|Item 1. Identity of Directors, Senior Management and Advisers|
|Item 2. Offer Statistics and Expected Timetable|
|Item 3. Key Information|
|Item 4. Information on The Company|
|Item 4A. Unresolved Staff Comments|
|Item 5. Operating and Financial Review and Prospects|
|Item 6. Directors, Senior Management and Employees|
|Item 7. Major Shareholders and Related Party Transactions|
|Item 8. Financial Information|
|Item 9. The Offer and Listing|
|Item 10. Additional Information|
|Item 11. Quantitative and Qualitative Disclosures About Market Risk|
|Item 12. Description of Securities Other Than Equity Securities|
|Item 13. Defaults, Dividend Arrearages and Delinquencies|
|Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds|
|Item 15. Controls and Procedures|
|Item 16A. Audit Committee Financial Expert|
|Item 16B. Code of Ethics|
|Item 16C. Principal Accountant Fees and Services|
|Item 16D. Exemptions From Listing Requirements for Audit Committees|
|Item 16E. Purchases of Equity Securities By One Issuer and Affiliated Persons|
|Item 16F. Change in Registrant's Certifying Accountant|
|Item 16G. Corporate Governance|
|Item 17. Financial Statements|
|Item 18. Financial Statements|
|Item 19. Exhibits|
|Balance Sheet||Income Statement||Cash Flow|
As filed with the Securities and Exchange Commission on April 27, 2020
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-12568
BANCO BBVA ARGENTINA S.A.
(Exact name of Registrant as specified in its charter)
BBVA ARGENTINE BANK
(Translation of Registrants name into English)
Republic of Argentina
(Jurisdiction of incorporation or organization)
Av. Córdoba 111, C1054AAA
Ciudad Autónoma de Buenos Aires, Argentina
(Address of principal executive offices)
Eduardo González Correas 011-54-11-4348-0000 (ext. 14483) firstname.lastname@example.org Av. Córdoba 111 31° (C1054AAA)
Ciudad Autónoma de Buenos Aires, Republic of Argentina
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
|American Depositary Shares, each representing the right to receive three ordinary shares, par value Ps.1.00 per share||New York Stock Exchange|
|Ordinary shares, par value Ps.1.00 per share||New York Stock Exchange*|
The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:
Title of class
Number of shares outstanding
|Ordinary Shares, par value Ps.1.00 per share||612,710,079|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of large accelerated filer, accelerated filer and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
|Large accelerated filer||☒||Accelerated filer||☐||Non-accelerated filer||☐|
|Emerging growth company||☐|
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
The term new or revised financial accounting standard refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|U.S. GAAP ☐||International Financial Reporting Standards by the International Accounting Standards Board as issued||☒||Other ☐|
If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
|IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS||3|
|OFFER STATISTICS AND EXPECTED TIMETABLE||3|
|INFORMATION ON THE COMPANY||30|
|UNRESOLVED STAFF COMMENTS||108|
|OPERATING AND FINANCIAL REVIEW AND PROSPECTS||108|
|DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES||144|
|MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS||158|
|THE OFFER AND LISTING||161|
|QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK||176|
|DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES||185|
|DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES||187|
|MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS||187|
|CONTROLS AND PROCEDURES||187|
|AUDIT COMMITTEE FINANCIAL EXPERT||189|
|CODE OF ETHICS||189|
|PRINCIPAL ACCOUNTANT FEES AND SERVICES||190|
|EXEMPTIONS FROM LISTING REQUIREMENTS FOR AUDIT COMMITTEES||191|
|PURCHASES OF EQUITY SECURITIES BY ONE ISSUER AND AFFILIATED PERSONS||191|
|CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT||191|
This Form 20-F contains words, such as believe, expect, estimate, intend, plan, may and anticipate and similar expressions that identify forward-looking statements, which reflect our views about future events and financial performance. Actual results could differ materially as a result of factors beyond our control, including but not limited to:
changes in general economic, business or political or other conditions in the Republic of Argentina (Argentina or the Republic) or changes in general economic or business conditions in Latin America;
effects of the COVID-19 pandemic;
changes in exchange rates or capital markets in general that may affect policies towards or lending to Argentina or Argentine companies;
increased costs and decreased income related to macroeconomic variables such as exchange rates and the Consumer Price Index in Argentina (CPI);
unanticipated increases in financing and other costs or the inability to obtain additional debt, equity or wholesale financing on attractive terms or at all; and
the factors discussed under Item 3. Key InformationD. Risk Factors.
Accordingly, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Banco BBVA Argentina S.A. (BBVA Argentina or the Bank), formerly BBVA Banco Francés S.A., undertakes no obligation to update or revise these forward-looking statements or to publicly release the results of any revisions to these forward-looking statements. The accompanying information in this annual report, including, without limitation, the information under Item 4. Information on the Company, Item 5. Operating and Financial Review and Prospects and Item 11. Quantitative and Qualitative Disclosures About Market Risk identifies important factors that could cause material differences between any forward-looking statements and actual results.
The Banks audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 (the Consolidated Financial Statements) are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB).
All 2019, 2018 and 2017 data included in this report have been prepared in accordance with IFRS-IASB for the sole purpose of filing this annual report on Form 20-F with the U.S. Securities and Exchange Commission (SEC).
The statutory consolidated annual financial statements that the Bank prepares to comply with the requirements of the Argentine Central Bank (the Central Bank or BCRA) are prepared pursuant to the reporting framework established by the Central Bank requiring supervised entities to submit financial statements prepared pursuant to IFRS-IASB, (i) with temporary exceptions from the application of (A) the impairment model in Section 5.5 Impairment of IFRS 9 Financial Instrument and (B) IAS 29 Financial Reporting in Hyperinflationary Economies, both of which are applicable under the Central Banks rules for the fiscal years beginning on or after January 1, 2020; and (ii) in accordance with (A) the standards prescribed by Memorandum No. 6/2017 Financial Reporting Framework Established by the BCRA issued on May 29, 2017 regarding the treatment to be applied to uncertain tax positions and (B) the instructions provided in Memorandum No. 7/2019 issued by the BCRA dated April 29, 2019, which set forth the accounting treatment to be applied to the remaining investment held by the Bank in Prisma Medios de Pago S.A. Because of such differences, our statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 are not comparable with the Consolidated Financial Statements included herein. In addition, beyond those mentioned above, we will continue to have differences during the year 2020 between our statutory consolidated financial statements and the financial statements required by IFRS-IASB. We do not intend to report in accordance with IFRS-IASB on an interim basis during 2020. Consequently, our interim financial information for 2020 will not be comparable with the Consolidated Financial Statements and other information contained in this annual report on Form 20-F. We refer in this annual report on Form 20-F to IFRS-IASB as adjusted by the regulations of the BCRA as IFRS-BCRA.
The Consolidated Financial Statements include entities in which the Bank holds control, directly or indirectly. See Item 4. Information on the Company C. Organizational Structure for an organizational chart depicting BBVA Argentina and its subsidiaries.
In this annual report, references to $, US$, U.S. dollars, US dollars and dollars are to United States dollars and references to Ps., Pesos and pesos are to Argentine pesos. Percentages and certain dollar and peso amounts have been rounded for ease of presentation. Unless otherwise stated, all market share and other industry information has been derived from information published by the Central Bank.
Unless otherwise indicated, financial information contained in this annual report reflects the consolidation of the following subsidiaries at the year end and for the fiscal years indicated below:
|As of December 31,|
Volkswagen Financial Services Compañía Financiera S.A.
Consolidar AFJP S.A. (undergoing liquidation proceedings)
BBVA Francés Valores S.A. (1)
BBVA Asset Management Argentina S.A.
PSA Finance Argentina Compañía Financiera S.A.
Merged into the Bank as from October 1, 2019.
On September 25, 2018, BBVA Francés lost control of Volkswagen Financial Services Compañia Financiera S.A. (VWFS) due to the termination of the two year commitment by the Bank to provide financing to VWFS if it were unable to diversify its sources of funding. According to IAS 28 Investments in Associates and Joint Ventures, VWFS qualified thereafter as a joint venture and, as such, it was deconsolidated in 2018 as of the date of loss of control.
Pursuant to certain amendments to the relevant shareholders agreements, effective since July 1, 2019, the Bank has assumed the power to direct the relevant activities of VWFS and PSA Finance Argentina Compañía Financiera S.A. Pursuant to International Financial Reporting Standard (IFRS) 10, the Bank concluded that it controls such companies effective since July 1, 2019. Therefore, the Consolidated Financial Statements consolidate financial information for these companies since the date on which the Bank gained control over them.
Also on October 9, 2019 the Argentine National Securities Commission (CNV) issued Resolution No. 20484/2019 regarding the merger by absorption of the Bank with BBVA Francés Valores S.A.
IAS 29 Financial Reporting in Hyperinflationary Economies requires that an entity whose functional currency is the currency of a hyperinflationary economy must state its assets, liabilities, income and expenses in terms of the measuring unit current at the end of the reporting period (December 31, 2019). The Bank has applied IAS 29 as follows:
Restated the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and consolidated statements of cash flow for the years ended December 31, 2018 and 2017, including the calculation and separate disclosure of the gain or loss on the net monetary position.
Restated the consolidated statement of financial position as of December 31, 2018.
Adjusted the consolidated statement of financial position as of December 31, 2019.
Adjusted the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and consolidated statements of cash flow for the year ended December 31, 2019, including the calculation and separate disclosure of the gain or loss on the net monetary position.
For further information regarding the methodology and criteria applied see Note 3.2 to the Consolidated Financial Statements.
See Item 3. Key InformationA. Selected Financial DataExchange Rates for information regarding the evolution of rates of exchange since 2012.
All figures and percentages of variations in this annual report on Form 20-F, unless otherwise stated, are presented in real terms based on the measuring unit current at December 31, 2019. All comparisons of the financial system contained in this annual report on Form 20-F are presented in nominal terms.
The terms below are used as follows throughout this report:
BBVA Argentina, the Bank or the Company and terms such as we, us and our mean Banco BBVA Argentina S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
BBVA or the BBVA Group means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
Consolidated Financial Statements means our audited consolidated financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017, prepared in accordance with IFRS-IASB and included in this Form 20-F.
A. Selected Financial Data
The financial information set forth below as of and for the years ended December 31, 2019, 2018 and 2017 has been selected from, and should be read together with, the Consolidated Financial Statements included herein.
For information concerning the preparation and presentation of the Consolidated Financial Statements, see Presentation of Financial Information. See also D. Risk FactorsRisks Relating to Argentina, and D. Risk FactorsRisks Relating to the Argentine Financial System and to BBVA Argentina below.
|For the year ended December 31,|
|(in thousands of pesos) (1)|
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
NET INTEREST INCOME
Fee and commission income
Fee and commission expense
Gains on financial assets and liabilities at fair value through profit or loss, net
(Losses) gains on derecognition of financial assets not measured at fair value through profit or loss, net
Exchange differences, net
Other operating income
Other operating expenses
Other administrative expenses
Depreciation and amortization
|For the year ended December 31,|
|(in thousands of pesos) (1)|
Impairment of financial assets
Loss on net monetary position
NET OPERATING INCOME
Share of profit of equity accounted investees
PROFIT BEFORE TAX
Income tax expense
PROFIT (LOSS) FOR THE YEAR
Attributable to owners of the Bank
Attributable to non-controlling interest
Profit (Loss) for the year attributable to owners of the Bank per ordinary
Profit (Loss) for the year attributable to owners of the Bank per ADS (2)(3)(5)
Diluted profit (loss) for the year attributable to owners of the Bank per ordinary
Diluted profit (loss) for the year attributable to owners of the Bank per ADS (2)(3)(5)
Declared dividends per ordinary share (2)(3)(4)
Declared dividends per ADS (2)(3)(4)(5)
Net operating income per ordinary share (2)(3)
Net operating income per ADS (2)(3)(5)
Average ordinary shares outstanding (000s) (3)
|As of December 31,|
|(in thousands of pesos) (1)|
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Cash and cash equivalents
Financial assets at fair value through profit or loss
Financial assets at amortized cost
Financial assets at fair value through Other Comprehensive Income (OCI)
All other assets
Financial liabilities at fair value through profit or loss
Financial liabilities at amortized cost
All other liabilities
Inflation adjustment to share capital
Accumulated (loss) gains
Accumulated other comprehensive income
Equity attributable to owners of the Bank
Profitability and Performance
Return on average total assets (6)
|As of December 31,|
|(in thousands of pesos) (1)|
Return on average total equity (7)
Total equity as a percentage of total assets
Total liabilities as a multiple of total equity
Allowances for loan losses as a percentage of Financial assets at amortized cost
Non-performing loans ratio (8)
Coverage ratio (9)
Except net income per ordinary share and net income per ADS data and financial ratios.
Based on the average number of ordinary shares outstanding during the year.
The average number of ordinary shares outstanding during a year was computed as the average number of shares outstanding during the twelve months taking into account the outstanding amounts as of the end of each month.
The Banks Board of Directors resolved to propose for shareholder approval the payment of a cash dividend of Ps.2,500 million for the year ended December 31, 2019. The ordinary and extraordinary shareholders meeting was initially called for April 7, 2020 and was rescheduled to May 15, 2020 as a virtual meeting due to the COVID-19 pandemic. For the year ended December 31, 2018, the dividends in cash declared at the ordinary and extraordinary shareholders meeting on April 24, 2019 were Ps.2,407 million (nominal value). For the fiscal year ended December 31, 2017, the dividends in cash declared at the ordinary and extraordinary shareholders meeting on April 10, 2018 were Ps.970 million (nominal value). Dividends per ordinary share for each year are calculated taking into account dividends declared in such year and the number of outstanding shares at the end of such year. BCRA Communication A 6768, in force since August 30, 2019, provides that financial institutions must have the prior authorization of the Central Bank for the distribution of their results. Later, on March 19, 2020, BCRA issued Communication A 6939 whereby the banks may not distribute dividends until at least June 30, 2020.
Each ADR represents three ordinary shares.
Profit or loss for the year attributable to owners of the Bank as a percentage of average total assets, computed as the average of fiscal-year-beginning and fiscal-year-ending balances.
Profit or loss for the year attributable to owners of the Bank as a percentage of average stockholders equity, computed as the average of fiscal-year-beginning and fiscal-year-ending balances.
Non-performing loans and advances as a percentage of loans and advances before allowances.
Allowances for loan losses as a percentage of non-performing loans and advances. Non-performing loans and advances include all loans and advances to borrowers classified as Stage 3 in accordance with IFRS 9.
The table below sets forth the dividends declared with respect to the years ended December 31, 2018, 2017 and 2016 on each ordinary share and the equivalent of those dividends expressed in terms of dividends per American Depositary Share, each representing three ordinary shares (the ADSs), in each case adjusted for all stock dividends during the relevant periods. For the year ended December 31, 2019, this table sets forth the dividends that have been approved by the Banks Board of Directors but which are pending shareholder approval. The Central Bank requires that we maintain 20% of our net income (according to IFRS-BCRA) in legal reserves.
|Declared Dividends |
Per Ordinary Share (2)
|Declared Dividends |
Per ADS (2)
December 31, 2019 (1)(3)
December 31, 2018 (4)
December 31, 2017 (5)
December 31, 2016 (6)
The Banks Board of Directors resolved to propose for shareholder approval the payment of a cash dividend of Ps.2,500 million for the year ended December 31, 2019. The ordinary and extraordinary shareholders meeting was initially called for April 7, 2020 and was rescheduled to May 15, 2020 as a virtual meeting due to the COVID-19 pandemic. As such, the dividend for the year ended December 31, 2019 will not be declared unless or until it is approved by the shareholders meeting. Furthermore, the BCRA issued Communication A 6768, in force since August 30, 2019, which provides that financial institutions must have the prior authorization of the Central Bank for the distribution of their results. Later, on March 19, 2020, BCRA issued Communication A 6939 whereby the banks may not distribute dividends until at least June 30, 2020.
For the fiscal year ended December 31, 2018, the dividends in cash declared at the ordinary and extraordinary shareholders meeting on April 24, 2019 were Ps.2,407 million (nominal value). For the fiscal year ended December 31, 2017, the dividends in cash declared at the ordinary and extraordinary shareholders meeting on April 10, 2018 were Ps.970 million (nominal value). For the fiscal year ended December 31, 2016, the dividends in cash declared at the ordinary and extraordinary shareholders meeting on March 30, 2017 were Ps.911 million (nominal value). As of December 31, 2019 the number of outstanding shares was 612,710,079. As of both December 31, 2018 and 2017 the number of outstanding shares was 612,659,638. During the fiscal year ended December 31, 2016 the number of outstanding shares was 536,877,850. Dividends per ordinary share for each year are calculated taking into account dividends declared in such year and the number of outstanding shares at the end of such year.
Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at April 21, 2020.
Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at May 8, 2019.
Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at April 26, 2018.
Dollar amounts are based upon the reference exchange rate quoted by the Central Bank at April 12, 2017.
The following tables show the annual high, low, average and period-end exchange rate for US$1.00 for the periods indicated. The exchange rate is calculated by the Central Bank based on the information provided by financial institutions on the exchange rate for trading of U.S. dollars for settled transactions in Argentine pesos and U.S. dollars. Such information must be representative of the prevailing market conditions. After gathering this information, the Central Bank calculates the daily exchange rate using the formula set out in Annex I of Communication A 3500.
The Federal Reserve Bank of New York does not report a noon buying rate for pesos.
|High (1)||Low (1)||Average (2)||Period-end|
|(in pesos per US$1.00)|
April 2020 (through April 23, 2020)
For annual averages, this is the average of monthly average rates during the period.
Fluctuations in the exchange rate between pesos and dollars affect the dollar equivalent of the peso price of the ordinary shares on the Bolsa y Mercados Argentinos S.A. (BYMA) and as a result, would most likely affect the market price of the ADSs. Fluctuations in exchange rates also affect dividend income measured in dollars. The Bank of New York Mellon, as depositary for the ADSs, is required, subject to the terms of the deposit agreement, to convert pesos to dollars at the prevailing exchange rate at the time of making any dividend payments or other distributions. The following table shows the rate of devaluation of the peso compared with the dollar at year end, the rate of exchange (number of pesos per dollar prevailing in the Argentine foreign exchange market at year end) and the rate of inflation for consumer price for the fiscal years ended December 31, 2019, 2018, 2017 and 2016.
Since the repeal of the Convertibility Law in January 2002, the peso has devalued 6,531.7% compared with the dollar.
|As at December 31,|
For the twelve-month period then ending according to the Argentine Central Bank.
Pesos per dollar according to the Argentine Central Bank.
The inflation rate presented is for the Consumer Price Index published by the Argentine National Statistics and Censuses Institute (INDEC) and is calculated over the prior twelve months.
B. Capitalization and indebtedness
C. Reasons for the offer and use of proceeds
D. Risk Factors
Risks Relating to Argentina
We are an Argentine corporation (sociedad anónima), and the vast majority of our operations, properties and customers are located in Argentina. Accordingly, the quality of our assets, our financial condition and our results of operations are significantly affected by macroeconomic and political conditions prevailing in Argentina.
Economic and political instability in Argentina may adversely and materially affect our business, results of operations and financial condition.
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation. As a consequence, our business and operations have been, and could in the future be, affected from time to time to varying degrees by economic and political developments and other material events affecting the Argentine economy, such as inflation, price controls, foreign exchange controls, fluctuations in foreign currency exchange rates and interest rates, governmental policies regarding spending and investment, national, provincial or municipal tax increases and other initiatives increasing government involvement in business activities, and civil unrest and local security concerns.
In 2001 and 2002, the Argentine economy suffered a severe economic and political crisis. Among other consequences, the Argentine Crisis resulted in Argentina defaulting on its foreign debt obligations and introducing emergency measures and numerous changes in economic policies that affected utilities, financial institutions and many other sectors of the economy. Argentina also suffered a significant real devaluation of the peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. Restrictions on deposit withdrawals from the banking system were implemented, as dollar denominated loans and deposits were pesified (reclassified as peso denominated) and maturities reprogrammed. Although following that crisis, Argentina substantially increased its real gross domestic product (GDP), growing 8.9% in 2005, 8.0% in 2006, 9.0% in 2007 and 4.1% in 2008, in 2009 it was affected by an extended drought, which reduced agricultural production, and the effects of the global economic crisis which led to a contraction of the economy of 5.9% during that year. Real GDP growth was strong in 2010 and 2011, increasing to 10.1% and 6.0%, respectively, but economic performance was erratic in subsequent years and after another recession in 2014, GDP contracted by 2.5%, leading to a GDP level below that of 2011 in constant prices. The economy grew again by 2.7% in 2015, primarily driven by an increase in public expenditures and investment.
The economic and financial environment in Argentina was significantly influenced by the presidential elections held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. Mr. Macris administration (the Macri Administration) assumed office on December 10, 2015 and launched a wide array of measures intended to correct longstanding fiscal and monetary policies that had resulted in recurrent public sector deficits, high inflation, pervasive foreign exchange controls and limited foreign investment. In 2016, the elimination of foreign exchange restrictions and rebalancing of utility rates led to an increase in inflation to 41% year-on-year according to the City of Buenos Aires index at year end and a considerable decline in consumption. As a result, GDP fell by 1.8% in 2016. Once the main imbalances were eliminated, the economy picked up again in 2017, with GDP growing 2.9% and inflation slowing to 24.8% year-on-year, though higher than the goal defined by the Central Bank. The Macri Administrations Cambiemos political party triumphed in the midterm elections of 2017, obtaining the necessary support to implement certain gradual tax and pension reforms, as well as a fiscal agreement with the provinces aimed at normalizing the finances of the provincial administrations.
The Macri Administration carried out a gradual approach intended to reduce the significant fiscal and current account deficit and to correct the macroeconomic imbalances received from the previous administration. This gradual approach ended abruptly in the second quarter of 2018 due to a combination of domestic impacts (mainly a severe drought), a deterioration of the global financial environment (including an increase in US interest rates and the US-China trade war) coupled with policy errors (including
a change to BCRA inflation targets and a capital gains tax), which brought about significant capital outflows from Argentina and the closing of global credit markets for Argentine issuers. From April 30 to July 31, 2018, the Argentine peso (based on the reference exchange rate of the Central Bank) depreciated 32.1% despite frequent exchange market interventions. Even after a strong adjustment of monetary policy and assistance from the International Monetary Fund (IMF) in the form of a stand-by high-access agreement of US$ 50 billion signed in mid-June 2018, tensions in the foreign exchange market reemerged in August, and the peso devalued 35.8% during that month in a strong sell-off of Argentine assets. Between April and September 2018, nearly US$ 14 billion of international reserves were lost due to sales of U.S. dollars by the Central Bank in the foreign exchange market.
Monetary policy was highly influenced by the IMF plan, and by the end of September 2018, a new monetary and foreign exchange scheme was announced. It was adopted in order to control exchange rate volatility by absorbing all excess liquidity in pesos, holding the nominal monetary base constant until December 2018. It also set wide bands within which the foreign exchange rate could float. It allowed currency to be stabilized until February 2019. The peso appreciated 5% between September 30, 2018 and February 28, 2019 (from Ps. 40.89/US$ to Ps. 39.00/US$) and interest rates of Central Bank Liquidity Bills (Leliq) fell in that period more than 2,900 basis points from the peak. By the end of April 2019, the Central Bank changed its exchange rate scheme by eliminating intervention bands, which became exchange reference bands since intervention of the Central Bank in the exchange market was allowed at any level of the exchange rate of the peso, which led to the stability of the peso until the primary elections of August 11, 2019 (on August 9, 2019 the exchange rate closed at Ps. 45.40/US$, 1.6% above the value as of April 29, 2019). However, the unexpected loss by 15 points gap of President Macri to Alberto Fernández in those elections caused the exchange market to react negatively, and the reference exchange rate rose 10.3 pesos on Monday, August 12, 2019, a 22.8% increase over the value recorded the prior Friday, and finished 2019 at Ps. 59.89/US$ with high volatility. On August 28, 2019, Argentina announced a new schedule of payment on its short term local debt, including instruments like Lecap, Letes, Lecer and Lelink, where original dates of payment were postponed between three and six months.
