BBVA in 2012

Credit risk in market activities

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The credit risk assessment in OTC financial instruments is made by means of a Monte Carlo simulation, which calculates not only the current exposure of the counterparties, but also their possible future exposure to fluctuations in market variables.

The model combines different credit risk factors to produce distributions of future credit losses and thus allows a calculation of the portfolio effect; in other words, it incorporates the term effect (the exposure of the various transactions presents potential maximum values at different points in time) and the correlation effect (the relation between exposures, risk factors, etc. are normally different from 1). It also uses credit risk mitigation techniques such as legal netting and collateral agreements.

The maximum credit risk exposure in derivatives with counterparties in the Group as of 31-Dec-2012 stood at €60,796m, an increase of 4% on 2011 year-end. Excluding intra-group counterparties, the maximum risk in derivatives is €59,755m.) Maximum exposure to credit risk in derivatives at BBVA, S.A. is estimated at €55,516m (€55,081m excluding intra-group counterparties). BBVA S.A.’s overall reduction in terms of exposure due to netting and collateral agreements is €42,375m.

Therefore, the net risk in derivatives at BBVA, S.A. as of December 31, 2012 is €13,123m. Excluding the exposure with intra-group counterparties, the net risk in derivatives at BBVA, S.A. as of December 31, 2012 is €12,707m.

Counterparty risk by type of product and by sector. Maximum exposure in BBVA, S.A.

(Million euros)

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Derivatives Depos Repurchases Rest Total
Financial sector 4,788 231 162 53 5,234
Corporate 5,245 - - (50) 5,195
Sovereign 80 17 - 3 100
Branches 2,594 - - - 2,594
Total 12,707 248 162 6 13,123

The table above shows the distribution by sectors and by products of the amounts of the maximum credit risk exposure in financial instruments in BBVA, S.A. By sectors, exposure is mainly concentrated in financial institutions (40%) and corporates (40%).

The table below shows the distribution by maturity of the maximum exposure amounts in financial instruments. Maturity index is 3.5 years.

Maturity vector by rating and tranches at BBVA, S.A. (excluding intra-group counterparties. Data as of December 2012)

(Million euros)

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Up to 3 months Up to 12 months Up to 3 years Up to 5 years Up to 10 years More than 10 years
AAA - 108 - - 439 681
AA 19 45 133 75 75 37
A 1,171 808 758 310 612 370
BB 136 960 717 218 368 288
Non investment grade 94 430 549 329 336 510
NR 5 24 60 36 44 36
D - 6 12 15 115 174

The counterparty risk assumed in this activity involves entities with a high credit rating (equal to or above A– in 41% of cases).

37 Distribution by rating of maximum exposure in BBVA, S.A. (Excluding intra-group counterparties)

By geographical areas, the maximum exposure of BBVA, S.A. is in counterparties in Europe (82%) and the United States (9%), which together account for 91% of the total.

38 Geographical distribution of maximum exposure in BBVA, S.A. (Excluding intra-group counterparties)