Banco BBVA Argentina S.A. (NYSE:BBAR) Q1 2020 Earnings Conference Call June 9, 2020 11:00 AM ET Company Participants Javier Kelly - Investor Relations Manager Ines Lanusse - Investor Relation Officer Ernesto Gallardo - Chief Financial Officer Conference Call Participants Gabriel Nóbrega - Citibank Alonso Garcia - Credit Suisse Carlos Gomez - HSBC, New York Operator Good morning, ladies and gentlemen and thank you for waiting. At this time, we would like to welcome everyone to BBVA Argentina's First Quarter ...

Table of Contents As filed with the Securities and Exchange Commission on April 27, 2020 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURS ...

Financial Data and Key Metrics Changes - BBVA Argentina reported a record high net income of 31.4 billion pesos for 2019, more than tripling from 9.7 billion pesos in the previous year, with an average ROE of almost 61% [7][8] - In Q4 2019, net income totaled 7.4 billion pesos, a 153.5% increase from 2.9 billion pesos year-over-year, but a 33.0% decrease from 11.1 billion pesos in the previous quarter [8][9] - Net interest income for Q4 2019 was 16.8 billion pesos, up 7.8% from Q3 2019 and 98.8% year-over-year [9][10] Business Line Data and Key Metrics Changes - The bank's financing to the private sector totaled 201.5 billion pesos, decreasing 4.9% quarter-over-quarter but increasing 14.5% year-over-year [13] - Private loans in pesos grew 9.8% quarter-over-quarter and 43.6% year-over-year, while dollar-denominated loans decreased [14] - Credit card loans grew 35.4% quarter-over-quarter and 72.6% year-over-year, significantly outpacing inflation [14] Market Data and Key Metrics Changes - BBVA Argentina's market share over private sector loans reached 7.71% as of December 2019 [13] - Private sector deposits totaled 294 billion pesos in Q4 2019, up 7.1% sequentially and 13.3% year-over-year [17] - The bank's liquidity ratio in pesos and dollars remained healthy at 61.9% and 82.0% of total deposits as of December 31, 2019 [18] Company Strategy and Development Direction - The bank is focused on digital transformation and operational efficiency as central pillars of its strategy [7][8] - BBVA Argentina aims to protect its capital and maintain a strong liquidity position amid economic uncertainty [19] - The bank is merging branches and modernizing operations to improve efficiency as part of its digitalization strategy [26] Management's Comments on Operating Environment and Future Outlook - Management highlighted the high uncertainty in the economic environment, particularly regarding debt renegotiation and government measures [31] - The bank expects loan growth to exceed inflation in 2020, projecting inflation around 50% [25][45] - Management noted that the Central Bank is maintaining an open dialogue with the banking system, which is seen as a positive for future loan growth [34][40] Other Important Information - The effective tax rate for 2019 was 12%, lower than the previous year's 29%, mainly due to tax inflation adjustments [13] - A cash dividend distribution of $2.5 billion is proposed, subject to Central Bank approval, to protect equity amid macroeconomic uncertainty [19] Q&A Session All Questions and Answers Question: What should we expect in terms of credit activity and expense evolution for 2020? - Management indicated a reduction in U.S. dollar loans and expects loan growth above inflation, with operational expenses growing below inflation due to efficiency measures [22][25][27] Question: What are the main challenges and opportunities for the bank this year? - Management emphasized the uncertainty surrounding government measures and debt renegotiation, while also highlighting the importance of protecting capital and liquidity [31][32] Question: Can you clarify the expected loan growth and tax rate for 2021? - Management projected loan growth in line with consumption and inflation, while the effective tax rate will depend on inflation adjustments [45][46]

