Risk management

Credit risk

The local authorities of the countries in which the Group operates initiated economic support measures in 2020, after the outbreak of the pandemic, including the granting of relief measures in terms of temporary payments deferrals for customers affected by the pandemic, as well as the granting of loans, especially to companies and SMEs, with public guarantees. 

These measures are supported by the rules issued by the authorities of the geographical areas where the Group operates as well by certain industry agreements and should help to ease the temporary liquidity needs of the customers. The classification of the customers’ credit quality and the calculation of the expected credit loss, once the credit quality of those customers have been reviewed under the new circumstances, will depend on the effectiveness of these relief measures. In any case, the incorporation of public guarantees is considered to be a mitigating factor in the estimation of the expected credit losses.

For the purposes of classifying exposures based on their credit risk, the Group has maintained a rigorous application of IFRS 9 at the time of the granting of the moratoriums and has reinforced the procedures to monitor credit risk both during their validity and upon their expiration. In this sense, additional indicators have been introduced to identify the significant increase in risk that may have occurred in some operations or a set of them and, where appropriate, proceed to classify it in the corresponding risk stage.  Likewise, the indications provided by the European Banking Authority (EBA) have been taken into account, to not consider as refinancing the moratoriums that meet a series of requirements, without prejudice to keeping the exposure classified in the corresponding risk stage or its consideration as refinancing if it was previously so classified.

In relation to the temporary payment deferrals for customers affected by the pandemic, since the beginning BBVA has worked on an anticipation plan with the goal of mitigating as much as possible the impact of these measures in the Group, due to the high concentration of its maturities over time. As of March 31, 2021, the payment deferrals granted by the Group amounted to €5,446m1.

(1) It excludes BBVA USA and the rest of Group´s companies in the United States included in the sale agreement signed with PNC.

Calculation of expected losses due to credit risk

To respond to the circumstances generated by the global COVID-19 pandemic in the macroeconomic environment, characterized by a high level of uncertainty regarding its intensity, duration and speed of recovery, forward-looking information has been updated in the IFRS 9 models to incorporate the best information available at the date of publication of this report. The estimation of the expected losses has been calculated for the different geographical areas in which the Group operates, with the best information available for each of them, considering both the macroeconomic perspectives and the effects on specific portfolios, sectors or specific accredited. The scenarios used consider the various economic measures that have been announced by governments as well as monetary, supervisory and macroprudential authorities around the world. However, the final magnitude of the impact of this pandemic on the Group's business, financial situation and results, which could be material, will depend on future and uncertain events, including the intensity and persistence over time of the consequences derived from the pandemic in the different geographical areas in which the Group operates.

The expected losses calculated according to the methodology provided by the Group, including macroeconomic projections, have been supplemented with quantitative management adjustments in order to include issues that might imply a potential impairment which due to its nature is not included in the model and which will be assigned to specific operations in case this impairment materializes (e.g, sectors and collectives more affected by the crisis).

As of March 31, 2021, in order to incorporate those aspects not included in the impairment models, there are management adjustments to the expected losses amounting to €316m in Spain. As of December 31, 2020 this concept amounted to €223m. The variation is due to the use of €57m during the period, as well as an additional allowance given the possibility that new extensions in the financing granted or agreements in order to ensure business viability materialize.

The evolution of the exposure of corporate banking clients to the sectors that have been considered most vulnerable in the COVID-19 pandemic environment is shown below:


31-03-21 31-12-20 30-09-20 30-06-20 31-03-20
Leisure (1) 9,221 9,279 9,237 9,383 8,781
Real estate sector (2) 12,717 12,806 13,247 13,686 13,405
Retailers (3) 4,826 4,982 5,073 5,427 4,821
Air transportation 938 965 1,111 1,061 566
Total 27,702 28,032 28,668 29,557 27,573
  • General note: data excluding BBVA USA and the rest of Group's companies in the United States included in the sale agreement signed with PNC for all periods.
  • (1) Among others; includes hotels, restaurants, travel agencies and gaming.
  • (2) Includes real estate developers.
  • (3) Retailers non-food.

