This area comprises the banking and insurance business conducted in Mexico by the BBVA Bancomer financial group (hereinafter BBVA Bancomer).
Industry Trends
In the first half of 2013, the Mexican economy underwent a sharp slowdown (including a decline in GDP in the second quarter), which has gradually been corrected. At the end of 2013 there have been signs of recovery, particularly in the manufacturing sector, fueled by stronger foreign demand. In addition, despite the upturn registered in the fourth quarter, inflation has been kept under control, in particular its core component, which has enabled the Central Bank of Mexico (Banxico) to once again cut interest rates in the second half of the year in order to boost growth.
In this context, the Mexican peso has once again depreciated against the euro in the last 3 months of 2013, although less than in the previous quarter. This has had a negative impact on the comparison of the area's balance sheet and business activity, both in the quarter and in 2013. In earnings, the effect has also been negative in the last 3 months, but practically neutral over the year.
As for the banking sector, on November 22 Banxico published its report on the system, highlighting its strength, high solvency and profitability, but also a lower rate of growth that has resulted in a moderation of the expansion of lending activity and an upturn in the NPA ratio, highly concentrated in companies in the residential construction sector and in some segments of consumer lending.
Activity and Earnings
The sale of the Afore Bancomer was closed in the first half of 2013. As noted above, the earnings from this sale are classified under earnings from corporate operations in the Corporate Center.
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| Mexico | Millions of Euros | ||
|---|---|---|---|
| 2013 | 2012 | % Change | |
| NET INTEREST INCOME | 4,484 | 4,178 | 7.3 |
| Net fees and commissions | 1,184 | 1,073 | 10.3 |
| Net gains (losses) on financial assets and liabilities and net exchange differences | 208 | 219 | (4.6) |
| Other operating income and expenses | 325 | 286 | 13.4 |
| GROSS INCOME | 6,201 | 5,756 | 7.7 |
| Operating expenses | (2,335) | (2,166) | 7.8 |
| Administration costs | (2,173) | (2,033) | 6.9 |
| Personnel expenses | (996) | (910) | 9.4 |
| General and administrative expenses | (1,176) | (1,122) | 4.8 |
| Depreciation and amortization | (163) | (133) | 22.1 |
| OPERATING INCOME | 3,865 | 3,590 | 7.7 |
| Impairment losses on financial assets (net) | (1,439) | (1,320) | 9.0 |
| Provisions (net) and other gains (losses) | (64) | (41) | 56.9 |
| OPERATING PROFIT/ (LOSS) BEFORE TAX | 2,362 | 2,229 | 5.9 |
| Income tax | (557) | (539) | 3.2 |
| PROFIT FROM CONTINUING TRANSACTIONS | 1,805 | 1,690 | 6.8 |
| Profit from discontinued transactions (net) | - | - | n.m. |
| PROFIT | 1,805 | 1,690 | 6.8 |
| Profit attributable to non-controlling interests | (1) | (1) | 2.3 |
| PROFIT ATTRIBUTABLE TO PARENT COMPANY | 1,805 | 1,689 | 6.8 |
The changes in the main headings of the income statement of this business area are:
“Net interest income” in 2013 stood at €4,484 million, up 7.3% (7.7% at constant exchange rates), compared with the €4,178 million in 2012, due to higher volumes in lending and fund gathering and good management of customer spreads. This performance in BBVA Bancomer's net interest income compares favorably with that of its main competitors, with its net interest income over ATA (according to local accounting data) standing at 5.6%, 30 basis points above the market average, according to CNBV figures for the close of November 2013.
The balance under the heading “Net fees and commissions” at the close of 2013 amounted to €1,184 million, up 10.3% (10.7% at constant exchange rates) on the €1,073 million posted in the same period of the previous year. This growth in income from fees and commissions has been driven by a larger number of card transactions and the increase in revenue from the bank's participation in market issues by its corporate customers.
The balance under the headings “Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)” is positive for the year, although more moderate than in the previous year. However, performance at the end of the year improved, underpinned by ALCO portfolio sales and a good contribution from the markets. The total balance under these headings in 2013 amounted to €208 million, down 4.6% (4.3% at constant exchange rates) on the €219 million registered in 2012.
The balance of “Other operating income and expenses” at the close of 2013 stood at €325 million, up 13.4% (13.7% at constant exchange rates) on the €286 million posted in 2012, due to better earnings from the insurance business as a result of an increase in activity and a lower level of claims.
