Risk management

In 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 downward (+2.9%), one tenth below the previous forecast and inflation is expected to remain at moderate levels, closing the year at around +2.9%, with a comfortable level of solvency and liquidity in the system. In Mexico, growth forecasts remain unchanged, with GDP estimated at around +0.7% for 2025, in a context of relatively moderate and stable inflation in the last quarter, and with credit in the banking system growing at around +7.2% year-on-year, with data at the end of November. Turkey, on the other hand, has shown significant growth in recent months, with inflation moderating and banking system risk indicators at contained levels. Finally, the decline in political instability and lower exchange rate tensions in Argentina have helped to maintain the positive outlook for economic activity in the region, against a backdrop of contained inflation and the expectations of stable interest rates in Colombia and Peru following the last cuts.

Credit risk

For the estimation of expected losses, the models include individual and collective estimates, taking into account the macroeconomic forecasts as established in IFRS 9. In this regard, 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 with respect to very recent events still underway. Additionally, the Group may complement the expected losses 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 following chart shows the evolution of the Group's risk metrics in 2025:

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

General note: As of the December 2025 closing date, credit risk metrics incorporate the loan portfolio at fair value through other comprehensive income in their calculation, with no material impact on metrics for prior periods. For further information, please see the Alternative Performance Measures at the end of this report.

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

NON-PERFORMING LOANS (MILLIONS OF EUROS)

PROVISIONS (MILLIONS OF EUROS)

Structural risks

Liquidity and funding

Liquidity and funding management at BBVA is aimed at driving 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, close to 50% 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 €134 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 a 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 2025 are listed below.

In relation to liability management, on May 10, 2025, BBVA, S.A. redeemed early and entirely, senior preferred bonds issued in May 2023 for €1 billion; in January 2025, it redeemed early and in full a €1 billion Tier 2 bond issued in January 2020 maturing in 2030, and in March 2025, it redeemed in full an AT1 issuance for USD 1 billion issued in 2019. On September 14, 2025, BBVA, S.A. redeemed early and entirely an issuance of senior non-preferred notes executed on September 2022 for USD 1 billion.

After the closing date of the 2025 fiscal year, on January 7, 2026, BBVA, S.A. issued €2 billion in senior non-preferred debt, structured in two tranches: the first, for €750m, with a coupon set at three-month Euribor plus 55 basis points, and the second, for €1.25 billion, with a coupon of 3.75%. On January 15, 2026, BBVA, S.A. carried out the early redemption of a green AT1 issuance made on July 15, 2020, for a combined nominal amount of €1 billion, a decision that was communicated to market on December 17, 2025.

In February 2025, BBVA Mexico issued Tier 2 subordinated debt for USD 1 billion with a coupon of 7.625%. In addition, a senior debt issue was carried out in March for 15 billion Mexican pesos (approximately €692m), and another in September in two tranches: the first for €14.43 billion Mexican pesos (approximately €666m) and the second for USD 158m.

Throughout 2025, Garanti BBVA issued a total of USD 3,847m of short-term senior MTNs (Medium term notes) in order to roll over maturities and generate liquidity. In June 2025, it renewed 100% of a sustainable syndicated loan in two tranches for a total amount of USD 440m. In July Garanti BBVA completed the issuance of subordinated bonds for a total amount of USD 500m. In October 2025, another subordinated bond issue was made for USD 700m. In November Garanti BBVA issued Turkey's first biodiversity bond, worth USD 20.22m. Finally, in December 2025, Garanti BBVA formalized a sustainability focused syndicated loan for a total amount of USD 428m.

In 2025, through successive placements, BBVA Argentina issued bonds for a total amount of 244 billion Argentine pesos and USD 192m. The equivalent amount in euros of these issues stands at €306m.

In April 2025, the subordinated biodiversity bond subscribed by BBVA Colombia with the International Finance Corporation (IFC) for an amount of USD 45m was disbursed.

In Peru, BBVA issued USD 200m in the form of gender-based social bonds targeting women entrepreneurs, executed in two tranches in the first and third quarters of 2025, in partnership with BID Invest, FMO (Netherlands Development Bank) and COFIDE (Corporación Financiera de Desarrollo S.A.).

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 2025, the U.S. dollar depreciated significantly against the euro (-11.6%). This depreciation was concentrated in the first half of the year, when the aggressiveness of U.S. tariff policy generated a climate of distrust towards the U.S. dollar. Among emerging market currencies, the Mexican peso stood out with an appreciation (+2.0% against the euro), supported by the perception of Mexico as a relative winner of the trade war. The Turkish lira was heavily penalized in 2025 (-27.2%), reflecting high inflation, which is nevertheless gradually declining. Regarding the performance of South American currencies, the Peruvian sol weakened against the euro (-1.2%), the Colombian peso showed a notable appreciation (+3.8%), while the Chilean peso depreciated by -2.9%. Finally, the Argentine peso experienced a very significant depreciation (-37.4%), in an environment still marked by macroeconomic adjustments and high financial volatility, despite progress in the economic stabilization process.

In relation to the hedging of capital ratios, BBVA aims to cover in aggregate, between 50% and 70% of its subsidiaries' capital excess. The sensitivity of the Group's CET1 ratio to 10% depreciations in major currencies is estimated at: +12 basis points for the U.S. dollar, -14 basis points for the Mexican peso and -3 basis points for the Turkish lira¹². 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 income 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 results (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 especially 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 moderate 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 year 2025 has been influenced by the geopolitical context, notably the increase in the United States tariffs, as well as developments and expectations regarding inflation and central bank actions. In the United States, there have been declines across the entire interest rate curve due to the deceleration signs and greater prospects for interest rate cuts by the Fed. In contrast, Europe has seen a rebound in yields, particularly at the long end of the curve, mainly due to the change of course in Germany's fiscal policy. The peripheral curves are still supported with spreads against German bonds narrowing over the year. In Mexico, the sovereign curve has fallen in line with United States rates. In Turkey, yield curves were more volatile as a result of both the political situation and inflation trends and expectations. However, it is worth noting the favorable performance of credit default swaps (CDS) and sovereign bonds denominated in hard currency since March. Lastly, in South America, the curves show mixed performance, with upturns in some regions, such as Colombia, and downturns in others, such as Peru. Overall, ALCO¹³ portfolios have performed positively in 2025.

By geographical areas:

¹² This sensitivity does not include the cost of capital hedges, which are currently estimated at 1 basis point per quarter for Mexican peso and 2 basis points per quarter for Turkish lira.

¹³ Structural portfolio managed by the Asset and Liability Committee, designed to mitigate the sensitivity of the balance sheet to interest rate movements.

Read legal disclaimer of this report.