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.
Most of the impairment on financial assets are included under the heading “Loans and receivables - Loans
and advances to customers” whose changes for the years ended 2010 and 2009 were as follows:
Millions of Euros
Changes in the Impairment Losses of the heading Loans and
Receivables - Loans and advances to customers
2010 2009
Balance at the beginning 5,029 4,113
Increase in impairment losses charged to income 3,380 3,702
Decrease in impairment losses credited to income (1,597) (2,105)
Aquisition of subsidiaries in the period - 144
Transfers to written-off loans (1,413) (780)
Exchange differences and other 126 (45)
Balance at the end 5,525 5,029
Of which:
For impaired portfolio 5,110 3,974
For current portfolio non impaired 415 1,055
5.2 MARKET RISK
a) Market Risk
Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices, resulting in changes in the different assets and financial risk factors.
The risk can be mitigated or even eliminated through hedges using other products (assets/liabilities or
derivatives), or by undoing the transaction/open position.
There are four main risk factors that affect market prices: interest rates, foreign exchange rates, equity and
commodities. In addition, for certain positions, other risks also need to be considered, such as spread risk,
basis risk, volatility and correlation risk.
• Interest rate risk: Defined as changes in the term structure of market interest rates for different
currencies.
• Foreign-exchange risk: This is the risk resulting from changes in the foreign exchange rate for
different currencies.
• Price risk: This is the risk resulting from variations in market prices, either due to factors specific
to the instrument itself, or alternatively to factors which affect all the instruments traded on the
market.
• Commodities risk: this is the risk resulting from changes in the price of traded commodities.
In addition, for certain positions, other risks also need to be considered: Credit spread risk, basis risk,
volatility or correlation risk.
Value at Risk (VaR) is the basic variable for measuring and controlling the Group’s market risk. This risk
metric estimates the maximum loss that may occur in a portfolio’s market positions for a particular time
horizon and given confidence level. VaR is calculated in the Group at a 99% confidence level and a 1-day
time horizon.
BBVA has received approval from the Bank of Spain to use the internal model to calculate bank capital for
market risk. This authorization took effect from December 31, 2004.
In BBVA, VaR is estimated using the Historic Simulation methodology. This methodology consists of
observing how the profits and losses of the current portfolio would perform if the market conditions from a
particular historic period were in force, and from that information to infer the maximum loss at a certain
confidence level. It offers the advantage of accurately reflecting the historical distribution of the market
variables and of not requiring any specific distribution assumption. The historic period comprises two years.
With regard to market risk, limit structure determines a system of VaR and economic capital at risk limits for
each business unit, with specific sub-limits by type of risk, activity and desk.
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