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

debtors 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 positiveand
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.
The Group’s collateralized credit risk as of June 30, 2010 and December 31, 2009, excluding balances
deemed impaired, is broken down in the table below:
Millions of Euros
Collateralized Credit Risk
June December
2010 2009
Mortgage loans 132,732 127,957
Operating assets mortgage loans 3,976 4,050
Home mortgages 106,106 99,493
Rest of mortgages 22,650 24,414
Secured loans, except mortgage 22,675 20,917
Cash guarantees 265 231
Secured loan (pledged securities) 528 692
Rest of secured loans 21,882 19,994
Total 155,407 148,874
In addition, the derivatives carry contractual, legal compensation rights that have effectively reduced credit
risk by €35,163 million as of June 30, 2010 and by €27,026 million as of December 31, 2009.
As of June 30, 2010, specifically in relation to mortgages, the average amount pending loan collection
represented 54% of the collateral pledged (54% as of December 31, 2009).
Credit quality of financial assets that are neither past due nor impaired
BBVA has ratings tools that enable it to rank the credit quality of its operations and customers based on a
scoring system and to map these ratings to probability of default (“PD”) scales. To analyze the performance
of PD, the Bank has a series of historical databases that house the pertinent information generated
internally.
The scoring tools vary by customer segment (companies, corporate clients, SMEs, public authorities, etc.).
Scoring is a decision model that contributes to both the arrangement and management of retail type loans:
consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to whom a
loan should be assigned, what amount should be assigned and what strategies can help establish the price,
because it is an algorithm that sorts transactions in accordance with their credit rating. Rating tools, as
opposed to scoring tools, do not assess transactions but focus on customers instead: companies, corporate
clients, SMEs, public authorities, etc. For wholesale portfolios where the number of defaults is very low
(sovereigns, corporates, financial entities) the internal ratings models are fleshed out by benchmarking the
statistics maintained by external rating agencies (Moody's, Standard & Poor’s and Fitch). To this end, each
year the Bank compares the PDs compiled by the agencies at each level of risk rating and maps the
measurements compiled by the various agencies to the BBVA master rating scale.
Once the probability of default for the transactions or customers has been determined, the so-called
business cycle adjustment starts. This involves generating a risk metric outside the context estimate, seeking
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