BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

6. RISK EXPOSURE
The BBVA Group’s system of risk management and risk exposure is described in Note 7 “Risk exposure” in
the accompanying interim consolidated financial statements.
Exposure to subprime credit risk
The application across the BBVA Group of prudent risk policies has resulted in very limited exposure to
subprime credit risk with respect to mortgage loans, mortgage-backed securities and other securitized
financial instruments originated in the United States.
The Group’s banks have not originated risk products specifically for the subprime segment. However, the
financial crisis that began in the United States in 2007, and the consequent decline in economic conditions
and increased inability to pay on the part of certain borrowers, has implied a downgrade in their respective
credit ratings. It is important to note, however, that the classification of a financial instrument as a subprime
credit risk does not necessarily signify that such financial instrument is either past due or impaired or that we
have not assigned such financial instrument a “high” or “very high” estimate of recoverability.
As of June 30, 2010, the amount of home mortgage credit risk transactions corresponding to customers in
the United States whose credit quality had dropped below the “subprime” level totaled €592 million, 0.17% of
the Group’s total customer credit risk (€513 million and 0.16% respectively as of December 31, 2009). Of this
amount, as of June 30, 2010, only €65 million were past due or impaired (€66 million as of December 31,
2009).
In addition, as of June 30, 2010, the net carrying amount of structured credit instruments with underlying
subprime assets amounted to €14 million (see Note 8), of which 83% have a high credit rating from the main
rating agencies operating in the market (€13 million and 85% respectively, as of December 31, 2009).
Structured credit instruments
As of June 30, 2010, the carrying amount of structured credit instruments in the Group was €3,644 million, of
which the majority is guaranteed by agencies and insurance companies. Of this total, €171 million were
recognized under “Financial assets held for trading”, €361 million under “Financial instruments at fair value
through profit or loss” and €3,112 million under “Available for sale financial assets”.
The valuation methods of this kind of financial product are described in Note 8, “Fair value of financial
instruments” in the accompanying consolidated financial accounts.
7. THE GROUP'S CAPITAL BASE
The BBVA Group’s capital base, calculated according to rules defined in accordance with the Basel II
capital accord, was €39,286 million as of June 30, 2010, 0.4% down on the figure as of December 31, 2009,
mainly due to the greater contribution of Core Capital.
The risk-weighted assets (APR) have increased 6.4% over the period to €309,617 million as of June 30,
2010, due mainly to the appreciation of currencies on the Group’s non-euro positions. Excess of capital
resources over the 8.0% of risk-weighted assets required by the regulation stood at €14,517 million.
Core capital as of June 30, 2010 stood at €24,929 million, more than €1,738 million higher than the figure
as of December 31, 2009, due primarily to withheld attributable profit, which has absorbed the impact of the
purchase of the additional share of CNCB during the half year. It represents 8.1% of risk-weighted assets,
compared to 8.0% as of December 31, 2009.
Adding preference shares to core capital, Tier I as of June 30, 2010 stood at €28,351 million, 9.2% of the
risk-weighted assets. This is a fall of 20 basis points on the figure as of December 31, 2009. Preference
shares amount to 18.4% of the total core capital (Tier I).
Other eligible capital (Tier II) mainly consists of subordinated debt, latent capital gains and excess generic
provisions up to the limit set forth in the regulations. At June 30, 2010, Tier II stood at €10,935 million, i.e.
3.5% of risk-weighted assets. The changes in Tier I and Tier II can basically be explained by the increase in
deductions in the holdings in financial institutions due to purchase of the additional holding in CNCB and the
reduction in latent gains as a result of the behavior of the financial markets during the period.
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