Management of liquidity and structural funding within the BBVA Group is based on the principle of financial autonomy of the entities that make it up. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability during periods of high risk.
A basic principle of liquidity management in the BBVA Group is the financial independence of its subsidiaries. The aim is to ensure that price formation reflects the cost of liquidity correctly. For this reason, the Bank maintains a liquidity fund at the individual level: Banco Bilbao Vizcaya Argentaria S.A. and its subsidiaries, including BBVA Compass, BBVA Bancomer and the Latin American subsidiaries. The only exception to this principle is Banco Bilbao Vizcaya Argentaria (Portugal), S.A., which is financed by Banco Bilbao Vizcaya Argentaria, S.A.. Banco Bilbao Vizcaya Argentaria (Portugal), S.A. represented 0.91% of our total consolidated assets and 0.43% of total consolidated liabilities as of December 31, 2012.
The management and monitoring of liquidity risk is carried out comprehensively in each of the BBVA Group’s business units using a double (short and long-term) approach. The short-term liquidity approach has a time horizon of up to 365 days. It is focused on the management of payments and collections from the treasury and market activity, and includes operations specific to the area and each bank's possible liquidity requirements. The medium-term approach is focused on financial management of the whole consolidated balance sheet, with a time horizon of one year or more.
The Assets and Liabilities Committee (ALCO) within each business unit is responsible for the comprehensive management of liquidity. The Balance-Sheet Management unit, as part of the Financial Division, analyzes the implications of the Bank’s various projects in terms of funding and liquidity and its compatibility with the target funding structure and the situation of the financial markets. The Balance-Sheet Management unit executes the resolutions agreed by ALCO in accordance with the agreed budgets and manages liquidity risk using a broad scheme of limits and alerts approved by the Executive Committee. The Risk Area, specifically Global Risk Management (GRM), provides the managers with support tools and metrics needed for decision-making.
Each of the local risk areas, which are independent from the local managers, complies with the corporate principles of liquidity risk control that are established by GRM, the global structural risk unit for the entire BBVA Group.
At the level of each BBVA Group entity, the managing areas request and propose a scheme of quantitative and qualitative limits and alerts related to short and medium-term liquidity risks. Once agreed with GRM, controls and limits are proposed to the Bank’s Board of Directors (through its delegate bodies), for approval at least once a year. The proposals submitted by GRM are adapted to the situation of the markets according to the level of appetite for risk aimed for by the Group.
The development and updating of the Corporate Liquidity and Finance Policy has ensured the strict organization of liquidity risk management, not only in terms of limits and alerts, but also procedures. In accordance with the Corporate Policy, GRM carries out regular measurements of risk incurred and monitors the consumption of limits. It develops management tools and adapts valuation models, carries out regular stress tests and reports on the liquidity risk levels to ALCO and the Group’s Management Committee on a monthly basis; its reports to the management areas and Management Committee are more frequent.
Under the current Contingency Plan, the frequency of communication and the nature of information provided is decided by the Liquidity Committee at the proposal of the Technical Liquidity Group (TLG). In the event of any alert or possible crisis, the TLG carries out an initial analysis of the liquidity situation (short or long term) of the entity affected.
The TLG is made up of technical staff from the Short-Term Cash Desk and the Balance-Sheet Management and Structural Risks areas. If the alert signals established make clear that a situation of tension has arisen, the TLG informs the Liquidity Committee (made up of managers of the corresponding areas). The Liquidity Committee is responsible for calling the Financing Committee, if appropriate, which is made up of BBVA's President and COO and the managers from the Financial Area, the Risks Area, Global Business and Business area of the country affected.
One of the most significant aspects that have affected the BBVA Group in 2012, as well as in previous years, was the continuation of the sovereign debt crisis. The role played by official bodies in the euro zone and the ECB have been key in calming the markets and ensuring liquidity in the European banking system.
The main source of funding for the Group is customer deposits, which consist mainly of demand deposits, savings deposits and time deposits. As well as this, to cover additional liquidity requirements the Group also has access to the interbank market and the domestic and international capital markets. A series of national and international programs has been implemented to access capital markets by issuance of commercial paper and medium and long-term debt. Each of the entities also maintains a diversified liquidity fund including liquid assets and securitized assets. Another source of liquidity is cash flow from operations. Finally, funding needs are supplemented with loans from the Bank of Spain and the European Central Bank (ECB), or the respective central banks in the countries where the subsidiary is located.
The following table shows the types of securities included in the liquidity fund at the most significant units:
2012
(Million euros)
|
|
BBVA Eurozone (1) | BBVA Bancomer | BBVA Compass | Other |
|---|---|---|---|---|
| Cash and balances at central banks | 10,106 | 5,950 | 4,310 | 6,133 |
| Assets from credit transactions with central banks | 33,086 | 6,918 | 10,215 | 7,708 |
| Central government issues | 25,148 | 3,865 |
|
7,275 |
| Of which: Spanish government bonds | 21,729 |
|
|
|
| Other issues | 7,939 | 3,053 | 3,627 | 432 |
| Loans |
|
|
6,587 |
|
| Other non-eligible liquid assets | 3,975 | 460 | 198 | 765 |
| ACCUMULATED AVAILABLE BALANCE | 47,167 | 13,328 | 14,723 | 14,606 |
Given this situation, the regulators have established new requirements with the aim of strengthening the balance sheets of banks and making them more resistant to potential short-term liquidity shocks. The Liquidity Coverage Ratio (LCR) is the metric proposed by the Bank Supervisory Committee of the Bank for International Settlements in Basel to achieve this objective. It aims to ensure that financial institutions have a sufficient stock of liquid assets to allow them to survive a 30-day liquidity stress scenario. In January 2013 some aspects of the document published by the Bank Supervisory Committee in December 2010 were updated and made more flexible. Among them are that the ratio will be included as a regulatory requirement as of January 1, 2015, with a demand for 60% compliance, which should reach 100% by January 2019. The frequency of the reporting to supervisory bodies must increase from quarterly to monthly starting in January 2013.
In addition, the calibration period of the long-term funding ratio (over 12 months) called the "net stable funding ratio" (NSFR) has been maintained. The NSFR aims to increase the weight of medium and long-term funding on the banks' balance sheets. It will be under review until mid-2016 and become a regulatory requirement starting on January 1, 2018.
The BBVA Group is continuing to develop a orderly plan to adapt to the regulatory ratios that will allow it to adopt best practices and the most effective and strictest criteria for their implementation sufficiently in advance.