BBVA(BBAR) - 2021 Q2 - Quarterly Report

Consolidated Condensed Interim Financial Statements Consolidated Condensed Statement of Financial Position As of June 30, 2021, Banco BBVA Argentina S.A.'s total consolidated assets were ARS 864.4 billion, a slight increase from ARS 862.2 billion at year-end 2020. Total liabilities remained stable at ARS 731.5 billion, while total equity increased to ARS 132.9 billion from ARS 130.0 billion over the same period. The balance sheet reflects stability, with a notable decrease in 'Loans and other financing' offset by increases in 'Repo transactions' and 'Cash and deposits in banks' Consolidated Statement of Financial Position Highlights (in thousands of ARS) | Account | 06.30.21 | 12.31.20 | | :--- | :--- | :--- | | Total Assets | 864,390,628 | 862,191,343 | | Cash and deposits in banks | 198,329,379 | 190,629,053 | | Repo transactions | 105,264,692 | 61,644,402 | | Loans and other financing | 306,926,264 | 350,305,200 | | Other debt securities | 153,768,644 | 151,145,975 | | Total Liabilities | 731,489,965 | 732,161,001 | | Deposits | 609,118,286 | 599,329,960 | | Total Equity | 132,900,663 | 130,030,342 | Consolidated Statement of Income For the six-month period ended June 30, 2021, the Group reported a net income of ARS 10.51 billion, a 23.7% increase from ARS 8.50 billion in the same period of 2020. This was driven by a 19.8% increase in net commission income and a significant positive swing in income tax from an expense to a benefit. Net interest income slightly decreased by 3.3% to ARS 48.21 billion. Basic and diluted earnings per share rose to ARS 17.2308 from ARS 13.6838 year-over-year Consolidated Income Statement Summary (in thousands of ARS) | Account | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net interest income | 48,214,021 | 49,868,002 | | Net commission income | 9,151,279 | 7,638,002 | | Operating income | 24,066,934 | 24,369,596 | | Gain (loss) on net monetary position | (17,111,333) | (9,680,505) | | Income before income tax | 7,097,249 | 15,016,585 | | Income tax | 3,415,308 | (6,516,536) | | Net income for the period | 10,512,557 | 8,500,049 | Earnings Per Share (in ARS) | Metric | 06.30.21 | 06.30.20 | | :--- | :--- | :--- | | Basic earnings per share | 17.2308 | 13.6838 | | Diluted earnings per share | 17.2308 | 13.6838 | Consolidated Statement of Other Comprehensive Income For the six months ended June 30, 2021, the Group reported a Total Other Comprehensive Loss of ARS 180.0 million, a significant shift from a Total Other Comprehensive Income of ARS 5.11 billion in the prior-year period. This change was primarily due to losses on financial instruments at fair value through OCI. Consequently, Total Comprehensive Income for the period was ARS 10.33 billion, compared to ARS 13.61 billion for the same period in 2020 Comprehensive Income Summary (in thousands of ARS) | Account | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Net income for the period | 10,512,557 | 8,500,049 | | Total Other Comprehensive Income for the period | (180,026) | 5,111,459 | | Total Comprehensive Income | 10,332,531 | 13,611,508 | Consolidated Condensed Statement of Changes in Shareholders' Equity Total equity increased from ARS 130.0 billion at the start of the period to ARS 132.9 billion as of June 30, 2021. The increase was primarily driven by the net income of ARS 10.56 billion, partially offset by a cash dividend distribution of ARS 7.46 billion and an other comprehensive loss of ARS 180.0 million. A significant transaction was the absorption of accumulated losses of ARS 36.88 billion against reserves - Key equity movements in H1 2021 included net income of ARS 10.56 billion, an other comprehensive loss of ARS 180 million, and a cash dividend distribution of ARS 7.46 billion[26] - The company absorbed accumulated losses of ARS 36.88 billion by utilizing its reserves during the period[26] Consolidated Condensed Statement of Cash Flows For the six months ended June 30, 2021, cash flows from operating activities were a net inflow of ARS 56.08 billion, a significant improvement from a ARS 72.31 billion outflow in the prior-year period. Investing activities used ARS 1.39 billion, while financing activities used ARS 4.26 billion. After accounting for currency effects and monetary position losses, total cash and cash equivalents increased by ARS 7.70 billion during the period Cash Flow Summary (in thousands of