximum of 35% of family income until February 2021); (iv) minimum interest rates were set for certain time deposits; (v) new requirements regarding certain fintech “virtual wallet” payment service providers were approved; (vi) the use of interbank debit for the payment of new credits is prohibited; (vii) a maximum nominal interest rate of 55% was set for credit card financing; (viii) reporting of increases and additions to bank fees for a period of 180 days from February 19, 2020 was prohibited; and (ix) according to Communication “A” 6768, financial institutions must have the prior authorization of the Central Bank of the Argentine Republic for the distribution of their results. In addition, on March 19, 2020, the BCRA issued Communication “A”6939 whereby the distribution of dividends was suspended until at least June 30, 2020. As a result, since the beginning of the Fernández Administration, banking activity has been more restrictively regulated, with the stated goal of economically protecting users of financial services.

 

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The absence of a stable regulatory framework or the introduction of new regulations that affect the banking business could limit the ability of financial institutions, including BBVA Argentina, to make long-term decisions, such as asset-allocation decisions, and could cause uncertainty with respect to or otherwise adversely affect our future business, results of operations and financial condition. We cannot assure that laws and regulations currently governing the financial sector will not continue to change in the future or that any changes will not have a material adverse effect on our business, results of operations and financial condition.

Exposure to multiple provincial and municipal legislation and regulations could adversely affect our business and results of operations.

Argentina has a federal system of government with 23 provinces and one autonomous city (Buenos Aires), each of which, under the Argentine national constitution, has full power to enact legislation concerning taxes and other matters. Likewise, within each province, municipal governments have broad powers to regulate such matters. Due to the fact that our branches are located in multiple provinces, we are also subject to multiple provincial and municipal legislation and regulations. Future developments in provincial and municipal legislation concerning taxes, provincial regulations or other matters could have a material adverse effect on our business, results of operations and financial condition.

The Consumer Protection Law and the Credit Card Law may limit some of the rights afforded to us and our subsidiaries.

The Consumer Protection Law establishes a number of rules and principles for the protection of consumers. Although the Consumer Protection Law does not contain specific provisions for its enforcement in relation to financial activities, it does contain general provisions that might be used as grounds to uphold such enforcement, as it has been previously interpreted in various legal precedents. Moreover, the new Argentine Civil and Commercial Code has captured the principles of the Consumer Protection Law and established their application to banking agreements.

The application of both the Consumer Protection Law and the Credit Card Law No. 25,065 (the “Credit Card Law”) by administrative authorities and courts at the federal, provincial and municipal levels has increased. Moreover, administrative and judicial authorities have issued various rules and regulations aimed at strengthening consumer protection. In this context, the Central Bank issued Communication “A” 5460, as supplemented and amended, granting broad protection to financial services customers, limiting fees and charges that financial institutions may validly collect from their clients. In addition, the Argentine Supreme Court of Justice issued the Acordada 32/2014, creating the Public Registry of Collective Proceedings for the purpose of registering collective proceedings (such as class actions) filed with national and federal courts. In the event that we are found to be liable for violations of any of the provisions of the Consumer Protection Law or the Credit Card Law, the potential penalties could limit some of our rights, such as reducing our ability to collect payments due from services and financing provided by us, or otherwise adversely affect our business, results of operations and financial condition.

On September 18, 2014, a newpre-judicial service of dispute resolution was created by Law No. 26,993, in order for consumers and providers to resolve any dispute within the course of 30 days, including fines for companies that do not attend the hearings.

Furthermore, the rules that govern the credit card business provide for variable caps on the interest rates that financial institutions may charge clients and the fees that they may charge merchants. Moreover, general legal provisions exist pursuant to which courts could decrease the interest rates and fees agreed upon by the parties on the grounds that they are excessively high. A change in applicable law or the existence of court decisions that lower the cap on interest rates and fees that clients and merchants may be charged would reduce our revenues and therefore negatively affect our results of operations.

The application of this regulation or any new regulation that may limit some of the rights afforded to us could have a material adverse effect on our business, results of operations and financial condition.

We are exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.

Our operations are subject to various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, and economic sanction programs, including those administered by the United Nations and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may directly or indirectly, through third parties, deal with entities the employees of which are considered government officials. In addition, economic sanctions programs restrict our business dealings with certain sanctioned countries, individuals and entities.

 

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Although we have adopted internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies, procedures, systems and other mitigating measures will be sufficient or that our employees, directors, officers, partners, agents and service providers will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on us, limits being placed on our activities, our authorizations and licenses being revoked, damage to our reputation and other consequences that could have a material adverse effect on our business, results of operations and financial condition. Further, we engage in investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations from time to time and any such investigations or any related proceedings could be time-consuming and costly.

Our anti-money laundering and anti-terrorism policies may be circumvented or otherwise not be sufficient to prevent all money laundering or terrorism financing.

We are subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and pose significant technical problems. Moreover, after the enactment of Law No. 27,401 on Corporate Criminal Liability, the Bank has begun to draw up an Integrity Program consisting of a set of actions, mechanisms and internal procedures to promote integrity, supervision and control, aimed at preventing, detecting and correcting irregularities and illegal acts included in Law No. 27,401. In this context, the Bank has an internal official whose function is the development, coordination and supervision of the Integrity Program. Although we believe that our current anti-money laundering program (which includes, among other elements, policies, procedures, technical infrastructure, independent reviews and training activities) is, and the Integrity Program will be, sufficient to comply with applicable rules and regulations, we cannot guarantee that our anti-money laundering and anti-terrorism financing programs and procedures will not be circumvented or otherwise not be sufficient to prevent all money laundering or terrorism financing. For example, we were recently notified by the UIF of the initiation of a summary proceeding against us and the members of our Board of Directors and our compliance officer relating to alleged violations of anti-money laundering regulations. We expect to defend the interests of such parties in such proceedings, but cannot predict the outcome thereof. Any violations of applicable anti-money laundering, anti-terrorism or other laws and regulations may have severe consequences, including sanctions, fines and notably reputational consequences, which could have a material adverse effect on our business, results of operations and financial condition.

Argentine corporate disclosure, governance and accounting standards may require us to provide different information than would be required under U.S. standards. This difference could limit investors’ ability to evaluate our business, results of operations and financial condition, and influence investors’ decisions whether to invest in our securities.

The securities laws of Argentina that govern publicly-listed companies such as us impose disclosure requirements that are more limited than those in the United States. The Argentine securities markets are not as highly regulated and supervised as the U.S. securities markets. There are also important differences between accounting and financial reporting standards applicable to financial institutions in Argentina and those in the United States. As a result, financial statements and reported earnings of Argentine financial institutions generally differ from those reported based on U.S. accounting and reporting standards.

The Consolidated Financial Statements included in this annual report on Form20-F have been prepared in accordance with IFRS-IASB. By contrast, the Bank’s statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 were prepared pursuant to the reporting framework established by the Central Bank requiring supervised entities to submit financial statements prepared pursuant to IFRS-IASB, (i) with temporary exceptions from the application of (A) the impairment model in Section 5.5 Impairment of IFRS 9 Financial Instrument and (B) IAS 29 Financial Reporting in Hyperinflationary Economies, both of which are applicable under the Central Bank’s rules for the fiscal years beginning on or after January 1, 2020; and (ii) in accordance with (A) the standards prescribed by Memorandum No. 6/2017 Financial Reporting Framework Established by the BCRA issued on May 29, 2017 regarding the treatment to be applied to uncertain tax positions and (B) the instructions provided in Memorandum No. 7/2019 issued by the BCRA dated April 29, 2019, which set forth the accounting treatment to be applied to the remaining investment held by the Bank in Prisma Medios de Pago S.A. Because of such differences, our statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 are not comparable with the Consolidated Financial Statements included herein. In addition, beyond those mentioned above, we will continue to have differences during the year 2020 between our statutory consolidated financial statements and the financial statements required by IFRS-IASB. We do not intend to report in accordance with IFRS-IASB on an interim basis during 2020. Consequently, our interim financial information for 2020 will not be comparable with the Consolidated Financial Statements and other information contained in this annual report on Form20-F.

 

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Accordingly, the information available about us will not be the same as the information available about a U.S. company. The fact that we report in IFRS-IASB for purposes of this annual report on Form20-F whereas we report in IFRS-BCRA for local and interim reporting purposes, together with the differences in the accounting and disclosure requirements among IFRS-BCRA, IFRS-IASB and U.S. GAAP, could limit investors’ ability to evaluate our business, results of operations and financial condition, and influence investors’ decisions whether to invest in our securities.

The special rules that govern the priority of different stakeholders of financial institutions in Argentina, which give priority to depositors with respect to most other creditors, may negatively affect other stakeholders in case of judicial liquidation or bankruptcy of the Bank.

Argentine Law No. 24,485, in force since April 18, 1995 and as amended by Law No. 25,089, provides that in case of judicial liquidation or bankruptcy of a financial institution such as BBVA Argentina, all depositors, irrespective of the type, amount or currency of their deposits, will have general and absolute preferential rights with respect to all other creditors, except for certain labor credits and credits secured with a pledge or mortgage, to be paid with 100% of the funds deriving from the liquidation of our assets. In addition, depositors of any kind of deposits have special preferential rights over the remaining creditors of us, except for certain labor credits, to be paid with (i) any of our funds which may be held by the Central Bank as total reserves, (ii) any remaining funds of ours in existence as of the date on which our license is revoked, or (iii) any funds derived from the compulsory transfer of certain of our assets according to instructions of the Central Bank, in the following order of priority: (a) deposits made by legal entities up to Ps.5,000 per entity, or its equivalent in foreign currency, (b) deposits for terms exceeding 90 days and (c) all other deposits on a pro rata basis.

In case of a judicial liquidation or bankruptcy of a financial institution such as BBVA Argentina, shareholders may not be able to partially or completely recover their investment due to the priority imposed by law.

There is uncertainty regarding the possible effects that pension and tax reform could have in the Argentine economy.

On December 19, 2017, the Argentine Congress enacted the pension reform law that reformulates the Integrated Pension System in Argentina (SIPA), proposing an adjustment of the valuations of pensions and social benefits according to inflation and economic growth. The purpose of this law, together with the tax reform law, the labor reform bill and the capital markets law, is to increase the competitiveness of the Argentine economy by reducing both the fiscal deficit and poverty in a sustainable way.

Through Decree No. 110/2018 of February 8, 2018, the Argentine government regulated the articles of Law No. 27,426 on Pension Reform approved by the Argentine Congress at the end of 2017, and Law No. 27,260 that created theso-called “Historical Reparation Program”, which is a national program for retirees and pensioners by which the national government offers a proposal for readjustment of retirement benefits and, if applicable, the recognition of retroactive sums owed to certain retirees who have received inadequate payments. This Decree specified the scope of the new retirement regime, which will be applicable to retirees who have been granted readjustments through the Historical Reparation Program, and those who obtained a definitive sentence before March 1, 2018. It also leaves without effect the terms of article 252 of the Labor Contract Law (LCT) that had begun to elapse before the entry into force of Law No. 27,426 of December 29, 2017. Therefore, Decree No. 110/2018 allows the employer to require a worker who reaches 70 years of age to begin legal processes for retirement.

On December 28, 2017, the Argentine Congress enacted the tax reform law. The main taxes that are modified are those related to social security contributions, taxes on corporate and personal profits, bank credits and debits, gross income, stamp tax, value added tax, elimination of internal customs (subject to agreement with the provinces), environmental taxes (CO2) on fuels, transfer taxes on real estate and modifications to the customs code. The reform is to be implemented within one and five years (depending on each modification), which is expected to provide predictability to the changes and support the fiscal sustainability of the reform. These tax reforms are designed to promote investment, competitiveness and quality employment, by reducing tax evasion, to comply with the proposed fiscal goals and to move towards sustained development of the Argentine economy. Law No. 27,541 published on December 23, 2019 by Executive Order No. 99/19 declared a public emergency in financial, tax, administrative, pension, tariff, energy, health and social matters. The above mentioned law contains, among other issues, aspects related to retirement, changes in retirement assets, an increase in salaries set by the national executive power on a quarterly basis, the creation of a new tax of 30 percent applicable to the purchase of foreign currency , the portion of the tax on debits and credits is increased in the case of cash withdrawals with the exception of holders of micro and small enterprises according to the terms of section 2 of Law 24467. It also established regulations regarding personal property tax, income tax and internal taxes, among others. Moreover, the electricity and natural gas utility rate tables “within national jurisdiction” were fixed for 180 days.

We cannot assure you that these laws adopted by the Argentine Congress will achieve their stated goals or otherwise improve economic conditions in Argentina. If these laws are unsuccessful, they could have an adverse effect on the Argentine economy and, consequently, on our business, results of operations and financial condition.

 

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There is uncertainty regarding financial sector reforms.

On January 10, 2018, the Argentine Executive Branch issued Decree No. 27/2018 (the “DNU”) whereby a series of new measures were implemented in order to facilitate public and private action by deregulating various markets and activities and simplifying standards. Much of the DNU is aimed at the financial sector, including Chapters II (on companies), III (on the trust fund for the development of entrepreneur capital MiPyMES (micro, small and medium businesses)), IX (which regulates the Argentine guarantee fund), X (on reciprocal guarantee companies), XVI (on the sustainability guarantee fund), XIX (on insurance), XX (on the actions of the financial information unit) and XXII (on access to credit and financial inclusion). The DNU aims in general to reduce government bureaucracy, simplify processes, improve the operation of the financial system and generate competition. We can provide no assurance that the DNU will achieve is intended results. Any failure of the DNU to achieve its goals could have a material adverse effect on our business, results of operations and financial condition.

ITEM 4. INFORMATION ON THE COMPANY

Recent Political and Economic Developments in Argentina

In 2018 activity, measured by GDP (Gross Domestic Product), declined by 2.5% in Argentina due to a severe drought and depreciation of the peso, in a fiscal austerity and very tight monetary policy scenario. Towards the end of September 2018, a new exchange-rate and monetary scheme was announced defining a floating band for the peso and reinforcing the contractionary tone of monetary policy. This scheme was maintained until the end of April 2019, when tensions on the exchange rate increased again, adding to the challenging inflation data of March 2019, leading the BCRA and the IMF to agree that the BCRA could intervene on the foreign exchange market at its discretion, rendering the floating band just a reference. This scheme controlled exchange rate volatility, in addition to the announcement of a freeze in utility rates, began a process of inflation deceleration.

Meanwhile, in April 2019 the IMF disbursed US$10.8 billion and in July 2019 it disbursed an additional US$5.4 billion. As a result, the undisbursed balance was reduced to US$44.9 billion of the total US$57.0 billion committed in the program signed in 2018.

Primary elections were held on August 11, 2019 leading to an adverse market reaction, declines in the exchange rate and an increasing lack of confidence in Argentine assets. The prices of Argentine government securities fell by 20% while local companies’ shares dropped more than 40% over a few days, while the U.S. dollar exchange rate exceeded Ps. 60 which implied a depreciation of more than 25% in just four days. The Central Bank was forced to intervene in the market, with relatively little success, by selling approximately US$2 billion from international reserves.

With access to international and domestic debt markets effectively closed due to, among other issues, Argentine country risk reaching 4,500 points, and in order to avoid default, the government decided to reprofile the short-term Argentine sovereign debt, and announced the beginning of a renegotiation with the IMF. The reprofiling measure affected approximately US$9 billion of short-termArgentine-law governed sovereign debt and primarily affected private sector investors.

Due to the strong macroeconomic instability, accompanied by the significant depreciation of the peso, the Central Bank decreed a series of measures aimed at restricting the exchange market. The main ones are the purchase limit of US$10,000 per month and the requirement that financial entities receive authorization in order to pay dividends.

Presidential elections took place on October 27, 2019, and the ticket of Alberto Fernández and Cristina Fernández de Kirchner (“Frente de Todos”) was elected in the first round, confirming the results obtained in the primary elections in the previous August.

In order to avoid an uncontrolled loss of reserves and minimize the volatility of the exchange rate, on September 1, 2019 the Central Bank decreed a tightening of the restriction on the purchase of currency. For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives.

Alberto Fernández assumed office on December 10, 2019. The first measures of the new administration were aimed at increasing taxes as well as new expenditures benefitting the most vulnerable sectors of the population. These measures are mainly contained in the Social Solidarity and Productive Reactivation Law. In addition, in the same line with the former administration, the government decided to again reprofile US$9 billion of short-termArgentine-law governed sovereign debt which same debt had already previously been reprofiled).

 

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In the year ended December 31, 2019, GDP fell 2.2 %, while inflation reached 53.8% and the peso depreciated 54.8%.

Economic Data

 

  

Economic Activity

During 2018 economic activity measured by GDP fell 2.5% compared to 2017, which followed a 2.7% growth in 2017. For 2019 the GDP decreased by 2.2% primarily due to decreases in consumption and investment, due to uncertainty in a highly restrictive monetary and fiscal scenario.

The decline in activity eroded the labor market in 2019, with the unemployment rate increasing to 9.8%, an increase of 0.7 percentage points from the 9.2% recorded in 2018.

 

  

Prices

The domestic CPI increased by 47.6% in 2018, reflecting an acceleration of inflation compared to 24.8% in 2017, mainly due to the exchange market and financial crisis during 2018. Core inflation reached 47.7% in 2018. Healthcare prices were the most affected, increasing by 66.8% during 2018, followed by food and beverages which increased 51.2%.

The domestic CPI increased by 53.8% in 2019, reflecting an acceleration of inflation compared to 47.6% in 2018, mainly as a result of the depreciation of the peso, partially offset by government intervention in the prices of several utilities in the first quarter of 2019.

Core inflation reached 56.7% as a result of the effect of devaluation on prices. Healthcare prices increased by 72.1%, communication prices increased by 63.9%, household furniture and maintenance prices increased by 63.7%, food and beverages prices increased by 56.8% and miscellaneous goods and services increased by 55.9%.

 

  

Public Finances

The domestic public sector recorded a primary deficit of Ps.95,122 million in 2019, accounting for approximately 0.44% of GDP. This result reflects a 72.0% decrease compared to the deficit in the previous year.

Primary public spending showed ayear-on-year 37.2% increase, while revenues from the public sector increased 51.4%. Repayment of interest on public debt increased by 86.2% as a result of both an increase in indebtedness and the effect of devaluation on liabilities denominated in foreign currency. The overall deficit reached Ps.819,407 million, accounting for a 12.6% increase compared to 2018.

With respect to spending, in 2019 there was ayear-on-year 12.4% increase in capital spending while subsidies to economic sectors rose by 20.3%, to partially offset the effect of devaluation on the price of energy. Total welfare benefits increased by 46.6%, operating expenditures increased by 31.6% and transfers from the federal government to the provinces increased by 61.3%.

Tax revenues rose by 48.2% in 2019 primarily due to increases in revenues from export duties, which increased by 304.6%.

 

  

External Sector

The trade surplus in 2019 reached US$15,990 million, a sharp reversal compared to the deficit of US$3,823 million in the previous year. This result is a consequence of exports totaling US$65,115 million, 5.7% higher than the previous year. Exports of primary products increased by 25.1%, agricultural manufacturers, which represent 36.8% of total exports, grew by 4.5% while industrial exports fell by 6.8% and fuel and energy exports increased by 4.1%.

 

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On the other hand, imports reached US$49,125 million in 2019, a 25.0% decrease compared to 2018. All categories of imports experienced decreases as a result the contraction of the economy and the impact of devaluation of the peso. The greatest decline was in passenger motor vehicles which decreased by 55.2%.

The current account deficit of the balance of payments amounted to US$3,631 million in 2019, 86.7% lower than the previous year. The external sector experienced a rapid adjustment accelerated by foreign exchange controls.

In the foreign exchange market, the peso depreciated by 58.4% in 2019, and the exchange rate reached 59.90 Ps./US$ as of December 30, 2019. The market experienced three main phases during the year. From the end of 2018 to April 2019, the Central Bank used exchange rate bands, allowing the exchange rate to fluctuate within certain limits, but foreign exchange was very volatile, the peso depreciated by 16%, and the exchange rate reached 44.01 Ps./US$. At the end of April the IMF and the BCRA agreed to allow a managed floating exchange rate, which allowed the Central Bank to freely intervene in order to mitigate the effect of volatile periods. During the three following months, from May to July, the peso fell 3.2% against the U.S. dollar to 45.40 Ps./US$. However, on August 12, 2019, the primary election result triggered asell-off of Argentine assets, causing the peso to depreciate 31.9%.

International reserves were US$44,781 million as of the end of the year, a US$21,025 million decrease compared to the balance as of December 31, 2018, mainly due to payments on debt, intervention in the foreign exchange market and a decrease in banks’ legal required deposits due to the drain of deposits in U.S. dollars.

Monetary Policy

In 2019, the monetary policy regime was characterized by a stringent control of the monetary base and the definition of an exchange rate “floating zone”. This scheme was implemented in the context of astand-by agreement with the IMF, coupled with an objective of fiscal consolidation. The aim of this plan was to stabilize inflation and reduce foreign exchange market pressures, after the sudden reversal of capital flows suffered by the country in 2018. The Central Bank set a target of 0% growth of the monetary base throughout the year (as adjusted to deal with seasonality issues and foreign exchange interventions).

During the first two months of 2019, this policy was successful in bringing down inflation and nominal volatility of the economy. But a new episode of foreign exchange volatility arose in March and April, contributing to a new acceleration of inflation. Against this backdrop, the BCRA tightened even more the monetary targets for the year (suspending the seasonal increases of monetary basepre-scheduled for June and December) and announced on April 29, 2019 that it would start to intervene directly in the foreign exchange market in the event of excessive volatility. These announcements stabilized the currency until the primary elections. The exchange rate started the year at 37.93 Ps./US$ and, after all the aforementioned events, it finally stood at 45.40 Ps./US$ on the last trading day before of the primary elections, August 9, 2019.

In the primary elections of August 11, 2019, President Macri was clearly defeated by Alberto Fernández, the candidate of the “Frente de Todos” party. The unexpectedly wide difference in favor of Fernández was perceived by the market as a very disruptive event, and the currency lost nearly 30% of its value in the following three days, from 45.40 Ps./US$ on Friday, August 9, 2019, to 58.83 Ps./US$ on Monday, August 12, 2019, in a context of high uncertainty about the future of the Argentine economy. The BCRA started to sell reserves to stop the declines. A week after the elections, the Minister of Finance, Nicolás Dujovne, resigned, and Hernán Lacunza succeeded him.

In the face of significant (and increasing) capital outflows and high short-term debt maturities due within the subsequent weeks, Minister Lacunza unilaterally reprofiled short-term treasury bills (US$ and peso-denominated), postponing the maturities of those securities for 180 days (except for those in the hands of individuals). That decision triggered an acceleration of capital outflows and foreign exchange deposits withdrawals from domestic Argentine banks. In this context, international reserves fell 18.4% (US$ 12.2 billion) between August 9 and August 30, 2019.

In order to deal with this situation, President Macri issued a decree (No. 619/2019) instructing the BCRA to implement foreign exchange restrictions, combined with the obligation for exporters to sell in the official market all the dollars derived from their exports. Thus, the monetary authority set a monthly limit of US$ 10,000 for foreign currency purchases without specific application (i.e., it set no limits for imports or debt repayments), among other measures, effective beginning September 1, 2019. These regulations helped to reduce capital outflows and foreign exchange volatility until the presidential elections on October 27, 2019.

 

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However, international reserves continued falling, reaching US$ 43.5 billion on October 25, 2019 (from reserves of US$ 66.3 billion registered on August 9, 2019), as the foreign exchange deposit withdrawals went on at a fast as the government used nearly US$ 8.2 billion to meet debt obligations, and the BCRA kept selling dollars and buying pesos in the market to stop devaluation pressures (US$ 7.4 billion) during this time frame.

Alberto Fernández won the presidential elections on October 27, 2019, and the same night the BCRA reduced drastically the limit for foreign currency purchases. For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives. As a result, foreign exchange demand in the official market dwindled nearly to zero, while alternative and parallel exchange rates started to rise and gain relevance in terms of volume.

The new president assumed office on December 10, 2019. A week later, the government sent the “Social Solidarity and Productive Reactivation Law” to the Congress, which was passed on December 23 (Law Nº 27.541). Among other measures, by this law the government increased export taxes and levied a 30% tax on foreign exchange purchases for tourism, expenditures abroad, or without specific application. The other previously implemented foreign exchange restrictions remained unchanged.

The main monetary policy instrument throughout the year was the LELIQ, a BCRA security created to manage monetary conditions of the economy, and its interest rate was the key reference for the financial system. As the monetary policy was particularly stringent all year long, the LELIQ rate remained at high levels throughout the year, with an average annual rate of 65%. Alberto Fernández stated clearly his intention to prompt a fast and marked monetary easing during the first months of his term. During December 2019, the monetary policy rate was lowered from 63% to 55%, with a subsequent increase in the monetary base. The other interest rates of the economy have evolved consistent with the evolution of the LELIQ rate.

As a result of all these events, the monetary base grew by 29.7% in the year, with a marked difference between its evolution during the period from December 2018 to October 2019 (when the monetary base grew by only 3.7%) and its behavior from October to December 2019 (when it grew by 25%). The current account balances of banks at BCRA increased by 23.7% (as the BCRA reduced minimum liquidity requirements throughout the year), while the cash held by the public rose by 35%. The monetary aggregate M2 (which includes cash plus sight deposits), measured in balances, grew by 34.9% in 2019, in line with the behavior of the cash demand.

Financial System

All comparisons of the financial system contained in this annual report on Form20-F are presented in nominal terms.

The rise in interest rates, strong depreciation of the peso and economic uncertainty had an impact on the operation of the financial system throughout the year, especially after the primary election in August. Total deposits denominated in pesos grew 23.3% during 2019, while deposits held exclusively by the private sector increased by 35.3%.

