Balance Sheet at 31 December 2010 of BBVA

Translation of financial statements originally issued in Spanish and prepared in accordance with generally accounting principles Spain
(See Note 1 and 54). In the event of a discrepancy, the Spanish-language version prevails.
The above is carried out through a prudent risk management policy which consists of analyzing the financial
risk in a transaction, based on the repayment or resource generation capacity of the credit recipient, the
provision of guarantees in any of the generally accepted ways (cash collateral, pledged assets, personal
guarantees, covenants or hedges) appropriate to the risk undertaken, and lastly on the recovery risk (the
asset’s liquidity).
The procedures for the management and valuation of collaterals are set out in the internal Manual on Credit
Risk Management Policies, which the Bank actively uses in the arrangement of transactions and in the
monitoring of both these and customers.
This Manual lays down the basic principles of credit risk management, which includes the management of
the collateral assigned in transactions with customers. Accordingly, the risk management model jointly
values the existence of an adequate cash flow generation by the obligor that enables him to service the debt,
together with the existence of suitable and sufficient guarantees that ensure the recovery of the credit when
the obligor’s circumstances render him unable to meet their obligations.
The procedures used for the valuation of the collateral are consistent with the market's best practices, which
involve the use of appraisal for real estate guarantees, market price for shares, quoted value of shares in a
mutual fund, etc.
All collaterals assigned are to be properly instrumented and recognized in the corresponding register, as well
as receive the approval of the Bank’s Legal Units.
The following is a description of the main collateral for each financial instrument class:
• Financial assets held for trading: The guarantees or credit enhancements obtained directly from
the issuer or counterparty are implicit in the clauses of the instrument. In trading derivatives, credit
risk is minimized through contractual netting agreements, where positive- and negative-value
derivatives with the same counterparty are offset for their net balance. There may likewise be other
kinds of guarantees, depending on counterparty solvency and the nature of the transaction.
• Available for sale financial assets: The guarantees or credit enhancements obtained directly from
the issuer or counterparty are inherent in the structure of the instrument.
• Loans and receivables:
- Loans and advances to credit institutions: These have the counterparty’s personal guarantee.
- Total lending to customers: Most of these operations are backed by personal guarantees
extended by the counterparty. The collateral received to secure loans and advances to
customers includes mortgages, cash guarantees and other collateral such as pledged
securities. Other kinds of credit enhancements may be put in place such as guarantees.
- Debt securities: The guarantees or credit enhancements obtained directly from the issuer or
counterparty are inherent in the structure of the instrument.
• Held-to-maturity investments: The guarantees or credit enhancements obtained directly from the
issuer or counterparty are inherent in the structure of the instrument.
• Hedging derivatives: Credit risk is minimized through contractual netting agreements, where
positive- and negative-value derivatives with the same counterparty are settled at their net balance.
There may likewise be other kinds of guarantees, depending on counterparty solvency and the
nature of the transaction.
• Financial guarantees, other contingent exposures and drawable by third parties: They have
the counterparty’s personal guarantee and, in some cases, the additional guarantee from another
credit institution with which a credit derivative has been subscribed.
In addition, the derivatives carry contractual, legal compensation rights that have effectively reduced credit
risk by €27,443 and €27,026 million as of December 31, 2010 and 2009, respectively.
As of December 31, 2010, specifically in relation to mortgages, the average amount pending loan collection
represented 51.1% of the collateral pledged (51.5% as of December 31, 2009).
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