Financial Data and Key Metrics Changes - BBVA Argentina's net income for Q3 2019 was ARS 11.1 billion, a 63.9% increase from ARS 6.8 billion in Q2 2019 and a 264.8% increase from ARS 3 billion in Q3 2018, driven by higher net interest income and foreign exchange results [6] - The accumulated net income for the nine months ended September 30, 2019, was ARS 23.9 billion, reflecting a 253.3% increase year-over-year [6] - The bank reported a return on equity (ROE) of 63.2% and a return on assets (ROA) of 8.0% [6] Business Line Data and Key Metrics Changes - Net interest income for Q3 2019 totaled ARS 15.6 billion, a 19.8% increase from Q2 2019 and a 129.2% increase year-over-year [8] - Net fee income was ARS 1.5 billion, down 19.5% from the previous quarter, but a normalized view would show a 33.2% increase quarter-over-quarter [9][10] - FX gains totaled ARS 3.8 billion, an 83.8% increase quarter-over-quarter, attributed to the depreciation of the Argentine Peso [10] Market Data and Key Metrics Changes - BBVA Argentina's financing to the private sector reached ARS 211.8 billion, a 14.7% increase quarter-over-quarter and a 22.5% increase year-over-year [12] - The bank's market share over private sector loans was 8.13% as of September 2019 [12] - Private sector deposits totaled ARS 271.5 billion, down 3.8% sequentially but up 10.8% year-over-year [15] Company Strategy and Development Direction - The bank aims to optimize the use of its excess capital, which amounted to ARS 26.6 billion, with a total regulatory capital ratio of 17.1% [16] - BBVA Argentina is focusing on maintaining a strong balance sheet quality amid a complex economic environment, with a stable non-performing loans (NPL) ratio [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the new administration's impact on the banking sector is still uncertain, with some extra deposits flowing out of the system [19] - The bank anticipates a potential decrease in loan growth for Q4 2019 but expects deposit growth to continue [19] - The management highlighted the importance of monitoring the macroeconomic environment, particularly regarding inflation and interest rates, which could affect NPLs and provisions going forward [30] Other Important Information - The bank's efficiency ratio improved to 35.7%, down from 47.2% in Q3 2018 [12] - The asset quality, measured as non-performing loans over total loans, was 3.31% with a coverage ratio of 105.08% [14] Q&A Session Summary Question: Insights on the new administration's impact on the banking sector - Management indicated it is early to assess the new administration's impact, noting some deposit outflows but projecting loan growth to decrease in Q4 2019 [19] Question: Clarification on SME directed lending - No official information was available regarding the return of SME directed lending, but historical trends suggest it could happen [21] Question: Impact of debt reprofiling on P&L - Management explained that the effects of debt reprofiling were reflected in other comprehensive income rather than P&L, with future interest recognition expected upon maturity [23] Question: Strategy regarding exposure to Central Bank Instruments - Management noted a decrease in exposure to LELINK and emphasized the uncertainty surrounding its future [27] Question: NPL ratio outlook considering macroeconomic factors - Management indicated that the NPL ratio would have been 2.25% excluding the impact of Molinos Cañuelas, with expectations of further provisioning [28][30] Question: Inflation adjustment and its effects - Management confirmed that inflation adjustments would be disclosed in future quarterly results, with current adjustments provided for the nine months [34]

[PART I](index=6&type=section&id=PART%20I) [Key Information](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) The company reported a Ps. 1.49 billion net loss in 2018, reversing prior year's profit, driven by hyperinflationary losses and increased income tax expense [Selected Financial Data](index=7&type=section&id=A.%20Selected%20Financial%20Data) Consolidated Statement of Profit or Loss (in thousands of pesos) | Indicator | For the year ended Dec 31, 2018 (in thousands of pesos) | For the year ended Dec 31, 2017 (in thousands of pesos) | | :--- | :--- | :--- | | **NET INTEREST INCOME** | **31,734,333** | **23,754,863** | | NET OPERATING INCOME | 2,449,144 | 2,243,690 | | PROFIT BEFORE TAX | 2,766,667 | 2,582,003 | | **(LOSS) PROFIT FOR THE YEAR** | **(1,569,703)** | **1,859,511** | | Attributable to owners of the Bank | (1,489,732) | 1,903,820 | | (Loss) Profit per ordinary share | (2.43) | 3.34 | | (Loss) Profit per ADS | (7.29) | 10.02 | Consolidated Statement of Financial Position (in thousands of pesos) | Indicator | As of Dec 31, 2018 (in thousands of pesos) | As of Dec 31, 2017 (in thousands of pesos) | | :--- | :--- | :--- | | **TOTAL ASSETS** | **361,542,449** | **318,783,092** | | Financial assets at amortized cost | 203,541,121 | 201,776,086 | | **TOTAL LIABILITIES** | **316,000,308** | **269,266,437** | | Financial liabilities at amortized