financial statements 2013

8. Liquidity and finance prospects

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Liquidity and finance management of the BBVA Group’s balance sheet helps to fund the recurrent growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance. A core principle in the BBVA Group’s liquidity and finance management is the financial independence of its banking subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price formation and that there is sustainable growth in the lending business.

The start of economic recovery, which was clearer in the second half of the year, though still with some uncertainties, has eased the risk aversion that has been present throughout the financial crisis. This is reflected in the significant decline in the market risk premium in Spain, which closed 2013 at around 220/275 bps, close to 2011 levels, and far from the high of over 600 bps reached in July 2012.

In 2013 the wholesale short and long-term financial markets have shown greater stability than in 2012. The primary issuance market has maintained a constant and stable rate of activity. This improvement has allowed the market to reopen early in 2013 for the major Spanish financial institutions. BBVA has been able to access the markets under normal conditions, as shown by the issues successfully carried out on the mortgage-covered bond, senior debt and regulatory equity (Additional Tier 1) market. In the first quarter of the year, BBVA completed three public issues of senior debt and mortgage-covered bonds on the wholesale markets for a total of €4 billion (€3 billion in senior debt and €1 billion in mortgage-covered bonds), with very high levels of demand and take-up among foreign fixed-income investors. The liquidity generated by the balance sheet in the BBVA Group is due to the major reduction of the credit gap as a result of the fall in lending in the Eurozone and increases in customer funds in all the geographical areas where BBVA operates. This reduction in funding requirements has allowed it to repay more than 50% of the ECB funds and reduce the use of wholesale funding by BBVA Euro.

The economic outlook for 2014 is positive, with forecasts for growth in Europe. The uncertainties lie in the risk of deflation, the withdrawal of the Fed's repurchase program (end of QE) and the end of its expansive stimulus policy.

To sum up, the BBVA Group's proactive policy in its liquidity management, its retail business model with a significant contribution of liquidity in 2013, and a smaller volume of assets, all give it a comparative advantage compared to its European peers. Moreover, the continued positive proportion of retail deposits on the liability side of the balance sheet in all geographical areas continues to enable the Group to improve its liquidity position, while strengthening its financing structure.

The following is a breakdown of maturities of wholesale issues by the nature of the issues:

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Maturity of wholesale issues Millions of Euros
2013 2014 2015 After 2015 Total
Senior debt 4,630 5,544 2,163 3,219 15,556
Mortgage-covered bonds 6,905 4,444 5,123 16,568 33,040
Public covered bonds 1,305 - 150 984 2,439
Regulatory equity instruments (*) - 63 207 4,789 5,059
Other long term financial instruments 1 - 152 710 863
Total 12,841 10,051 7,795 26,270 56,957
(*) The regulatory equity instruments are classified in this table by their terms according to their contractual maturity.

In addition, within the framework of the policy implemented in recent years to strengthen its net worth position, the BBVA Group will at all times adopt the decisions it deems advisable to maintain a high degree of capital solvency. Specifically, the AGMs held on March 11, 2011, March 16, 2012 and March 15, 2013 authorized the issue of fixed-income securities and convertible bonds, as detailed in Note 27 to the accompanying consolidated financial statements.