Company: BBVXF
Filing Date: 2025-02-21
Form Type: 20-F
Source: 0000842180-25-000010
Chunk: 122

Company: BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
Filing Date: 2025-02-21
Form: 20-F
Item: Item 5
Chunk 122
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 The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Consolidated Financial Statements and the discussion below. For information on the estimates made by the Group in preparing the Consolidated Financial Statements, see Note 1.5 to the Consolidated Financial Statements.
We have identified the accounting policies enumerated below as critical to the understanding of our financial condition and results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if the assumptions used or underlying circumstances were to change.
See Note 2.3 to the Consolidated Financial Statements for information on changes to IFRS or their interpretation that were not yet effective as of December 31, 2024.
Financial instruments
Loss allowance of certain financial assets
The “expected losses” impairment model is applied to financial assets valued at amortized cost, debt instruments valued at fair value with changes in accumulated other comprehensive income, financial guarantee contracts and other commitments. All financial instruments valued at fair value through profit or loss are excluded from the impairment model.
The standard classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition and which establish the calculation of the credit risk allowance. 
–Stage 1 – without significant increase in credit risk
Financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an amount equal to the expected credit loss that arises from all possible default events within 12 months following the presentation date of the financial statements (12 month expected credit losses).
–Stage 2 – significant increases in credit risk
When the credit risk of a financial asset has increased significantly since the initial recognition, the loss allowances of that financial instrument is calculated as the expected credit loss during the entire life of the asset. That is, they are the expected credit losses that result from all possible default events during the expected life of the financial instrument.
During 2024, the criteria for identifying significant increases in credit risk were reviewed and updated. As part of this update, certain short-term portfolio transactions as well as those meeting the expanded definition of the low credit risk exception (see Note 2.2.1 to the Consolidated Financial Statements) have been exempted from transfer to Stage 2 based on certain quantitative criteria. These changes have led to a significant reduction in the Stage 2 balance at the Group level during the last quarter of 202