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Capital Management, Corporate Governance Transparency Policy and Risk Management (Tables)

12 Months Ended

Dec. 31, 2020

As of December 31, 2020, the Bank’s shareholders are:


FULL NAME/ CORPORATE NAME	Participating Interest		Voting Interest
Trust “Trust JHB” (1)		17.28		19.65
Carballo Delfín Jorge Ezequiel		17.47		19.19
ANSES FGS Law No. 26425		28.80		26.90
Grouped shareholders (Local Stock Exchanges)		9.72		9.28
Grouped shareholders (Foreign stock exchanges)		26.73		24.98

Summary of Minimum Capital Requirements Measured on Consolidated Basis

The table below shows the minimum capital requirements measured on a consolidated basis, effective for the month of December 2020, together with the integration thereof (computable equity) as of the end of such month:


Description	12/31/2020
Minimum capital requirements		41,357,542
Computable equity		173,448,698

Capital surplus		132,091,156

Summary of Allowance for Credit Losses

The following chart shows the distribution of loan loss allowances according to the type of financial instrument as of December 31, 2020, and 2019:


	12/31/2020		12/31/2019
Loans and other financing		9,928,122		6,901,953
Loans commitment		23,200		23,514
Other financial assets		18,929		14,032
Other debt securities at amortized cost		5,472		63,701
Other debt securities at fair value through OCI		5,964		286

		9,981,687		7,003,486

Summary of Key Economic Variables or Assumptions

The following table shows the estimated values for macroeconomic variables used in the models for each scenario (base case, intermediate, downside), with the assigned probability of occurrence to each scenario:


Key Drivers	ECL Scenario	Assigned Probabilities			2020			2021			2022
					%			%			%
GDP growth %	Base case		65	%		5.96	%		2.16	%		3.04	%
	Intermediate		30	%		2.66	%		(1.52	)%		1.04	%
	Downside		5	%		(1.80	)%		(2.48	)%		1.00	%
Central Bank base rates %	Base case		65	%		37.00	%		28.05	%		23.44	%
	Intermediate		30	%		45.00	%		35.00	%		30.00	%
	Downside		5	%		80.00	%		100.00	%		120.00	%
CPI %	Base case		65	%		56.98	%		39.96	%		35.01	%
	Intermediate		30	%		68.00	%		65.00	%		49.99	%
	Downside		5	%		100.03	%		130.01	%		150.03	%

Summary of Aging Analysis of Performing Loans in Arrears

51.1.1.2

The Bank’s internal rating and PD estimation process

The PD represents the probability that a debtor may fail to fulfill its financial obligation, either during the next 12 months (Stage 1) or during the remainder life of the financial asset (Stages 2 and 3).

PD is assessed per customer in alignment with the Bank’s risk management model.

For the individual analysis portfolio, the rating model developed by the Bank to identify

PD-related

risks and concentrations according to the Bank’s commercial strategies is based on a behavior module that considers the behavior scores of the commercial portfolio segments and contemplates internal behavior variables and external supplier variables.

For the collective analysis portfolio per risk level, the Bank developed a

12-month

PD based on a dual matrix that combine internal behavior market scores and generic Bureau Scores, increasing segregation when considering the internal behavior and the financial entities. Lifetime PDs were also developed for each group of assets defined as homogeneous risk to calculate the financial asset amount classified in Stage 2.

The proposals to implement PD models are submitted for approval to the Risk Management Committee. The methods, variables, development population, observation windows and results that support the preparation of these models are tested and adjusted at least once a year.

The following table discloses the risk levels score and rating arising from the Bank’s models:


	12/31/2020						12/31/2019
Category	Weighted PD			% Gross Carrying Amount			Weighted PD			% Gross Carrying Amount
Category	Weighted PD			% Gross Carrying Amount			Weighted PD			% Gross Carrying Amount
Performing		2.32	%		96.17	%		2.60	%		95.45	%
High grade		1.13	%		76.20	%		1.25	%		76.40	%
Standard grade		4.79	%		12.64	%		4.83	%		8.23	%
Sub-standard grade		12.48	%		7.33	%		11.64	%		10.82	%
Past due but not impaired		33.24	%		2.70	%		32.13	%		2.84	%
Impaired		100.00	%		1.13	%		100.00	%		1.71	%

Total					100.00	%					100.00	%

51.1.1.3

Exposure at default (EAD)

EAD is based on the amounts that the Bank expects to be owed at default during the next 12 month (Stage 1) or during the instruments remaining lifetime (Stages 2 and 3).