During 2019 the IMF advanced disbursements planned to be made in 2020 and 2021 within the framework of a revised agreement that required an additional fiscal adjustment in 2019, including reaching the goal of a primary deficit of 0% of GDP, the strengthening of Central Bank reserves with the support of official creditors and the continuity of orthodox monetary and fiscal policies. This was part of a new program established in October 2018.
Inflation accelerated during the first quarter of 2019, with the CPI increasing 54.7% during the 12 months ended March 31, 2019 compared to inflation of 47.6% during the 12 months ended December 31, 2018. Early in 2019, prices were adversely affected as a result of the devaluation of the peso during 2018 and the adjustments to public utility rates, despite the restrictive Central Bank monetary policy during that period. However, following the peak of monthly inflation in March 2019 (4.7%), from April through July 2019 inflation registered four consecutive monthly declines (April: 3.4%; May: 3.1%, June: 2.7% and July: 2.2%). The depreciation of the peso after the primary elections once again accelerated inflation to over 4.2% per month on average, increasing it to 53.8% on an annual basis.
Gross domestic product increased 0.5% in the third quarter of 2019 as compared with the previous quarter, and decreased 1.7% compared to the third quarter of 2018. Additionally, the reaction of the markets after the result of the primary elections frustrated any expectations of improvement in the level of economic activity.
Presidential elections took place on October 27, 2019, and Alberto Fernández and Cristina Fernández de Kirchners Frente de Todos party was elected in the first round, confirming the results obtained in the August 2019 primary elections, which had precipitated an economic crisis with a significant impact on Argentine politics and economy.
On December 10, 2019, Alberto Fernández took office as president. The first measures of the new government (in particular, the Law on Social Solidarity and Productive Reactivation) implemented tax increases in 2020 of approximately 2% of GDP, and provided a wide margin of discretionary action for spending decisions.
Since the new administration took over on December 10, 2019, markets have been expecting a new round of debt restructuring, this time involving a wider scope of instruments. There is also a risk that Argentina cannot carry on this restructuring process in an orderly manner and the country will defaults on its debt again.
The Argentine economy has experienced significant volatility, with periods of low or negative growth, high levels of inflation and currency devaluation. Inflation, any decrease in GDP and/or other future economic, social and political developments in Argentina, over which the Bank has no control, have had an adverse effect in the past, and could, in the future, adversely affect its business, the results of its operations and its financial condition.
The Macri Administration implemented significant changes in economic policy, but the ability to implement structural reforms was limited by the decrease in its approval ratings and the lack of support by Congress.
The Macri Administration took office in December 2015 and immediately implemented several significant economic and policy reforms, such as lifting foreign exchange restrictions, restoring the credibility of the Argentine National Institute of Statistics and Censuses (the INDEC), reducing foreign trade controls and resolving claims by bondholders who did not accept the 2005 debt exchange that allowed Argentina to emerge from default and access international financing markets again.
A tax reform passed by Congress at the end of 2017 established a gradual reduction in payroll taxes, corporate income tax benefits for investment projects and other taxes such as gross turnover tax collected by the provinces and a tax on debit and credit card transactions. Export duties on most products were eliminated in 2016, and the export duty on soybean products was significantly reduced. However, on October 5, 2018, a new tax on all exports of goods and services was introduced with the goal of achieving a zero primary deficit in 2019 (the actual primary deficit recorded for 2019 was 0.5%), despite its negative impact on the competitiveness of Argentine exports. Although this measure implied a setback in terms of the campaign promises of the Macri Administration to reduce fiscal pressure and improve productivity, the administration managed to resolve the monetary crisis of 2018 while avoiding capital controls and restrictions on the financial system and reinforced the commitment to a favorable environment for companies. This is particularly relevant in the case of Argentina, where currency crises have in the past led to restrictions on the withdrawal of deposits or access to foreign currency.
The ability of Macri Administration to implement legislative measures required the consensus of the opposition parties. After the 2017 legislative elections, Cambiemos, the party led by President Macri, increased its representation in both houses of the National Congress but did not have an absolute majority in either; therefore, it was necessary to keep on negotiating with opposition parties to pass any law in the National Congress. Furthermore, approval ratings of the Macri Administration began to fall in December 2017 with the amendment of the pension adjustment plan and the relaxation of monetary policy, which led to the weakening of the peso. This was reflected in the presidential elections that took place last October 27, 2019, in which the Frente de Todos ticket, with Alberto Fernández and Cristina Fernández de Kirchner, was elected in the first round confirming the result of the primary elections held in August 2019.
On December 10, 2019, Alberto Fernández took office. The first measures of the new government (in particular, through the Law on Social Solidarity and Productive Reactivation) were to increase taxes in 2020 by approximately 2% of GDP, and provide a wide margin of discretion for spending decisions.
Although the Macri Administration implemented significant changes in economic policy, it was generally unable to implement structural reforms due to lack of support by congress and the public. It is uncertain whether Alberto Fernández will maintain the changes implemented by the Macri Administration and what additional changes he may make to Argentine economic policy.
These developments are likely to negatively impact confidence in the economy, or the Argentine economy could otherwise be negatively affected, which, in turn, could have a substantially adverse effect on the business, the operating income and the financial condition of the Bank.
High inflation rates could negatively affect the Argentine economy in general, including access to the long-term financing market.
Historically, inflation has materially undermined the Argentine economy and the governments ability to create conditions that permit growth. In recent years, Argentina has experienced high inflation rates that rose from 26.9% year-on-year in 2015 to 53.8% year-on-year in 2019 according to the City of Buenos Aires index.
High inflation rates have led to the loss of competiveness of Argentine exports in international markets and to a decline in private consumption, causing a negative effect on economic activity and employment. Moreover, high inflation rates have in the past and could in the future undermine confidence in the Argentine financial sector, in particular with respect to the peso deposit base, reducing the demand for pesos and leading to a portfolio dollarization, which would in turn cause a decrease in the deposit base. This would negatively affect the business volume of banks, including BBVA Argentina.
From 2007 to mid-2016, the CPI data for the Greater Buenos Aires area (the CPI-GBA) and for other Argentine regions/provinces published by the INDEC was not consistent with the CPI data published by private institutions. These inconsistencies created uncertainty regarding the Republics actual inflation rate and made it difficult to anchor inflation expectations.
In 2017, the INDEC began publishing a national CPI index for the purpose of calculating Reference Stabilization Coefficient (CER) adjustments going forward. CER is an inflation index updated daily by the Central Bank. This new national CPI extended the methodology of the previous CPI-GBA, which had covered only the City of Buenos Aires and Greater Buenos Aires, utilizing December 2016 as its base of 100. In early 2016, the governments adjustments to electricity and gas tariffs, as well as the increase in the price of gasoline impacted prices, created additional inflationary pressure which resulted in an acceleration of inflation in 2016. Further increases in energy tariffs and other regulated prices led to an inflation rate of 24.8% year-on-year in 2017, missing the Central Bank inflation targets of 12-17% by a wide margin. These targets were changed at the end of 2017 to 15% for 2018, 10% for 2019 and 5% as a long-run target to be reached by 2020, one year later than previously targeted. However, once again, these targets were widely missed in 2018 mainly due to the 50.3% depreciation of the peso which was partly passed through to domestic prices in spite of extremely tight monetary policies. Inflation, which had risen to 2.5% per month in the first half of 2018 due to increases in regulated prices, reached a maximum of 6.5% month-on-month in September 2018 and fell gradually in subsequent months to reach 47.6% year-on-year in December 2018.
In the first seven months of 2019, prices increased 25.1% as compared with December 2018, began to decline following March 2019, in which prices increased 4.7% month-on-month, to 3.4% in April, 3.1% in May, 2.7% in June and 2.2% in July. However, following the primary elections held in August 2019, the National CPI for that month reached 4.0% and increased to 5.9% in September, ending the optimism of restricting inflation to less than 2% month-on-month. There was a slight decrease to 3.3% in October as a result of the actions taken by the government to control the exchange rate and the freezing of regulated prices, mainly utilities. However, in November prices accelerated again, reaching 4.3% month-on-month, due to several increases in regulated prices. Then in December, inflation reached 3.4% month-on-month; and accumulated 53.8% for the year. Inflation remains a significant challenge for Argentina given its persistent nature in recent years.
As a result, continued inflation could have a material adverse effect on the business, operating income and financial condition of the Bank.
Failure by the Argentine Republic to comply with the fiscal targets agreed with the IMF could negatively affect the Argentine economy and its access to international financial markets.
Starting in 2005, public expenditures began to increase faster than public revenues and the primary fiscal balance of the national public non-financial sector went from a surplus of 3.2% of GDP in 2004 to a deficit of 3.8% of GDP in 2015. In 2016, the primary deficit was Ps. 343.5 billion, which represented an increase of 52.9% compared with the previous year, because the reduction of export duties and the income tax reform had a negative impact on revenue growth while the reduction in subsidies to the energy and transport sectors was slower than expected. In 2017, fiscal tightening proceeded at a stronger pace and the Macri Administration met the primary fiscal deficit target of 4.2% of GDP by lowering the primary fiscal deficit to 3.8% of GDP.
However, due to the loss of credibility and access to capital markets, in the midst of the 2018 currency crisis, the Macri Administration was forced to target a faster reduction in the primary fiscal deficit. The National Treasury outperformed the revised primary fiscal deficit target of 2.6% of GDP in 2018 by posting a deficit of 2.3% of GDP. The target for 2019 was a more ambitious zero primary deficit, becoming more flexible to 0.5% taking into consideration the adjustments for social and capital expenditure agreed with the IMF. Most of the adjustments came from an increase in export duties and the elimination of subsidies for the energy and transport sectors, a reduction in capital spending and efficiency gains in primary spending. However, the emergency measures adopted by President Macri in order to mitigate the economic consequences of the response of the markets upon the result of the primary elections and their subsequent conformation in the general elections of October 27, 2019, resulted in a non-fulfillment of the goal as proposed, having recorded a primary fiscal deficit of 0.5% of GDP.
After the primary elections, the Macri Administration announced a reprofiling plan for local debt, under which the Argentine government would unilaterally postpone maturity, but continue making interest payments. In that way, they assured liquidity as well as avoided a local debt default.
On December 10, 2019 the Alberto Fernández Administration took office. The government has expressed its goal of fiscal responsibility, subject to not compromising the economic situation of the most vulnerable. After taking office, the Fernández Administration announced new fiscal deficit targets.
The Fernández Administration started negotiations among the Argentine Republics international creditors in an attempt to reach an agreement. Meanwhile, debt under Argentine law denominated in dollars maturing in 2020 was again reprofiled.
Any deterioration of the governments fiscal position will negatively affect its ability to access debt markets in the future and could in turn result in greater restrictions on accessing such markets by Argentine companies, including BBVA Argentina.
In 2016, and after several years, the government began issuing both peso and dollar-denominated debt in the local Argentine market, which Argentine private banks, such as BBVA Argentina, often purchase. The purchase of government debt exposes the Bank to the Argentine public sector.
A weaker fiscal position could have a substantial adverse effect on the governments ability to obtain long-term financing and repay the current debt and adversely affect Argentinas economic conditions, which could adversely affect the business, the results of operations and the financial condition of the Bank.
The Argentine economy is vulnerable to external events that may result from serious economic difficulties of Argentinas major regional trading partners, particularly Brazil, or by more general contagion effects, including those precipitated by the economic policy of the United States, which could have a material adverse effect on the economic growth of Argentina and its ability to pay its public debt, and, therefore, on the Banks business.
Weak, flat or negative economic growth of any of Argentinas major trading partners, such as Brazil, could adversely affect Argentinas balance of payments and, consequently, Argentinas economic growth.
In 2015 and 2016, the economy of Brazil, Argentinas largest export market and the main source of imports, experienced heightened negative pressure due to uncertainties arising from its political crisis, including the removal from office of President Dilma Rousseff. Although the Brazilian economy began to recover in 2017 as GDP grew by 1%, inflation fell to 2.9% year-on-year and the Brazilian real appreciated 1.5% year-on-year in December 2017. In 2018, the Brazilian Real depreciated 17.2% in the context of uncertainty regarding presidential elections but inflation only rose to 3.7% and GDP increased 1.1%. Political instability has decreased after the 2018 elections when Jair Bolsonaro was elected President. Even though the process for approval of the pension reform is advanced, tax reforms required to ensure debt sustainability are still pending and could face opposition in the National Congress of Brazil and create uncertainty about the fiscal solvency of Brazil. Any deterioration of economic conditions in Brazil may reduce demand for Argentine exports and increase demand in Argentina for Brazilian imports.
The Argentine economy may also be affected by contagion effects. International investors reactions to events occurring in one developing country sometimes appear to follow a contagion pattern, in which an entire region or investment class is disfavored by international investors. In the past, the Argentine economy has been adversely affected by such contagion effects on a number of occasions, including the 1994 Mexican financial crisis, the 1997 Asian financial crisis, the 1998 Russian financial crisis, the 1999 devaluation of the Brazilian Real, the 2001 collapse of Turkeys fixed exchange rate regime, the global financial crisis that began in 2008 and the sharp depreciation of the Turkish Lira in 2018.
The Argentine economy may also be affected by conditions in developed economies, such as the United States, that are significant trading partners of Argentina or have influence over world economic cycles. A more protectionist trade policy from the United States could affect world trade with negative repercussions for Argentina. If interest rates increase sharply in developed economies, or if tighter global financial conditions prevail due to trade and geopolitical tensions, as occurred in 2018, Argentina and its trade partners, such as Brazil, might find it more difficult and expensive to borrow capital and refinance existing debt, which could adversely affect economic growth in those countries. The withdrawal of the United Kingdom from the European Union (often referred to as Brexit) and uncertainty regarding such process may adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally, and could contribute to instability in global financial and foreign exchange markets. Furthermore, Brexit could lead to additional political, legal and economic instability in the European Union.
Any of these factors could adversely affect economic conditions in Argentina which in turn would adversely affect the business, the results of operations and the financial condition of the Bank.
A decline in international prices for Argentinas principal commodity exports could have a material adverse effect on Argentinas economy and public finances, and, as a result, on our business.
Historically, the commodities market has been characterized by high volatility. Despite the volatility of prices of most of Argentinas commodities exports, commodities have significantly contributed to the governments revenues during the 2000s due to the imposition of export duties on agricultural products in 2002. Although most duties were eliminated and the export tax on soy was reduced from 35% to 30% by the Macri Administration in 2016, and was further reduced in 2018 by 0.5% per month, the Argentine economy is still relatively dependent on the price of its main agricultural exports, primarily soy. This dependence, in turn, renders the Argentine economy vulnerable to commodity prices fluctuations. International soybean prices decreased slightly during 2017 and further in 2018 due to growing trade tensions between the United States and China. During 2019, soybean prices reached their lowest prices over the prior five years, but recovered from US$305.5 per ton in May 2019 to US$335.0 per ton in December 2019. The average price for soybeans was US$326.9 per ton in 2019, down from US$345.0 per ton in 2018. During the first months of 2020 prices have demonstrated a downward trend.
Declines in commodity prices may adversely affect the Argentine economy and the government´s fiscal revenues, which could in turn adversely impact the business, results of operations and financial condition of the Bank.
Exchange controls and restrictions on capital inflows and outflows could have a material adverse effect on Argentine public sector activity, and, as a result, our business.
In 2001 and 2002, following a run on the financial sector triggered by the publics lack of confidence in the continuity of the convertibility regime that resulted in massive capital outflows, the government introduced exchange controls and restrictions on the transfer of foreign currency in an attempt to prevent capital flight and a further depreciation of the peso. These exchange controls substantially limited the ability of issuers of debt securities, among others, to accumulate or maintain foreign currency in Argentina or make payments abroad.
Although several of such exchange controls and transfer restrictions were subsequently suspended or terminated, in June 2005 the government issued a decree that established new controls on capital flows, which resulted in a decrease in the availably of international credit for Argentine companies.
From 2011 until the Macri Administration took office in December 2015, the government increased controls on the sale of foreign currency and the acquisition of foreign assets by local residents, limiting the possibility of transferring funds abroad. Together with regulations established in 2012 that subjected certain foreign exchange transactions to prior approval by Argentine tax authorities or the Central Bank, these measures significantly curtailed access to the foreign exchange market. In response, an unofficial U.S. dollar trading market developed in which the peso-U.S. dollar exchange rate differed substantially from the official peso-U.S. dollar exchange rate.
After taking office, the Macri Administration substantially eliminated all foreign exchange restrictions implemented under the previous administration. However, on September 1, 2019, due to the economic instability and the significant devaluation of the peso in August 2019 after the primary elections, the government issued DNU (emergency decree without prior Congress approval) 609/19 together with Central Bank Communication A 6770 (supplemented by Communications A 6776, 6780, 6787 and 6804), which established, until December 31, 2019, the requirement of the Central Banks prior approval for legal persons and individuals to access the foreign exchange market in order to purchase foreign assets whenever the amount exceeds US$10,000 per month, as well as the obligation to present and declare new financial debts and the prior approval of the Central Bank for the payment of profits and dividends, among other provisions. Furthermore, to make any payment on foreign financial debt, it must be proved by evidence, if appropriate, that the transaction has been declared under the Survey of Foreign Assets and Liabilities. Additionally, in order to strengthen these controls and avoid further loss of reserves by the Central Bank following the presidential elections held on October 27, 2019, the Central Bank issued Communication A 6815 to strengthen foreign exchange controls and later issued Communication A 6823 in order to establish tighter restrictions. As of the date of this annual report, the maximum purchase amount allowed per individual is US$ 200 per month.
Additionally, the national government might promulgate further foreign exchange controls, stronger restrictions on transfers abroad, requirements for repatriation of funds obtained through capital market transactions performed abroad, new restrictions on capital movements, measures in response to capital outflows or a significant depreciation of the peso, any of which could limit the ability of companies to access international capital markets. Such measures could adversely affect Argentinas international competitiveness, discourage foreign investments and increase foreign capital outflows, which could have an adverse effect on Argentinas economic activity and have a material adverse effect on the business, the results of operations and the financial condition of the Bank.
Any failure to adequately address actual and perceived risks of institutional deterioration and corruption may adversely affect Argentinas economy and financial condition.
The lack of a sound institutional framework and corruption have been identified as, and continue to be, serious problems for Argentina. Argentina ranked 65 out of 180 countries in the 2019 Corruption Perceptions Index published by Transparency International. In the World Banks Doing Business 2020 report, Argentina ranked 126 out of 190 countries, as compared with 119 in 2019.
Recognizing that the failure to address these issues could increase the risk of political instability, distort decision-making processes and adversely affect Argentinas international reputation and ability to attract foreign investment, the Macri Administration announced several measures aimed at strengthening Argentinas institutions and reducing corruption. These measures included reducing criminal sentences in exchange for cooperation with the government in corruption investigations, increasing access to public information, seizing assets from corrupt officials, increasing the powers of the Anticorruption Office (Oficina Anticorrupción) and the passing of a new public ethics law, among others. The governments ability to implement these initiatives is uncertain as it requires the involvement of the judicial branch, which is independent, as well as legislative support from opposition parties. In 2018, a thorough investigation of a corruption scandal linked to a public works bribery scheme implemented by the previous administration led to the arrest of several prominent individuals. Public perception of the independence of the judicial system has been strengthened by these actions, but we cannot assure that the implementation of these measures will be successful. Moreover, it is uncertain whether President Fernández will continue the Macri Administrations efforts to address actual and perceived risks of institutional deterioration and corruption in Argentina.
If the actual and perceived risks of institutional deterioration and corruption are not adequately addressed, Argentinas economy and financial situation might be adversely affected, which could have a material adverse effect on the business, the results of operations and the financial condition of the Bank.
Fluctuations in the value of the peso could adversely affect the Argentine economy and the Republics ability to service its debt obligations.
Fluctuations in the value of the peso may adversely affect the Argentine economy. A devaluation of the peso may adversely affect the governments revenues (measured in U.S. dollars), fuel inflation and significantly reduce real wages. After several years of moderate variations in the nominal exchange rate, the peso lost 35.3% of its value in 2014 and 33.7% in 2015. Persistent high inflation during this period, with formal and de facto exchange controls, resulted in an increasingly overvalued real official exchange rate. Compounded by the effects of foreign exchange controls and restrictions on foreign trade, these highly distorted relative prices resulted in a loss of competitiveness of Argentine production, impeded investment and resulted in economic stagnation during this period.
After the foreign exchange controls were lifted at the end of 2015, the peso depreciated by 38.5% in 2016 considering the average foreign exchange rate in December of 2016 compared with the average foreign exchange rate in December of 2015. In 2017, the depreciation of the peso fell to 11.8%, well below inflation, raising doubts about potential appreciation of the peso in real terms once again. In this scenario, the vulnerability of the Argentine economy to a tightening of international financial conditions was reflected in a current account deficit of 4.9% of GDP in 2017 and a low level of international reserves compared to other countries in the region. When ten-year U.S. treasury rates began to rise and the U.S. dollar strengthened, these vulnerabilities resulted in a negative differentiation of Argentina compared with other emerging countries, which led to a prolonged run on the currency despite frequent interventions by the Central Bank and a sizeable loan from the IMF signed in June 2018. Finally, after another sell-off of Argentine assets in August 2018 and a strong depreciation, in early October 2018 a revised program with the IMF which further tightened fiscal and monetary policy managed to stabilize the foreign exchange market and the peso appreciated by 7.5% in the last quarter of 2018. Considering the full year, the peso depreciated by 50.3% in nominal terms in 2018. Together with the decline in economic activity, the real depreciation of the peso resulted in a strong reduction in imports and a correction of the external deficit in the fourth quarter of 2018.
According to the revised IMF agreement, the Argentine peso floated freely within an accepted band of exchange rates, but the Central Bank may intervene to a limited extent in the foreign exchange market selling reserves if the exchange rate rises above a certain level, defined initially at Ps.44/US$ (and subsequently adjusted by inflation) which is the upper threshold of the accepted band in which the peso floats freely without intervention of the Central Bank. Conversely the Central Bank was charged with purchasing reserves if the foreign exchange rate fell below the lower threshold of the non-intervention band.
In early 2019, the peso crossed the lower threshold, prompting purchases by the Central Bank and a strong decline in interest rates pursuant to the monetary program. As the level of inflation has remained high, a stronger nominal appreciation of the peso could lead to renewed doubts regarding the appreciation of the peso against the U.S. dollar in real terms. This presents risks for the Argentine economy, including the possibility of a reduction in exports as a consequence of the loss of external competitiveness and deterioration of the current account deficit. Any such appreciation could also have a negative effect on economic growth and employment, reduce tax revenues in real terms and also raise fears regarding the impact of a sudden stop in capital flows
However, by the end of April 2019, exchange rate tensions, together with negative inflation reports of March 2019, led the Central Bank to agree with the IMF the possibility of an intervention even within the (then) exchange reference zone. The announcement of the measure significantly reduced volatility in the exchange rate and helped to contain inflation expectations. It further deepened the contractive profile of the monetary policy since the pesos obtained from the sales of dollars were not re-injected and instead, the monetary base objective was reduced. Thus, the supply of foreign currency from exporters increased and demand decreased. In spite of this, the adverse reaction of the markets to the primary elections in August 2019 led to a decline in exchange rates, and lack of confidence in Argentine assets increased. The prices of Argentine government securities fell by 20%
while the value of local companies shares declined more than 40% over a few days, while the U.S. dollar exchange rate exceeded Ps. 60, which implied a depreciation of more than 25% in just four days. The Central Bank intervened in the market, with relatively little success, by selling foreign currency, which brought about a fall in the international reserves of around US$ 2 billion. For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives. This measure was enacted in order to help control the exchange rate without using reserves.
