BBVA in 2012

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the risk management and control functions, as recommended by the Basel Committee on BankingSupervision. CRM designs the measurement models and systems, develops the monitoring,information and control policies, and prepares the structural interest-rate risk measurements usedby the Group’s management. At the same time and through the Risk Management Committee(RMC) carries out the function of risk control and analysis, reporting to the main managementbodies such as the Executive Committee and the Board of Directors’ Risk Committee.BBVA Group’s structural interest-rate risk management procedure has a sophisticated set of metricsand tools that enable its risk profile to be monitored precisely. The model is based on a series ofdeeply analyzed assumptions designed to characterize the balance sheet more accurately. Interestraterisk measurement includes probabilistic metrics as well as sensibility measures in response to aparallel shift of +/- 100 basis points of the market interest rate curves. The model regularly measuresthe Bank’s earnings at risk (EaR) and economic capital (EC), defined as the maximum adversedeviations in net interest income and economic value, respectively, for a particular confidence leveland time horizon. These deviations are obtained by applying a simulation model of interest-ratecurves that takes into account other sources of risks apart from directional movements, such aschanges in the slope and curvature, and also the diversification between currencies and businessunits. The model is regularly subjected to internal validation that includes backtesting.Chart 32 shows the sensitivity profile of the main franchises of BBVA Group.32BBVA Group. Structural interest-rate risk profileSVEBBVA CompassEuropeVenezuelaMexicoColombiaSMFArgentinaPeruChileNIIS: Net interest income sensitivity (%) of the franchise to +100 basis points.EVS: Economic value sensitivity (%) of the franchise to +100 basis points.Size: Core capital to each franchise.The risk appetite of each franchise is determined by the Executive Committee through thelimits structure. Thus the maximum negative impacts, in terms of both earnings and value, arecontrolled in each entity. In 2012 active balance-sheet management has enabled exposure toremain aligned with the Group’s target risk profile, as shown in Chart 33.33Structural interest-rate risk. Average use of limits in 2012100%Limit on netinterestincome80%60%Limit oneconomicvalue40%20%0%Europe BBVA Bancomer BBVA Compass BBVA Francés BBVA Chile BBVA Colombia BBVA Continental BBVA Provincial112 Risk management
Interest rate risk measurement is supplemented by analysis of BBVA Research’s scenarios, as wellas stress testing, which evaluates extreme scenarios of a possible breakthrough in both interestratelevels and historical correlations and volatility.Structural exchange-rate riskThe foreign exchange market has been volatile throughout the year. It has been affected by theuncertainty surrounding the crisis evolution in the Euro Zone. This situation has led to the generalappreciation in Latin American currencies against the euro, particularly in the case of Mexico andChile. As a result, exchange rate fluctuations have contributed to BBVA Group closing the year on apositive note in capital ratios and in equity terms.BBVA’s structural exchange-rate risk management aims to minimize the potential negative impactfrom fluctuations in exchange rates on the book value and on the contribution to earnings of theGroup’s long term international investments.The GRM corporate area acts as an independent unit that is responsible for monitoring andanalyzing risks, standardizing risk management metrics and providing tools that can anticipatepotential deviations from targets. It also monitors the level of compliance with established risklimits, and reports regularly to the Risk Management Committee, the Board of Directors’ RiskCommittee and the Executive Committee, particularly in the case of deviation or tension in thelevels of risk assumed.The Balance Sheet Management unit, through ALCO, designs and executes the hedging strategieswith the main purpose of minimizing the potential negative impact of exchange-rate fluctuationson capital ratios, as well as hedging the equivalent value in euros of the foreign-currency earningsof the Group’s subsidiaries, adjusting transactions according to market expectations and hedgingcosts. The Balance Sheet Management unit carries out this work by ensuring that the Group’s riskprofile is at all times adapted to the framework defined by the limits structure authorized by theExecutive Committee. To do so, it uses risk metrics obtained according to the corporate modeldesigned by the GRM area.Apart from monitoring exposure and sensitivity to different currencies, risk control andmanagement are based on probabilistic metrics that estimate maximum impacts for differentconfidence levels. Limits and alerts are established according to the tolerance levels establishedby the Group. Structural exchange-rate risk control is completed by an analysis of the marginalcontributions to risk from currencies, diversification effects, the effectiveness of hedging andanalysis of scenarios and stress. This gives a complete overview of the Group’s exposure tostructural exchange-rate risk.In 2012, in an environment that has once again been marked by uncertainty and marketvolatility, a policy of prudence was maintained. This has moderated the risk assumed, despitethe growing contribution of “non-euro” results to the Group’s earnings and equity. The hedginglevel of the carrying value in books of BBVA Group’s holdings in foreign currency has remainedat an average of 42%. Hedging of foreign-currency earnings has been at levels of close to50%. At the end of the year, there was still significant hedging of the foreign-currency earningsforecast for 2013.Liquidity and funding riskLiquidity and funding risk management aims to ensure that a bank does not have any difficultiesin meeting its payment commitments, and that it does not have to make use of funding underonerous conditions. The management of structural funding and short-term liquidity in BBVAGroup is decentralized to prevent possible contagion from a crisis affecting only one or a fewgeographical areas.Movements on international financial markets in 2012 continued to be conditioned by thesovereign debt crisis in the Euro Zone. During the second half of the year, the main risks were theStructural risks113
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BBVA Group Highlights
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“ In 2012 the Group generateda ne
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2
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Letter from the Chairman 5
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All this is the result of a strateg
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1 As the main expression of t
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Our communication in 2012 has conti
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Brand management in 2012 was highly
