Market risk in 2011

The Group’s market risk remains at low levels compared with the aggregates of risks managed by BBVA, particularly in terms of credit risk. This is due to the nature of the business and the Group’s policy of minimal proprietary trading. In 2011 the market risk of the Group’s trading portfolio decreased slightly on the previous year to an average economic capital of €255m.

The main risk factor in the Group continues to be linked to interest rates, with a weight of 65% of the total at the end of 2011 (this figure includes the spread risk). Equity risk accounts for 17%, an increase on the figure 12 months prior. The exchange-rate risk also increased its weight slightly to 7%. Finally, volatility risk decreased and accounts for 10% of the total portfolio risk.

By geographical area, and as an annual average, 68.5% of the market risk corresponded to the Global Markets Europe and United States trading desk and 31.5% to the Group’s banks in Latin America, of which 19.3% is in Mexico.

The backtesting comparison performed with market risk management results for the parent company (which accounts for most of the Group’s market risk) follows the principles set out in the Basel Accord. It makes a day-on-day comparison between actual risks and those estimated by the model, and proved that the risk measurement model was working correctly throughout 2011 (chart 37).

34. BBVA Group. Market risk evolution in 2011 (1)

(VaR, million euros)

(1) On February 29, 2008, Bank of Spain validated internal risk assessment model base on Algorithmic for Europe's and
Mexico's trading books.Trading portfolios assessment methodology simulates VaR based on historic data.
BBVA Group. Market risk by risk factor

(Million euros)

Risk 31-12-11
Interest + credit spread 27
Exchange rate 3
Equity 7
Volatility 4
Diversification effect (23)
Total 18
Average 24
Maximum 36
Minimum 16
35. BBVA Group. Market risk by geographical area

(Average 2011)

36. BBVA, S.A. internal backtesting model in 2011

(Historical simulation without smoothing versus daily results)