Liquidity and funding risk management aims to ensure that in the short term a bank does not have any difficulties in meeting its payment commitments in due time and form, and that it does not have to make use of funding under burdensome terms, or conditions that deteriorate its image or reputation. In the medium term, it aims to ensure that the financial structure of the company is appropriate now and in the future, within the context of the economic situation, markets and regulatory changes. 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. BBVA Group has continued to strengthen its medium-term liquidity strategy, which is based on the following principles:
- Decentralized management.
- Independence of subsidiaries.
- Combination of self-funding of lending 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 recurrence of earnings.
The Financial Area, through the Asset/Liability Management unit, manages liquidity and funding in 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 analyses and establishes contingency plans. The Asset/Liability Management unit plans and executes the funding of the long-term structural gap in each balance sheet, supported by the internal risk metrics in accordance with the corporate model, and proposes the actions to be adopted on this matter to ALCO. Once the proposals are agreed by ALCO, the Asset/Liability Management unit guarantees the coordination and standardization of the processes in all the geographical areas. The results of the stress tests carried out regularly by the GRM show that BBVA has a sufficient buffer of liquid assets to deal with liquidity outflows estimated in a scenario resulting from a combination of a systemic crisis and an internal crisis, with a notable reduction of the Entity’s rating of up to three notches.
In 2013, one of the most significant aspects has been a steady improvement in the stability of the wholesale funding markets in Europe as a result of the positive development of sovereign risk premiums in an environment of improved growth expectations in the Eurozone and high liquidity levels. In this situation, BBVA has managed to strengthen its liquidity position and improve its funding structure on the basis of growth in self-funding from stable customer funds.
With respect to the new regulatory framework, BBVA Group is continuing to develop an orderly plan to adapt to the regulatory capital ratios in a way that ensures it can adopt the best practices and most efficient and rigorous criteria for their implementation sufficiently in advance. In January 2013, some of the aspects of the document published by the Committee on Banking Supervision in December 2010 in relation to the Liquidity Coverage Ratio (LCR) were updated and adapted. Among them, the ratio will become a regulatory requirement on January 1, 2015, associated with a 60% requirement for compliance, which should reach 100% in January 2019. In addition, the Committee on Banking Supervision has begun a new review of the Net Stable Funding Ratio (NSFR), which aims to increase the weight of medium and long-term funding in bank balance sheets. The review process will last until mid-2016 and become a regulatory requirement starting on January 1, 2018.
