Provisions

The breakdown of the changes of the balance under this heading is as follows:

• 23.1

  Pensions and other post-employment defined benefit obligations

• Provisions for pensions and similar obligations – Defined benefit post-employment plans

  The Group’s defined benefit post-employment benefit obligations are as follows:

  1

  Part of the commitments with employees and former employees of CaixaBank are covered using insurance policies with Group or non-Group insurance companies, mainly from merger processes. In this case, CaixaBank is the insurance policyholder, and the contracts are managed by each insurance company, which also assumes the risks.

  2

  The rest of the obligations vested on the business in Spain arise from the CaixaBank Employment Pension Plan, which features various subplans. These subplans are integrated into two pension funds, namely the fund Pensions Caixa 30, a pension fund that which combines a greater number of holders and beneficiaries. The pension funds insure their defined benefit commitments through different insurance contracts, the policyholder of which is the Pension Plan Control Committee, the majority of which are with VidaCaixa. CaixaBank does not control the Pension funds into which these subplans are integrated, although it holds a minority representation on the Control Committees established in each of them.

  3

   Since most of the defined benefit commitments are covered through the pension funds or through insurance policies taken out directly by CaixaBank – the purpose of which is to ensure the provisions payable by the beneficiaries are equivalent to the provisions insured under the policies taken out – the Group is not exposed to market volatilities and unusual market movements. At different closures, the fair value of the policies taken out directly with VidaCaixa or other companies, and that of pension fund assets (mainly covered through insurance policies), is calculated with a uniform assessment methodology, as laid down in the accounting standard.

  If an insurance policy is a CaixaBank Employment Pension Plan asset and its flows exactly match the amount and timing of the benefits payable under the plan, the fair value of these insurance policies is deemed to be the present value of the related obligations. There will only be a defined benefit net liability when certain commitments are not insured by CaixaBank or the pension fund, for example, longevity queues for which the insurers have not been able to find financial instruments with a sufficiently long duration that replicate the guaranteed payments. Otherwise an asset would be produced as a net position.

  Whilst the insurance policies taken out with insurers external to the Group and the value of the assets held through the Pension Funds are presented in net form on the balance sheet, given that they are eligible assets of the plan and are used to settle the obligations assumed, the fair value of the other policies taken out directly by CaixaBank with VidaCaixa is eliminated in the consolidation process, with the integration of the financial investments of VidaCaixa under the policies in the various heading of the consolidated balance sheet.

  4

  Meanwhile, BPI has assumed all the obligations externalised in the “Fundo de Pensoes Banco BPI” pension fund, and recognises the present value of the obligations, net of the fair value of plan assets.

  The breakdown of the changes of the balance under this heading is as follows:

  Changes in provisions for pensions and similar obligations (Millions of euros)

  	DEFINED BENEFIT OBLIGATIONS (A)				FAIR VALUE OF ASSETS INVOLVED (B)				OTHER ASSETS (C)				NET (ASSET)/LIABILITY FOR LONG-TERM COMMITMENTS (A+B+C)
  	2020	2019	2018		2020	2019	2018		2020	2019	2018		2020	2019	2018
  OPENING BALANCE	(3,990)	(3,673)	(3,759)		3,479	3,230	3,168		(10)	(15)	(7)		(521)	(458)	(598)
  Interest cost (income)	(40)	(53)	(63)		40	51	59							(2)	(4)
  COMPONENTS OF COST OF DEFINED BENEFIT RECOGNISED IN PROFIT OR LOSS	(40)	(53)	(63)		40	51	59							(2)	(4)
  Actuarial (gains)/losses arising from demographic assumptions	(122)	(24)	51		23	179	48						(99)	155	99
  Actuarial gains/(Losses) arising from financial assumptions	(114)	(356)	(7)		80	92	16						(34)	(264)	9
  COMPONENTS OF COST OF DEFINED BENEFIT RECOGNISED IN EQUITY	(236)	(380)	44		103	271	64						(133)	(109)	108
  Plan contributions					20	21	14						20	21	14
  Plan payments	181	189	169		(157)	(162)	(146)						24	27	23
  Payments	37	2	2		(19)	(2)	(2)						18
  Transactions	(64)	(75)	(66)		62	70	73		14	5	(8)		12		(1)
  OTHER	154	116	105		(94)	(73)	(61)		14	5	(8)		74	48	36
  CLOSING BALANCE	(4,112)	(3,990)	(3,673)		3,528	3,479	3,230		4	(10)	(15)		(580)	(521)	(458)
  Of which: Vested obligations	(3,387)	(3,286)	(3,068)
  Of which: Non-vested obligations	(725)	(704)	(605)
  Of which: investments in real estate assets					392	390	319
  Of which: investments in equity instruments					235	215	187
  Of which: investments in debt instruments					1,134	1,139	1,017
  Of which: arranged through insurance policies					1,695	1,659	1,568
  Of which: investments in other assets					73	76	139