Credit risk indicators of BBVA Group

BBVA Group's main risk indicators, excluding the balances from discontinued operations, (i.e. BBVA excluding BBVA USA and the rest of Group’s companies in the United States included in the sale agreement signed with PNC), have evolved as follows during the first quarter of 2021, as a result, among other reasons, of the situation generated by the pandemic:

  • Credit risk has remained almost flat, down 0.4% (down 0.3% at constant exchange rates) during the first three months of 2021, as the decline in the activity in Spain and South America, influenced by the sale of Paraguay, has been partially offset by the activity increase in the rest of the geographical areas. 
  • The balance of non-performing loans increased slightly with respect to the end of December 2020 (up 1.0% at current exchange rates, up 1.3% at constant exchange rates). By geographical areas, it grew in Spain and Turkey, and to a lesser extent in Argentina and Peru, offset by the good performance of the retail segment in Mexico.
  • As a result of the aforementioned, the NPL ratio stood at 4.3% at the end of March, 6 basis points above the end of December.
  • Loan-loss provisions remained flat (up 0.1%). 
  • The NPL coverage ratio fell 74 basis points to 81% during the quarter. 
  • The cumulative cost of risk as of 31-03-2021 stood at 1.17%, falling 38 basis points compared to the end of 2020.



31-03-21 31-12-20 30-09-20 30-06-20 31-03-20
Credit risk 365,292 366,883 365,127 384,310 379,645
Non-performing loans 15,613 15,451 15,006 15,594 15,290
Provisions 12,612 12,595 12,731 12,957 12,720
NPL ratio (%) 4.3 4.2 4.1 4.1 4.0
NPL coverage ratio (%)(2) 81 82 85 83 83
  • General note: figures excluding BBVA USA and the rest of Group's companies in the United States included in the sale agreement signed with PNC as of 31-03-21 and the periods of 2020, and the classification of BBVA Paraguay as non-current assets and liabilities held for sale during the periods of 2020.
  • (1) Includes gross loans and advances to customers plus guarantees given.
  • (2) The NPL coverage ratio includes the valuation adjustments for credit risk during the expected residual life of those financial instruments which have been acquired (mainly originated from the acquisition of Catalunya Banc, S.A.). Excluding these allowances, the NPL coverage ratio would stand at 79% as of March 31, 2021, 79% as of December 31, 2020 and 80% as of March 31, 2020.


1Q21 (1) 4Q20 3Q20 2Q20 1Q20
Beginning balance 15,451 15,006 15,594 15,290 16,086
Entries 1,913 2,579 1,540 1,892 1,759
Recoveries (924) (1,016) (1,028) (1,045) (1,257)
Net variation 989 1,563 512 847 502
Write-offs (794) (1,149) (510) (709) (814)
Exchange rate differences and other (33) 31 (590) 165 (483)
Period-end balance 15,613 15,451 15,006 15,594 15,290
Memorandum item:
Non-performing loans 14,933 14,709 14,269 14,909 14,591
Non performing guarantees given 681 743 737 684 699
  • General note: figures excluding BBVA USA and the rest of Group's companies in the United States included in the sale agreement signed with PNC as of 31-03-21 and the periods of 2020, and the classification of BBVA Paraguay as non-current assets and liabilities held for sale during the periods of 2020.
  • (1) Preliminary data.

Structural risks

Liquidity and funding

Management of liquidity and funding at BBVA aims to finance the recurring growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of financing. In this context, it is important to notice that, given the nature of BBVA's business, the funding of lending activity is fundamentally carried out through the use of stable customer funds.

Due to its subsidiary-based management model, BBVA is one of the few major European banks that follows the Multiple Point of Entry (MPE) resolution strategy: the parent company sets the liquidity policies, but the subsidiaries are self-sufficient and responsible for managing their own liquidity (taking deposits or accessing the market with their own rating), without fund transfers or financing occurring between either the parent company and the subsidiaries or between the different subsidiaries. This strategy limits the spread of a liquidity crisis among the Group's different areas, and ensures that the cost of liquidity and financing is correctly reflected in the price formation process.

In view of the initial uncertainty caused by the outbreak of COVID-19 in March 2020, the various different central banks provided a joint response through specific measures and programs, the extent of which, in some cases, has been extended until 2021 to facilitate the financing of the real economy and the provision of liquidity in the financial markets, increasing liquidity buffers in almost all geographical areas.