The EAD model uses the same information sources than PD model. Segmentation is also used in the PD structure.

The Bank developed a calculation method for the products that have a defined flow schedule, and another method for the products that provide the customers with a credit line (revolving products). For revolving products, the Bank calculated a credit risk factor that contemplates the use that this credit line could represent in case of default. Upon building the credit risk factors, the aging of the product and level of use was considered, among other characteristics.

51.1.1.4

Loss given default (LGD)

LGD is the estimated loss in the case of default. It is based on the difference between all contractual cash flows and the cash flows expected by the lender (i.e., all cash shortfalls), considering the proceeds from the realization of collateral.

It is the supplement to the unit of the recovery rate; that is, the proportion not collected by the Bank with respect to the EAD. Consequently, the amount at default is compared with the present value of the amounts recovered after the date of default.

LGD varies based on the type of counterparty, aging, type of claim and the existence of guarantees securing credits. It is expressed as a percentage of the loss for EAD.

To calculate LGD, the Bank differentiates per product. The Bank bases its estimates on the historical information observed regarding the recoveries over on default transactions discounted at the effective interest rate of such agreements and measured upon default.

Once the recovery rates are obtained, this behavior is projected through the triangle method to estimate the periods with less maturity. Finally, the weighted average of the loss for each portfolio is determined.

As PD, LGD are revised by the macroeconomic models used for the prospective view.

51.1.2

Prospective information

The calculation of ECL for risk impairment includes and is revised prospectively with respect to the portfolio behavior. To such end, the Bank examines the macroeconomics variables which have an impact in PD and LGD and designed models that capture such impact for the commercial portfolio, comparable commercial portfolio and consumer portfolio.

The main economic variables generating expected losses used to calculate ECL for each economic scenario are as follows:

•

Changes in GDP

•

Interest rates (BADLAR published by the BCRA)

•

Index (CPI)

As established in IFRS 9, impact is calculated based on the different behavior scenarios of the variables; to such end, a

36-month

estimate on the variables used for the models is requested from a well-known economic consulting firm. This estimate is prepared for three alternative macroeconomic scenarios, to which a likelihood of occurrence is assigned.

Finally, the Bank calculates ECL by applying the alternative scenarios on a weighted basis, which are updated on a quarterly basis according to the financial statements filed each calendar quarter.


Key Drivers	ECL Scenario	Assigned Probabilities			2020			2021			2022
					%			%			%
GDP growth %	Base case		65	%		5.96	%		2.16	%		3.04	%
	Intermediate		30	%		2.66	%		(1.52	)%		1.04	%
	Downside		5	%		(1.80	)%		(2.48	)%		1.00	%
Central Bank base rates %	Base case		65	%		37.00	%		28.05	%		23.44	%
	Intermediate		30	%		45.00	%		35.00	%		30.00	%
	Downside		5	%		80.00	%		100.00	%		120.00	%
CPI %	Base case		65	%		56.98	%		39.96	%		35.01	%
	Intermediate		30	%		68.00	%		65.00	%		49.99	%
	Downside		5	%		100.03	%		130.01	%		150.03	%

The measures issued by the Argentine government and the BCRA on maturity deferrals or mandatory debt rescheduling gave rise to a considerable reduction in the nonperforming portfolio indicator, a variable dependent on the prospective probability of the default models used by the Bank. Therefore, as of December 31, 2020, to make an adequate estimate of the expected losses adjusted by the macroeconomic context, the Bank applied the probability of default models on the nonperforming portfolio projected as of such date by those models based on the information available prior to the abovementioned measures, instead of using indicators which do not show the actual loan portfolio situation.

51.1.3

Overview of modified and forborne loans

From a risk management point of view, once an asset is forborne or modified, the Bank’s special department for distressed assets continues to monitor the exposure until it is completely and ultimately derecognized.