Political uncertainty or changes in liquidity in international markets are likely to lead to greater volatility, and the depreciation of the peso or a reduction in the reserves of the Central Bank as a result of intervention in the exchange market could adversely affect inflation expectations, economic performance and the ability of the Republic of Argentina to service its debt.
Any of these factors could substantially and adversely affect the business, the results of operations and the financial condition of the Bank.
There can be no assurances that the Republic will be able to obtain financing on satisfactory terms in the future, which could have a material adverse effect on its ability to make payments on its outstanding public debt.
The Republics future tax revenue and fiscal results may be insufficient to meet its debt service obligations and the Republic may have to rely in part on additional financing from domestic and international capital markets in order to meet future debt service obligations. However, the Republic may not be able to access international or domestic capital markets at acceptable prices or at all, and, if that is the case, the Republics ability to service its outstanding public debt could be adversely affected, which could in turn adversely affect Argentinas economy and financial condition and thereby have a material adverse effect on our business, results of operations and financial condition.
Amendments to the Central Banks Charter and the Convertibility Law may adversely affect the economy of Argentina.
In March 2012, Law No. 26,739 was passed amending both the Central Banks Charter and the Convertibility Law. This law amended the mission of the Central Bank (as established in its Charter) and eliminated certain provisions previously in force. In accordance with the law, the Central Bank must promote monetary and financial stability, as well as promote development with social equity. Furthermore, the concept of freely available reserves was eliminated, allowing the Argentine government to use additional reserves to cancel debts. Additionally, this law establishes that the Central Bank may set the interest rate and the terms of the loans granted by financial institutions. As regards reserves, should the government use them to repay public debt or finance public spending, this may result in an increase in inflation, which would hinder economic growth. Moreover, a decrease in the reserves of the Central Bank might adversely affect the ability of the Argentine financial system to resist and overcome the effects of an economic crisis (whether domestic or international), negatively affecting economic growth and therefore the business, results of operations and financial condition of the Bank.
The COVID-19 pandemic is affecting the Bank.
The COVID-19 pandemic, which originated in China and subsequently spread to many other countries in the world, including Argentina and other countries where our clients operate, is adversely impacting the global economy as well as the Argentine economy and our business. In addition to the impact on human lives and the health of more than one and a half million people globally, the pandemic has resulted in the following, among others: emergency actions by governmental authorities worldwide, including the shutdown of national borders and directives for residents in many countries, including Argentina, to shelter at home and for certain business to suspend some or all of their business activities; disruption of supply chains worldwide; falls in production and demand, which is expected to lead to sharp declines in the GDP of those countries which are most affected by the pandemic and have an overall negative impact on global GDP in 2020; increases in unemployment levels; a sharp deterioration in the valuation of financial assets and investments; increased volatility in the financial markets, including with respect to the value and trading of our shares and other securities of the Bank; exchange rate volatility; an increase in loan defaults by both companies and individuals; and increases in public debt due to actions taken by governmental authorities in response to the pandemic. The pandemic struck Argentina in early March, as the country was still struggling to pull out of a recession in its third year and managing a large external debt.
In several countries, governmental authorities are taking measures to mitigate the economic effects of the pandemic. In Argentina, several measures have been adopted to encourage bank lending through, among others, (i) lower reserve requirements on bank lending to households and micro-, small- and medium-sized enterprises (SMEs); (ii) limitations on banks holdings of BCRA notes (LELIQ) in order to make available liquidity and encourage the provision of credit lines to SMEs, with loans granted thereunder guaranteed in part by a State agency, Fondo de Garantías Argentino (FoGAr); and (iii) temporary easing of bank loan classification rules (providing an additional 60 days of non-payment before a loan is required to be
classified as non-performing). Other measures aimed at protecting vulnerable persons include, among others, (i) a temporary prohibition on charging fees related to ATM services; (ii) mortgage relief by freezing, until September 30, 2020, the amount of mortgage payments based on those calculated as of March 2020, and postponing any foreclosures until such date; (iii) the postponement of payments on credit card loans for three months, with such postponed payments to be made up over the subsequent nine months; (iv) the suspension of account closures; (v) the reduction of maximum credit card interest rates from 49% to 43%; (vi) the postponement of all loan payments due during the second quarter without punitive interest; and (vii) the provision of credit lines guaranteed by FoGAr to support the maintenance of payroll payments. Moreover, banks may not distribute dividends until at least June 30, 2020 or carry out wrongful dismissals until at least May 30, 2020, and a 1,250% of capital requirement over the exposure to credit card loans corresponding to tourism-related purchases made outside Argentina has been issued by the Central Bank. It is difficult to predict what effect these measures will have on banks operating in Argentina, including the Bank, or how effective these and other measures taken to mitigate the economic effects of the pandemic will be.
This pandemic and actions taken in response thereto are adversely affecting, and are expected to continue to adversely affect, economic conditions and business activity in Argentina, and therefore the Bank. We had to close all of our branches in Argentina during most of the second half of March. While we were allowed to re-open our branches in April, initially branches were only open on certain specified dates. Although our branches reopened on April 13, 2020, we could generally provide only a limited number of services in our branches, and only by prior appointment, with teller services initially restricted to pensioners and social plan beneficiaries, and with teller services later being available to the general public for withdrawals of foreign currency. In addition, a significant number of Bank personnel, including the teams who provide central services, have been working remotely, disrupting our normal operations. In addition, we face various risks arising from the pandemic, such as a higher risk of impairment of our assets (including financial instruments valued at fair value, which may suffer significant fluctuations), a possible significant increase in loan defaults and credit losses, a decrease in our business activity, such as new retail lending (which has decreased significantly since the nationwide lockdown that began on March 20, 2020). These risks may continue to affect us while the lockdown continues or thereafter, including if the Argentine economy is not able to recover quickly from the pandemic. Moreover, the spread of COVID-19 could also negatively impact the business and operations of third-party service providers who perform critical services for us. In addition, remote working has increased cybersecurity risks given greater use of computer networks outside the corporate environment. Furthermore, the application of IFRS 9 (pursuant to which we adopted as of January 1, 2018 a new impairment model based on expected credit losses, replacing the incurred loss model) could accelerate the recognition of loss provisions.
As a result of the above, the pandemic is adversely affecting us. The ultimate magnitude of the impact on our business, financial condition and results of operations, which could be material, will depend on future developments, which are uncertain, including among others, the intensity and duration of the consequences derived from the pandemic in Argentina and the different geographies in which our clients and counterparties operate.
Risks Relating to the Argentine Financial System and to BBVA Argentina
The short-term structure of the deposit base of the Argentine financial system, including the deposit base of the Bank, could lead to a reduction in liquidity levels and limit the long-term expansion of financial intermediation.
In recent years, growth of the Argentine financial sector has been heavily dependent on deposit levels because of the relatively small size of the Argentine capital markets and the lack of access to foreign capital markets. After the Macri Administration took office, access to foreign capital markets was again possible, supporting credit growth in addition to the deposit base, but since 2018 international and local markets have been closed for Argentine companies due to growing risk aversion toward emerging markets generally, and to Argentina in particular, after the foreign exchange crisis that began in May 2018. There can be no assurance regarding when access to foreign credit markets may resume and, if resumed, access may be disrupted again in the future.
From 2016, the implementation of the tax amnesty regime and restored investor confidence resulted in a significant growth of U.S. dollar deposits. That process came to a halt in the first half of 2018 during the currency crisis due to fears that these deposits might be immobilized by the government and financial institutions indeed suffered a slight withdrawal of these kind of deposits in September 2018. After the primary elections that were held on August 11, 2019, withdrawals of U.S. dollar denominated deposits accelerated, with deposits falling more than 40%. Banks, including BBVA Argentina, had sufficient liquidity to be able to repay them. Moreover, loans denominated in U.S. dollars had short terms, and banks quickly began to collect them.
While banks liquidity in foreign currency is high, a significant share of it is deposited at the Central Bank, and as a result banks have to rely on the Central Bank in order to access those funds. If we continue to experience significant withdrawals by depositors, it could have a material adverse effect on our business, results of operations and financial condition.
The local currency deposit base is mostly short-term and transactional. Deposits represent a small fraction of GDP when compared with other emerging countries. Deposits in pesos grew in line with inflation until August 2019. Following the reintroduction of currency controls after the primary elections, banks suffered a short run on local currency retail time deposits, with a decrease of approximately 15% to 20%, which came to an end after the amount of foreign currency individuals could purchase was reduced to US$ 200 a month, on October 28. In periods of financial stress, customers typically buy foreign currency with their local currency deposits to protect against a possible devaluation of the peso. After that, deposits in pesos stabilized, and they have begun to grow slightly.
The liquidity in local currency of the Argentine financial sector is currently relatively high, in part due to the level of minimum cash requirements applicable to Argentine financial institutions, which the Central Bank raised several times beginning in 2018, and in part due to a slowing demand for loans after interest rates were raised sharply in 2018. Peso-denominated loan demand has started to improve since August 2019, in part because companies substituted U.S. dollar-denominated loans for peso-denominated loans.
Notwithstanding the above, because most deposits are short-term deposits, a substantial part of loans must also have short-term maturities to match the terms of the deposits. The proportion of long-term credit lines, such as mortgages, is small, and long term loan origination fell sharply during 2019 as a consequence of high interest rates and the difficult financial environment.
We have a continuous demand for liquidity to fund our business activities. Our profitability or solvency could be adversely affected if access to liquidity and funding is constrained or made more expensive for a prolonged period of time. Furthermore, withdrawals of deposits or other sources of liquidity may make it more difficult or costly for us to fund our business on favorable terms. Although we believe that deposit liquidity levels are currently reasonable, no assurance can be given that those levels will not be reduced due to future negative economic conditions or otherwise. If depositors lose confidence as a result of negative economic conditions or otherwise and withdraw significant funds from financial institutions, there will be a substantial negative impact on the manner in which financial institutions, including us, conduct their business and on their and our ability to operate as financial intermediaries. If we are unable to access adequate sources of medium and long-term funding or if we are required to pay high costs in order to obtain the same and/or if we cannot generate profits and/or maintain our current volume and/or scale of our business, whether due to a decline in deposits or otherwise, our liquidity position and ability to honor our debts as they come due may be adversely affected, which could have a material adverse effect on our business, results of operations and financial condition.
Significant growth of peso cash (banknotes) positions in the Bank could have an adverse impact on our results of operations.
The Central Bank has made it a key policy to try to minimize the use of physical bills (banknotes) in the economy as a way to reduce informal activity and improve efficiency. This policy involves numerous sectors of the Argentine economy, including banks, and is likely to require significant time to realize significant changes. Since 2012, the Argentine Central Banks charter states that peso cash balances in physical bills (banknotes) cannot be used by financial institutions to comply with statutory reserve requirements. As a result, the Bank has sought to minimize its peso cash balances in physical bills (banknotes), as they yield no income. Since the second half of 2016, the Central Bank began refusing to receive physical bills from financial institutions in order to further decrease their use in the Argentine economy. As a consequence, BBVA Argentinas balance of physical bills increased above normal levels, mainly through the first half of 2017, as a result of our business strategy of collecting a substantial amount of physical bills from large retail corporations as a way to promote business within the retail sector. Collecting bills generates a surplus of bills that the Bank used to deposit in its current account in the Central Bank and then allocated to profitable assets. This policy affected adversely our net income through these periods. Although the Bank took measures to offset this impact, such as raising the fees we charge for the collection service or reducing the net amount of bills we receive from customers every month, and banknotes balances declined to more reasonable levels from the third quarter of 2017 and stayed at those levels for most part of 2018 and 2019, no assurance can be given that our peso cash balances in physical bills (banknotes) will not arise again in the future. Moreover, since May 2019, banks are not allowed to collect fees on cash deposits of small and mid-size companies, thus reducing our ability to offset the negative financial effect that these deposits produce. A significant growth of peso cash balances in physical bills (banknotes) positions in the Bank could have an adverse impact on our business, results of operations and financial condition.
Reduced spreads between interest rates received on loans and those paid on deposits could adversely affect our profitability.
The spread between the interest rates on loans and deposits could be affected as a result of increased competition in the banking sector and the governments tightening or loosening of monetary policy in response to inflation concerns. During recent years, as a consequence of higher inflation, interest rates have significantly increased in Argentina.
After the Macri Administration took office, expectations were of a decline in both inflation and interest rates and therefore banking spreads. However, since 2018 devaluation of the peso and higher inflation led the Central Bank to substantially raise interest rates, ending the margin contraction trend. Since late December 2019, the Central Bank has resumed a process of reducing rates, and inflation expectations have been reduced slightly, although they remain high. If the Central Bank is successful in keeping the pace of inflation reduction, it could result in a renewed pressure on banking spreads. Moreover, a change in the composition of the source of funding, which is currently heavily weighted by non-interest-bearing deposits, could also put downward pressure on margins. A change in the composition of the source of funding could result from lower interest rates, higher demand of credit and therefore a need to increase the amount of time deposits or other types of bearing interest liabilities. Further reduction in spreads could have a material adverse effect on our business, results of operation and financial condition.
Our business is particularly vulnerable to volatility in interest rates.
Our results of operations are substantially dependent upon the level of our net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond our control, including fiscal and monetary policies of governments and central banks, regulation of the financial sector in the market in which we operate, domestic and international economic and political conditions and other factors.
In the current Argentine scenario where the government seeks to stabilize high inflation rates, there is a risk of volatility in the interest rates. This scenario could adversely affect our financial margin as a result of differential movements in interest rates for deposits, loans or other bank assets and liabilities. In addition, a high proportion of loans referenced to variable interest rates makes debt service on such loans more vulnerable to changes in interest rates. In addition, high interest rates could reduce the demand for credit and our ability to generate credit for our clients, as well as contribute to an increase in the credit default rate. As a result of these and the above factors, significant changes or volatility in interest rates could have a material adverse effect on our business, results of operations and financial condition.
Mismatch between UVA loans and UVA deposits could adversely affect our profitability.
During 2017, new UVA (inflation-adjusted) mortgages grew significantly. At the same time, the Bank launched UVA deposits, but such deposits grew at a slower pace, leading to a mismatch in this activity. During 2018, as a consequence of the peso devaluation, higher inflation and interest rates, growth in both UVA loans and liabilities slowed and during 2019 new origination came to a halt. Independently of how this activity may develop in the future, a mismatch among UVA assets and liabilities will remain, which could have a material adverse effect on our business, results of operations and financial condition, particularly in the event that interest rates turn positive in real terms.
Our estimates and established reserves for credit risk and potential credit losses may prove to be inaccurate and/or insufficient, which may materially and adversely affect our results of operations and financial condition.
A number of our products expose us to credit risk, including consumer loans, commercial loans and other receivables. Changes in the income levels of our borrowers, increases in the inflation rate or an increase in interest rates could have a negative effect on the quality of our loan portfolio, causing us to increase provisions for loan losses and resulting in reduced profits or in losses. Our non-performing loan portfolio amounted to Ps.7,781.8 million at December 31, 2019 representing a 34.8% increase compared with Ps.5,774.1 million at December 31, 2018 which in turn represented a 182.4% increase compared with Ps.2,044.9 million at December 31, 2017. The non-performing loan ratio increased to 3.7% at December 31, 2019 from 1.8% at December 31, 2018 which in turn increased from 0.7% at December 31, 2017.
We estimate and establish reserves for credit risk and potential credit losses. This process involves subjective and complex judgments, including projections of economic conditions and assumptions on the ability of our borrowers to repay their loans. We may not be able to timely detect these risks before they occur, which may increase our exposure to credit risk. Overall, if we are unable to effectively control the level of non-performing or poor credit quality loans in the future, or if our loan loss reserves are insufficient to cover future loan losses, this could have a material adverse effect on our business, results of operations and financial condition.
Increased competition in the banking industry may adversely affect the Banks operations.
The markets in which we operate are highly competitive and this trend will likely continue with new business models likely to be developed in coming years whose impact is unforeseeable. The markets in which we operate are highly competitive and this trend will likely continue. In particular, we expect that competition with respect to small- and medium-sized businesses is likely to increase. As a result, even if the demand for financial products and services from these markets continues to grow, competition may adversely affect our results of operations by decreasing the net margins we are able to generate. In addition, the trend towards consolidation in the Argentine banking industry has created larger and stronger banks with which we must now compete.
We also face competition from non-bank competitors, such as payment platforms, e-commerce businesses, department stores (for some credit products), automotive finance corporations, leasing companies, factoring companies, investment funds, pension funds, insurance companies, and public debt. In recent years, the financial services sector has experienced a significant transformation, closely linked to the development of the internet and mobile technologies. Part of that transformation involves the entrance of new players, such as non-bank digital providers that compete (and cooperate) between them and with banks in most of the areas of financial services as well as large digital players such as Google, Facebook or Apple, who have also started to offer financial services (mainly, payments and credit) ancillary to their core business. However, as of the date of this annual report, there is an uneven playing field between banks and such non-bank players. For example, banking groups are subject to prudential regulations that have implications for most of their businesses, including those in which they compete with non-bank players that are only subject to activity-specific regulations or benefit from regulatory uncertainty. Existing loopholes in the regulatory framework are another source of uneven playing fields between banks and non-bank players. Some new services or business models are not yet covered under existing regulations. In these cases, asymmetries between players arise since regulated providers often face obstacles to engage in unregulated activities.
Our future success may depend, in part, on our ability to use technology to provide products and services that provide convenience to customers. Despite the technological capabilities that we have been developing and our commitment to digitalization, as a result of the uneven playing field referred to above or for other reasons, we may not be able to effectively implement new technology-driven products and services or be successful in marketing or delivering these products and services to our customers, which would adversely affect our business, financial condition and results of operations.
In addition, companies offering new applications and financial-related services based on artificial intelligence are becoming more competitive. The often lower cost and higher processing speed of these new applications and services can be especially attractive to technologically-adept purchasers. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, machine learning and other advances outside of our control. If we are not able to successfully keep pace with these technological advances, our business may be adversely affected.
We are a subsidiary of BBVA Group, and activities across BBVA Group could adversely affect us.
We are a part of a highly diversified international financial group which offers a wide variety of financial and related products and services including retail banking, asset management, private banking and wholesale banking. The BBVA Group strives to foster a culture in which its employees act with integrity and feel comfortable reporting instances of misconduct. The BBVA Group employees are essential to this culture, and acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the BBVA Group and the Banks reputation among existing and potential clients and other stakeholders. Negative public opinion could result from actual or alleged conduct by the BBVA Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the use and protection of data and systems, and the satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.
For example, Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to BBVA. On July 29, 2019, BBVA was named as an investigated party (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could represent the crimes of bribery, revelation of secrets and corruption. As at the date of this annual report on Form 20-F, no formal accusation against BBVA has been made. Certain current and former officers and employees of the BBVA Group, as well as former directors of BBVA, have also been named as investigated parties in connection with this investigation. BBVA has been and continues to be proactively collaborating with the Spanish judicial authorities, including sharing with the courts information from its on-going forensic investigation regarding its relationship with Cenyt. BBVA has also testified before the judge and prosecutors at the request of the Central Investigating Court No. 6 of the National High Court. On February 3, 2020, BBVA was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. This matter or any similar matters arising across the BBVA Group could damage our reputation and adversely affect the confidence of our clients, rating agencies, regulators, bondholders and other parties and could have a material adverse effect on our business, results of operations and financial condition.
Our credit ratings depend on Argentine sovereign credit ratings, and such dependence limits our access to international financial markets.
Our credit ratings are based on Argentinas sovereign rating, which has fluctuated considerably since the Argentine Crisis. As a result, our ratings have also fluctuated in this period, although they have tended to be higher than the sovereign rating. These fluctuations impact our costs of funding, our collateral obligations and our ability to access international markets. Argentina is no longer in default following the final agreement reached with certain of the holders of bonds issued by the Republic (holdouts), and as a result between 2016 and 2017 Argentinas sovereign ratings were upgraded, but from 2018 onwards, that trend was reversed, and the country was either downgraded or had its outlook put under review with negative outlook.
A further decrease in Argentinas sovereign rating could limit our access to financing or make such financing more expensive for us, even if available, which could have a material adverse effect on our business, results of operations and financial condition.
The financial industry is increasingly dependent on information technology systems, which may fail, may not be adequate for the tasks at hand or may no longer be available.
Banks and their activities are increasingly dependent on highly sophisticated information technology (IT) systems. IT systems are vulnerable to a number of problems, such as software or hardware malfunctions, computer viruses, hacking and physical damage to vital IT centers. IT systems need regular upgrading and banks, including us, may not be able to implement necessary upgrades on a timely basis or upgrades may fail to function as planned.
Furthermore, we are under continuous threat of loss due to cyber-attacks, especially as we continue to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that we face are e-fraud and breach of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customers or our accounts. A breach of sensitive customer data, such as account numbers, could present significant reputational impact and significant legal and/or regulatory costs to us.
Over the past few years, there have been a series of distributed denial of service attacks on financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Generally, these attacks have not been conducted to steal financial data, but meant to interrupt or suspend a companys internet service. While these events may not result in a breach of client data and account information, the attacks can adversely affect the performance of a companys website and in some instances have prevented customers from accessing a companys website. Distributed denial of service attacks, hacking and identity theft risks could cause serious reputational harm. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks. Our risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, our plans to continue to provide internet banking and mobile banking channels, and our plans to develop additional remote connectivity solutions to serve our customers. We may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
Additionally, fraud risk may increase as we offer more products online or through mobile channels.
In addition to costs that may be incurred as a result of any failure of our IT systems, we could face fines from bank regulators if we fail to comply with applicable banking or reporting regulations as a result of any such IT failure or otherwise. Any of the above risks could have a material adverse effect on our business, results of operations and financial condition.
We face security risks, including denial of service attacks, hacking, social engineering attacks targeting its colleagues and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect our business or reputation, and create significant legal and financial exposure.
Our computer systems and network infrastructure and those of third parties, on which we are highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. Our business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in its computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access our network, products and services, our customers and other third parties may use personal mobile devices or computing devices that are outside of our network environment and are subject to their own cybersecurity risks.
We, our customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in our systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of us, our employees, our customers or of third parties, damage our systems or otherwise materially disrupt our or our customers or other third parties network access or business operations. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of our systems and implement controls, processes, policies and other protective measures, we may not be able to anticipate all security breaches, nor may we be able to implement guaranteed preventive measures against such security breaches and the measures we implement may not be sufficient. Cyber threats are rapidly evolving and we may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and other internet-based product offerings and expand our internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and spear phishing attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of our systems to disclose sensitive information in order to gain access to its data or that of our clients. Persistent attackers may succeed in penetrating defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to our data may not be disclosed to it in a timely manner.
We also face indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom we does business or upon whom we rely to facilitate or enable our business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including us. This consolidation, interconnectivity and complexity increases the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our business.
During the year 2019, the Bank undertook projects associated with corporate security, with initiatives based on cybersecurity, data security and protection, anti-fraud measures, physical security, and the implementation of security measures and business continuity, compliance with the regulatory framework, and protection of equipment and people. In addition, a cybersecurity training exercise was carried out by different areas of the Bank, with the aim of continuing to evaluate the effectiveness of the security measures deployed, the Banks crisis management procedures, and its capacity to react to actual disruptive scenarios.
Cyber-attacks or other information or security breaches, whether directed at us or at third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause us serious negative consequences, including loss of customers and business opportunities, significant business disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our or our customers and/or third parties computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact our results of operations, liquidity and financial condition.
An increase in fraud or transaction errors may adversely affect our reputation, results of operations and financial condition.
Due to the large number of transactions that occur in a financial institution such as the Bank, errors can occur and worsen before being detected and corrected. In addition, some of our transactions are not fully automated, which may increase the risk of human error, or manipulation, and it may be difficult to detect losses quickly. If we are unable to effectively and timely detect and remedy fraudulent and erroneous transactions, it could damage our reputation, entail serious costs and affect our transactions, as well as have a material adverse effect on our business, results of operations and financial condition.