cost | 293,240,299 | 249,393,674 | | **TOTAL EQUITY** | **45,542,141** | **49,516,655** | Selected Ratios | Ratio | As of Dec 31, 2018 | As of Dec 31, 2017 | | :--- | :--- | :--- | | Return on average total assets | (0.44)% | 0.63% | | Return on average total equity | (3.15)% | 4.37% | | Total equity as a percentage of total assets | 12.60% | 15.53% | | Non-performing loans as a percentage of gross loans | 1.80% | 0.65% | - The Argentine peso devalued **101.38%** against the US dollar in 2018, with the exchange rate moving from 18.7742 to 37.8083 pesos per dollar, and the inflation rate for the same period was **47.65%**[21](index=21&type=chunk) [Risk Factors](index=9&type=section&id=D.%20Risk%20Factors) - The company's business is significantly affected by the macroeconomic and political instability in Argentina, characterized by periods of low growth, high inflation (**47.6%** in 2018), and currency devaluation, leading to significant capital outflows and IMF support in 2018[22](index=22&type=chunk)[23](index=23&type=chunk) - The short-term structure of the Argentine financial system's deposit base, which is mostly transactional, poses a liquidity risk and limits long-term credit expansion, with volatility in U.S. dollar deposits observed during the 2018 currency crisis[30](index=30&type=chunk) - The company faces increasing competition from non-bank entities such as payment platforms, e-commerce businesses, and large digital players (e.g., Google, Facebook, Apple) that have started offering financial services, creating an uneven regulatory playing field[32](index=32&type=chunk) - Management concluded that as of December 31, 2018, the company did not maintain effective internal control over financial reporting due to material weaknesses related to the determination of loan losses under IFRS 9 and the completeness and accuracy of certain IFRS financial statement disclosures[44](index=44&type=chunk)[525](index=525&type=chunk) [Information on the Company](index=28&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) BBVA Francés, Argentina's third-largest private bank, offers universal banking services, driven by digital transformation, and is a BBVA Group subsidiary [History and development of the company](index=31&type=section&id=A.%20History%20and%20development%20of%20the%20company) - BBVA Francés was incorporated on October 14, 1886, with BBVA becoming the principal shareholder in December 1996, reaffirming its universal banking strategy[58](index=58&type=chunk) - In 2017, the bank completed a share capital increase, offering **75,781,788** new ordinary shares to support its growth strategy[61](index=61&type=chunk) - In February 2019, the bank, along with other shareholders, sold a **51%** stake in Prisma Medios de Pago S.A. to an affiliate of Advent International Corporation as part of a divestment commitment[61](index=61&type=chunk) - The bank completed its move to the new "BBVA Tower" headquarters in April 2017, a project designed to unify core areas and meet high sustainability standards (LEED Gold Certification)[62](index=62&type=chunk)[63](index=63&type=chunk) [Business Overview](index=34&type=section&id=B.%20Business%20overview) - BBVA Francés is the third-largest private bank in Argentina by total loans, with an **8.6%** market share as of December 31, 2018, serving approximately **2.5 million** active retail clients[64](index=64&type=chunk)[65](index=65&type=chunk) - The bank's strategy is centered on transformation and growth, with **46.4%** of products sold through digital platforms and **59.4%** of retail clients engaging in digital transactions in 2018[68](index=68&type=chunk)[70](index=70&type=chunk) Loan and Deposit Portfolio by Business Line (in thousands of pesos) | Business Line | Loans (Dec 31, 2018, in thousands of pesos) | Loans (Dec 31, 2017, in thousands of pesos) | Deposits (Dec 31, 2018, in thousands of pesos) | Deposits (Dec 31, 2017, in thousands of pesos) | | :--- | :--- | :--- | :--- | :--- | | Retail Banking | 76,943,205 | 80,460,210 | 180,600,946 | 161,241,437 | | Small & Medium-sized Companies | 52,444,965 | 63,454,009 | 49,240,049 | 46,547,108 | | Corporate & Investment Banking | 52,196,585 | 45,101,039 | 29,668,066 | 19,489,209 | | **Total** | **181,584,755** | **189,015,258** | **259,509,061** | **227,277,754** | - The bank's distribution network as of December 31, 2018, includes **252** branches, **834** ATMs, and **844** self-service terminals, complemented by a strong digital presence and strategic alliances[67](index=67&type=chunk) [Organizational Structure](index=45&type=section&id=C.