ARS) | Activity | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Cash flows from operating activities | 56,077,389 | (72,305,755) | | Cash flows used in investing activities | (1,387,329) | (493,102) | | Cash flows used in financing activities | (4,261,594) | (5,415,191) | | Total changes in cash flows | 7,700,326 | (97,593,359) | Notes to the Consolidated Condensed Interim Financial Statements Note 1: General Information Banco BBVA Argentina S.A. operates as a universal bank in Argentina and is controlled by Banco Bilbao Vizcaya Argentaria S.A. (66.55% ownership). The bank operates in a complex economic context marked by high inflation and a public emergency declaration extended until December 2021. The COVID-19 pandemic has led to significant government and central bank interventions, including credit facilities for SMEs, suspension of loan installment hikes, and a suspension of profit distribution by financial institutions until December 31, 2021. Management states these events have not had a material impact on the Entity's financial position to date - The bank operates in a challenging Argentine economic environment with high inflation and a declared Public Emergency extended through December 31, 2021[42] - In response to COVID-19, the Argentine Central Bank (BCRA) implemented measures such as credit facilities for SMEs, payment extensions for credit cards, and suspension of hikes on certain loan installments[49][50] - A key regulatory measure is the suspension of profit distribution by financial institutions, including BBVA Argentina, until December 31, 2021[51] Note 2-6: Basis of Preparation and Accounting Policies The financial statements are prepared under the BCRA's framework, which is based on IFRS but includes significant exceptions. These deviations include excluding non-financial government sector debt from the IFRS 9 expected loss model, specific accounting for the investment in Prisma Medios de Pago S.A., and a required provision for an income tax reassessment. The statements are presented in constant currency as of June 30, 2021, applying IAS 29 for hyperinflationary economies. A notable change in accounting policy for 2021 was the reclassification of certain government securities from 'Held to Collect and Sell' (FVOCI) to 'Held to Collect' (amortized cost), affecting ARS 17.3 billion in assets - The financial statements deviate from IFRS due to BCRA requirements, notably: - Excluding government debt from the IFRS 9 expected loss model - Specific valuation methods for the Prisma Medios de Pago S.A. investment - A mandated provision for an income tax reassessment[53][54][55][56] - The financial statements are adjusted for hyperinflation in accordance with IAS 29, with all amounts stated in constant currency as of June 30, 2021[58][59] - Effective January 1, 2021, the bank changed its business model for certain government securities, reclassifying ARS 17.3 billion of assets from fair value through OCI to amortized cost[65][66] Note 7-28: Breakdown of Financial Statement Items This section details key asset and liability accounts. As of June 30, 2021, 'Loans and other financing' totaled ARS 306.9 billion, down from ARS 350.3 billion at year-end 2020, with credit cards being the largest component at ARS 127.1 billion. 'Other debt securities' were ARS 153.8 billion, primarily composed of BCRA Liquidity Bills. On the liability side, 'Deposits' grew to ARS 609.1 billion, with savings accounts (ARS 255.0 billion) and term deposits (ARS 161.7 billion) as the main sources. 'Provisions' saw a significant decrease to ARS 6.3 billion from ARS 14.4 billion, mainly due to the reversal of a large income tax provision Loan Portfolio Breakdown (in thousands of ARS) | Loan Type | 06.30.21 | 12.31.20 | | :--- | :--- | :--- | | Credit Cards | 127,057,684 | 143,540,365 | | Consumer loans | 33,207,421 | 35,241,989 | | Exports financing | 24,579,525 | 20,026,640 | | Mortgage loans | 20,504,839 | 20,986,488 | | Total (net of allowance) | 306,926,264 | 350,305,200 | Deposit Breakdown (in thousands of ARS) | Deposit Type | 06.30.21 | 12.31.20 | | :--- | :--- | :--- | | Savings accounts | 254,977,143 | 258,076,853 | | Term deposits | 161,695,313 | 150,474,413 | | Checking accounts | 138,585,142 | 141,094,785 | | Total Deposits | 609,118,286 | 599,329,960 | - Provisions decreased significantly from ARS 14.4 billion to ARS 6.3 billion, primarily due to the reversal