  The present value of defined benefit obligations was calculated using the following criteria:

  • The “projected unit credit” accrual method has been used, which considers each year of service as giving rise to one additional unit of benefit entitlement and measures each unit separately.
  • The estimated retirement age of each employee is the first age at which the employee has the right to retire or the age determined in the agreements, as applicable.
  • The actuarial and financial assumptions used in the measurement are unbiased and mutually compatible.

  The assumptions used in the calculations regarding business in Spain are as follows:

  Actuarial and financial assumptions in Spain

  	31/12/2020	31/12/2019	31/12/2018
  Discount rate of post-employment benefits (1)	0.39%	0.98%	1.64%
  Long-term benefit discount rate (1)	(0.26%)	(0.02%)	0.05%
  Mortality tables	PERM-F/2000 - P	PERM-F/2000 - P	PERM-F/2000 - P
  Annual pension review rate (2)	0% - 2%	0% - 2%	0% - 2%
  CPI annual cumulative (3)	1.81%	1.90%	1.2% 2018; 1.8% 2019 onwards
  Annual salary increase rate (4)	0% 2021; 0.75% 2022; 1% 2023; CPI + 0.5% 2024 and onwards	CPI+0.5%	1.25% 2018 CPI + 0.5% 2019 and onwards

  (1) ) Using a rate curve based on high-rated corporate bonds, with the same currency and terms as the commitments assumed. Rate informed on the basis of the weighted average term of these commitments.
  (2) Depending on each obligation.
  (3) Using the Spanish zero coupon inflation curve. Rate informed on the basis of the weighted average term of the commitments.
  (4) On 31 December 2020, the rates negotiated for the period 2020 and 2023 in the new Collective Bargaining Agreement for Savings Banks and Financial Savings Institutions are listed.

  The assumptions used in the calculations regarding BPI's business in Portugal are as follows:

  Actuarial and financial assumptions in Portugal

  	31/12/2020	31/12/2019	31/12/2018
  Discount rate (1)	1.01%	1.34%	1.97%
  Mortality tables for males	TV 88/90	TV 88/90	TV 88/90
  Mortality tables for females	TV 88/90 – 3 years	TV 88/90 – 3 years	TV 88/90 – 3 years
  Annual pension review rate	0.40%	0.40%	0.50%
  Annual salary increase rate	[0.9 - 1.9]%	[0.9 - 1.9]%	[1 - 2]%

  (1) Rate obtained by using a rate curve based on high-rated corporate bonds, with the same currency and terms as the commitments assumed.

  Actuarial valuation of the pension commitments attributed to businesses in Spain and Portugal is carried out by qualified actuaries independent of the Group.

  Additionally, in order to preserve the governance of the valuation and the management of the risks inherent to the acceptance in these commitments, CaixaBank has established an activity framework where the ALCO manages hedging proposals for these risks and the Global Risk Committee approves any changes to the criteria to measure the liabilities reflected in these commitments for businesses in Spain.

  Below follows a sensitivity analysis of the value of obligations based on the main assumptions used in the actuarial valuation. To determine this sensitivity the calculation of the value of the obligations is replicated, changing the specific variable and maintaining the remaining actuarial and financial assumptions unchanged. One drawback of this method is that it is unlikely that a change will occur in one variable alone as some of the variables may be correlated:

  Analysis of the sensitivity of the obligations (Millions of euros)

  	SPAIN			PORTUGAL
  	+50 bp	-50 bp		+50 bp	-50 bp
  Discount rate	(30)	33		(158)	180
  Annual pension review rate	8	(7)		238	(209)

  The estimate of the fair value of insurance contracts linked to pensions taken out directly by CaixaBank with VidaCaixa or other companies and of the value of the pension fund assets (also mainly insurance policies) takes into account the value of future guaranteed payments discounted from the same rate curve used for the obligations. Therefore, since the expected flows of payments are matched with those deriving from the policies, the possible fair changes – at the close of the financial year – in the discount rate would have a similar effect on the value of the Group's gross obligations and on the fair value of insurance contracts linked to pensions and the fair value of assets held through pension funds.