Because we are a financial institution, any insolvency proceeding against us would be subject to the powers of, and intervention by, the Central Bank, which may limit remedies otherwise available and extend the duration of the proceedings.
Under Argentine law, the liquidation and commencement of bankruptcy proceedings against financial institutions, until their banking license has been revoked by the Central Bank, may only be commenced by the Central Bank. If BBVA Argentina were unable to pay its debts as they come due, the Central Bank could intervene and revoke our banking license, and file a bankruptcy petition before a commercial court. If the Central Bank intervenes, the reorganization proceeding could take longer and it is likely that the shareholders remedies would be restricted. During any such process, the Central Bank would have to consider its interests as a regulator and could well prioritize the claims of other creditors and third parties against us. As a result of any such intervention, shareholders may realize substantially less on the claims than they would in a bankruptcy proceeding of a non-financial institution in Argentina or a financial institution or non-financial institution in the United States or any other country.
Lawsuits brought against us outside Argentina, the enforcement of foreign judgments and complaints based on foreign legal concepts may be unsuccessful.
We are a commercial bank organized under the laws of Argentina. Most of our shareholders, directors, members of the supervisory committee and officers and certain experts named herein reside outside the United States (principally in Argentina). Substantially all of our assets are located outside the United States. If any shareholder were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce in Argentina a judgment against them obtained in the courts of the United States based upon the civil liability provisions of the United States federal securities laws, due to specific requirements of Argentine law regarding procedural law issues and principles of public policy.
Class actions against financial institutions for an indeterminate amount may adversely affect the profitability of the financial sector and of the Bank.
The Argentine national Constitution and the Argentine Consumer Protection Law No. 24,240, as supplemented or amended (the Consumer Protection Law), contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases is limited. Nonetheless, Argentine courts have admitted class actions in certain cases, including various lawsuits against financial institutions related to collective interests such as alleged overcharging on products, interest rates, life insurance required in relation to loans, and advice in the sale of public securities. In recent years, some of these lawsuits have been settled by the parties out of court, with courts approving such settlement agreements. These settlements have typically involved an undertaking by the financial institution to adjust its fees and charges.
In February 2020, we were notified of a class action for the alleged damage suffered by investors in certain investment funds managed by the Bank, following the unilateral modification of the price of certain future dollar contracts in which the affected funds were invested. These modifications were carried out by the organized market in which these future dollar contracts were negotiated, and the class action plaintiffs allege a failure by the Bank to contest the unilateral modifications carried out by the organized market in order to defend the fund investors financial interests.
If class action plaintiffs were to prevail in these or other matters against financial institutions generally, or against us specifically, this could have an adverse effect on the financial industry generally and on our business, results of operations and financial condition in particular.
In the future, court and administrative decisions may increase the degree of protection afforded to our debtors and other customers, or be favorable to the claims brought by consumer groups or associations. This could affect the ability of financial institutions, including us, to freely determine charges, fees or expenses for their services and products, thereby affecting our business and results of operations.
BBVA, our controlling shareholder, has the ability to direct our business and its interests could conflict with yours.
As of December 31, 2019, our parent company, BBVA, directly or beneficially owned 66.55% of our capital stock. As a result, BBVA controls virtually all decisions with respect to our company made by shareholders. It may, for example, without the concurrence of the remaining shareholders, elect a majority of our directors, effect or prevent a merger, sale of assets or other business acquisition or disposition, cause us to issue additional equity securities and determine the timing and amounts of dividends, if any, always subject to the applicable legal framework. Its interests may conflict with your interests as a holder of our shares or ADSs, and it may take actions that might be desirable to BBVA but not to our other shareholders.
Our ability to grow our business depends on our ability to manage our relationships with partners and grow our deposit base.
We seek to grow our business by, among other means, increasing our client base. Our strategic partnerships are important components of our client acquisition strategy. We have various strategic partnerships, including those with LATAM Airlines, the soccer teams River Plate and Boca Junior, and insurance companies, such as La Caja, as well as the agreements with the automobile companies Peugeot, Renault and Volkswagen, which we depend on to expand our client reach cost-effectively, further expand our points of presence and enhance our value proposition. Any deterioration in our relationships with our strategic partners could adversely affect our strategy and materially and adversely affect our business, results of operations and financial condition.
In addition, the successful growth of our business depends on our ability to grow our deposit base. Political, economic or legal developments in Argentina or other factors could lead customers to withdraw funds from the Argentine financial system, adversely affecting us. If there are improvements in the Argentine economy, including lower inflation and increased bancarization and lending activity in the Argentine banking sector, we expect this would contribute to the growth of our business and profitability. However, we can provide no assurance regarding the future performance of the Argentine economy or how any improvements will affect us. If the Argentine economy fails to improve, it could have a material adverse effect on our business, results of operations and financial condition.
We may enter into one or more acquisitions which could adversely affect the value of the Bank.
We regularly explore consolidation opportunities in the ordinary course of business and believe there are significant opportunities to expand our footprint in the Argentine banking sector. In the event that we choose to make an acquisition in the future, any such transaction would involve a number of risks and uncertainties, including:
the possibility that we pay more than the value we will derive from any such transaction;
the possibility that Argentine economic and political conditions will not develop in the manner we expect;
the possibility that the Argentine financial services market will not develop in the manner we expect;
a reduction in our cash available for operations and other uses;
the potential incurrence of indebtedness to finance any such transaction;
delays in achieving or our failure to achieve successfully achieve the anticipated benefits of any acquisition;
difficulties in integrating any business acquired, including difficulties in harmonizing the companies operating practices, technology platforms, internal controls and other policies, procedures and processes;
diversion of management time and resources in coordinating a larger or more geographically dispersed organization;
the quality of the assets of the acquired business may be lower than we anticipate; and
the assumption of certain liabilities, whether known or unknown.
Any of the foregoing or other risks and uncertainties related to any acquisition could have a material adverse effect on our business, results of operations and financial condition or the value of the Bank.
We may suffer adverse consequences related to our calculation of income tax for the years ended December 31, 2018, 2017 and 2016.
As discussed in our Form 6-K furnished to the SEC on June 30, 2017, on May 12, 2017, we filed a request for declaratory judgment with the Contentious Administrative Federal Court No. 12, Secretariat No. 23, seeking that such court declare unconstitutional certain provisions of Argentine law that prevented us from applying an inflation adjustment mechanism. On May 12, 2017, we filed our income tax return for 2016 giving effect to an adjustment for inflation, in 2018 we filed our income tax return for 2017, and in 2019 we filed our income tax return for 2018, also giving effect to an adjustment for inflation. Our requests for declaratory judgment for 2017 and 2018 were filed with the Contentious Administrative Federal Court No. 12, Secretariat No. 23, and our request for 2019 was filed with the Contentious Administrative Federal Court No. is No. 2, Secretariat No. 3. As of the date of this annual report on Form 20-F, our request for declaratory judgment remains pending before the Contentious Administrative Federal Court No. 12, Secretariat No. 23 and the Contentious Administrative Federal Court No. is No. 2, Secretariat No. 3.
At the request of the Central Bank, the Bank recognized an income tax provision of Ps.1,185.8 million in nominal terms for the year ended December 31, 2016 in our statutory consolidated annual financial statements presented to the Central Bank. Subsequently, based on our consideration of the technical merits of the tax deduction, which was confirmed by the Banks legal and tax advisors, such provision was eliminated in the preparation of our Consolidated Financial Statements under IFRS-IASB included herein, positively affecting our results of operations for the year ended December 31, 2017. The Bank followed the same methodology in respect of the years ended December 31, 2017 and 2018, recording a provision of Ps.1,021.5 million and Ps. 3,239.8 million in nominal terms in respect of such years, respectively, in our statutory consolidated annual financial statements, which in turn was eliminated in the preparation of our Consolidated Financial Statements under IFRS-IASB included herein, positively affecting our results of operations for the years ended December 31, 2018 and 2019.
We cannot predict the outcome of this legal action or whether we will be required to amend our income tax returns for 2016, 2017 and 2018 or any subsequent year (as applicable) in the future or make any provisions with respect thereto in our financial statements prepared under IFRS-IASB. If we are required to amend our income tax returns for 2016, 2017 and 2018 or any subsequent year (as applicable), we may be required to pay interest and charges to the Argentine tax authorities, and could be subject to other consequences. We cannot predict with certainty the outcome of our request for declaratory judgment pending before the Contentious Administrative Federal Court No. 12, Secretariat No. 23 and the Contentious Administrative Federal Court No. is No. 2, Secretariat No. 3, or whether it would have a material adverse effect on our business, results of operations or financial condition, or the trading prices of our ordinary shares and ADSs.
The Argentine economy qualifies as a hyperinflationary economy under IAS 29. Given that the peso is our functional currency, we apply IAS 29 for periods ending after July 1, 2018, and our Consolidated Financial Statements and other financial information are presented in terms of the measuring unit current at December 31, 2019.
IAS 29 requires that financial statements of any entity whose functional currency is the currency of a hyperinflationary economy, whether based on the historical cost method or on the current cost method, be adjusted in terms of the measuring unit current at the end of the reporting period. IAS 29 does not establish a set inflation rate beyond which an economy is deemed to be experiencing hyperinflation. However, hyperinflation is commonly understood to occur when changes in price levels are close to or exceed 100% on a cumulative basis over the prior three years, when presented together with certain other qualitative macroeconomic factors.
During the six-month period ended June 30, 2018, the decreasing trend of inflation in Argentina noted in recent prior periods reversed, with variations in different indexes being higher than in previous months. The total cumulative inflation in Argentina in the 36 months prior to December 31, 2019, as measured by both consumer and wholesale price indexes published by INDEC, exceeded 100%. Qualitative macroeconomic factors, including the depreciation of the peso in recent months, also support the conclusion that Argentina is now a hyperinflationary economy for accounting purposes. Accordingly, IAS 29 is applicable to any financial statements as from July 1, 2018 included in any of our filings with the SEC under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended (the Exchange Act). Argentine accounting standards authorities have reached a consensus that the general price index for IAS 29 purposes is determined considering the wholesale price index (WPI) up to December 2016 and the consumer price index (CPI) onwards. These indexes have been determined or referred to the National Institute of Statistics and Census (INDEC). Therefore, our Consolidated Financial Statements included in this annual report are adjusted by applying the relevant indexes and presented in terms of the measuring unit current at December 31, 2019.
In December 2018, the Congress approved Law No. 27,468, which included the possibility of adjusting for inflation. Likewise, Law No. 27,468 delegated to the Central Bank, in the case of financial entities, the entry into force of the new regulations. We have not applied IAS 29 Financial Reporting in Hyperinflationary Economies to our statutory consolidated annual financial statements presented to the Central Bank. In addition,
the financial statements provided to the Central Bank are prepared in accordance with IFRS BCRA, which differs in significant respects from IFRS-IASB. See Presentation of Financial Information. As such, the Consolidated Financial Statements included in this annual report are not comparable with our financial statements furnished to the Central Bank. The application of IAS 29 Financial Reporting in Hyperinflationary Economies to our financial statements presented to the Central Bank is required for fiscal years beginning on or after January 1, 2020 as set forth by the BCRA through Communication A 6651 issued on February 22, 2019.
The statutory consolidated financial statements for the fiscal year ended December 31, 2019 were prepared pursuant to the reporting framework established by the Central Bank requiring supervised entities to submit financial statements prepared pursuant to IFRS-IASB, (i) with temporary exceptions from the application of (A) the impairment model in Section 5.5 Impairment of IFRS 9 Financial Instrument and (B) IAS 29 Financial Reporting in Hyperinflationary Economies, both of which are applicable under the Central Banks rules for the fiscal years beginning on or after January 1, 2020; and (ii) in accordance with (A) the standards prescribed by Memorandum No. 6/2017 Financial Reporting Framework Established by the BCRA issued on May 29, 2017 regarding the treatment to be applied to uncertain tax positions and (B) the instructions provided in Memorandum No. 7/2019 issued by the BCRA dated April 29, 2019, which set forth the accounting treatment to be applied to the remaining investment held by the Bank in Prisma Medios de Pago S.A. Because of such differences, our statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 are not comparable with the Consolidated Financial Statements included herein. In addition, beyond those mentioned above, we will continue to have differences during the year 2020 between our statutory consolidated financial statements and the financial statements required by IFRS-IASB. We do not intend to report in accordance with IFRS-IASB on an interim basis during 2020. Consequently, our interim financial information for 2020 will not be comparable with the Consolidated Financial Statements and other information contained in this annual report on Form 20-F. The Consolidated Financial Statements included in this annual report on Form 20-F have been prepared in accordance with IFRS-IASB.
We are subject to numerous restrictions on our ability to pay dividends.
We are subject to legal and other restrictions on our ability to pay dividends. In Argentina, financial institutions may distribute dividends provided that (i) they are not covered by the terms of sections 34 Regularization and recovery and 35 bis Institution restructuring to safeguard lending and bank deposits of the Law on Financial Institutions (Law No. 21,526); (ii) they are not receiving financial assistance from the BCRA; (iii) they are not in arrears or non-compliance with the information regime established by the BCRA; and (iv) they meet minimum capital requirements and cash requirements. See Item 8. Financial InformationA. Financial Statements and other Financial InformationDividends. Amounts available for distribution as dividends are determined pursuant to Argentine law and IFRS-BCRA. As a result, dividends may be paid when we have no income as determined under IFRS-IASB and, conversely, dividends may not be payable even if we have income as determined under IFRS-IASB. Moreover, BBVA as our majority shareholder has the power to approve or fail to approve any proposed dividends.
BCRA Communication A 6768, in force since August 30, 2019, provides that financial institutions must have the prior authorization of the Central Bank for the distribution of their results. On March 19, 2020, the BCRA issued Communication A 6939 whereby the distribution of dividends by financial institutions, including the Bank, was suspended until at least June 30, 2020.
Legal, Regulatory and Compliance Risks
We identified material weaknesses in our internal control in the past over financial reporting as part of managements assessment, which have already been remediated. If we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of disclosure controls and procedures, investor confidence in the Bank and the market price of our ordinary shares and ADSs may be adversely affected.
We maintain disclosure controls and procedures designed to ensure that we timely report information as specified in applicable Argentine and U.S. rules. Within such disclosure controls and procedures, we maintain a system of internal control over financial reporting.
Our management previously concluded, in its report on its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2018, that we did not maintain effective internal control over financial reporting as a result of material weaknesses. These material weaknesses related to the preparation of the Banks consolidated financial statements in accordance with IFRS-IASB. Our management also previously concluded as of December 31, 2017 that we did not maintain effective internal control over financial reporting as a result of certain material weaknesses. We adopted remediation plans for these material weaknesses and believe that these material weaknesses were remediated.
Our management has issued a report on its assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019 and concluded the Banks internal control over financial reporting was effective as of such date. See Item 15. Controls and Procedures.
We can provide no assurance that we will be able to maintain effective internal control over financial reporting in the future, that misstatements due to error or fraud or otherwise will not occur, that all control issues have been detected or that we will be able to prepare our financial information on a timely basis. If our disclosure controls and procedures, including internal control over financial reporting, are not effective, it could have a material adverse effect on our business, results of operations and financial condition. Moreover, it could have an adverse effect on the price of our ordinary shares and ADSs and could subject us to regulatory scrutiny.
We operate in a highly regulated environment, and our operations are subject to regulations adopted, and measures taken, by several regulatory agencies.
Financial institutions in Argentina are subject to significant regulation relating to functions that historically have been determined by the Central Bank and other regulatory authorities (for capital requirements see Item 5. Operating and Financial Review and ProspectsLiquidity and Capital ResourcesCapital Requirements). The Central Bank may penalize us, in case of any breach of applicable regulations. Similarly, the Argentine National Securities Commission (CNV), which authorizes securities offerings and regulates the public securities markets in Argentina, has the authority to impose sanctions on us and our Board of Directors for breaches of corporate governance. The Financial Information Unit (Unidad de Información Financiera, or UIF) regulates matters relating to anti-money laundering and has the ability to monitor compliance with any such regulations by financial institutions and, eventually, impose sanctions. Any such regulatory agencies could initiate proceedings and impose sanctions against us, our shareholders or our directors.
The Central Bank has also imposed restrictions on the positive foreign currency net global position of financial institutions, which have been modified several times, to prevent the Central Banks foreign currency reserves from further decreasing. As of the date of this annual report, the positive foreign currency net global position may not exceed 5% of the lesser of the financial institutions total capital computed for the relevant preceding month or the financial institutions own liquid assets.
In addition, pursuant to Communication A 6129, sanctions imposed by the Central Bank, the UIF, the CNV and/or the Superintendencia de Entidades Financieras y Cambiarias (the Superintendence of Financial Institutions and Exchanges, referred to as the Superintendence) and/or their authorities, may result in the revocation of the licenses to operate as financial institutions. Such revocation may occur when, in the opinion of the board of directors of the Central Bank, there was a material change in the conditions deemed necessary to maintain such license, including those relating to the suitability, experience, moral character or integrity of (i) the members of a financial institutions board of directors (directors, counselors or equivalent authorities), (ii) its shareholders, (iii) the members of its supervisory committee or (iv) others, such as its managers.
The absence of a stable regulatory framework or the imposition of measures that may affect the profitability of financial institutions in Argentina and limit the capacity to hedge against currency fluctuations could result in significant limits to financial institutions decision-making ability. In turn, this could cause uncertainty and negatively affect our future financial activities and result of operations. In addition, existing or future legislation and regulation could require material expenditures or otherwise have a material adverse effect on our business, results of operations and financial conditions.
In addition to regulations specific to our industry, we are subject to a wide range of federal, provincial and municipal regulations and supervision generally applicable to businesses operating in Argentina, including laws and regulations pertaining to labor, social security, public health, consumer protection, the environment, competition and price controls.
These or any other future governmental measures or regulations could have a material adverse effect on our business, results of operations and financial condition.
The instability of the regulatory framework, in particular the regulatory framework affecting financial institutions, could have a material adverse effect on financial institutions such as BBVA Argentina.
During Cristina Kirchners second term as President (from 2011 to 2015) a series of new regulations were issued affecting financial institutions, mainly regulating the foreign exchange market and imposing new capital requirements for financial institutions. In this regard, Communications A 5272 and 5273 of the Central Bank, dated January 27, 2012, increased the capital requirements for financial institutions operating in Argentina. These Communications required certain minimum capital levels in order to support operational risks and the distribution of dividends, and an additional capital buffer equivalent to 75% of the total capital requirements. For more information regarding capital requirements for Argentine banks please see Item 4. Information on the CompanyF. The Argentine Banking System and its Regulatory Framework.
Moreover, a new law was approved by the Congress introducing amendments to the Central Banks charter. The principal issues addressed by this bill were the use of Central Banks reserves for the cancellation of public debt together with the implementation of polices by the Central Bank in order to interfere in the determination of interest rates and terms of loans to financial institutions.
The Central Bank issued Communications A 5319 and A 5380, dated July 5, 2012 and December 21, 2012, respectively, and Communication A 5516, dated December 27, 2013, making it mandatory for banks to provide credit lines for productive purposes. This requirement has been renewed every six months since then. The purpose of these measures implemented by the former government was to foster investment and growth. Finally, on November 3, 2017 the Central Bank determined that mandatory credit lines for productive financing and financial inclusion will continue to be required until December 2018. The quota for 2018 was a percentage of monthly non-financial private deposits in pesos as of November 30, 2017, according to the following schedule: January 2018: 16.5%, decreasing by 1.5 percentage points monthly until reaching 0% in December 2018. This is a significant development for banks given that the portion of deposits that financial institutions must loan at low interest rates was significantly reduced, allowing banks to allocate such funds in a more profitable way.
On November 29, 2012, the Argentine Congress passed the new Securities Law, which modified the public offer regime set forth by Law No. 17,811, as amended. One of the most significant amendments introduced by the Securities Law referred to the powers of the CNV. The adoption of Section 20 of the Securities Law raised concern in the market, especially among listed companies, since it entitles the CNV to (i) appoint supervisors with veto power over the resolutions adopted by the board of directors of listed companies and (ii) disqualify the board of directors of listed companies for a period of 180 days when, as determined by the CNV, the interests of the minority shareholders and/or security holders are adversely affected.
On October 1, 2013, the Central Bank issued Communication A 5460, granting broad protections to consumers of financial services, including, among other aspects, the regulation of fees and commissions charged by financial institutions for their services. As a result, fees and charges must represent a real, direct and demonstrable cost and should have technical and economic justification. Communication A 5514 introduced an exception to the application of Communication A 5460 for certain credit agreements that have pledges as collateral and are entered into before September 30, 2019.
On December 23, 2014, the Central Bank amended Communication A 5460 through Communication A 5685. As a result of this amendment, any increase in commissions for new products or services for retail customers must have the prior authorization of the Central Bank.
While the Macri Administration repealed part of the regulatory framework enacted by the Kirchner Administration, such as (i) the restrictions on the foreign exchange market, (ii) the regulations concerning minimum and maximum interest rates on certain loans and deposits, (iii) the requirements governing the flow of capital into Argentina, (iv) the percentage of foreign currency positions of financial institutions, (v) the monthly contributions that banks must set aside each month to fund the deposit guarantee fund, (vi) additional capital requirements for the dividend distribution, and (vii) the requirement of prior authorizations to increase commissions, it is still unclear whether the new regulatory framework will be stable and the impact that the new regulatory framework may have on our business.
Since the Fernández Administration assumed office, numerous new laws have been enacted and rules modified, among the most relevant of which are (i) the enactment of the Law of Social Solidarity and Productive Reactivation within the framework of the public emergency, providing for a 30% tax on foreign transactions; (ii) the obligation for banks to open universal free accounts to certain people (who have no bank account, and who wish to have access to a no-fee free savings account in pesos); (iii) a special treatment for UVA-adjusted mortgage loans designed to limit the impact of inflation and generally limit payments to a maximum of 35% of family income until February 2021); (iv) minimum interest rates were set for certain time deposits; (v) new requirements regarding certain fintech virtual wallet payment service providers were approved; (vi) the use of interbank debit for the payment of new credits is prohibited; (vii) a maximum nominal interest rate of 55% was set for credit card financing; (viii) reporting of increases and additions to bank fees for a period of 180 days from February 19, 2020 was prohibited; and (ix) according to Communication A 6768, financial institutions must have the prior authorization of the Central Bank of the Argentine Republic for the distribution of their results. In addition, on March 19, 2020, the BCRA issued Communication A6939 whereby the distribution of dividends was suspended until at least June 30, 2020. As a result, since the beginning of the Fernández Administration, banking activity has been more restrictively regulated, with the stated goal of economically protecting users of financial services.
The absence of a stable regulatory framework or the introduction of new regulations that affect the banking business could limit the ability of financial institutions, including BBVA Argentina, to make long-term decisions, such as asset-allocation decisions, and could cause uncertainty with respect to or otherwise adversely affect our future business, results of operations and financial condition. We cannot assure that laws and regulations currently governing the financial sector will not continue to change in the future or that any changes will not have a material adverse effect on our business, results of operations and financial condition.
Exposure to multiple provincial and municipal legislation and regulations could adversely affect our business and results of operations.
Argentina has a federal system of government with 23 provinces and one autonomous city (Buenos Aires), each of which, under the Argentine national constitution, has full power to enact legislation concerning taxes and other matters. Likewise, within each province, municipal governments have broad powers to regulate such matters. Due to the fact that our branches are located in multiple provinces, we are also subject to multiple provincial and municipal legislation and regulations. Future developments in provincial and municipal legislation concerning taxes, provincial regulations or other matters could have a material adverse effect on our business, results of operations and financial condition.
The Consumer Protection Law and the Credit Card Law may limit some of the rights afforded to us and our subsidiaries.