The BBVA Group maintains a solid liquidity position in every geographical area in which it operates, with liquidity ratios well above the minimum required:

  • The BBVA Group's liquidity coverage ratio (LCR) remained comfortably above 100% throughout the first quarter of 2021, and stood at 151%2as of March 31, 2021. For the calculation of this ratio, it is assumed that there is no transfer of liquidity among subsidiaries; i.e. no type of excess liquidity levels in foreign subsidiaries are considered in the calculation of the consolidated ratio. When considering these excess liquidity levels, the BBVA Group's LCR would stand at 193%.
  • The net stable funding ratio (NSFR), defined as the ratio between the amount of stable funding available and the amount of stable funding required, is one of the Basel Committee's essential reforms, the transposition of which will become effective in June 2021, and requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. This ratio should be at least 100% at all times. The BBVA Group's NSFR ratio, calculated based on Basel requirements, stood at 127%2 as of March 31, 2021.

2 It includes BBVA USA and the rest of Group´s companies in the United States included in the sale agreement signed with PNC.

The breakdown of these ratios in the main geographical areas in which the Group operates is shown below:


Eurozone (1) Mexico Turkey South America
LCR 186 206 162 All countries >100
NSFR 119 139 148 All countries >100
  • (1) Perimeter: Spain + the rest of the Eurozone where BBVA has presence.

The most relevant aspects related to the main geographical areas are the following:

  • In the Eurozone, BBVA maintains a comfortable position with a large, high-quality liquidity buffer. During the first quarter of 2021, as expected, there were some outflows of wholesale deposits that held very high balances at the end of December 2020, while lending activity remained virtually stable. In March 2021, BBVA S.A. took part in the TLTRO III liquidity window program to take advantage of the improved conditions announced by the European Central Bank (ECB) in December 2020, with an amount drawn of €3.5 billion, which when added together with the €34.9 billion available at the end of December 2020 it totaled €38.4 billion. In this regard, the ECB continues to support liquidity in the system through the measures it has implemented since the start of the pandemic, and it should be noted that, during the first quarter of 2021, it announced accelerated asset purchases under its PEPP program (Pandemic Emergency Purchase Programme).
  • BBVA Mexico had a strong liquidity position during the first quarter of 2021, maintaining a negative gap, resulting from lower growth in the loan portfolio. This liquidity gap has enabled an acquisition cost efficiency policy, which has resulted in savings in net interest income. This reduced need for liquidity has also enabled the maturity of a subordinated issue of USD 750m to be absorbed in March, without it needing to be refinanced. With regard to the measures taken by Banxico, in February 2021, the banking support measures issued in April 2020 to support liquidity needs were extended until September 2021, and the monetary policy rate was lowered by 25 basis points to 4%. 
  • The Central Bank of the Republic of Turkey (CBRT) has continued its restrictive policies, increasing both reserve requirement rates and the base rate by 200 basis points. During March, the central bank governor was replaced, which has provoked some market volatility.

    In the first quarter, the Bank's lending gap increased both in local and foreign currency. These increases follow the significant liquidity accumulation in the last quarter of 2020 and reflect the objective to protect the customer spread in a rising interest rate environment. Garanti BBVA continues to maintain a strong liquidity buffer in both currencies.

  • In South America, the liquidity situation remains suitable throughout the region, helped by the support of various central banks and governments which, in order to mitigate the impact of the COVID-19 crisis, have acted by implementing measures to stimulate economic activity and provide greater liquidity in financial systems. In Argentina, liquidity in the system continues to increase due to higher growth in deposits than loans in local currency, with a slight reduction in deposits in U.S. dollars. A comfortable liquidity position has been maintained in Colombia following the adjustment for excess liquidity made in the second half of last year through reducing wholesale deposits. The same can be said for BBVA Peru, where it has remained favored by funds from the central bank's support programs.

The main transactions carried out in wholesale financing markets by the companies that form part of the BBVA Group in the first quarter of 2021 were:

  • In March 2021 BBVA, S.A. issued preferred senior debt totaling €1,000m at 0.125% (for more information on this transaction see the "Solvency" chapter in this report).
  • In Turkey, there have been no issuances during the first quarter of 2021. BBVA Garanti is expected to renew a syndicated loan amounting to USD 724m in May, which includes €104m owed to the European Bank for Reconstruction and Development (EBRD) and to the International Finance Corporation (IFC). At the date of preparation of this report, the renewal ratio is pending.
  • In South America, BBVA Uruguay issued the first sustainable bond on the Uruguayan financial market in February for USD 15m at an initial interest rate of 3.854%.

Foreign exchange

Foreign exchange risk management of BBVA's long-term investments, principally stemming from its overseas franchises, aims to preserve the Group's capital adequacy ratio and ensure the stability of its income statement.

