Company: BBVXF
Filing Date: 2025-02-27
Form Type: F-4/A
Source: 0001193125-25-037317
Chunk: 301

Company: BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
Filing Date: 2025-02-27
Form: F-4/A
Chunk 301
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 the borrower in this regard, supplemented by an analysis of any                                
 controversies associated with the borrower.                                                                                                                                                                                                                                             |

As regards the inclusion of environmental risks in the calculation of the expected loss, through the PD, the Institution adjusts the ratings of large enterprises when the Climate-related and Environmental Risk Indicator, explained above, is classified as high or when the counterparty is involved in significant controversies that have not been mitigated. It is thus included directly, as the rating is an input of the expected loss parameters (specifically, the PD). Furthermore, in order to reflect the impact of these risks in the appraisal values of loan book collateral, the Institution applies adjustments that lower the appraisal value. In the case of physical risk, this adjustment reflects, for each collateral item, the level of its deterioration in the event of flood, fire or water stress, as well as the probability of occurrence of this event. In the case of transition risk, the appraisal value is lowered for collateral with an energy rating below D. A-71

The methodology used for the aforementioned collateral adjustments coincides with that applied in the top-downapproach described above, i.e. based on an internal methodology for the quantitative assessment of climate-related physical risk where a differentiation is made between acute and chronic events in line with the three scenarios of Orderly Transition, Disorderly Transition and Hot House World of the Network for Greening the Financial System (NGFS) adapted to a 30-yeartime horizon. This makes it possible to assess physical risk drivers that could have a more significant impact on the portfolio, based on the location and activities of customers. For further details, see section “5.1. Environmental: Climate change” in the Sustainability Report. 4.4.2.2. Risk management models Credit ratings Credit risks incurred with corporates, real estate developers, specialised lending projects, financial institutions and countries are rated using a rating system. The rating model estimates the risk rating in the medium term, based on qualitative information provided by risk analysts, financial statements and other relevant information. The rating system is based on factors that predict the probability of default over a one-yearperiod. It has been designed for different segments. This rating model is reviewed annually based on the analysis of actual delinquency performance patterns. An estimated delinquency rate is assigned to each internal credit rating level, which also allows a uniform comparison to be made against other segments and ratings issued by external credit rating agencies using a master ratings scale. Credit ratings have a variety of uses in risk management. Most