Banco BBVA Argentina S.A. — 2019 Form 20-F Summary
Business context and reporting period. This is an audited annual report for the fiscal year ended December 31, 2019, filed April 27, 2020—not a standalone fourth-quarter filing. It reports consolidated results for the year and balance-sheet data at year-end. Financial statements follow IFRS as issued by the IASB and apply IAS 29 hyperinflation accounting; reported peso amounts and comparisons are generally restated to December 31, 2019 purchasing power. BBVA Argentina is a universal bank operating primarily in Argentina and is 66.55% owned by BBVA.
Key financial metrics
Amounts below are consolidated and in Argentine pesos (Ps.); “billion” means Ps. 1,000 million. Balance-sheet and income-statement figures are generally in real terms at December 31, 2019.
| Metric | 2019 | 2018 |
|---|---|---|
| Interest income | Ps. 114.9 billion | Ps. 86.9 billion |
| Net interest income | Ps. 66.3 billion in the audited statements; another filing table reports Ps. 66.6 billion | Ps. 48.8 billion |
| Net fee and commission income | Ps. 8.2 billion | Ps. 10.9 billion |
| Gross income | Ps. 88.8 billion | Ps. 60.6 billion |
| Impairment of financial assets | Expense of Ps. 15.8 billion | Expense of Ps. 5.9 billion |
| Loss on net monetary position | Expense of Ps. 20.2 billion | Expense of Ps. 17.9 billion |
| Profit (loss) before tax | Ps. 18.1 billion | Ps. 4.3 billion |
| Profit (loss) for the year | Ps. 16.0 billion | Loss of Ps. 2.4 billion |
| Operating cash flow | Ps. 38.5 billion | Ps. 75.5 billion |
| Total assets | Ps. 454.2 billion | Ps. 556.2 billion |
| Gross loans and advances to customers | Ps. 201.5 billion; net customer loans Ps. 190.0 billion | Ps. 270.8 billion gross; Ps. 264.5 billion net |
| Deposits | Ps. 294.0 billion | Ps. 399.2 billion |
| Total liabilities / equity | Ps. 369.8 billion / Ps. 84.3 billion | Ps. 486.1 billion / Ps. 70.1 billion |
- Profitability and margins: Return on average assets was 3.17% versus negative 0.44% in 2018; return on average equity was 20.98% versus negative 3.15%. Reported average net interest margin was 19.76% versus 13.56%, and yield spread was 16.75% versus 11.60%.
- Credit quality: Non-performing loans were Ps. 7.78 billion and 3.66% of loans, compared with Ps. 5.77 billion and 1.80% in 2018. Allowances were 5.74% of financial assets at amortized cost, and the reported coverage ratio was 148.30%, up from 120.94%.
- Liquidity and capital: Liquid assets were 49.55% of deposits, versus 36.43% in 2018; the regulatory Liquidity Coverage Ratio was 413%, versus 291%. The filing reports a 16.5% consolidated capital ratio under BCRA rules and Ps. 25.3 billion of excess capital. A separate COVID-19 discussion cites a 17.8% regulatory capital ratio, which should be reconciled.
- Funding and debt: Amortized-cost financial liabilities totaled Ps. 336.3 billion, including Ps. 290.9 billion of customer deposits. Debt securities issued were Ps. 7.3 billion; bank loans were Ps. 6.1 billion. The filing also reports Ps. 44.8 billion of short-term borrowings at year-end.
- Cash flow: Investing activities generated Ps. 0.8 billion and financing activities used Ps. 4.9 billion. Cash and cash equivalents increased Ps. 3.8 billion to Ps. 156.3 billion; reported exchange-rate and inflation effects on cash were substantial.
Material changes versus the prior comparable period
- The Bank moved from a 2018 net loss to 2019 net profit. Higher net interest income, trading gains and other operating income contributed; the filing attributes much of the trading-income increase to government securities and market volatility.
- Gross income rose 46.5%, while credit impairment expense increased 167.1%. NPLs increased 34.8% year over year, and the NPL ratio more than doubled.
- Fee and commission income fell 9.0%, largely because of lower net credit-card commissions, including higher commissions paid to LATAM. Net fee and commission income declined as fee expenses rose.