  Consistent with the provision of Note 2.12, the sensitivity of the obligations has only been calculated when certain commitments are not insured by CaixaBank or the pension fund, for example, certain aforementioned longevity queues for business in Spain.

  The estimated payment of the provisions planned for the next 10 years is stated below:

  Estimated payments of post-employment (Millions of euros)

  	2021	2022	2023	2024	2025	2026-2030
  Spain *	27	26	26	26	26	124
  Portugal	59	61	63	64	64	325

  (1) Excluding insured provisions to be paid directly by VidaCaixa to the Pension Funds.

• 23.2

  Provisions for other employee benefits

• The Group has funds to cover the commitments of its discontinuation programmes, both in terms of salaries and other social costs, from the moment of termination until reaching the age established in the agreements. Funds are also in place covering length of service bonuses and other obligations with existing personnel. The main training programmes for which funds are kept are as follows:

  Disassociation programmes (Millions of euros)

  	YEAR RECOGNISED	NUMBER OF PEOPLE	INITIAL PROVISION
  Labour agreement 17-07-2014	2014	434	182
  Labour agreement for Barclays Bank personnel restructuring 2015	2015	968	187
  Labour agreement 29-06-2015 (territorial reorganisation of the workforce)	2015	700	284
  Paid early retirements and resignations 16-04-2016	2016	371	160
  Labour agreement 29-07-2016	2016	401	121
  Paid early retirements and resignations 10-01-2017	2017	350	152
  Labour agreement 27-04-2017 - BPI	2017	613	107
  Labour agreement 28-04-2017 - Discontinuations 2017	2017	630	311
  Labour agreement 28-04-2017 - Discontinuations 2018	2018	151	67
  Labour agreement 08-05-2019	2019	2,023	978
  Labour agreement 31-01-2020 - Discontinuations 2020	2020	226	109

  The breakdown of the changes of the balance under this heading is as follows:

  Reconciliation of balances of other long-term employee benefits (Millions of euros)

  	NET (ASSET)/LIABILITY
  	FOR DEFINED BENEFIT OBLIGATIONS
  	2020	2019	2018
  OPENING BALANCE	1,710	1,072	1,223
  Included in profit or loss
  Service cost for the current year	4	2	5
  Past service cost	98	978	78
  Interest net cost (income)	2	1	2
  Revaluations (gains)/losses	34	(2)	(5)
  COMPONENTS OF COST OF DEFINED BENEFIT RECOGNISED IN PROFIT OR LOSS	138	979	80
  Other
  Plan payments	(423)	(324)	(231)
  Transactions	(27)	(17)
  TOTAL OTHER	(450)	(341)	(231)
  CLOSING BALANCE	1,398	1,710	1,072
  Of which: With pre-retired personnel	299	449	633
  Of which: Termination benefits	753	962	229
  Of which: Supplementary guarantees and special agreements	238	181	91
  Of which: Length of service bonuses and other	61	60	59
  Of which: Other commitments deriving from Barclays Bank	47	58	60

• 23.3

  Provisions for pending legal issues and tax litigation

• Litigiousness in the field of banking and financial products is subject to comprehensive monitoring and control to identify risks that may lead to the outflow of funds from the entity, making the necessary allocations and taking the appropriate measures in terms of adaptation and improving procedures, products and services. 2020 has been marked by highly irregular flows conditioned by the effect that the health crisis and the state of emergency have also caused on the normal functioning of the Administration of Justice.

  The dynamic nature of litigiousness and the high disparity of judicial criteria frequently drive changes in scenarios, without prejudice to which the Group has established monitoring mechanisms to control the progress of claims, actions and different judicial sensitivities on the contentious matters that make it possible to identify, define and estimate risks, based on the best information available at any given time.

  In the case of disputes under general conditions, generally linked to the granting of mortgage loans to consumers (e.g. Floor clauses, mortgage expenses, advance maturity, etc.), the necessary provisions are held and the Group maintains ongoing dialogue with customers in order to explore agreements on a case-by-case basis. Similarly, CaixaBank leads the adherence to extrajudicial dispute resolution systems promoted by certain judicial bodies that resolve these matters – in Barcelona, Palencia, Valladolid and Pamplona – in order to promote amicable solutions that avoid litigating with customers and help alleviate the judicial burden. A specific section on IRPH is included below.

