Risk management

Credit risk

The global economy is currently facing a number of extraordinary challenges. The war in Ukraine and the related sanctions imposed against Russia have led to significant disruption, instability and volatility in global markets, as well as higher inflation and lower economic growth. The increase in the last year in interest rates could negatively affect the Group by reducing the demand for credit, limiting its capacity to generate credit for its customers and causing a strain on the payment capacity of individuals.

In relation to the relief measures for customers affected by the pandemic, and additionally, affected by the economic effects derived from the war in Ukraine, in Spain and Peru, the possibility of carrying out extensions both in the maturity period as well as in the grace period in financing with public guarantees are still in force. In Spain, they can be requested by companies and the self-employed from June 30, 2022, after the expiration of the Temporary State Aid Framework approved by the European Commission. In Peru, the Decree was approved in May 2022, with eligibility in this measure in place until June 30, 2023, after the extension of the initial period that ended on December 31, 2022.

In addition, on November 23, 2022, the Royal Decree-Law 19/2022, on November 22, was published. It amends the Code of Good Practices, establishes a new Code of Good Practices easing the interest rates hikes on mortgage loans agreements related to primary residences and provides for other structural measures aiming to improve the loan market. In November 30, 2022, the BBVA Board of Directors agreed the adherence to the new Code of Good Practices with effect from January 1, 2023. The number and amount of the transactions granted to clients in accordance with the new Code of Good Practices have been very low.

Regarding the direct exposure of the Group to Russia and Ukraine, this is limited for BBVA, although the Group has taken different measures aimed at reducing its impact, among which are the initial lowering of limits followed by the suspension of operations with Russia, the lowering of internal ratings and the inclusion of the country and its borrowers as impaired for subjective reasons. However, the indirect risk is greater due to the activity of customers in the affected area or sectors. The economic effects are mainly shown through higher commodity prices, mainly energy, despite the moderation observed in recent months, but also through financial channels and the confidence of economic agents.

Calculation of expected losses due to credit risk

For the estimation of expected losses, the models include individual and collective estimates, taking into account the macroeconomic forecasts in accordance with IFRS 9. Thus, the estimate at the end of the quarter includes the effect on expected losses of updating macroeconomic forecasts, which take into account the current global environment, which has been affected by the war in Ukraine, the evolution of interest rates, inflation rates and commodity prices.

Additionally, the Group can supplement the expected losses either by the consideration of additional risk drivers, the incorporation of sectorial particularities or that may affect a set of operations or borrowers, following a formal internal process established for the purpose.

Thus, in Spain, during 2021 and 2022, the Loss Given Default (LGD) of certain specific operations considered unlikely to pay was reviewed upwards, with a remaining adjustment at the end of the year 2022 of €388m; without significant variation during the three month period ended March 31, 2023. In addition, due to the earthquake that has affected an area in the south of Turkey, during the month of February 2023 the classification of the credit exposure recorded in the five most affected cities has been reviewed, which has led to a reclassification to Stage 2 of approximately €518m of balances on the balance sheet and €682m of off-balance sheet balances, as well as a charge to results of approximately €58m. It is expected that the classification of these balances and provisions evolve during the year based on events in said area, and it is expected that the classification of operations and their coverage needs will be reassessed as greater certainty is obtained.

On the other hand, the complementary adjustments pending allocation to specific operations or customers that are in force as of March 31, 2023 total €219m, of which €87m correspond to Spain, €98m to Mexico, €15m to Peru, €10m to Colombia, €4m to Chile and €6m to Rest of Business of the Group. In comparison, as of December 31, 2022, the complementary adjustments pending allocation to specific operations or clients amounted to €302m, of which €163m corresponded to Spain, €92m to Mexico,€25m to Peru, €11m to Colombia, €5m to Chile and €6m to Rest of Business of the Group. The change in the quarter is due to the utilization in the period in Spain, Peru, Colombia and Chile, with no additional provisions in the first months of the year.

BBVA Group's credit risk indicators

The evolution of the Group’s main credit risk indicators is summarized below:

  • Credit risk increased in the first quarter of the year by 1.1% (+0.8% at constant exchange rates), with generalized growth at constant exchange rates in almost all geographic areas except Rest of Business and Spain.
  • Reduction in the balance of non-performing loans at Group level between January and March 2023 (-2.2% in current terms and -2.5% at constant rates), due to lower NPL inflows, positive dynamics in wholesale portfolios (repayments and recoveries mainly in Turkey) as well as a higher volume of write-offs in Spain. Compared to the same period of the previous year, the balance of non-performing loans decreased by 9.4% (-8.9% at constant exchange rates).


