Provisions and others

Impairment losses on financial assets totaled €4,226m in 2011, a fall of 10.4% on the figure for the previous year. In the fourth quarter there was an increase in the level of the Group’s loan-loss provisions, aimed at taking advantage of the higher revenue over the last three months of the year. As a result, BBVA’s coverage ratio closed at 61% as of December 31, 2011 and the Bank’s risk premium improved by 14 basis points over the year to close at 1.20%.

Provisions amounted to €510m in 2011, 5.7% up on the figure for the previous year. They basically cover early retirement, other allocations to pension funds and provisions for contingent liabilities.

The heading other gains (losses) reported a negative €2,109m in 2011. This can be explained almost entirely by two concepts: a negative €665m corresponding to real estate provisions and assets from recoveries with the aim of maintaining coverage above 30%; and a negative €1,444m for goodwill impairment in the United States. In 2010 the figure was a negative €320m, mainly from the adjustment of the value of foreclosed or acquired assets in Spain.

In general, 2011 income taxes were reduced because of tax-exempt or low-tax revenues (especially dividends and income accounted by the equity method) and the growing weight of earnings from Mexico, South America and Turkey, where effective tax rates are low.

13. Impairment losses on financial assets

(Million euros)

(1) At constant exchange rate: –8.7%.