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Risk management
Management and control model
General risk management and control model
Identifying and managing risks is at the core of the board of directors’ remit. The BBVA board monitors on a regular basis a set of financial and non-financial risks which may affect the success of Group BBVA’s business activities.
The BBVA Group has implemented a comprehensive Risk Management and Control Model (the “Model”) tailored to its business model, organizational structure, countries of operation, and corporate governance system. The Model enables the Group to operate in alignment with the risk strategy and policy defined by BBVA’s governing bodies, providing both those bodies and the highest executive levels with a holistic view of all risks to which the Group is exposed.
The Model is applied across the entire Group and consists of the following core elements:
- A governance model, both at the level of the corporate bodies and the executive domain
- A Risk Appetite Framework
- A set of processes for risk assessment, monitoring, and reporting
- A set of internal regulations, resources, and infrastructure
- A risk culture led by senior management (tone from the top)
The Model also incorporates the regulatory environment applicable to the Bank, supervisory expectations, and the evolving economic and regulatory landscape in which the Group operates.
Credit risk
Credit risk
In global context whose evolution will continue to be highly conditioned by the uncertainty represented by the United States administration’s policies implemented in recent months, economic activity in the countries where BBVA operates continued to reflect a generally good dynamic in terms of economic growth, as well as in the indicators of the financial system. In Spain, the growth forecast for 2025 has been revised slightly downward (+2.9%), one tenth below the previous forecast and inflation is expected to remain at moderate levels, closing the year at around +2.9%, with a comfortable level of solvency and liquidity in the system. In Mexico, growth forecasts remain unchanged, with GDP estimated at around +0.7% for 2025, in a context of relatively moderate and stable inflation in the last quarter, and with credit in the banking system growing at around +7.2% year-on-year, with data at the end of November. Turkey, on the other hand, has shown significant growth in recent months, with inflation moderating and banking system risk indicators at contained levels. Finally, the decline in political instability and lower exchange rate tensions in Argentina have helped to maintain the positive outlook for economic activity in the region, against a backdrop of contained inflation and the expectations of stable interest rates in Colombia and Peru following the last cuts.
Market risk
Market risk
For further information, see Note 7.4 of the Consolidated Financial Statements.
Structural risks
Structural risks
Liquidity and funding
Liquidity and funding management at BBVA is aimed at driving sustained growth of the banking business, through access to a wide variety of alternative sources of funding and assuring optimal term and cost conditions. BBVA’s business model, risk appetite framework and funding strategy are designed to reach a solid funding structure based on stable customer deposits, mainly retail (granular). As a result of this model, deposits have a high degree of insurance in each geographical area, close to 50% in Spain and Mexico. It is important to note that, given the nature of BBVA’s business, lending is mainly financed through stable customer funds.
One of the key elements in the BBVA Group’s liquidity and funding management is the maintenance of large high-quality liquidity buffers in all geographical areas. Thus, the Group has maintained during the last 12 months an average volume of high-quality liquid assets (HQLA) of €134 billion, of which 98% corresponded to maximum quality assets (level 1 in the liquidity coverage ratio, LCR).
Foreign exchange
Foreign exchange risk management aims to reduce both the sensitivity of the capital ratios to currency movements, as well as the variability of profit attributed to currency movements.
In relation to the hedging of capital ratios, BBVA aims to cover in aggregate, between 50% and 70% of its subsidiaries’ capital excess. The sensitivity of the Group’s CET1 ratio to 10% depreciations in major currencies is estimated at: +12 basis points for the U.S. dollar, -14 basis points for the Mexican peso and -3 basis points for the Turkish lira¹ . With regard to the hedging of results, BBVA hedges between 40% and 50% of the aggregate net attributable profit it expects to generate in the next 12 months. For each currency, the final amount hedged depends, among other factors, on its expected future evolution, the costs and the relevance of the income related to the Group’s results as a whole.
¹ This sensitivity does not include the cost of capital hedges, which are currently estimated at 1 basis point per quarter for Mexican peso and 2 basis points per quarter for Turkish lira
Interest rate
Interest rate risk management seeks to limit the impact that BBVA may suffer, both in terms of results (short-term) and economic value (long-term), from adverse movements in the interest rate curves in the various currencies in which the Group operates. BBVA carries out this work through an internal procedure, pursuant to the guidelines established by the European Banking
Authority (EBA), with the aim of analyzing the potential impact that could derive from a range of scenarios on the Group’s different balance sheets.
Risks associated with climate change
Risks associated with climate change
The management of climate and environmental risk factors is key to implement BBVA’s strategy, which is based on managing risks appropriately, supporting the transition to a low-carbon economy, and meeting the ambition of achieving net-zero carbon emissions by 2050. The information on the BBVA Group’s management of risks associated with climate change and environmental factors is described in the “2.2.2 Management of risks associated with climate change” section of the NFIS included in this Management Report.
Operational Risk
Operational Risk
BBVA defines operational risk (“OR”) as any risk that could result in losses caused by human error; inadequate or flawed internal processes; undue conduct with respect to customers, markets or the institution; weaknesses in the anti-money laundering and financing of terrorist programs; failures, interruptions or flaws in systems or communications; theft, loss or wrong use of information, as well as deterioration of its quality, internal or external fraud, including in any case those derived from cyberattacks; theft or harm to assets or persons; legal risks; risks derived from staff management and labor health; and defective service provided by suppliers; as well as damages from extreme climate events, pandemics and other natural disasters. This section addresses general aspects of operational risk management as the main component of non financial risks. However, sections devoted to conduct and compliance risk and to cybersecurity risk management are also included in the non-financial information report.
Reputational risk
Reputational risk
BBVA defines reputational risk as the potential loss in results as a consequence of events that may negatively affect the perception that the different stakeholders have of the Group. Therefore, reputational risk management is aimed at ensuring that the Group does not engage in activities or practices that could cause permanent or very significant damage to its reputation.
Risk factors
Risk factors
The BBVA Group has processes in place for identifying risks and analyzing scenarios in order to enable the Group to manage risks in a dynamic and proactive way.
The risk identification processes are forward looking to seek the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.
Risks are identified and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected.
As part of this process, a forward projection of the Risk Appetite Framework (hereinafter “RAF”) variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, measures are taken to seek to keep the variables within the target risk profile.
In this context, there are a number of emerging risks that could affect the evolution of the Group’s business, including the below:
- Macroeconomic and geopolitical risks
- Regulatory and reputational risks
- New business, operational and legal risks
- Environmental, social and governance (ESG) risks may adversely impact the Group
General risk management and control model
Identifying and managing risks is at the core of the board of directors’ remit. The BBVA board monitors on a regular basis a set of financial and non-financial risks which may affect the success of Group BBVA’s business activities.
The BBVA Group has implemented a comprehensive Risk Management and Control Model (the “Model”) tailored to its business model, organizational structure, countries of operation, and corporate governance system. The Model enables the Group to operate in alignment with the risk strategy and policy defined by BBVA’s governing bodies, providing both those bodies and the highest executive levels with a holistic view of all risks to which the Group is exposed.
The Model is applied across the entire Group and consists of the following core elements:
- A governance model, both at the level of the corporate bodies and the executive domain
- A Risk Appetite Framework
- A set of processes for risk assessment, monitoring, and reporting
- A set of internal regulations, resources, and infrastructure
- A risk culture led by senior management (tone from the top)
The Model also incorporates the regulatory environment applicable to the Bank, supervisory expectations, and the evolving economic and regulatory landscape in which the Group operates.