- Total assets fell 18.3%; total loans fell substantially, reflecting contraction in foreign-currency lending and export financing. Deposits fell 26.4% in real terms, with the report describing dollar-deposit withdrawals and a decline in term deposits amid market stress.
- Other operating income included a Ps. 3.8 billion gain on the sale of a portion of the Bank’s interest in Prisma Medios de Pago. The Bank also recognized a Ps. 2.3 billion reorganization provision and higher provisions for contingencies.
- Effective July 1, 2019, the Bank gained control of PSA Finance and Volkswagen Financial Services and began consolidating them. BBVA Francés Valores merged into the Bank effective October 1, 2019.
Outlook, management commentary, risks and unusual items
- Economic outlook and risks: Argentina’s GDP contracted 2.2% in 2019, CPI inflation was 53.8%, and the peso depreciated materially; the year-end exchange rate was about Ps. 59.90 per U.S. dollar. Management described 2020 as challenging, citing recession, sovereign-debt negotiations, foreign-exchange controls and high uncertainty. The filing provides no quantified 2020 earnings guidance.
- COVID-19: The pandemic and related restrictions began affecting Argentina in March 2020. The Bank said it could not yet estimate the full effect and identified potential higher credit losses, impairment and fair-value volatility, reduced lending and fee income, operational disruption and increased cybersecurity risk. Branch operations were restricted, and substantial numbers of staff worked remotely. The Bank reported making more than Ps. 3 billion of pandemic-related loans by the filing date and described credit facilities for businesses and SMEs.
- Regulation and dividends: Foreign-exchange controls and restrictions on capital flows were tightened in 2019. The Board proposed a Ps. 2.5 billion dividend for 2019, subject to shareholder approval and required BCRA authorization. BCRA rules suspended bank dividend distributions until at least June 30, 2020.
- Sovereign exposure and restructuring: The Bank held Argentine government securities and BCRA instruments; the filing notes that certain short-term sovereign securities were subject to postponed maturities. Management said the Bank’s sovereign portfolio was not a substantial portion of assets or equity, but sovereign restructuring and sovereign-rating changes could affect its financial position, funding and market access.
- Legal and tax matters: The Bank disclosed UIF summary proceedings concerning alleged anti-money-laundering violations and a 2020 class action relating to investment funds and dollar-futures contract repricing. Litigation outcomes were uncertain. Court claims concerning the Bank’s use of inflation adjustments in tax returns for 2016–2018 remained pending; the Bank had removed related provisions from its IFRS-IASB statements based on its legal and tax advice.
- Reporting comparability: The Bank’s 2019 statutory statements for the BCRA were prepared under IFRS-BCRA, which differed from the IFRS-IASB statements in this filing, including temporary exceptions involving IFRS 9 impairment and IAS 29. The Bank said it did not intend to report IFRS-IASB interim information during 2020, limiting comparability with this annual report.
- Controls and audit: Management concluded internal control over financial reporting was effective at December 31, 2019; KPMG gave unqualified opinions on the financial statements and internal controls. Previously reported weaknesses relating to IFRS 9 loan-loss estimates and IFRS disclosures were reported as remediated. KPMG highlighted expected-credit-loss estimation and valuation of certain difficult-to-value instruments as critical audit matters.
Most important facts an investor should verify
- Obtain the full audited statements and reconcile the filing’s differing 2019 net interest income and interest expense figures; the audited statement reports net interest income of Ps. 66.288 billion, while another filing table reports Ps. 66.606 billion.
- Confirm the appropriate 2019 regulatory capital ratio: the filing reports both 16.5% and 17.8% in different sections, and determine the methodology and perimeter behind each.
- Review loan staging, allowance adequacy and subsequent delinquencies, especially after the sharp 2019 increase in impairment expense and NPLs and the COVID-related payment relief measures.
- Assess liquidity under further deposit withdrawals, foreign-exchange restrictions and sovereign restructuring; verify the composition and availability of reported liquid assets and BCRA balances.
- Check whether the proposed Ps. 2.5 billion dividend received shareholder and BCRA approval, considering the distribution suspension and legal-reserve requirements.
- Evaluate the effect of IAS 29 restatement, IFRS-BCRA differences, consolidation changes and the absence of IFRS-IASB interim reporting in 2020 when comparing future results.
- Monitor the COVID-19 impact, pending tax and legal proceedings, and valuation assumptions for the Prisma investment and put option.