Sight deposits grew 45.9% during 2019 while term deposits grew just 24.7%. Term deposits indexed by the benchmark stabilization coefficient/purchasing power unit (CER/UVA) increased 18.9% during 2019 in comparison with 24.8% for traditional terms deposits.

Dollar-denominated deposits fell 32.9% during 2019, with most of the declines after August 2019.

The loans growth performance in 2019, both for individuals and companies, was negatively impacted mainly due to high interest rates, the Central Bank tight monetary policy and high uncertainty. The stock of peso-denominated loans granted to thenon-financial private sector grew by 18.3% in the year. Disbursements were led by credit cards which rose by 47.0%. Dollar-denominated loans fell by 32.5% in dollar terms; in line with U.S. dollar-denominated deposits.

 

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The movement of lending and borrowing rates was highly influenced by the rise in the BCRA policy rate (Leliq rate) which was at 53.69% in January 2019 but reached almost 78.37% in September, before ending at 55.00% on December 30, 2019.

The Badlar interest rate (interest on deposits in excess of Ps.1 million) of private banks, stated in monthly averages, was 45.9% at the start of 2019 and rose to 59.85% in September, decelerating to 41.75% in December 2019.

A. History and development of the company

BBVA Argentina, an Argentine corporation (sociedad anónima or “S.A.”), was duly incorporated under the name Banco Francés del Río de la Plata S.A. on October 14, 1886. The Bank has registered its office in Avenida Córdoba 111 31st floor, C1054AAA, Ciudad Autónoma de Buenos Aires, Argentina; telephone number54-11-4346-4000. The Bank’s agent in the United States for U.S. federal securities law purposes is CT Corporation System, currently with offices at 28 Liberty Street, New York, New York 10005.

BBVA Argentina’s originalby-laws were approved on November 20, 1886 by a decree recorded in the Public Registry of Commerce of the City of Buenos Aires, and the last amendment was recorded on October 17, 2019. Pursuant to its current corporateby-laws, the Bank will terminate its activities on December 31, 2080, unless this term is extended by the shareholders. On April 24, 2019, the ordinary and extraordinary general meeting of shareholders approved the change of the Bank’s corporate name to “BBVA Argentina S.A.” and the consequent amendment to the Bylaws to reflect the new corporate name. Notwithstanding the foregoing, in response to a BCRA requirement and based on the authorization granted by the shareholders’ meeting, the Board of Directors, at its meeting held on May 28, 2019, decided to adopt the denomination “Banco BBVA Argentina S.A.”.

The Bank is supervised by the Central Bank of Argentina, an entity that establishes valuation and accounting criteria, the rules on liquidity and capital requirements as well as the reporting systems of Argentine financial institutions. It is also subject to inspections by the Central Bank, based on which it is assigned a “rating”. See “Item 4. Information on the Company—F. The Argentine Banking System and its Regulatory Framework”.

On March 8, 2019, the respective boards of BBVA Argentina and BBVA Francés Valores S.A. approved the merger of the two companies, and on April 24, 2019, the respective shareholders’ meetings approved the transaction. Currently, the transaction is pending authorization by the Argentine Superintendence of Corporations (“IGJ”).

On March 26, 2019 Mr. Jorge Bledel presented, and the Board of Directors accepted, his resignation as member of the Board. The shareholders’ meeting held on April 24, 2019 elected Mrs. María Isabel Goiri Lartitegui to succeed Mr. Jorge Bledel, and she became the new chairwoman of the Board. Through Resolution No. 161 dated July 25, 2019, the BCRA declined to comment on the appointment of Ms. Goiri Lartitegui as chairwoman of the Board.

On April 24, 2019, the ordinary and extraordinary general meeting of shareholders approved the change of the Bank’s corporate name to “BBVA Argentina S.A.” and the consequent amendment to the Bylaws to reflect the new corporate name. Notwithstanding the foregoing, in response to a BCRA requirement and based on the authorization granted by the shareholders’ meeting, the Board of Directors, at its meeting held on May 28, 2019, decided to adopt the denomination “Banco BBVA Argentina S.A.”. The BCRA through resolution No. 166 dated July 25, 2019 made no remarks on said change of corporate name, which has been duly registered before the IGJ. In addition, in the aforementioned shareholders’ meeting amendments to sections 6 and 15 of the bylaws was approved. The revised bylaws were duly registered before the IGJ on October 17, 2019, under No. 21332 Book 97 of stock companies.

BBVA Tower

On July 10, 2013, BBVA Argentina and Consultatio S.A. signed a sale and purchase agreement, under which the Bank acquired 23 of the 33 floors of the building under construction by Consultatio S.A., which became the “BBVA Tower”. This was the largest corporate headquarters real estate development project in the Republic and was part of the plan designed in 2010 by the Bank to unify its core areas, which were divided among 10 buildings in the City of Buenos Aires.

The BBVA Tower is the image of leadership, innovation and excellence, and a clear evidence of the commitment of BBVA Argentina to its employees as well as to the Republic. It meets the highest sustainability standards and was awarded a LEED Gold Certification (Leadership in Energy & Environmental Design), recognizing that the building is environmentally sustainable and a healthy space to work in.

 

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With more technology and new services which improve workplace quality in line with open space corporate layout, the tower provides spaces that allow working in areas without limits or offices dividing the employees. It promotes more fluid and transparent communication, team work and the exchange of knowledge and experiences.

In the last quarter of 2016 personnel began moving to the new headquarters, a process that was completed in April 2017.

As a result of the completion of the process, the Bank has decided to offer for sale certain buildings where its central offices were located. At the Board meeting of June 26, 2018, it was decided to accept a purchase offer for the properties located at Reconquista 40, Presidente Perón 362, Maipú 356 functional unit 16, Bolívar 501 and Mexico 628 functional unit 1, all within the Autonomous City of Buenos Aires. On July 5, 2018, the sale of these properties was finalized.

B. Business overview

BBVA Argentina is a subsidiary of Banco Bilbao Vizcaya Argentaria S.A., its main shareholder since 1996. In Argentina, it is one of the leading private financial institutions since 1886. Nationwide, BBVA Argentina offers retail and corporate banking to a broad customer base, including individuals, SMEs, and large companies.

BBVA Argentina’s corporate purpose is to bring the age of opportunities to everyone, based on its customers’ real needs, providing the best solutions, and helping them make the best financial decisions through an easy and convenient experience. The institution relies on solid values: “The customer comes first, we think big and we are one team”. At the same time, its responsible banking model aspires to achieve a more inclusive and sustainable society.

The Bank was one of the first companies to be listed on the Buenos Aires Stock Exchange (now ByMA), quoting since 1888 (ticker: BBAR). It also has been listed on Mercado Abierto Electrónico (MAE) since 2018. Its shares in the form of American Depositary Shares (ADSs) have been listed on the New York Stock Exchange (NYSE) since 1993 (ticker: BBAR) and on the Madrid-based Mercado de Valores Latinoamericanos (LATIBEX) since December 1999 (ticker: XBBAR).

As of June 7, 2019, the BBVA Group adopted a globally standardized trademark, “BBVA”, in addition to a new company logo in line with the digital world. This new identity reflects the BBVA Group’s values, especially “We are one team”, which emphasizes the importance of the people who work within the BBVA Group and their commitment to the BBVA project. In Argentina, the former BBVA Francés is now BBVA Argentina. The legal name has been changed to Banco BBVA Argentina S.A., which was approved by the BCRA on July 25, 2019. Following this new brand identity, the Bank’s symbol on NYSE, MAE and ByMA exchanges were changed to BBAR, and on LATIBEX it was changed to XBBAR.

As of December 31, 2019, the Bank had total consolidated assets of Ps.454.2 billion, of which Ps.195.1 billion were the total loan portfolio. Regarding liabilities, the Bank had consolidated total liabilities of Ps.369.8 billion, of which Ps.294.0 billion were total deposits. Total shareholders’ equity was Ps.82.8 billion, on a consolidated basis. Consolidated net income for the year ended December 31, 2019, was Ps.16.0 billion and consolidated net loss for the year ended December 31, 2018 was Ps.2.3 billion.

As of December 31, 2019, BBVA Argentina is the fourth largest privately owned bank in Argentina in terms of private loans, with 6.1% of total banking system loans on an unconsolidated basis, and 7.7% of total banking system loans on a consolidated basis. Market share as of December 31, 2019 for retail loans (including personal, mortgage, credit card and pledge-loans) was 7.5% on an unconsolidated basis and 8.6% on a consolidated basis. For commercial loans (including discounted documents, overdrafts and other loans) market share as of December 31, 2019 was 6.3% on an unconsolidated basis 6.7% on a consolidated basis. As of December 31, 2019, BBVA Argentina is the third largest local, private bank in Argentina in terms of private deposits, with a 7.2% market share of total banking system deposits.

As presented in this annual report on Form20-F, market share data is based on data published by the Central Bank which has not been inflation adjusted. As such, certain information presented in this annual report as adjusted for inflation may not be directly comparable to information published by the Central Bank.

Through its universal banking platform, the Bank provides a broad range of financial andnon-financial services both to individuals and companies throughout Argentina, going across all segments of the population, including retail and commercial banking, insurance, asset management, securities brokerage, and investment banking products and services. BBVA Argentina believes the wide range of financial solutions offered to its customers, complemented by unique strategic alliances and partners, as well as the capacity to leverage the BBVA Group’s global expertise, relationships and technological platform, gives it a significant competitive edge compared to other Argentine companies in the financial sector. Such competitive advantages place it in a privileged position to capture opportunities and capitalize on the potential consolidation of a fragmented banking sector.

 

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The Bank manages the following entity-wide business lines:

 

  

Retail banking, through which it offers financial services to individuals across all income segments. The Bank’s main retail banking products include checking and savings accounts, time deposits, credit cards, personal and secured loans (primarily automobile loans), mortgages, insurance and investment products. Despite the Bank’s historically strong presence within the middle-income and affluent segments of the population, its products and distribution channels are designed to attract clients across all client segments. As of December 31, 2019, there were approximately 2.6 million active retail banking clients, compared with 2.5 million active retail banking clients as of December 31, 2018. The Bank’s retail banking strategy is focused on growing the client base, expanding its product and services offered, particularly in underdeveloped products (such as mortgages) and products where it sees potential increase in market share (such as personal loans), apart from leveraging its technological platform to enhance clients’ banking experience. The Bank’s market share for personal and mortgage loans as of December 31, 2019, was 5.0% and 3.2% respectively. In terms of secured loans, the Bank’s market share was 1.1% on an unconsolidated basis and 14.5% on a consolidated basis. In terms of credit card loans, the Bank’s market share was 12.2% and 15.4% for financing and consumption, respectively. As of December 31, 2019, 2018 and 2017, we had total loans and advances of Ps.109.5 billion, Ps.118.4 billion and Ps.123.8 billion, respectively, and total deposits of Ps.201.3 billion, Ps.277.8 billion and Ps.248.0 billion, respectively.

 

  

Small andmedium-sized companies(SMEs)through which the Bank offers financial services primarily to local private-sector companies. The Bank’s main SME products include financing products, factoring, checking accounts, time deposits, transactional and payroll services, insurance and investment products. As of December 31, 2019, the Bank had more than 58 thousand SME clients. Small andmedium-sized companies are a key element for economic growth in Argentina, and the Bank is focused on expanding the number of clients it serves and on being a strategic ally to its SME clients, supporting them with tailored products and transactional solutions, as well as with differentiated customer support through its 251 branches. As of December 31, 2019, 2018 and 2017, we had total loans and advances of Ps.47.0 billion, Ps.80.7 billion and Ps.97.6 billion, respectively, and total deposits of Ps.68.2 billion, Ps.75.7 billion and Ps.71.6 billion for the same periods, respectively.

 

  

Corporate and investment banking (CIB), through which the Bank offers financial services to some of the largest Argentine corporations and multinational companies operating in Argentina. Corporate banking is divided by industry sector: consumers, heavy industries, and energy, providing customized services to large companies. In addition to the products offered to SME company clients, corporate and investment banking clients are provided with global transaction services, global markets solutions such as risk management and securities brokerage, long term financing products including project finance and syndicated loans, and corporate finance services including mergers and acquisitions and capital markets advisory services. As of December 31, 2019, the Bank had more than 700 corporate banking clients, which included substantially all of the largest corporates and multinational companies in Argentina. Within the CIB business line, the Bank is focused on leveraging the deep expertise of its industry-focused relationship executives, supported by the BBVA Group’s global network, to continue to provide bespoke global financial solutions to its corporate client base. BBVA Argentina is focused on being a trusted partner for its corporate clients as they seek to finance investment opportunities, particularly within certain sectors of the economy where investment has lagged such as telecommunications, energy and infrastructure. As of December 31, 2019, 2018 and 2017, we had total loans and advances of Ps.38.6 billion, Ps.80.3 billion and Ps.69.4 billion, respectively, and total deposits of Ps.24.5 billion, Ps.45.6 billion and Ps.30.0 billion for the same periods, respectively.

BBVA Argentina offers its products and services through a wide multiple-channel distribution network with presence in all the Argentine provinces and in the City of Buenos Aires, servicing 2.7 million active clients as of December 31, 2019. This network includes 251 branches, which provide services to the retail segment and to small andmedium-sized companies, corporations and institutions. Complementing the distribution network, as of December 31, 2019 there were 15in-company branches, six points of sales (contact points that only offer automated services and sales support, but have no approval by the BCRA to operate as a branch), two points of express support (branches withoutin-person customer service), 887 ATMs and 862 self-service terminals (“SSTs”, (terminals that allow transactions without the need of a personal code or ID number). As of December 31, 2018, the Bank had 252 branches, 18in-company branches, 7 points of sales, one point of express support, 845 ATMs and 797 SSTs.

Additionally, BBVA Argentina provides an electronic banking service, a modern, secure and functional internet banking platform (bbva.com.ar) and mobile banking apps such as BBVA Móvil and Go. As of December 31, 2019, the Bank had 1.7 million active digital clients and 1.4 million mobile clients. The Bank (including subsidiaries) had a total number of 6,321 employees as of December 31, 2019 compared to 6,104 employees as of December 31, 2018.

 

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The distribution network is complemented by commercial alliances and distribution channels. Commercial alliances include Lan Argentina S.A. (LATAM Airlines), MOVE Concerts Argentina S.A. (MOVE), Oymyakon S.A. (PopArt) and Medios y Contenidos Producciones S.A. (RGB Entertainment), the last three within the entertainment sector. Distribution channels include credit card programs with Club Atlético River Plate Asociación Civil and Club Atlético Boca Juniors Asociación Civil, Argentine soccer clubs, Ritenere S.A. (La Caja Seguros) within the insurance sector, as well as the agreements with automobile companies Peugeot Citroen, Renault and Volkswagen. All of them have allowed the Bank to expand its client reach cost-effectively, and further expand its points of presence while enhancing its value proposition.

BBVA Argentina has invested in its physical and digital distribution network, making it possible to offer a differential, flexible, convenient banking experience to its customers. In addition, the Bank considers that with the existing distribution structure, it has the necessary reach and scale to facilitate expected growth while improving its operating efficiency, number of customers and products. The following table sets forth information regarding our footprint by province as of December 31, 2019:

 

       Points of Express               In-Company 
   Branches   Support   ATMs   SSTs   Points of Sale   Banks 

Ciudad Autónoma de Buenos Aires

   83    1    283    277    1    4 

Buenos Aires

   85    0    337    293    2    9 

Catamarca

   1    0    3    3    0    0 

Córdoba

   15    0    32    48    0    0 

Corrientes

   2    0    9    6    0    0 

Chaco

   2    0    7    9    0    0 

Chubut

   5    0    15    14    1    0 

Entre Ríos

   6    0    15    16    0    0 

Formosa

   1    0    5    6    0    0 

Jujuy

   1    0    2    3    0    0 

La Pampa

   2    0    3    7    0    0 

La Rioja

   1    0    4    4    0    0 

Mendoza

   11    0    33    36    0    0 

Misiones

   2    0    6    10    0    0 

Neuquén

   4    0    14    12    0    0 

Rĺo Negro

   3    0    10    11    0    1 

Salta

   2    0    7    10    0    0 

San Juan

   2    0    10    11    0    0 

San Luis

   2    0    6    7    0    0 

Santa Cruz

   3    0    9    7    0    0 

Santa Fe

   11    0    43    45    2    1 

Santiago del Estero

   2    0    7    7    0    0 

Tucumán

   3    1    18    16    0    0 

Tierra del Fuego

   2    0    9    4    0    0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   251    2    887    862    6    15 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Strategy

BBVA Argentina has identified transformation and growth as the drivers of its strategy.

Transformation

BBVA Argentina focuses on transformation based on the conviction that client experience will be the decisive differentiating factor in the success of the Bank in the coming years. Moreover, the financial intermediation activity is aligned with the technological revolution reshaping most industries, forcing the Bank to reconsider and redesign the model to service, attract and interact with customers in general.

The following describes the Bank’s primary transformative initiatives in 2019:

Digital Transformation

The Bank’s digital transformation began in 2015 with an expanded digital presence in Google and Facebook. In the 2017-2019 period the Bank’s digital strategy became more sophisticated by adding leading digital applications and focusing on excellence in user experience and digital sales solutions, thus supplementing the Bank’s traditional channels to become more productive and increase the number of clients.

BBVA Argentina believes that this transformation distinguishes it from its competitors in terms of quality of service, while seeking to leverage data and technology to design product and service offerings that meet customer needs.

 

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The Bank’s digital transformation strategy is primarily focused on increasing client self-service through digital tools, growing in an open market and improving points of physical contact with clients. BBVA Argentina has been focused on developing an omni-channel service model, in which physical branches are just one way among many of connecting with clients. While the Bank has an extensive countrywide branch network present in all provinces, the role of branches is changing and is expected to continue to change. More and more value-added transactions are expected to be served personally, while other types of transactions will be increasingly undertaken through digital channels.

In sum, the Bank’s digital transformation process is an essential element of its strategy, from both business and growth perspectives, which enables it to connect and serve clients in a manner consistent with their expectations, as reflected in the Bank’s consistently high NPS (Net Promoter Score). It also contributes to the Bank’s efficiency, paving the way for a better use of resources and delivering a competitive advantage.

Cultural Transformation—Agile

In 2019 the Bank undertook a cultural transformation under the name and concept of “agile”, with a focus on always putting the customer first and finding solutions to their needs. Under this new model the Bank implemented a new organizational structure, providing greater resources to teams and new working methodologies including reorganization of roles and tasks, open communication and synergies fostered by open plan workspaces, and the latest technology available.

Growth

In 2019 BBVA Argentina reaffirmed its goal to increase its market share and is now one of the leading banks in the Argentine financial system. The Bank has implemented an ambitious growth plan which includes the expansion of the customer base, both for individuals and companies, as well as expanding the size of its balance sheet. This growth plan, which was implemented by BBVA Argentina beginning in 2017, continued during 2019 in terms of client base expansion, with an increase of over 137 thousand active clients during 2019, reaching an aggregate of 2.6 million retail clients as of December 31, 2019. With respect to small andmedium-sized companies, BBVA Argentina reorganized the management model for this client segment, providing service to small andmedium-sized companies throughout the entire branch network, thus enabling greater penetration of and approach to smaller companies, achieving a client base of approximately 48 thousand companies as of December 31, 2019.

2019 Highlights

BBVA Argentina closed its fiscal year ended December 31, 2019 as one of the leading financial institutions in the Argentine financial system.

The total loan portfolio of BBVA Argentina amounted to Ps.195.1 billion as of December 31, 2019, which reflected a 30.1% decreaseyear-on-year, while private loans amounted to Ps.190.0 billion, decreasing 28.2%year-on-year. As a result, the Bank had a private loans consolidated market share of 6.9% as of December 31, 2019 (based on BCRA market information).

The Bank’s growth plan has focused on products and segments that the Bank considers vital for economic development of both customers and Argentina as a whole in the coming years. Loans decreased by 30.1% from December 31, 2018 to December 31, 2019, with the Bank’s market share falling from 7.7% as of December 31, 2018 to 6.9% as of December 31, 2019, a decrease of 76 bps (based on BCRA market information).

BBVA Argentina has been focused on attempting to gain market share for its core products in a recessionary and volatile economic environment. It increased its share in the credit card business, both in financing and consumption, which were 12.2% and 15.4%, respectively, increasing 128 bps and 139 bps, respectively, from December 31, 2018 to December 31, 2019. In the retail business there was a decrease in personal loans market share, which was 5.0% as of December 31, 2019, a decrease of 29 bps compared to its market share as of December 31, 2018 (based on BCRA market information). In addition, the market share for commercial loans decreased 300 bps over the same period (based on BCRA market information).

With respect to liabilities, as of December 31, 2019 total deposits amounted to Ps.294.0 billion, decreasing 26.4% over the prior twelve months, over which period our sight account deposits (checking and savings accounts) fell 22.6%, whereas time deposits decreased 34.7%. As of December 31, 2019, saving and checking accounts amounted to Ps.201.8 billion. The Bank’s market share for private sector deposits decreased 86 bps reaching 7.1% as of December 31, 2019 (based on BCRA market information).

The Bank considers funding from deposits as a vital component in its financing given the lack of depth of the Argentine capital markets and difficulties of Argentine companies in accessing international capital markets, especially in the retail and middle market segments.

 

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On December 12, 2019, BBVA Argentina issued Class 28 of its floating rate corporate bonds for Ps.1,967 million (nominal value). These bonds have a maturity of six months after issuance and pay quarterly coupons at a floating rate of Private BADLAR+4%.

Business Lines

Below is an overview of each of our principal business lines and their evolution during 2019.

Retail Banking

In 2019, Retail Banking focused on the following products:

Personal Loans

BBVA Argentina has continued offering a broad range of products across all sales channels, and has taken strategic pricing actions during the year, which yielded good spreads.

As of December 31, 2019, BBVA Argentina had a total market share of 5.0%, a decrease of 30 b.p. compared to December 31, 2018 (based on BCRA market information).

The Bank has maintained its product communication campaign in the media and has continued to grow in web and mobile placement, with digital sales accounting for 61% of total sales during 2019.

Mortgages

During 2019, the Bank reinforced the several business alliances it has built through the real estate channel, and its relationships with various developers and search portals.

The mortgage market during 2019 was affected by the overall situation of the real estate market, which has continued displaying a declining trend. As of December 31, 2019, BBVA Argentina accounted for 3.15% of the total market, a decrease of 21 b.p. compared to 3.36% as of December 31, 2018.

Car Loans

Despite 2019 not being favorable for the car industry, the Bank has advanced several business opportunities:

 

  

Development of its motorcycle financing business. During 2019, more than 50% of the transactions of this product segment came from BBVA Argentina’s alliances with motorcycle companies.

 

  

During 2019, the Bank has digitalized the operation of secured loans, making significant progress to deploy the migration to digitally-signed forms and secured loans during 2020, which will eliminate a substantial amount of paper, and reduce the need for handling and filing paper-based documents.

 

  

Atyear-end, BBVA Argentina and its affiliates recorded a 43% share in origination of secured loans to buy new vehicles for personal use, and accounted for 14.48% of the total market share in pesos, including second-hand, utility, agricultural, and heavy vehicles.

The Bank has also expanded the scope of its business with PSA. In this regard, PSA Finance endeavored to develop the wholesale financing business for the brands Peugeot – Citroën – Ds (sales from car manufacturers to dealers) from PSA, with an ambitious financial plan.

Credit Cards

 

  

Sponsorships: The Bank continued with its sponsorship agreements in the form of alliances with Move Concerts, RGB and Popart (entertainment production companies).

 

  

Alliances—BBVA Go: BBVA Argentina keeps developing its reward platform, including the major spending categories, by advertising discounts and installment plans, both for customers andnon-customers. BBVA GO kicked off its new brand, reaching 1.1 million downloads in 2019, with a monthly average activity level of nine sessionsper userand a NPS of 61%.

 

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LATAM Pass: During 2019, the Bank completed promotional campaigns to redeem miles for air tickets and catalog products. Beginning in 2019, customers could check their mile balance through homebanking and BBVA GO. BBVA Argentina’s customers could also buy miles, obtaining a 50% discount off the full price. Premium and Premium World customers enjoy additional benefits in point accrual, access to VIP lounges, and cabin upgrades.

 

  

Merchant Acquisition: The Bank has continued offering the LATAM Pass program and the Credit Card Spot Payment program for merchants processing their credit card transactions with BBVA Argentina, and has developed new channels for this product.

Time Deposits

During 2019, the Bank remained focused on the goal stated in 2018 of increasing its customer base within the Classic and High-income segments, by means of a multi-channel strategy, includingin-branch account executives, private banking, BBVA Investments, Remote or Direct Account Executives, and the web and mobile channels.

The Bank launched new products, such as theOn-line Time Deposit fornon-customers.

Significant progress was made in digitizing Time Deposit customers (more than 65% of certificates of deposits are digital at the end of 2019.

Small andMedium-sized Companies

In 2019, improvements were made in all processes, in line with the development of the market and the needs of SME Banking customers.

 

  

Customer acquisition: The Bank increased the number of new customers by 200% in 2019 compared with the previous year, and by 330% compared with 2017, while enhancing the workflows and response time to open up checking accounts by digital means.

 

  

Self-service: The Bank has continued with its endeavors to develop digital tools, delivering an offering of lending, borrowing and transactional products and services, with utilization levels in excess of 70% in some cases.

 

  

Market share: With specific focus on short-term lending products, during 2019 the Bank led the market share in assignment of checks between public and private banks, leveraging a strategy based on rates which remain stable and competitive, in spite of the economic conditions prevailing during the year, as well as digital tools(web-based and App).

The Bank has continued enhancing its penetration in the smallest SME customer segment. These customers rely on a fewer number of banks and appreciate service quality which, in the case of BBVA Argentina, has been highly regarded by the market.

