Risk management

Credit risk

In a volatile global context, whose evolution will continue to be highly conditioned by the uncertainty represented by the United States administration's policies implemented in recent months, economic activity in the countries where BBVA operates continued to reflect a generally good dynamic in terms of economic growth, as well as in the indicators of the financial system. In Spain, the growth forecast for 2025 has been revised slightly downwards (+2.5%), and inflation could remain at moderate levels, with a comfortable level of solvency and liquidity in the system. In Mexico, the GDP forecast has been revised downwards and is expected to be around -0.4% by 2025, in a context of relatively moderated inflation, with expectations of additional interest rate cuts and with credit in the banking system growing at double digits (+12.2% year-on-year, with data at the end of May). Turkey, on the other hand, has shown significant growth in recent months, with inflation moderating and banking system risk indicators at contained levels, although pending political and social tensions. Finally, in South America, the positive dynamics in terms of economic activity will continue, in a context of lower inflation and gradual interest rate cuts.

For the estimation of expected losses, the models include individual and collective estimates, taking into account the macroeconomic forecasts in accordance with IFRS 9. Thus, the estimate at the end of the quarter includes the effect on expected losses of updating macroeconomic forecasts, which take into account the global environment, although they may not fully reflect the most recent developments in the economic environment, especially in contexts of high uncertainty and volatility or very recent events still under development. Additionally, the Group may complement the expected losses either by considering additional risk drivers, or by incorporating sectorial particularities or those that may affect a set of operations or borrowers, following a formal internal process established for the purpose.

BBVA Group's credit risk indicators

The evolution of the Group’s main credit risk indicators is summarized below:

NON-PERFORMING LOANS (MILLIONS OF EUROS)

PROVISIONS (MILLIONS OF EUROS)

NPL AND NPL COVERAGE RATIOS AND COST OF RISK
(PERCENTAGE)

Structural risks

Liquidity and funding

Liquidity and funding management at BBVA is aimed at driving the sustained growth of the banking business, through access to a wide variety of alternative sources of funding and assuring optimal term and cost conditions. BBVA's business model, risk appetite framework and funding strategy are designed to reach a solid funding structure based on stable customer deposits, mainly retail (granular). As a result of this model, deposits have a high degree of insurance in each geographical area, being close to 55% in Spain and Mexico. It is important to note that, given the nature of BBVA's business, lending is mainly financed through stable customer funds.

One of the key elements in the BBVA Group's liquidity and funding management is the maintenance of large high-quality liquidity buffers in all geographical areas. Thus, the Group has maintained during the last 12 months an average volume of high-quality liquid assets (HQLA) of €125.6 billion, of which 98% corresponded to maximum quality assets (level 1 in the liquidity coverage ratio, LCR).

Due to its subsidiary-based management model, BBVA is one of the few major European banks that follows the Multiple Point of Entry (MPE) resolution strategy: the parent company sets the liquidity policies, but the subsidiaries are self-sufficient and responsible for managing their own liquidity and funding (taking deposits or accessing the market with their own rating). This strategy limits the spread of a liquidity crisis among the Group's different areas and ensures the adequate transmission of the cost of liquidity and financing to the price formation process.

The BBVA Group maintains a solid liquidity position in every geographical area in which it operates, with ratios well above the minimum required:

The breakdown of these ratios in the main geographical areas in which the Group operates is shown below:

In addition to the above, the most relevant aspects related to the main geographical areas are the following:

The main wholesale financing transactions carried out by the BBVA Group during the first half of 2025 are listed below, including a relevant transaction formalized in July.

Also, on May 10, 2025, BBVA redeemed early and entirely, an issue of simple preferred bonds made in May 2023 for €1 billion; in March it redeemed in full a USD 1 billion AT1 issue issued in 2019 and in January it redeemed early and in full a €1 billion Tier 2 issue in January 2020 maturing in 2030. In addition, on June 25, BBVA announced that the Board of Directors of BBVA has approved an issue of Contingent Convertible Preferred Securities (AT1) into new ordinary shares of BBVA for a maximum amount of €1.5 billion (pending execution as of 30 June 2025) excluding the preferential subscription rights of the shareholders. The specific terms of this issue will be communicated by BBVA at the time it is decided, if applicable, to carry out its execution.

BBVA Mexico issued in February 2025 USD 1 billion of Tier 2 subordinated debt with a coupon of 7.625%, and maturity in February 2035 (with an early redemption date in February 2030). In March 2025, an issue was made in the local market for 15 billion Mexican pesos, in two tranches, the first, BBVAMX 25, was placed for a term of three and a half years with a variable rate of TIIE overnight funding plus 32 basis points, while the second tranche, BBVAMX 25-2, closed at a fixed rate of 9.67% for a term of seven years.