  In the same way, CaixaBank has adapted its provisions to the risk of ongoing actions arising from claims for the amounts of payments on account for the purchase of off-plan housing, banking, financial and investment products, excessive and abnormal price of interest rates (see specific section below), right to honour or statements of subsidiary civil liability arising from possible conduct of persons with employment links.

  Lastly, a criterion of prudence is adopted for constituting provisions for possible punishable administrative procedures, for which hedging is allocated in accordance with the economic criteria that may be laid down by the specific administration regarding the procedure, without prejudice to the full exercise of the right of defence in instances, where applicable, in order to reduce or annul the potential sanction.

  The content of the main sections of this heading is set out below. The expected timing of outflows of funds embodying economic benefits, should they arise, is uncertain.

  

  IRPH (Mortgage Loan Reference Index)

  In relation to the official reference rate for mortgages in Spain (IRPH), the judgment issued by the Court of Justice of the European Union (CJEU) on 3 March 2020, and the set of judgments issued by the First Chamber of the Spanish High Court on 6 and 12 November 2020 provide clarity to the prosecution of claims that question the lack of transparency in the marketing of mortgage loans that include such an index.

  The chief legal conclusion of the current judicial framework and without prejudice to its eventual change, is the validity of mortgage loans that include such an index.

  On the one hand, in mortgage loans where the IRPH had been included in the context of Public Agreements in order to facilitate access to social housing, the Spanish High Court deems that there was transparency in the procurement; The core elements relating to the calculation of the variable interest laid down in the contract were easily accessible, the consumer adhered to a financing system established and regulated by a regulatory rule, regularly reviewed by successive Councils of Ministers, the clause expressly referred to this regulation and these agreements and both the former and the latter enjoy publicity arising from their publication in the Official State Gazette (BOE).

  In cases not covered by the abovementioned scenario, pre-contractual and contractual information provided to consumers of mortgage loans including such an index should be examined on a case-by-case basis, in order to determine whether or not they suffer from lack of transparency, since there are no assessed means of testing material transparency. In any case, the important thing is that any declaration of lack of transparency requires the Spanish High Court – according to repeated legal principle of the CJEU – to make a judgment of abuse, and such abuse – due to the existence of bad faith and major imbalance – has no place in such cases. In the opinion of the Spanish High Court, on the one hand, good faith is not infringed when offering an official index, recommended by the Bank of Spain since the end of 1993 as one of the rates that could be used for mortgage lending operations and when the central Government and several autonomous governments – through various regulatory provisions – had established the IRPH index as a reference for financing (borrowing) for the purchase of social housing. On the other hand, there is also no significant imbalance at the time of procurement, since the subsequent evolution is irrelevant and it cannot be ignored that hypothetically, by replacing the Savings Banks IRPH or Banks IRPH with the index proposed by the CJEU as a replacement in case of abuse and lack of agreement, the Entities IRPH would be applied as the supplementary legal index, which presents virtually no differences with the Savings Banks IRPH or Banks IRPH.

  In conclusion, the full validity of the procurement and the absence of risk on the eventual outflow of funds due to a possible declaration of lack of transparency are clarified in accordance with current case law.

  Without prejudice to the foregoing, the Court of First Instance No. 38 of Barcelona has requested a new request for preliminary rulings with the CJEU, following its judgment of 3 March 2020 in Case C-125/18, which can be framed in the dynamic character of the litigiousness mentioned in the introduction, which will be subject to specific monitoring.

  On 31 December 2020, the total amount of mortgages up to date with payments indexed to the IRPH (mortgage base rate) with individuals is approximately EUR 5,328 million (the majority of which are with consumers). The Group, in accordance with the current legal basis and reasonableness of the foregoing, as well as the best available information to date, does not hold provisions for this item.

  Litigation linked to consumer credit contracts (“revolving” cards) through the application of the Usury Repression Act of 1908, as a result of the Spanish High Court Judgment dated 04.03.2020.

  The Spanish High Court gave a sector-relevant judgment on the contracts of revolving cards and/or deferred-payment cards. The resolution determines i) that revolving cads are market-specific within credit facilities, ii) that the Bank of Spain publishes a specific benchmark interest rate for this product in its Statistical Bulletin, which is the one that must be used as a reference to determine which is the 'normal interest rate', iii) that 'the average interest rate of credit transactions on credit and revolving cards from the Bank of Spain statistics (...) was somewhat higher than 20%' and iv) that an APR like that analysed in the specific case, between 26.82% and 27.24%, is 'notably disproportionate', which entails the contract becoming null and void and the interests paid being refunded. This judgment, unlike the previous one on this subject matter where the supra duplum rule was used to define the disproportionate price – i.e. exceeding twice the ordinary average interest – does not, on this occasion, provide specific criteria or accuracy to determine with legal certainty the amount of excess or difference between the “normal interest rate” that can entail the invalidity of the contract. This circumstance is likely to continue to bring about a significant number of lawsuits and a highly diverse series of judicial criteria, the specific affects of which cannot be currently determined, and which will be subject to specific monitoring and management.