The Consumer Protection Law establishes a number of rules and principles for the protection of consumers. Although the Consumer Protection Law does not contain specific provisions for its enforcement in relation to financial activities, it does contain general provisions that might be used as grounds to uphold such enforcement, as it has been previously interpreted in various legal precedents. Moreover, the new Argentine Civil and Commercial Code has captured the principles of the Consumer Protection Law and established their application to banking agreements.
The application of both the Consumer Protection Law and the Credit Card Law No. 25,065 (the Credit Card Law) by administrative authorities and courts at the federal, provincial and municipal levels has increased. Moreover, administrative and judicial authorities have issued various rules and regulations aimed at strengthening consumer protection. In this context, the Central Bank issued Communication A 5460, as supplemented and amended, granting broad protection to financial services customers, limiting fees and charges that financial institutions may validly collect from their clients. In addition, the Argentine Supreme Court of Justice issued the Acordada 32/2014, creating the Public Registry of Collective Proceedings for the purpose of registering collective proceedings (such as class actions) filed with national and federal courts. In the event that we are found to be liable for violations of any of the provisions of the Consumer Protection Law or the Credit Card Law, the potential penalties could limit some of our rights, such as reducing our ability to collect payments due from services and financing provided by us, or otherwise adversely affect our business, results of operations and financial condition.
On September 18, 2014, a new pre-judicial service of dispute resolution was created by Law No. 26,993, in order for consumers and providers to resolve any dispute within the course of 30 days, including fines for companies that do not attend the hearings.
Furthermore, the rules that govern the credit card business provide for variable caps on the interest rates that financial institutions may charge clients and the fees that they may charge merchants. Moreover, general legal provisions exist pursuant to which courts could decrease the interest rates and fees agreed upon by the parties on the grounds that they are excessively high. A change in applicable law or the existence of court decisions that lower the cap on interest rates and fees that clients and merchants may be charged would reduce our revenues and therefore negatively affect our results of operations.
The application of this regulation or any new regulation that may limit some of the rights afforded to us could have a material adverse effect on our business, results of operations and financial condition.
We are exposed to risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs.
Our operations are subject to various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, and economic sanction programs, including those administered by the United Nations and the United States, including the U.S. Treasury Departments Office of Foreign Assets Control. The anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may directly or indirectly, through third parties, deal with entities the employees of which are considered government officials. In addition, economic sanctions programs restrict our business dealings with certain sanctioned countries, individuals and entities.
Although we have adopted internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies, procedures, systems and other mitigating measures will be sufficient or that our employees, directors, officers, partners, agents and service providers will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible. Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on us, limits being placed on our activities, our authorizations and licenses being revoked, damage to our reputation and other consequences that could have a material adverse effect on our business, results of operations and financial condition. Further, we engage in investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations from time to time and any such investigations or any related proceedings could be time-consuming and costly.
Our anti-money laundering and anti-terrorism policies may be circumvented or otherwise not be sufficient to prevent all money laundering or terrorism financing.
We are subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and pose significant technical problems. Moreover, after the enactment of Law No. 27,401 on Corporate Criminal Liability, the Bank has begun to draw up an Integrity Program consisting of a set of actions, mechanisms and internal procedures to promote integrity, supervision and control, aimed at preventing, detecting and correcting irregularities and illegal acts included in Law No. 27,401. In this context, the Bank has an internal official whose function is the development, coordination and supervision of the Integrity Program. Although we believe that our current anti-money laundering program (which includes, among other elements, policies, procedures, technical infrastructure, independent reviews and training activities) is, and the Integrity Program will be, sufficient to comply with applicable rules and regulations, we cannot guarantee that our anti-money laundering and anti-terrorism financing programs and procedures will not be circumvented or otherwise not be sufficient to prevent all money laundering or terrorism financing. For example, we were recently notified by the UIF of the initiation of a summary proceeding against us and the members of our Board of Directors and our compliance officer relating to alleged violations of anti-money laundering regulations. We expect to defend the interests of such parties in such proceedings, but cannot predict the outcome thereof. Any violations of applicable anti-money laundering, anti-terrorism or other laws and regulations may have severe consequences, including sanctions, fines and notably reputational consequences, which could have a material adverse effect on our business, results of operations and financial condition.
Argentine corporate disclosure, governance and accounting standards may require us to provide different information than would be required under U.S. standards. This difference could limit investors ability to evaluate our business, results of operations and financial condition, and influence investors decisions whether to invest in our securities.
The securities laws of Argentina that govern publicly-listed companies such as us impose disclosure requirements that are more limited than those in the United States. The Argentine securities markets are not as highly regulated and supervised as the U.S. securities markets. There are also important differences between accounting and financial reporting standards applicable to financial institutions in Argentina and those in the United States. As a result, financial statements and reported earnings of Argentine financial institutions generally differ from those reported based on U.S. accounting and reporting standards.
The Consolidated Financial Statements included in this annual report on Form 20-F have been prepared in accordance with IFRS-IASB. By contrast, the Banks statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 were prepared pursuant to the reporting framework established by the Central Bank requiring supervised entities to submit financial statements prepared pursuant to IFRS-IASB, (i) with temporary exceptions from the application of (A) the impairment model in Section 5.5 Impairment of IFRS 9 Financial Instrument and (B) IAS 29 Financial Reporting in Hyperinflationary Economies, both of which are applicable under the Central Banks rules for the fiscal years beginning on or after January 1, 2020; and (ii) in accordance with (A) the standards prescribed by Memorandum No. 6/2017 Financial Reporting Framework Established by the BCRA issued on May 29, 2017 regarding the treatment to be applied to uncertain tax positions and (B) the instructions provided in Memorandum No. 7/2019 issued by the BCRA dated April 29, 2019, which set forth the accounting treatment to be applied to the remaining investment held by the Bank in Prisma Medios de Pago S.A. Because of such differences, our statutory consolidated annual financial statements for the fiscal year ended December 31, 2019 are not comparable with the Consolidated Financial Statements included herein. In addition, beyond those mentioned above, we will continue to have differences during the year 2020 between our statutory consolidated financial statements and the financial statements required by IFRS-IASB. We do not intend to report in accordance with IFRS-IASB on an interim basis during 2020. Consequently, our interim financial information for 2020 will not be comparable with the Consolidated Financial Statements and other information contained in this annual report on Form 20-F.
Accordingly, the information available about us will not be the same as the information available about a U.S. company. The fact that we report in IFRS-IASB for purposes of this annual report on Form 20-F whereas we report in IFRS-BCRA for local and interim reporting purposes, together with the differences in the accounting and disclosure requirements among IFRS-BCRA, IFRS-IASB and U.S. GAAP, could limit investors ability to evaluate our business, results of operations and financial condition, and influence investors decisions whether to invest in our securities.
The special rules that govern the priority of different stakeholders of financial institutions in Argentina, which give priority to depositors with respect to most other creditors, may negatively affect other stakeholders in case of judicial liquidation or bankruptcy of the Bank.
Argentine Law No. 24,485, in force since April 18, 1995 and as amended by Law No. 25,089, provides that in case of judicial liquidation or bankruptcy of a financial institution such as BBVA Argentina, all depositors, irrespective of the type, amount or currency of their deposits, will have general and absolute preferential rights with respect to all other creditors, except for certain labor credits and credits secured with a pledge or mortgage, to be paid with 100% of the funds deriving from the liquidation of our assets. In addition, depositors of any kind of deposits have special preferential rights over the remaining creditors of us, except for certain labor credits, to be paid with (i) any of our funds which may be held by the Central Bank as total reserves, (ii) any remaining funds of ours in existence as of the date on which our license is revoked, or (iii) any funds derived from the compulsory transfer of certain of our assets according to instructions of the Central Bank, in the following order of priority: (a) deposits made by legal entities up to Ps.5,000 per entity, or its equivalent in foreign currency, (b) deposits for terms exceeding 90 days and (c) all other deposits on a pro rata basis.
In case of a judicial liquidation or bankruptcy of a financial institution such as BBVA Argentina, shareholders may not be able to partially or completely recover their investment due to the priority imposed by law.
There is uncertainty regarding the possible effects that pension and tax reform could have in the Argentine economy.
On December 19, 2017, the Argentine Congress enacted the pension reform law that reformulates the Integrated Pension System in Argentina (SIPA), proposing an adjustment of the valuations of pensions and social benefits according to inflation and economic growth. The purpose of this law, together with the tax reform law, the labor reform bill and the capital markets law, is to increase the competitiveness of the Argentine economy by reducing both the fiscal deficit and poverty in a sustainable way.
Through Decree No. 110/2018 of February 8, 2018, the Argentine government regulated the articles of Law No. 27,426 on Pension Reform approved by the Argentine Congress at the end of 2017, and Law No. 27,260 that created the so-called Historical Reparation Program, which is a national program for retirees and pensioners by which the national government offers a proposal for readjustment of retirement benefits and, if applicable, the recognition of retroactive sums owed to certain retirees who have received inadequate payments. This Decree specified the scope of the new retirement regime, which will be applicable to retirees who have been granted readjustments through the Historical Reparation Program, and those who obtained a definitive sentence before March 1, 2018. It also leaves without effect the terms of article 252 of the Labor Contract Law (LCT) that had begun to elapse before the entry into force of Law No. 27,426 of December 29, 2017. Therefore, Decree No. 110/2018 allows the employer to require a worker who reaches 70 years of age to begin legal processes for retirement.
On December 28, 2017, the Argentine Congress enacted the tax reform law. The main taxes that are modified are those related to social security contributions, taxes on corporate and personal profits, bank credits and debits, gross income, stamp tax, value added tax, elimination of internal customs (subject to agreement with the provinces), environmental taxes (CO2) on fuels, transfer taxes on real estate and modifications to the customs code. The reform is to be implemented within one and five years (depending on each modification), which is expected to provide predictability to the changes and support the fiscal sustainability of the reform. These tax reforms are designed to promote investment, competitiveness and quality employment, by reducing tax evasion, to comply with the proposed fiscal goals and to move towards sustained development of the Argentine economy. Law No. 27,541 published on December 23, 2019 by Executive Order No. 99/19 declared a public emergency in financial, tax, administrative, pension, tariff, energy, health and social matters. The above mentioned law contains, among other issues, aspects related to retirement, changes in retirement assets, an increase in salaries set by the national executive power on a quarterly basis, the creation of a new tax of 30 percent applicable to the purchase of foreign currency , the portion of the tax on debits and credits is increased in the case of cash withdrawals with the exception of holders of micro and small enterprises according to the terms of section 2 of Law 24467. It also established regulations regarding personal property tax, income tax and internal taxes, among others. Moreover, the electricity and natural gas utility rate tables within national jurisdiction were fixed for 180 days.
We cannot assure you that these laws adopted by the Argentine Congress will achieve their stated goals or otherwise improve economic conditions in Argentina. If these laws are unsuccessful, they could have an adverse effect on the Argentine economy and, consequently, on our business, results of operations and financial condition.
There is uncertainty regarding financial sector reforms.
On January 10, 2018, the Argentine Executive Branch issued Decree No. 27/2018 (the DNU) whereby a series of new measures were implemented in order to facilitate public and private action by deregulating various markets and activities and simplifying standards. Much of the DNU is aimed at the financial sector, including Chapters II (on companies), III (on the trust fund for the development of entrepreneur capital MiPyMES (micro, small and medium businesses)), IX (which regulates the Argentine guarantee fund), X (on reciprocal guarantee companies), XVI (on the sustainability guarantee fund), XIX (on insurance), XX (on the actions of the financial information unit) and XXII (on access to credit and financial inclusion). The DNU aims in general to reduce government bureaucracy, simplify processes, improve the operation of the financial system and generate competition. We can provide no assurance that the DNU will achieve is intended results. Any failure of the DNU to achieve its goals could have a material adverse effect on our business, results of operations and financial condition.
Recent Political and Economic Developments in Argentina
In 2018 activity, measured by GDP (Gross Domestic Product), declined by 2.5% in Argentina due to a severe drought and depreciation of the peso, in a fiscal austerity and very tight monetary policy scenario. Towards the end of September 2018, a new exchange-rate and monetary scheme was announced defining a floating band for the peso and reinforcing the contractionary tone of monetary policy. This scheme was maintained until the end of April 2019, when tensions on the exchange rate increased again, adding to the challenging inflation data of March 2019, leading the BCRA and the IMF to agree that the BCRA could intervene on the foreign exchange market at its discretion, rendering the floating band just a reference. This scheme controlled exchange rate volatility, in addition to the announcement of a freeze in utility rates, began a process of inflation deceleration.
Meanwhile, in April 2019 the IMF disbursed US$10.8 billion and in July 2019 it disbursed an additional US$5.4 billion. As a result, the undisbursed balance was reduced to US$44.9 billion of the total US$57.0 billion committed in the program signed in 2018.
Primary elections were held on August 11, 2019 leading to an adverse market reaction, declines in the exchange rate and an increasing lack of confidence in Argentine assets. The prices of Argentine government securities fell by 20% while local companies shares dropped more than 40% over a few days, while the U.S. dollar exchange rate exceeded Ps. 60 which implied a depreciation of more than 25% in just four days. The Central Bank was forced to intervene in the market, with relatively little success, by selling approximately US$2 billion from international reserves.
With access to international and domestic debt markets effectively closed due to, among other issues, Argentine country risk reaching 4,500 points, and in order to avoid default, the government decided to reprofile the short-term Argentine sovereign debt, and announced the beginning of a renegotiation with the IMF. The reprofiling measure affected approximately US$9 billion of short-term Argentine-law governed sovereign debt and primarily affected private sector investors.
Due to the strong macroeconomic instability, accompanied by the significant depreciation of the peso, the Central Bank decreed a series of measures aimed at restricting the exchange market. The main ones are the purchase limit of US$10,000 per month and the requirement that financial entities receive authorization in order to pay dividends.
Presidential elections took place on October 27, 2019, and the ticket of Alberto Fernández and Cristina Fernández de Kirchner (Frente de Todos) was elected in the first round, confirming the results obtained in the primary elections in the previous August.
In order to avoid an uncontrolled loss of reserves and minimize the volatility of the exchange rate, on September 1, 2019 the Central Bank decreed a tightening of the restriction on the purchase of currency. For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives.
Alberto Fernández assumed office on December 10, 2019. The first measures of the new administration were aimed at increasing taxes as well as new expenditures benefitting the most vulnerable sectors of the population. These measures are mainly contained in the Social Solidarity and Productive Reactivation Law. In addition, in the same line with the former administration, the government decided to again reprofile US$9 billion of short-term Argentine-law governed sovereign debt which same debt had already previously been reprofiled).
In the year ended December 31, 2019, GDP fell 2.2 %, while inflation reached 53.8% and the peso depreciated 54.8%.
During 2018 economic activity measured by GDP fell 2.5% compared to 2017, which followed a 2.7% growth in 2017. For 2019 the GDP decreased by 2.2% primarily due to decreases in consumption and investment, due to uncertainty in a highly restrictive monetary and fiscal scenario.
The decline in activity eroded the labor market in 2019, with the unemployment rate increasing to 9.8%, an increase of 0.7 percentage points from the 9.2% recorded in 2018.
The domestic CPI increased by 47.6% in 2018, reflecting an acceleration of inflation compared to 24.8% in 2017, mainly due to the exchange market and financial crisis during 2018. Core inflation reached 47.7% in 2018. Healthcare prices were the most affected, increasing by 66.8% during 2018, followed by food and beverages which increased 51.2%.
The domestic CPI increased by 53.8% in 2019, reflecting an acceleration of inflation compared to 47.6% in 2018, mainly as a result of the depreciation of the peso, partially offset by government intervention in the prices of several utilities in the first quarter of 2019.
Core inflation reached 56.7% as a result of the effect of devaluation on prices. Healthcare prices increased by 72.1%, communication prices increased by 63.9%, household furniture and maintenance prices increased by 63.7%, food and beverages prices increased by 56.8% and miscellaneous goods and services increased by 55.9%.
The domestic public sector recorded a primary deficit of Ps.95,122 million in 2019, accounting for approximately 0.44% of GDP. This result reflects a 72.0% decrease compared to the deficit in the previous year.
Primary public spending showed a year-on-year 37.2% increase, while revenues from the public sector increased 51.4%. Repayment of interest on public debt increased by 86.2% as a result of both an increase in indebtedness and the effect of devaluation on liabilities denominated in foreign currency. The overall deficit reached Ps.819,407 million, accounting for a 12.6% increase compared to 2018.
With respect to spending, in 2019 there was a year-on-year 12.4% increase in capital spending while subsidies to economic sectors rose by 20.3%, to partially offset the effect of devaluation on the price of energy. Total welfare benefits increased by 46.6%, operating expenditures increased by 31.6% and transfers from the federal government to the provinces increased by 61.3%.
Tax revenues rose by 48.2% in 2019 primarily due to increases in revenues from export duties, which increased by 304.6%.
The trade surplus in 2019 reached US$15,990 million, a sharp reversal compared to the deficit of US$3,823 million in the previous year. This result is a consequence of exports totaling US$65,115 million, 5.7% higher than the previous year. Exports of primary products increased by 25.1%, agricultural manufacturers, which represent 36.8% of total exports, grew by 4.5% while industrial exports fell by 6.8% and fuel and energy exports increased by 4.1%.
On the other hand, imports reached US$49,125 million in 2019, a 25.0% decrease compared to 2018. All categories of imports experienced decreases as a result the contraction of the economy and the impact of devaluation of the peso. The greatest decline was in passenger motor vehicles which decreased by 55.2%.
The current account deficit of the balance of payments amounted to US$3,631 million in 2019, 86.7% lower than the previous year. The external sector experienced a rapid adjustment accelerated by foreign exchange controls.
In the foreign exchange market, the peso depreciated by 58.4% in 2019, and the exchange rate reached 59.90 Ps./US$ as of December 30, 2019. The market experienced three main phases during the year. From the end of 2018 to April 2019, the Central Bank used exchange rate bands, allowing the exchange rate to fluctuate within certain limits, but foreign exchange was very volatile, the peso depreciated by 16%, and the exchange rate reached 44.01 Ps./US$. At the end of April the IMF and the BCRA agreed to allow a managed floating exchange rate, which allowed the Central Bank to freely intervene in order to mitigate the effect of volatile periods. During the three following months, from May to July, the peso fell 3.2% against the U.S. dollar to 45.40 Ps./US$. However, on August 12, 2019, the primary election result triggered a sell-off of Argentine assets, causing the peso to depreciate 31.9%.
International reserves were US$44,781 million as of the end of the year, a US$21,025 million decrease compared to the balance as of December 31, 2018, mainly due to payments on debt, intervention in the foreign exchange market and a decrease in banks legal required deposits due to the drain of deposits in U.S. dollars.
In 2019, the monetary policy regime was characterized by a stringent control of the monetary base and the definition of an exchange rate floating zone. This scheme was implemented in the context of a stand-by agreement with the IMF, coupled with an objective of fiscal consolidation. The aim of this plan was to stabilize inflation and reduce foreign exchange market pressures, after the sudden reversal of capital flows suffered by the country in 2018. The Central Bank set a target of 0% growth of the monetary base throughout the year (as adjusted to deal with seasonality issues and foreign exchange interventions).
During the first two months of 2019, this policy was successful in bringing down inflation and nominal volatility of the economy. But a new episode of foreign exchange volatility arose in March and April, contributing to a new acceleration of inflation. Against this backdrop, the BCRA tightened even more the monetary targets for the year (suspending the seasonal increases of monetary base pre-scheduled for June and December) and announced on April 29, 2019 that it would start to intervene directly in the foreign exchange market in the event of excessive volatility. These announcements stabilized the currency until the primary elections. The exchange rate started the year at 37.93 Ps./US$ and, after all the aforementioned events, it finally stood at 45.40 Ps./US$ on the last trading day before of the primary elections, August 9, 2019.
In the primary elections of August 11, 2019, President Macri was clearly defeated by Alberto Fernández, the candidate of the Frente de Todos party. The unexpectedly wide difference in favor of Fernández was perceived by the market as a very disruptive event, and the currency lost nearly 30% of its value in the following three days, from 45.40 Ps./US$ on Friday, August 9, 2019, to 58.83 Ps./US$ on Monday, August 12, 2019, in a context of high uncertainty about the future of the Argentine economy. The BCRA started to sell reserves to stop the declines. A week after the elections, the Minister of Finance, Nicolás Dujovne, resigned, and Hernán Lacunza succeeded him.
In the face of significant (and increasing) capital outflows and high short-term debt maturities due within the subsequent weeks, Minister Lacunza unilaterally reprofiled short-term treasury bills (US$ and peso-denominated), postponing the maturities of those securities for 180 days (except for those in the hands of individuals). That decision triggered an acceleration of capital outflows and foreign exchange deposits withdrawals from domestic Argentine banks. In this context, international reserves fell 18.4% (US$ 12.2 billion) between August 9 and August 30, 2019.
In order to deal with this situation, President Macri issued a decree (No. 619/2019) instructing the BCRA to implement foreign exchange restrictions, combined with the obligation for exporters to sell in the official market all the dollars derived from their exports. Thus, the monetary authority set a monthly limit of US$ 10,000 for foreign currency purchases without specific application (i.e., it set no limits for imports or debt repayments), among other measures, effective beginning September 1, 2019. These regulations helped to reduce capital outflows and foreign exchange volatility until the presidential elections on October 27, 2019.
However, international reserves continued falling, reaching US$ 43.5 billion on October 25, 2019 (from reserves of US$ 66.3 billion registered on August 9, 2019), as the foreign exchange deposit withdrawals went on at a fast as the government used nearly US$ 8.2 billion to meet debt obligations, and the BCRA kept selling dollars and buying pesos in the market to stop devaluation pressures (US$ 7.4 billion) during this time frame.
Alberto Fernández won the presidential elections on October 27, 2019, and the same night the BCRA reduced drastically the limit for foreign currency purchases. For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives. As a result, foreign exchange demand in the official market dwindled nearly to zero, while alternative and parallel exchange rates started to rise and gain relevance in terms of volume.
The new president assumed office on December 10, 2019. A week later, the government sent the Social Solidarity and Productive Reactivation Law to the Congress, which was passed on December 23 (Law Nº 27.541). Among other measures, by this law the government increased export taxes and levied a 30% tax on foreign exchange purchases for tourism, expenditures abroad, or without specific application. The other previously implemented foreign exchange restrictions remained unchanged.
The main monetary policy instrument throughout the year was the LELIQ, a BCRA security created to manage monetary conditions of the economy, and its interest rate was the key reference for the financial system. As the monetary policy was particularly stringent all year long, the LELIQ rate remained at high levels throughout the year, with an average annual rate of 65%. Alberto Fernández stated clearly his intention to prompt a fast and marked monetary easing during the first months of his term. During December 2019, the monetary policy rate was lowered from 63% to 55%, with a subsequent increase in the monetary base. The other interest rates of the economy have evolved consistent with the evolution of the LELIQ rate.
As a result of all these events, the monetary base grew by 29.7% in the year, with a marked difference between its evolution during the period from December 2018 to October 2019 (when the monetary base grew by only 3.7%) and its behavior from October to December 2019 (when it grew by 25%). The current account balances of banks at BCRA increased by 23.7% (as the BCRA reduced minimum liquidity requirements throughout the year), while the cash held by the public rose by 35%. The monetary aggregate M2 (which includes cash plus sight deposits), measured in balances, grew by 34.9% in 2019, in line with the behavior of the cash demand.
All comparisons of the financial system contained in this annual report on Form 20-F are presented in nominal terms.
The rise in interest rates, strong depreciation of the peso and economic uncertainty had an impact on the operation of the financial system throughout the year, especially after the primary election in August. Total deposits denominated in pesos grew 23.3% during 2019, while deposits held exclusively by the private sector increased by 35.3%.
Sight deposits grew 45.9% during 2019 while term deposits grew just 24.7%. Term deposits indexed by the benchmark stabilization coefficient/purchasing power unit (CER/UVA) increased 18.9% during 2019 in comparison with 24.8% for traditional terms deposits.