of the provision for income tax reassessment, which was ARS 6.8 billion at year-end 2020[137][139] Note 15: Income Tax The income tax expense for H1 2021 was a benefit of ARS 3.4 billion, compared to an expense of ARS 6.5 billion in H1 2020. This reversal is mainly due to the reversal of a provision for income tax reassessment for fiscal years 2016, 2017, and 2018, following favorable court rulings that allowed the application of inflation adjustments for tax purposes. The corporate income tax rate structure was changed in June 2021, introducing a progressive scale up to 35% for fiscal years starting January 1, 2021 - A new progressive income tax rate system was enacted in June 2021, with rates of 25%, 30%, and 35%, effective for fiscal years beginning on or after January 1, 2021[100][101] - The Bank reversed a provision of ARS 4.26 billion related to income tax reassessments for fiscal years 2017 and 2018, following favorable legal opinions and court rulings regarding the application of inflation adjustments for tax purposes[109][110] - The reversal of the tax provision for FY2016, 2017, and 2018 contributed significantly to the income tax benefit of ARS 3.4 billion recorded in H1 2021[97][109] Note 43: Fair Value of Financial Instruments The bank classifies its financial instruments measured at fair value into a three-level hierarchy. As of June 30, 2021, Level 1 assets (quoted prices) were ARS 36.6 billion, Level 2 (observable inputs) were ARS 112.8 billion, and Level 3 (unobservable inputs) were ARS 3.5 billion. The Level 3 assets are primarily the bank's equity interest in Prisma Medios de Pago S.A. and the associated put option, whose valuations are based on discounted cash flow models and are sensitive to unobservable inputs like WACC and growth factors Fair Value Hierarchy of Financial Assets (in thousands of ARS, 06.30.21) | Asset Category | Total Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Debt securities at FVPL | 4,522,549 | 4,518,207 | 4,342 | - | | Derivative instruments | 2,636,384 | - | 1,454,384 | 1,182,000 | | Other debt securities | 136,510,277 | 24,835,638 | 111,185,436 | 489,203 | | Investments in equity instruments | 2,127,357 | 299,184 | 31,194 | 1,796,979 | - The fair value of the equity interest in Prisma Medios de Pago S.A. and the related put option are classified as Level 3, determined by management with input from an independent appraiser using a discounted cash flow method[185][187] Note 47: Financial Instruments Risks The bank details its exposure to credit risk and allowances under the IFRS 9 expected credit loss (ECL) model. As of June 30, 2021, total credit investment exposure at default was ARS 301.6 billion. Allowances for loan losses were categorized into three stages: Stage 1 (performing) at ARS 5.0 billion, Stage 2 (significant increase in credit risk) at ARS 3.9 billion, and Stage 3 (impaired) at ARS 6.5 billion, for a total allowance of ARS 15.5 billion. COVID-19 relief measures, such as payment deferrals, did not result in stage improvements for affected loans, and no relevant impacts on ECLs were directly associated with the pandemic Allowances for Loan Losses by Stage (in thousands of ARS, 06.30.21) | Category | Stage 1 | Stage 2 (Collective & Individual) | Stage 3 (Collective & Individual) | Total | | :--- | :--- | :--- | :--- | :--- | | Allowances - Credit Investment | 5,043,048 | 3,916,938 | 6,519,971 | 15,479,957 | - The bank notes that COVID-19 related loan payment deferrals did not result in improvements in the staging of credit risk for the affected portfolios, and there were no relevant impacts on ECLs directly associated with the pandemic[227][229] Note 48 & 56: Regulatory Matters The bank is subject to significant regulatory oversight. A key restriction imposed by the BCRA is the suspension of profit distribution by financial institutions, which has been extended until December 31, 2021. Additionally, the bank is involved in several administrative proceedings initiated by the BCRA for alleged breaches of foreign exchange regulations and other rules. The bank and its legal advisors believe they have made a reasonable interpretation of the regulations and do not expect an adverse financial impact from these cases - The BCRA has suspended the distribution of profits by financial institutions until December 31, 2021. Any dividend payments are subject to the lifting of this suspension and formal