%20Organizational%20structure) - As of December 31, 2018, Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) is the controlling shareholder, owning **66.55%** of the bank's capital stock[101](index=101&type=chunk) Key Subsidiaries and Joint Ventures (as of Dec 31, 2018) | Entity | Type | BBVA Francés Ownership | Principal Activity | Stockholders' Equity (millions of Ps.) | | :--- | :--- | :--- | :--- | :--- | | BBVA Francés Asset Management S.A. | Subsidiary | 95.00% | Investment fund manager | 449.2 | | BBVA Francés Valores S.A. | Subsidiary | 97.00% | Stock exchange brokerage | 169.4 | | Volkswagen Financial Services S.A. | Joint Venture | 51.00% | Financial institution | 1,241.9 | | PSA Finance Argentina Cía. Financiera S.A. | Joint Venture | 50.00% | Financial institution | 869.0 | | Rombo Compañía Financiera S.A. | Joint Venture | 40.00% | Financial institution | 1,286.9 | - On September 25, 2018, BBVA Francés lost control over Volkswagen Financial Services Compañía Financiera S.A. (VWFS), which was subsequently deconsolidated and classified as a joint venture[8](index=8&type=chunk)[59](index=59&type=chunk) [Property, Plants and Equipment](index=52&type=section&id=D.%20Property,%20plants%20and%20equipment) - As of December 31, 2018, the bank's network consisted of **252** retail branches, with **112** owned and **140** leased properties[117](index=117&type=chunk) - The bank's principal executive offices are located at Av. Córdoba 111, Buenos Aires, Argentina, in an owned property of approximately **30,517 square meters**[117](index=117&type=chunk) [Selected Statistical Information](index=52&type=section&id=E.%20Selected%20statistical%20information) Average Balance Sheet Summary (in thousands of pesos) | Item | 2018 (in thousands of pesos) | 2017 (in thousands of pesos) | | :--- | :--- | :--- | | **Total interest-earning assets** | **234,010,729** | **200,811,555** | | Average real rate | 24.13% | 17.78% | | **Total interest-bearing liabilities** | **197,406,350** | **154,183,901** | | Average real rate | 12.53% | 7.76% | | **TOTAL ASSETS** | **331,130,753** | **297,072,421** | Loan Portfolio by Economic Activity (as of Dec 31, in thousands of pesos) | Economic Activity | 2018 Loan Portfolio (in thousands of pesos) | % of Total | 2017 Loan Portfolio (in thousands of pesos) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Consumer | 61,518,019 | 33.13% | 88,070,584 | 45.92% | | Other manufacturing | 26,107,936 | 14.06% | 20,112,359 | 10.49% | | Mining products | 20,247,476 | 10.90% | 1,129,881 | 0.59% | | Wholesale and retail trade | 18,167,505 | 9.78% | 17,915,847 | 9.34% | | Others | 16,604,074 | 8.94% | 46,818,135 | 24.41% | | **Total** | **185,682,306** | **100.00%** | **191,774,986** | **100.00%** | Loan Portfolio Classification by Stage | Stage | 2018 (in thousands of pesos) | % of Total | 2017 (in thousands of pesos) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Stage 1 | 169,108,709 | 91.07% | 189,596,035 | 98.86% | | Stage 2 | 12,820,114 | 6.90% | 849,653 | 0.44% | | Stage 3 (Non-performing) | 3,753,483 | 2.03% | 1,329,298 | 0.70% | | **Total** | **185,682,306** | **100.00%** | **191,774,986** | **100.00%** | Analysis of Allowance for Loan Losses (in thousands of pesos) | Item | Year ended Dec 31, 2018 (in thousands of pesos) | Year ended Dec 31, 2017 (in thousands of pesos) | | :--- | :--- | :--- | | Balance at beginning of year | 2,767,041 | 1,317,015 | | Adoption IFRS 9 | 1,036,297 | - | | Provisions for loan losses | 3,871,311 | 2,749,775 | | Charge-offs | (2,805,207) | (1,299,749) | | **Balance at end of year** | **4,869,442** | **2,767,041** | [The Argentine Banking System and its Regulatory Framework](index=66&type=section&id=F.%20The%20Argentine%20Banking%20System%20and%20its%20Regulatory%20Framework) - The Argentine banking system is regulated by the Central Bank (BCRA), which establishes technical ratios, capital requirements, and supervises **53** commercial banks as of December 31, 2018[163](index=163&type=chunk)[165](index=165&type=chunk) - Capital adequacy requirements are based on Basel III principles, mandating minimum ratios for common equity (**4.5%**), Tier 1 capital (**6%**), and total capital (**8%**) of risk-weighted assets, plus a **2.5%** capital conservation buffer[189](index=189&type=chunk)[190](index=190&type=chunk) - The Central Bank requires financial institutions to maintain minimum cash reserves against deposits, with **45%** for demand deposits in pesos and **35%** for short-term time deposits (up to 29 days) as of January 2019[176](index=176&type=chunk)[180](index=180&type=chunk) - The Deposit Guarantee System covers deposits up to **Ps. 450,000** per person per deposit, increased to **Ps. 1,000,000** effective March 1, 2019[257](index=257&type=chunk)[259](index=259&type=chunk) [Cybersecurity and Fraud Management](index=101&type=section&id=G.