The amortized cost of loans modified during 2020 and the associated net modification amounted to 944,374 and 82,267, respectively. The Bank does not consider loans using the mandatory extensions and payment facilities provide by BCRA as part of such modified loans. The amortized cost of loans modified during 2019 and the associated net modification amounted to 3,138,057 and 58,741, respectively. Moreover, certain debt securities were modified during 2019. The information related to this modification is disclosed in note 20.

51.1.4

Adjustment for expected losses due to

COVID-19

pandemic

The pandemic and its direct consequences, (firstly, the preventive lockdown, then the social distancing) had a high impact on the Argentine economy and, therefore, on the behavior of financial system debtors.

The Argentine government, the BCRA and other tax and regulatory agencies adopted a series of measures to reduce the impact of the generated economic stagnation which includes the extending tax and social security due dates, offering financial aid to the most vulnerable sectors, deferring payment of all bank debtor’s obligations, mandatory refinancing of past due payables, a more flexible treatment for recognizing the impairment of the banking customer portfolio, and banning dismissals and suspensions, among others. Even though, all of them contributed to having the 2020 with low impact on bank portfolio delinquency, the negative results of the impairment in the debtors’ financial capacity are undeniable, thus an increase in the impairment of assets subject to credit risk is expected.

Since statistical models do not appropriately reflect the effects arising from the pandemic on expected credit losses, the Bank decided to make a special adjustment prospectively based on an estimate of the impairment of certain financial assets showing greater vulnerability levels or signs of difficulties related to the payment of obligations.

The ECL adjustment for

Covid-19

is recalculated on a monthly basis with the objective to capture new information about subject customers and reset the estimated amounts at the reporting date, or adjust the calculation criteria in order to make more accurate estimations. With the same frequency is submitted for approval to the Bank’s highest authorities, and is presented to the Internal Risk Management Committee for its ratification and treatment.

As to commercial loans, as of December 31, 2020, the Bank estimated an additional credit risk impairment loss for 445,386, over beneficiaries of credit facilities at reduced rates for payroll payments during the social lockdown and who are part of the economy sectors which are expected to experience the pandemic’s most significant adverse effects, both in terms of a drop in revenues and the subsequent recovery term. The same criterion was used in connection with the companies which are part of the sectors that chose to reschedule the due dates of their payables using the general and extraordinary flexible conditions established by the BCRA for paying financial obligations. The estimated charge amounted to 150,654.

As regards loans granted to individuals, the adjustment affected the financing to employees on payroll private company, self-employed workers and microentrepreneurs. These sectors were considered to be the most affected by dismissals, suspensions and loss in salary purchasing power, fall in sales and a reduction in activity levels resulting from compulsory lockdown. In these segments, an impairment in customer risk was estimated in the cases in which they opted to defer the settlement of their payables to the Bank (amounts owed in connection with credit cards and personal loans) by making use of the mandatory extensions and payment facilities provided by the BCRA in connection with outstanding financial payables during the pandemic. The adjustment made in connection with consumer loans amounted to 3,083,342 as of December 31, 2020. This adjustment plus the recorded amount for commercial loans amounted to 3,679,382.

Portfolio quality

The table below shows the analysis by aging of performing loans in arrears (in days):


12/31/2020
Portfolio Type	Delinquent, performing (in days)
Portfolio Type	0 to 31			From 32 to 90			From 91 to 180			From 181 to 360			Over 360
Commercial loans		99.5	%		0.5	%		0.0	%		0.0	%		0.0	%
Comparable loans		99.8	%		0.2	%		0.0	%		0.0	%		0.0	%
Consumer loans		99.5	%		0.5	%		0.0	%		0.0	%		0.0	%
Total		99.6	%		0.4	%		0.0	%		0.0	%		0.0	%


12/31/2019
Portfolio Type	Delinquent, performing (in days)
Portfolio Type	0 to 31			From 32 to 90			From 91 to 180			From 181 to 360			Over 360
Commercial loans		99.2	%		0.8	%		0.0	%		0.0	%		0.0	%
Comparable loans		99.9	%		0.1	%		0.0	%		0.0	%		0.0	%
Consumer loans		100.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Total		99.6	%		0.4	%		0.0	%		0.0	%		0.0	%

