4.6. Information on securitizations

4.6.1. General characteristics of securitizations

4.6.1.1. Purpose of securitization

The Group’s current policy on securitization involves a program of recurrent issue, with a deliberate diversification of securitized assets that adjusts their volume to the Bank’s capital requirements and to market conditions.

This program is complemented by all the other finance and equity instruments, thereby diversifying the need to resort to wholesale markets.

The definition of the strategy and the execution of the operations, as with all other wholesale finance and capital management, is supervised by the Assets & Liabilities Committee, with the pertinent internal authorizations obtained directly from the Board of Directors or from the Executive Committee.

The main aim of securitization is to serve as an instrument for the efficient management of the balance sheet, above all as a source of liquidity at an efficient cost, obtaining liquid assets through eligible collateral, as a complement to other financial instruments. In addition, there are other secondary objectives associated with the use of securitization instruments, such as freeing up of regulatory capital by transferring risk and the freeing of potential excess generic provisions, provided that the volume of the first-loss tranche and the ability to transfer risk allow it.

4.6.1.2. Functions pursued in the securitization process and degree of involvement

The Group’s degree of involvement in its securitization funds is not usually restricted to the mere role of assignor and administrator of the securitized portfolio.

CHART 18: Functions carried out in the securitization process and degree of involvement of the Group

As can be seen in the above chart, the Group has usually taken additional roles such as:

• Payment Agent.
• Provider of the treasury account.
• Provider of the subordinated loan and of the loan for start-up costs, with the former being the one that finances the first-loss tranche, and the latter financing the fund’s fixed expenditure.
• Administrative agent of the securitized portfolio

The Group has not assumed the role of sponsor of securitizations originated by third-party institutions.

The Group’s balance sheet maintains the first-loss tranches of all securitizations performed.

It is worth noting that the Group has not modified its model for the generation of securitization operations since the credit crunch, which began in July 2007. Accordingly:

• There have been no transfers of risk through synthetic securitizations. All operations have involved traditional securitizations with simple structures in which the underlying assets were loans or financial leasing.
• It has not been involved in recurrent structures such as conduits or SIVs. All its issues have been one-offs, with no mandatory commitments for asset repackaging or the replacement of loans.

4.6.1.3. Methods used for the calculation of risk-weighted exposures in its securitization activity

The methods used to calculate risk-weighted exposures in securitizations are:

• The standardized approach: when this method is used for fully securitized exposures, in full or in a predominant manner if it involves a mixed portfolio.
• The IRB approach: when internal models are used for securitized exposures, in full or in a predominant manner. Within the alternatives of the IRB approach, use is made of the model based on external ratings.

4.6.2. Risk transfer in securitization activities

A securitization fulfills the criterion of significant and effective transfer of risk, and therefore falls within the solvency framework of the securitizations, when it meets the conditions laid down in Articles 244.2 and 243.2 of the solvency regulation.

4.6.3. Investment or retained securitizations

The table below shows the amounts in terms of EAD of investment and retained securitization positions by type of exposure, tranches and weighting ranges corresponding to securitizations. In the case of originated securitizations, only those in which the Group fulfills the criteria for transfer of risk as of December 31, 2014 and 2013 are included.

TABLE 39: Amounts in terms of EAD of investment and retained securitization positions
2014

(Millions of euros)

Security Type	Exposure Type	Tranche	EAD broken down by ECAI (1)								Total
			Standardized				Advanced
			20%	40%;50%; 100%;225%; 350%;650%	1250%	Total Standardized	RW<15%	15%<RW<1250%	1250%	Total Advanced
Investment	Balance-sheet exposure	Preferential	2,058	0	0	2,058	63	0	0	63	2,121
		Intermediate	0	325	0	325	0	793	0	793	1,117
		First-loss	0	0	0	0	0	0	0	0	0
	Off-balance-sheet exposure	Preferential	0	0	0	0	0	0	0	0	0
		Intermediate	0	0	0	0	0	0	0	0	0
		First-loss	0	0	0	0	0	0	0	0	0
TOTAL			2,058	325	0	2,383	63	793	0	856	3,239
Retained	Balance-sheet exposure	Preferential	3	0	0	3	22	0	0	22	25
		Intermediate	0	45	0	45	0	0	0	0	45
		First-loss	0	0	135	135	0	0	145	145	280
	Off-balance-sheet exposure	Preferential	0	0	0	0	0	0	0	0	0
		Intermediate	0	0	0	0	0	0	0	0	0
		First-loss	0	0	0	0	0	0	0	0	0
TOTAL			3	45	135	183	22	0	145	167	351

(1) Those deducted from capital are excluded

2013

(Millions of euros)

