General risk management and control model

Identifying and managing risks is at the core of the board of directors’ remit. The BBVA board monitors on a regular basis a set of financial and non-financial risks which may affect the success of Group BBVA’s business activities.

The BBVA Group has a general risk management and control model that is appropriate for its business model, its organization, the countries where it operates and its corporate governance system. This model allows the Group to carry out its activity within the management and risk control strategy and policy defined by the corporate bodies of BBVA (considering sustainability specifically) and to adapt itself to a changing economic and regulatory environment, facing this management at a global level and aligned to the circumstances at all times.

The Model, for which the Group’s Chief Risk Officer (CRO) is responsible and that must be updated or reviewed at least annually, is fully applied in the Group and it comprises the following basic elements:

• Governance and organization
• Risk Appetite Framework
• Assessment, monitoring and reporting
• Infrastructure

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The Group promotes the development of a risk culture that ensures a consistent application of the Model in the Group, and that guarantees that the risks function is understood and internalized at all levels of the organization.

Credit risk

The evolution of the macroeconomic environment during 2024 has been uneven in the regions where the Group is present. In Spain, growth forecasts for 2024 have been revised upwards during 2024, the annual inflation has been more moderated than forecasted and is estimated to be at lower levels in 2025, the household solvency and liquidity levels remains at loose levels, whereas in Mexico, less dynamism in activity is observed in the last quarters, but unchanged in growth perspectives compared to the previous forecasts. Signs of economic normalization are observed in Turkey, and the asset quality indicators for the system remain at limited levels. Finally, South America continues moving towards macroeconomic normalization, with inflation gradually approaching the established goals and growth converging towards its potential levels.

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Structural risks

Liquidity and funding
Liquidity and funding management at BBVA promotes the financing of the recurring growth of the banking business at suitable maturities and costs using a wide range of funding sources. BBVA’s business model, risk appetite framework and funding strategy are designed to reach 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 being close to 55% in Spain and Mexico. 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 highquality liquid assets (HQLA) of €130.6 billion, of which 97% corresponded to maximum quality assets (level 1 in the liquidity coverage ratio, LCR).

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.

In relation to the hedging of the capital ratios, BBVA aims to cover 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: +20 basis points for the U.S. dollar, -9 basis points for the Mexican peso and -4 basis points for the Turkish lira118. 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, among other factors, 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), with the aim of analyzing the potential impact that could derive from a range of scenarios on the Group’s different balance sheets..

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Risks associated with climate change

The management of climate and environmental risk factors is key to implement BBVA’s strategy, which is based on managing risks appropriately, supporting the transition to a low-carbon economy, and meeting the ambition of achieving net-zero carbon emissions by 2050.

The information on the BBVA Group’s management of risks associated with climate change and environmental factors is described in the “Management of risks associated with climate change” section of the NFIS included in this Management Report.

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Operational Risk

BBVA defines operational risk (“OR”) as any risk that could result in losses caused by human error; inadequate or flawed internal processes; undue conduct with respect to customers, markets or the institution; weaknesses in the antimoney laundering and financing of terrorist programs; failures, interruptions or flaws in systems or communications; theft, loss or wrong use of information, as well as deterioration of its quality, internal or external fraud, including in any case those derived from cyberattacks; theft or harm to assets or persons; legal risks; risks derived from staff management and labor health; and defective service provided by suppliers; as well as damages from extreme climate events, pandemics and other natural disasters. This section addresses general aspects of operational risk management as the main component of non-financial risks. However, sections devoted to conduct and compliance risk and to cybersecurity risk management are also included in the non-financial information report.

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Reputational risk

BBVA defines reputational risk as the potential loss in results as a consequence of events that may negatively affect the perception that the different stakeholders have of the Group. Therefore, reputational risk management is aimed at ensuring that the Group does not engage in activities or practices that could cause permanent or very significant damage to its reputation.

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Risk factors

BBVA Group has processes in place for identifying risks and analyzing scenarios in order to enable the Group to manage risks in a dynamic and proactive way.The risk identification processes are forward looking to seek the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.

Risks are identified and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyzes and stress testing and considers the controls to which the risks are subjected.

As part of this process, a forward projection of the Risk Appetite Framework (RAF) variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile.

In this context, there are a number of emerging risks that could affect the evolution of the Group’s business. These risks are included in the following blocks:

• Macroeconomic and geopolitical risks
• Regulatory and reputational risks
• New business and operational and legal risks
• Environmental, social and governance (ESG) risks may adversely impact the Group

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