24
RISK AND ECONOMIC CAPITAL MANAGEMENT 2Q09
Risk management
Market risk
The average market risk of the BBVA Group was
€25m in the second quarter (VaR calculation
without exponential flattening). This was down
7.7% on the average for the previous quarter.
Economic slowdown continued to be felt, with
sustained drops in inflation triggering repeated cuts
in the central banks’ reference rates. In this context,
Global Markets in Europe and Mexico brought
down their average risk, while the trading desks in
South America reached their turn-around point
slightly later, after the first month of the quarter. At
the quarter-end, the risk was €23m, having peaked
at €31m on 8th June.
Broken down by geographical zones, risk was
mainly concentrated in Europe and the United
Trends in market risk (1)
(VaR, million euros)
40
30
20
10
0
30-6-08 30-9-08 31-12-08 31-3-09
30-6-09
(1) On 29-2-08 the Bank of Spain approved the Algorithmic internal model for the European and Mexican trading
portfolios. The methodology applied for the VaR metric in these businesses is the historical simulation.
Market risk by risk factors
(Second Quarter 2009. Million euros)
Risk
Interest + credit spread
Exchange rate
Equity
Vega and correlation
Diversification effect
TOTAL
AVERAGE
MAXIMUM
MINIMUM
30-06-09
27.1
5.8
1.1
11.8
(22.8)
,
23.0
25.3
31.0
22.1
States, which accounted for 56% of the second-
quarter total. However, the higher concentration of
risk associated to banks in the Americas is bringing
down this percentage (the weighting of South
America increased by nearly six percentage points, to
23.7%).
By risk type, the biggest risk on the BBVA’s Group
market exposure on its trading portfolio at 30-6-09
was from interest rates and spreads, increasing its
weighting over the previous quarter as did exchange
rate risk. However, equity and volatility risk
accounted for a lower percentage of total exposure.
Economic capital
Attributable ERC consumption (economic risk
capital) reached €21,662m at the end of June, down
a further 2.0% against March 2009.
The majority of this (61.4%) was credit risk on the
portfolios originated by the Group networks from its
customer base. This risk has remained flat over the
quarter. Market risk (3.8%) is the smallest
percentage of total risk, given the nature of the
business and BBVA policy of scarcely any
proprietary trading. Holding risk (9.2%) mainly
reflects risk on the Financial & Industrial Holdings
portfolio and the stake in CITIC. Structural
balance-sheet risk (9.1%) originates from the
structural risk management of interest and exchange
rates deriving from the Group's lending business in
all the countries where it operates. ERC linked to
market risk has gone down 6.7% over the quarter.
BBVA Group economic risk capital.
Distribution by risk type
(Data in attributable terms, 30-06-09)
Other 9.0%
Operational
14% The United States
7.5% 15% Mexico
Holdings
Wholesale Banking &
9.2%
Lending
15%
Asset Management
Structural
61.4%
(balance
sheet) 9.1%
45% Spain and Portugal
Market 3.8%
11%
South America
To view a Ceros magazine you need to have JavaScript enabled in your browser and have the flash player 8 or higher installed. To install the latest flash player, click the icon above, install the flash plugin and then click here to refresh this page.