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

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Below are the average interest rate risk exposure levels in terms of sensitivity of the main financial institutions of the BBVA Group for the six months ended June 30, 2010, in millions of euros: Average Impact on Net Interest Income (*) Average Impact on Economic Value (**) June 2010 100 Basis-Point Increase 100 Basis-Point Decrease 100 Basis-Point Increase 100 Basis-Point Decrease Europe -7.63% +8.64% +0.34% -0.46% BBVA Bancomer +0.95% -0.76% -2.64% +2.29% BBVA Compass +4.05% -4.22% +3.81% -7.60% BBVA Puerto Rico +3.47% -2.88% -2.26% +1.94% BBVA Chile -1.58% +1.52% -8.42% +7.86% BBVA Colombia +2.30% -2.32% +0.26% -0.47% BBVA Banco Continental +2.72% -2.77% -5.45% +5.97% BBVA Banco Provincial +0.35% -0.36% -1.49% +1.59% BBVA Banco Francés +0.56% -0.57% -0.69% +0.68% BBVA Group -1.86% +2.28% -0.20% -0.44% (*) Percentage relating to "1 year" net Interest margin forecast in each entity. (**) Percentage relating to each entity's Capital Base. As part of the measurement process, the Group established the assumptions regarding the movement and behavior of certain items, such as those relating to products with no explicit or contractual maturity. These assumptions are based on studies that estimate the relationship between the interest rates on these products and market rates and enable specific balances to be classified into trend-based balances maturing at long term and seasonal or volatile balances with short-term residual maturity. c) Structural currency risk Structural foreign exchange risk is basically caused by exposure to variations in foreign exchange rates that arise in the Group’s foreign subsidiaries and the provision of funds to foreign branches financed in a different currency to that of the investment. The ALCO is responsible for arranging hedging transactions to limit the capital impact of fluctuations in exchange rates, based on their projected trend, and to guarantee the equivalent euro value of the foreign currency earnings expected to be obtained from these investments. Structural currency risk management is based on the measurements performed by the Risk Area. These measurements use a foreign exchange rate scenario simulation model which quantifies possible changes in value for a given confidence interval and a pre-established time horizon. The Executive Committee authorizes the system of limits and alerts for these risk measurements, which include a limit on the economic capital or unexpected loss arising from the foreign exchange risk of the foreign-currency investments. As of June 30, 2010, the aggregate figure of asset exposure sensitivity to 1% depreciation in exchange rates stood at €121 million, with the following concentration: 40% in the Mexican peso, 27% in other South American currencies and 22% in the US dollar. d) Structural equity risk The Group’s exposure to structural equity risk comes largely from its holdings in industrial and financial companies with medium- to long-term investment horizons, reduced by the short net positions held in derivative instruments on the same underlying assets, in order to limit portfolio sensitivity to potential price cuts. The aggregate sensitivity of the Group's consolidated equity to a 1% fall in the price of shares stood, on June 30, 2010, at €46.1 million, while the sensitivity of the consolidated earnings to the same change in price on the same date is estimated at €3.6 million. This figure is determined by considering the exposure on shares measured at market price or, if not available, at fair value, including the net positions in options on the same underlyings in delta equivalent terms. Treasury Area portfolio positions are not included in the calculation. The Risk Area measures and effectively monitors structural risk in the equity portfolio. To do so, it estimates the sensitivity figures and the capital necessary to cover possible unexpected losses due to the variations in the value of the equity portfolio at a confidence level that corresponds to the institution’s target rating, and taking account of the liquidity of the positions and the statistical performance of the assets under 60
consideration. These figures are supplemented by periodic stress comparisons, back-testing and scenario analyses. 7.3 LIQUIDITY RISK The aim of liquidity risk management and control is to ensure that the payment commitments can be duly met without having to resort to borrowing funds under burdensome terms, or damaging the image and reputation of the institution. The Group’s liquidity risk monitoring is centralized in each bank and takes a dual approach: the short-term approach (90-day time horizon), which focuses basically on the management of payments and collections of Treasury and Markets, calculates the Bank’s possible liquidity requirements; and the structural, long-term approach, which focuses on the financial management of the balance sheet as a whole, with a minimum monitoring time frame of one year. The evaluation of asset liquidity risk is based on whether or not assets are eligible for rediscounting at the corresponding central bank. For normal situations, both in the short and medium term, those assets that are on the eligible list published by the European Central Bank ("ECB") or the corresponding monetary authority are considered to be liquid. Non-eligible assets, quoted or non-quoted, are considered to represent a second line of liquidity for the entity when analyzing crisis situations. Liquidity management is performed entirely by the Bank's Assets and Liabilities Committee (“ALCO”), through Financial Management. For its implementation, it uses a broad scheme of limits, sublimits and alerts, approved by the Executive Committee, based on which the Risk Area carries out its independent measurement and control work. It also provides the manager with back-up decision-making tools