In the first half of 2025, Garanti BBVA issued a total of USD 1,628m of short-term senior MTNs (Medium term notes) in order to roll over maturities and generate liquidity. In June 2025, it renewed a sustainable syndicated loan in two tranches: one of USD 95.75m and €99.275m with a term of 367 days, and another of USD 191.5m and €36m with a term of 734 days. The total cost of the agreement is SOFR+1.60% for the US dollars tranches and Euribor +1.35% for the 367-day euro tranches, and SOFR+2.00% for US dollars and Euribor +1.75% for the 734-day euro tranche. Finally, on June 24, Garanti BBVA announced the issuance of subordinated bonds with a 10.5 year maturity, an early redemption option at 5.5 years and an aggregate principal amount of USD 500m. The operation, structured in accordance with Basel III, was offered to institutional investors abroad and was completed on July 1.

In the first half of 2025, BBVA Argentina issued senior debt in the local market, a market that gained depth throughout the period. A total of four senior issues were made in February, in both Argentine pesos and US dollars. A total of 67 billion Argentine pesos (7 and 12 months) and USD 37m (6 and 12 months). Two issues were made in June, one in Argentine pesos for an amount of 115 billion Argentine pesos at one year and USD 62m in another issue also at one year. The euro equivalent of these issues was €216m.

In April, the subordinated biodiversity bond subscribed by BBVA Colombia with the International Finance Corporation (IFC) for an amount of USD 45m was disbursed.

Foreign exchange

Foreign exchange risk management aims to reduce both the sensitivity of the capital ratios to currency movements, as well as the variability of profit attributed to currency movements.

During the first half of 2025, the Group's main currencies depreciated against the euro. Due to its relevance for the Group, it is important to highlight the performance of the Mexican peso, which depreciated moderately by 2.4% against the euro in the first six months of the year. In the case of the US dollar, the currency depreciated by 11.4% between January and June 2025 due to the country's ongoing trade tensions. The Turkish lira also recorded a significant depreciation of 21.1% due to the political tensions that began in March.

As for other currencies, the Argentine peso depreciated the most against the euro (-23.1% in the first half of the year) while the Colombian peso and the Peruvian sol experienced more contained depreciations (-4.0 and -5.8 respectively).

In relation to the hedging of the capital ratios, BBVA aims to cover in aggregate, between 60% and 70% of its subsidiaries' capital excess. The sensitivity of the Group's CET1 fully loaded ratio to 10% depreciations in major currencies is estimated at: +12 basis points for the US dollar, -9 basis points for the Mexican peso and -3 basis points for the Turkish lira¹⁴. With regard to the hedging of results, BBVA hedges between 40% and 50% of the aggregate net attributable profit it expects to generate in the next 12 months. For each currency, the final amount hedged depends, among other factors, on its expected future evolution, the costs and the relevance of the incomes related to the Group's results as a whole.

Interest rate

Interest rate risk management seeks to limit the impact that BBVA may suffer, both in terms of net interest income (short-term) and economic value (long-term), from adverse movements in the interest rate curves in the various currencies in which the Group operates. BBVA carries out this work through an internal procedure, pursuant to the guidelines established by the European Banking Authority (EBA), with the aim of analyzing the potential impact that could derive from a range of scenarios on the Group's different balance sheets.

Risk measurement is based on assumptions intended to realistically mimic the behavior of the balance sheet. The assumptions regarding the behavior of accounts with no explicit maturity and prepayment estimates are specially relevant. These assumptions are reviewed and adapted, at least, once a year according to the evolution in observed behaviors.

At the aggregate level, BBVA continues to maintain a limited risk profile in line with the target set in the changing interest rate cycle environment maintaining positive sensitivity to interest rate rises in net interest income.

The first half of 2025, has been influenced by the geopolitical events, especially the increase of US tariffs. The US and European yield curves diverged. While the sovereign curve fell in the United States due to the first deceleration signs, in Europe a rebound in the long trenches was observed due to the change of course in Germany's fiscal policy, while the short tranches fell supported by expectations of a lower ECB terminal rate. The peripheral curves are still supported. In Turkey, yield curves were more volatile as a result of the political situation. Meanwhile, in Mexico, the sovereign curve fell, (due to the United States) and in South America there were generalized growth profitability in Colombia and Argentina, and moderate falls in Peru. All in all, the Group's fixed-income portfolios had a heterogeneous performance during the quarter, with an improved valuations in Mexico, and Spain and slight deterioration in Turkey and South America.

By geographical areas:

¹⁴ This sensitivity does not include the cost of capital hedges, which are currently estimated at 2 basis points per quarter for Mexican peso and 2 basis points per quarter for Turkish lira.

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