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BBVA Board CommitteesIn order to be
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• Across-the-board operational co
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Primary stakeholdersIntroduction: t
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BBVA earnings figures presented in
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High liquidity ofBBVA shareBBVA is
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Management modelA model of peoplema
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To sum up, the combination of the a
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South AmericaIn 2012, a common syst
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Number of claims filed at the Banki
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Environmentand BBVA positioningThe
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the measures taken to correct imbal
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The easing of financial tensions in
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Positioning of BBVA GroupBBVA conti
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20 2. A business model based on th
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- Innovate with teams dedicated exc
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25 In short, this banking model
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2. …reflected ingross income…28
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Risk under controlBBVA NPAs versusp
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Business areasSpainStrong franchise
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EurasiaAn area ofgrowth andpositive
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South AmericaBusiness activity(Year
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In short, abusinesstransformationre
Page 67 and 68: Group financialinformation65 Earnin
Page 69 and 70: EarningsIn 2012, BBVA Group reporte
Page 71 and 72: Consolidated income statement: quar
Page 73 and 74: • Resilience in Spain, in a conte
Page 75 and 76: allocations to the deposit guarante
Page 77 and 78: 8 • Maintain its leadership p
Page 79 and 80: 13 Provisions and othersCumulativ
Page 81 and 82: Lastly, earnings per share (EPS) fr
Page 83 and 84: In short, a year in which there has
Page 85 and 86: 20 Lastly, non-performing loans ha
Page 87 and 88: Off-balance-sheet customer funds st
Page 89 and 90: Capital baseThe main highlight in 2
Page 91 and 92: 26 RatingsIn 2012, BBVA’s ratin
Page 93 and 94: Risk management90 Global Risk Manag
Page 95 and 96: Integration of risks andoverall ris
Page 97 and 98: Credit riskCredit risk quantificati
Page 99 and 100: Behavioral scoring is used to revie
Page 101 and 102: The economic cycle in PDThe current
Page 103 and 104: 13LGD for Autos Finanzia, BBVA Spai
Page 105 and 106: The portfolio model and concentrati
Page 107 and 108: The exposure breakdown by rating of
Page 109 and 110: 22 Real-estate exposure and coverag
Page 111 and 112: ConcentrationExcluding sovereign ri
Page 113 and 114: 27 BBVA Group. Net NPA entries(Mill
Page 115: Structural risksStructural interest
Page 119 and 120: Structural risk in the equity portf
Page 121 and 122: BBVA continues working to improve a
Page 123 and 124: Credit risk in market activitiesThe
Page 125 and 126: Operational riskOperational risk is
Page 127 and 128: Operational risk management in the
Page 129 and 130: Reputational riskThis is another ty
Page 131 and 132: The economic capital of the Pension
Page 133 and 134: Categories of financing and advice
Page 135 and 136: Business areas135 Spain149 Eurasia1
Page 137 and 138: Furthermore, as usual in the case o
Page 139 and 140: SpainIncome statement(Million euros
Page 141 and 142: • On July 20, the Government requ
Page 143 and 144: 3 Spain. Efficiency ratio versus pe
Page 145 and 146: These lines axes of action will con
Page 147 and 148: 10 Spain. Operating income(Million
Page 149 and 150: - Creation of a SICAV module on the
Page 151 and 152: As of 31-Dec-2012, BBVA Seguros has
Page 153 and 154: EurasiaIncome statement(Million eur
Page 155 and 156: Management prioritiesIn 2012, the E
Page 157 and 158: 17 Eurasia. Efficiency(Million euro
Page 159 and 160: • The above, together with the hi
Page 161 and 162: Highlights• The Bank has been rec
Page 163 and 164: MexicoIncome statement(Million euro
Page 165 and 166: area has been positive year-on-year
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30 Mexico. Consumer finance plus cr
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The increase of operating expenses
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As a result of the above, the net a
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government employees and tax collec
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South AmericaIncome statement(Milli
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advancing together with economic ac
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43 South America. Net attributable
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Grupo BBVA. Business share ranking
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Colombia Peru Venezuela2012 ∆%
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The macroeconomic and competitive e
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VenezuelaIn 2012, the growth of the
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By companies, Seguros Argentina, fo
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Significant ratios(Percentage)The U
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opportunities in key markets throug
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51 The United States. NPA and cover
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The area was able to successfully m
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HighlightsThe most relevant awards
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Definition of the aggregateCorporat
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held by retail investors. The conve
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Additional information:Corporate &
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greater efficiency, cost control an
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The trend in operating expenses sho
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Main Corporate Finance transactions
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Corporate LendingCorporate Lending
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In Latin America, the funding of Li
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In Mexico, Global Markets maintains
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Supplementaryinformation216 Consoli
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IFRS (Bank of Spain’s Circular 4/
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JapanTokyoFukoku Seimei Bldg. 12 th
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BBVA in 2012

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