Risks

BBVA Group has a General Risk Management and Control Model (hereinafter, the "Model") adapted to its business model, organization and the geographic areas in which it operates. It allows it to operate within the framework of the control and risk management strategy defined by the Bank's company bodies and adapt to an economic and regulatory environment, addressing management globally and adapted to the circumstances at any particular time. The Model establishes a system of risk management that is adapted to the entity's risk profile and strategy.

The risks inherent in the business that make up the risk profile of BBVA Group are as follows:

  • · Credit risk: Credit risk arises from the probability that one party to a financial instrument will fail to meet its contractual obligations for reasons of insolvency or inability to pay and cause a financial loss for the other party. This includes counterparty risk, issuer credit risk, liquidation risk and country risk.
  • · Counterparty risk: The credit risk corresponding to derivative instruments, repurchase and resale transactions, securities or commodities lending or borrowing transactions and deferred settlement transactions.
  • · Credit valuation adjustment (CVA) risk: Its aim is to reflect the impact on the fair value of the counterparty's credit risk.
  • · Market risk: Market risk originates in the possibility that there may be losses in the value of positions held due to movements in the market variables that affect the valuation of financial products and assets in trading activity.
  • · Operational risk: Operational risk is defined as the one that could potentially cause losses due to human errors, inadequate or faulty internal processes, system failures or external events. This definition includes legal risk, but excludes strategic and/or business risk and reputational risk.
  • · Structural risks: These are divided into structural interest-rate risk (movements in interest rates that cause alterations in an entity's net interest income and equity value) and structural exchange-rate risk (exposure to variations in exchange rates originating in the Group's foreign companies and in the provision of funds to foreign branches financed in a different currency from that of the investment).
  • · Liquidity risk: Risk of an entity having difficulties in duly meeting its payment commitments, and where it does not have to resort to funding under burdensome terms which may harm the bank's image or reputation.
  • · Reputational risk: Considered to be the potential loss in earnings as a result of events that may negatively affect the perception of the Group's different stakeholders.

The total amount of the capital requirements, calculated as 8% of the risk-weighted assets (defined by article 92 of the CRR) as of 31 December 2017, increases to 29,030 million euros (31,116 million euros at December 31, 2016).

These capital requirements are mainly composed of credit and dilution risk, counterparty risk, market risk, structural exchange rate risk, risk of adjustment of credit valuation and operational risk.

The chart below shows the risk-weighted assets broken down by risk and the capital requirements broken down by type of risk and categories of exposure, as of December 31, 2017 and December 31, 2016:

Capital requirements by risk type and exposure class
Exposure Class and risk type Capital requirements (2) RWA's (1)
12/31/2017 12/31/2016 12/31/2017 12/31/2016
Credit Risk 16,684 18,239 208,554 227,987
Central governments or central banks 2,381 2,408 29,759 30,106
Regional governments or local authorities 100 79 1,252 989
Public sector entities 52 75 654 941
Multilateral development banks 1 3 14 33
International organisations - - - -
Institutions 463 510 5,793 6,370
Corporates 7,328 8,301 91,600 103,761
Retail 3,134 3,266 39,177 40,821
Secured by mortgages on immovable property 1,569 1,702 19,609 21,276
Exposures in default 420 465 5,248 5,807
Exposures associated with particularly high risk 296 175 3,694 2,193
Covered bonds - - - -
Claims on institutions and corporates with a short-term credit assesment 0 7 5 87
Collective investments undertakings 2 11 24 140
Other exposures 938 1,237 11,725 15,463
Securitisation exposures 74 92 924 1,144
Securitisation exposures 74 92 924 1,144
TOTAL CREDIT RISK BY STANDARDISED APPROACH 16,758 18,330 209,478 229,131
Credit Risk 6,673 7,179 83,408 89,741
Central governments or central banks 94 44 1,172 552
Institutions 474 489 5,931 6,114
Corporates 4,531 4,879 56,643 60,983
Of which: Specialised lending 804 965 10,056 12,061
Of which: SMEs 646 777 8,077 9,710
Of which: Others 3,081 3,137 38,510 39,212
Retail 1,573 1,767 19,661 22,091
Of which: Secured by real estate property 661 855 8,268 10,690
Of which: Qualifying revolving 541 590 6,764 7,376
Of which: Other SMEs 129 120 1,612 1,503
Of which: Other Non-SMEs 241 202 3,017 2,523
Equity 1,342 1,331 16,775 16,639
On the basis of method:
Of which: Simple approach 765 863 9,562 10,782
Of which: PD/LGD approach 396 392 4,953 4,896
Of which: Intern models 181 77 2,261 961
On the basis of nature:
Of which: Listed instruments 433 528 5,412 6,598
Of which: Not listed instruments in sufficiently diversified portfolios 909 803 11,363 10,042
Securitisation exposures 66 27 827 332
Securitisation exposures 66 27 827 332
TOTAL CREDIT RISK BY IRB APPROACH 8,081 8,537 101,009 106,713
TOTAL CONTRIBUTIONS TO THE DEFAULT FUND OF A CCP 4 7 49 93
TOTAL CREDIT RISK 24,843 26,875 310,536 335,937
SETTLEMENT RISK - - - -
Standardised approach: 226 246 2,829 3,071
Of which: Price Risk by fixed income exposures 197 211 2,461 2,638
Of which: Price Risk by Securitisation exposures 2 1 20 17
Of which: Price Risk by correlation 11 5 142 63
Of which: Price Risk by stocks and shares 16 19 197 234
Of which: Commodities Risk 1 9 9 118
IRB: Market Risk 689 741 8,611 9,258
TOTAL TRADING BOOK RISK 915 986 11,439 12,329
FOREING EXCHANGE RISK (STANDARDISED APPROACH) 366 323 4,579 4,041
CVA RISK 125 186 1,566 2,321
OPERATIONAL RISK 2,780 2,746 34,755 34,323
CAPITAL REQUIREMENTS 29,030 31,116 362,875 388,951
  • (1) Risk-weighted assets according to the transitional period (phased-in)
  • (2) Multiplied by 8% of RWAs

For more detail, see section 3 of the report.

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