Summary of Risk Concentration by Industry for the Components of the Statement of Financial Position

The following table shows the loans and other financing portfolio under credit risk by industry sector, classified by risk stage and identifying the expected loss calculated under individual or collective basis:


	1				2				3		12/31/2020
	Collective		Individual		Collective		Individual		3		12/31/2020
Loans and other financing		180,456,655		68,333,255		11,133,013		4,396,524		3,029,870		267,349,317
Non-financial public sector		13,230		3,601,297		175				103		3,614,805
Other financial entities		23		1,839,235								1,839,258
Non-financial private sector		180,443,402		62,892,723		11,132,838		4,396,524		3,029,767		261,895,254
Individuals		114,240,780		881,453		6,217,494				685,859		122,025,586
Manufacturing Industry		10,262,036		14,025,285		679,770		1,526,516		498,780		26,992,387
Agricultural and cattle industry		14,415,093		6,741,231		966,605		2,759,232		435,379		25,317,540
Services		22,280,971		11,185,975		1,815,627		110,206		107,590		35,500,369
Commercial activities		13,244,682		9,222,944		1,001,929		570		301,854		23,771,979
Exploration of mines and quarries		653,112		14,544,611		35,095				873,558		16,106,376
Financial intermediation		1,038,512		3,731,946		32,755				5,648		4,808,861
Construction activities		3,055,656		1,444,030		291,532				114,440		4,905,658
Electricity supply and gas		155,514		1,115,248		8,092				179		1,279,033
Public administration		1,037,333				82,856				6,207		1,126,396
Water supply and public sanitation		59,713				1083				273		61,069


	1				2				3		12/31/2019
	Collective		Individual		Collective		Individual		3		12/31/2019
Loans and other financing		152,543,931		128,020,746		17,511,125		4,284,909		5,272,831		307,633,542
Non-financial public sector		8,573		8,773,060		221				94		8,781,948
Other financial entities		246		5,417,881								5,418,127
Non-financial private sector		152,535,112		113,829,805		17,510,904		4,284,909		5,272,737		293,433,467
Individuals		117,874,202		511,834		9,172,222				1,980,256		129,538,514
Manufacturing Industry		4,722,054		46,359,585		1,244,104		843,873		1,624,661		54,794,277
Agricultural and cattle industry		7,696,443		11,045,886		2,857,436		3,165,627		554,555		25,319,947
Services		13,205,385		13,175,749		2,069,526		72,040		346,332		28,869,032
Commercial activities		5,248,612		13,123,381		1,420,453		199,317		567,853		20,559,616
Exploration of mines and quarries		229,146		20,069,007		66,215				11,854		20,376,222
Financial intermediation		930,240		3,840,710		83,338				18,248		4,872,536
Construction activities		1,385,661		2,241,773		456,169		4,052		152,667		4,240,322
Electricity supply and gas		100,044		3,435,177		9,827				1,483		3,546,531
Public administration		1,103,771		26,703		128,161				14,720		1,273,355
Water supply and public sanitation		39,554				3,453				108		43,115

Summary of Collateral and Other Credit Improvements

The following tables show the amounts of guarantees received for the entire portfolio and for the portfolio in Stage 3 as of December 31, 2020.


Class of financial instrument	Maximum exposure to credit risk		Fair value of collateral												Total collateral		Net exposure		Associated ECL
Class of financial instrument	Maximum exposure to credit risk		Pledges on time deposits		Deferred payment checks		Mortgage on real property		Pledges on vehicles and machinery		Pledges on personal property		Other		Total collateral		Net exposure		Associated ECL
Loans and other financing		267,349,317		797,460		6,546,693		23,996,519		4,124,485		1,667,100		47,062,080		84,194,337		183,154,980		9,928,122
Loans commitment		97,910,338		1,305										279,240		280,545		97,629,793		23,200
Other financial assets		18,905,219																18,905,219		18,929
Other debt Securities at amortized cost		31,119,261																31,119,261		5,472
Other debt securities at fair value through OCI		178,005,144																178,005,144		5,964

Total		593,289,279		798,765		6,546,693		23,996,519		4,124,485		1,667,100		47,341,320		84,474,882		508,814,397		9,981,687