  • The NPL ratio stood at 3.3% as of March 31, 2023, 11 basis points below the figure recorded in December 2022 and 65 basis points below that of March 2022. Noteworthy is the change in Turkey, which improved by 77 basis points compared to the end of 2022 and 239 basis points compared to the first quarter of last year.
  • Loan-loss provisions remained almost stable compared to the figure at the end of the fourth quarter (-0.9% with respect to December 2022).
  • The NPL coverage ratio stood at 82%, 112 basis points higher than the figure at the end of 2022 (655 basis points higher than the first quarter of 2022), mainly due to the evolution in Turkey and Mexico.
  • The cumulative cost of risk as of March 31, 2023 stood at 1.05%. Lower requirements compared to the previous quarter in all geographical areas except Mexico, Argentina and Rest of Business.


31-03-23 31-12-22 30-09-22 30-06-22 31-03-22
Credit risk 428,423 423,669 428,064 413,638 394,861
Non-performing loans 14,141 14,463 15,162 15,501 15,612
Provisions 11,661 11,764 12,570 12,159 11,851
NPL ratio (%) 3.3 3.4 3.5 3.7 4.0
NPL coverage ratio (%)(2) 82 81 83 78 76
  • (1) Includes gross loans and advances to customers plus contingent liabilities.
  • (2) The NPL coverage ratio includes the valuation adjustments for credit risk throughout the expected residual life in those financial instruments that have been acquired (mainly originating from the acquisition of Catalunya Banc, S.A.). If these valuation corrections had not been taken into account, the NPL coverage ratio would have stood at 81% as of March 31, 2023, 80% as of December 31, 2022 and 74% as of March 31, 2022.


1Q23 (1) 4Q22 3Q22 2Q22 1Q22
Beginning balance 14,463 15,162 15,501 15,612 15,443
Entries 2,259 2,332 1,871 2,085 1,762
Recoveries (1,526) (1,180) (1,595) (1,697) (1,280)
Net variation 733 1,152 276 388 482
Write-offs (1,102) (928) (683) (579) (581)
Exchange rate differences and other 48 (923) 67 80 269
Period-end balance 14,141 14,463 15,162 15,501 15,612
Memorandum item:
Non-performing loans 13,215 13,493 14,256 14,597 14,731
Non performing guarantees given 926 970 906 904 881

(1) Preliminary data.

Structural risks

Liquidity and funding

Liquidity and funding management 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. BBVA's business model, risk appetite framework and funding strategy determine a solid funding structure based on stable customer deposits, mainly retail (granular). As a result of this model, deposits have a high degree of insurance in each geographical area, close to 60% in Spain and Mexico. In this regard, it is important to note that, given the nature of BBVA's business, lending is mainly financed through stable customer funds.

One of the key elements in the BBVA Group's liquidity and funding management is the maintenance of large high-quality liquidity buffers in all geographical areas. In this respect, the Group has maintained during the last 12 months an average volume of high quality liquid assets (HQLA) of €141.3 billion, of which 96% corresponds to maximum quality assets (level 1 in the LCR).

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 and funding (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.

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

  • The liquidity coverage ratio (LCR) requires banks to maintain a volume of high-quality liquid assets sufficient to withstand liquidity stress for 30 days. BBVA Group's consolidated LCR remained comfortably above 100% during 2022 and stood at 142% as of March 31, 2023. It should be noted that, given the MPE nature of BBVA, this ratio limits the numerator of the LCR for subsidiaries other than BBVA S.A. to 100%. Therefore, the resulting ratio is below that of the individual units (the main components, the LCR of BBVA S.A. is 161%, Mexico 188% and Turkey 217%). If this restriction was eliminated, the Group's LCR ratio would reach 184%.
  • The net stable funding ratio (NSFR) requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. The BBVA Group's NSFR ratio, stood at 132% as of March 31, 2023.