Dollar-denominated deposits fell 32.9% during 2019, with most of the declines after August 2019.
The loans growth performance in 2019, both for individuals and companies, was negatively impacted mainly due to high interest rates, the Central Bank tight monetary policy and high uncertainty. The stock of peso-denominated loans granted to the non-financial private sector grew by 18.3% in the year. Disbursements were led by credit cards which rose by 47.0%. Dollar-denominated loans fell by 32.5% in dollar terms; in line with U.S. dollar-denominated deposits.
The movement of lending and borrowing rates was highly influenced by the rise in the BCRA policy rate (Leliq rate) which was at 53.69% in January 2019 but reached almost 78.37% in September, before ending at 55.00% on December 30, 2019.
The Badlar interest rate (interest on deposits in excess of Ps.1 million) of private banks, stated in monthly averages, was 45.9% at the start of 2019 and rose to 59.85% in September, decelerating to 41.75% in December 2019.
A. History and development of the company
BBVA Argentina, an Argentine corporation (sociedad anónima or S.A.), was duly incorporated under the name Banco Francés del Río de la Plata S.A. on October 14, 1886. The Bank has registered its office in Avenida Córdoba 111 31st floor, C1054AAA, Ciudad Autónoma de Buenos Aires, Argentina; telephone number 54-11-4346-4000. The Banks agent in the United States for U.S. federal securities law purposes is CT Corporation System, currently with offices at 28 Liberty Street, New York, New York 10005.
BBVA Argentinas original by-laws were approved on November 20, 1886 by a decree recorded in the Public Registry of Commerce of the City of Buenos Aires, and the last amendment was recorded on October 17, 2019. Pursuant to its current corporate by-laws, the Bank will terminate its activities on December 31, 2080, unless this term is extended by the shareholders. On April 24, 2019, the ordinary and extraordinary general meeting of shareholders approved the change of the Banks corporate name to BBVA Argentina S.A. and the consequent amendment to the Bylaws to reflect the new corporate name. Notwithstanding the foregoing, in response to a BCRA requirement and based on the authorization granted by the shareholders meeting, the Board of Directors, at its meeting held on May 28, 2019, decided to adopt the denomination Banco BBVA Argentina S.A..
The Bank is supervised by the Central Bank of Argentina, an entity that establishes valuation and accounting criteria, the rules on liquidity and capital requirements as well as the reporting systems of Argentine financial institutions. It is also subject to inspections by the Central Bank, based on which it is assigned a rating. See Item 4. Information on the CompanyF. The Argentine Banking System and its Regulatory Framework.
On March 8, 2019, the respective boards of BBVA Argentina and BBVA Francés Valores S.A. approved the merger of the two companies, and on April 24, 2019, the respective shareholders meetings approved the transaction. Currently, the transaction is pending authorization by the Argentine Superintendence of Corporations (IGJ).
On March 26, 2019 Mr. Jorge Bledel presented, and the Board of Directors accepted, his resignation as member of the Board. The shareholders meeting held on April 24, 2019 elected Mrs. María Isabel Goiri Lartitegui to succeed Mr. Jorge Bledel, and she became the new chairwoman of the Board. Through Resolution No. 161 dated July 25, 2019, the BCRA declined to comment on the appointment of Ms. Goiri Lartitegui as chairwoman of the Board.
On April 24, 2019, the ordinary and extraordinary general meeting of shareholders approved the change of the Banks corporate name to BBVA Argentina S.A. and the consequent amendment to the Bylaws to reflect the new corporate name. Notwithstanding the foregoing, in response to a BCRA requirement and based on the authorization granted by the shareholders meeting, the Board of Directors, at its meeting held on May 28, 2019, decided to adopt the denomination Banco BBVA Argentina S.A.. The BCRA through resolution No. 166 dated July 25, 2019 made no remarks on said change of corporate name, which has been duly registered before the IGJ. In addition, in the aforementioned shareholders meeting amendments to sections 6 and 15 of the bylaws was approved. The revised bylaws were duly registered before the IGJ on October 17, 2019, under No. 21332 Book 97 of stock companies.
On July 10, 2013, BBVA Argentina and Consultatio S.A. signed a sale and purchase agreement, under which the Bank acquired 23 of the 33 floors of the building under construction by Consultatio S.A., which became the BBVA Tower. This was the largest corporate headquarters real estate development project in the Republic and was part of the plan designed in 2010 by the Bank to unify its core areas, which were divided among 10 buildings in the City of Buenos Aires.
The BBVA Tower is the image of leadership, innovation and excellence, and a clear evidence of the commitment of BBVA Argentina to its employees as well as to the Republic. It meets the highest sustainability standards and was awarded a LEED Gold Certification (Leadership in Energy & Environmental Design), recognizing that the building is environmentally sustainable and a healthy space to work in.
With more technology and new services which improve workplace quality in line with open space corporate layout, the tower provides spaces that allow working in areas without limits or offices dividing the employees. It promotes more fluid and transparent communication, team work and the exchange of knowledge and experiences.
In the last quarter of 2016 personnel began moving to the new headquarters, a process that was completed in April 2017.
As a result of the completion of the process, the Bank has decided to offer for sale certain buildings where its central offices were located. At the Board meeting of June 26, 2018, it was decided to accept a purchase offer for the properties located at Reconquista 40, Presidente Perón 362, Maipú 356 functional unit 16, Bolívar 501 and Mexico 628 functional unit 1, all within the Autonomous City of Buenos Aires. On July 5, 2018, the sale of these properties was finalized.
B. Business overview
BBVA Argentina is a subsidiary of Banco Bilbao Vizcaya Argentaria S.A., its main shareholder since 1996. In Argentina, it is one of the leading private financial institutions since 1886. Nationwide, BBVA Argentina offers retail and corporate banking to a broad customer base, including individuals, SMEs, and large companies.
BBVA Argentinas corporate purpose is to bring the age of opportunities to everyone, based on its customers real needs, providing the best solutions, and helping them make the best financial decisions through an easy and convenient experience. The institution relies on solid values: The customer comes first, we think big and we are one team. At the same time, its responsible banking model aspires to achieve a more inclusive and sustainable society.
The Bank was one of the first companies to be listed on the Buenos Aires Stock Exchange (now ByMA), quoting since 1888 (ticker: BBAR). It also has been listed on Mercado Abierto Electrónico (MAE) since 2018. Its shares in the form of American Depositary Shares (ADSs) have been listed on the New York Stock Exchange (NYSE) since 1993 (ticker: BBAR) and on the Madrid-based Mercado de Valores Latinoamericanos (LATIBEX) since December 1999 (ticker: XBBAR).
As of June 7, 2019, the BBVA Group adopted a globally standardized trademark, BBVA, in addition to a new company logo in line with the digital world. This new identity reflects the BBVA Groups values, especially We are one team, which emphasizes the importance of the people who work within the BBVA Group and their commitment to the BBVA project. In Argentina, the former BBVA Francés is now BBVA Argentina. The legal name has been changed to Banco BBVA Argentina S.A., which was approved by the BCRA on July 25, 2019. Following this new brand identity, the Banks symbol on NYSE, MAE and ByMA exchanges were changed to BBAR, and on LATIBEX it was changed to XBBAR.
As of December 31, 2019, the Bank had total consolidated assets of Ps.454.2 billion, of which Ps.195.1 billion were the total loan portfolio. Regarding liabilities, the Bank had consolidated total liabilities of Ps.369.8 billion, of which Ps.294.0 billion were total deposits. Total shareholders equity was Ps.82.8 billion, on a consolidated basis. Consolidated net income for the year ended December 31, 2019, was Ps.16.0 billion and consolidated net loss for the year ended December 31, 2018 was Ps.2.3 billion.
As of December 31, 2019, BBVA Argentina is the fourth largest privately owned bank in Argentina in terms of private loans, with 6.1% of total banking system loans on an unconsolidated basis, and 7.7% of total banking system loans on a consolidated basis. Market share as of December 31, 2019 for retail loans (including personal, mortgage, credit card and pledge-loans) was 7.5% on an unconsolidated basis and 8.6% on a consolidated basis. For commercial loans (including discounted documents, overdrafts and other loans) market share as of December 31, 2019 was 6.3% on an unconsolidated basis 6.7% on a consolidated basis. As of December 31, 2019, BBVA Argentina is the third largest local, private bank in Argentina in terms of private deposits, with a 7.2% market share of total banking system deposits.
As presented in this annual report on Form 20-F, market share data is based on data published by the Central Bank which has not been inflation adjusted. As such, certain information presented in this annual report as adjusted for inflation may not be directly comparable to information published by the Central Bank.
Through its universal banking platform, the Bank provides a broad range of financial and non-financial services both to individuals and companies throughout Argentina, going across all segments of the population, including retail and commercial banking, insurance, asset management, securities brokerage, and investment banking products and services. BBVA Argentina believes the wide range of financial solutions offered to its customers, complemented by unique strategic alliances and partners, as well as the capacity to leverage the BBVA Groups global expertise, relationships and technological platform, gives it a significant competitive edge compared to other Argentine companies in the financial sector. Such competitive advantages place it in a privileged position to capture opportunities and capitalize on the potential consolidation of a fragmented banking sector.
The Bank manages the following entity-wide business lines:
Retail banking, through which it offers financial services to individuals across all income segments. The Banks main retail banking products include checking and savings accounts, time deposits, credit cards, personal and secured loans (primarily automobile loans), mortgages, insurance and investment products. Despite the Banks historically strong presence within the middle-income and affluent segments of the population, its products and distribution channels are designed to attract clients across all client segments. As of December 31, 2019, there were approximately 2.6 million active retail banking clients, compared with 2.5 million active retail banking clients as of December 31, 2018. The Banks retail banking strategy is focused on growing the client base, expanding its product and services offered, particularly in underdeveloped products (such as mortgages) and products where it sees potential increase in market share (such as personal loans), apart from leveraging its technological platform to enhance clients banking experience. The Banks market share for personal and mortgage loans as of December 31, 2019, was 5.0% and 3.2% respectively. In terms of secured loans, the Banks market share was 1.1% on an unconsolidated basis and 14.5% on a consolidated basis. In terms of credit card loans, the Banks market share was 12.2% and 15.4% for financing and consumption, respectively. As of December 31, 2019, 2018 and 2017, we had total loans and advances of Ps.109.5 billion, Ps.118.4 billion and Ps.123.8 billion, respectively, and total deposits of Ps.201.3 billion, Ps.277.8 billion and Ps.248.0 billion, respectively.
Small and medium-sized companies (SMEs) through which the Bank offers financial services primarily to local private-sector companies. The Banks main SME products include financing products, factoring, checking accounts, time deposits, transactional and payroll services, insurance and investment products. As of December 31, 2019, the Bank had more than 58 thousand SME clients. Small and medium-sized companies are a key element for economic growth in Argentina, and the Bank is focused on expanding the number of clients it serves and on being a strategic ally to its SME clients, supporting them with tailored products and transactional solutions, as well as with differentiated customer support through its 251 branches. As of December 31, 2019, 2018 and 2017, we had total loans and advances of Ps.47.0 billion, Ps.80.7 billion and Ps.97.6 billion, respectively, and total deposits of Ps.68.2 billion, Ps.75.7 billion and Ps.71.6 billion for the same periods, respectively.
Corporate and investment banking (CIB), through which the Bank offers financial services to some of the largest Argentine corporations and multinational companies operating in Argentina. Corporate banking is divided by industry sector: consumers, heavy industries, and energy, providing customized services to large companies. In addition to the products offered to SME company clients, corporate and investment banking clients are provided with global transaction services, global markets solutions such as risk management and securities brokerage, long term financing products including project finance and syndicated loans, and corporate finance services including mergers and acquisitions and capital markets advisory services. As of December 31, 2019, the Bank had more than 700 corporate banking clients, which included substantially all of the largest corporates and multinational companies in Argentina. Within the CIB business line, the Bank is focused on leveraging the deep expertise of its industry-focused relationship executives, supported by the BBVA Groups global network, to continue to provide bespoke global financial solutions to its corporate client base. BBVA Argentina is focused on being a trusted partner for its corporate clients as they seek to finance investment opportunities, particularly within certain sectors of the economy where investment has lagged such as telecommunications, energy and infrastructure. As of December 31, 2019, 2018 and 2017, we had total loans and advances of Ps.38.6 billion, Ps.80.3 billion and Ps.69.4 billion, respectively, and total deposits of Ps.24.5 billion, Ps.45.6 billion and Ps.30.0 billion for the same periods, respectively.
BBVA Argentina offers its products and services through a wide multiple-channel distribution network with presence in all the Argentine provinces and in the City of Buenos Aires, servicing 2.7 million active clients as of December 31, 2019. This network includes 251 branches, which provide services to the retail segment and to small and medium-sized companies, corporations and institutions. Complementing the distribution network, as of December 31, 2019 there were 15 in-company branches, six points of sales (contact points that only offer automated services and sales support, but have no approval by the BCRA to operate as a branch), two points of express support (branches without in-person customer service), 887 ATMs and 862 self-service terminals (SSTs, (terminals that allow transactions without the need of a personal code or ID number). As of December 31, 2018, the Bank had 252 branches, 18 in-company branches, 7 points of sales, one point of express support, 845 ATMs and 797 SSTs.
Additionally, BBVA Argentina provides an electronic banking service, a modern, secure and functional internet banking platform (bbva.com.ar) and mobile banking apps such as BBVA Móvil and Go. As of December 31, 2019, the Bank had 1.7 million active digital clients and 1.4 million mobile clients. The Bank (including subsidiaries) had a total number of 6,321 employees as of December 31, 2019 compared to 6,104 employees as of December 31, 2018.
The distribution network is complemented by commercial alliances and distribution channels. Commercial alliances include Lan Argentina S.A. (LATAM Airlines), MOVE Concerts Argentina S.A. (MOVE), Oymyakon S.A. (PopArt) and Medios y Contenidos Producciones S.A. (RGB Entertainment), the last three within the entertainment sector. Distribution channels include credit card programs with Club Atlético River Plate Asociación Civil and Club Atlético Boca Juniors Asociación Civil, Argentine soccer clubs, Ritenere S.A. (La Caja Seguros) within the insurance sector, as well as the agreements with automobile companies Peugeot Citroen, Renault and Volkswagen. All of them have allowed the Bank to expand its client reach cost-effectively, and further expand its points of presence while enhancing its value proposition.
BBVA Argentina has invested in its physical and digital distribution network, making it possible to offer a differential, flexible, convenient banking experience to its customers. In addition, the Bank considers that with the existing distribution structure, it has the necessary reach and scale to facilitate expected growth while improving its operating efficiency, number of customers and products. The following table sets forth information regarding our footprint by province as of December 31, 2019:
|Points of Express||In-Company|
|Branches||Support||ATMs||SSTs||Points of Sale||Banks|
Ciudad Autónoma de Buenos Aires
Santiago del Estero
Tierra del Fuego
BBVA Argentina has identified transformation and growth as the drivers of its strategy.
BBVA Argentina focuses on transformation based on the conviction that client experience will be the decisive differentiating factor in the success of the Bank in the coming years. Moreover, the financial intermediation activity is aligned with the technological revolution reshaping most industries, forcing the Bank to reconsider and redesign the model to service, attract and interact with customers in general.
The following describes the Banks primary transformative initiatives in 2019:
The Banks digital transformation began in 2015 with an expanded digital presence in Google and Facebook. In the 2017-2019 period the Banks digital strategy became more sophisticated by adding leading digital applications and focusing on excellence in user experience and digital sales solutions, thus supplementing the Banks traditional channels to become more productive and increase the number of clients.
BBVA Argentina believes that this transformation distinguishes it from its competitors in terms of quality of service, while seeking to leverage data and technology to design product and service offerings that meet customer needs.
The Banks digital transformation strategy is primarily focused on increasing client self-service through digital tools, growing in an open market and improving points of physical contact with clients. BBVA Argentina has been focused on developing an omni-channel service model, in which physical branches are just one way among many of connecting with clients. While the Bank has an extensive countrywide branch network present in all provinces, the role of branches is changing and is expected to continue to change. More and more value-added transactions are expected to be served personally, while other types of transactions will be increasingly undertaken through digital channels.
In sum, the Banks digital transformation process is an essential element of its strategy, from both business and growth perspectives, which enables it to connect and serve clients in a manner consistent with their expectations, as reflected in the Banks consistently high NPS (Net Promoter Score). It also contributes to the Banks efficiency, paving the way for a better use of resources and delivering a competitive advantage.
In 2019 the Bank undertook a cultural transformation under the name and concept of agile, with a focus on always putting the customer first and finding solutions to their needs. Under this new model the Bank implemented a new organizational structure, providing greater resources to teams and new working methodologies including reorganization of roles and tasks, open communication and synergies fostered by open plan workspaces, and the latest technology available.
In 2019 BBVA Argentina reaffirmed its goal to increase its market share and is now one of the leading banks in the Argentine financial system. The Bank has implemented an ambitious growth plan which includes the expansion of the customer base, both for individuals and companies, as well as expanding the size of its balance sheet. This growth plan, which was implemented by BBVA Argentina beginning in 2017, continued during 2019 in terms of client base expansion, with an increase of over 137 thousand active clients during 2019, reaching an aggregate of 2.6 million retail clients as of December 31, 2019. With respect to small and medium-sized companies, BBVA Argentina reorganized the management model for this client segment, providing service to small and medium-sized companies throughout the entire branch network, thus enabling greater penetration of and approach to smaller companies, achieving a client base of approximately 48 thousand companies as of December 31, 2019.
BBVA Argentina closed its fiscal year ended December 31, 2019 as one of the leading financial institutions in the Argentine financial system.
The total loan portfolio of BBVA Argentina amounted to Ps.195.1 billion as of December 31, 2019, which reflected a 30.1% decrease year-on-year, while private loans amounted to Ps.190.0 billion, decreasing 28.2% year-on-year. As a result, the Bank had a private loans consolidated market share of 6.9% as of December 31, 2019 (based on BCRA market information).
The Banks growth plan has focused on products and segments that the Bank considers vital for economic development of both customers and Argentina as a whole in the coming years. Loans decreased by 30.1% from December 31, 2018 to December 31, 2019, with the Banks market share falling from 7.7% as of December 31, 2018 to 6.9% as of December 31, 2019, a decrease of 76 bps (based on BCRA market information).
BBVA Argentina has been focused on attempting to gain market share for its core products in a recessionary and volatile economic environment. It increased its share in the credit card business, both in financing and consumption, which were 12.2% and 15.4%, respectively, increasing 128 bps and 139 bps, respectively, from December 31, 2018 to December 31, 2019. In the retail business there was a decrease in personal loans market share, which was 5.0% as of December 31, 2019, a decrease of 29 bps compared to its market share as of December 31, 2018 (based on BCRA market information). In addition, the market share for commercial loans decreased 300 bps over the same period (based on BCRA market information).
With respect to liabilities, as of December 31, 2019 total deposits amounted to Ps.294.0 billion, decreasing 26.4% over the prior twelve months, over which period our sight account deposits (checking and savings accounts) fell 22.6%, whereas time deposits decreased 34.7%. As of December 31, 2019, saving and checking accounts amounted to Ps.201.8 billion. The Banks market share for private sector deposits decreased 86 bps reaching 7.1% as of December 31, 2019 (based on BCRA market information).
The Bank considers funding from deposits as a vital component in its financing given the lack of depth of the Argentine capital markets and difficulties of Argentine companies in accessing international capital markets, especially in the retail and middle market segments.
On December 12, 2019, BBVA Argentina issued Class 28 of its floating rate corporate bonds for Ps.1,967 million (nominal value). These bonds have a maturity of six months after issuance and pay quarterly coupons at a floating rate of Private BADLAR+4%.
Below is an overview of each of our principal business lines and their evolution during 2019.
In 2019, Retail Banking focused on the following products:
BBVA Argentina has continued offering a broad range of products across all sales channels, and has taken strategic pricing actions during the year, which yielded good spreads.
As of December 31, 2019, BBVA Argentina had a total market share of 5.0%, a decrease of 30 b.p. compared to December 31, 2018 (based on BCRA market information).
The Bank has maintained its product communication campaign in the media and has continued to grow in web and mobile placement, with digital sales accounting for 61% of total sales during 2019.
During 2019, the Bank reinforced the several business alliances it has built through the real estate channel, and its relationships with various developers and search portals.
The mortgage market during 2019 was affected by the overall situation of the real estate market, which has continued displaying a declining trend. As of December 31, 2019, BBVA Argentina accounted for 3.15% of the total market, a decrease of 21 b.p. compared to 3.36% as of December 31, 2018.
Despite 2019 not being favorable for the car industry, the Bank has advanced several business opportunities:
Development of its motorcycle financing business. During 2019, more than 50% of the transactions of this product segment came from BBVA Argentinas alliances with motorcycle companies.
During 2019, the Bank has digitalized the operation of secured loans, making significant progress to deploy the migration to digitally-signed forms and secured loans during 2020, which will eliminate a substantial amount of paper, and reduce the need for handling and filing paper-based documents.
At year-end, BBVA Argentina and its affiliates recorded a 43% share in origination of secured loans to buy new vehicles for personal use, and accounted for 14.48% of the total market share in pesos, including second-hand, utility, agricultural, and heavy vehicles.
The Bank has also expanded the scope of its business with PSA. In this regard, PSA Finance endeavored to develop the wholesale financing business for the brands Peugeot Citroën Ds (sales from car manufacturers to dealers) from PSA, with an ambitious financial plan.
Sponsorships: The Bank continued with its sponsorship agreements in the form of alliances with Move Concerts, RGB and Popart (entertainment production companies).
AlliancesBBVA Go: BBVA Argentina keeps developing its reward platform, including the major spending categories, by advertising discounts and installment plans, both for customers and non-customers. BBVA GO kicked off its new brand, reaching 1.1 million downloads in 2019, with a monthly average activity level of nine sessions per user and a NPS of 61%.
LATAM Pass: During 2019, the Bank completed promotional campaigns to redeem miles for air tickets and catalog products. Beginning in 2019, customers could check their mile balance through homebanking and BBVA GO. BBVA Argentinas customers could also buy miles, obtaining a 50% discount off the full price. Premium and Premium World customers enjoy additional benefits in point accrual, access to VIP lounges, and cabin upgrades.
Merchant Acquisition: The Bank has continued offering the LATAM Pass program and the Credit Card Spot Payment program for merchants processing their credit card transactions with BBVA Argentina, and has developed new channels for this product.
During 2019, the Bank remained focused on the goal stated in 2018 of increasing its customer base within the Classic and High-income segments, by means of a multi-channel strategy, including in-branch account executives, private banking, BBVA Investments, Remote or Direct Account Executives, and the web and mobile channels.
The Bank launched new products, such as the On-line Time Deposit for non-customers.
Significant progress was made in digitizing Time Deposit customers (more than 65% of certificates of deposits are digital at the end of 2019.
Small and Medium-sized Companies
In 2019, improvements were made in all processes, in line with the development of the market and the needs of SME Banking customers.
Customer acquisition: The Bank increased the number of new customers by 200% in 2019 compared with the previous year, and by 330% compared with 2017, while enhancing the workflows and response time to open up checking accounts by digital means.
Self-service: The Bank has continued with its endeavors to develop digital tools, delivering an offering of lending, borrowing and transactional products and services, with utilization levels in excess of 70% in some cases.
Market share: With specific focus on short-term lending products, during 2019 the Bank led the market share in assignment of checks between public and private banks, leveraging a strategy based on rates which remain stable and competitive, in spite of the economic conditions prevailing during the year, as well as digital tools (web-based and App).
The Bank has continued enhancing its penetration in the smallest SME customer segment. These customers rely on a fewer number of banks and appreciate service quality which, in the case of BBVA Argentina, has been highly regarded by the market.
During 2019, the Bank incorporated more than 68,000 new payroll direct deposits, including approximately 58,000 active customers, having gained more than 19,000 net customers.