During 2019, the Bank incorporated more than 68,000 new payroll direct deposits, including approximately 58,000 active customers, having gained more than 19,000 net customers.

In 2019, small andmedium-sized companies banking focused on the following products:

Foreign Trade

Exports in 2019 rose by 9.4%year-on-year, while imports declined by 21.9%.

Furthermore, effective since September 1, 2019, the Argentine Central Bank enacted regulations governing the foreign exchange market, introducing certain amendments and revisions through Communication “A” 6844.

Among other things, the Argentine Central Bank reinstated the obligation of repatriating foreign currency from exports, services, and disposal ofnon-financialnon-produced assets. The Argentine Central Bank also amended the Import Payment Monitoring System (SEPAIMPO), and the guidelines concerning the trading of foreign currency from the export of goods (SECOEXPO), and advance payments and other financing for exports of goods.

For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives.

 

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Some key milestones:

 

  

For ten consecutive quarters, BBVA Argentina has maintained its leadership position in the Argentine Central Bank’s ranking of Financial Institutions engaged in Import Payments, with a 22.4% share as of December 31, 2019.

 

  

BBVA Argentina has ranked second in the Argentine Central Bank’s Ranking of Financial Institutions engaged in Export Collections, with a 14.2% share as of December 31, 2019.

 

  

During 2019, the Bank added 684 active customers. Considering all segments, the year commenced with 6,814 active customers and ended with 7,498.

 

  

During 2019, the use of the BBVA Cash platform reached 77%. Given the regulatory changes, the usage rate during December declined to 63%.

 

  

TheUS-dollar portfolio experienced a strong decline, due to the prevailing economic conditions, totaling US$352 million as of December 31, 2019.

 

  

The portfolio in pesos grew considerably, totaling Ps.2,594 million as of December 31, 2019.

 

  

New digital products to be implemented:

 

  

Payment Orders on BBVA Netcash

 

  

New functionalities on Cash

To keep growing our customer base, digitizing and empowering our business in 2020, the Bank took the following actions:

 

  

Implemented the Second Stage of the product “Transfers Abroad by Individuals” on BBVA Netcash”.

 

  

Adapted interest rates for certain types of customers based on their customer profiles and the types of products used.

 

  

Implemented plans to continue shortening the approval times for assigning new or changing existing ratings.

 

  

Made plans to deploy GPI Swift in February 2020 and expects to make available information to customers for them to be able to follow up on their collections and payments in 2020.

 

  

In light of the recently enacted foreign exchange regulations, began developing new functionalities on cash to give ongoing support to customer digitization and self-service.

 

  

Began work in line with the Cash Management global program,

 

  

Increased presence in the provinces,

 

  

Conducted training workshops addressed to customers to keep them abreast of the changes in foreign exchange regulations,

 

  

Launched marketing campaigns / actions with performancefollow-up.

Agricultural Business

Primary production in 2019 improved compared to the previous year, which year was negatively impacted by the drought.

The 2018/2019 harvest yielded a total of 142 million tons of grains, accounting for a 46% increase compared to the yield from the previous harvest.

The incremental production volumes from the Argentine agro-export sector, which is the major foreign-currency generating sector, had a positive impact on exports in terms of volume, primarily due to the local currency depreciation.

Export duties on the main agricultural and livestock products (meat, milk, corn, wheat, sunflower, and soya-derivatives) were reinstated atyear-end.

As concerns business development, efforts were focused on growing the customer base, with more than 500 new customers added during the year.

 

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During the second half of the year, the Argentine government imposed foreign exchange restrictions and controls, which resulted in a strong decline inUS-dollar denominated loans.

SMEs and Businesses

In July 2019, BBVA Argentina initiated a customerre-segmentation, recognition and allocation process, which involved developing tools to increase the Bank’s penetration among smaller customers (merchants and businesses), with simple and readily available products, with good results among limited partnerships.

In an effort to improve customer service and boost the business, the Bank took the following actions:

 

  

Provided ongoing basic training program for commercial agents and candidates.

 

  

Conducted a training program addressed to all branch managers and back-office managers.

 

  

Delegated credit decision-making power to managers to shorten response times and implementation of an incentive plan focused on goal achievement.

 

  

Increased the penetration of digital products across all segments.

 

  

Introduced the pilot budgeting program per customer in borrowing, transactional, and payroll deposit products.

 

  

Conducted business tour events to keep the Bank’s customers and commercial agents updated countrywide.

Transactional Products

The year 2019 was a very good one for BBVA Argentina in terms of placement of transactional products and traded volumes, as well as in terms of demand deposits under management.

As of December 31, 2019, major transactional products—Payroll Deposits, Collections, Payments to Suppliers, Direct Debit, and Merchant Acquisition—totaled Ps. 192,900 million, a 59% increaseyear-on-year.

The Bank also improved its market share in transactional demand deposits, reaching a 7.1% share as of December 31, 2019, or a 59 bps increaseyear-on-year.

Similarly, the Bank had a good performance in tax collections, ascending to second place in the ranking of tax payments, with over Ps. 67,000 million as of December 31, 2019.

Looking to strengthen its position among the leading banks in the transactional business, in 2020 the Bank expects to continue to focus on the treasury operations of its transactional banking customers, by developing more products targeted at the full value chain, with strong emphasis on digital channels, seeking to enhance the user’s experience. The Bank will continue embracing innovation in digital channels, customer connectivity, and entirely “on line” banking.

Corporate & Investment Banking (CIB)

The goals of CIB Argentina include:

 

  

Being recognized among Corporate Banking leaders in Argentina

 

  

Becoming a leader in Investment Banking

 

  

Optimizing capital allocation

 

  

Becoming a strategic partner to customers

 

  

Increasing profit margins from cross-sales

 

  

Improving financial ratios

Compliance with our strategic goals has been paramount, for we believe that attaining them leads to further business consolidation, process efficiency, and long-term relationships with the customer portfolio.

 

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CIB has a highly qualified commercial team in place, which has been leveraging and consummating relevant opportunities in the Argentine market. To meet this goal, anticipation, design, and execution of business plans were of the essence. Some of the most relevant services include: BBVA Net Cash platform (including foreign exchange (FX) trading), Liability Management, and Debt Capital Markets.

Bringing the opportunities of this new era to corporate customers was the greatest challenge of 2019. As facilitators of new tools and equipped with the requiredknow-how, the Bank offered opportunities for improvement and growth to both internal and the external customers.

The main customers of CIB are classified into the following categories:

 

  

Local Corporations:Large/medium-sized companies, covering their local needs for banking products.

 

  

Global Businesses: Large companies with multiple geographies and/or multiple currencies.

 

  

Institutional Customers and Governments: Pension funds, insurance companies, banks, regulated global institutions, covering their needs for sophisticated investments and break-even management.

Within this array of customers, CIB offers a broad variety of financial services and products, with presence in several countries worldwide.

The following describes the four main business areas within CIB.

Global Finance

This area offers lending solutions across the entire value chain, including advice, structuring and financing, with a broad product offering.

The area is divided into:

 

  

Project Finance

 

  

Global Lending

Concerning financing activities, volumes rose to Ps.13.8 billion during 2019, accounting for a 62% increase compared with the previous year. Such increase is attributable to the revaluation of loans in US dollars. During 2019 commissions increased 20%year-on-year.

Global Transaction Banking

Through its Front Office, this area offers businesses working capital management services by means of several financing instruments, both in Pesos and in US dollars. It also offers several cash management and transactional products, by means of multiple channels, including: Transactional platform, including Electronic Banking (BBVA Net Cash), H2H, Direct Channels, SWIFT, and Mobile Banking.

The transactional banking global team has an extensive network of experts and a specialized customer service team which supports customers across all phases of their products and service needs.

Global Transaction Banking (GTB) is divided into:

 

  

Working Capital

 

  

Cash Management

 

  

Customers’ Resources

 

  

Trade Finance and Correspondent Banks

During the year, the activities were primarily focused on strengthening Global Transaction Banking as a leader in customer financing, both in Pesos and in US dollars.

 

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Volumes under management rose to Ps.36.9 billion as of December 31, 2019, accounting for a 3% increase relative to the previous year.

Global Markets

The area is in charge of delivering services related to origination, structuring, distribution and risk management associated with market products.

The area is divided into:

 

  

Foreign Exchange

 

  

Fixed Income

 

  

Credit—Debt Capital Markets (DCM)

Due to the high foreign exchange volatility and high inflation rates, Gross Margin experienced a 172% increase in 2019 compared with the previous year.

Amidst this highly volatile scenario, FX Spot and Derivatives operations performed well, in terms of generation of results by the franchise, and also in terms of leveraging.

Corporate Finance

The main activities of this area include:

 

  

Capital Markets (ECM): The area is in charge of meeting customers’ needs related to the equity capital markets, with special focus on developing customized solutions. Services range from initial public offerings (IPOs), capital increases with and without subscription rights, accelerated placements, convertible bonds, flexible dividends, treasury shares, and public offerings for the withdrawal of outstanding shares (OPAs).

 

  

Advisory Services and M&A: The area is in charge of giving advice on mergers, acquisitions and divestitures, both for listed and privately-owned companies, to help achieve their strategic goals. The area also provides other services, including private equity raising (financial or strategic partners), valuation and fairness reports, and advice on acquisitions and privatizations.

The following table sets forth the relative proportions of loans and advances (net of allowance for loan losses) and deposits attributable to our principal business lines during the last two years.

 

   Financial assets at amortized cost - Loans and advances 
   December 31, 2019  December 31, 2018 
   (in thousands of pesos, except percentages) 

CIB

   38,620,739    19.79  80,295,259    28.75

Small andmedium-sized companies

   47,033,650    24.10  80,677,348    28.88

Retail banking

   109,475,343    56.11  118,363,579    42.37
  

 

 

   

 

 

  

 

 

   

 

 

 

Total

   195,129,732    100.00  279,336,187    100.00
  

 

 

   

 

 

  

 

 

   

 

 

 

 

   Financial liabilities at amortized cost - Deposits 
   December 31, 2019  December 31, 2018 
   (in thousands of pesos, except percentages) 

CIB

   24,526,990    8.34  45,639,098    11.44

Small andmedium-sized companies

   68,158,704    23.18  75,747,149    18.97

Retail banking

   201,302,353    68.48  277,822,770    69.59
  

 

 

   

 

 

  

 

 

   

 

 

 

Total

   293,988,047    100.00  399,209,017    100.00
  

 

 

   

 

 

  

 

 

   

 

 

 

 

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Management Model

Our service model is guided by the BBVA Group’s values: “The Customer First,” “Thinking Big,” and “We are a Single Team.” Therefore, the Bank is striving to (i) deliver the best possible customer service; (ii) offer the best solutions; and (iii) innovate in how to do things.

The Bank also encourages its customers to use the new technologies and formats available to do their banking transactions.

BBVA Argentina has a multi-channel strategy focused on the user’s experience, embracing the best practices for each contact channel, and innovation by implementing emerging technologies for each area, as they become available.

On the one hand, BBVA Argentina has abrick-and-mortar structure, including branches, a call center, and a network of automatic channels (ATMs and ATSs). On the other hand, BBVA Argentina has digital channels, including web and mobile, which are supplemented by exclusive strategic partnerships and alliances to offer its value proposition to a larger number of interested parties.

Branches

The Bank continues delivering on a commercial strategy based on a full-service concept across all segments, through multi-tasking managers, capable of meeting Individual and Corporate customers’ needs, strengthening customized service at each branch for transactions that require specific documents and controls.

 

  

Individuals are segmented, and managed with an emphasis on Digital Banking, streamlining management tools.

 

  

Premium: High-income individual customers, with customized service. Premium customers are served at branches which have dedicated spaces where Premium World or Premium Account Executives deliver the highest quality service, following service and customer management guidelines with clearfollow-up. During 2019, BBVA Argentina expanded and consolidated the Direct Service model. This model is used for the remote management of customers with highly digital operations, who have advisory andon-line management needs. Management channels includee-mail, chat and telephone. Nearly 100,000 customers are already part of this model, receiving customized service from 120 Premium and Premium World Account Executives. The relationship, growth and retention of customers within this segment are among the Bank’s top priorities.

 

  

Other Individuals: Individual customers not included in the previous segment. These customers are handled by business officers at the branches, primarily through automatic channels or over the phone, where most transactions can be completed. The development of assessment, proposal and offering models, and the development of new functionalities in the channels, are key to the satisfaction of this customer segment.

 

  

Businesses: This segment is handled by using a model based on regional Business Centers, with account executives who take care of Businesses and SMEs portfolios.

 

  

Dynamic Management: In 2019, the Bank made progress with developments that help simplify processes in order for account executives to be able to focus on commercial activities.

 

  

Digitization: The Bank focused on enlarging the digital product offering for customer self-service, by introducing new services innon-banking networks, and digital acquisition of new customers.

Looking to 2020, the Bank is starting to lay the groundwork for a new service model, based on customized management for companies at Business Centers and service for entrepreneurs and SMEs at all branches, with special emphasis on closeness and comprehensive advice to each customer.

In 2019, the Bank started to work on the new productivity model to streamline all other activities with this vision.

 

  

Massive Salesforce: Insisting on improving channel performance through productivity plans, the Bank has continued fine tuning incentive models, processes, and the value proposition. This team was engaged in offering products such as Merchant Acquisition to individuals developing business activities or SMEs.

 

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Call Center: A cross-selling and customer acquisition channel, through specific campaigns. With customer propensity and analysis models, the Bank has continued making improvements to the channel performance. The retention area was also consolidated through its value proposition and service processes.

 

  

Partners and Business Alliances: These are boosters of the Bank’s strategy of attraction of and connection with clients, enabling the Bank to reach eligible prospective clients for each product.Follow-up on each of these initiatives is essential to tailor offers to clients’ needs and satisfaction.

The network service model is reinforced with servicing improvements, which seeks, as one of its goals, to foster customers’ self-service by developing multiple channels.

This involves working on digitization, process streamlining, and transactional migration to alternative channels. During 2019, more than 113,000 cashier window transactions are estimated to have been migrated to several electronic channels andNon-banking Correspondents. In turn, improvements were made in waiting time at cashiers across the several segments, and a leading NPS (Net Promoter Score) for customers’ experience in branches. The Net Promoter Score is a management tool that can be used to gauge the loyalty of the customer.

In summary, below is a description of the progress made in 2019 in respect of the main action lines:

 

  

ATM/ATS Replacement and Growth Plan: 176 new units were installed, including growth and replacements

 

  

ATS Plus, which allows customers to insert 160 banknotes per transaction: 96 modules were installed. The Bank achieved the goal of having at least one ATM/ATS deployed at each branch.

 

  

ATS Availability Plan.

 

  

ATM Availability Plan.

 

  

Payments and deposits on Saturdays, Sundays and Holidays from 7 am to 10 pm were enabled at ATSs, with 127 units deployed at 36 branches.

 

  

Full Time Lobby: 138 deployed in branches.

 

  

ATM & ATS balancing and maintenance, using cameras as dual check.

 

  

BBVA Express: replacement of 200 units.

 

  

Standardized service model: Ten Kiosks were deployed. This model is in place at 88% of the network, that is, at 221 branches.

 

  

The Bank made further progress with the plan to migrate cashier transactions to Web channels and the App, reducing by more than 50% the number of foreign exchange trading transactions completed at cashier windows.

 

  

Debit card withdrawal limits were increased across all segments, reducing by 20% the number of cash withdrawals andlow-to-medium value deposits at cashier windows, while maintaining ATM and ATS availability levels.

 

  

BBVA Line: 79% of incoming calls to BBVA’s line where automatically handled using IVR options.

Digital Banking

One of the BBVA Group’s goals, globally and also in Argentina, remains fostering digital transactions. Therefore, the Bank continues to encourage its customers to shift to digital channels for their banking business, so as to receive better service and have an improved experience in the use of their products. The Bank continues working on the same lines of actions it has been pursuing: customer acquisition, excellence in user’s experience, and digital sales solutions.

In Customer Acquisition, the Bank’s focus is still placed on increasing the incentives and processes for digital channels to be key players in achieving this goal. Referral campaigns are no longer addressed to product bundles, but now also include payroll products. Proactive or reactive product sales processes are streamlined in an attempt to enhance customer experience as well as information disclosure and transparency during the purchase process, seeking an increasingly broader digital experience.

 

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As concerns Experience, during the second half of 2019, BBVA Argentina maintained the first position in the Web Channel NPS within its peer group, reaching 57%, representing a 56% increase compared with 2018 and a 54% increase compared to 2017. In this same line, one of the Bank’s main challenges remains offering the best availability in the market in terms of web and mobile browsing. Therefore, leveraging the technology tools that provide the most suitable solutions, the Bank will keep trying to improve its own parameters year after year. The Bank has also continued encouraging and approaching users, through digital advertising orface-to-face channels, who may be interested in using the Bank’s digital channels, and still have not done so, or have not tried certain functionalities.

As a result of all these changes, BBVA Argentina increased the number of digital customers that operate both on the web and the mobile channels, with a 66% share in the total active customer portfolio, improving from the 59.4% of the active customer portfolio which used these channels in 2018.

 

  

Individuals

The following list of achievements summarize the development of Digital Banking among the individual group of customers:

 

  

Onboarding of Payroll Customers to the Referrals proposal, with great success among new customers.

 

  

Possibility of becoming a Payroll Customer at Home Banking and through the public website, and kickoff of a new Payroll Advance product which can only be contracted online.

 

  

Adjusted credit risk available for customers, to increase their limits and engagement in digital transactions.

 

  

New sales process fornon-customers to improve their experience and make it increasingly digital.

 

  

The Bank modified its public website in line with the BBVA corporate model, and also made changes to all aspects concerning the change of brand. Besides, the Bank has continued with its efforts to improve the experience both payroll customers and bundles.

 

  

Mobile phone insurance purchase through mobile banking, offering an enhanced experience.

 

  

More alternatives for transaction referrals frombrick-and-mortar to digital channels, enabling integration across them.

These deployments translated into:

 

  

A substantial increase in the number of credit cards and product bundles sold by digital channels, now also including payrolls.

 

  

An increase in the share of digital personal loans (includingUVA-linked loans) in the total lending portfolio.

 

  

Improvements in the ratio of Retail Customers’ Investments in digital channels.

In 2019, Digital Marketing remained focus on gaining new customers, through referrals campaign and digital acquisition processes on the public website.

Below is a detail of the results and improvements achieved in 2019 by product:

 

  

Personal Loans: 63% share in personal banking’s total lending portfolio, representing increases of 48% and 33% compared to 2018 and 2017, respectively.

 

  

Credit Cards: Sales of main credit cards accounted for 42% of total sales in 2019, an increase of 36% compared with 2018, while sales of additional credit cards accounted for 19% of total sales in 2019.

 

  

Investments: 65% of time deposit sales were originated via digital channels, accounting for a 53% increase compared with 2018. As for mutual funds, 98% of subscriptions were digital in 2019.

 

  

Savings Accounts: Leveraging the enhanced value proposition in new customer acquisition, the share of savings accounts rose to 62% in 2019, up from 46% in 2018.

 

  

Insurance: the share of digital insurance sales was 18% over total sales in 2019.

 

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GO

Year after year, BBVA Argentina’s GO program has been incorporating new functionalities and improvements in terms of user experience, having surpassed one million subscribers. In line with BBVA’s global strategy, the Bank has changed the program name to GO (from Francés GO), and has renewed the App landing page, with increased exposure to the Latam Pass program and access to the module “Mis Tarjetas” (My Cards), with atwo-fold increase in the number of Wallet users.

In addition to the new developments and functionalities, the Bank also significantly increased program advertising in the media, with an improved value proposition for users and customers (offering more raffles and vouchers during the year).

Quality and Client Experience

In 2019 BBVA Argentina has continued working in line with BBVA Group’s purpose of bringing the opportunities of this new era to everyone, consistent with its strategic priority of delivering the best customer experience, expanding the scope of the Customer Experience vision, focused on needs of the People-Customers.

The Bank, leveraging a powerful feedback infrastructure and the NPS as indicator of excellence and ongoing improvement, has developed a plan to learn about the customers’ experience at each point of contact with BBVA Argentina and with each product or service acquired.

The plan is based on information on customers’ main needs at each interaction with the Bank, with a strategy targeted at the execution of the most impactful projects and processes, based on arrangements that help ensure the permanence and sustainability of a culture oriented to enhance customers’ experience, by building a unique experience for all of the Bank’s Customers.

One of the key pillars to achieve differentiation is understanding people’s needs when designing products and services that keep up to their expectations. Offering innovative solutions leads to a genuine transformation, now and in the future.

Therefore, the Quality and Customer’s Experience Plan for 2020 encompasses designing a governance model that will generate specific improvement actions for points identified as a priority in customers’ interactions, exploring new manners to listen to the customer’s voice, beyond the NPS surveys, with the engagement of the entire organization.

Information Technology

Our information technology, or IT, area is responsible for our systems operation and availability as well as data security and integrity. Our main data center and our disaster recovery andback-up center are located in Buenos Aires, Argentina. Our modern technology platform is interconnected with the platform of the BBVA Group, which enables us to provide seamless coverage to our customers.

We have made significant investments in technology, and we plan to continue doing so to enable us to retain and enhance our competitive position in various markets and to improve the security and quality of our services.

Our operational platform efficiently combines our modern business-oriented IT systems with our multichannel distribution strategy, resulting in innovative ways to serve our clients. We have well-developed CRM tools that allow us to monitor our clients’ behavior and provide them with targeted product offerings through diverse channels. As a result, we are able to effectively leverage alternative distribution channels, such as ATMs, internet banking and our contact centers, which are complementary to our traditional proprietary branch network, which enables us to provide better service to our clients and to increase our sales ratios.

We have implemented multiple controls to respond to the new threat of cybersecurity, based on a comprehensive, multi-faceted security framework that include people, technology, processes and procedures.

Intellectual Property

In Argentina, ownership of trademarks can be acquired only through a validly approved registration with the National Institute of Industrial Property (Instituto Nacional de la Propiedad Industrial, or INPI), the agency responsible for registering trademarks and patents in Argentina. After registration, the owner has exclusive use of the trademark in Argentina for ten years. Trademarks registrations can be renewed indefinitely for additionalten-year periods, if the registrant proves that it has used such trademark within the last five years.

We have several trademarks, most of which are brand names of our products or services. All our material trademarks are registered or have been submitted to INPI for registration by the BBVA Group or us.

 

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C.

Organizational structure

Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)

As of December 31, 2019, BBVA owned 66.55% of our capital stock.

BBVA is a global financial group, organized in six operating segments: (i) Spain, (ii) the United States, (iii) Mexico, (iv) Turkey, (v) South America, and (vi) Rest of Eurasia. In addition to these geographical business areas, BBVA has a separate Corporate Center segment. This segment handles certain general management functions. Some of the benefits we receive from the BBVA Group are:

 

  

sharing of technology;

 

  

development of new banking products that have been customized for the Argentine market;

 

  

leveraging BBVA’s global client relationships to serve those clients operating in Argentina; and

 

  

BBVA’s participation in BBVA Argentina as a shareholder is both long term and strategic.

Subsidiaries and investees of BBVA Argentina

The following chart reflects our subsidiaries as of December 31, 2019:

 

LOGO

 

 

(1)

Undergoing liquidation proceedings.

The following information is related to our subsidiaries, joint ventures and associates as of December 31, 2019:

 

  

Subsidiaries

 

Subsidiary

  Country of
Incorporation/
Residence
  BBVA
Argentina

Ownership
and Voting
Power

(in percentages)
  Principal Activity  Stockholders’
Equity
(in millions of
Ps.)(1) (2)
 

PSA Finance Argentina Cía. Fiananciera S.A.

  Argentina   50.00 Financial institution   1,148.6 

BBVA Asset Management Argentina S.A.

  Argentina   100.00 Investment fund manager   914.6 

Consolidar AFJP S.A. (undergoing liquidation proceedings)

  Argentina   53.89 Pension fund manager   57.0 

Volkswagen Financial Services S.A.

  Argentina   51.00 Financial institution   1,992.1 

 

(1) 

Total stockholders’ equity as of December 31, 2019.

(2) 

Statutory stockholders’ equity, adjusted for purposes of consolidation so as to apply an accounting criterion uniform with that of BBVA Argentina, if applicable.

 

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Below is a description of our subsidiaries:

 

  

PSA Finance Argentina Compañía Financiera S.A.

The share capital of PSA Finance Argentina Compañía Financiera S.A (PSA Finance) is held, in equal parts, by BBVA Argentina and Banque PSA Finance, a company related to the PSA Peugeot Citroën Group, based in France.

PSA Finance is primarily engaged in granting secured loans for the purchase of new Peugeot, Citroën and DS vehicles, as well as in arranging financial lease agreements. PSA Finance is also engaged in financing the purchase of second-hand vehicles to customers referred by networks of the aforementioned brands’ official dealers, and in supplying other financial products and services associated with the purchase, maintenance and insurance of vehicles, within the territory of the Argentine Republic. Additionally, the company has recently entered into a business known as “floor plan,” which consists of financing the vehicle stock to the official network of Peugeot, Citroen and DS dealers in Argentina.

The car industry ended the year 2019 with 441,000 new car registrations, which accounts for a 43% declineyear-on-year.

The first half of the year 2019 was marked by substantial activity levels, followed by significant volume declines during the second half of the year, due to the prevailing macroeconomic conditions. During 2019, the brands Peugeot, Citroën and DS developed new initiatives, including retail finance advertising campaigns and rebates, in attempt to attract customers.

In 2019, PSA Finance recorded a 17.9% share in the financing of new Peugeot, Citroën and DS cars, which accounts for a 1.7 percentage point decline relative to 2018. Such a decline is the result of an increase in alternative financing options available in the market.

Against this backdrop, during 2019, PSA Finance financed a total of 8,695 transactions, including secured loans for new and second-hand vehicles and vehicle leases, which is equivalent to Ps.2.39 billion.

