Company: BBVXF
Filing Date: 2025-08-12
Form Type: DRS
Source: 0000950123-25-007520
Chunk: 669

Company: BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
Filing Date: 2025-08-12
Form: DRS
Chunk 669
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 and agreed upon to adjust this position to match the one desired by the Group and to ensure it remains within the established risk appetite. Interest rate instruments additional to the natural hedges of balance sheet items are used as mitigation techniques, such as fixed-income bond portfolios or hedging derivatives that enable metrics to be placed at levels in keeping with the Institution’s risk appetite. In addition, proposals can be put forward to redefine the interest rate characteristics of commercial products or the launch of new products. Derivatives, mainly interest rate swaps (IRS), which qualify as hedges for accounting purposes, are arranged in financial markets to be used as risk hedging instruments. Two separate types of macro-hedges are used:

| – | Cash flow macro-hedges of interest rate risk, the purpose of which is to reduce the volatility of the net interest 
 margin due to changes in interest rates over one-year time horizon.                                                |

| – | Fair value macro-hedges of interest rate risk, the purpose of which is to maintain the economic value of the hedged 
 items, consisting of fixed-rate assets and liabilities.                                                             |

For each type of macro-hedge, there is a framework document that includes the hedging strategy, defining it in terms of management and accounting and establishing its governance. In Banco Sabadell, as part of the continuous improvement process, structural interest rate risk management and monitoring activities are implemented and regularly updated, aligning the Institution with best market practices and current regulations. In particular, throughout 2023 work has continued on the review and continuous improvement of the systems and behavioural models in accordance with the new guidelines established by the EBA. Among other things, some of the improvements worth noting are the update of the key behavioural modelling assumptions for demand deposits, prepayment of the loan portfolio and early termination of term deposits, taking sufficiently large time series data to capture periods of both rising and falling interest rate stress, obtaining different results based on the different interest rate scenarios modelled, and their recurrent monitoring to ensure the appropriateness of those assumptions. In 2023, the Bank’s loan book has continued to trend towards a higher proportion of fixed rate transactions (mainly mortgages and business loans), while on the liabilities side, balances of interest-bearing demand deposits and term deposits have increased in contrast with a reduced balance of non-interestbearing demand deposits, all while keeping costs at low levels relative to the upward trend of interest rates over the year. In addition, other balance sheet variations in 2023 included: the increase of the fixed-income portfolio on the asset