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


BBVA, S.A. Mexico Turkey South America
LCR 161 % 188 % 217 % All countries >100
NSFR 123 % 138 % 173 % All countries >100

It should be noted that episodes of volatility in the financial markets during the first quarter of 2023, related to events in American regional banks and a Swiss bank, have had no significant impact on the liquidity and financing situation of the BBVA Group units. In addition to the above, the most relevant aspects related to the main geographical areas are the following:

It should be noted that the war in Ukraine has not had a significant impact on the liquidity and financing situation of the BBVA Group units during the year 2022. In addition to the above, the most relevant aspects related to the main geographical areas are the following:

  • BBVA, S.A. has maintained a comfortable position with a large high-quality liquidity buffer. During the first quarter of 2023, commercial activity has been characterized by the decline in lending volumes and customer deposits, these latter influenced by the seasonal component and by the transfer to off-balance sheet funds. In addition, in December 2022 the Bank started the repayment of the TLTRO III program for an amount of €12 billion, plus an additional repayment of €12 billion between February and March 2023, which together represent approximately two thirds of the original amount. BBVA's solid liquidity situation has allowed the Bank to bring forward a part of the maturities while maintaining regulatory liquidity metrics well above the established minimums.
  • BBVA Mexico, continues to present a comfortable liquidity situation, which has contributed to an efficient management of the cost of funds, in an environment of rising interest rates. During the first quarter of the year, however, commercial activity has drained liquidity mainly due to the seasonal outflow of funds, coupled with sustained loan growth.
  • In Turkey, in the first quarter of 2023, the lending gap in local currency has been reduced, due to a greater growth in deposits than in loans. The lending gap in foreign currency has increased due to reductions in deposits as a result of the mechanism established to encourage Turkish lira deposits, and an increase in in foreign currency loans. Garanti BBVA continues to maintain a stable liquidity position with comfortable ratios. For its part, the Central Bank of Turkey has continued to implement measures in order to reduce the dollarization of the economy.
  • In South America, the liquidity situation remains adequate throughout the region. In Argentina, liquidity continues to increase in the system and in BBVA due to a higher growth in deposits than in loans in local currency. In BBVA Colombia, the liquidity situation also improves in the quarter, with deposits growing more than loans. BBVA Peru maintains solid liquidity levels, thanks to the higher growth in deposits than in lending, affected by the expiration of loans covered by COVID-19 programs. The political instability is not having material impacts in terms of liquidity.

The main wholesale financing transactions carried out by the entities of the BBVA Group are listed below.

In January 2023, BBVA, S.A. carried out two public bond issuance operations: a senior non-preferred bond for €1,000m with a term of 8 years and an early redemption option in the 7th year at 4.625% and a €1,500m mortgage bond with a term of 4 and a half years at 3.125%.

For its part, on February 15, BBVA Mexico carried out two operations, the first of which involved the issue of a green bond for 8,689 million Mexican pesos (approximately €442m) with a maturity of 4 years, the second issue of this type by BBVA Mexico, using the TIIE (Balanced Interbank Interest Rate used in Mexico) rate as benchmark, at one day +32 basis points; and the second was the issue of a senior bond for 6,131 million Mexican pesos (approximately €312m) at a fixed rate of 9.54% and a term of 7 years.

Foreign exchange

Foreign exchange risk management aims to reduce both the sensitivity of the capital ratios and the net attributable profit variability to currency fluctuations.

The factors affecting the Group's main currencies during the first quarter of 2023 have been very disparate, hence the diversity of performance. On the positive side, due to its relevance for the Group, it is worth highlighting the continued strength of the Mexican peso, which has appreciated 6.2% against the euro. Other Latin American currencies that also performed well in the first three months of the year were the Chilean peso (+6.8%) and the Colombian peso (+2.0%). On the other hand, the Argentine peso's depreciation (-16.9%) was higher than it had been in the past, while that of the Peruvian sol was irrelevant (-0.8%). As for the Turkish lira, the 4.3% depreciation can be described as moderate. For its part, the U.S. dollar fell 1.9% against the euro, although it moved in a narrower range than in previous quarters.


Period-end exchange rates Average exchange rates

∆% on
∆% on

∆% on
U.S. dollar 1.0875 2.1 (1.9) 1.0730 4.5
Mexican peso 19.6392 12.5 6.2 20.0431 14.7
Turkish lira (1) 20.8632 (22.0) (4.3)
Peruvian sol 4.0902 0.7 (0.8) 4.0902 4.3
Argentine peso (1) 226.85 (45.7) (16.9)
Chilean peso 858.39 1.8 6.8 871.43 4.2
Colombian peso 5,032.16 (17.3) 2.0 5,107.57 (14.1)
  • (1) According to IAS 21 "The effects of changes in foreign exchange rates", the year-end exchange rate is used for the conversion of the Turkey and Argentina income statement.