In 2019, small and medium-sized companies banking focused on the following products:
Exports in 2019 rose by 9.4% year-on-year, while imports declined by 21.9%.
Furthermore, effective since September 1, 2019, the Argentine Central Bank enacted regulations governing the foreign exchange market, introducing certain amendments and revisions through Communication A 6844.
Among other things, the Argentine Central Bank reinstated the obligation of repatriating foreign currency from exports, services, and disposal of non-financial non-produced assets. The Argentine Central Bank also amended the Import Payment Monitoring System (SEPAIMPO), and the guidelines concerning the trading of foreign currency from the export of goods (SECOEXPO), and advance payments and other financing for exports of goods.
For individuals, the Argentine Central Bank established a maximum limit of US$200 for the purchase of foreign currency per calendar month across all entities authorized to trade in foreign exchange, as well as for purposes of formation of foreign assets, family assistance remittances, and transactions with derivatives.
Some key milestones:
For ten consecutive quarters, BBVA Argentina has maintained its leadership position in the Argentine Central Banks ranking of Financial Institutions engaged in Import Payments, with a 22.4% share as of December 31, 2019.
BBVA Argentina has ranked second in the Argentine Central Banks Ranking of Financial Institutions engaged in Export Collections, with a 14.2% share as of December 31, 2019.
During 2019, the Bank added 684 active customers. Considering all segments, the year commenced with 6,814 active customers and ended with 7,498.
During 2019, the use of the BBVA Cash platform reached 77%. Given the regulatory changes, the usage rate during December declined to 63%.
The US-dollar portfolio experienced a strong decline, due to the prevailing economic conditions, totaling US$352 million as of December 31, 2019.
The portfolio in pesos grew considerably, totaling Ps.2,594 million as of December 31, 2019.
New digital products to be implemented:
Payment Orders on BBVA Netcash
New functionalities on Cash
To keep growing our customer base, digitizing and empowering our business in 2020, the Bank took the following actions:
Implemented the Second Stage of the product Transfers Abroad by Individuals on BBVA Netcash.
Adapted interest rates for certain types of customers based on their customer profiles and the types of products used.
Implemented plans to continue shortening the approval times for assigning new or changing existing ratings.
Made plans to deploy GPI Swift in February 2020 and expects to make available information to customers for them to be able to follow up on their collections and payments in 2020.
In light of the recently enacted foreign exchange regulations, began developing new functionalities on cash to give ongoing support to customer digitization and self-service.
Began work in line with the Cash Management global program,
Increased presence in the provinces,
Conducted training workshops addressed to customers to keep them abreast of the changes in foreign exchange regulations,
Launched marketing campaigns / actions with performance follow-up.
Primary production in 2019 improved compared to the previous year, which year was negatively impacted by the drought.
The 2018/2019 harvest yielded a total of 142 million tons of grains, accounting for a 46% increase compared to the yield from the previous harvest.
The incremental production volumes from the Argentine agro-export sector, which is the major foreign-currency generating sector, had a positive impact on exports in terms of volume, primarily due to the local currency depreciation.
Export duties on the main agricultural and livestock products (meat, milk, corn, wheat, sunflower, and soya-derivatives) were reinstated at year-end.
As concerns business development, efforts were focused on growing the customer base, with more than 500 new customers added during the year.
During the second half of the year, the Argentine government imposed foreign exchange restrictions and controls, which resulted in a strong decline in US-dollar denominated loans.
SMEs and Businesses
In July 2019, BBVA Argentina initiated a customer re-segmentation, recognition and allocation process, which involved developing tools to increase the Banks penetration among smaller customers (merchants and businesses), with simple and readily available products, with good results among limited partnerships.
In an effort to improve customer service and boost the business, the Bank took the following actions:
Provided ongoing basic training program for commercial agents and candidates.
Conducted a training program addressed to all branch managers and back-office managers.
Delegated credit decision-making power to managers to shorten response times and implementation of an incentive plan focused on goal achievement.
Increased the penetration of digital products across all segments.
Introduced the pilot budgeting program per customer in borrowing, transactional, and payroll deposit products.
Conducted business tour events to keep the Banks customers and commercial agents updated countrywide.
The year 2019 was a very good one for BBVA Argentina in terms of placement of transactional products and traded volumes, as well as in terms of demand deposits under management.
As of December 31, 2019, major transactional productsPayroll Deposits, Collections, Payments to Suppliers, Direct Debit, and Merchant Acquisitiontotaled Ps. 192,900 million, a 59% increase year-on-year.
The Bank also improved its market share in transactional demand deposits, reaching a 7.1% share as of December 31, 2019, or a 59 bps increase year-on-year.
Similarly, the Bank had a good performance in tax collections, ascending to second place in the ranking of tax payments, with over Ps. 67,000 million as of December 31, 2019.
Looking to strengthen its position among the leading banks in the transactional business, in 2020 the Bank expects to continue to focus on the treasury operations of its transactional banking customers, by developing more products targeted at the full value chain, with strong emphasis on digital channels, seeking to enhance the users experience. The Bank will continue embracing innovation in digital channels, customer connectivity, and entirely on line banking.
Corporate & Investment Banking (CIB)
The goals of CIB Argentina include:
Being recognized among Corporate Banking leaders in Argentina
Becoming a leader in Investment Banking
Optimizing capital allocation
Becoming a strategic partner to customers
Increasing profit margins from cross-sales
Improving financial ratios
Compliance with our strategic goals has been paramount, for we believe that attaining them leads to further business consolidation, process efficiency, and long-term relationships with the customer portfolio.
CIB has a highly qualified commercial team in place, which has been leveraging and consummating relevant opportunities in the Argentine market. To meet this goal, anticipation, design, and execution of business plans were of the essence. Some of the most relevant services include: BBVA Net Cash platform (including foreign exchange (FX) trading), Liability Management, and Debt Capital Markets.
Bringing the opportunities of this new era to corporate customers was the greatest challenge of 2019. As facilitators of new tools and equipped with the required know-how, the Bank offered opportunities for improvement and growth to both internal and the external customers.
The main customers of CIB are classified into the following categories:
Local Corporations: Large/medium-sized companies, covering their local needs for banking products.
Global Businesses: Large companies with multiple geographies and/or multiple currencies.
Institutional Customers and Governments: Pension funds, insurance companies, banks, regulated global institutions, covering their needs for sophisticated investments and break-even management.
Within this array of customers, CIB offers a broad variety of financial services and products, with presence in several countries worldwide.
The following describes the four main business areas within CIB.
This area offers lending solutions across the entire value chain, including advice, structuring and financing, with a broad product offering.
The area is divided into:
Concerning financing activities, volumes rose to Ps.13.8 billion during 2019, accounting for a 62% increase compared with the previous year. Such increase is attributable to the revaluation of loans in US dollars. During 2019 commissions increased 20% year-on-year.
Global Transaction Banking
Through its Front Office, this area offers businesses working capital management services by means of several financing instruments, both in Pesos and in US dollars. It also offers several cash management and transactional products, by means of multiple channels, including: Transactional platform, including Electronic Banking (BBVA Net Cash), H2H, Direct Channels, SWIFT, and Mobile Banking.
The transactional banking global team has an extensive network of experts and a specialized customer service team which supports customers across all phases of their products and service needs.
Global Transaction Banking (GTB) is divided into:
Trade Finance and Correspondent Banks
During the year, the activities were primarily focused on strengthening Global Transaction Banking as a leader in customer financing, both in Pesos and in US dollars.
Volumes under management rose to Ps.36.9 billion as of December 31, 2019, accounting for a 3% increase relative to the previous year.
The area is in charge of delivering services related to origination, structuring, distribution and risk management associated with market products.
The area is divided into:
CreditDebt Capital Markets (DCM)
Due to the high foreign exchange volatility and high inflation rates, Gross Margin experienced a 172% increase in 2019 compared with the previous year.
Amidst this highly volatile scenario, FX Spot and Derivatives operations performed well, in terms of generation of results by the franchise, and also in terms of leveraging.
The main activities of this area include:
Capital Markets (ECM): The area is in charge of meeting customers needs related to the equity capital markets, with special focus on developing customized solutions. Services range from initial public offerings (IPOs), capital increases with and without subscription rights, accelerated placements, convertible bonds, flexible dividends, treasury shares, and public offerings for the withdrawal of outstanding shares (OPAs).
Advisory Services and M&A: The area is in charge of giving advice on mergers, acquisitions and divestitures, both for listed and privately-owned companies, to help achieve their strategic goals. The area also provides other services, including private equity raising (financial or strategic partners), valuation and fairness reports, and advice on acquisitions and privatizations.
The following table sets forth the relative proportions of loans and advances (net of allowance for loan losses) and deposits attributable to our principal business lines during the last two years.
|Financial assets at amortized cost - Loans and advances|
|December 31, 2019||December 31, 2018|
|(in thousands of pesos, except percentages)|
Small and medium-sized companies
|Financial liabilities at amortized cost - Deposits|
|December 31, 2019||December 31, 2018|
|(in thousands of pesos, except percentages)|
Small and medium-sized companies
Our service model is guided by the BBVA Groups values: The Customer First, Thinking Big, and We are a Single Team. Therefore, the Bank is striving to (i) deliver the best possible customer service; (ii) offer the best solutions; and (iii) innovate in how to do things.
The Bank also encourages its customers to use the new technologies and formats available to do their banking transactions.
BBVA Argentina has a multi-channel strategy focused on the users experience, embracing the best practices for each contact channel, and innovation by implementing emerging technologies for each area, as they become available.
On the one hand, BBVA Argentina has a brick-and-mortar structure, including branches, a call center, and a network of automatic channels (ATMs and ATSs). On the other hand, BBVA Argentina has digital channels, including web and mobile, which are supplemented by exclusive strategic partnerships and alliances to offer its value proposition to a larger number of interested parties.
The Bank continues delivering on a commercial strategy based on a full-service concept across all segments, through multi-tasking managers, capable of meeting Individual and Corporate customers needs, strengthening customized service at each branch for transactions that require specific documents and controls.
Individuals are segmented, and managed with an emphasis on Digital Banking, streamlining management tools.
Premium: High-income individual customers, with customized service. Premium customers are served at branches which have dedicated spaces where Premium World or Premium Account Executives deliver the highest quality service, following service and customer management guidelines with clear follow-up. During 2019, BBVA Argentina expanded and consolidated the Direct Service model. This model is used for the remote management of customers with highly digital operations, who have advisory and on-line management needs. Management channels include e-mail, chat and telephone. Nearly 100,000 customers are already part of this model, receiving customized service from 120 Premium and Premium World Account Executives. The relationship, growth and retention of customers within this segment are among the Banks top priorities.
Other Individuals: Individual customers not included in the previous segment. These customers are handled by business officers at the branches, primarily through automatic channels or over the phone, where most transactions can be completed. The development of assessment, proposal and offering models, and the development of new functionalities in the channels, are key to the satisfaction of this customer segment.
Businesses: This segment is handled by using a model based on regional Business Centers, with account executives who take care of Businesses and SMEs portfolios.
Dynamic Management: In 2019, the Bank made progress with developments that help simplify processes in order for account executives to be able to focus on commercial activities.
Digitization: The Bank focused on enlarging the digital product offering for customer self-service, by introducing new services in non-banking networks, and digital acquisition of new customers.
Looking to 2020, the Bank is starting to lay the groundwork for a new service model, based on customized management for companies at Business Centers and service for entrepreneurs and SMEs at all branches, with special emphasis on closeness and comprehensive advice to each customer.
In 2019, the Bank started to work on the new productivity model to streamline all other activities with this vision.
Massive Salesforce: Insisting on improving channel performance through productivity plans, the Bank has continued fine tuning incentive models, processes, and the value proposition. This team was engaged in offering products such as Merchant Acquisition to individuals developing business activities or SMEs.
Call Center: A cross-selling and customer acquisition channel, through specific campaigns. With customer propensity and analysis models, the Bank has continued making improvements to the channel performance. The retention area was also consolidated through its value proposition and service processes.
Partners and Business Alliances: These are boosters of the Banks strategy of attraction of and connection with clients, enabling the Bank to reach eligible prospective clients for each product. Follow-up on each of these initiatives is essential to tailor offers to clients needs and satisfaction.
The network service model is reinforced with servicing improvements, which seeks, as one of its goals, to foster customers self-service by developing multiple channels.
This involves working on digitization, process streamlining, and transactional migration to alternative channels. During 2019, more than 113,000 cashier window transactions are estimated to have been migrated to several electronic channels and Non-banking Correspondents. In turn, improvements were made in waiting time at cashiers across the several segments, and a leading NPS (Net Promoter Score) for customers experience in branches. The Net Promoter Score is a management tool that can be used to gauge the loyalty of the customer.
In summary, below is a description of the progress made in 2019 in respect of the main action lines:
ATM/ATS Replacement and Growth Plan: 176 new units were installed, including growth and replacements
ATS Plus, which allows customers to insert 160 banknotes per transaction: 96 modules were installed. The Bank achieved the goal of having at least one ATM/ATS deployed at each branch.
ATS Availability Plan.
ATM Availability Plan.
Payments and deposits on Saturdays, Sundays and Holidays from 7 am to 10 pm were enabled at ATSs, with 127 units deployed at 36 branches.
Full Time Lobby: 138 deployed in branches.
ATM & ATS balancing and maintenance, using cameras as dual check.
BBVA Express: replacement of 200 units.
Standardized service model: Ten Kiosks were deployed. This model is in place at 88% of the network, that is, at 221 branches.
The Bank made further progress with the plan to migrate cashier transactions to Web channels and the App, reducing by more than 50% the number of foreign exchange trading transactions completed at cashier windows.
Debit card withdrawal limits were increased across all segments, reducing by 20% the number of cash withdrawals and low-to-medium value deposits at cashier windows, while maintaining ATM and ATS availability levels.
BBVA Line: 79% of incoming calls to BBVAs line where automatically handled using IVR options.
One of the BBVA Groups goals, globally and also in Argentina, remains fostering digital transactions. Therefore, the Bank continues to encourage its customers to shift to digital channels for their banking business, so as to receive better service and have an improved experience in the use of their products. The Bank continues working on the same lines of actions it has been pursuing: customer acquisition, excellence in users experience, and digital sales solutions.
In Customer Acquisition, the Banks focus is still placed on increasing the incentives and processes for digital channels to be key players in achieving this goal. Referral campaigns are no longer addressed to product bundles, but now also include payroll products. Proactive or reactive product sales processes are streamlined in an attempt to enhance customer experience as well as information disclosure and transparency during the purchase process, seeking an increasingly broader digital experience.
As concerns Experience, during the second half of 2019, BBVA Argentina maintained the first position in the Web Channel NPS within its peer group, reaching 57%, representing a 56% increase compared with 2018 and a 54% increase compared to 2017. In this same line, one of the Banks main challenges remains offering the best availability in the market in terms of web and mobile browsing. Therefore, leveraging the technology tools that provide the most suitable solutions, the Bank will keep trying to improve its own parameters year after year. The Bank has also continued encouraging and approaching users, through digital advertising or face-to-face channels, who may be interested in using the Banks digital channels, and still have not done so, or have not tried certain functionalities.
As a result of all these changes, BBVA Argentina increased the number of digital customers that operate both on the web and the mobile channels, with a 66% share in the total active customer portfolio, improving from the 59.4% of the active customer portfolio which used these channels in 2018.
The following list of achievements summarize the development of Digital Banking among the individual group of customers:
Onboarding of Payroll Customers to the Referrals proposal, with great success among new customers.
Possibility of becoming a Payroll Customer at Home Banking and through the public website, and kickoff of a new Payroll Advance product which can only be contracted online.
Adjusted credit risk available for customers, to increase their limits and engagement in digital transactions.
New sales process for non-customers to improve their experience and make it increasingly digital.
The Bank modified its public website in line with the BBVA corporate model, and also made changes to all aspects concerning the change of brand. Besides, the Bank has continued with its efforts to improve the experience both payroll customers and bundles.
Mobile phone insurance purchase through mobile banking, offering an enhanced experience.
More alternatives for transaction referrals from brick-and-mortar to digital channels, enabling integration across them.
These deployments translated into:
A substantial increase in the number of credit cards and product bundles sold by digital channels, now also including payrolls.
An increase in the share of digital personal loans (including UVA-linked loans) in the total lending portfolio.
Improvements in the ratio of Retail Customers Investments in digital channels.
In 2019, Digital Marketing remained focus on gaining new customers, through referrals campaign and digital acquisition processes on the public website.
Below is a detail of the results and improvements achieved in 2019 by product:
Personal Loans: 63% share in personal bankings total lending portfolio, representing increases of 48% and 33% compared to 2018 and 2017, respectively.
Credit Cards: Sales of main credit cards accounted for 42% of total sales in 2019, an increase of 36% compared with 2018, while sales of additional credit cards accounted for 19% of total sales in 2019.
Investments: 65% of time deposit sales were originated via digital channels, accounting for a 53% increase compared with 2018. As for mutual funds, 98% of subscriptions were digital in 2019.
Savings Accounts: Leveraging the enhanced value proposition in new customer acquisition, the share of savings accounts rose to 62% in 2019, up from 46% in 2018.
Insurance: the share of digital insurance sales was 18% over total sales in 2019.
In addition to the new developments and functionalities, the Bank also significantly increased program advertising in the media, with an improved value proposition for users and customers (offering more raffles and vouchers during the year).
Quality and Client Experience
In 2019 BBVA Argentina has continued working in line with BBVA Groups purpose of bringing the opportunities of this new era to everyone, consistent with its strategic priority of delivering the best customer experience, expanding the scope of the Customer Experience vision, focused on needs of the People-Customers.
The Bank, leveraging a powerful feedback infrastructure and the NPS as indicator of excellence and ongoing improvement, has developed a plan to learn about the customers experience at each point of contact with BBVA Argentina and with each product or service acquired.
The plan is based on information on customers main needs at each interaction with the Bank, with a strategy targeted at the execution of the most impactful projects and processes, based on arrangements that help ensure the permanence and sustainability of a culture oriented to enhance customers experience, by building a unique experience for all of the Banks Customers.
One of the key pillars to achieve differentiation is understanding peoples needs when designing products and services that keep up to their expectations. Offering innovative solutions leads to a genuine transformation, now and in the future.
Therefore, the Quality and Customers Experience Plan for 2020 encompasses designing a governance model that will generate specific improvement actions for points identified as a priority in customers interactions, exploring new manners to listen to the customers voice, beyond the NPS surveys, with the engagement of the entire organization.
Our information technology, or IT, area is responsible for our systems operation and availability as well as data security and integrity. Our main data center and our disaster recovery and back-up center are located in Buenos Aires, Argentina. Our modern technology platform is interconnected with the platform of the BBVA Group, which enables us to provide seamless coverage to our customers.
We have made significant investments in technology, and we plan to continue doing so to enable us to retain and enhance our competitive position in various markets and to improve the security and quality of our services.
Our operational platform efficiently combines our modern business-oriented IT systems with our multichannel distribution strategy, resulting in innovative ways to serve our clients. We have well-developed CRM tools that allow us to monitor our clients behavior and provide them with targeted product offerings through diverse channels. As a result, we are able to effectively leverage alternative distribution channels, such as ATMs, internet banking and our contact centers, which are complementary to our traditional proprietary branch network, which enables us to provide better service to our clients and to increase our sales ratios.
We have implemented multiple controls to respond to the new threat of cybersecurity, based on a comprehensive, multi-faceted security framework that include people, technology, processes and procedures.
In Argentina, ownership of trademarks can be acquired only through a validly approved registration with the National Institute of Industrial Property (Instituto Nacional de la Propiedad Industrial, or INPI), the agency responsible for registering trademarks and patents in Argentina. After registration, the owner has exclusive use of the trademark in Argentina for ten years. Trademarks registrations can be renewed indefinitely for additional ten-year periods, if the registrant proves that it has used such trademark within the last five years.
We have several trademarks, most of which are brand names of our products or services. All our material trademarks are registered or have been submitted to INPI for registration by the BBVA Group or us.
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)
As of December 31, 2019, BBVA owned 66.55% of our capital stock.
BBVA is a global financial group, organized in six operating segments: (i) Spain, (ii) the United States, (iii) Mexico, (iv) Turkey, (v) South America, and (vi) Rest of Eurasia. In addition to these geographical business areas, BBVA has a separate Corporate Center segment. This segment handles certain general management functions. Some of the benefits we receive from the BBVA Group are:
sharing of technology;
development of new banking products that have been customized for the Argentine market;
leveraging BBVAs global client relationships to serve those clients operating in Argentina; and
BBVAs participation in BBVA Argentina as a shareholder is both long term and strategic.
Subsidiaries and investees of BBVA Argentina
The following chart reflects our subsidiaries as of December 31, 2019:
Undergoing liquidation proceedings.
The following information is related to our subsidiaries, joint ventures and associates as of December 31, 2019:
|Country of |
|Principal Activity||Stockholders |
(in millions of
Ps.) (1) (2)
PSA Finance Argentina Cía. Fiananciera S.A.
BBVA Asset Management Argentina S.A.
|Argentina||100.00||%||Investment fund manager||914.6|
Consolidar AFJP S.A. (undergoing liquidation proceedings)
|Argentina||53.89||%||Pension fund manager||57.0|
Volkswagen Financial Services S.A.
Total stockholders equity as of December 31, 2019.
Statutory stockholders equity, adjusted for purposes of consolidation so as to apply an accounting criterion uniform with that of BBVA Argentina, if applicable.
Below is a description of our subsidiaries:
PSA Finance Argentina Compañía Financiera S.A.
The share capital of PSA Finance Argentina Compañía Financiera S.A (PSA Finance) is held, in equal parts, by BBVA Argentina and Banque PSA Finance, a company related to the PSA Peugeot Citroën Group, based in France.
PSA Finance is primarily engaged in granting secured loans for the purchase of new Peugeot, Citroën and DS vehicles, as well as in arranging financial lease agreements. PSA Finance is also engaged in financing the purchase of second-hand vehicles to customers referred by networks of the aforementioned brands official dealers, and in supplying other financial products and services associated with the purchase, maintenance and insurance of vehicles, within the territory of the Argentine Republic. Additionally, the company has recently entered into a business known as floor plan, which consists of financing the vehicle stock to the official network of Peugeot, Citroen and DS dealers in Argentina.
The car industry ended the year 2019 with 441,000 new car registrations, which accounts for a 43% decline year-on-year.
The first half of the year 2019 was marked by substantial activity levels, followed by significant volume declines during the second half of the year, due to the prevailing macroeconomic conditions. During 2019, the brands Peugeot, Citroën and DS developed new initiatives, including retail finance advertising campaigns and rebates, in attempt to attract customers.
In 2019, PSA Finance recorded a 17.9% share in the financing of new Peugeot, Citroën and DS cars, which accounts for a 1.7 percentage point decline relative to 2018. Such a decline is the result of an increase in alternative financing options available in the market.
Against this backdrop, during 2019, PSA Finance financed a total of 8,695 transactions, including secured loans for new and second-hand vehicles and vehicle leases, which is equivalent to Ps.2.39 billion.
As of December 31, 2019, the customer portfolio was comprised of 29,217 customers, and valued at Ps.3.29 billion (net of allowances).
As to the product offering, in 2019 PSA Finance continued working jointly with the brands Peugeot, Citroën and DS in the development of exclusive and distinct financial products, targeted at certain vehicles.
Retail finance advertising actions and rebates were strengthened as well in order to attract customers in a highly competitive market, which offers a broad range of products focused on customer needs. This year, private banks actively participated in the secured loan market with the offering of UVA-linked credits. Therefore, PSA Finance had to reinforce its commercial offering in line with market trends. Currently, 87.3% of the network of dealers choose PSA Finance as a provider of finance solutions.