  Furthermore, CaixaBank and its card-issuing subsidiary, CaixaBank Payments and Consumer, received a collective action formulated by an Association of Consumers and Users (ASUFIN) which was partially dismissed by the Commercial Court No. 4 of Valencia on December 30, 2020. Firstly, the process was reduced to an action of eventual cessation of general conditions; the possibility of claiming refunds of amounts was rejected for the Association of Consumers and in favour of CaixaBank. Subsequently, the judgment reaffirms this situation, fully dismisses the claim against CaixaBank and solely requests CaixaBank Payments and Consumer to discontinue the advance maturity clause, disregarding all other requests regarding lack of transparency in the operation of cards, interest calculation methods, the right to compensation for debt and the change of conditions under contracts of an indefinite duration. The sentence has not been firmly established as of yet.

  In accordance with the best information available up to now, the heading "Other Provisions" includes an estimate of the current obligations that may arise from judicial proceedings, included those relating to revolving cards and/or those with deferred payments, the occurrence of which is deemed to be likely.

  In any case, any disbursements that may ultimately be necessary will depend on the specific terms of the judgments which the Group must face, and/or the number of claims that are brought, among others. Given nature of these obligations, the expected timing of the outflow of financial resources, in the event they are produced, is uncertain, and, in accordance with the best available information today, the Group also deems that any responsibility arising from these proceedings will not, as a whole, have a material adverse effect on the Group's businesses, financial position or the results of its operations.

  Procedures of the Portuguese Resolution Fund (PRF)

  On 3 August 2014, the Bank of Portugal applied a resolution procedure to Banco Espírito Santo, SA (BES) through the transfer of its net assets and under the management of Novo Banco, SA (Novo Banco). Within the framework of this procedure, the PRF completed a capital increase in Novo Banco for an amount of EUR 4,900 million, becoming the sole shareholder. The increase was financed through loans to the FRP for an amount of EUR 4,600 million, EUR 3,900 million of which was granted by the Portuguese State and EUR 700 million granted by a banking syndicate through the Portuguese financial institutions, including BPI with EUR 116 million.

  On 19 December 2015, the Bank of Portugal initiated a procedure to put Banco Internacional do Funchal (Banif) into resolution, which came to a head with i) the partial sale of its assets for EUR 150 million to Banco Santander Totta, S.A.; and ii) the contribution of the rest of its assets that were not sold to Oitante, SA. The resolution was financed through the issuance of EUR 746 million of debt, guaranteed by the PRF and the Portuguese State as a counter-guarantee. The operation also included the ultimate guarantee of the Portuguese State amounting to EUR 2,255 million intended to cover future contingencies.

  For the reimbursement of the PRF obligations with the Portuguese State (in the form of loans and guarantees) in relation to resolution measures adopted, the FRP has contributed ordinary instruments through the various contributions of the banking sector. Along these lines, the conditions of the loans with the PRF have been amended to bring them in line with the collection of the aforementioned contributions; there is no foreseen need to turn to additional contributions from the banking sector.

  In 2017, the Bank of Portugal chose Lone Star to conclude the sale of Novo Banco, after which the PRF would hold 25% of the share capital and certain contingent capital mechanisms would be established by the shareholders. To cover the contingent risk, the PRF has the financial means of the Portuguese State, the reimbursement of which – where applicable – would have repercussions on the contributory efforts of the banking sector.

  At this time, it is not possible to estimate the possible effects for the Resolution Funds deriving from: i) the sale of the shareholding in Novo Bank; ii) the application of the principle that none of the creditors of a credit institution under resolution may assume a loss greater than that which it would have assumed if that entity had gone into liquidation; iii) the guarantee granted to the bonds issued by Oitante and iv) other liabilities that – it is concluded – must be assumed by PRF.

  Notwithstanding the possibility considered in the applicable law for the collection of special contributions, given the renegotiation of the terms of the loans granted to the PRF, which include BPI, and the public statement made by the PRF and the Office of the Minister of Finance of Portugal, declaring that this possibility will not be used, the consolidated financial statements of 2020 reflect the expectation of the Administrators that the Bank will not have to make special contributions or any other type of extraordinary contributions to finance the resolution measures applied to BES and Banif or any other contingent liability or liabilities assumed by the PRF.

