Liquidity and funding risk

Liquidity and funding risk management aim to ensure that the Bank does not have any difficulties in meeting its payment commitments, and that it does not have to appeal to funding under difficult conditions. The management of structural funding and short-term liquidity in BBVA Group is decentralized to prevent possible contagion from a crisis affecting only one or a few geographical areas.

In 2011, the worsening of the European sovereign debt crisis has stressed funding difficulties in markets for both governments and the financial sector. The immediate effect of this has been growing tension in the liquidity and capital markets at the euro zone level. This has meant that wholesale money and long-term funding for credit institutions has been penalized according to its geographical location. Because of this, the credit spreads applied in both the primary market (issuance) and in the secondary and derivatives markets (credit default swaps, CDS), reached new all-time highs in Europe.

In this unfavorable situation, liquidity and funding management by BBVA has been particularly proactive and focused on boosting the use of its management leverage: on the one hand, by improving the rate of self-funding for commercial activity; and on the other, by taking advantage of liquidity windows during the year to issue on wholesale long-term markets. In 2011 the Group issued wholesale senior debt and mortgage-covered or public-covered bonds, with a good uptake and a spread that was always below the CDS level. Over the year as a whole issuance amounted to more than €11,000m.

Thus, the Bank has financed itself, in accordance with its rating and ability to generate recurrent earnings. It has never had to resort to public support or guarantees.

Control of liquidity risk and funding in the BBVA Group has been strengthened in 2011 after the completion of the implementation of the new liquidity and funding model introduced the previous year with the approval of the Liquidity and Funding Manual. The control and monitoring model has been extended over 2011 to all the Group entities that manage their liquidity and funding independently from the parent.

Over the year, the BBVA Group has strengthened its medium-term strategy, based on the principles that govern liquidity management in the Bank:

  • Decentralized management.
  • Independence of subsidiaries.
  • Combination of self-funding of investment activity by business areas with policies of selective issuance to ensure diversified funding. The aim of all this is to preserve solvency, sustained growth and recurrent earnings.

With the entry into force of the system of liquidity and funding limits in the first quarter of the year, more emphasis was placed on the maintenance of a sufficient buffer of liquid assets, fully available for discount, to cover the main short-term commitments and bring the Bank into line with proposed regulations. At the same time, diversification of the different sources of funding available by product and geographical area has been increased, while extending the maturities of wholesale funding.

The Finance Division, through Balance Sheet Management unit, manages liquidity and funding at the BBVA Group, according to the policies and limits set by the Executive Committee at the proposal of the GRM corporate area. This area carries out independent measurement and control in each entity according to a corporate scheme that periodically includes stress analysis and establishes contingency plans.

The Balance-Sheet Management area plans and executes the funding of the structural long-term gap in each balance sheet, and proposes to the ALCO the actions to adopt with respect to structural funding. Once the proposals are agreed by ALCO, the Balance-Sheet Management unit guarantees the coordination and standardization of the processes in all the geographical areas.