As of December 31, 2019, the customer portfolio was comprised of 29,217 customers, and valued at Ps.3.29 billion (net of allowances).

As to the product offering, in 2019 PSA Finance continued working jointly with the brands Peugeot, Citroën and DS in the development of exclusive and distinct financial products, targeted at certain vehicles.

Retail finance advertising actions and rebates were strengthened as well in order to attract customers in a highly competitive market, which offers a broad range of products focused on customer needs. This year, private banks actively participated in the secured loan market with the offering ofUVA-linked credits. Therefore, PSA Finance had to reinforce its commercial offering in line with market trends. Currently, 87.3% of the network of dealers choose PSA Finance as a provider of finance solutions.

Activity levels declined during 2019. However, PSA Finance’s net income reflects a 128% increase compared with 2018, due to the following factors:

 

  

PSA Finance secured a financial margin from the portfolio (as a percentage of the average portfolio) higher than in 2018. This is primarily attributable to the incremental share of equity in production financing. Such increase in equity was attributable to the fact that no dividends were distributed.

 

  

The efforts to contain administrative expenses in the face of growing inflation played a key role in maintaining the quality of the company’s results of operations, amidst a poor activity scenario.

 

  

Lesser impact of income tax due to the application of the inflation adjustment for tax purposes.

As a result of all the aforementioned factors, net interest income for 2019 amounted to Ps.322.5 million. Considering other profits and losses, the company’s loss before income tax amounted to Ps.149.3 million, and its loss for the year was Ps.37.2 million.

During 2020, PSA Finance will continue pursuing its sales strategy, encompassing financing promotional actions jointly with Peugeot, Citroën and DS, which have proven successful for several years. Under this business model, the company is able to concentrate more than 90% of all financing arrangements granted to networks of dealers for the purchase of new and second-hand vehicles. The company expects to continue working under this model, and to continue supporting these joint actions by launching new products, such as personal loans.

The company expects to continue supporting ongoing digitization, which is key to the mission of efficiently reaching a customer profile which changes its purchasing behaviors on a daily basis, choosing new technologies to stay abreast of the news and compare products. In this regard, PSA Finance expects to continue developing tools to allow customers to secure their first loan by means of several digital platforms, which started to be implemented in 2019. PSA Finance believes this approach will provide the company with a strong competitive position in 2020 and subsequent years.

 

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BBVA Asset Management Argentina S.A.

During 2019, the mutual fund sector in Argentina continued to grow. According to preliminary data gathered by the Argentine Chamber of Mutual Funds (CAFCI, for its Spanish acronym), at December 31, 2019, assets under management industry-wide were 42.22% higher than at December 31, 2018.

Such growth was made possible after the Argentine Government reprofiled its peso- and US dollar-denominated short-term debt (Lecaps and Letes) and implemented exchange controls, both measures adopted in the wake of the August 2019 primary elections, which led to the concentration and restriction of the industry’s product offering.

Growth was led by two types of funds—time deposit and market mutual funds—which, atyear-end, recorded increases in assets of 130.0% and 8.5%, respectively. On the other hand, fixed income funds experienced a 14.7% decline in assets year over year.

As of December 31, 2019, assets under management by BBVA Asset Management Argentina S.A. (BBVA AMA) amounted to Ps.44.1 billion, equivalent to a decrease of 17.1% or Ps.9.1 billion,year-on-year. According to the interim asset ranking compiled by the CAFCI, BBVA AMA’s share in the overall Mutual Funds market was 5.7%, occupying the 4th position.

Within the category of time-deposit mutual funds, at December 31, 2019, the company recorded assets under management in the amount of Ps.39.15 billion.

In market mutual funds, the total assets under management amounted to Ps.4.93 billion as of December 31, 2019 compared with Ps.18.7 billion as of December 31, 2018. The decline was primarily driven by a decline in the market prices of fixed income fund investments.

During 2019, BBVA AMA generated commissions in the amount of Ps.350.2 million, a decline of 6.0% compared with commissions accrued during the previous year.

As at December 31, 2019, the company had 21 mutual funds under management registered with the Argentine Securities Commission (CNV), out of which 16 were in business during the year.

To date, the status of the funds under BBVA AMA’s management is as follows:

 

  

FBA Renta Pesos, FBA Renta Fija Plus, FBA Horizonte, FBA Horizonte Plus, FBA Calificado and FBA Acciones Argentinas: These funds are operating normally. Subscriptions and redemptions in Pesos are allowed.

 

  

FBA Ahorro Pesos, FBA Bonos Argentina, FBA Renta Fija Dólar and FBA Renta Mixta only admit redemptions: These funds were subject to the reprofiling arrangement the Argentine Government has established for certain short-term national sovereign debt securities. In this regard, by means of Decree No. 596/19 dated August 28, 2019, the Argentine Government established a partial extension of the term of Argentine Treasury Bills (LETES), Argentine Treasury Capitalizable Bills in Pesos (LECAPS),CER-Adjusted Argentine Treasury Bills in Pesos (LECER) andUS-dollar Linked Argentine Treasury Bills (LELINK). Accordingly, 15% of the principal amount in respect of these securities would be settled upon the original maturity date, 25% at three months, and the remaining 60% at six monthsafter the maturity date. In addition, the Argentine Government asserted that securities held by individuals would be paid in full on the original maturity dates. Furthermore, as the underlying securities of the awarded shares fell due, management made payment, in pesos or US dollars, as the case may be, of the pertinent investors’ shares, which were then eliminated.

 

  

FBA Bonos Globales, FBA Renta Fija Dólar Plus, FBA Bonos Latam, FBA Retorno Total I, FBA Retorno Total II, FBA Acciones Latinoamericanas and FBA Brasil I only admit redemptions. The restrictions on subscriptions to these mutual funds are due to the enactment of regulations affecting the operation of the exchange market. For instance, Decree No. 609/2019 dated September 1, 2019 provided for the need for implementing temporary and urgent measures to further regulate and control the exchange rate regime and, hence, strengthen the normal operation of the economy, contribute to the prudent administration of the exchange market, reduce volatility in financial variables, and contain the impact of fluctuations in financial flows. In addition, Communication “A” 6770 issued by the Argentine Central Bank on September 1, 2019 established that entities authorized to trade in foreign exchange may not buy securities in the secondary market to be settled in foreign currency or use holdings in their General Exchange Position to make payments to local suppliers.

 

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FBA Gestión I, FBA Renta Pública I, FBA Renta Pública II and FBA Renta Fija Local were approved by the CNV during the previous period and commenced their activities by means of a contribution made by BBVA AMA. As of the date of this annual report, these mutual funds are not open for subscription or redemption, and the company is awaiting the right time to market them.

Like in previous years, the company expects to pay special attention to the changes in international economic and financial conditions, as well as to the development of the currency market and the performance of crude oil and other commodities prices.

As concerns the local context, the company expects to carefully monitor activity levels, inflation and the exchange rate, as well as public indebtedness and expenditures. Similarly, the company expects to monitor the fulfillment of the commitments undertaken with the International Monetary Fund (IMF) and the potential debt renegotiation process.

Looking to 2020, Mutual Funds are expected to constitute an efficient alternative for investors at the local level. In this regard, the company expects to continue reshaping and developing products tailored to customers’ demands, striving to provide an offering that is suitable to the prevailing market conditions and to the improvements in investors’ risk management.

As of December 31, 2019, FBA Commodities had no equity volume. The rest of the Bank´s investment funds at such date had the following assets:

 

Name of investment fund

  Thousands
of pesos
 

FBA Renta Pesos

   39,129,811 

FBA Ahorro Pesos

   462,399 

FBA Renta Fija Dólar

   470,455 

FBA Bonos Argentina

   248,449 

FBA Renta Fija Dólar Plus

   718,995 

FBA Bonos Latam

   317,683 

FBA Horizonte

   790,936 

FBA Calificado

   472,930 

FBA Acciones Latinoamericanas

   551,067 

FBA Acciones Argentinas

   354,355 

FBA Bonos Globales

   201,829 

FBA Gestión I

   23,163 

FBA Renta Fija Plus

   52,745 

FBA Retorno Total II

   85,002 

FBA Horizonte Plus

   77,087 

FBA Brasil I

   82,972 

FBA Renta Mixta

   17,694 

FBA Retorno Total I

  ��28,465 

FBA Renta Pública I

   1,384 

FBA Renta Fija Local

   1,384 

FBA Renta Pública II

   722 
  

 

 

 

Total

   44,089,527 
  

 

 

 

 

  

Consolidar A.F.J.P. S.A. (undergoing liquidation proceedings)

On December 4, 2008, Law No. 26,425 was enacted, providing for the elimination of the capitalization regime that was part of the Integrated Retirement and Pension System, and its subsequent merger into and replacement with a singlepay-as-you go system named the Argentine Integrated Retirement and Pensions System (SIPA). Consequently, Consolidar A.F.J.P. S.A. ceased to manage the resources that were part of the individual capitalization accounts of affiliates and beneficiaries of the capitalization regime of the Integrated Retirement and Pension System, which were transferred to the Guarantee Fund for the Sustainability of the Argentine Retirement and Pension Regime as they were already invested, and the Argentine Social Security Office (ANSES) is now the sole and exclusive owner of those assets and rights.

Likewise, on October 29, 2009, the ANSES issued Resolution No. 290/2009, whereby retirement and pension funds managers interested in reconverting their corporate purpose to manage the funds for voluntary contributions and deposits held by participants in their capitalization accounts had 30 business days to express their intention to that end.

 

 

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Based on the foregoing and taking into consideration that it was impossible for Consolidar A.F.J.P. S.A. to comply with the corporate purpose for which it was incorporated, the shareholders, gathered at a Unanimous General and Extraordinary Shareholders’ Meeting held on December 28, 2009, resolved approve the dissolution and subsequent liquidation of that company effective as of December 31, 2009, as they considered that decision was in the best interest of the company’s creditors and shareholders. Furthermore, in compliance with the terms of the Argentine Companies Law, the Shareholders’ Meeting appointed Mr. Gabriel Orden and Mr. Rubén Lamandia, both of them certified public accountants, as liquidators of Consolidar A.F.J.P. S.A. Since December 31, 2009, they have assumed the role of the company’s legal representatives. To date, Mr. Orden and Mr. Lamandia are taking all necessary actions leading to the liquidation of Consolidar A.F.J.P. S.A.

In this regard, on January 28, 2010, the dissolution of Consolidar A.F.J.P. S.A. and the list of designated liquidators were registered with the Argentine Superintendence of Corporations (IGJ).

In addition, on October 19, 2009, the General Extraordinary Shareholders’ Meeting of Consolidar A.F.J.P S.A. approved a voluntary reduction of the company’s capital stock by Ps. 75 million. The IGJ approved such capital reduction on January 11, 2010 so that on January 19, 2010, capital contributions were transferred to the shareholders, pursuant to the aforementioned reduction.

BBVA Argentina, as shareholder, asked Consolidar A.F.J.P. S.A. to give notice to the Argentine Ministry of Economy and Public Finance and to the Argentine Social Security Office (ANSES), of its intention to engage in discussions, under the terms of Law No. 26,425, to find one or more remedies to redress the consequences from the events occurred after the enactment of such Law. Consolidar A.F.J.P. S.A. gave such notice on June 11, 2010.

On December 7, 2010, Consolidar A.F.J.P. S.A. filed a complaint for damages against the National Government and the Ministry of Labor, Employment and Social Security, which was heard by Federal Court of Original Jurisdiction in Administrative Matters No. 4, Division No. 7, under File No. 40,437/2010. Such complaint was ratified by BBVA Argentina in its capacity as majority shareholder of the company. On July 15, 2011, Consolidar A.F.J.P. S.A. and BBVA Argentina made a filing with such court to expand the scope of the complaint for the assessment of damages. On March 9, 2012, the Court ordered that notice of the complaint be served upon National Government.

On May 13, 2013, the intervening Court resolved to initiate the trial period, upon which the company started to produce the pertinent testimonial, documentary, and expert evidence. On May 28, 2013, the company filed its witnesses’ question sheets and testimony.

As of December 31, 2019, the case is in a stage of producing accounting evidence.

 

  

Volkswagen Financial Services Compañía Financiera S.A. (“VWFS”)

Volkswagen Financial Services Compañía Financiera S.A. (VWFS) is primarily engaged in the business of granting secured loans for the purchase of new Volkswagen cars and offering wholesale financing to VW Group’s dealers for the purchase of cars from the manufacturers. VWFS is also engaged in financing the purchase of second-hand vehicles and in providing financed maintenance, all within the territory of the Argentine Republic.

In 2019, the car and financial industries experienced a substantial downturnvis-a-vis previous years. The first half of 2019 was marked by substantial activity levels, followed by significant volume declines during the second half of the year, due to the prevailing macroeconomic conditions. Therefore, 2019 was a challenging year for car manufacturers and their respective finance companies.

Against this backdrop, VWFS sought to defend its share in VW Group’s financed sales and maintain a healthy wholesale portfolio. The retail segment experienced a decline in terms of the volume of financed agreements due to the downturn of the car manufacturing and financial markets; however, the share of VW Group’s financed sales rose almost 10%compared to the previous year. In addition, VWFS managed to maintain a competitive market penetration level, thanks to the strong relationship that it had built with the brand and the dealers, having experienced a lower decline than the average of other car manufacturers’ finance companies. With strong cooperation from Volkswagen, VWFS launched commercial campaigns at reduced rates, offering attractive conditions to customers, despite the high levels of official benchmark rates.

During the year, VWFS developed its leasing product and corporate sales.

As part of its ongoing strategic approach, VWFS improved the service quality to dealers through communication, training and good response levels by VWFS, as reflected in the positive outcomes of the relevant satisfaction survey.In-house, the company conducted several training programs for employees in order to attain efficiency gains and improve service levels to retail customers.

VWFS believes it is adequately capitalized for the development of its business. Moreover, during the year, VWFS increased its sources of funding from other commercial banks, with total credit facilities amounting to Ps.3.17 billion.

 

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In February 2019, the company successfully completed its second issuance and placement of corporate bonds, for an aggregate principal amount of Ps.750 million, these issues were made at a variable rate (Badlar) as adjustable to the UVA index. On December 9, 2019, the company completed its third issuance of corporate notes, for an aggregate principal amount of Ps.750 million, at the private variable rate (Badlar).

During 2019, the Volkswagen Group had a 15.8% share in the car market, again ranking first in terms of sales volume, which rose from14.7% in 2018. Amidst a very competitive environment, the company had a 72% share in the Group’s financed sales (an increase of 5 p.p. compared with 2018), as a result of a new commercial policy and actions that fostered the loyalty among the official network of dealers.

In 2019, VWFS achieved 12% penetration, one percentage point below 2018, amidst an environment in which penetration of car manufacturers’ finance companies had declined by an average of approximately four percentage points.

During 2019, the main goal was offering competitive financing products and services to customers. In 2019, the company granted 9,510 secured loans, representing a 42%year-on-year decline, due to the challenging situation of the car industry.

Profit before tax for the year ended December 31, 2019 amounted to Ps.37.7 million, primarily due to the optimization of the company’s sources of funding, and healthy wholesale and retail lending portfolios, in addition to the effects of inflation on car prices.

During 2020, the car market is expected to reach 450,000 new registrations, that is, approximately the same number as in 2019. Rates are expected to decrease, and the incoming government is expected to boost domestic activity.

The company’s goal for 2020 is defending its share in sales of financed units, with origination of retail loans expected to reach similar levels as in 2019, while the wholesale portfolio is expected to be maintained at current levels. In terms of long-term development, the company plans to carry out strategic projects in 2020, which are aimed at providing better service quality for customers and enhanced processes with dealers, all of which in support of the industry growth in the long-term.

In order to fund its secured loan portfolio, the company plans to continue diversifying its sources of funding with its main business partner, other commercial banks and the issuance of corporate notes.

 

  

Joint venture

 

Joint Venture

  Country of
Incorporation/
Residence
   BBVA
Argentina

Ownership
and Voting
Power

(in percentages)
  Principal
Activity
   Stockholders’
Equity
(in millions of
Ps.)(1)
 

Rombo Compañía Financiera S.A.

   Argentina    40.00  
Financial
institution
 
 
   1,644.2 

 

(1)

Total stockholders’ equity as of December 31, 2019.

Below is a description of our joint venture:

 

  

Rombo Compañía Financiera S.A.

Rombo Compañía Financiera S.A (RCF) is the main finance company of Renault’s network of dealers, both for new and second-hand vehicles. During 2019, Renault had a 14.4% share in the car market, down from 14.8% in 2019, ranking third in terms of sales volume. In 2019, Nissan had a 3.8% market share (compared with 2.8% in 2018). Amidst strong competition, the company managed to improve its market share and positioning, thanks to the substantial contribution of secured loans from its finance company.

In 2019, RCF’s contribution to Renault’s and Nissan’s sales declined to 21.8% from 24.2% in 2018 for Renault, and from 17.9% to 17.6% in the case of Nissan. Despite the prevailing economic conditions taking their toll on the industry as a whole, RCF experienced strong commercial performance, primarily focused on maintaining the network’s loyalty.

RCF remains the industry leader in the ranking of loans and loyalty among brand captive companies, closing the year with an average of 93.7% (credits granted by RCF over total credits for the sale of Renault vehicles) (Source: AFIMA). Renault Argentina and Nissan strongly supported the company’s lending activities, providing important commercial tools (subsidized rates) both for new and second-hand vehicles.

 

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With this support, RCF financed 16,823 Renault and Nissan new vehicles in 2019 (compared with 31,558 in 2018) and 2,702 second-hand vehicles (compared with 6,514 in 2018). Accordingly, the total financing portfolio at December 31, 2019 amounted to Ps.7.59 billion, accounting for a 19% or Ps.8.88 billion decline compared to December 31, 2018.

Risk and portfolio quality indicators rose compared with recent years. Thenon-performing loan ratio increased from 1.3% in December 2018 to 1.9% at the end of 2019, primarily due to a deterioration in economic conditions and the considerable decline in the portfolio.

In terms of financing, during the year the company issued one series of corporate notes for an aggregate principal amount of Ps.300 million, with the total balance of corporate notes at December 31, 2019 amounting to Ps.2.3 billion. The amount of the current program is Ps.6.00 billion, and has been rated “raAA” by Fix SCR S.A. Agente Calificadora de Riesgo and “Ba2.ar” by Moody’s.

For the year ended December 31, 2019, profit for the year amounted to Ps.11.5 million.

 

  

Associates

 

Associate

  Country of
Incorporation/
Residence
  BBVA
Argentina

Ownership
and Voting
Power

(in percentages)
  Principal Activity  Stockholders’
Equity
(in millions of
Ps.)(1) (2)
 

BBVA Consolidar Seguros S.A.

  Argentina   12.22 Insurance   2,165.0 

Interbanking S.A.

  Argentina   11.11 Information services
for financial
markets
   1,023.0 

 

(1)

Total stockholders’ equity as of December 31, 2019.

(2)

Statutory stockholders’ equity, adjusted for purposes of consolidation so as to apply an accounting criterion uniform with that of BBVA Argentina, if applicable.

Below is a description of our associates:

 

  

BBVA Consolidar Seguros S.A.

BBVA Seguros S.A. operates in the following lines of business: Fire, Comprehensive and Combined Household Insurance, Theft, Personal Accidents, Group Life Insurance, Credit Life Insurance, Funeral and Other Coverage.

During 2019, written premiums amounted to Ps. 3.45 billion, accounting for a 0.7% increase compared with the previous year. As from September 2017, BBVA Seguros ceased to earn premiums from credit life insurance policies in connection with BBVA Argentina’s newly issued outstanding balances, including personal loans, credit cards, secured loans and overdrafts.

The increase in invoiced premiums from voluntary insurance rose by 34.1% in 2019 compared to the previous year. The business strategy combines a broad product offering with multiple distribution and service channels, all based on the segmentation of customers’ and prospects’ needs. Paid losses amounted to Ps.680.4 million in 2019, or 19.7% of written premiums.

Net income for the year was Ps. 1.35 billion, accounting for a return on equity of 63.8% atyear-end. As of December 31, 2019, minimum capital surplus was Ps. 899.4 million, while the solvency ratio, measured as the ratio of cash and cash equivalents, investments and buildings to underwriting commitments and liabilities owing to policyholders, was 1.6.

On January 22, 2016, the Argentine Bureau of Insurance (SSN) passed Resolution SSN No. 39,647, concerning holdings in SMEs Mutual Funds (authorized by the CNV), setting forth an investment floor of 3% and an investment cap of 20%.

On March 21, 2016, Communication “A” 5928 was issued by the Argentine Central Bank, introducing changes to the Rules for the Protection of Financial Users concerning insurance. Regarding Credit Life Insurance, the Argentine Central Bank provides that financial institutions subject to the rule shall not be allowed to charge users any sort of commission and/or fee related to credit life or total permanent disability insurance policies. Furthermore, the Argentine Central Bank provided that financial institutions are required to purchase credit insurance to cover these contingencies, or otherwise to “self-insure,” posing the challenge for the insurance company of capturing the largest number of customers/banks and financial institutions to offer this product.

On February 7, 2019, the SSN established that entities under its oversight were required to file financial statements in terms of the measuring unit current at the end of reporting period, commencing with the financial statements as of June 30, 2019, subsequently extended as of June 30, 2020.

 

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Additionally, on November 28, 2018, the SSN issuedRESOL-2018-1116-APN-SSN#MHA amending item 30 of the General Rules and Regulations for the Insurance Business (RGAA for its Spanish acronym), effective beginning with financial statements commencing on January 1, 2019, setting out the minimum capital requirements insurance companies are to meet to be engaged in the direct insurance and reinsurance business.

Finally, item 35.5 of the RGAA was amended by means ofRESOL-2019-553-APN-SSN#MHA dated June 18, 2019, establishing that insurers’ total investments, including their underlying assets, if any, and cash and cash equivalents, should be based in Argentina, banning the acquisition of new shares in mutual funds with underlying assets based abroad. As of fiscal year ended June 30, 2020, insurers and reinsurers shall have adjusted their investments in mutual funds with underlying assets based in countries other than Argentina.

For 2020, BBVA Seguros plans to continue growing its main insurance lines of business, in particular, Other Coverage, Personal Accidents, Group Life Insurance, and Comprehensive and Combined Household Insurance, with a product offering that meets the distinct needs of its main customers.

 

  

Interbanking S.A.

As a member and shareholder of Interbanking S.A., together with seven other leading Argentine banks, the Bank offers an electronic communications system which enables its customers to optimize their banking transactions. The Bank’s corporate customers can connect to the service from their personal computers at any time and review their accounts at any member bank, send messages, transfer funds, make electronic wage payments, supplier payments and tax payments, and display market data. Through Interbanking, the Bank offers distinct electronic products for each segment of its corporate clientele and processes online transfers, allowing debit and credit transactions to be settled automatically and to be reflected in the relevant accounts in real time. As a result of the Bank’s shareholding in Interbanking S.A., on June 27, 2019 the Bank received Ps.106.3 million in dividends.

Equity Investments

The following are all positions that we hold innon-financial institutions where we own more than 2% of the invested companies’ equity as of December 31, 2019.

 

Investment

  Country  % of Shares
Owned
(in percentages)
  

Principal Activity

  Total
Stockholders’
Equity (in
millions of
pesos)(1)
 

Coelsa S.A.

  Argentina   8.70 

Clearing house

   0.7 

Argencontrol S.A.

  Argentina   7.77 

Agent mandatory

   0.7 

Sedesa S.A.

  Argentina   10.04 

Deposit guarantee fund

   1.1 

Prisma Medios de Pagos S.A.

  Argentina   5.45 

Credit card issuer

   1,819.5 

 

(1)

Total Stockholders’ Equity as of December 31, 2019.

 

D.

Property, plants and equipment

BBVA Argentina is domiciled in Argentina and has its principal executive offices at Av. Córdoba 111, C1054AAA Buenos Aires, Argentina. The principal executive offices, which we own, are approximately 28,002 square meters in area.

At December 31, 2019, our branch network consisted of 251 retail branches, of which 112 were located in properties that we own and 139 were located in properties leased to us. The branches are located throughout all of the 23 Argentine provinces as well as the City of Buenos Aires.

 

E.

Selected statistical information

The following information is included for analytical purposes and should be read in conjunction with the Consolidated Financial Statements as well as“Item 5. Operating and Financial Review and Prospects”. This information has been prepared from our financial records, which are maintained in accordance with IFRS-BCRA. The Consolidated Financial Statements and the selected statistical information below have been adjusted to comply with IFRS-IASB for the sole purpose of filing this annual report on Form20-F with the SEC.

 

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Average Balance Sheets, Interest Earned on Interest-Earning Assets and Interest Paid on Interest-Bearing Liabilities

The average balances of interest-earning assets and interest-bearing liabilities, including the related interest earned or paid, were calculated on a daily basis for the years ended December 31, 2019, 2018 and 2017. Average balances have been separated between those denominated in pesos and in foreign currencies.

This selected statistical information has been prepared taking into account the effect of hyperinflation adjustments, which requires that in the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, the assets, liabilities, income and expenses of such entity be stated in terms of the measuring unit current at the end of the reporting period (December 31, 2019).

The real interest rate is the amount of interest earned or paid during the period divided by the related average balance.

Included in interest earned are the net gains on our portfolio of government securities and related differences in market quotations. We manage our trading activities in government securities as an integral part of our business. We do not, as a matter of practice, distinguish between interest income and gain or loss on our government securities portfolio.

 

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The following tables show average balances, interest amounts and average real rates for our interest-earning assets and interest-bearing liabilities for the fiscal years ended December 31, 2019, 2018 and 2017.