%20Cybersecurity%20and%20Fraud%20Management) - The bank's cybersecurity is managed by the BBVA Group's Corporate Security & Engineering Risk (CS&ER) Operations team, including a Global Computer Emergency Response Team (CERT) providing 24/7 detection and response[265](index=265&type=chunk) - In 2018, the bank expanded chip card use, renewed its ATM network for compatibility, and added biometric data readers in branches to strengthen security and reduce fraud[265](index=265&type=chunk) - The BBVA Group has a Corporate Fraud Committee that oversees fraud evolution, monitors risks and mitigation plans, and evaluates business and customer impact across all operating countries[265](index=265&type=chunk) [Operating and Financial Review and Prospects](index=102&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) In 2018, the bank reported a Ps. 1.49 billion net loss, reversing prior year's profit, due to hyperinflationary losses and increased taxes amid a challenging Argentine economy [Operating Results](index=113&type=section&id=A.%20Operating%20Results) Consolidated Profit or Loss Summary (in thousands of pesos) | Item | FY 2018 (in thousands of pesos) | FY 2017 (in thousands of pesos) | % Change | | :--- | :--- | :--- | :--- | | Net Interest Income | 31,734,333 | 23,754,863 | 33.6% | | Net Operating Income | 2,449,144 | 2,243,690 | 9.2% | | Loss on net monetary position | (11,654,234) | (6,159,779) | 89.2% | | Income tax expense | (4,336,370) | (722,492) | 500.2% | | **(Loss) Profit for the Year** | **(1,569,703)** | **1,859,511** | **(184.4)%** | - Net Interest Income increased by **33.6%** to **Ps. 31.7 billion** in 2018, driven by a sharp rise in interest rates that positively affected spreads, as more than half of liabilities are in non-interest-bearing accounts[309](index=309&type=chunk)[310](index=310&type=chunk) - Impairment of financial assets increased by **51.7%** to **Ps. 3.8 billion** in 2018, reflecting deteriorating economic conditions, with the non-performing loan ratio rising to **1.8%** from **0.7%** in 2017[328](index=328&type=chunk) - The application of IAS 29 for hyperinflationary economies resulted in a **Ps. 11.7 billion** loss on the net monetary position in 2018, compared to a **Ps. 6.2 billion** loss in 2017[329](index=329&type=chunk) [Liquidity and Capital Resources](index=125&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) - The bank's ratio of liquid assets to total deposits increased to **36.7%** at year-end 2018 from **26.4%** at year-end 2017, indicating a strong liquidity position[340](index=340&type=chunk) - As of December 31, 2018, the bank had consolidated excess capital of **Ps. 14.7 billion** pursuant to Central Bank rules, up from **Ps. 11.7 billion** in 2017[348](index=348&type=chunk) Capital Ratios (Central Bank Rules) | Ratio | As of Dec 31, 2018 (in millions of pesos) | As of Dec 31, 2017 (in millions of pesos) | | :--- | :--- | :--- | | Total capital | 36,478.8 | 27,309.7 | | Required minimum capital | 21,791.4 | 15,653.8 | | **Excess capital** | **14,687.4** | **11,655.9** | [Trend Information](index=130&type=section&id=D.%20Trend%20Information) - Argentina's economy deteriorated in 2018, with GDP falling **2.5%** and inflation rising to **47.6%**, driven by internal and external pressures, leading to high volatility and an IMF assistance package[357](index=357&type=chunk) - The Argentine financial system remains under-penetrated compared to Latin American peers, suggesting significant growth potential if macroeconomic conditions normalize, and is fragmented, presenting consolidation opportunities[357](index=357&type=chunk) - For 2019, the bank plans to focus on its transformation strategy, combining digital and cultural changes to improve productivity and client service, despite a projected further GDP contraction of **1.2%**[359](index=359&type=chunk) [Directors, Senior Management and Employees](index=133&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) The bank is managed by a Board of Directors and senior management, supported by various committees, with **6,089** employees and satisfactory union relations [Directors and Senior Management](index=133&type=section&id=A.