Company: BBVXF
Filing Date: 2025-02-27
Form Type: F-4/A
Source: 0001193125-25-037317
Chunk: 433

Company: BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
Filing Date: 2025-02-27
Form: F-4/A
Chunk 433
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 The Group applies a series of additional adjustments to the results of its credit risk models, referred to as overlays, in order to address situations in which the results of the models are not sufficiently sensitive to the uncertainty of the macroeconomic environment. These adjustments are temporary and remain in place until the reasons for which they were originally applied cease to exist. The application of these adjustments is subject to the governance principles established by the Group. Specifically, as at 31 December 2022, the impairment losses of the loan portfolio included a series of additional provisions that included sector-specific characteristics of the macroeconomic situation and inflationary environment, in the amount of 170 million euros, the adjustment remaining on the balance sheet as at 31 December 2023 being around 80 million euros. The balance variation during the year is mainly due to the specific way in which those adjustments were made, after having completed the recurring updates of internal provisioning models and their parameters. The Group applies the criteria described below to calculate credit loss allowances. The amount of impairment allowances is calculated based on whether or not there has been a significant increase in credit risk since initial recognition, and on whether or not a default event has occurred. This way, the impairment allowance for transactions is equal to:

| – | 12-month expected credit losses, when the risk of a default event                                       
 materialising has not significantly increased since initial recognition (assets classified as stage 1). |

| – | Lifetime expected credit losses, if the risk of a default event materialising has increased significantly since 
 initial recognition (assets classified as stage 2).                                                             |

| – | Expected credit losses, when a default event has materialised (assets classified as stage 3). |

12-monthexpected credit losses are defined as: Where: EAD 12Mis the exposure at default at 12 months, PD 12Mis the probability of a default occurring within 12 months and LGD 12Mis the expected loss given default. A-266

Lifetime expected credit losses are defined as: Where: EAD iis the exposure at default for each year taking into account both the entry into default and the (agreed) amortisation, PD iis the probability of a default occurring within the next twelve months for each year, LGD iis the expected loss given default for each year, and EIR is the effective interest rate of each transaction. During this estimation process, a calculation is made of the allowance necessary to cover, on one hand, the credit risk attributable to the borrower in question and, on the