At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in
addition to VaR with the aim of meeting the Bank of Spain's regulatory requirements with respect to the calculation of bank capital for
the trading book. Specifically, the measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:
\u2013 VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed
VaR) is calculated. This quantifies the losses associated with the movements of the risk factors inherent to market
operations (including interest-rate risk, exchange-rate risk, equity risk and credit risk, among others). Both VaR and
stressed VaR are rescaled by a regulatory multiplier (between three and four) and by the square root of ten to calculate the
capital charge.
\u2013 Specific Risk - Incremental Risk Capital (\u201cIRC\u201d). Quantification of the risks of default and changes of the credit ratings of the
bond and derivative positions and debt funds with daily look-through or significant benchmark (correlation > 90%) in the
trading portfolio. The IRC charge is exclusively applied in entities in respect of which the internal market risk model is used
(i.e. BBVA, S.A. and BBVA Mexico). The IRC charge is determined based on the associated losses (calculated at 99.9%
confidence level over a one year horizon under the hypothesis of constant risk) due to a rating change and/or default of the
issuer with respect to an asset. In addition, the price risk is included in sovereign positions for the specified items.
\u2013 Specific Risk: Securitization, correlation portfolios and Investment funds without look-through. Capital charges for
securitizations and correlation portfolios are assessed based on the potential losses associated with the occurrence of a
credit event in the underlying exposures. They are calculated by the standard model. The scope of the correlations
portfolios refers to the First To Default (FTD)-type market operation and/or tranches of market CDOs and only for positions
with an active market and hedging capacity. Capital charge for Funds include losses associated with volatility and credit risk
of the underling positions of the fund. All charges are calculated by the standard model.
Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that
could have been incurred in the assessed positions with a certain level of probability (backtesting), as well as measurements of the
impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at a
trading desk level in order to enable more specific monitoring of the validity of the measurement models.
Market risk in 2023
The Group\u2019s market risk related to its trading portfolio remained in 2023 at low levels compared to other risks managed by BBVA,
particularly credit risk. This is due to the nature of the business. In 2023, the average VaR was \u20ac31 million, above the figure of 2022,
with a maximum level in the year reached on September 14, 2023 of \u20ac42 million. The evolution in the BBVA Group\u2019s market risk
during 2023, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in Millions
of Euros) is as follows:
By type of market risk assumed by the Group's trading portfolio, the main risk factor for the Group continued to be that linked to
interest rates, with a weight of 69% of the total at December 31, 2023 (this figure includes the spread risk). The relative weight of this
risk has increased 24% compared with the close of 2022. Exchange-rate risk accounted for 10% of the total risk, reducing its weight