%20Directors%20and%20Senior%20Management) - The Board of Directors consists of a minimum of three and a maximum of nine directors, elected for three-year terms, with Jorge Carlos Bledel serving as Chairman as of the report date[366](index=366&type=chunk)[369](index=369&type=chunk) - The senior management team is led by Martín Ezequiel Zarich, the Chief Executive Officer, who has been with the bank since 1987 and was appointed to his current role in 2015[389](index=389&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk) [Compensation](index=137&type=section&id=B.%20Compensation) - The aggregate compensation paid to all directors and officers during the fiscal year ended December 31, 2018, was **Ps. 185.8 million**, which includes amounts accrued in 2017 but paid in 2018[396](index=396&type=chunk) - The bank has a Nomination and Remunerations Committee, comprised of non-executive directors (majority independent), which assists the Board in setting compensation policies and benefits[396](index=396&type=chunk) [Board Practices](index=137&type=section&id=C.%20Board%20practices) - The bank's corporate governance includes a Supervisory Committee responsible for monitoring management's compliance with laws and shareholder resolutions[398](index=398&type=chunk) - The bank has established several specialized committees to oversee key areas, including two Audit Committees, a Nomination and Remunerations Committee, a Risk Management Committee, and a Disclosure Committee[401](index=401&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk)[409](index=409&type=chunk) [Employees](index=146&type=section&id=D.%20Employees) Number of Full-Time Employees | Location | As of Dec 31, 2018 | As of Dec 31, 2017 | | :--- | :--- | :--- | | Main office | 3,568 | 3,480 | | Branches | 2,521 | 2,602 | | **Total** | **6,089** | **6,082** | - As of December 31, 2018, **2,547** employees were members of the national bank union, and the bank considers its relations with employees satisfactory, with no conflicts for over **20** years[417](index=417&type=chunk) [Major Shareholders and Related Party Transactions](index=147&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) BBVA and its subsidiary held a controlling **66.1%** stake as of March 31, 2019, with other major shareholders including The Bank of New York Mellon and ANSES [Major Shareholders](index=147&type=section&id=A.%20Major%20Shareholders) Beneficial Ownership as of March 31, 2019 | Beneficial Owner | Number of Shares | Percentage of Shares Outstanding | | :--- | :--- | :--- | | Banco Bilbao Vizcaya Argentaria S.A. | 244,870,968 | 39.97% | | BBV América SL (controlled by BBVA) | 160,060,144 | 26.13% | | The Bank of New York Mellon (as ADS holder) | 126,481,611 | 20.64% | | Administración Nacional de Seguridad Social | 42,439,494 | 6.93% | [Related Party Transactions](index=148&type=section&id=B.%20Related%20Parties%20Transactions) - The bank conducts transactions with related parties, including its parent company BBVA, subsidiaries, and joint ventures, in the ordinary course of business on arm's-length terms[424](index=424&type=chunk)[431](index=431&type=chunk) Outstanding Amounts with Key Related Parties (as of Dec 31, 2018) | Related Party | Amount Outstanding (in thousands of pesos) | Nature of Transactions | | :--- | :--- | :--- | | BBVA and subsidiaries | 1,292,644 | Guarantees given and correspondents | | Volkswagen Financial Services S.A | 4,589,088 | Credit card loans, other loans, call money, advances and equity investment | | Rombo Cia Financiera S.A. | 2,165,637 | Call money, other loans, guarantees given and equity investment | | PSA Finance S.A. | 669,742 | Call money, advances, other loans, guarantees given and equity investment | [Financial Information](index=150&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) The bank's dividend payments are subject to Central Bank regulations and capital requirements, and it faces various legal and regulatory proceedings with uncertain outcomes - The bank is involved in a number of legal and regulatory actions and proceedings, the outcomes of which are uncertain and could have a material adverse effect on its financial position[435](index=435&type=chunk) - Dividend distributions are subject to Central Bank regulations and require the bank to meet minimum capital and liquidity requirements; for FY 2018, the Board proposed a cash dividend of **Ps. 2.41 billion**[436](index=436&type=chunk)[438](index=438&type=chunk) [The