South America

Highlights

• Faster growth of banking activity.
• High capacity to generate recurring revenue.
• Cost affected by investment plans and high inflation in some countries.
• Risk indicators are stable.

Financial statements and relevant business indicators

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	Million euros and percentage
	South America	South America excluding Venezuela
Income statement	2015	2015	Δ%	Δ% (3)	2014
Net interest income	3,202	3,044	9.8	9.7	2,774
Net fees and commissions	718	694	16.1	12.8	598
Net trading income	595	453	22.1	19.4	371
Other income/expenses	(38)	107	27.5	26.3	84
Gross income	4,477	4,299	12.3	11.5	3,827
Operating expenses	(1,979)	(1,920)	14.1	13.2	(1,683)
Personnel expenses	(1,022)	(1,001)	15.4	14.0	(867)
General and administrative expenses	(853)	(823)	12.7	12.3	(730)
Depreciation and amortization	(104)	(96)	11.8	11.6	(86)
Operating income	2,498	2,379	11.0	10.3	2,144
Impairment on financial assets (net)	(614)	(598)	25.5	26.4	(477)
Provisions (net) and other gains (losses)	(71)	(37)	(67.8)	(69.3)	(114)
Income before tax	1,814	1,745	12.3	11.4	1,554
Income tax	(565)	(497)	28.3	28.4	(387)
Net income	1,248	1,248	6.9	5.9	1,167
Non-controlling interests	(343)	(343)	4.5	(0.8)	(328)
Net attributable profit	905	905	7.9	8.7	838

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	Million euros and percentage
Balance sheet	31-12-15	31-12-15	Δ%	Δ% (3)	31-12-14
Cash and balances with central banks	11,447	11,107	43.1	57.5	7,761
Financial assets	9,561	9,354	4.9	16.1	8,914
Loans and receivables	47,284	46,120	6.0	16.5	43,529
Loans and advances to customers	43,596	42,787	5.0	15.5	40,742
Loans and advances to credit institutions and other	3,688	3,334	19.6	31.3	2,788
Tangible assets	718	664	(3.5)	10.1	688
Other assets	1,652	1,578	6.2	15.7	1,485
Total assets/liabilities and equity	70,661	68,823	10.3	21.5	62,377
Deposits from central banks and credit institutions	8,070	8,065	49.4	58.2	5,397
Deposits from customers	41,998	40,599	6.8	19.0	38,029
Debt certificates	4,806	4,806	2.8	8.3	4,677
Subordinated liabilities	1,994	1,994	20.2	28.6	1,658
Financial liabilities held for trading	3,342	3,342	26.2	35.6	2,648
Other liabilities	7,825	7,541	(0.9)	8.9	7,609
Economic capital allocated	2,626	2,478	5.0	20.5	2,359

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	Million euros and percentage
Relevant business indicators	31-12-15	31-12-15	Δ%	Δ% (3)	31-12-14
Loans and advances to customers (gross) (2)	44,970	44,140	5.2	15.7	41,966
Customer deposits under management (3)	42,032	40,642	6.1	18.3	38,287
Off-balance sheet funds (4)	9,729	9,729	14.9	12.6	8,470
Efficiency ratio (%)	44.2	44.7			44.0
NPL ratio (%)	2.3	2.3			2.2
NPL coverage ratio (%)	123	122			123
Cost of risk (%)	1.26	1.33			1.19

(1) Figures at constant exchange rates. (2) Excluding repos. (3) Excluding repos and including specific marketable debt securities. (4) Includes mutual funds, pension funds and other off-balance sheet funds.

Macro and industry trends

Economic activity in South America continues its adjustment due mainly to a less favorable external environment: slowdown in China, greater financial volatility, interest rate hike in the United States and fall in the price of the main commodities exported by the region. Private domestic demand in the area is also less vigorous (both consumption and investment) in a situation where household and business confidence continues to decline.

Likewise, the depreciation of exchange rates, mainly in the first nine months of the year, has exerted upward pressure on inflation in most countries, forcing many central banks (including those in Chile, Colombia and Peru) to hike interest rates, despite the environment of economic slowdown.

The financial sector remains sound, with acceptable levels of capitalization, good profitability and NPL ratios in check. As regards banking activity, there has been a robust increase in lending, while deposits have performed strongly.

Activity

The rates of change indicated below refer to constant exchange rages, and do not include earnings and activity in Venezuela, unless expressly stated otherwise.

Gross lending to customers has maintained its positive performance throughout 2015, especially in the last quarter, when it increased its rate of growth to close the year with a balance of €44,140m, a year-on-year increase of 15.7%. Despite all portfolios performed very favorably, there has been a remarkable performance in consumer loans and credit cards (up 16.2% and 37.2% in year-on-year terms, respectively) and in corporate lending (up 17.3%).