BBVA has maintained its policy of actively hedging its main investments in emerging markets, covering on average between 30% and 50% of annual earnings and around 70% of the CET1 capital ratio surplus. Based on this policy, the sensitivity of the CET1 ratio to a depreciation of 10% against the euro of the main emerging-market currencies is estimated at -5 basis points for the Mexican peso and -2 basis points for the Turkish lira. With regard to the U.S. dollar, the estimated sensitivity is approximately +9 basis points to a 10% depreciation against the euro. The transactional currency risk associated with the sale of the subsidiary in the United States was covered by more than 80% at the end of March. At the end of March, the coverage level for expected earnings for 2021 stood at close to 60% in Turkey and Mexico, 50% in Peru and 40% in Colombia.

Interest rate

Interest rate risk management seeks to limit the impact that BBVA can suffer, both in terms of net interest income (short-term) and economic value (long-term), through movements in the interest rate curves in the various different currencies in which the Group operates. BBVA carries out this work through an internal procedure, pursuant to the guidelines established by the European Banking Authority (EBA), in order to determine the potential impact of a range of scenarios on the Group's various different balance sheets.

The model is based on assumptions intended to realistically mimic the behavior of the balance sheet. Of particular relevance are assumptions regarding the behavior of accounts with no explicit maturity and prepayment estimates. These assumptions are reviewed and adapted at least once a year to take into account any changes in behavior.

At the aggregate level, BBVA continues to maintain a moderate risk profile, in accordance with the established objective, showing positive sensitivity toward interest rate increases in the net interest income. The effective management of structural balance sheet risk has allowed it to mitigate the negative impact of the downward trend in interest rates and the volatility experienced as a result of the effects of COVID-19, and is reflected in the soundness and recurrence of net interest income.

At the market level, the quarter showed volatility with regard to fixed income as a result of higher expectations of medium-term inflation in the United States, leading to an upsurge in the country's sovereign bond curve. This effect has trickled into the fixed income securities markets of other emerging countries, especially in Latin America. With regard to Europe, movements were more contained due to lower inflation expectations and the ECB's bond-buying program. This has all had a limited impact on the generation of net interest income by the various subsidiaries, due to low exposure to these long nodes in the curve.

By area, the main features are:

  • Spain has a balance sheet characterized by a high proportion of variable-rate loans (basically mortgages and corporate lending) and liabilities composed mainly of customer deposits. The ALCO portfolio acts as a management lever and hedging for the bank's balance sheet, mitigating its sensitivity to interest rate fluctuations. The balance sheet´s profile has remained stable during the first quarter of the year.
  • On the other hand, the ECB held the marginal deposit facility rate unchanged at -0.50% and maintained the extraordinary support programs created in the wake of the COVID-19 crisis. This has created stability in European benchmark interest rates (Euribor), which have been moving in a narrow range throughout the first quarter of 2021. 
  • Mexico continues to show a balance between fixed and variable interest rates balances. In terms of assets that are most sensitive to interest rate fluctuations, the commercial portfolio stands out, while consumer loans and mortgages are mostly at a fixed rate. The ALCO portfolio is used to neutralize the longer duration of customer deposits. Net interest income sensitivity continues to be limited and stable in the first quarter of 2021. It’s expected that 2021 will be a more stable year involving fewer actions by the central bank, which lowered the base rate by 300 basis points during 2020. In this regard, the monetary policy rate stood at 4% at the end of March, as a result of a 25 basis points reduction during the first quarter of 2021.
  • In Turkey, the interest rate risk (broken down into Turkish lira and US dollars) is limited. On the asset side, the sensitivity of loans, which are mostly fixed-rate with relatively short maturities,and the ALCO portfolio,including inflation-linked bonds,are balanced by the sensitivity of deposits on the liability side, which reprice at short maturities. With regard to base rates, increases continued as in previous quarters, with the first quarter ending 200 basis points above the level seen in December 2020. 
  • In South America, the risk profile for interest rates remains low as most countries in the area have a fixed/variable composition and maturities that are very similar for assets and liabilities, with a low net interest income sensitivity. In addition, in balance sheets with several currencies, interest-rate risk is managed for each of the currencies, showing a very low level of risk. No changes were observed in the base rates of the central banks of Peru and Colombia during the first quarter of the year, and they remain at all-time lows.