Offer and Listing](index=151&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) The company's ordinary shares are listed on BYMA ('FRAN') and its ADSs on NYSE ('BFR'), with significant price volatility observed in 2018 ADS Price on NYSE (US$) | Period | High (US$) | Low (US$) | | :--- | :--- | :--- | | Year ended Dec 31, 2018 | 26.60 | 7.18 | | Year ended Dec 31, 2017 | 25.54 | 15.30 | | Year ended Dec 31, 2016 | 23.10 | 16.50 | Ordinary Share Price on BYMA (Pesos) | Period | High (Pesos) | Low (Pesos) | | :--- | :--- | :--- | | Year ended Dec 31, 2018 | 170.50 | 89.00 | | Year ended Dec 31, 2017 | 157.00 | 87.00 | | Year ended Dec 31, 2016 | 119.00 | 78.50 | [Additional Information](index=154&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers the bank's by-laws, material contracts, Argentine exchange controls (eased in 2015), and tax implications for U.S. holders [Memorandum and Articles of Association](index=154&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) - The company's object is to engage in commercial banking in Argentina and abroad, with authorized activities including deposits, loans, guarantees, and foreign exchange transactions[453](index=453&type=chunk) - Director compensation is determined annually by shareholders, subject to a cap of **25%** of the bank's income (or **5%** if no dividends are distributed), as per Section 261 of the Business Companies Law[455](index=455&type=chunk) [Exchange Controls](index=157&type=section&id=D.%20Exchange%20Controls) - Argentina's restrictive exchange controls were substantially eased starting in December 2015, with the mandatory deposit on capital inflows reduced to zero and the waiting period for capital repatriation eliminated[463](index=463&type=chunk) - As of July 1, 2017, through Communication "A" 6244, the Central Bank significantly modified and made more flexible the rules governing the foreign exchange market, establishing the principle of a single free market[468](index=468&type=chunk) - In November 2017, the obligation for exporters to repatriate foreign currency proceeds from the export of goods was eliminated[463](index=463&type=chunk)[469](index=469&type=chunk) [Taxation](index=161&type=section&id=E.%20Taxation) - For fiscal years starting January 1, 2018, dividends paid by the company are subject to a **7%** withholding tax, scheduled to increase to **13%** for fiscal years beginning in 2020[471](index=471&type=chunk) - Capital gains from the sale of ADSs by non-resident beneficiaries are exempt from Argentine tax, provided the beneficiary does not reside in a non-cooperating jurisdiction[473](index=473&type=chunk) - For U.S. Holders, distributions are generally treated as dividends for U.S. federal income tax purposes, potentially taxed at favorable rates for certain non-corporate U.S. Holders[478](index=478&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=166&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The bank employs a comprehensive risk management framework, overseen by the Board, to mitigate credit, financial, and operational risks, using VaR as a primary market risk metric - The bank's risk management framework is based on principles of caution and anticipation, with independent oversight from the Risks Management area, covering credit, financial, and operational risks[487](index=487&type=chunk)[489](index=489&type=chunk) - The bank's risk appetite, approved by the Board of Directors, aims for a moderate risk profile to ensure a solid financial position, prudent management, and portfolio diversification[490](index=490&type=chunk) Daily Trading VaR (in millions of pesos) | VaR Metric | 2018 (in millions of pesos) | 2017 (in millions of pesos) | | :--- | :--- | :--- | | Average | 22.86 | 48.39 | | Minimum | 4.97 | 10.29 | | Maximum | 97.37 | 85.04 | | At December 31 | 49.36 | 43.33 | - As of December 31, 2018, the bank's net asset currency position was **Ps. 4.89 billion**, with a hypothetical **10%** peso devaluation estimated to result in a **Ps. 489 million** negative effect on net income[347](index=347&type=chunk)[519](index=519&type=chunk) [PART II](index=177&type=section&id=PART%20II) [Controls and Procedures](index=177&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls were ineffective as of December 31, 2018, due to material weaknesses in internal control over financial reporting, leading to an adverse audit opinion - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018, due to material weaknesses in internal