 

  Fiscal Year ended December 31, 
  2019  2018  2017 
  Average  Interest  Average  Average  Interest  Average  Average  Interest  Average 
  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2) 
  (in thousands of pesos, except percentages) 

ASSETS

         

Interest-earning assets

         

Government securities (3)

         

Pesos

  70,677,266   36,467,625   51.60  39,590,383   15,077,147   38.08  39,476,814   2,913,753   7.38

Foreign currencies

  8,917,512   512,662   5.75  10,886,807   544,159   5.00  18,429,494   277,549   1.51
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  79,594,778   36,980,287   46.46  50,477,190   15,621,306   30.95  57,906,308   3,191,302   5.51
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Loans and advances (4)

         

To customers/financial institutions

         

Pesos

  166,121,474   72,322,288   43.54  208,126,467   66,717,053   32.06  187,681,389   48,940,820   26.08

Foreign currencies

  80,261,075   4,566,156   5.69  85,640,169   3,714,631   4.34  48,829,463   1,647,494   3.37
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  246,382,549   76,888,444   31.21  293,766,636   70,431,684   23.98  236,510,852   50,588,314   21.39
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

To central bank

         

Pesos

  180   —     0.00  280   —     0.00  20,414   2,952   14.46

Foreign currencies

  116   —     0.00  901   —     0.00  223   —     0.00
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  296   —     0.00  1,181   —     0.00  20,637   2,952   14.30
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Other assets

         

Pesos

  2,699,221   157,470   5.83  3,934,665   175,367   4.46  10,007,638   978,031   9.77

Foreign currencies

  8,400,991   831,553   9.90  11,804,648   644,738   5.46  4,467,801   179,393   4.02
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,100,212   989,023   8.91  15,739,313   820,105   5.21  14,475,439   1,157,424   8.00
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total interest-earning assets

         

Pesos

  239,498,141   108,947,383   45.49  251,651,795   81,969,567   32.57  237,186,255   52,835,556   22.28

Foreign currencies

  97,579,694   5,910,371   6.06  108,332,525   4,903,528   4.53  71,726,981   2,104,436   2.93
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  337,077,835   114,857,754   34.07  359,984,320   86,873,095   24.13  308,913,236   54,939,992   17.78
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

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Table of Contents
  Fiscal Year ended December 31, 
  2019  2018  2017 
  Average  Interest  Average  Average  Interest  Average  Average  Interest  Average 
  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2) 
  (in thousands of pesos, except percentages) 

Non interest-earning assets

         

Cash, cash balances at central bank and other demand deposits

         

Pesos

  43,904,232   —     —     49,553,442   —     —     42,084,867   —     —   

Foreign currencies

  85,606,406   —     —     62,427,831   —     —     62,496,860   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  129,510,638   —     —     111,981,273   —     —     104,581,727   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Investments in joint ventures and associates

         

Pesos

  227,152   —     —     2,338,436   —     —     1,354,853   —     —   

Foreign currencies

  —     —     —     —     —     —     11,165   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  227,152   —     —     2,338,436   —     —     1,366,018   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Tangible and intangible assets

         

Pesos

  26,867,218   —     —     22,982,498   —     —     24,243,477   —     —   

Foreign currencies

  —     —     —     —     —     —     —     —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  26,867,218   —     —     22,982,498   —     —     24,243,477   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Allowance for loan losses

         

Pesos

  (7,818,942  —     —     (4,608,716  —     —     (2,843,481  —     —   

Foreign currencies

  (2,275,508  —     —     (1,081,057  —     —     (243,234  —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  (10,094,450  —     —     (5,689,773  —     —     (3,086,715  —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Other assets

         

Pesos

  15,214,751   —     —     13,072,199   —     —     15,233,656   —     —   

Foreign currencies

  4,636,060   —     —     4,717,431   —     —     5,742,237   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  19,850,811   —     —     17,789,630   —     —     20,975,893   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total non interest-earning assets

         

Pesos

  78,394,411   —     —     83,337,859   —     —     80,073,372   —     —   

Foreign currencies

  87,966,958   —     —     66,064,205   —     —     68,007,028   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  166,361,369   —     —     149,402,064   —     —     148,080,400   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

TOTAL ASSETS

         

Pesos

  317,892,552   108,947,383   34.27  334,989,654   81,969,567   24.47  317,259,627   52,835,556   16.65

Foreign currencies

  185,546,652   5,910,371   3.19  174,396,730   4,903,528   2.81  139,734,009   2,104,436   1.51
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  503,439,204   114,857,754   22.81  509,386,384   86,873,095   17.05  456,993,636   54,939,992   12.02
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

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  Fiscal Year ended December 31, 
  2019  2018  2017 
  Average  Interest  Average  Average  Interest  Average  Average  Interest  Average 
  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2) 
  (in thousands of pesos, except percentages) 

LIABILITIES

         

Interest-bearing liabilities

         

Saving accounts

         

Pesos

  47,651,322   2,742,579   5.76  70,202,837   6,736,972   9.60  62,065,106   1,366,638   2.20

Foreign currencies

  106,905,794   9,219   0.01  104,492,370   10,801   0.01  65,191,148   6,327   0.01
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  154,557,116   2,751,798   1.78  174,695,207   6,747,773   3.86  127,256,254   1,372,965   1.08
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Time deposits

         

Pesos

  86,949,121   40,778,350   46.90  91,022,194   28,147,743   30.92  83,098,395   15,484,005   18.63

Foreign currencies

  21,700,738   183,920   0.85  23,149,670   145,170   0.63  16,504,000   55,855   0.34
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  108,649,859   40,962,270   37.70  114,171,864   28,292,913   24.78  99,602,395   15,539,860   15.60
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Banks loans - Central bank

         

Pesos

  1   —     0.00  652   60   9.20  26,345   2,317   8.79

Foreign currencies

  44,423   —     0.00  55,810   —     0.00  —     —     0.00
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  44,424   —     0.00  56,462   60   0.11  26,345   2,317   8.79
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Banks loans - Other financial institutions

         

Pesos

  2,234,644   1,443,395   64.59  4,863,807   1,071,529   22.03  2,200,500   227,623   10.34

Foreign currencies

  5,719,726   377,378   6.60  5,739,708   238,149   4.15  736,256   29,787   4.05
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  7,954,370   1,820,773   22.89  10,603,515   1,309,678   12.35  2,936,756   257,410   8.77
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Debt securities issued

         

Pesos

  7,225,870   2,711,962   37.53  3,599,470   1,535,467   42.66  3,462,112   924,059   26.69

Foreign currencies

  —     —     0.00  —     —     0.00  —     —     0.00
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  7,225,870   2,711,962   37.53  3,599,470   1,535,467   42.66  3,462,112   924,059   26.69
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Other liabilities

         

Pesos

  83,183   5,202   6.25  517,701   169,519   32.74  1,211,204   300,707   24.83

Foreign currencies

  69,784   —     0.00  30,705   —     0.00  2,689,729   —     0.00
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  152,967   5,202   3.40  548,406   169,519   30.91  3,900,933   300,707   7.71
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total interest-bearing liabilities

         

Pesos

  144,144,141   47,681,488   33.08  170,206,661   37,661,290   22.13  152,063,662   18,305,349   12.04

Foreign currencies

  134,440,465   570,517   0.42  133,468,263   394,120   0.30  85,121,133   91,969   0.11
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  278,584,606   48,252,005   17.32  303,674,924   38,055,410   12.53  237,184,795   18,397,318   7.76
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

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Table of Contents
  Fiscal Year ended December 31, 
  2019  2018  2017 
  Average  Interest  Average  Average  Interest  Average  Average  Interest  Average 
  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2)  balance (1)  earned/paid  real rate (2) 
  (in thousands of pesos, except percentages) 

Non-interest-bearing liabilities and stockholders´ equity

         

Checking accounts

         

Pesos

  44,775,392   —     —     46,791,687   —     —     56,862,005   —     —   

Foreign currencies

  33,278,990   —     —     25,538,057   —     —     30,460,757   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  78,054,382   —     —     72,329,744   —     —     87,322,762   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Other liabilities

         

Pesos

  60,202,115   —     —     55,152,843   —     —     47,244,988   —     —   

Foreign currencies

  13,297,303   —     —     9,212,844   —     —     17,749,995   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  73,499,418   —     —     64,365,687   —     —     64,994,983   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Stockholders’ equity

         

Pesos

  73,300,798   —     —     69,016,029   —     —     67,491,096   —     —   

Foreign currencies

  —     —     —     —     —     —     —     —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  73,300,798   —     —     69,016,029   —     —     67,491,096   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Totalnon-interest-bearing liabilities and stockholders’ equity

         

Pesos

  178,278,305   —     —     170,960,559   —     —     171,598,088   —     —   

Foreign currencies

  46,576,293   —     —     34,750,901   —     —     48,210,752   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  224,854,598   —     —     205,711,460   —     —     219,808,840   —     —   
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

         

Pesos

  322,422,446   47,681,488   14.79  341,167,220   37,661,290   11.04  323,661,751   18,305,349   5.66

Foreign currencies

  181,016,758   570,517   0.32  168,219,164   394,120   0.23  133,331,885   91,969   0.07
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  503,439,204   48,252,005   9.58  509,386,384   38,055,410   7.47  456,993,636   18,397,318   4.03
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

(1)

For 2019, the average balances are presented in terms of the measuring unit current at December 31, 2019, by applying a coefficient based on the simple average change in CPI of 26.92% for 2019. For 2018 and 2017 average balances were restated as of December 31, 2019 following the same methodology for the year (using simple average changes in CPI of 23.82% for 2018 and 12.40% for 2017), and subsequently restating such amounts by applying a coefficient based on the change in the CPI up to December 31, 2019 (53.83% for 2018 and 2017).

(2)

Interest paid divided by average balance.

(3)

Includes trading gains and losses in all fiscal years. Unrealized gains and losses arising from changes in the market value of our trading portfolio of government securities and yield on our investment portfolio of government securities are included.

(4)

Loan amounts are stated before deduction of the allowance for loan losses

 

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Table of Contents

Changes in Interest Income and Interest Expense; Volume and Rate Analysis

The following tables allocate, by currency of denomination, changes in our interest income and interest expense between changes in the average volume of interest-earning assets and interest-bearing liabilities and changes in their respective average interest rates for the year ended December 31, 2019 compared with the year ended December 31, 2018 and the year ended 31, 2018 compared with the year ended December 31, 2017. Volume and rate variances have been calculated based on movements in average balances over the period and changes in average interest rates on average interest-earning assets and average interest-bearing liabilities. The net change attributable to changes in both volume and rate has been allocated to volume. Trading gains and losses and yield on government trading and investment accounts results are included in the computation of interest income in all fiscal years.

 

   Year ended December 31, 2019/2018
Increase (Decrease) Due to
Changes in
  Year ended December 31, 2018/2017
Increase (Decrease) Due to
Changes in
 
   Volume  Rate   Net change  Volume  Rate  Net change 

ASSETS

        

Interest-earning assets

        

Government securities

        

Pesos

   16,040,020   5,350,458    21,390,478   43,250   12,120,144   12,163,394 

Foreign currencies

   (113,213  81,716    (31,497  (377,009  643,619   266,610 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total

   15,926,807   5,432,174    21,358,981   (333,759  12,763,763   12,430,004 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Loans and advances To customers/financial institutions

        

Pesos

   (18,287,204  23,892,439    5,605,235   6,553,877   11,222,356   17,776,233 

Foreign currencies

   (306,024  1,157,549    851,525   1,596,660   470,477   2,067,137 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (18,593,228  25,049,988    6,456,760   8,150,537   11,692,833   19,843,370 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

To central bank

        

Pesos

   —     —      —     —     (2,952  (2,952

Foreign currencies

   —     —      —     —     —     —   
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total

   —     —      —     —     (2,952  (2,952
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Other assets

        

Pesos

   (72,075  54,178    (17,897  (270,671  (531,993  (802,664

Foreign currencies

   (336,903  523,718    186,815   400,719   64,626   465,345 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (408,978  577,896    168,918   130,048   (467,367  (337,319
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total interest-earning assets

        

Pesos

   (2,319,259  29,297,075    26,977,816   6,326,456   22,807,555   29,134,011 

Foreign currencies

   (756,140  1,762,983    1,006,843   1,620,370   1,178,722   2,799,092 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (3,075,399  31,060,058    27,984,659   7,946,826   23,986,277   31,933,103 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

 

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Table of Contents
   Year ended December 31, 2019/2018
Increase (Decrease) Due to
Changes in
  Year ended December 31, 2018/2017
Increase (Decrease) Due to
Changes in
 
   Volume  Rate  Net change  Volume  Rate   Net change 

LIABILITIES

        

Interest-bearing liabilities

        

Saving accounts

        

Pesos

   (1,297,956  (2,696,437  (3,994,393  780,932   4,589,402    5,370,334 

Foreign currencies

   208   (1,790  (1,582  4,062   412    4,474 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   (1,297,748  (2,698,227  (3,995,975  784,994   4,589,814    5,374,808 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Time deposits

        

Pesos

   (1,910,234  14,540,841   12,630,607   2,450,359   10,213,379    12,663,738 

Foreign currencies

   (12,280  51,030   38,750   41,675   47,640    89,315 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   (1,922,514  14,591,871   12,669,357   2,492,034   10,261,019    12,753,053 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Banks loans - Central bank

        

Pesos

   —     (60  (60  (2,364  107    (2,257

Foreign currencies

   —     —     —     —     —     
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   —     (60  (60  (2,364  107    (2,257
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Banks loans - Other financial institutions

        

Pesos

   (1,698,222  2,070,088   371,866   586,744   257,162    843,906 

Foreign currencies

   (1,318  140,547   139,229   207,601   761    208,362 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   (1,699,540  2,210,635   511,095   794,345   257,923    1,052,268 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Debt securities issued

        

Pesos

   1,361,035   (184,540  1,176,495   58,594   552,814    611,408 

Foreign currencies

   —     —     —     —     —      —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   1,361,035   (184,540  1,176,495   58,594   552,814    611,408 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Other liabilities

        

Pesos

   (27,173  (137,144  (164,317  (227,085  95,897    (131,188

Foreign currencies

   —     —     —     —     —      —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   (27,173  (137,144  (164,317  (227,085  95,897    (131,188
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total interest-bearing liabilities

        

Pesos

   (3,572,550  13,592,748   10,020,198   3,647,180   15,708,761    19,355,941 

Foreign currencies

   (13,390  189,787   176,397   253,338   48,813    302,151 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Total

   (3,585,940  13,782,535   10,196,595   3,900,518   15,757,574    19,658,092 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Interest-Earning Assets: Net Interest Margin and Spread

The following table analyzes, by currency of denomination, our levels of average interest-earning assets and net interest income, and illustrates the comparative margins and spreads for each of the fiscal years indicated.

 

   Fiscal Year ended December 31, 
   2019  2018  2017 
   (in thousands of pesos, except percentages) 

Average interest-earning assets

    

Pesos

   239,498,141   251,651,795   237,186,255 

Foreign currencies

   97,579,694   108,332,525   71,726,981 
  

 

 

  

 

 

  

 

 

 

Total

   337,077,835   359,984,320   308,913,236 
  

 

 

  

 

 

  

 

 

 

Net interest income (1)

    

Pesos

   61,265,895   44,308,277   34,530,207 

Foreign currencies

   5,339,854   4,509,408   2,012,467 
  

 

 

  

 

 

  

 

 

 

Total

   66,605,749   48,817,685   36,542,674 
  

 

 

  

 

 

  

 

 

 

Net interest margin (2)

    

Pesos

   25.58  17.61  14.56

Foreign currencies

   5.47  4.16  2.81

Weighted average rate

   19.76  13.56  11.83

Yield spread, nominal basis (3)

    

Pesos

   12.41  10.45  10.24

Foreign currencies

   5.63  4.23  2.83

Weighted average rate

   16.75  11.60  10.03

 

(1)

Net interest income is defined as interest earned less interest paid. Trading results from our portfolio of government securities are included in interest.

(2)

Net interest margin is net interest income stated as a percentage of average interest-earning assets.

(3)

Yield spread nominal basis is defined as the difference between the average nominal rate on interest-earning assets and the average nominal rate on interest-bearing liabilities.

 

 

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Table of Contents

Investment Portfolio: Government and Corporate Securities

We own, manage and trade a portfolio of securities issued by the Argentine and other governments and corporate issuers. The following table sets out our investments in Argentine and other governments and corporate securities as of December 31, 2019, 2018 and 2017 by type and currency of denomination.

 

   As of December 31, 
   2019   2018   2017 
   (in thousands of pesos) 

Government securities

      

In pesos:

      

Argentine bonds

   8,721,449    13,163,049    5,039,425 

Other debt securities

   51,705    85,926    12,417 

Instruments issued by the BCRA

   33,061,179    31,077,880    35,394,403 
  

 

 

   

 

 

   

 

 

 

Total government securities in pesos

   41,834,333    44,326,855    40,446,245 
  

 

 

   

 

 

   

 

 

 

In foreign currency:

      

Argentine government treasury bills

   7,344,597    4,974,349    10,873,689 
  

 

 

   

 

 

   

 

 

 

Total government securities in foreign currency

   7,344,597    4,974,349    10,873,689 
  

 

 

   

 

 

   

 

 

 

Total government securities

   49,178,930    49,301,204    51,319,934 
  

 

 

   

 

 

   

 

 

 

Corporate securities

      

Listed

      

Equity securities

   27,369    204,979    301,565 
  

 

 

   

 

 

   

 

 

 

Total corporate securities - listed

   27,369    204,979    301,565 
  

 

 

   

 

 

   

 

 

 

Unlisted

      

Equity securities

   3,176,244    —      —   

Debt securities

   163,836    432,363    669,305 
  

 

 

   

 

 

   

 

 

 

Total corporate securities - unlisted

   3,340,080    432,363    669,305 
  

 

 

   

 

 

   

 

 

 

Investment funds

   976,577    628,719    796,656 
  

 

 

   

 

 

   

 

 

 

Total investment funds

   976,577    628,719    796,656 
  

 

 

   

 

 

   

 

 

 

The table below presents the issuer of which, as of December 31, 2019, we held securities in excess of 10% of our stockholder equity as of such date:

 

Issuer

  Book value   Market value 
   (in thousands of pesos) 

BCRA

   33,061,179    33,061,179 

Argentine Republic

   16,066,046    16,066,046 

Investment Portfolio: remaining maturities of our investment portfolio

The following table analyzes the remaining maturities of our investment portfolio as of December 31, 2019 in accordance with the relevant issuance terms.

 

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Table of Contents
   Maturing 
   Within 1 year  After 1 year but
within 5 years
  After 5 years but
within 10 years
  After 10 years  Total 
   Book value 
   (in thousands of pesos, except percentages) 

Government securities

      

In Pesos:

      

Argentine bonds (*)

   8,616,830   104,619   —     —     8,721,449 

Other debt securities

   —     51,705   —     —     51,705 

Instruments issued by the BCRA

   33,061,179   —     —     —     33,061,179 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total government securities in pesos

   41,678,009   156,324   —     —     41,834,333 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

In foreign currency:

      

Argentine government treasury bills

   7,344,597   —     —     —     7,344,597 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total government securities in foreign currency

   7,344,597   —     —     —     7,344,597 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total government securities

   49,022,606   156,324   —     —     49,178,931 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Debt securities - unlisted

   143,652   20,101   —     83   163,836 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average yield (for the securities indicated with *)(1)

   64.66  69.26  0.00  18.77 

 

(1)

The maturity profile above is based on each bond contractual maturity and its amortization profile. The weighted average yield was calculated using the internal rate of return of each bond published by the Argentine Institute of Capital Markets (“IAMC”) weighted by the expected outstanding principal at each maturity bucket.

Loan Portfolio

The following table analyzes our loan portfolio by types of loan as of December 31, 2019, 2018 and 2017. Loans are stated before deduction of the allowance for loan losses.

 

   As of December 31, 
   2019   2018   2017 
   (in thousands of pesos) 

Loans and advances to government sector

   427    317    495 

Loans and advances to central bank

   17,405    589    —   
  

 

 

   

 

 

   

 

 

 
   17,832    906    495��
  

 

 

   

 

 

   

 

 

 

Loans and advances to financial institutions

      

Loans and advances to financial institutions

   5,198,021    14,874,564    10,419,050 

Allowance for loan losses

   (128,088   (51,512   (75,833
  

 

 

   

 

 

   

 

 

 
   5,069,933    14,823,052    10,343,217 
  

 

 

   

 

 

   

 

 

 

Loans and advances to customers

      

Overdrafts(1)

   14,397,300    18,135,783    26,590,329 

Commercial papers(2)

   12,336,236    17,806,133    25,389,012 

Notes

   11,360,539    19,597,217    16,010,462 

Real estate mortgage

   14,151,441    15,544,350    10,107,852 

Pledge loans

   8,657,089    2,538,576    10,352,058 

Consumer loans

   23,594,950    36,244,344    37,311,875 

Credit Cards

   72,065,842    64,408,377    67,905,316 

Loans for the prefinancing and financing of exports

   18,296,107    69,360,839    52,573,999 

Receivables from financial leases

   1,889,792    3,657,745    5,215,361 

Loans to personnel

   1,714,373    1,854,451    1,424,810 

Other financing(3)

   22,990,706    21,616,264    31,711,445 

Allowance for loan losses

   (11,412,408   (6,251,850   (4,169,523
  

 

 

   

 

 

   

 

 

 
   190,041,967    264,512,229    280,422,996 
  

 

 

   

 

 

   

 

 

 

Secured loans

      

Liquid collateral

   307,520    1,262,426    3,176,588 

Preferred guarantees(4)

   22,743,471    16,106,708    24,595,143 
  

 

 

   

 

 

   

 

 

 
   23,050,991   17,369,134   27,771,731 
  

 

 

   

 

 

   

 

 

 

 

(1)

Overdrafts include short and long-term loans to companies and overdraft lines of credit.

(2)

Commercial papers are endorsed promissory notes.

(3)

Other financing are loans not included in other categories.

(4)

Preferred guarantees mainly relate to mortgages and car loans, for which collection of the amounts owed is reasonably assured because the guarantees may be executed through established legal processes.

 

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For a description of the risk elements associated with our investment portfolio and our risk policies, see“Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

Loans by Economic Activity

The table below analyzes our loan portfolio according to the borrowers’ main economic activity as of December 31, 2019, 2018 and 2017. Where appropriate, personal loans are allocated to the economic activity of the borrower. Loans are stated before deduction of the allowance for loan losses.

 

   As of December 31, 
   2019  2018  2017 
   Loan
Portfolio
   % of Loan
Portfolio
  Loan
Portfolio
   % of Loan
Portfolio
  Loan
Portfolio
   % of Loan
Portfolio
 
   (in thousands of pesos, except percentages) 

Agricultural and livestock

   9,221,711    4.46  17,207,998    6.02  6,849,989    2.32

Construction

   1,521,657    0.74  2,353,865    0.82  1,960,931    0.65

Consumer

   118,798,557    57.48  94,634,645    33.13  135,481,093    45.92

Electricity, oil, water and sanitary services

   1,603,518    0.78  3,129,729    1.10  2,748,273    0.93

Financial sector

   5,090,775    2.46  14,874,881    5.21  10,419,545    3.53

Government services

   458    0.00  906    0.00  495    0.00

Mining products

   19,318,275    9.35  31,147,178    10.90  1,738,123    0.59

Others

   19,069,270    9.23  25,542,448    8.94  72,021,461    24.42

Other manufacturing

   19,267,595    9.32  40,162,465    14.06  30,939,325    10.49

Services

   724,668    0.35  25,828,545    9.04  438,598    0.15

Transport

   1,844,102    0.35  2,809,381    0.98  4,853,854    1.65

Wholesale and retail trade

   10,209,673    4.05  27,947,509    9.78  27,560,377    9.34
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
   206,670,259   100.00%  285,639,550   100.00%  295,012,064   100.00% 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Maturity Composition of the Loan Portfolio

The following table analyzes our loan portfolio as of December 31, 2019 by type of loan and by the time remaining to maturity. Loans are stated before deduction of the allowance for loan losses. We expect most loans to be repaid at maturity in cash or through refinancing at market terms.

 

      Maturing 
   Amount as of
December 31,

2019
  Within
3 months
  After 3
months but
within 1 year
  After 1 year
but within
5 years
  After 5 years 
   (in thousands of pesos, except percentages) 

To government sector

   458   458   —     —     —   

To central bank

   17,405   17,405   —     —     —   

To financial institutions

   5,198,021   887,487   2,479,946   1,830,588   —   

To customers

   201,454,375   125,804,709   24,169,915   39,374,368   12,105,383 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Overdrafts

   14,397,300   13,641,973   606,597   148,730   —   

With privileged guarantees

   24,522,903   2,627,716   3,910,534   6,692,747   11,291,906 

Credit cards

   72,065,842   72,065,842   —     —     —   

Other

   90,468,330   37,469,178   19,652,784   32,532,891   813,477 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   206,670,259   126,710,059   26,649,861   41,204,956   12,105,383 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Percentage of total loan portfolio

   100.00  61.31  12.89  19.94  5.86

 

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Interest Rate Sensitivity of Outstanding Loans

The following table analyzes, by currency of denomination, the interest rate sensitivity of our loan portfolio as of December 31, 2019. Loans are stated before deduction of the allowance for loan losses.

 

   As of December 31, 2019 
   (in thousands of pesos) 

Variable Rate

  

Pesos

   195,049 

Foreign currency

   281,615 
  

 

 

 

Sub-total

   476,664 
  

 

 

 

Fixed Rate

  

Pesos — including adjustable loans

 �� 164,121,800 

Foreign currency

   34,289,980 
  

 

 

 

Sub-total

   198,411,780 
  

 

 

 

Non-performing(1)

  

Pesos

   5,054,670 

Foreign currency

   2,727,145 
  

 

 

 

Sub-total

   7,781,815 
  

 

 

 

Total

   206,670,259 
  

 

 

 

 

(1)

For additional information onnon-performing loans see “—Non-performing and Restructured Loans” below.

