Liquidity and funding risk management aims to ensure that a bank does not have any difficulties in meeting its payment commitments, and that it does not have to make use of funding under onerous conditions. The 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.
Movements on international financial markets in 2012 continued to be conditioned by the sovereign debt crisis in the Euro Zone. During the second half of the year, the main risks were the fiscal situation in the United States and Japan, together with greater vulnerability in some other countries with a lower than expected rate of growth. Between May and the end of July there was a further tightening of financial conditions in the Euro Area, above all in Spain and Italy. This led to tougher funding conditions for both public and private sectors, and in particular for credit institutions.
Although tensions in financial markets in the Euro Area have eased since the end of July, the situation has not fully returned to normal and the level of uncertainty remains high. In this environment of extreme pressure in both the wholesale and retail businesses, BBVA has continued with its sound structural liquidity position, supported by the strengths and proactive management of its balance sheet. The Bank has carried out the following actions:
- Ongoing maintenance of a sufficient buffer of liquid assets, fully available to cover the Entity’s main short-term commitments, in line with regulatory proposals.
- Significant improvement in the self-funding ratio of commercial activity.
- Diversification of the different sources of funding available in terms of instruments, markets and maturities.
- Broad base of highly stable on-balance-sheet deposits and funds.
- Optimization of the generation of collateral available for dealing with situations of market tension.
Despite the context outlined above, in 2012 BBVA has taken advantage of all the windows of opportunity and issued wholesale senior debt and mortgage-covered or public-covered bonds, with a good uptake and a spread that was always below the credit default swap (CDS) level. Over the year as a whole issuance amounted to more than €14,000m. It is worth noting that BBVA has a good medium and long-term funding structure with good product diversification (senior debt, subordinated debt, covered bonds, etc.). In this way, the Bank has also been able to minimize the level of use of short-term funding and strengthen its funding structure.
BBVA Group has continued to strengthen its medium-term liquidity strategy, based on the principles that govern liquidity management in the Bank:
- Decentralized management.
- Independence of subsidiaries.
- Combination of self-funding of investment 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 recurrent earnings.
The Finance Division, through the Balance-Sheet 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 Balance-Sheet Management unit plans and executes the funding of the structural long-term gap in each balance sheet, and proposes to the ALCO the actions to adopt with respect to this matter. Once the proposals are agreed by ALCO, the Balance-Sheet Management unit guarantees the coordination and standardization of the processes in all the geographical areas.