control over financial reporting[524](index=524&type=chunk) - The material weaknesses identified relate to ineffective controls over the determination of loan losses under IFRS 9 and the completeness and accuracy of disclosures required by IFRS 9, IFRS 7, and IAS 29[525](index=525&type=chunk) - The independent registered public accounting firm, KPMG, issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2018[527](index=527&type=chunk)[534](index=534&type=chunk) - A remediation plan is underway to address the weaknesses, focusing on strengthening personnel knowledge, enhancing control monitoring, improving model governance, and dedicating more resources to IFRS-IASB disclosures[528](index=528&type=chunk)[530](index=530&type=chunk) [Audit Committee Financial Expert](index=183&type=section&id=ITEM%2016A.%20AUDIT%20COMMITTEE%20FINANCIAL%20EXPERT) The Board has appointed Mr. Oscar Miguel Castro as an audit committee financial expert, who also qualifies as an independent director under CNV criteria - The Board of Directors has determined that Mr. Oscar Miguel Castro is an audit committee financial expert serving on its Audit Committees (I and II) and the Disclosure Committee[538](index=538&type=chunk) [Code of Ethics](index=183&type=section&id=ITEM%2016B.%20CODE%20OF%20ETHICS) The bank has adopted a 'Code of Conduct' applicable to all management and employees, with no waivers granted in fiscal year 2018 - The bank has a "Code of Conduct" applicable to all employees and management, including the CEO and CFO, and no waivers were granted from its provisions during the 2018 fiscal year[539](index=539&type=chunk) [Principal Accountant Fees and Services](index=183&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Total fees paid to KPMG, the independent auditor, increased to **Ps. 45.31 million** in 2018, primarily for audit services, with all non-audit services pre-approved Principal Accountant Fees (in millions of pesos) | Fee Type | 2018 (in millions of pesos) | 2017 (in millions of pesos) | | :--- | :--- | :--- | | Audit fees | 45.06 | 17.08 | | Audit-related fees | 0.25 | 4.60 | | Tax fees | — | — | | All other fees | — | — | | **Total fees** | **45.31** | **21.68** | [Corporate Governance](index=184&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a non-U.S. NYSE-listed company, BBVA Francés follows Argentine corporate governance, differing from NYSE standards in board independence and non-management director meetings - The company follows its home country (Argentine) corporate governance practices, which differ from NYSE standards, as permitted for non-U.S. listed companies[542](index=542&type=chunk) - A significant difference from NYSE standards is that the Board of Directors is not required to have a majority of independent directors; currently, the Board has two independent directors[545](index=545&type=chunk) - Unlike NYSE requirements, Argentine law does not mandate regularly scheduled executive meetings for non-management directors without management present[545](index=545&type=chunk) - The bank has an Audit Committee that complies with Argentine Law No. 26,831, with functions and responsibilities essentially the same as those under SEC Rule 10A-3[547](index=547&type=chunk)[549](index=549&type=chunk) [PART III](index=188&type=section&id=PART%20III) [Financial Statements](index=188&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) The consolidated financial statements for 2018 and 2017 were prepared under IFRS-IASB, adjusted for hyperinflation, receiving an unqualified opinion on financials but an adverse opinion on internal controls - The financial statements for FY 2018 and 2017 were prepared in accordance with IFRS as issued by the IASB, marking the bank's first adoption of IFRS-IASB with a transition date of January 1, 2017[7](index=7&type=chunk)[579](index=579&type=chunk) - Due to Argentina's hyperinflationary economy, the financial statements have been adjusted in accordance with IAS 29, stating all items in terms of the measuring unit current at December 31, 2018[9](index=9&type=chunk)[599](index=599&type=chunk) - The bank adopted IFRS 9 "Financial Instruments" as of January 1, 2018, with comparative information for 2017 presented under the previous standard, IAS 39[580](index=580&type=chunk)[595](index=595&type=chunk) - The independent auditor's report provides an unqualified opinion on the consolidated financial statements but an adverse opinion on the effectiveness of internal control over financial reporting[561](index=561&type=chunk)