The following table sets forth a breakdown of our fixed and variable rate loans which have a maturity of one year or more as of December 31, 2019.

 

   Interest Sensitivity of
Outstanding Loans Maturing
in More Than One Year
 
   Fixed rate   Variable rate 
   (in thousands of pesos) 

To financial institutions

   3,120,568    —   

To customers

   47,558,430    14,432 
  

 

 

   

 

 

 

Total

   50,678,998    14,432 
  

 

 

   

 

 

 

Foreign Country Outstanding Positions

As of December 31, 2019, 2018 and 2017 we did not hold “cross-border outstandings” exceeding 1% of our total assets. Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets which are denominated in dollars or othernon-local currency.

Classification of Loan Portfolio by Stage

The following table presents our loan portfolio classified by stage, before the deduction for the allowance for loan losses as of December 31, 2019, 2018 and 2017:

 

   As of December 31, 
   2019   %  2018   %  2017   % 
   (in thousands of pesos, except percentages) 

Stage 1

   178,792,539    86.51  260,143,988    91.07  291,660,131    98.86

Stage 2

   20,095,905    9.72  19,721,489    6.90  1,307,042    0.44

Stage 3

   7,781,815    3.77  5,774,073    2.03  2,044,891    0.70
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
   206,670,259    100.00  285,639,550    100.00  295,012,064    100.00
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

We have concluded that all our refinanced loans comply with the conditions for considering them as troubled debt restructuring (“TDR”). A restructured loan is considered a TDR if the debtor is experiencing financial difficulties and the Bank grants a concession to the debtor that would not otherwise be considered. Concessions granted could include: reduction in interest rate to rates that are considered below market, extension of repayment schedules and maturity dates beyond original contractual terms.

 

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Loans considered TDR as of December 31, 2019, 2018 and 2017 were as follows:

 

   As of December 31, 

Troubled debt restructuring

  2019   2018   2017(1) 
   (in thousands of pesos) 

Wholesale

      

Others

   1,056,874    115,914    197,270 

Retail

      

Personal Loans

   1,058,391    1,084,440    951,164 

Mortgage

   572    1,300    2,689 

Others

   256    811    8,772 
  

 

 

   

 

 

   

 

 

 
   2,116,093    1,202,465    1,159,895 
  

 

 

   

 

 

   

 

 

 

 

(1)

In accordance with IAS 39

We classify our loan portfolio in two categories: (i) retail and (ii) wholesale.

The following table presents our retail and wholesale loan portfolio as of December 31, 2019, 2018 and 2017 before the deduction of the allowance for loan losses:

 

   As of December 31, 
   2019   %  2018   %  2017   % 
   (in thousands of pesos, except percentages) (1) 

Stage 1 (Retail)

   102,093,227    86.18  104,161,652    85.11  117,650,700    97.67

Stage 1 (Wholesale)

   76,699,312    86.95  155,982,336    95.55  174,009,431    99.69
  

 

 

    

 

 

    

 

 

   
   178,792,539    86.51  260,143,988    91.07  291,660,131    98.86
  

 

 

    

 

 

    

 

 

   

Stage 2 (Retail)

   13,147,412    11.10  15,702,250    12.83  1,144,821    0.95

Stage 2 (Wholesale)

   6,948,493    7.88  4,019,239    2.46  162,221    0.09
  

 

 

    

 

 

    

 

 

   
   20,095,905    9.72  19,721,489    6.90  1,307,042    0.44
  

 

 

    

 

 

    

 

 

   

Stage 3 (Retail)

   3,223,742    2.72  2,525,579    2.06  1,663,897    1.38

Stage 3 (Wholesale)

   4,558,073    5.17  3,248,494    1.99  380,994    0.22
  

 

 

    

 

 

    

 

 

   
   7,781,815    3.77  5,774,073    2.02  2,044,891    0.70
  

 

 

    

 

 

    

 

 

   

Total retail loans

   118,464,381    100.00  122,389,481    100.00  120,459,418    100.00

Total wholesale loans

   88,205,878    100.00  163,250,069    100.00  174,552,646    100.00
  

 

 

    

 

 

    

 

 

   
   206,670,259    100.00  285,639,550    100.00  295,012,064    100.00
  

 

 

    

 

 

    

 

 

   

 

(1)

Percentages for each category are of total consumer, commercial or total loans, as the context requires.

Non-performing and Restructured Loans

The following table analyzes at each of the dates indicated below our grossnon-performing loan portfolio, and further breaks down the total into loans with preferred guarantees and those which are unsecured:

 

   As of December 31, 
   2019   2018   2017 
   (in thousands of pesos) 

Non-performing loans

   7,781,815    5,774,073    2,044,891 
  

 

 

   

 

 

   

 

 

 

Total

   7,781,815    5,774,073    2,044,891 
  

 

 

   

 

 

   

 

 

 

With preferred guarantees

   417,822    56,526    187,285 

Unsecured

   7,363,993    5,717,547    1,857,606 
  

 

 

   

 

 

   

 

 

 

Total

   7,781,815    5,774,073    2,044,891 
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The table below sets forthnon-performing loans by economic activity as of each of the dates indicated:

 

   As of December 31, 
   2019  2018  2017 
   Loan
Portfolio
   % of Loan
Portfolio
  Loan
Portfolio
   % of Loan
Portfolio
  Loan
Portfolio
   % of Loan
Portfolio
 
   (in thousands of pesos, except percentages) 

Agricultural and livestock

   203,004    2.61  69,661    1.21  96,937    4.74

Construction

   53,027    0.68  29,444    0.51  19,860    0.97

Consumer

   3,241,073    41.64  2,651,851    45.93  1,722,964    84.26

Electricity, oil, water and sanitary services

   1,510    0.02  414    0.01  2,344    0.11

Financial sector

   —      0.00  —      0.00  2,267    0.11

Mining products

   12,196    0.16  94,165    1.63  14,756    0.72

Others

   1,379,824    17.73  940,207    16.28  1,881    0.09

Other manufacturing

   2,412,057    31.00  1,796,279    31.11  89,360    4.37

Services

   13,430    0.17  10,616    0.18  21,018    1.03

Transport

   54,369    0.70  49,263    0.85  2,275    0.11

Wholesale trade

   411,325    5.29  132,173    2.29  71,229    3.48
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

   7,781,815    100.00  5,774,073    100.00  2,044,891    100.00
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

As of December 31, 2019, the majority of our loan portfolio, andnon-performing and restructured loan portfolio, consisted of loans to Argentine borrowers. At that date, Ps.833.3 million, or 0.43% of our total loan portfolio, consisted of loans to foreign borrowers.

Gross interest income that would have been recorded onnon-performing loans during the fiscal years ended December 31, 2019 and 2018 amounted to Ps.181.5 million and Ps.1,235.1 million, respectively.

Analysis of the Impairment Allowance

The table below sets forth the activity in the impairmentallowance for the fiscal years ended December 31, 2019, 2018 and 2017. Wecharge-offnon-performing loans when we believe that recovery is unlikely. We continue to try to collect all amounts past due, even if they have beencharged-off, if we believe that the likelihood of collecting such amounts justifies the commitment of resources to do so.

 

   Year ended December 31, 
   2019  2018  2017(1) 
   (in thousands of pesos, except percentages) 

Balance at the beginning of the year

   7,490,779   4,256,606   2,025,996 

Adoption IFRS 9

   —     1,594,161   —   
  

 

 

  

 

 

  

 

 

 

Subtotal

   7,490,779   5,850,767   2,025,996 

Provisions for loan losses

   12,678,870   5,955,331   4,230,045 

Charge-offs(2)

   (2,789,612  (4,315,319  (1,999,435

Balance at the end of year

   17,380,037   7,490,779   4,256,606 
  

 

 

  

 

 

  

 

 

 

Charge-off / average loans

   1.18  1.51  0.78

 

(1)

In accordance with IAS 39

(2)

Charge-offs are not concentrated in any particular economic activity. Of the Ps.2,789.6 millioncharged-off in the fiscal year ended December 31, 2019, Ps.555.0 million or 19.90% were related to corporate borrowers and Ps.2,234.6 million or 80.10%, were related to individual consumers. The variation between 2019 and 2018 was due to the increases in the doubtful loan portfolio. Of the Ps.4,315.3 millioncharged-off in the fiscal year ended December 31, 2018, Ps.1,626.0 million or 37.68%, were related to corporate borrowers and Ps.2,689.3 million or 62.32%, were related to individual consumers. The variation between 2018 and 2017 was due to the increases in the doubtful loan portfolio. Of the Ps.1,999.4 millioncharged-off in the fiscal year ended December 31, 2017, Ps.89.2 million or 4.46%, were related to corporate borrowers and Ps.1,910.2 million or 95.54%, were related to individual consumers. Charge-offs include reversal and applications.

Allocation of the Impairment Allowance

The following table allocates the impairmentallowance and sets forth the percentage distribution by each category as of December 31, 2019, 2018 and 2017.

 

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Table of Contents
   As of December 31, 
   2019  2018  2017(1) 
   Total   %  Total   %  Total   % 
   (in thousands of pesos, except percentages) 

Advances

   1,400,390    8.06  512,773    6.85  305,017    7.17

Notes discounted and purchased

   412,406    2.37  189,669    2.53  355,641    8.36

Secured with mortgages

   51,513    0.30  44,402    0.59  86,783    2.04

Pledge loans

   29,262    0.17  36,484    0.49  283,321    6.66

Consumers loans

   5,473,451    31.49  4,141,884    55.29  2,359,732    55.47

Foreign trade

   3,698,263    21.28  —      —     —      —   

Financial loans

   1,174,519    6.75  —      —     —      —   

Other

   5,140,233    29.58  2,565,568    34.25  866,112    20.30
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

Total

   17,380,037    100.00  7,490,779    100.00  4,256,606    100.00
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

��

 

 

(1)

In accordance with IAS 39

Composition of Deposits

The following table sets out the composition of each category of deposits that exceeded 10% of average total deposits in each of the fiscal years ended December 31, 2019, 2018 and 2017.

 

   Fiscal Year ended December 31, 
   2019  2018  2017 
   (in thousands of pesos, except percentages) 

Deposits in Domestic Bank Offices

    

Non-interest-bearing liabilities

    

Checking accounts

    

Average

    

Pesos

   44,775,392   46,791,687   56,862,005 

Foreign currencies

   33,278,990   25,538,057   30,460,757 
  

 

 

  

 

 

  

 

 

 

Total

   78,054,382   72,329,744   87,322,762 
  

 

 

  

 

 

  

 

 

 

Interest-bearing liabilities

    

Saving Accounts

    

Average

    

Pesos

   47,651,322   70,202,837   62,065,106 

Foreign currencies

   106,905,794   104,492,370   65,191,148 
  

 

 

  

 

 

  

 

 

 

Total

   154,557,116   174,695,207   127,256,254 
  

 

 

  

 

 

  

 

 

 

Average real rate

    

Pesos

   5.76  9.60  2.20

Foreign currencies

   0.01  0.01  0.01

Total

   1.78  3.86  1.08

Time Deposits

    

Average

    

Pesos

   86,949,121   91,022,194   83,098,395 

Foreign currencies

   21,700,738   23,149,670   16,504,000 
  

 

 

  

 

 

  

 

 

 

Total

   108,649,859   114,171,864   99,602,395 
  

 

 

  

 

 

  

 

 

 

Average real rate

    

Pesos

   46.90  30.92  18.63

Foreign currencies

   0.85  0.63  0.34

Total

   37.70  24.78  15.60

Maturity of Deposits

The following table sets forth information regarding the maturity of our deposits at December 31, 2019.

 

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   Maturing 
   Total   Within 3
months
   After 3 but
within 6
months
   After 6 but
within 12
months
   After 12
months
 
   (in thousands of pesos) 

Checking accounts

   54,000,386    54,000,386    —      —      —   

Savings accounts

   147,825,400    147,825,400    —      —      —   

Term deposits

   84,174,403    78,996,315    3,702,262    1,385,784    90,042 

Investment accounts

   77    —      77    —      —   

Other

   7,987,781    7,987,781    —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   293,988,047    288,809,882    3,702,339    1,385,784    90,042 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth information regarding the maturity of our certificates of deposit and other time deposits in denominations of US$100,000 or more at December 31, 2019.

 

   Maturing, 
   Total   Within 3
months
   After 3 but
within 6
months
   After 6 but
within 12
months
   After 12
months
 
   (in thousands of pesos) 

Domestic

   17,706,295    16,033,150    1,184,779    466,564    21,802 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   17,706,295    16,033,150    1,184,779    466,564    21,802 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Return on Equity and Assets

The following table presents certain selected financial information and ratios of BBVA Argentina for the fiscal years indicated.

 

   Year ended December 31, 
   2019  2018  2017 
   (in thousands of pesos, except percentages) 

Profit (loss) for the year attributable to owners of the Bank

   16,027,533   (2,291,690  2,928,692 

Average total assets(1)

   505,170,224   523,280,554   464,850,223 

Average stockholders’ equity attributable to owners of the Bank(1)

   76,386,314   72,742,650   66,981,811 

Stockholders’ equity attributable to owners of the Bank at the end of the fiscal year

   82,760,382   70,012,246   75,473,054 

Profit or loss for the year attributable to owners of the Bank as a percentage of:

    

Average total assets

   3.17  (0.44)%   0.63

Average stockholders’ equity attributable to owners of the Bank

   20.98  (3.15)%   4.37

Declared dividends(2)

   2,500,000   3,702,746   2,010,519 

Dividend payout ratio(3)

   15.60  (161.57)%   68.65

Average stockholders’ equity as a percentage of average total assets

   15.12  13.90  14.41

 

(1)

Computed as the average of fiscal year-beginning and fiscal year-ending balances.

(2)

The Bank’s Board of Directors resolved to propose for shareholder approval the payment of a cash dividend of Ps.2,500 million for the year ended December 31, 2019. The ordinary and extraordinary shareholders’ meeting was initially called for April 7, 2020 and was rescheduled to May 15, 2020 as a virtual meeting due to theCOVID-19 pandemic. See“Item 8. Financial Information—A. Financial Statements and other Financial Information—Dividends”).

(3)

Declared dividends stated as percentages of loss or profit for the year attributable to owners of the Bank. See“Item 8. Financial Information—Dividends”.

Short-Term Borrowings

Our short-term borrowings, which equaled or exceeded 30% of stockholders’ equity, totaled Ps.41.8 billion, Ps.56.1 billion and Ps.74.6 billion at December 31, 2019, 2018 and 2017, respectively. The table below shows those amounts at the end of each fiscal year and other related information.

 

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   At December 31, 
   2019  2018  2017 
   Amount   Weighted
Average

Interest
Rate
  Amount   Weighted
Average

Interest
Rate
  Amount   Weighted
Average

Interest
Rate
 
   (in thousands of pesos, except percentages) 

Total amount outstanding at the end of the reporting period

   44,814,453    4.6  56,132,388    5.3  74,577,404    17.1

Average during year(1)

   40,844,949    4.8  43,814,061    6.8  71,185,563    17.9

Maximummonth-end balance

   44,814,453     56,132,388     84,089,715   

 

 

(1)

Calculated as the average of balances at the end of each quarter during the relevant year.

 

F.

The Argentine Banking System and its Regulatory Framework

Argentine Banking System

On December 31, 2019, Argentina’s banking system consisted of 53 commercial banks, 13 of which were government-owned or government-related banks and 50 of which were Argentine private banks. The principal regulators of financial institutions in Argentina are the Central Bank, the Superintendence and, in the case of financial institutions that publicly offer their own securities in Argentina or otherwise engage in the offering or trading of third parties’ securities in Argentina, the CNV.

Private Sector Banks

According to information published by the Central Bank, on December 31, 2019, the largest Argentine private banks, in terms of total assets, were: Banco Santander S.A., Banco de Galicia y Buenos Aires S.A., BBVA Argentina, Banco Macro S.A. and HSBC Bank Argentina. Some of these banks, including BBVA Argentina, have one or more significant foreign investors. Argentine private banks accounted for 57.12% of total deposits and 60.50% of total gross loans in the Argentine financial sector as of December 31, 2019, of which the ten largest Argentine private banks accounted for 47.34% of total deposits and 51.52% of total gross loans in the Argentine financial sector. Foreign banks compete under the same regulatory conditions as Argentine banks.

Public Sector Banks

The principal state-owned banks are Banco de la Nación Argentina, Banco de la Provincia de Buenos Aires and Banco de la Ciudad de Buenos Aires. As of December 31, 2019, based on the available data of the Central Bank, these three institutions accounted for 36.32% of total deposits and 30.17% of total gross loans in the Argentine financial sector.

Under the provisions of the Argentine financial institutions Law No. 21,526 (the “Financial Institutions Law”), government-owned or government-related banks and private banks have similar rights and obligations except that the former have the sole right and obligation to handle public revenues and promote regional development. Government-owned banks are required to meet the credit needs of public sector entities. Moreover, theby-laws of some government-owned banks, which include federal, provincial and locally-owned banks, require their stockholders to guarantee their commitments.

Central Bank

The Financial Institutions Law regulates banking activities in Argentina and places the supervision and control of the Argentine banking system in the hands of the Central Bank, an autonomous institution. The Financial Institutions Law provides the Central Bank with broad access to the accounting systems, books, correspondence, documents and other paperwork of banking institutions. The Central Bank regulates the provision of credit and supervises the liquidity and the general operation of the Argentine financial markets. The Central Bank enforces the Financial Institutions Law and authorizes banks to operate in Argentina. Since an amendment to the Financial Institutions Law of 1994, there is no distinction between domestically-owned and foreign-owned financial institutions.

The Central Bank establishes “technical ratios” to limit the levels of indebtedness, liquidity, maximum credit that may be granted per customer and foreign exchange assets and liabilities positions of financial institutions, among others. The Central Bank carries out formal inspections from time to time of all banking institutions to monitor their compliance with legal and regulatory requirements. The Central Bank supervises banks

 

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on a consolidated basis. It has a supervision department of internal and external auditors of financial institutions that evaluate performance comprehensively in internal audit areas as well as firms and professionals working as external auditors of financial institutions. When a financial institution does not comply with the mandatory technical ratios, it must explain such noncompliance to the Central Bank. There are specific regulations governing reorganization plans and other measures arising fromnon-compliance with these plans. Moreover, the Central Bank has the authority to impose sanctions fornon-compliance, ranging from a warning to the revocation of banking licenses.

The Central Bank requires financial institutions to submit information to it on a daily, monthly, quarterly, semiannual and annual basis. These reports contain, among other important information, balance sheets and income statements, information relating to reserve funds and use of deposits and indicators on portfolio quality, including details on principal debtors and any loan-loss provisions. The reports are designed to allow the Central Bank to monitor the financial institutions’ business practices. If the Central Bank’s rules are breached, various sanctions may be imposed depending on the gravity of the violation, ranging from simple reprimanding to the imposition of fines or even the revocation of a bank’s operating license. Moreover, noncompliance with certain rules may result in the mandatory submission by the infringing financial institution to the Central Bank of specific capital adequacy or regularization plans. These plans must be approved by the Central Bank for a financial institution to maintain its license.

Law No. 25,780 introduced amendments to the Financial Institutions Law and to the Central Bank’s Charter (carta orgánica). Among the most important modifications we can mention the following:

 

  

Unless expressly provided otherwise by law, the Central Bank shall not be affected by regulations of a general nature that have been or may be enacted with reference to public administration entities and which introduce limitations on the authority or powers of the Central Bank established in its Charter.

 

  

The Central Bank is authorized to make temporary advances to the federal government up to an amount equivalent to 12% of the monetary base, which for this purpose includes monetary circulation plus deposits at sight of financial institutions in the Central Bank, whether in current account or in special accounts. It may also grant advances up to an amount not exceeding 10% of the cash resources obtained by the federal government in the previous twelve months. At no time may the amount granted as temporary advances, excluding those exclusively destined to the payment of obligations with multilateral lending institutions, exceed 12% of the monetary base. All advances thus granted must be repaid within the following twelve months; if any of these advances remain unpaid after their expiration date, it will not be possible to use again these powers until all amounts owed have been repaid.

 

  

The validity of Sections 44, 46 (c), 47 and 48 of the Central Bank’s Charter, with respect to the powers of the Superintendent of Financial and Exchange Entities (Superintendente de Entidades Financieras y Cambiarias) under the terms of the text approved as Article 1 of the Law No. 24,144.

 

  

A transitional provision is introduced authorizing the Central Bank to: (i) provide assistance to financial entities with liquidity and / or solvency problems (already authorized under Decree No. 214/02), including those in process of restructuring by resolution of the Central Bank in terms of Article 35 bis of the Financial Institutions Law; (ii) to authorize the integration of reserve requirements of financial institutions with financial assets other than cash, in the form of demand deposits at the Central Bank or in foreign currency accounts according to Article 28 of the Central Bank’s Charter.

Amendments to the Central Bank’s Charter and the Convertibility Law

Law No. 26,739 amended in 2012 the functions and powers of the Central Bank and the ability of the federal government to obtain financing from the Central Bank. This law amended the charter of the Central Bank (as amended, the “Charter”), which had been previously approved by Law No. 24,114 and the Convertibility Law. The amendments introduced by Law No. 26,739 may be grouped under two subjects: (i) amendments to the functions and powers of the Central Bank as the regulatory and supervisory authority of the financial sector; and (ii) expansion of the federal government’s access to financing from the Central Bank. We briefly explain below the most relevant aspects of each.

 

  

Functions and powers of the Central Bank:

 

  

Purpose of the Central Bank. Prior to Law No. 26,739 according to the Charter, the “primary and fundamental purpose” of the Central Bank was to “preserve the value of the currency”. Following Law No. 26,739, the Central Bank has multiple purposes, including “promoting currency stability, financial stability, employment and economic development with social equity”.

 

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Relationship of the Central Bank with the executive branch and Congress. Under the Charter, the Central Bank remains a “self-governed entity” and (i) in the exercise of its powers and faculties, the Central Bank shall not be subject to the instructions of the executive branch, and (ii) the Central Bank may not enter into any obligation that implies a restriction or a delegation of its powers, without Congress’ express authorization. However, the Charter provides that the Central Bank’s purpose must be fulfilled “within the framework of the policies set by the federal government”.

 

  

Obligations and powers of the Central Bank related to economic information. The amendments to the Charter limited the ability of the Central Bank to supply economic information. In particular, (i) the requirement to report the expected rate of inflation for each year; (ii) the publication of statistics regarding the balances of payment and the national accounts of the Republic and (iii) the requirement that the entity’s financial statements reflect the amount and composition of the reserves and of the monetary base were removed from the Charter.

 

  

Functions and powers of the Central Bank. New powers were vested in the Central Bank, including: (i) to regulate the amount of money and the interest rates, and direct credit policies; (ii) to regulate payment systems, liquidating and clearing houses, fund remittance entities, and transportation of valuables and (iii) to protect the rights of consumers of financial services and fair competition within the financial sector.

 

  

Powers of the Central Bank’s president. The amendments strengthened the powers of the president of the Central Bank’s board of directors. In this respect, (i) the Superintendence is now under the president’s supervision; (ii) the president was empowered to operate directly in the currency and foreign exchange markets (formerly, these powers were vested in the Central Bank’s board of directors) and (iii) the president’s powers in emergency situations were increased.

 

  

Powers of the Central Bank’s board of directors. New regulatory powers were expressly conferred to the board, such as: (i) to establish the information and accounting regime for the entities subject to the Central Bank’s supervision; (ii) to regulate credit conditions and policies; (iii) to enact rules that preserve competition in the financial markets and (iv) to regulate the capture (through negotiable instruments or otherwise) of foreign currency funds by financial institutions.

 

  

Financing of the federal government:

 

  

Temporary Advances. The amendment of the Charter significantly increased the Central Bank’s ability to grant temporary advances to the federal government. See“—Central Bank” above.

 

  

Powers of the Central Bank’s board of directors. See“—Central Bank—Functions and powers of the Central Bank” above.

Determination and application of the “freely available” reserves. The amendments to the Convertibility Law abrogated the requirement that the Central Bank’s reserves must underpin up to 100% of the monetary base. Now the Central Bank’s board of directors shall determine the amount of reserves necessary to carry out the foreign exchange policy, taking into consideration the evolution of the external accounts. Consequently, the “freely available” reserves will no longer be constituted by those that exceed the amount necessary to underpin up to 100% of the monetary base. The “freely available” reserves will now be those which exceed the amount determined by the board of directors in the manner contemplated above. The amendments also expanded the scope of application of “freely available” reserves. In addition to the payment of obligations with international financial institutions, pursuant to the reform approved by Congress, the “freely available” reserves may also be applied to the payment of “official bilateral external debt”, which includes the debt that the Republic has with creditors grouped together in the “Paris Club”.

 

  

Argentine Fund for Indebtedness Reduction. This fund was created through Decree No. 298/10 in order to apply “freely available” reserves of the Central Bank to the payment of sovereign debt held by private creditors. This Fund is composed by the “freely available” reserves allocated for each fiscal year. Law No. 26,739 provides that this fund will continue to operate until the purpose for which it was created has been fulfilled.

 

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Supervision on a consolidated basis

Argentine financial institutions are subject to supervision on an individual and consolidated basis by the Central Bank. Therefore, the financial statements and other information of financial institutions must reflect the transactions of their head office as well as those of their branches domestically and offshore, and those of any domestic and foreign “significant subsidiaries” (as defined below). The requirements as to liquidity, solvency, minimum capital, risk concentration, and provisions for loan losses, among others, must be calculated on a consolidated basis.

