The Assets and Liabilities Management unit in BBVA’s Financial Area is responsible for managing overall liquidity and structural interest-rate and foreign-exchange positions.
Liquidity management helps to finance the recurring growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance. A core principle in the BBVA Group’s liquidity management is the financial independence of its subsidiaries abroad. This principle prevents the propagation of a liquidity crisis among the Group’s different areas and guarantees correct transmission of the cost of liquidity to the price formation process.
In the first quarter of 2014, the long-term wholesale financial markets in Europe continued to be notably stable, as a result of the positive trend in sovereign risk premiums, while growth expectations improved in the Eurozone. BBVA has continued to access the market, and issued €1 billion in 5-year senior debt.
Similarly, short-term finance in Europe has also performed well, in a context marked by a high level of market liquidity. In addition to the above, BBVA’s retail franchise in Spain performed outstandingly as a result of its customer-centric strategy and the Bank’s financial solidity.
The environment outside Europe has also been very positive. BBVA has once again strengthened its liquidity position in all the jurisdictions in which the Group operates. In the franchises where BBVA is present, its capacity to gather retail deposits has meant the absence of the need to access the international financial markets and also a further improvement in the Group’s financing structure.
To sum up, BBVA’s proactive policy in its liquidity management, the outstanding performance in customer funds in all geographical areas, its proven ability to access the market, even in difficult environments, its retail business model, the lower volume of maturities compared with its peers and the relatively small size of its balance sheet, all give it a comparative advantage against its peers. Moreover, the increased proportion of retail deposits continues to strengthen the Group’s liquidity position and to improve its financing structure.
Foreign-exchange risk management of BBVA’s long-term investments, basically stemming from its franchises abroad, aims to preserve the Group’s capital adequacy ratios and ensure the stability of its income statement.
The first quarter of 2014 has featured high exchange-rate volatility due to the application of the exchange rate from the SICAD I system for the Venezuelan bolivar and the depreciation of the Argentinean peso. In this context, BBVA has maintained a policy of actively hedging its investments in Mexico, Chile, Colombia, Turkey and the dollar area. In addition to this corporate-level hedging, dollar positions are held at a local level by some of the subsidiary banks. The foreign-exchange risk of the earnings expected from abroad for 2014 is also managed. The impact of variations in exchange rates in the first quarter of 2014 has been partly offset by the hedging positions held, which have counteracted a possibly more negative effect on the Group’s income statement and capital ratios.
The unit also actively manages the structural interest-rate exposure on the Group’s balance sheet. This aims to maintain a steady growth in net interest income in the short and medium term, regardless of interest-rate fluctuations.
In the first quarter of 2014, the results of this management have been satisfactory, with limited risk strategies in Europe, the United States and Mexico. These strategies are managed both with hedging derivatives (caps, floors, swaps and FRAs) and with balance-sheet instruments (mainly government bonds with the highest credit and liquidity ratings).