Class of financial instrument	Maximum exposure to credit risk		Fair value collateral										Total collateral		Net exposure		Associated ECL
Class of financial instrument	Maximum exposure to credit risk		Deferred payment checks		Mortgage on real property		Pledges on vehicles and machinery		Pledges on personal property		Other		Total collateral		Net exposure		Associated ECL
Loans and other financing		3,029,870		1,064		709,038		935,558		65,485		270,083		1,981,228		1,048,642		1,658,115

Total		3,029,870		1,064		709,038		935,558		65,485		270,083		1,981,228		1,048,642		1,658,115

The following tables show the amounts of guarantees received for the entire portfolio and for the portfolio in Stage 3 as of December 31, 2019.


			Fair value of collateral
Class of financial instrument	Maximum exposure to credit risk		Pledges on time deposits		Deferred payment checks		Mortgage on real property		Pledges on vehicles and machinery		Pledges on personal property		Other		Total collateral		Net exposure		Associated ECL
Loans and other financing		307,633,542		513,103		3,665,050		29,919,411		5,490,143		1,465,710		33,654,626		74,708,043		232,925,499		6,901,953
Loans commitment		128,745,139		2,787										902,420		905,207		127,839,932		23,514
Other financial assets		8,405,598																8,405,598		14,032
Other debt Securities at amortized cost		24,067,911																24,067,911		63,701
Other debt securities at fair value through OCI		63,824,735																63,824,735		286

Total		532,676,925		515,890		3,665,050		29,919,411		5,490,143		1,465,710		34,557,046		75,613,250		457,063,675		7,003,486


Class of financial instrument	Maximum exposure to credit risk		Fair value collateral										Total collateral		Net exposure		Associated ECL
Class of financial instrument	Maximum exposure to credit risk		Deferred payment checks		Mortgage on real property		Pledges on vehicles and machinery		Pledges on personal property		Other		Total collateral		Net exposure		Associated ECL
Loans and other financing		5,272,831		3,086		735,440		167,028		11,805		955,458		1,872,817		3,400,014		2,967,457

TOTAL		5,272,831		3,086		735,440		167,028		11,805		955,458		1,872,817		3,400,014		2,967,457

Summary of Liquidity Ratios Arising from Dividing Net Liquid Assets, Cash and Cash Equivalents by Total Deposits

The following table shows the liquidity ratios during the fiscal years 2020 and 2019, which arise from dividing net liquid assets, made up of cash and cash equivalents, by total deposits.


	2020			2019
December, 31		86.39	%		57.75	%
average		81.57	%		61.24	%
Max		87.13	%		70.13	%
Min		71.49	%		51.73	%

Summary of Contractual Cash Flows and Other Financing

The tables below summarize the maturity of the contractual cash flows of loans and other financing, before ECL, including interest and charges to be accrued until maturity of the contract as of December 31, 2020 and 2019:


			Remaining terms to maturity as of December 31, 2020
Item	Matured		Up to 1 month		Over 1 month and up to 3 months		Over 3 months and up to 6 months		Over 6 months and up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total
Non-financial government sector				240,063		709,789		722,124		1,302,701		2,240,210		475,185		5,690,072
Financial sector				73,164		366,107		542,488		336,233		1,005,712				2,323,704
Non-financial private sector and foreign residents		1,309,651		94,565,908		30,753,008		41,943,648		49,509,992		47,067,374		76,591,919		341,741,500

Total		1,309,651		94,879,135		31,828,904		43,208,260		51,148,926		50,313,296		77,067,104		349,755,276


			Remaining terms to maturity as of December 31, 2019
Item	Matured		Up to 1 month		Over 1 month and up to 3 months		Over 3 months and up to 6 months		Over 6 months and up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total
Non-financial government sector				3,722,842		880,926		1,040,537		2,501,141		4,121,934		2,751,211		15,018,591
Financial sector				2,498,632		3,004,100		642,334		859,600		1,215,730		7,443		8,227,839
Non-financial private sector and foreign residents		4,936,146		123,475,851		36,775,492		33,009,946		41,228,086		59,457,916		91,735,995		390,619,432