In relation to the hedging of the capital ratios, BBVA covers, in aggregate, 70% of its subsidiaries capital excess. The sensitivity of the Group's CET1 fully-loaded ratio to 10% depreciations in major currencies is estimated at: +19 basis points for the U.S. dollar, -5 basis points for the Mexican peso and -5 basis points for the Turkish lira. With regard to the hedging of results, BBVA hedges between 40% and 50% of the aggregate net attributable profit it expects to generate in the next 12 months. For each currency, the final amount hedged depends on its expected future evolution, the costs and the relevance of the incomes related to the Group's results as a whole.

Interest rate

Interest rate risk management seeks to limit the impact that BBVA may suffer, both in terms of net interest income (short-term) and economic value (long-term), from adverse movements in the interest rate curves in the various 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 analyze the potential impact that could derive from a range of scenarios on the Group's 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 observed behavior.

At the aggregate level, BBVA continues to have a positive sensitivity toward interest rate increases in the net interest income.

The first quarter of 2023 was characterized by persistent inflation in most of the countries where the Group operates. While it is true that some improvement in headline inflation is observable, core inflation is still resilient and, therefore, offers central banks a solid argument to continue with their strategy of raising interest rates. It is important to note that financial markets experienced a strong bout of volatility in March, stemming from the crisis arisen in certain American regional banks and another bank of Swiss origin. These events triggered sharp falls in sovereign debt curves and markets came to question whether central banks should pause their rate hike strategy. As a result, while the short tranches of sovereign curves remained under pressure, longer-term benchmarks fell in the quarter, with significant declines in 10-year benchmarks in both Germany and the United States. Meanwhile, the risk premium in Spain and especially Italy experienced an improvement with respect to the German curve. In Mexico, the central bank also continues to raise rates, a situation that is repeated in several South American countries, such as Colombia, Peru and Argentina. Turkey, for its part, continues with the opposite strategy of lowering rates.

By area, the main features are:

  • Spain has a balance sheet characterized by a high proportion of variable-rate loans (mortgages and corporate lending) and liabilities composed mainly by customer demand deposits. The ALCO portfolio acts as a management lever and hedging for the balance sheet, mitigating its sensitivity to interest rate fluctuations. The balance sheet interest rate risk profile remained stable during the year, with Spain as the franchise with the highest positive sensitivity to rates in the Group.

    On the other hand, in March 2023 the ECB set the benchmark interest rate at 3.50%, held the marginal deposit facility rate at 3.00% and the marginal loan facility rate at 3.75%. Thus, Euribor reference rates continued to rise in the quarter. In this regard, customer spread is benefiting from the interest rate hikes and the containment in the cost of deposits.
  • Mexico continues to show a balanced situation between fixed and variable interest rates balances, which results in a limited sensitivity to interest rates fluctuations. 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. With regard to the customer funds, the high proportion of non-interest bearing deposits should be highlighted, which are insensitive to interest rate movements. The ALCO portfolio is invested primarily in fixed-rate sovereign bonds with limited maturities. The monetary policy rate stands at 11.25%, 75 basis points above the end-of-year level of 2022. Regarding customer spread, there has been improvement so far in the first quarter of 2023, favored by both the contained cost of deposits and the positive evolution of loan yield.
  • In Turkey, the sensitivity of loans, which are mostly fixed-rate but with relatively short maturities, and the ALCO portfolio balance the sensitivity of deposits on the liability side. Thus, the sensitivity of net interest income remains limited, both in Turkish lira and in foreign currencies. The customer spread worsened in the first quarter of 2023 due to the higher cost of deposits and the limits on lending rates.
  • In South America, the interest rate risk profile remains low as most countries in the area have a fixed/variable composition and maturities that are very similar for assets and liabilities, with limited 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. Regarding the benchmark rates of the central banks of Peru and Colombia, they have raised interest rates by 25 and 100 basis points, respectively, during the first quarter of 2023. The customer spread worsens in Colombia, impacted by an increase in the cost of deposits which does not apply in the same way to loan yields, and remains almost flat in Peru.


31-03-23 31-12-22 30-09-22 30-06-22 31-03-22
Official ECB rate 3.50 2.50 1.25 0.00 0.00
Euribor 3 months (1) 2.91 2.06 1.01 (0.24) (0.50)
Euribor 1 year (1) 3.65 3.02 2.23 0.85 (0.24)
USA Federal rates 5.00 4.50 3.25 1.75 0.50
TIIE (Mexico) 11.25 10.50 9.25 7.75 6.50
CBRT (Turkey) 8.50 9.00 12.00 14.00 14.00
  • (1) Calculated as the month average.