Financial institutions must submit certain financial information to the Central Bank, including the following:

 

  

financial statements and other quarterly and annual reports reflecting on a consolidated basis the transactions of the financial institution, its domestic and foreign branches and its domestic and foreign “significant subsidiaries” (as defined below); and

 

  

financial statements and other quarterly and annual reports reflecting on a consolidated basis the transactions of the financial institution, its domestic and foreign branches, its domestic and foreign “significant subsidiaries” (as defined below) or entities or companies in the Republic and abroad where the financial institution owns or controls more than 12.5% of the shares entitled to vote (in those cases determined by the Superintendence), and those companies not subject to consolidated supervision which the financial institution may have chosen to include with the prior approval of the Superintendence.

For the purposes of these regulations:

 

  

A “subsidiary” of a domestic financial institution is any domestic or foreign financial institution or company where:

 

 (1)

the domestic financial institution has direct or indirect control of more than 50% of the total votes of any instrument with voting rights in such entity or company,

 

 (2)

the domestic financial institution has direct or indirect control as to determining by itself the composition of most of the management bodies of such entity or company, or

 

 (3)

a majority of the directors of the domestic financial institution is also a majority of the directors of such entity or company.

The possession or control by the financial institution is considered indirect if exercised through another legal person, its controlling shareholders or directors appointed by such controlling shareholders or persons linked to them, in control of more than 50% (measured as a whole) of the total votes of any instrument with voting rights in another entity or company. Any other form of control or interest where, in the opinion of the Superintendence, and even if the shareholders’ interest does not exceed 50%, a situation of control, and therefore the subsidiary character of an entity or company, is established or can be inferred from the evidence collected.

 

  

A “significant subsidiary” is any subsidiary:

 

 (1)

whose assets, possible commitments and other transactions recorded in memorandum accounts represent 10% or more of the total capital of the local financial institution and its subsidiaries abroad; or

 

 (2)

whose results of operations corresponding to the current fiscal year represent 10% or more of the aggregate results of operations for the current fiscal year of the local financial institution and its subsidiaries abroad.

Acquisition of Shares of Financial Entities

Central Bank regulations require the approval of the Central Bank as a condition to the consummation of an acquisition of shares of a financial entity if such acquisition is likely to modify the control or the structure of the shareholders’ groups controlling a financial entity (“Significant Acquisitions”). In addition, any acquisition, other than a Significant Acquisition, in a public offering of 2% or more of the capital stock of a financial entity, such entity must report the identity, nationality and domicile of each purchaser to the Central Bank.

 

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Legal Reserve

The Central Bank requires that financial institutions allocate on an annual basis a certain percentage of their net income in accordance with BCRA rules to a legal reserve. Such percentage is currently set at 20%. This reserve can only be used during periods in which a financial institution has incurred losses and has exhausted all unappropriated retained earnings and other reserves. Financial institutions may not pay dividends if the legal reserve has been impaired. However when the legal reserve is used to absorb losses, no profits may be distributed until such losses are fully refunded. If the legal reserve balance before any loss absorption exceeds 20% of the capital stock plus a capital adjustment, profits may be distributed once the latter value (capital stock plus the capital adjustment) is reached.

Reserve Requirements and Liquidity Requirements

Financial institutions must keep available at all times, and therefore not available for lending, a portion of their deposits or obligations in cash. The minimum cash requirement is calculated on the monthly average of daily balances for certain obligations as recorded at the end of each calendar month, and must be observed separately for each currency of denomination and/or government securities and instruments issued by the BCRA. Compliance must take place in the same currency as the obligations, except for demand liabilities derived from transfers from abroad in foreign currencies other than the U.S. dollar, which must be accounted for in U.S. dollars making use of one of the following instruments:

 

 (i)

current accounts in pesos of the financial institutions with the Central Bank;

 

 (ii)

minimum cash accounts of the financial institutions with the Central Bank, denominated in U.S. dollars or other foreign currencies;

 

 (iii)

special guarantee accounts in favor of electronic clearing houses;

 

 (iv)

current accounts ofnon-banking financial institutions;

 

 (v)

special current accounts (opened in the Central Bank) in connection with the fulfillment of social security benefits; and

 

 (vi)

minimum cash accounts of public securities and instruments issued by the Central Bank, at market value and of the same type.

Since April 1, 2012, cash and cash equivalents in pesos and foreign currencies are not considered as part of the minimum cash requirement. Any default in cash and cash equivalents in foreign currency for a particular period will be taken into account when calculating, and will increase by the same amount, the minimum cash requirements for such foreign currency.

The minimum cash requirement is reduced according to the participation of the financing in pesos granted to MiPyMEs in the total financing in pesos for thenon-financial private sector, as indicated in the table below:

 

Participation of the financing to

MiPyMEs in the total financing granted by the

entity to thenon-financial private sector.

In %

  Deduction (on the total of items
included in pesos).
In %
 

Less than 4

   0.00 

Between 4 and less than 6

   0.75 

Between 6 and less than 8

   1.00 

Between 8 and less than 10

   1.25 

Between 10 and less than 12

   1.50 

Between 12 and less than 14

   1.75 

Between 14 and less than 16

   2.00 

Between 16 and less than 18

   2.20 

Between 18 and less than 20

   2.40 

Between 20 and less than 22

   2.60 

Between 22 and less than 24

   2.80 

Between 24 and less than 26

   3.00 

Between 26 and less than 28

   3.20 

Between 28 and less than 30

   3.40 

30 or more

   3.60 

 

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Depending on the granting of loans under the program “AHORA 12” the minimum cash requirement in pesos was reduced again in July 2018 in an amount equivalent to 20% of the sum of financings in pesos and a similar percentage was reduced in January 2017 for the consumptions made with credit cards since December 2016 through the program “AHORA 18” and in May 2017 for the consumptions made with credit cards since April 2017 through the program “AHORA 3” and “AHORA 6”.

Depending on the cash withdrawals made through the entity’s ATMs, the requirement will be reduced in accordance with the provisions of the BCRA, taking into account the provisions set forth above.

Likewise, in case of an excessive concentration of liabilities (in holders and/or terms), which implies a significant risk on the financial institution’s liquidity and/or an important negative effect on the system’s liquidity, additional minimum cash requirements may be imposed on the affected liabilities of the financial institution and/or any other measures considered relevant.

The balances of cash accounts opened with the Central Bank as eligible for cash integrations were only compensated up to the amounts corresponding to the legal requirements for forward transactions.

The Central Bank sets forth the application of different requirements for deposits in pesos as opposed to foreign currencies.

The following schedule indicates the minimum cash requirements for each type of account as of February of 2020. In the case of transactions in pesos, the minimum cash requirements will depend on the category assigned to the location of the operating office where the deposit was made:

 

   February 2020 
   Categories 

Type of Account

  I  II to VI 

Current accounts and demand accounts open in Credit Unions

   45  20

Other demand deposits, basic account and universal free account

   

In pesos

   45  20

In foreign currency

   25  25

Unused balances from current account advances effected

   45  20

Current accounts of financial institutions

   100  100

Fixed-term deposits, bonds for acceptances (including liabilities for the sale or assignment of credits to subjects other than financial institutions), reverse repurchases, bonds and stock-exchange reverse swaps, investments at constant term, with advanced cancellation or renewal option:

   

In pesos

   

Up to 29 days

   32  11

From 30 to 59 days

   22  7

From 60 to 89 days

   4  2

More than 90 days

   0  0

In foreign currency

   

Up to 29 days

   23  23

From 30 to 59 days

   17  17

From 60 to 89 days

   11  11

From 90 to 179 days

   5  5

From 180 to 365 days

   2  2

More than 365 days

   0  0

Demand and term deposits made by judicial order with funds originated in legal actions currently under course and their immobilized balances

   

In pesos

   

Up to 29 days

   29  10

From 30 to 59 days

   22  7

From 60 to 89 days

   4  2

More than 90 days

   0  0

In foreign currency

   15  15

 

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   February 2020 
   Categories 

Type of Account

  I  II to VI 

Special deposits related to funds revenues from abroad – Decree No. 616/05

   100  100

Term investments instrumented by nominativenon-transferable certificates in pesos corresponding to public sector security holders, entitled to exercise the prepayment option within a term not greater than 30 days after constitution thereof

   32  11

Deposits and term investments of “UVA” and “UVI”—including savings accounts in “UVA” and “UVI”

   

Up to 29 days

   7  7

From 30 to 59

   5  5

From 60 to 89 days

   3  3

More than 90 days

   0  0

Labor Closure Fund for Workers of the Construction Industry in “UVA”

   7  7

Deposits and term investments that are constituted on behalf of minors by funds received gratuitously

   0  0

In addition to the above mentioned requirements, a reserve must be established for the total amount of any default in the application of resources in foreign currency for the month in respect to which the calculation of the minimum cash requirement is made. SeeItem 4. Information on the Company—F. The Argentine Banking System and its Regulatory Framework—Lending Capacity Provided by Deposits in Foreign Currency.

Lending Capacity Provided by Deposits in Foreign Currency

The lending capacity provided by deposits denominated in foreign currency must be calculated in the same currency of the underlying deposits. Deposits denominated in foreign currency also include deposits denominated in dollars but payable in pesos. Customers who engage in any of the transactions below must be financed in foreign currency:

 

 (1)

Prefinancing and financing of exports carried out directly or through agents, consignees or other proxies acting for the account and order of the owner of the goods. It also comprises the financing of suppliers of services to be exported. This includes those transactions for the purpose of financing working capital and/or the acquisition of objects related to the production of goods to be exported, provided the flow of income in foreign currency deriving from such exports is sufficient to settle such transactions.

 

 (2)

Other financing to exporters who can rely on a flow of future income in foreign currency and who, in the year prior to the finance being granted, can provide evidence of invoicing in foreign currency -brought into the Republic- for an amount reasonably proportional to such financing.

 

 (3)

Financing transactions granted to goods, producers or processors, provided:

 

  

They have firm sale contracts for the goods to be produced for an exporter, with prices fixed or to be fixed in a foreign currency (regardless of the currency in which the transaction is settled) and involving fungible goods with a regular and customary quotation in foreign currency which is widely known and easily accessed by the public in local or international markets. In all cases of term purchase and sale agreements for a price to be fixed, such price must be in direct relation with the price of such products in local markets.

 

  

Their main activity is the production, processing and/or storage of fungible goods with a normal and regular foreign currency quotation in markets abroad that is widely known and easily accessible to the public and provided there is evidence, in the year prior to obtaining the financing, that total revenue from sales of such goods bears a reasonable proportion to that activity and its financing.

This category also includes transactions to finance suppliers of services directly used in the process of exporting goods.

 

 (4)

Financing transactions for producers of goods to be exported, either in the same condition or as part of other goods, by third-party purchasers, provided they have total pledges or guarantees in foreign currency from such third parties.

 

 (5)

Financings to suppliers of goods and/or services that form part of the production process of perishable items with prices quote in foreign currency, being customarily used in local markets or abroad, widely spread and with easy access to public knowledge, provided they enter into firm sales agreements for such goods and/or services in foreign currency.

 

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 (6)

Financing of investment projects, working capital and/or the acquisition of any kind of goods, including temporary importation of commodities, which may increase or be related to the production of goods for exportation. Even though income from exporter companies does not totally derive from sales abroad, financing may only be allocated if the income flow deriving from exportation is sufficient.

This category also includes those transactions where financing is granted via the bank’s participation in “syndicated loans”, be they with domestic or foreign entities.

 

 (7)

Financing to clients from the commercial portfolio and of a commercial nature who receive treatment for their consumption or housing credits –under the provisions of the “Debtors’ Classification” regulations–destined for the importation of capital goods (“BK” according to the Common Nomenclature for the MERCOSUR attached as Annex I to Decree No. 690/02 and other complementary provisions) which will result in an increase in the production of goods destined for domestic consumption.

 

 (8)

Debt securities or certificates of participation in financial trusts in foreign currency -including other collection rights specifically acknowledged in the trust agreement to be constituted within the framework of loans established by multilateral credit institutions of which Argentina is a party, whose assets under management are loans originated by financial institutions under the terms described in (1) through (4) and the first paragraph of (6) above or documents denominated in foreign currency, bought by the trustee for the purpose of financing transactions on the terms and conditions mentioned in the above points above.

 

 (9)

Financing transactions for purposes other than mentioned in (1) to (4) and the first paragraph of (6) above, included in the credit program “IDB Loan No.1192/OC-AR”, without exceeding 10% of the lending capacity.

 

 (10)

Loans to financial institutions (any interfinancing loans granted with such resources must be identified).

 

 (11)

Notes and bills issued by the Central Bank denominated in U.S. dollars.

 

 (12)

Direct investments abroad by companies residing in the Republic, whose purpose is to develop production activities ofnon-financial goods and/or services, be they through contributions and/or purchases of participations in companies, as far as they are incorporated in countries or territories considered as cooperators regarding tax transparency in terms of article 1 of Decree No. 589/13, as amended.

 

 (13)

Financing of investment projects, including their working capital, which permit increasing production in the power sector, and having firm sales agreements and/or full sureties or guaranties in foreign currency.

 

 (14)

Debt instruments in foreign currency of the national treasury, up to an amount equivalent to one third the total amount of applications made according to this article.

 

 (15)

Financings of investment projects for bovine cattle, including their working capital, without exceeding 5% of the entity’s deposits in foreign currency.

 

 (16)

Financing to foreign importers for the acquisition of goods and/or services produced in the Republic, either directly or through lines of credit to foreign banks.

 

 (17)

Financing to residents guaranteed bystand-by letters of credit issued by foreign banks that comply with the provisions of section 3.1. of the rules on “Credit assessments”, requiring to this effect an international rating of investment grade risk, insofar as such letters of credit are unrestricted and the accreditation of the funds is carried out immediately at the simple request of the beneficiary entity.

The lending capacity of a financial institution will result from the sum of all deposits in foreign currency plus all inter-financial loans received, as reported by the granting financial institution, as originated in its lending capacity for this type of deposit, after deduction of the minimum reserve requirements applicable to deposits.

Any deficiencies in the application of foreign currency lending capacity, net of a portion of: (i) cash balances, (ii) cash under custody in other financial institutions, (iii) cash in transit and (iv) cash with armored car transport companies, up to the amount of such deficiency, requires an equivalent increase in the minimum cash requirement discussed in “—Reserve Requirements and Liquidity Requirements” above.

 

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Limitations on Types of Business

Argentine commercial banks may conduct all activities and operations that are not specifically prohibited by law or by regulations of the Central Bank. Banks are permitted, among other things, to:

 

  

make loans in pesos and foreign currency;

 

  

receive deposits in pesos and foreign currency;

 

  

issue guarantees;

 

  

underwrite, place and broker equity and debt securities in theover-the-counter market, subject to the prior approval of the CNV;

 

  

conduct transactions in foreign currency;

 

  

act as fiduciary; and

 

  

issue credit cards.

According to the Financial Institutions Law, banks in Argentina are prohibited from investing in commercial, industrial or agricultural entities, or other entities without the express authorization of the Central Bank. The Central Bank may then impose conditions and limits to guarantee the safety and soundness of the financial institutions.

These limitations include:

 

  

the prohibition of a bank from pledging its shares;

 

  

restriction on incurring any liens upon its properties without prior approval from the Central Bank; and

 

  

limitations on transactions with directors or officers, including any company or person related to such directors or officers, on terms more favorable than those normally provided to clients. See“—Lending and Investment Limits—Related Persons” below in this section.

Notwithstanding the foregoing, banks may own shares in other financial institutions with the prior approval of the Central Bank and in public service companies if necessary to obtain public services.

Capital Adequacy Requirements

Basel Accord

In July 1988, the Basel Committee on Banking Regulations and Supervisory Practices (the “Basel Committee” or “BCBS”), which includes the supervisory authorities of twelve major industrial countries, adopted an international framework (the “Basel Accord”) for capital measurement and capital standards of banking institutions (known as Basel I).

In 2007 the Central Bank published its road map for the implementation of the capital adequacy requirements contained in the document “International Convergence of Capital Measurement and Capital Standards”, issued by the Basel Committee and known as Basel II. The first stages were implemented according to the schedule and consisted of the publication of best practices for risk management, seminars, review of supervision processes on the basis of the best practices being encouraged by the BCBS, analysis of the areas subject to “national discretion” in the calculation of regulatory capital, and publication of the text “Guidelines for Operational Risk Management in Financial Institutions”.

Following thesub-prime lending crisis that spread in 2008 and 2009, the BCBS published in December 2010 a set of measures known as Basel III, designed to increase the capacity of the system to absorb shocks from stress situations and improve risk management and the transparency of bank disclosures.

 

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Basel III incorporated the terms of Basel II, contained in three “pillars”:

 

  

Pillar 1 provides supervisors with a number of options to quantify capital requirements for credit, operational and market risk, and defines which components of an institution’s net worth are eligible to satisfy those requirements.

 

  

Pillar 2 describes the process to be followed by institutions to evaluate the sufficiency of their capital in relation to their risk profile.

 

  

Pillar 3 establishes minimum information requirements that financial institutions must provide on the adequacy of their capital.

 

  

Minimum Capital

Since the introduction of Basel I, financial institutions must keep an amount of total capital not less than 8% of their risk weighted assets. Items going towards compliance with this capital requirement are classified in two groups:

 

  

Core capital (Tier 1), and

 

  

Supplementary capital (Tier 2).

According to Basel II, at least half of the capital requirement should be composed of core capital, preferably common equity, a category that includes both common shares and retained earnings.

Had the Basel Accord been applied to us at December 31, 2019, our total capital would have been 2.02 times the minimum required.

Basel III established more demanding requirements, as banks must comply with three minimum ratios in relation to their risk-weighted assets:

 

  

4.5% for common equity (for which the qualifying criteria are more restrictive than for Basel II),

 

  

6% for Tier 1 capital, and

 

  

8% for total capital.

These new capital composition requirements help ensure that there will be greater capacity to absorb losses in stress situations.

 

  

Capital Conservation Buffer

Theso-called capital conservation buffer imposed an additional capital requirement equivalent to 2.5% of risk-weighted assets and it must be satisfied by common equity. Its purpose was to be able to count on sufficient reserves to absorb additional losses generated at times of economic and financial stress. In fiscal years where common equity is less than 7% of risk-weighted assets (the 4.5% base requirement from Basel III plus the conservation buffer), constraints are established for financial institutions, restricting their ability to pay dividends, award discretionary bonuses or perform share buybacks.

 

  

Countercyclical Capital Buffer

The goal of the countercyclical capital buffer was to offset thepro-cyclical nature of the financial sector. In times of exceptional credit growth at the aggregate level, financial institutions will be required to increase their common equity until 2.5% of their risk-weighted assets.

 

  

Leverage Ratio

Basel III complemented risk weighted asset capital requirements with a limit on total leverage. This limit, known as the leverage ratio, is the ratio between core capital (Tier 1) and total assets without risk weighting, both on and off balance sheet, plus derivatives. At the international level, this ratio was initially set at 3%. Although Basel II had previously established a capital requirement for the market risk generated by foreign currency positions, Basel III did not impose any limitation on foreign currency positions. Basel III introduced a limitation through the leverage ratio, set forth in relation to total exposure regardless of the currency in which the underlying assets are recorded. Argentine regulations limited direct exposure to currency risk. Furthermore, with the aim of preventing the indirect exposure generated by the granting of loans denominated in foreign currency to agents whose income is in pesos, regulations in Argentina only allowed funds obtained from deposits in foreign currency to be lent to customers who generate income in the same currency.

 

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Liquidity Coverage Ratio

The Liquidity Coverage Ratio (“LCR”) is based on the methodologies used by international banks. It is calculated so that financial institutions can tolerate stress scenarios over athirty-day period. Liquidity requirements in Argentina are stricter than those established by the international standards. See “—Liquidity Coverage Ratio” below.

 

  

Net Stable Funding Ratio

The Net Stable Funding Ratio (“NSFR”) is calculated on the basis of long-term liquidity and structural mismatching in the composition of sources of funding. The design of the NSFR is based on net liquid assets and liquid capital methodologies used by internationally active banks. Banks should hold sufficient stable sources of funding (net worth and long-term liabilities) to fund the proportion of their assets that they cannot monetize within a term of one year.

 

  

Intensive Supervision of Systemically Important Institutions

The Financial Stability Board and the BCBS are working on the design of an appropriate regulatory framework for global systemically important financial institutions(“G-SIFIs”). It is being discussed whetherG-SIFIs should be subject to more demanding capital requirements than those foreseen by Basel III. To that effect, a methodology to identifyG-SIFIS and the additional capital requirements to ensure a greater loss-absorbing capacity would have to be agreed.

Central Bank Rules

Under the Financial Institutions Law, Argentine financial institutions must comply at all times with the minimum capital requirements described by the Central Bank.

Since February 1, 2013, by Communication “A” 5369 of the BCRA, minimum capital is equal to total capital (basic net equity plus complementary net equity, “RPC”), as per the Central Bank’s denomination.

Basic Net Equity includes:

 

  

Ordinary Capital Level 1:

 

 a)

Corporate capital (excepting preferred shares);

 

 b)

Non-capitalized contributions (excepting share premiums);

 

 c)

Equity adjustments;

 

 d)

Reserve (excepting the special reserve for debt instruments);

 

 e)

Retained earnings;

 

 f)

Other results (either positive or negative);

 

 g)

Other comprehensive income (“OCI”), including 100% of the results recorded in revaluation of property, plant and equipment and intangibles, and gains or losses by financial instruments at reasonable value with changes in OCI; and 100% of the outstanding balance of each of the items recorded in OCI not previously mentioned.

 

 h)

Share premiums for instruments included in ordinary capital level 1; and

 

 i)

Third-party participations for those companies subject to consolidated supervision systems.

 

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Additional Capital Level 1:

 

 a)

Instruments issued by the financial institution and not included in ordinary capital level 1;

 

 b)

Share premiums for instruments included in additional capital level 1;

 

 c)

Instruments issued by subsidiaries in the hands of third parties not included in ordinary capital level 1 for those companies subject to consolidated supervision systems.

Less: certain deductible items

“Complementary Net Equity” includes:

 

 a)

Instruments issued by the financial institution and not included in the basic net equity;

 

 b)

Share premiums for instruments included in the complementary net equity;

 

 c)

Allowances for loan losses from the portfolio of debtors classified as in “normal” situation which do not exceed 1.25% of the credit-risk-weighted assets; and

 

 d)

Instruments issued by subsidiaries in the hands of third parties not included in the basic net equity for those companies subject to consolidated supervision systems.

Less: certain deductible items

Minimum limits were also established to be observed by the ordinary capital level 1, the basic net equity and the minimum capital (4.5%, 6% and 8% of the risk-weighted assets, respectively). Noncompliance with these minimum levels is considered as noncompliance with the minimum capital payment.

Minimum capital must be, at least, the greater of:

 

  

Minimum basic capital; and

 

  

The sum of minimum capital required for credit risk, market risk and operational risk.

Differential requirements were established for banks and other financial institutions, mainly based on the area where their head offices are located, in order to benefit those areas with smaller banking coverage according to Central Bank criteria, which now enjoy less stringent requirements with respect to minimum basic capital.

Minimum capital requirement for credit risk will be determined as the sum of:

 

 (a)

8% of the sum of credit-risk-weighted asset transactions without delivery against payment;

The risk-weighters table is reformulated with new items and weighters and with a new scheme. Some of the new items and weighters are, among others:

 

  

Within the “Cash and cash equivalents” item, the cash on hand, in transit (if the financial institution assumes the transportation risk and liability) and in automated teller machines (weighted at 0%); and the cash items in the process of being received (collectible checks and drafts), cash in treasury transporting companies and cash in custody of financial institutions (weighted at 20%). Also included are the demand deposits and special demand deposits at the BCRA and payment orders charged by the BCRA (weighted at 0%).

 

  

Exposure to governments and central banks (weighted from 0% to 100%)

 

 a)

To the BCRA denominated and funded in pesos; the national, provincial, municipal government denominated and funded in pesos; to the publicnon-financial sector arising from financing granted to social security beneficiaries or public employees (with discount code) and the shares of all financing entity that has a periodic amortization system that does not exceed, at the time of the agreements, 30% of the debtor’s income and/or, if applicable, the codebtor’s income) (weighted at 0%).

 

 b)

To governmental sector and Central Bank (weighted at 100%):

 

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Qualification

  AAA
until AA-
  A+
until A-
  BBB+
until BBB-
  BB+
until B-
  Less than B-  Not rated 

Risk weighting

   0  20  50  100  150  100

 

 c)

To other sovereign states (or their central banks):

 

Qualification

  AAA
until AA-
  A+
until A-
  BBB+
until BBB-
  BB+
until B-
  Less than B-  Not rated 

Risk weighting

   0  20  50  100  150  100

 

 d)

Entities from the governmental sector of other sovereign states according to the credit rating assigned to the corresponding sovereign:

 

Qualification

  AAA
until AA-
  A+
until A-
  BBB+
until BBB-
  BB+
until B-
  Less than B-  Not rated 

Risk weighting

   20  50  100  100  150  100

 

 e)

The public sector due to the purchase of public bonds issued in pesos by the central administration, when in the amount and with some of the guarantees established in item 4.1.1. of the rules on “Financing the public sector in the financial sector”, according to the credit rating assigned to the corresponding jurisdiction:

 

Qualification

  AAA
until AA-
  A+
until A-
  BBB+
until BBB-
  BB+
until B-
  Less than B-  Not rated 

Risk weighting

   20  50  100  100  200  200

 

  

Exposure to Multilateral Development Banks (weighted from 0% to 100%)

 

  

Exposure to financial institutions in the Republic (weighted from 20% to 100%). For those entities with 100% risk score, a risk weight corresponding to a less favorable category than those assigned to exposures with the National Government is applied in foreign currency with a 100% cap amount, provided that the risk assessment isB-, in which case the risk score will be 150%.

 

  

Exposure to financial institutions from abroad (100%).