and metrics. Each of the local risk areas, which are independent from the local manager, complies with the corporative principles of liquidity risk control that are established by the Global Risk Management Unit, the Structural Risks unit for the entire Group. For each entity, the management areas request an outline of the quantitative and qualitative limits and alerts for short and medium-term liquidity risk. This request must be authorized by the Executive Committee. A core principle in the BBVA Group’s liquidity management has long been to encourage the financial independence of its subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price formation and that there is sustainable growth in the lending business. Also, the Risk Area performs periodic (daily and monthly) risk exposure measurements, develops the related valuation tools and models, conducts periodic stress tests, measures interbank counterparty concentration, prepares the policies and procedures manual, and monitors the authorized limits and alerts, which are reviewed at least once every year. Information on liquidity risk is sent at least monthly to the Group’s ALCO and to the managing areas themselves. Under the Contingency Plan, the Technical Liquidity Group (“TLG”), in the event of an alert of a possible crisis, conducts an initial analysis of the Bank’s short- and long-term liquidity situation. The TLG is made up of specialized staff from the Short-Term Cash Desk, Financial Management and the Structural Risk unit. If the alert is serious, the TLG reports the matter to the Liquidity Committee, which is composed of the managers of the related areas. The Liquidity Committee is responsible, in situations requiring urgent attention, for calling a meeting of the Funding Committee. During the six months ended June 30, 2010, the decisive role that central banks and governments assumed favored the liquidity conditions on interbank markets. The Group has not had to resort to using the measures established in Spain to mitigate bank funding issues. For the six months ended June 30, 2010, within its framework of projects, the Basel Committee on Banking Supervision carried out a quantitative impact study (QIS) on its proposals, in order to reinforce the regulation standards for the international financial system in terms of capital and liquidity. The preliminary results will be presented throughout the second half of 2010. 61
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BANCO BILBAO VIZCAYA ARGENTARIA, S.
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27. COMMON STOCK...................
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Translation of consolidated financi
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Millions of Euros LIABILITIES AND E
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Millions of Euros June June Notes 2
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on equity (ROE) by each business; a
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39. INTEREST, INCOME AND SIMILAR EX
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39.3. AVERAGE RETURN ON INVESTMENTS
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41. SHARE OF PROFIT OR LOSS OF ENTI
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45. OTHER OPERATING INCOME AND EXPE
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linked to the movement of the Total
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48. PROVISIONS (NET) The net allowa
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The table below breaks down the mai
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The amount disposed of the loans gr
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BBVA executive team. It is to end o
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Commission (CNMV) announced the lif
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APPENDIX I. FINANCIAL STATEMENTS OF
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Millions of Euros LIABILITIES AND E
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Millions of Euros (Continued) June
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APPENDIX II. Additional information
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APPENDIX III. Additional informatio
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APPENDIX V. Changes and notificatio
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APPENDIX VI. Fully consolidated sub
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APPENDIX VIII. Breakdown of the mos
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Outsanding as of June 30, 2010 of S
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APPENDIX IX. Consolidated balance s
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Diluted earnings per share Early re
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Other financial assets/liabilities
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BANCO BILBAO VIZCAYA ARGENTARIA, S.
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The explanations of the changes in
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4. SUMMARIZED INTERIM CONSOLIDATED
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Spain and Portugal Millions of Euro
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Mexico Millions of Euros Mexico Jun
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South America Millions of Euros Sou
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The United States Millions of Euros
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Wholesale Banking and Asset Managem
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The changes in the principal headin
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Aggregating Tier I and Tier II, as
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BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

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