Activity levels declined during 2019. However, PSA Finances net income reflects a 128% increase compared with 2018, due to the following factors:
PSA Finance secured a financial margin from the portfolio (as a percentage of the average portfolio) higher than in 2018. This is primarily attributable to the incremental share of equity in production financing. Such increase in equity was attributable to the fact that no dividends were distributed.
The efforts to contain administrative expenses in the face of growing inflation played a key role in maintaining the quality of the companys results of operations, amidst a poor activity scenario.
Lesser impact of income tax due to the application of the inflation adjustment for tax purposes.
As a result of all the aforementioned factors, net interest income for 2019 amounted to Ps.322.5 million. Considering other profits and losses, the companys loss before income tax amounted to Ps.149.3 million, and its loss for the year was Ps.37.2 million.
During 2020, PSA Finance will continue pursuing its sales strategy, encompassing financing promotional actions jointly with Peugeot, Citroën and DS, which have proven successful for several years. Under this business model, the company is able to concentrate more than 90% of all financing arrangements granted to networks of dealers for the purchase of new and second-hand vehicles. The company expects to continue working under this model, and to continue supporting these joint actions by launching new products, such as personal loans.
The company expects to continue supporting ongoing digitization, which is key to the mission of efficiently reaching a customer profile which changes its purchasing behaviors on a daily basis, choosing new technologies to stay abreast of the news and compare products. In this regard, PSA Finance expects to continue developing tools to allow customers to secure their first loan by means of several digital platforms, which started to be implemented in 2019. PSA Finance believes this approach will provide the company with a strong competitive position in 2020 and subsequent years.
BBVA Asset Management Argentina S.A.
During 2019, the mutual fund sector in Argentina continued to grow. According to preliminary data gathered by the Argentine Chamber of Mutual Funds (CAFCI, for its Spanish acronym), at December 31, 2019, assets under management industry-wide were 42.22% higher than at December 31, 2018.
Such growth was made possible after the Argentine Government reprofiled its peso- and US dollar-denominated short-term debt (Lecaps and Letes) and implemented exchange controls, both measures adopted in the wake of the August 2019 primary elections, which led to the concentration and restriction of the industrys product offering.
Growth was led by two types of fundstime deposit and market mutual fundswhich, at year-end, recorded increases in assets of 130.0% and 8.5%, respectively. On the other hand, fixed income funds experienced a 14.7% decline in assets year over year.
As of December 31, 2019, assets under management by BBVA Asset Management Argentina S.A. (BBVA AMA) amounted to Ps.44.1 billion, equivalent to a decrease of 17.1% or Ps.9.1 billion, year-on-year. According to the interim asset ranking compiled by the CAFCI, BBVA AMAs share in the overall Mutual Funds market was 5.7%, occupying the 4th position.
Within the category of time-deposit mutual funds, at December 31, 2019, the company recorded assets under management in the amount of Ps.39.15 billion.
In market mutual funds, the total assets under management amounted to Ps.4.93 billion as of December 31, 2019 compared with Ps.18.7 billion as of December 31, 2018. The decline was primarily driven by a decline in the market prices of fixed income fund investments.
During 2019, BBVA AMA generated commissions in the amount of Ps.350.2 million, a decline of 6.0% compared with commissions accrued during the previous year.
As at December 31, 2019, the company had 21 mutual funds under management registered with the Argentine Securities Commission (CNV), out of which 16 were in business during the year.
To date, the status of the funds under BBVA AMAs management is as follows:
FBA Renta Pesos, FBA Renta Fija Plus, FBA Horizonte, FBA Horizonte Plus, FBA Calificado and FBA Acciones Argentinas: These funds are operating normally. Subscriptions and redemptions in Pesos are allowed.
FBA Ahorro Pesos, FBA Bonos Argentina, FBA Renta Fija Dólar and FBA Renta Mixta only admit redemptions: These funds were subject to the reprofiling arrangement the Argentine Government has established for certain short-term national sovereign debt securities. In this regard, by means of Decree No. 596/19 dated August 28, 2019, the Argentine Government established a partial extension of the term of Argentine Treasury Bills (LETES), Argentine Treasury Capitalizable Bills in Pesos (LECAPS), CER-Adjusted Argentine Treasury Bills in Pesos (LECER) and US-dollar Linked Argentine Treasury Bills (LELINK). Accordingly, 15% of the principal amount in respect of these securities would be settled upon the original maturity date, 25% at three months, and the remaining 60% at six months after the maturity date. In addition, the Argentine Government asserted that securities held by individuals would be paid in full on the original maturity dates. Furthermore, as the underlying securities of the awarded shares fell due, management made payment, in pesos or US dollars, as the case may be, of the pertinent investors shares, which were then eliminated.
FBA Bonos Globales, FBA Renta Fija Dólar Plus, FBA Bonos Latam, FBA Retorno Total I, FBA Retorno Total II, FBA Acciones Latinoamericanas and FBA Brasil I only admit redemptions. The restrictions on subscriptions to these mutual funds are due to the enactment of regulations affecting the operation of the exchange market. For instance, Decree No. 609/2019 dated September 1, 2019 provided for the need for implementing temporary and urgent measures to further regulate and control the exchange rate regime and, hence, strengthen the normal operation of the economy, contribute to the prudent administration of the exchange market, reduce volatility in financial variables, and contain the impact of fluctuations in financial flows. In addition, Communication A 6770 issued by the Argentine Central Bank on September 1, 2019 established that entities authorized to trade in foreign exchange may not buy securities in the secondary market to be settled in foreign currency or use holdings in their General Exchange Position to make payments to local suppliers.
FBA Gestión I, FBA Renta Pública I, FBA Renta Pública II and FBA Renta Fija Local were approved by the CNV during the previous period and commenced their activities by means of a contribution made by BBVA AMA. As of the date of this annual report, these mutual funds are not open for subscription or redemption, and the company is awaiting the right time to market them.
Like in previous years, the company expects to pay special attention to the changes in international economic and financial conditions, as well as to the development of the currency market and the performance of crude oil and other commodities prices.
As concerns the local context, the company expects to carefully monitor activity levels, inflation and the exchange rate, as well as public indebtedness and expenditures. Similarly, the company expects to monitor the fulfillment of the commitments undertaken with the International Monetary Fund (IMF) and the potential debt renegotiation process.
Looking to 2020, Mutual Funds are expected to constitute an efficient alternative for investors at the local level. In this regard, the company expects to continue reshaping and developing products tailored to customers demands, striving to provide an offering that is suitable to the prevailing market conditions and to the improvements in investors risk management.
As of December 31, 2019, FBA Commodities had no equity volume. The rest of the Bank´s investment funds at such date had the following assets:
FBA Renta Pesos
FBA Ahorro Pesos
FBA Renta Fija Dólar
FBA Bonos Argentina
FBA Renta Fija Dólar Plus
FBA Bonos Latam
FBA Acciones Latinoamericanas
FBA Acciones Argentinas
FBA Bonos Globales
FBA Gestión I
FBA Renta Fija Plus
FBA Retorno Total II
FBA Horizonte Plus
FBA Brasil I
FBA Renta Mixta
FBA Retorno Total I
FBA Renta Pública I
FBA Renta Fija Local
FBA Renta Pública II
Consolidar A.F.J.P. S.A. (undergoing liquidation proceedings)
On December 4, 2008, Law No. 26,425 was enacted, providing for the elimination of the capitalization regime that was part of the Integrated Retirement and Pension System, and its subsequent merger into and replacement with a single pay-as-you go system named the Argentine Integrated Retirement and Pensions System (SIPA). Consequently, Consolidar A.F.J.P. S.A. ceased to manage the resources that were part of the individual capitalization accounts of affiliates and beneficiaries of the capitalization regime of the Integrated Retirement and Pension System, which were transferred to the Guarantee Fund for the Sustainability of the Argentine Retirement and Pension Regime as they were already invested, and the Argentine Social Security Office (ANSES) is now the sole and exclusive owner of those assets and rights.
Likewise, on October 29, 2009, the ANSES issued Resolution No. 290/2009, whereby retirement and pension funds managers interested in reconverting their corporate purpose to manage the funds for voluntary contributions and deposits held by participants in their capitalization accounts had 30 business days to express their intention to that end.
Based on the foregoing and taking into consideration that it was impossible for Consolidar A.F.J.P. S.A. to comply with the corporate purpose for which it was incorporated, the shareholders, gathered at a Unanimous General and Extraordinary Shareholders Meeting held on December 28, 2009, resolved approve the dissolution and subsequent liquidation of that company effective as of December 31, 2009, as they considered that decision was in the best interest of the companys creditors and shareholders. Furthermore, in compliance with the terms of the Argentine Companies Law, the Shareholders Meeting appointed Mr. Gabriel Orden and Mr. Rubén Lamandia, both of them certified public accountants, as liquidators of Consolidar A.F.J.P. S.A. Since December 31, 2009, they have assumed the role of the companys legal representatives. To date, Mr. Orden and Mr. Lamandia are taking all necessary actions leading to the liquidation of Consolidar A.F.J.P. S.A.
In this regard, on January 28, 2010, the dissolution of Consolidar A.F.J.P. S.A. and the list of designated liquidators were registered with the Argentine Superintendence of Corporations (IGJ).
In addition, on October 19, 2009, the General Extraordinary Shareholders Meeting of Consolidar A.F.J.P S.A. approved a voluntary reduction of the companys capital stock by Ps. 75 million. The IGJ approved such capital reduction on January 11, 2010 so that on January 19, 2010, capital contributions were transferred to the shareholders, pursuant to the aforementioned reduction.
BBVA Argentina, as shareholder, asked Consolidar A.F.J.P. S.A. to give notice to the Argentine Ministry of Economy and Public Finance and to the Argentine Social Security Office (ANSES), of its intention to engage in discussions, under the terms of Law No. 26,425, to find one or more remedies to redress the consequences from the events occurred after the enactment of such Law. Consolidar A.F.J.P. S.A. gave such notice on June 11, 2010.
On December 7, 2010, Consolidar A.F.J.P. S.A. filed a complaint for damages against the National Government and the Ministry of Labor, Employment and Social Security, which was heard by Federal Court of Original Jurisdiction in Administrative Matters No. 4, Division No. 7, under File No. 40,437/2010. Such complaint was ratified by BBVA Argentina in its capacity as majority shareholder of the company. On July 15, 2011, Consolidar A.F.J.P. S.A. and BBVA Argentina made a filing with such court to expand the scope of the complaint for the assessment of damages. On March 9, 2012, the Court ordered that notice of the complaint be served upon National Government.
On May 13, 2013, the intervening Court resolved to initiate the trial period, upon which the company started to produce the pertinent testimonial, documentary, and expert evidence. On May 28, 2013, the company filed its witnesses question sheets and testimony.
As of December 31, 2019, the case is in a stage of producing accounting evidence.
Volkswagen Financial Services Compañía Financiera S.A. (VWFS)
Volkswagen Financial Services Compañía Financiera S.A. (VWFS) is primarily engaged in the business of granting secured loans for the purchase of new Volkswagen cars and offering wholesale financing to VW Groups dealers for the purchase of cars from the manufacturers. VWFS is also engaged in financing the purchase of second-hand vehicles and in providing financed maintenance, all within the territory of the Argentine Republic.
In 2019, the car and financial industries experienced a substantial downturn vis-a-vis previous years. The first half of 2019 was marked by substantial activity levels, followed by significant volume declines during the second half of the year, due to the prevailing macroeconomic conditions. Therefore, 2019 was a challenging year for car manufacturers and their respective finance companies.
Against this backdrop, VWFS sought to defend its share in VW Groups financed sales and maintain a healthy wholesale portfolio. The retail segment experienced a decline in terms of the volume of financed agreements due to the downturn of the car manufacturing and financial markets; however, the share of VW Groups financed sales rose almost 10% compared to the previous year. In addition, VWFS managed to maintain a competitive market penetration level, thanks to the strong relationship that it had built with the brand and the dealers, having experienced a lower decline than the average of other car manufacturers finance companies. With strong cooperation from Volkswagen, VWFS launched commercial campaigns at reduced rates, offering attractive conditions to customers, despite the high levels of official benchmark rates.
During the year, VWFS developed its leasing product and corporate sales.
As part of its ongoing strategic approach, VWFS improved the service quality to dealers through communication, training and good response levels by VWFS, as reflected in the positive outcomes of the relevant satisfaction survey. In-house, the company conducted several training programs for employees in order to attain efficiency gains and improve service levels to retail customers.
VWFS believes it is adequately capitalized for the development of its business. Moreover, during the year, VWFS increased its sources of funding from other commercial banks, with total credit facilities amounting to Ps.3.17 billion.
In February 2019, the company successfully completed its second issuance and placement of corporate bonds, for an aggregate principal amount of Ps.750 million, these issues were made at a variable rate (Badlar) as adjustable to the UVA index. On December 9, 2019, the company completed its third issuance of corporate notes, for an aggregate principal amount of Ps.750 million, at the private variable rate (Badlar).
During 2019, the Volkswagen Group had a 15.8% share in the car market, again ranking first in terms of sales volume, which rose from 14.7% in 2018. Amidst a very competitive environment, the company had a 72% share in the Groups financed sales (an increase of 5 p.p. compared with 2018), as a result of a new commercial policy and actions that fostered the loyalty among the official network of dealers.
In 2019, VWFS achieved 12% penetration, one percentage point below 2018, amidst an environment in which penetration of car manufacturers finance companies had declined by an average of approximately four percentage points.
During 2019, the main goal was offering competitive financing products and services to customers. In 2019, the company granted 9,510 secured loans, representing a 42% year-on-year decline, due to the challenging situation of the car industry.
Profit before tax for the year ended December 31, 2019 amounted to Ps.37.7 million, primarily due to the optimization of the companys sources of funding, and healthy wholesale and retail lending portfolios, in addition to the effects of inflation on car prices.
During 2020, the car market is expected to reach 450,000 new registrations, that is, approximately the same number as in 2019. Rates are expected to decrease, and the incoming government is expected to boost domestic activity.
The companys goal for 2020 is defending its share in sales of financed units, with origination of retail loans expected to reach similar levels as in 2019, while the wholesale portfolio is expected to be maintained at current levels. In terms of long-term development, the company plans to carry out strategic projects in 2020, which are aimed at providing better service quality for customers and enhanced processes with dealers, all of which in support of the industry growth in the long-term.
In order to fund its secured loan portfolio, the company plans to continue diversifying its sources of funding with its main business partner, other commercial banks and the issuance of corporate notes.
|Country of |
(in millions of
Rombo Compañía Financiera S.A.
|Argentina||40.00||%|| ||Financial |
Total stockholders equity as of December 31, 2019.
Below is a description of our joint venture:
Rombo Compañía Financiera S.A.
Rombo Compañía Financiera S.A (RCF) is the main finance company of Renaults network of dealers, both for new and second-hand vehicles. During 2019, Renault had a 14.4% share in the car market, down from 14.8% in 2019, ranking third in terms of sales volume. In 2019, Nissan had a 3.8% market share (compared with 2.8% in 2018). Amidst strong competition, the company managed to improve its market share and positioning, thanks to the substantial contribution of secured loans from its finance company.
In 2019, RCFs contribution to Renaults and Nissans sales declined to 21.8% from 24.2% in 2018 for Renault, and from 17.9% to 17.6% in the case of Nissan. Despite the prevailing economic conditions taking their toll on the industry as a whole, RCF experienced strong commercial performance, primarily focused on maintaining the networks loyalty.
RCF remains the industry leader in the ranking of loans and loyalty among brand captive companies, closing the year with an average of 93.7% (credits granted by RCF over total credits for the sale of Renault vehicles) (Source: AFIMA). Renault Argentina and Nissan strongly supported the companys lending activities, providing important commercial tools (subsidized rates) both for new and second-hand vehicles.
With this support, RCF financed 16,823 Renault and Nissan new vehicles in 2019 (compared with 31,558 in 2018) and 2,702 second-hand vehicles (compared with 6,514 in 2018). Accordingly, the total financing portfolio at December 31, 2019 amounted to Ps.7.59 billion, accounting for a 19% or Ps.8.88 billion decline compared to December 31, 2018.
Risk and portfolio quality indicators rose compared with recent years. The non-performing loan ratio increased from 1.3% in December 2018 to 1.9% at the end of 2019, primarily due to a deterioration in economic conditions and the considerable decline in the portfolio.
In terms of financing, during the year the company issued one series of corporate notes for an aggregate principal amount of Ps.300 million, with the total balance of corporate notes at December 31, 2019 amounting to Ps.2.3 billion. The amount of the current program is Ps.6.00 billion, and has been rated raAA by Fix SCR S.A. Agente Calificadora de Riesgo and Ba2.ar by Moodys.
For the year ended December 31, 2019, profit for the year amounted to Ps.11.5 million.
|Country of |
|Principal Activity||Stockholders |
(in millions of
Ps.) (1) (2)
BBVA Consolidar Seguros S.A.
|Argentina||11.11||%||Information services |
Total stockholders equity as of December 31, 2019.
Statutory stockholders equity, adjusted for purposes of consolidation so as to apply an accounting criterion uniform with that of BBVA Argentina, if applicable.
Below is a description of our associates:
BBVA Consolidar Seguros S.A.
BBVA Seguros S.A. operates in the following lines of business: Fire, Comprehensive and Combined Household Insurance, Theft, Personal Accidents, Group Life Insurance, Credit Life Insurance, Funeral and Other Coverage.
During 2019, written premiums amounted to Ps. 3.45 billion, accounting for a 0.7% increase compared with the previous year. As from September 2017, BBVA Seguros ceased to earn premiums from credit life insurance policies in connection with BBVA Argentinas newly issued outstanding balances, including personal loans, credit cards, secured loans and overdrafts.
The increase in invoiced premiums from voluntary insurance rose by 34.1% in 2019 compared to the previous year. The business strategy combines a broad product offering with multiple distribution and service channels, all based on the segmentation of customers and prospects needs. Paid losses amounted to Ps.680.4 million in 2019, or 19.7% of written premiums.
Net income for the year was Ps. 1.35 billion, accounting for a return on equity of 63.8% at year-end. As of December 31, 2019, minimum capital surplus was Ps. 899.4 million, while the solvency ratio, measured as the ratio of cash and cash equivalents, investments and buildings to underwriting commitments and liabilities owing to policyholders, was 1.6.
On January 22, 2016, the Argentine Bureau of Insurance (SSN) passed Resolution SSN No. 39,647, concerning holdings in SMEs Mutual Funds (authorized by the CNV), setting forth an investment floor of 3% and an investment cap of 20%.
On March 21, 2016, Communication A 5928 was issued by the Argentine Central Bank, introducing changes to the Rules for the Protection of Financial Users concerning insurance. Regarding Credit Life Insurance, the Argentine Central Bank provides that financial institutions subject to the rule shall not be allowed to charge users any sort of commission and/or fee related to credit life or total permanent disability insurance policies. Furthermore, the Argentine Central Bank provided that financial institutions are required to purchase credit insurance to cover these contingencies, or otherwise to self-insure, posing the challenge for the insurance company of capturing the largest number of customers/banks and financial institutions to offer this product.
On February 7, 2019, the SSN established that entities under its oversight were required to file financial statements in terms of the measuring unit current at the end of reporting period, commencing with the financial statements as of June 30, 2019, subsequently extended as of June 30, 2020.
Additionally, on November 28, 2018, the SSN issued RESOL-2018-1116-APN-SSN#MHA amending item 30 of the General Rules and Regulations for the Insurance Business (RGAA for its Spanish acronym), effective beginning with financial statements commencing on January 1, 2019, setting out the minimum capital requirements insurance companies are to meet to be engaged in the direct insurance and reinsurance business.
Finally, item 35.5 of the RGAA was amended by means of RESOL-2019-553-APN-SSN#MHA dated June 18, 2019, establishing that insurers total investments, including their underlying assets, if any, and cash and cash equivalents, should be based in Argentina, banning the acquisition of new shares in mutual funds with underlying assets based abroad. As of fiscal year ended June 30, 2020, insurers and reinsurers shall have adjusted their investments in mutual funds with underlying assets based in countries other than Argentina.
For 2020, BBVA Seguros plans to continue growing its main insurance lines of business, in particular, Other Coverage, Personal Accidents, Group Life Insurance, and Comprehensive and Combined Household Insurance, with a product offering that meets the distinct needs of its main customers.
As a member and shareholder of Interbanking S.A., together with seven other leading Argentine banks, the Bank offers an electronic communications system which enables its customers to optimize their banking transactions. The Banks corporate customers can connect to the service from their personal computers at any time and review their accounts at any member bank, send messages, transfer funds, make electronic wage payments, supplier payments and tax payments, and display market data. Through Interbanking, the Bank offers distinct electronic products for each segment of its corporate clientele and processes online transfers, allowing debit and credit transactions to be settled automatically and to be reflected in the relevant accounts in real time. As a result of the Banks shareholding in Interbanking S.A., on June 27, 2019 the Bank received Ps.106.3 million in dividends.
The following are all positions that we hold in non-financial institutions where we own more than 2% of the invested companies equity as of December 31, 2019.
|Country||% of Shares |
Deposit guarantee fund
Prisma Medios de Pagos S.A.
Credit card issuer
Total Stockholders Equity as of December 31, 2019.
Property, plants and equipment
BBVA Argentina is domiciled in Argentina and has its principal executive offices at Av. Córdoba 111, C1054AAA Buenos Aires, Argentina. The principal executive offices, which we own, are approximately 28,002 square meters in area.
At December 31, 2019, our branch network consisted of 251 retail branches, of which 112 were located in properties that we own and 139 were located in properties leased to us. The branches are located throughout all of the 23 Argentine provinces as well as the City of Buenos Aires.
Selected statistical information
The following information is included for analytical purposes and should be read in conjunction with the Consolidated Financial Statements as well as Item 5. Operating and Financial Review and Prospects. This information has been prepared from our financial records, which are maintained in accordance with IFRS-BCRA. The Consolidated Financial Statements and the selected statistical information below have been adjusted to comply with IFRS-IASB for the sole purpose of filing this annual report on Form 20-F with the SEC.
Average Balance Sheets, Interest Earned on Interest-Earning Assets and Interest Paid on Interest-Bearing Liabilities
The average balances of interest-earning assets and interest-bearing liabilities, including the related interest earned or paid, were calculated on a daily basis for the years ended December 31, 2019, 2018 and 2017. Average balances have been separated between those denominated in pesos and in foreign currencies.
This selected statistical information has been prepared taking into account the effect of hyperinflation adjustments, which requires that in the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, the assets, liabilities, income and expenses of such entity be stated in terms of the measuring unit current at the end of the reporting period (December 31, 2019).
The real interest rate is the amount of interest earned or paid during the period divided by the related average balance.
Included in interest earned are the net gains on our portfolio of government securities and related differences in market quotations. We manage our trading activities in government securities as an integral part of our business. We do not, as a matter of practice, distinguish between interest income and gain or loss on our government securities portfolio.
The following tables show average balances, interest amounts and average real rates for our interest-earning assets and interest-bearing liabilities for the fiscal years ended December 31, 2019, 2018 and 2017.
|Fiscal Year ended December 31,|
|balance (1)||earned/paid||real rate (2)||balance (1)||earned/paid||real rate (2)||balance (1)||earned/paid||real rate (2)|
|(in thousands of pesos, except percentages)|
Government securities (3)
Loans and advances (4)
To customers/financial institutions
To central bank
Total interest-earning assets
|Fiscal Year ended December 31,|
|balance (1)||earned/paid||real rate (2)||balance (1)||earned/paid||real rate (2)||balance (1)||earned/paid||real rate (2)|
|(in thousands of pesos, except percentages)|
Non interest-earning assets
Cash, cash balances at central bank and other demand deposits
Investments in joint ventures and associates
Tangible and intangible assets
Allowance for loan losses
Total non interest-earning assets
|Fiscal Year ended December 31,|
|balance (1)||earned/paid||real rate (2)||balance (1)||earned/paid||real rate (2)||balance (1)||earned/paid||real rate (2)|
|(in thousands of pesos, except percentages)|