Security Type	Exposure Type	Tranche	EAD broken down by ECAI (1)								Total
			Standardized				Advanced
			20%	40%;50%; 100%;225%; 350%;650%	1250%	Total Standardized	RW<15%	15%<RW<1250%	1250%	Total Advanced
Investment	Balance-sheet exposure	Preferential	4,291	0	0	4,291	11	0	0	11	4,302
		Intermediate	0	116	0	116	0	761	0	761	878
		First-loss	0	0	6	6	0	0	10	10	16
	Off-balance-sheet exposure	Preferential	0	0	0	0	0	0	0	0	0
		Intermediate	0	0	0	0	0	0	0	0	0
		First-loss	0	0	0	0	0	0	0	0	0
TOTAL			4,291	116	6	4,413	11	761	10	782	5,195
Retained	Balance-sheet exposure	Preferential	11	0	0	11	28	0	0	28	39
		Intermediate	0	89	0	89	0	25	0	25	113
		First-loss	0	0	197	197	0	0	75	75	272
	Off-balance-sheet exposure	Preferential	0	0	0	0	0	0	0	0	0
		Intermediate	0	0	0	0	0	0	0	0	0
		First-loss	0	0	0	0	0	0	0	0	0
TOTAL			11	89	197	297	28	25	75	128	424

(1) Those deducted from capital are excluded

Below are details of the RWAs by model, as well as the main variations during the period:

TABLE 40: Distribution of securitizations subject to risk weighting and deducted from capital

(Millones €)

Securitization Risk
Category	Model	RWAs
1. Subject to risk weighting	Standardized	1,065
	Advanced	712
Subtotal 1		1,777
2. Deducted from capital	Standardized	1,738
	Advanced	237
Subtotal 2		1,975
TOTAL		3,752

TABLE 41: Variations in terms of RWAs of investment and retained securitizations

	Securitization Risk
RWAs Dec 13		2.913
Effects	Activity	-448
	Changes in RW	-620
	Regulatory changes	0
	Exchange rate	0
	Other	-67
RWAs Dec 14		1,777

Variation in RWAs is due to:

• Activity: Amortization of securitizations, mainly United States investors.
• Changes in RW: Improvement in the asset quality associated with United States securitizations (€470 million approximately) and a general fall in the maximum ceiling for securitizations (originating), which now consume the limit fixed by the applicable regulation corresponding to the underlying assets, supposing an impact (mainly in Spain) of around €150 million.

4.6.4. Originated securitizations

4.6.4.1. Rating agencies used

The rating agencies that have been involved in the Group's issues that fulfill the criteria of risk transfer and fall within the securitizations solvency framework are, generally, Fitch, Moody’s, S&P and DBRS.

In all the SSPEs, the agencies have assessed the risk of the entire issuance structure:

• Awarding ratings to all bond tranches.
• Establishing the volume of the credit enhancement.
• Establishing the necessary triggers (early termination of the restitution period, pro-rata amortization of AAA classes, pro-rata amortization of series subordinated to AAA and amortization of the reserve fund, among others).

In each and every one of the issues, in addition to the initial rating, the agencies carry out regular quarterly monitoring.

4.6.4.2. Breakdown of securitized balances by type of asset

The next tables give the current outstanding balance, non-performing exposures and impairment losses recognized in the period corresponding to the underlying assets of originated securitizations, in which risk transfer criteria are fulfilled, broken down by type of asset, as of December 31, 2014 and 2013.

TABLE 42: Breakdown of securitized balances by type of asset
2014

(Millions of euros)

Type of asset	Current balance	Of which: Non-Performing Exposures (1)	Total impairment losses for the period
Commercial and residential mortgages	155	24	1
Credit cards	0	0	0
Financial leasing	206	26	1
Lending to corporates	296	46	7
Consumer finance	142	11	22
Receivables	0	0	0
Securitization balances	0	0	0
Other	0	0	0
TOTAL	798	108	32

(1) It includes the total amount of exposures impaired for reasons of default or for other reasons.

2013

(Millions of euros)

Type of asset	Current balance	Of which: Non-Performing Exposures (1)	Total impairment losses for the period
Commercial and residential mortgages	182	15	61
Credit cards	0	0	0
Financial leasing	286	30	5
Lending to corporates	435	54	7
Consumer finance	309	25	20
Receivables	0	0	0
Securitization balances	0	0	0
Other	0	0	0
TOTAL	1,212	124	93

(1) It includes the total amount of exposures impaired for reasons of default or for other reasons.

In 2014 and 2013, there were no securitizations that fulfill the transfer criteria according to the requirements of the solvency regulation, and, therefore, no results were recognized.

BBVA has been the structurer of all transactions effected since 2006 (excluding the Unnim transactions).

The table below shows the outstanding balance of underlying assets of securitizations originated by the Group, in which risk transfer criteria are not fulfilled. These, therefore, are not included in the solvency framework for securitizations; the capital exposed is calculated as if they had not been securitized:

TABLE 43: Outstanding balance corresponding to the underlying assets of the Group’s originated securitizations, in which risk transfer criteria are not fulfilled

(Millions of euros)

Type of asset	Current balance
	2014	2013
Commercial and residential mortgages	22,916	19,404
Credit cards	0	0
Financial leasing	14	25
Lending to corporates	2,525	3,760
Consumer finance	1,071	1,209
Receivables	0	0
Securitization balances	58	0
Mortgage-covered bonds	0	0
Other	0	75
TOTAL	26,584	24,474