  Any change in this regard may have material implications for the financial statements of the Group.

  Ongoing investigation in Spanish Central Court (Juzgado de Instrucción Central) No.2 (Preliminary Proceedings 16/18)

  In April 2018, the Anti-Corruption Prosecutor's Office started legal proceedings against CaixaBank, the Entity's former head of Regulatory Compliance and 11 employees, for events that could be deemed to constitute a money laundering offence, primarily due to the activity carried out in 10 branches of CaixaBank by alleged members of certain organisations formed of Chinese nationals, who allegedly conducted fraud against the Spanish Treasury between 2011 and 2015. The procedure is currently in its investigation phase and neither CaixaBank nor its legal advisers consider the risk associated with these criminal proceedings as being likely to arise. The potential impact of these events is not currently considered material, although CaixaBank is exposed to reputational risk due to these ongoing proceedings.

  Ongoing investigation in Spanish Central Court (Juzgado de Instrucción Central) No.5 (Preliminary Proceedings 67/18)

  As a result of a private prosecution, a set of corporate transactions in 2015 and 2016, together with an asset transaction, as alleged by the referred prosecution, are under investigation, being the later however non-existent (since it was never granted).Without prejudice to the reputational damage resulting from any judicial investigation, it is not considered as probable that an economical risk linked to this criminal proceeding would materialise or cause a negative effect.

  Provisions for taxes

  The detail of the balance of this heading in the balance sheet is as follows:

  Breakdown for provisions for taxes (Millions of euros)

  	31/12/2020	31/12/2019	31/12/2018
  Income tax assessments for years 2004 to 2006	0	33	33
  Income tax assessments for years 2007 to 2009	11	12	12
  Income tax assessments for years 2010 to 2012	13	13	13
  Income tax assessments for years 2013 to 2015	7	0	0
  Tax on deposits	18	18	18
  Other	175	206	209
  TOTAL	224	282	285

  Additionally, the main tax procedures ongoing at 2020 year-end are as follows:

  • During the current year the activities to verify financial years 2013 to 2015 have been finalised, and due provisions were provided for their impacts. Assessments signed in agreement were paid during the year, while those signed under protest for Corporation Tax and Value Added Tax are still awaiting a ruling by the Chief Tax Inspector.
  • In 2017, the review actions for 2010 to 2012 were completed with no significant impact. Disputed Corporation Tax assessments are under appeal with the National Criminal Court, and disputed value-added tax assessments have been subject to an appeal against the decision of the tax authorities with the Central Economic-Administrative Court.
  • In 2011, the Tax Inspection Bureau started to review 'la Caixa' in relation to financial years 2007 to 2009 for the main taxes applicable, which was completed in 2013. Disputed tax assessments are under appeal with the Spanish High Court and pending execution.
  • In 2008, the Tax Inspection Bureau started to review 'la Caixa' in relation to financial years 2004 to 2006 for the main taxes applicable, which was completed in 2010. Disputed tax assessments were under appeal with the Spanish High Court and have been executed this year.

  The Group has allocated provisions to cover the maximum contingencies that may arise in relation to Corporation Tax and VAT assessments signed under protest.

• 23.4

  Provision for commitments and guarantees given

• This heading includes the provisions for credit risk of the guarantees and contingent commitments given (Note 26).

• 23.5

  Other provisions

• The content of the main sections of this heading is set out below. The expected timing of outflows of funds embodying economic benefits, should they arise, is uncertain.

  Losses from agreements not formalised and other risks

  Class action brought by the ADICAE association (floor clauses)

  The legal procedure in which class action for discontinuance was carried out by ADICAE (the Association of Banking and Insurance Consumers) in application of the floor causes that exist in some of the entity's mortgages, are currently in the phase of Reversal and Procedural Infringement before the Spanish Supreme Court.

  As stated in the previous financial statements, the risk associated with this matter was managed with specific coverage of EUR 625 million, and a team and specific procedures were developed to comply with the requests filed under the framework of Royal Decree-Law 1/2017, of 20 January, on urgent measures to protect consumers against floor causes.

  There were no significant disbursements associated to this procedure in 2020.

  With the available information, the risk derived from the disbursements that could arise due to these litigation proceedings is reasonably covered by the corresponding provisions.