In asset quality, the NPL ratio stands at 2.3%, a level very similar to the one registered at the end of the third quarter of 2015 and in 2014 (2.2%). The coverage ratio stood at 122% (125% as of 30-Sep-2015 and 123% at the close of 2014).

Customer deposits under management have continued to grow at a good pace, closing the year with a balance of €40,642m, a year-on-year increase of 18.3%. All the products have contributed positively to this growth, particularly current and savings accounts, which have increased year-on-year by 24.8% and led to the improved profitability of the mix, by increasing the weight of lower-cost deposits. Off-balance-sheet funds have also risen (12.6%), mainly due to the good performance of mutual funds in Argentina, Peru and Chile.

Earnings

South America closed 2015 with a net attributable profit of €905m, up 8.7% on the previous year. The main factors that explain the performance of the income statement in 2015 are:

• Year-on-year increase of 11.5% in gross income. This positive performance is due to the high capacity to generate recurring revenue, thanks to strong activity, the effort made to maintain spreads in a more complex setting than in previous years and the good performance of income from fees and commissions. Net interest income has grown by 9.7% over the year and income from fees and commissions by 12.8%. The variation in the exchange rate of the main currencies against the U.S. dollar has had a positive effect on the area’s NTI, which is up by 19.4%.
• Operating expenses show a year-on-year rate of change in line with the first nine months of 2015: 13.2%. The investments made in recent years, the high inflation in some countries and the effect of the depreciation of the region’s currencies against the U.S. dollar on dollar-denominated costs explain this trend.
• Impairment losses on financial assets rose in the last quarter, in line with stronger activity. Thus loan-loss provisions grew more year-on-year (up 26.4%) than lending volume, as a result, also, of moderation in the macroeconomic environment in the region.

By country, Argentina contributed €265m to the area’s income statement (up 16.5% year-on-year), with double-digit increases across all the lines (including expenses, in this case due to inflation), as a result of strong activity and loan-loss provisions growing at a slower pace than lending. Colombia generated €263m (up 12.2%), thanks to the good performance of net interest income and more moderate operating expenses. In Peru, although net interest income remains flat and impairment losses on financial assets are increasing significantly, the trend in income from fees and commissions and NTI has resulted in a net attributable profit of €184m (up 1.9%) at the end of 2015. In Chile, the trend in income from fees and commissions, NTI and other income/expenses has offset weaker net interest income, so the country has registered a net attributable profit of €151m (up 6.3%).

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	Million euros
	Argentina		Chile		Colombia		Peru		Venezuela
South America. Relevant business indicators per country	31-12-15	31-12-14	31-12-15	31-12-14	31-12-15	31-12-14	31-12-15	31-12-14	31-12-15	31-12-14
Loans and advances to customers (gross) (1, 2)	4,062	2,973	12,799	11,794	10,858	9,181	13,332	11,713	830	339
Customer deposits under management (1, 3)	5,339	3,578	8,794	8,298	10,366	9,339	12,149	9,932	1,391	569
Off-balance sheet funds (1, 4)	621	476	1,329	1,227	531	568	1,311	1,208	-	-
Efficiency ratio (%)	51.3	47.5	47.0	47.3	38.9	41.4	34.9	34.9	33.3	46.4
NPL ratio (%)	0.6	0.9	2.3	2.4	2.3	2.2	2.8	2.6	0.6	1.4
NPL coverage ratio (%)	517	366	72	72	137	140	124	128	457	247
Cost of risk (%)	1.52	1.48	1.05	0.87	1.55	1.46	1.40	1.30	0.43	2.71

(1) Figures at constant exchange rates. (2) Excluding repos. (3) Excluding repos and including specific marketable debt securities. (4) Includes mutual funds, pension funds and other off-balance sheet funds. Download Excel

	Million euros
	Operating income				Net attributable profit
South America. Data per country	2015	Δ%	Δ% at constant exchange rates	2014	2015	Δ%	Δ% at constant exchange rates	2014
Country
Argentina	623	19.0	13.3	523	265	22.4	16.5	217
Chile	374	11.0	6.5	337	151	10.8	6.3	136
Colombia	554	(1.0)	13.8	560	263	(2.3)	12.2	269
Peru	734	12.6	5.6	652	184	8.7	1.9	169
Venezuela	119	(83.8)	n.m.	731	1	(99.6)	(87.9)	162
Other countries (1)	94	30.0	26.1	72	42	(11.0)	(13.2)	47
Total	2,498	(13.1)	14.6	2,875	905	(9.6)	8.1	1,001

(1) Paraguay, Uruguay and Bolivia. Additionally, it includes eliminations and other charges.