Audit Report on Bankia, S.A. and Subsidiaries (Together with the condensed consolidated interim financial statements and consolidated interim management report of Bankia, S.A. and Subsidiaries for the period from 1 January 2020 to 30 June 2020) (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) KPMG Auditores, S.L. Paseo de la Castellana, 259 C 28046 Madrid Independent Auditor’s Report on the Condensed Consolidated Interim Financial Statements (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) To the Shareholders of Bankia, S.A. REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Opinion __________________________________________________________________ We have audited the condensed consolidated interim financial statements of Bankia, S.A. (the “Bank”) and its subsidiaries that, together with the Bank, form the Bankia Group (the “Group”), which comprise the consolidated balance sheet at 30 June 2020 and the consolidated income statement, consolidated statement of recognised income and expense, consolidated statement of changes in equity and consolidated cash flow statement and consolidated notes to the condensed consolidated interim financial statements for the six-month period then ended. In our opinion, the accompanying condensed consolidated interim financial statements of the Group for the six-month period ended 30 June 2020 have been prepared, in all material respects, in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting, as adopted by the European Union, for the preparation of condensed interim financial information, pursuant to article 12 of Royal Decree 1362/2007. Basis for Opinion _________________________________________________________ We conducted our audit in accordance with prevailing legislation regulating the audit of accounts in Spain. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Condensed Consolidated Interim Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements, including those regarding independence, that are relevant to our audit of the condensed consolidated interim financial statements pursuant to the legislation regulating the audit of accounts in Spain. We have not provided any non-audit services, nor have any situations or circumstances arisen which, under the aforementioned regulations, have affected the required independence such that this has been compromised. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KPMG Auditores, S.L., a limited liability Spanish company and a member firm of the On the Spanish Official Register of Auditors (“ROAC”) with No. S0702, and the KPMG network of independent member firms affiliated with KPMG International Spanish Institute of Registered Auditors’ list of companies with No. 10. Cooperative (“KPMG International”), a Swiss entity. Reg. Mer Madrid, T. 11.961, F. 90, Sec. 8, H. M -188.007, Inscrip. 9 Paseo de la Castellana, 259C – Torre de Cristal – 28046 Madrid N.I.F. B-78510153 2 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Key Audit Matters ________________________________________________________ Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the condensed consolidated interim financial statements of the current period. These matters were addressed in the context of our audit of the condensed consolidated interim financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Impairment of loans and advances to customers See notes 1.13 and 7.5 to the condensed consolidated interim financial statements Key audit matter How the matter was addressed in our audit The Group’s portfolio of loans and advances to Our audit approach in relation to the Group’s customers reflects a net balance of Euros estimate of impairment of loans and advances to 122,299,289 thousand at 30 June 2020, while customers due to credit risk included an assessment allowances and provisions recognised at that date for of the relevant controls associated with the impairment total Euros 3,293,221 thousand. processes for estimating impairment, as well as different tests of detail on that estimate, for which For the purposes of estimating impairment, financial we involved our credit risk specialists. assets measured at amortised cost are classified into Our procedures related to the control environment three categories (Stage 1, 2 or 3) according to focused on the following key areas: whether a significant increase in their credit risk since initial recognition has been identified (Stage 2), x Identifying the credit risk management whether the financial assets are credit-impaired framework and assessing the compliance of the (Stage 3) or whether neither of the foregoing Group’s accounting policies with the applicable circumstances apply (Stage 1). For the Group, regulations. establishing this classification is a relevant process inasmuch as the calculation of the credit risk x Evaluating the appropriate classification of the provision varies depending on the category in which loans and advances to customers portfolio the financial asset has been included. based on their credit risk, in accordance with the criteria defined by the Group, particularly the criteria for identifying and classifying refinancing Impairment is calculated based on an expected loss and restructuring transactions. model, which the Group estimates on both an individual and a collective basis. This calculation x Testing of the relevant controls relating to the entails a considerable level of judgement as this is a information available for the monitoring of loans significant and complex estimate. outstanding. x Individual provisions consider estimates of future Evaluating the design and implementation of the business performance and the market value of relevant controls over the management and collateral provided for credit transactions. measurement of collateral and guarantees. x Assessing the consideration of the aspects observed by the Internal Valuation Unit as regards the recalibration and tests of the models to estimate collective provisions. x Evaluating the integrity, accuracy and updating of the data used and of the control and management process in place. 3 (Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails.) Impairment of loans and advances to customers See notes 1.13 and 7.5 to the condensed consolidated interim financial statements Key audit matter How the matter was addressed in our audit For the collective analysis, estimates of expected Our tests of detail on the estimated expected losses losses are calculated using internal models that use essentially included the following: large databases, different macroeconomic scenarios, x parameters to estimate provisions, segmentation With regard to the impairment of individually criteria and automated processes, which are significant transactions, we evaluated the complex in their design and implementation and suitability of the discounted cash flows models require past, present and future information to be used by the Group and selected a sample from considered. The Group regularly conducts the population of significant risks with evidence recalibrations and tests of its internal models in order of credit impairment and assessed the adequacy to improve their predictive capabilities based on of the provisions recognised. This sample actual historical experience. included borrowers from the economic sectors most impacted by COVID-19 and/or those that have received government aid due to the The COVID-19 pandemic is affecting the economy pandemic. and business activities, leading to a downturn in the macroeconomic situation. To mitigate the impacts of x With respect to the allowances and provisions COVID-19, the Spanish government has launched for impairment estimated collectively, we initiatives to support the most affected sectors and evaluated the methodology used by the Group, customers through various measures such as the assessing the integrity and accuracy of the input provision of State-backed credit facilities, the deferral balances for the process and evaluating the of payments without penalties (moratoriums) and correct functioning of the calculation engine by flexible financing and liquidity facilities. All these repeating the calculation process taking into aspects have an impact on the parameters account the segmentation and assumptions considered by the Group to quantify the expected used by the Group. losses on financial assets (macroeconomic variables, customer net revenues, value of collateral pledged, In carrying out our audit procedures, we have likelihood of default, etc.). Consequently, the Group taken into consideration the impacts of COVID- has recognised in the consolidated income 19 and the government aid on the calculation of statement at 30 June 2020 additional impairment expected losses. losses amounting to Euros 310 million, mainly due to x We analysed whether the disclosures in the the downturn of the macroeconomic scenario. notes to the condensed consolidated interim financial statements are appropriate, in