Balance Sheet at 31 December 2010 of BBVA
Balance Sheet at 31 December 2010 of BBVA
Balance Sheet at 31 December 2010 of BBVA
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Transl<strong>at</strong>ion <strong>of</strong> financial st<strong>at</strong>ements originally issued in Spanish and prepared in accordance with generally accounting principles Spain<br />
(See Note 1 and 54). In the event <strong>of</strong> a discrepancy, the Spanish-language version prevails.<br />
Credit quality <strong>of</strong> financial assets th<strong>at</strong> are neither past due nor impaired<br />
<strong>BBVA</strong> has r<strong>at</strong>ings tools th<strong>at</strong> enable it to rank the credit quality <strong>of</strong> its oper<strong>at</strong>ions and customers based on a<br />
scoring system and to map these r<strong>at</strong>ings to probability <strong>of</strong> default (“PD”) scales. To analyze the performance<br />
<strong>of</strong> PD, the Bank has a series <strong>of</strong> tracking tools and historical d<strong>at</strong>abases th<strong>at</strong> house the pertinent inform<strong>at</strong>ion<br />
gener<strong>at</strong>ed internally.<br />
The scoring tools vary by customer segment (companies, corpor<strong>at</strong>e clients, SMEs, public authorities, etc).<br />
Scoring is a decision model th<strong>at</strong> contributes to both the arrangement and management <strong>of</strong> retail type loans:<br />
Consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to whom a<br />
loan should be assigned, wh<strong>at</strong> amount should be assigned and wh<strong>at</strong> str<strong>at</strong>egies can help establish the price,<br />
because it is an algorithm th<strong>at</strong> sorts transactions in accordance with their credit r<strong>at</strong>ing. The move towards<br />
advanced risk management makes it possible to establish more proactive commercial rel<strong>at</strong>ions with<br />
customers. Proactive scoring establishes limits for customers th<strong>at</strong> are then used when granting<br />
transactions.<br />
R<strong>at</strong>ing tools, as opposed to scoring tools, do not assess transactions but focus on customers instead:<br />
companies, corpor<strong>at</strong>e clients, SMEs, public authorities, etc. For wholesale portfolios where the number <strong>of</strong><br />
defaults is very low (sovereigns, corpor<strong>at</strong>es, financial entities) the internal r<strong>at</strong>ings models are fleshed out by<br />
benchmarking the st<strong>at</strong>istics maintained by external r<strong>at</strong>ing agencies (Moody's, Standard & Poor’s and Fitch<br />
Ibca). To this end, each year the Bank compares the PDs compiled by the agencies <strong>at</strong> each level <strong>of</strong> risk<br />
r<strong>at</strong>ing and maps the measurements compiled by the various agencies to the <strong>BBVA</strong> master r<strong>at</strong>ing scale.<br />
Once the probability <strong>of</strong> default for the transactions or customers has been determined, the so-called<br />
business cycle adjustment starts. This involves gener<strong>at</strong>ing a risk metric outside the context estim<strong>at</strong>e, seeking<br />
to g<strong>at</strong>her inform<strong>at</strong>ion th<strong>at</strong> represents behavior for an entire economic cycle. This probability is linked to<br />
<strong>BBVA</strong>´s master r<strong>at</strong>ing scale.<br />
<strong>BBVA</strong> maintains a master r<strong>at</strong>ing scale with a view to facilit<strong>at</strong>ing the uniform classific<strong>at</strong>ion <strong>of</strong> the Bank’s<br />
various asset risk portfolios. The table below shows the abridged scale which groups outstanding risk into<br />
17 c<strong>at</strong>egories as <strong>of</strong> <strong>December</strong> <strong>31</strong>, <strong>2010</strong>:<br />
Internal R<strong>at</strong>ing<br />
Probability <strong>of</strong> default<br />
(basic points)<br />
Reduced List (17 groups)<br />
Average<br />
Minimum<br />
from >=<br />
Maximum<br />
AAA 1 - 2<br />
AA+ 2 2 3<br />
AA 3 3 4<br />
AA- 4 4 5<br />
A+ 5 5 6<br />
A 8 6 9<br />
A- 10 9 11<br />
BBB+ 14 11 17<br />
BBB 20 17 24<br />
BBB- <strong>31</strong> 24 39<br />
BB+ 51 39 67<br />
BB 88 67 116<br />
BB- 150 116 194<br />
B+ 255 194 335<br />
B 441 335 581<br />
B- 785 581 1,061<br />
C 2,122 1,061 4,243<br />
39