BBVA in 2012

Structural risksStructural interest-rate riskIn 2012 the economic slowdown became more pronounced, particularly in the Euro Zone,where the crisis was aggravated by the doubts regarding the capacity of the peripheralcountries to undertake fiscal and structural reforms. This situation led to new falls in interestrates in Europe, where they stood at all-time lows, as well as in the United States and Mexico.In South America, central banks maintained an expansive policy, despite upward pressure oninflation.The changes in market interest rates affect net interest income and the book value of entities. Thispotential impact is included in the structural interest-rate risk. Its main source of risk arises fromdifferent maturities or depreciation in assets and liabilities in the banking book and off-balancesheetpositions. The accompanying chart shows the gaps in BBVA’s structural balance sheet ineuros.31Maturity and repricing gaps of BBVA’s structural balance sheet in euros(Million euros)25,00015,0005,000–5,000–15,000–25,0001-3 months 3-6 months 6-9 months 9-12 months 2 months +3 yearsA financial institution’s exposure to adverse changes in market rates is a risk inherent to itsbusiness, while at the same time represents an opportunity to generate value. That is whystructural interest-rate risk should be managed effectively and retains a reasonable relation to itsequity and expected earnings.The management of structural risks in BBVA Group is handled by the Balance-SheetManagement unit, within the Financial Management area. Through the Asset and LiabilityCommittee (ALCO), the unit is in charge of maximizing the Bank’s economic value, preserving netinterest income and guaranteeing the generation of recurrent earnings. With this aim, the FinancialManagement area assesses possible alternatives and proposes the most appropriate actions basedon its expectations, balancing expected economic results and the impact on the risk level. This isdone while adapting to the established risk profile, as well as the strategy and policies defined bythe Group’s management bodies. BBVA has a transfer pricing system that centralizes the Bank’sinterest-rate risk on ALCO’s books and is designed to facilitate this task.Within the Global Risk Management corporate area, the Corporate Risk Management (CRM) unitis responsible for controlling and monitoring structural interest-rate risk with the aim of keepingthe Group’s solvency, supporting its strategy and ensuring the successful development of itsbusiness. To do so, it acts as an independent unit, which guarantees a proper separation betweenStructural risks111