BCRA approval[232] - The bank is party to several administrative proceedings initiated by the BCRA concerning alleged breaches of the Criminal Foreign Exchange Regime and other financial regulations[255][256][259] Independent Auditors' and Supervisory Committee's Reports Independent Auditors' Limited Review Report The independent auditors, KPMG, conducted a limited review (not a full audit) of the condensed interim consolidated financial statements. Based on their review, they concluded that nothing came to their attention to suggest the financial statements were not prepared, in all material respects, in conformity with the accounting standards established by the BCRA. The report includes an "Emphasis of Matter" paragraph highlighting the deviations from IFRS as detailed in Note 2 of the financial statements - The auditors' report is a limited review, which is substantially less in scope than an audit, and therefore does not express a full audit opinion[302] - An "Emphasis of Matter" was included to draw attention to the fact that the financial reporting framework set by the BCRA differs from IFRS in certain aspects, as described in Notes 2.a), 2.b), and 2.c)[304] Supervisory Committee's Report The Supervisory Committee reviewed the interim financial statements and the work of the external auditors. They stated they have no observations to raise and that the financial statements reflect all substantial known facts and circumstances. The committee also reiterated the "Emphasis Matter" from the auditor's report concerning the deviations from IFRS due to BCRA's specific accounting framework - The Supervisory Committee's opinion is that the financial statements are appropriate, but they also highlight the "Emphasis Matter" regarding the deviations from IFRS[482][484] Separate Condensed Interim Financial Statements Overview of Separate Financials This section presents the separate financial statements for Banco BBVA Argentina S.A. (the parent entity), which are supplementary to the consolidated statements. The financial position, income, and cash flows are largely similar to the consolidated figures, with differences arising from the exclusion of subsidiaries and the accounting for investments in these subsidiaries using the equity method. Total assets for the separate entity were ARS 851.3 billion and net income for H1 2021 was ARS 10.56 billion, identical to the income attributable to the parent in the consolidated statements - These financial statements are for the parent entity only and are supplementary to the consolidated statements. Investments in subsidiaries are accounted for using the equity method[341][350] Separate Financial Highlights (in thousands of ARS, 06.30.21) | Account | Amount | | :--- | :--- | | Total Assets | 851,275,684 | | Total Liabilities | 721,009,726 | | Total Equity | 130,265,958 | | Net Income for the Period | 10,557,502 | Reporting Summary Business Overview and Performance BBVA Argentina is a major financial institution in the country with over 2.7 million active customers. For H1 2021, the bank recorded a profit of ARS 10.5 billion, with a ROE of 7.63% and ROA of 1.25%. Net loans decreased by 16% year-over-year, while customer deposits increased by 8.7%. The bank maintained good portfolio quality, with a non-performing loan ratio of 2.49% and coverage of 187.88% - The bank serves over 2.7 million active customers through a network of 243 branches[494] Key Performance Indicators (H1 2021) | Metric | Value | | :--- | :--- | | Net Income | ARS 10.51 billion | | Return on Average Equity (ROE) | 7.63% | | Return on Average Assets (ROA) | 1.25% | | Non-Performing Loan Ratio | 2.49% | Outlook and Digital Strategy The bank's outlook is shaped by the ongoing health crisis, upcoming legislative elections, and external debt negotiations. Management believes the bank is well-positioned due to low funding costs and a strong capital position. A key focus is digital transformation, which has accelerated during the pandemic. As of June 2021, the share of digital customers reached 74%, up from 69% a year prior, and mobile customers grew to 62% from 57% - The bank's outlook is cautious due to the second wave of COVID-19, political uncertainty, and ongoing debt negotiations with the IMF[500] - Digital adoption continues to grow, with digital customers reaching 74% and mobile customers reaching 62% of the total customer base as of June 2021[501]