 

Qualification

  AAA
until AA-
  A+
until A-
  BBB+
until BBB-
  BB+
until B-
  Less than B-  Not
rated
 

Risk weighting

   20  50  100  100  150  100

 

  

Exposure to companies and other legal persons in the Republic and abroad –including foreign-exchange dealers, insurance companies, stock exchanges and local companies treated as part of thenon-financial private sector (100%)

 

  

Exposures included in the retail portfolio (with weighters from 75% to 100%)

 

  

Mortgage-guaranteed financing, which, subject to certain conditions, has weighters between 35% and 100%

 

  

Loans more than 90 days in arrears (with weighters from 50% to 150%)

 

 (b)

failed delivery-against-payment transactions; and

 

 (c)

requirement for counterpart credit risk in transactions withover-the-counter derivatives.

The sum of (a), (b) and (c) is multiplied by a coefficient which varies from 1 to 1.19 based on the rating the entity is granted by the Superintendence.

Minimum Capital Requirement for Market Risk: the Central Bank imposes additional minimum capital requirements in relation to market risk associated with positions held by financial institutions in securities values imputed to the trading portfolio. Likewise, they are also subject to the calculation of the market risk in foreign currency positions.

 

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The market risk is the sum of the interest rate risk, exchange risk, options risk, basic products risk and stocks risk. BBVA Argentina is only exposed to the first two.

The risk rate is calculated as the addition of the specific risk and the general risk. The capital requirement for specific risk is intended to protect the entity against adverse movements in the price of a bond caused by factors related to its issuer. General risk is derived from the sensitivity to changes in interest rates.

Exchange risk is calculated by weighting the net position by 8%.

Minimum Capital Requirement for Interest Rate Risk: Interest rate risk extends to all assets and liabilities for financial intermediation not included in the computation of market risk. It tries to capture the risk arising when sensitivity of the asset to changes in the interest rate does not match with that related with the liabilities.

The BCRA abrogated effective since January 1, 2013 the regulations on minimum capital for interest rate risk. Even so, the financial institutions must continue to manage such risk, and will be subject to revision by the Superintendence, which may determine the need to pay a higher amount of capital.

Minimum Capital Requirement for Operational Risk: Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition includes legal risk but excludes strategic and reputational risk. Financial institutions must establish a system for the management of operational risk that includes policies, processes, procedures and the structure for their adequate management.

Seven operational risks event types are defined, according to internationally accepted criteria:

 

  

internal fraud;

 

  

external fraud;

 

  

employment practices and workplace safety;

 

  

clients, products and business practices;

 

  

damage to physical assets, resulting from acts of terrorism and vandalism, earthquakes, fire or flood;

 

  

business disruption and system failures; and

 

  

execution, delivery and process management.

The operational risk management process comprises the following stages:

 

 1.

Identification and assessment: the identification process should consider both internal and external factors that could adversely affect the development of the processes and projections done according to the business strategies defined by the bank.

 

 2.

Monitoring: an effective monitoring process is required, to quickly detect and correct deficiencies in the policies, processes and procedures for managing operational risk. In addition, the development of indicators should be analyzed to detect deficiencies and undertake corrective actions.

 

 3.

Control and mitigation: financial institutions must have an appropriate control system to ensure compliance with internal policies, and they shouldre-examine control and operational risk reduction strategies with at least an annual frequency in order to make the necessary adjustments.

Financial institutions must have contingency plans and business continuity programs that are in accordance with the size and complexity of their operations, to ensure the continuity of their operating capacity and loss reduction in the event of a business interruption.

 

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The BCRA by Communication “A” 5282 established that the additional capital requirement for operational risk (which is added to the credit risk and market risk requirements) is equivalent to 15% of the average of positive gross income for the last three years. This calculation will be made on a monthly basis by taking three periods of 12 consecutive months in which gross income was positive, considering the last 36 months preceding the month in which the calculation is made.

Gross income is defined as the sum of:

 

 (i)

financial and service income less financial and service charges; and

 

 (ii)

other profits less other losses.

The following items, however, must be excluded, as applicable, from the accounting entries mentioned in (i) and (ii) above:

 

  

charges originated in the constitution of allowances, the cancellation of allowances from previous financial years and credits recovered in the financial year which were settled in previous years;

 

  

the result from participations in financial institutions and in companies, to the extent that these may be items deductible from the computable equity liability;

 

  

extraordinary or irregular items –namely those originated in atypical and exceptional results occurred during the period, of infrequent occurrence in the past and not expected for the future–, including income from the collection or insurance (loss recoveries); and

 

  

results from the sale of securities classified and measured at amortized cost or fair value with change in other comprehensive income.

According to the Central Bank regulations on minimum capital requirements, the financial institutions must comply with such regulations on an individual and consolidated basis.

Any defects of application derived from the requirement of additional capital will not make the financial institution fall into noncompliance with the Minimum Capital Regulations, even if they will not be allowed to distribute cash dividends and pay fees, ownership interest or bonuses originated in the bank’s distribution of results.

By Communication “A” 5827, the BCRA established that financial institutions must maintain the following as of that date:

 

  

Capital conservation margin

The capital conservation margin is equivalent to 2.5% of the amount of risk-weighted assets (“APR”). This is in addition to the minimum capital requirement. Furthermore, financial institutions that the BCRA classifies as Domestic Systemically Important Banks(“D-SIBs”) or Global Systemically Important Financial Institutions(“G-SIFIs”) must increase their capital conservation margin by 1% of the APR, resulting in a capital conservation margin requirement of 3.5%. The capital conservation margin must be composed exclusively of regular level 1 capital (COn1), net of any deductible items (CDCOn1).

 

  

Contra cyclical margin

Whenever credit growth is excessive in the Central Bank’s opinion which is causing an increase in systemic risk, the Central Bank may impose the obligation on financial institutions to establish a contra cyclical margin between 0% and 2.5% of their APR, subject to a12-month prior notice. The Central Bank may also eliminate or reduce this obligation whenever, in its opinion, such systemic risk has disappeared or decreased. Banks must comply on an individual and consolidated basis with the ratios for minimum capital. If a financial institution does not comply with all these minimum capital requirements, it must submit a regulatory and restructuring plan to the Central Bank, which may impose various penalties, including:

 

  

temporary limitation on the amount of deposits a bank may accept;

 

  

institutional restrictions as per expansion capacity and dividends distribution in cash;

 

  

revocation of the license of a bank to conduct foreign exchange transactions; and, in some extreme cases, and

 

  

revocation of the license of a bank to operate.

 

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The following table presents, at December 31, 2019, both the calculation of our ratio of capital to risk-weighted assets computed under the Basel Accord and our capital under the minimum capital rules of the Central Bank.

 

   December 31, 2019 
   (in millions of pesos,
except percentages)
 

Basel Accord

  

Total capital

   63,132.4 

Risk-weighted assets

   390,693.4 

Ratio of total capital to risk-weighted assets(1)

   16.2

Required capital

   31,255.5 

Excess capital

   31,876.9 

Central Bank’s Rules(2)

  

Total capital

   49,989.7 

Risk-weighted assets

   302,234.5 

Ratio of total capital to risk-weighted assets(3)

   16.5

Required capital

   24,703.0 

Excess capital

   25,286.7 

 

 

(1)

Under the risk-based capital requirements of the Basel Accord, the Bank would be required to maintain a minimum ratio of total capital to risk-weighted assets of 8%.

(2)

Calculated on a consolidated basis in accordance with Central Bank requirements.

(3)

Under the risk-based capital requirements of the Central Bank, we are required to maintain a minimum ratio of total capital to risk-weighted assets of 8%.

Liquidity Coverage Ratio (LCR)

By Communication “A” 5693, the BCRA ordered the application of the Liquidity Coverage Ratio, or “LCR”, which took effect as of January 30, 2015.

This Communication sets forth that financial institutions must have an adequate stock of high-quality liquid assets (HQLA) free of any restrictions which can be immediately converted into cash in order to cover their liquidity needs during a period of 30 days in case of a stress scenario. Also, financial institutions must carry out their own stress tests to determine the liquidity level that they should maintain in other scenarios, considering a period greater than 30 calendar days. The LCR must be equal to or greater than 1.00 (the stock of high-quality liquid assets must not be lower than the total net cash outlays) in the absence of a financial stress scenario. The LCR may fall below 1 in other scenarios.

The BCRA describes how to categorize a stress scenario, taking into account the following: the partial loss of retail deposits; the partial loss of wholesalenon-guaranteed funding capacity; the partial loss of guaranteed funding; additional fund outlays due to situations contractually provided for as a consequence of a significant decline in the financial institution’s credit quality; market volatility increases that have an effect on the quality of guarantees or on the potential future exposure of positions in derivatives; the unforeseen use of credit and liquidity facilities compromised and available but not used that the financial institution may have granted to its clients; and/or the need that the financial institution may experience to repurchase debt or to comply withnon-contractual obligations so as to mitigate its reputational risk.

The LCR calculation must be made on a permanent and monthly basis.

In order to calculate the LCR, the related assets include, among others, cash in hand, cash in transit, in armored transportation companies and ATMs; deposits with the BCRA, certain national public bonds in pesos or in foreign currency, securities issued or guaranteed by theBanco de Pagos Internacionales, the International Monetary Fund, the European Central Bank, the European Union or Multilateral Development Banks that comply with certain conditions and debt securities issued by other sovereign entities (or their central banks).

BBVA Argentina’s LCR was 413% as of December 31, 2019, 291% as of December 31, 2018 and 289% as of December 31, 2017.

CAMEL Quality Rating System

Under Law No. 24,144, the Central Bank established the “CAMEL” quality rating system which is based on weighting consistent and comparable criteria, creditworthiness, compliance with the Financial Institutions Law, its administrative order and the general operating solvency of the entity. Each letter of the CAMEL system corresponds to the following areas of the operations

 

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of each bank that is being rated: “C” represents capital, “A” represents assets, “M” represents management, “E” represents earnings and “L” represents liquidity. Each factor is evaluated and rated on a scale from 1 to 5, 1 being the highest rating an institution can receive. By combining the individual factors that are under evaluation, a combined index can be obtained which represents the final rating for the entity. The rating a bank receives from the CAMEL system is used by the Central Bank in making decisions such as determining the levels of minimum capital or the amount of contributions a bank is required to contribute to the insurance guarantee system.

Foreign Currency Position

General Exchange Position

The Central Bank defines the general foreign-exchange position as the sum of the following items:

 

  

gold and foreign currency resources available in the Republic;

 

  

gold and foreign currency resources available abroad;

 

  

foreign public and corporate securities;

 

  

cash or future foreign-exchange purchases pending settlement;

 

  

cash or future public and private security purchases pending settlement;

 

  

cash or future foreign-exchange sales pending settlement;

 

  

cash or future public and private security sales pending settlement; and

 

  

foreign-exchange holdings in the form of deposits and investments at any term in banks from abroad and all kinds of liquid investments abroad.

The general foreign exchange position does not include foreign assets of third parties under custody, purchases and sales of foreign currencies or securities at a term and direct investments abroad.

In addition to the limit described above, all funds from foreign currency deposits and received financial loans granted with funds from foreign currency deposits must be applied mainly to the financing of foreign trade transactions, any deficiencies in the application of foreign currency lending capacity, net of a portion of: (i) cash balances, (ii) cash under custody in other financial institutions, (iii) cash in transit and (iv) cash with armored car transport companies, requires an equivalent increase in the minimum cash requirement. See “Item 4. Information on the Company—F. The Argentine Banking System and its Regulatory Framework—Lending Capacity Provided by Deposits in Foreign Currency”above.

Through Communication “A” 6244 dated May 19, 2017, the Central Bank provided that financial entities may freely determine the level and use of their general foreign exchange position. Thus, financial entities are enabled to manage their foreign currency positions, both in terms of the composition of their assets, and the possibility of entering and withdrawing their holdings of the Republic, with its consequent impact on reserves.

Global Net Position

The global net position of a financial institution may not exceed the following limits:

 

  

Monthly average negative global net position of foreign currency (liabilities exceeding assets), may not exceed 30% of the RPC of the last immediately preceding month.

 

  

Daily positive global net position of foreign currency (assets exceeding liabilities), may not exceed 5% of the RPC of the last immediately preceding month.

 

  

An additional daily limit to the positive global net position for cash, which may not exceed 4% of the RPC of the last immediately preceding month.

 

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The global net position in foreign currency will include all assets and liabilities from financial intermediation in foreign currency and securities in foreign currency (deriving from cash and term transactions) including those contracts for derivatives linked to these concepts, those items which must be included in the general foreign exchange position, all deposits in such currency in accounts opened with the Central Bank, as well as the gold position, any Central Bank bills in U.S. dollars as well as foreign currency subordinated debt and foreign currency debt securities. Term transactions made within a framework agreement in the area of self-regulatory markets of the Republic based on liquidation by difference will be also computed, without delivery of the negotiated underlying asset. Furthermore, the pass-through certificates or debt securities issued by financial trusts as well as the credit rights regarding ordinary trusts, in the pertinent proportion, when their underlying asset is constituted by assets in foreign currency, will also be considered.

Any excess above the limits will be subject to a charge equivalent to 1.5 times the nominal annual overdue interest rate arising from tenders for BCRA bills (LELIQ) denominated in pesos.

In addition to the above-mentioned charge, sanctions set forth in Section 41 of the Financial Institutions Law shall apply (including: caution; warning; fine; temporary or permanent disqualification to dispose of a banking current account; temporary or permanent disqualification to act as promoters, founders, directors, administrators, members of surveillance committees, comptrollers, liquidators, managers, auditors, partner or shareholders; and license revocation).

Fixed Assets and Other Items

The Central Bank requires that the fixed assets and other items maintained by financial institutions must not exceed 100% of the entity’s RPC. The BCRA has resolved to increase by 50 percentage points the specified limit to the extent that the immobilization of the assets is originated in the holding of national public securities and/or monetary regulation instruments of the BCRA appropriated as guaranteed by financial institutions in favor of such entity according to the regulations in force for transactions implemented by the ALADI (Asociación Latinoamericana de Integración) reciprocal payments and credits agreement.

Such fixed assets and other items include the following:

 

  

shares of local companies;

 

  

various credits (including the net balance favorable to the given entity corresponding to the tax on minimum presumed income or “TOMPI”);

 

  

property for own use;

 

  

various other property items;

 

  

debt securities or financial trust participation certificates whose underlying assets are the above-mentioned loans, computed in their respective proportion; and

 

  

financing transactions for related clients.

Excluded from the above items are those assets deductible for calculating the entity’s RPC and assets used as a guarantee for certain transactions mainly related to derivatives, as well as the financing transactions with certain related companies, provided the participation in the company exceeds 50% of the corporate capital and 50% of the votes.

The calculation of such assets must be done according to the balances at the close of each month, net of depreciations, accumulated amortizations and bad debt risk allowances (except the allowance on the portfolio in a normal situation and grants covered by preferred guarantees “A”, which have been computed to determine the complementary net equity of the rules on minimum capital). It is also possible to deduct certain liabilities related to the assets being calculated. In the case of financing transactions with related clients, the calculation is based on the balance at the close of each month or the largest assistance provided to each client during the period in question.

Any excess in this relationship generates an equivalent increase of the minimum capital requirements. Furthermore, any entity incurring noncompliance violations in three consecutive or fournon-consecutive months within a period of twelve consecutive months must submit a regularization program.

 

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Lending and Investment Limits

Private sector

Central Bank rules limit the amount of credit, including guarantees, that a financial institution may extend to, and the amount of equity that it may invest in, any entity at any time. These limits are based on the Bank’s allowable capital base, or “ACB” (basic net equity) on the last day of the immediately preceding month.

According to Central Bank rules, a financial institution may not extend credit to a singlenon-related client and its affiliates, or invest in that client’s equity, in an amount in excess of 15% of the bank’s ACB. However, it may extend additional credit to that client up to 25% of the bank’s ACB if that additional credit is secured with certain senior preferred liquid assets, including public or private debt securities. Total loans or other extensions of credit that a financial institution may grant to any particular borrower and its affiliates are also limited based on the borrower’s net worth. Total loans or other extensions of credit to any particular borrower and its affiliates may not exceed, in general, 100% of such borrower’s net worth, but such limit may be increased to 200% of the borrower’s net worth if such amount does not exceed 2.5% of the bank’s ACB or 300% in the case of reciprocal guarantee companies and public guarantee funds registered (in both cases) with the pertinent registry authorized at the Central Bank, and provided it does not exceed 10% of relevant entity’s ACB.

The Central Bank requires that extensions of credit in any form in excess of 2.5% of a bank’s ACB must be approved by the relevant branch manager, regional manager, relevant first line administrative officer of the credit area, general manager and credit committee, if any, of the bank, as well as by its board of directors, administration council or similar corporate body.

In addition, an equity investment of a financial institution in another company that does not provide services that are complementary to the services provided by a financial institution may not exceed 12.5% of the stockholders’ equity of such company.

Related Persons

The Central Bank limits the amount a bank can lend to, and the amount of equity it may invest in, a “Related Person”. A Related Person is defined to include:

 

  

any individual or entity controlling a bank, controlled by a bank or affiliated with a bank, as defined by the Central Bank;

 

  

any entity that both controls the bank and has common directors to the extent such directors, voting together, will constitute a simple majority of the boards of directors of the bank and such entity; or

 

  

in certain exceptional cases, any individual or entity that the Central Bank has determined to be in a position to adversely affect the financial condition of the bank.

“Control” is defined as:

 

  

holding or controlling, directly or indirectly, 25% of the voting stock of the controlled entity;

 

  

having held 50% or more of the voting stock of the controlled entity at the time of the last election of such entity’s board of directors;

 

  

any type of equity holding that creates the ability to vote or direct the vote so as to prevail on any issue considered at the controlled entity’s general shareholders’ meeting or meeting of the board of directors; or

 

  

when a person is determined by the board of directors of the Central Bank to be exercising any influence, directly or indirectly, on the management or policies of the bank.

The Central Bank requires that the total amount of financing that a financial institution may provide to a related company or person may not exceed the following percentages of the bank’s ACB as of the last day of the immediately prior month:

 

 1.

Local financial sector

 

 a.

By a controlling relationship

 

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Lender entity

  

Borrowing entity

  

General

  

Additional

  

Tranche I

  

Tranche II

  

Tranche III

  CAMEL 1(*)  100%  25% earmarked by the financial institution acquiring assistance to finance transactions that comply with certain conditions.  

25% in the event of financing transactions with guarantee or assignment of credit portfolio where assignor is responsible provided the requirements of Tranche I are met.

 

  —  
  

 

CAMEL 1 to 3  CAMEL 2(*)  20%  25% earmarked by the financial institution acquiring assistance to finance transactions that comply with certain conditions.  

25% if the financing transactions involve guarantee or assignment of credit portfolio where assignor is responsible provided the requirements of Tranche I are met.

 

  55% for financing transactions for an agreed initial term of up to 180 days.
  

 

  CAMEL 3(*)  10%  20% earmarked by the financial institution acquiring assistance to finance transactions that comply with certain conditions.  

20% if the financing transactions involve guarantee or assignment of credit portfolio where assignor is responsible provided the requirements of Tranche I are met.

 

  —  
  

 

  

Not meet any of the above conditions

 

  10%  —    —    —  
  

 

 

(*)

Subject to consolidation with the lender.

 

 b.

By a relationship that is not controlling

 

Lender entity

  

Borrowing entity

  

Maximum
limits

CAMEL 1 to 3  CAMEL 1 to 3 provided that it belongs to the same consolidation group of the lender.  25%
  

 

  

 

  Not meet any of the above conditions  10%
  

 

  

 

CAMEL 4 or 5    0%
  

 

  

 

 

2.

Foreign financial sector

 

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Lender entity

  

Borrowing entity

  

Maximum
limits

CAMEL 1 to 3  

To each foreign related bank:

•  With “Investment Grade” classification

•  Without “Investment Grade” classification:

Financing without computable warranty

Financing with/without computable warranty

 

  

10%

 

 

5%

10%

  

 

  

 

CAMEL 4 or 5  

To each foreign related bank subject to consolidation and parent company:

•  With “Investment Grade” classification

•  Without “Investment Grade” classification:

Financing without computable warranty

Financing with/without computable warranty

 

  

10%

 

5%

10%

    

 

  

To each foreign related bank not subject to consolidation:

•  With “Investment Grade” classification

•  Without “Investment Grade” classification

 

  

 

10%

5%

    

 

  

To each foreign related bank that does not meet any of the above conditions

  0%
  

 

  

 

 

3.

Local complementary services companies

 

Lender entity

  

Borrowing entity

  

General

  

Additional

  

Tranche I

  

Tranche II

  

Tranche III

CAMEL 1  

Stock exchange agent or other broker, leasing, factoring or temporary acquisition of participation in companies to sell the holdings afterwards(**)

 

  100%  —    —    —  
  

 

  Debit/credit card issuers(**)  100%  25% earmarked by the financial institution acquiring assistance to finance transactions that comply with certain conditions.  

25% in the event of financing transactions with guarantee or assignment of credit portfolio where assignor is responsible provided the requirements of Tranche I are met.

 

  —  
  

 

  

Not meet any of the above conditions

 

  10%  —    —    —  
  

 

CAMEL 2  

Stock exchange agent or other broker, leasing, factoring or temporary acquisition of participation in companies to sell the holdings afterwards(**)

 

  10%      90%
  

 

 

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  Debit/credit card issuers(**)  20%  25% earmarked by the financial institution acquiring assistance to finance transactions that comply with certain conditions.  

25% if the financing transactions involve guarantee or assignment of credit portfolio where assignor is responsible provided the requirements of Tranche I are met.

 

  55% for financing transactions for an agreed initial term of up to 180 days.
  

 

  

Not meet any of the above conditions

 

  10%  —    —    —  
  

 

CAMEL 3  Debit/credit card issuers(**)  10%  20% earmarked by the financial institution acquiring assistance to finance transactions that comply with certain conditions.  

20% if the financing transactions involve guarantee or assignment of credit portfolio where assignor is responsible provided the requirements of Tranche I are met.

 

  —  
  

 

  

Not meet any of the above conditions

 

  10%  —    —    —  
  

 

CAMEL 4 or 5  

Complementary services companies(**)

 

  10%  —    —    —  
  

 

  Not meet any of the above conditions  0%  —    —    —  
  

 

 

(**)

Subject to consolidation with the lender.

 

4.

Foreign complementary services companies

 

Lender entity

  

Borrowing entity

  

Maximum
limits

CAMEL 1 to 3  

To each complementary services related companies:

•  Financing without computable warranty

•  Financing with/without computable warranty

 

  

 

5%

10%

  

 

CAMEL 4 or 5  

To each complementary services companies subject to consolidation with the lender:

•  Financing without computable warranty

•  Financing with/without computable warranty

 

  

 

5%

10%

  To each complementary services related companies that do not meet any of the above conditions  0%
  

 

 

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5.

Other clients related by controlling relationship

 

Lender entity

  

Borrowing entity

  

Maximum
limits

CAMEL 1 to 3  

To each related borrower:

•  Financing without computable warranty

•  Financing with/without computable warranty

 

  

 

5%

10%

  

 

CAMEL 4 or 5  

•  To each related company (only equity investment)(***)

•  To each related borrower that does not meet any of the above conditions

  

5%

0%

  

 

 

(***)

Admitted activity under Section 3 of the rules on “Complementary services of the financial activity and permitted activities”.

 

6.

By personal relationship

 

Lender entity

  

Borrowing entity

  

Maximum
limits

CAMEL 1 a 3  To each related borrower  5%
  

 

CAMEL 4 or 5  

•  To each related person to use exclusively for personal or family purposes

  30 times the minimum vital and mobile salary (****)
  

•  To each related borrower that does not meet any of the above conditions

  

0%

  

 

 

(****)

Established by the National Employment, Productivity and Minimum, Vital and Mobile Salary Council for monthly workers who complete the full legal working day, in effect at the time of granting the loan in question.

The total financing granted to all related clients (subject to maximum individual limits exceeding 10%) may not exceed 20% of the ACB of the entity.

Failure to properly observe these requirements can result in an increase of the minimum capital requirements for credit risk in an amount equal to 100% of the daily excess amounts over the requirements beginning on the month when the excess amounts are not corrected and continuing while the excess amounts remain. In the case of information registered out of term, this increase will be applied beginning on the month when the information is registered and for as long as the default exists. Moreover, once the default has been corrected, the increase will be applied for a number of months equal to the period during which the Central Bank was not informed. For repeated defaults the increase can reach up to 130% of the excess amount.

At December 31, 2019, the aggregate of computable loans, other extensions of credit and equity investments by BBVA Argentina on a consolidated basis to related persons totaled Ps.7,433 million, or 15.44% of BBVA Argentina’s RPC.

Non-financial Public Sector

Thenon-financial public sector includes,inter alia:

 

  

the federal government;

 

  

provincial governments;

 

  

the city of Buenos Aires;

 

  

municipal governments;

 

  

central administration, ministries, departments and their decentralized and autonomous entities and other official bodies; and

 

  

trusts and trust funds whose final beneficiary or trustee, as determined by the respective contracts or applicable regulations, belongs to thenon-financial public sector, including other trusts or trust funds where such sector is the final destination of the financed works.

 

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In certain circumstances the Central Bank may apply to state-owned companies governed by Law No. 20,705 the provisions applicable tonon-financial private sector corporations, provided such state-owned companies:

 

  

do not require resources from the state budget whether national, municipal, provincial or belonging to the Autonomous City of Buenos Aires for such items as transfers, capital contributions (excepting those corresponding to their incorporation) or reimbursable financial assistance to be used for covering expenses and/or investments made in the course of their normal and customary businesses, except those which may have been contemplated in the 2001 and 2002 budgets;

 

  

maintain technical and professional independence of their management for implementing corporate policies;

 

  

trade their goods and/or services at market prices;

 

  

possess fixed assets; the use of which in the activity is not subject to any condition from their shareholders; and

 

  

do not distribute of dividends among their shareholders.

Complia