BBVA in 2012

The portfolio model and concentration and diversification effectsCredit risk for the global portfolio of the BBVA Group is measured through a portfolio model wherethe effects of concentration and diversification are considered. Its purpose is to study the entireloan book as a whole, by analyzing and capturing the effect of interrelations between the variousportfolios.In addition to enabling a more comprehensive calculation of capital needs, this model is a key toolfor credit risk management, as it establishes loan limits based on the contribution of each unit tototal risk in a global, diversified setting.The portfolio model considers that risk comes from various sources (it is a multi-factor model). Thisfeature implies that economic capital is increasingly sensitive to geographic diversification, a crucialaspect in a global entity like BBVA. These effects have become more apparent against the currentbackdrop in which, despite the stress undergone by the markets and the different rates of recoveryin the countries where the Group operates, they have contributed to lessening the impact of thissituation on BBVA.The tool is also sensitive to the concentration that may exist in certain credit exposures, such asthe Institution’s large customers. Apart from geography, industry factors are now key to businessconcentration analyses.Credit risk in 2012The most significant aspects in 2012 regarding credit risk are summarized below:• The Group’s NPA ratio rose due to the macroeconomic situation previously mentioned, togetherwith the decline in lending in Spain and in the Bank’s CIB portfolios, mainly in developedcountries.• There was also a new increase in provisions in Spain to cover the gradual impairment ofreal-estate portfolios and assets within the scope of the Royal Legislative Decrees 02/2012 and18/2012, in order to comply with the provisions of these two laws.• In the rest of the geographical areas, asset quality was stable or improved.As a result, the Group ended 2012 with its main risk indicators as expected and comparingpositively with those of most of its peers. As of 31-Dec-2012, the NPA ratio stood at 5.1%, thecoverage ratio at 72% and the cumulative risk premium at 2.16%.BBVA’s maximum exposure to credit risk stood at €648,039m at the close of December 2012,with a year-on-year increase of 3.7%. Customer credit risks (including contingent liabilities),which account for 62.8% of total credit risk, increased by 1.6% over the same time period.This increase was due mainly to two factors: the incorporation of Unnim and the growth inlending in emerging countries. Potential exposure to credit risk in market activities (23.9%overall), including potential exposure to derivatives (once netting and collateral agreementsare considered), also rose by 14.6%, particularly in fixed-income, while undrawn facilities (13.3%overall) fell by 3.1%.Credit risk101