Total		4,936,146		129,697,325		40,660,518		34,692,817		44,588,827		64,795,580		94,494,649		413,865,862

Summary of Contractual Future Cash Flows of Financial Liabilities, Including Interest and Charges to be Accured

Additionally, the tables below disclose the maturity of the contractual future cash flows of financial liabilities, including interest and charges to be accrued until maturity of the contracts, as of December 31, 2020 and 2019:


	Remaining terms to maturity as of December 31, 2020
Item	Up to 1 month		Over 1 month and up to 3 months		Over 3 months and up to 6 months		Over 6 months and up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total
Deposits		439,899,936		45,047,684		5,581,716		3,025,417		34,807		2,187		493,591,747

From the non-financial government sector		67,873,301		5,558,974		901,974		2,128						74,336,377
From the financial sector		696,415												696,415
From the non-financial private sector and foreign residents		371,330,220		39,488,710		4,679,742		3,023,289		34,807		2,187		418,558,955

Derivative instruments		42		188										230

Repo transactions		620,389												620,389

Other financial institutions		620,389												620,389
Other Financial Liabilities		47,876,408		133,674		125,844		317,199		264,590		514,354		49,232,069

Financing received from the Central Bank of Argentina and other financial institutions		419,441		199,471		204,074		80,703		40,093		5,724		949,506

Issued corporate bonds		209,346				2,762,098		208,048		2,585,744				5,765,236

Subordinated corporate bonds						1,135,957		1,135,958		2,498,433		43,651,732		48,422,080

Total		489,025,562		45,381,017		9,809,689		4,767,325		5,423,667		44,173,997		598,581,257


	Remaining terms to maturity as of December 31, 2019
Item	Up to 1 month		Over 1 month and up to 3 months		Over 3 months and up to 6 months		Over 6 months and up to 12 months		Over 12 months and up to 24 months		Over 24 months		Total
Deposits		319,128,393		35,554,356		4,728,311		1,398,959		72,883		30,866		360,913,768

From the non-financial government sector		22,974,090		1,059,457		58,210		2,832						24,094,589
From the financial sector		427,702												427,702
From the non-financial private sector and foreign residents		295,726,601		34,494,899		4,670,101		1,396,127		72,883		30,866		336,391,477

Derivative instruments		399,076		464,440		183,040								1,046,556

Repo transactions		1,364,962												1,364,962

Other financial institutions		1,364,962												1,364,962
Other Financial Liabilities		28,687,673		133,406		141,649		227,982		442,189		585,057		30,217,956

Financing received from the Central Bank of Argentina and other financial institutions		1,403,744		1,130,058		205,002		133,670		230,972		62,376		3,165,822

Issued corporate bonds		436,031				701,097		1,006,731		4,579,987		4,206,065		10,929,911

Subordinated corporate bonds						1,100,808		1,100,810		2,201,618		44,722,198		49,125,434

Total		351,419,879		37,282,260		7,059,907		3,868,152		7,527,649		49,606,562		456,764,409

Summary of Bank's VaR by type of Risks

As of December 31, 2020 and 2019, the Bank’s economic capital by type of risk is as follows:


Economic capital (EC – in millions)	12/31/2020		12/31/2019
Interest rate risk		6,621		8,723
Currency Exchange rate risk		1,727		2,486
Price risk		5,198		192

Consumer [member]

Statement [LineItems]

Disclosure of internal credit grades

The following table discloses the risk levels score and rating arising from the Bank’s models:


	12/31/2020						12/31/2019
Category	Weighted PD			% Gross Carrying Amount			Weighted PD			% Gross Carrying Amount
Category	Weighted PD			% Gross Carrying Amount			Weighted PD			% Gross Carrying Amount
Performing		2.32	%		96.17	%		2.60	%		95.45	%
High grade		1.13	%		76.20	%		1.25	%		76.40	%
Standard grade		4.79	%		12.64	%		4.83	%		8.23	%
Sub-standard grade		12.48	%		7.33	%		11.64	%		10.82	%
Past due but not impaired		33.24	%		2.70	%		32.13	%		2.84	%
Impaired		100.00	%		1.13	%		100.00	%		1.71	%

Total					100.00	%					100.00	%