Credit risk in market activities

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 to 1). It also uses credit risk mitigation techniques such as legal netting and collateral agreements.

The equivalent maximum credit risk exposure to counterparties in the Group as of December 31, 2010 stood at €44,762m, a 4.5% increase on year-end 2009. The equivalent maximum credit risk exposure in BBVA, S.A. is estimated at €39,103m. The overall reduction in terms of exposure due to netting and collateral agreements was €27,443m.

The net market value of the instruments mentioned in the BBVA, S.A. portfolio on December 31, 2010 was €1,674m and the gross positive market value of the contracts was €38,661m.

The second accompanying table shows the distribution by maturity of the equivalent maximum exposure amounts in OTC financial instruments.

The counterparty risk assumed in this activity involved entities with a high credit rating (equal to or above A– in 81% of cases). Exposure is concentrated in financial entities (82%), and the remaining 18% in corporations and customers is suitably diversified.

By geographical area, the highest exposure of BBVA, S.A. was in Europe (77%) and North America (13%), which together accounted for 91% of the total.

OTC Derivatives. Equivalent maximum exposure BBVA, S.A.

(Million euros)


OTC financial instruments Gross replacement Net replacement Equivalent maximum exposure
IRS 24,286 567 24,813
FRAs 20 (5) 31
Interest rate options 3,104 (117) 2,639
OTC interest rate diversification (143)
Total OTC interest rate 27,410 445 27,340
Forward FX 2,635 55 3,707
Currency swaps 3,607 490 4,536
Currency options 248 (239) 458
OTC exchange rate diversification (512)
Total OTC exchange rate 6,490 307 8,189
OTC Equity 3,468 791 4,618
Lending 1,145 152 1,902
Commodities 149 (21) 299
OTC equity and others diversification (18)
Total OTC equity and others 4,762 922 6,801
Total diversification (3,226)
Total 38,661 1,674 39,103
Netting savings on collateral agreements 27,443
Net equivalent maximum exposure BBVA, S.A.


Maximum exposure in OTC financial instruments. BBVA, S.A. Distribution by maturity

(Million euros)


Type of product Maximum exposure Up to 1 year Up to 3 years Up to 5 years Up to 10 years Up to 15 years Up to 25 years As of 25 years
OTC Interest rate 27,340 26,525 23,890 16,339 11,120 3,227 2,661 2,119
OTC exchange rate 8,189 6,754 5,607 3,236 1,709 805 769 660
OTC equity and others 6,801 6,371 6,077 4,996 4,587 4,221 4,158 3,836
Total diversification (3,226)
Total 39,103 39,650 35,574 24,571 17,417 8,253 7,588 6,615

41: Equivalent maximum exposure. Distribution by rating in BBVA, S.A.

42: Equivalent maximum exposure Geographical distribution BBVA, S.A.