As a result of the above, “Gross income” for 2013 amounted to €6,201 million, with an increase of 7.7% (8.1% at constant exchange rates) on the €5,756 million registered in 2012.
The balance of “Operating expenses” in 2013 amounted to €2,335 million, an increase of 7.8% (8.2% at constant exchange rates) compared with the €2,166 million in the previous year. This increase is the result of the implementation of the area's “Investment Plan”, designed to remodel the branch network, the launch of projects for investment in technology and the construction of new corporate headquarters, as well as other strategies aimed at boosting commercial activity. Despite the rise in expenses, the efficiency ratio has remained stable (37.7% compared with 37.6% in 2012), positioning the bank as one of the most efficient financial institutions in the Mexican banking system.
“Operating income” for 2013 amounted to €3,865 million, up 7.7% (8.0% at constant exchange rates) on the €3,590 million registered in the previous year.
The balance under the heading “Impairment losses on financial assets (net)” stood at €1,439 million at the close of 2013, up 9.0% (9.4% at constant exchange rates) on the €1,320 million in 2012, very much in line with the growth in activity in the year. As of December 31, 2013, the accumulated risk premium is 3.57%, 9 basis points higher than the figure posted in December 2012. The NPA and coverage ratios as of December 31, 2013 stood at 3.6% and 110%, respectively.
The balance under the headings “Provisions expense (net)” and “Other gains (losses)” in 2013 totaled €64 million, compared with €41 million at the close of 2012.
“Income before tax” in 2013 stood at €2,362 million, up 5.9% on the €2,229 million in the same period of 2012. “Income tax” totaled €557 million, compared with the €539 million registered in 2012.
As a result of the above, in 2013 Mexico generated “Net income attributed to parent company” of €1,805 million, up 6.8% (7.2% at constant exchange rates) on the €1,689 posted in 2012.
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| Mexico | Millions of Euros | ||
|---|---|---|---|
| 2013 | 2012 | % Change | |
| Total Assets | 82,171 | 81,723 | 0.5 |
| Loans and advances to customers | 40,129 | 39,052 | 2.8 |
| Customer deposits under management (*) | 34,726 | 34,071 | 1.9 |
| Off-balance-sheet funds | 16,896 | 17,492 | (3.4) |
| Economic capital allocated | 4,270 | 4,912 | (13.1) |
| Efficiency ratio (%) | 37.7 | 37.6 |
|
| NPA Ratio (%) | 3.6 | 3.7 |
|
| NPA Coverage Ratio (%) | 110 | 114 |
|
| Risk premium (%) | 3.57 | 3.48 |
|
Commercial activity in Mexico has shown an upward trend in 2013, despite the moderate GDP growth rate. As of December 31, 2013, loans and advances to customers (gross) stood at €40,129 million, an increase of 2.8% on the €39,052 million as of December 31, 2012.
In relation to this favorable performance, the wholesale portfolio performed particularly well in the latter part of the year, with year-on-year growth of 14.3% (at constant exchange rates). Worth noting in this portfolio is the increase in lending to SMEs (up 20.2%). Lending to corporate customers also shows a positive trend, while the area continues to participate actively in the placement of both shares and fixed-income instruments among its customers. BBVA Bancomer therefore maintains its leadership position. Retail lending is up 6.6% over the year (at constant exchange rates), with particularly strong activity in loans to small businesses, which have increased by 21.9% year-on-year. The new “Red PyME” (SME Network) has been launched within this segment. Through this network, the number of specialized service business centers has been expanded to cover the entire Mexican territory. This new service model includes commercial alliances to boost lending and, under the BBVA Group's customer-centric approach, offer customers those products that best meet their needs. Within the consumer portfolio, the successful campaign of pre-approved loans has given a significant boost to this type of lending in the second half of the year, which closed 2013 up 15.3% on the balance posted the previous year and a market share gain since June 2013 of over 150 basis points, according to the latest CNBV information available as of November 2013.
Customer deposits stood at €34,726 million as of December 31, 2013, up 1.9% on the €34,071 million posted as of December 31, 2012.
As of December 31, 2013, off-balance-sheet funds, which include mutual funds, pension funds and managed customer portfolios, totaled €24,075 million, a decrease of 1.4% on the €24,414 million as of December 31, 2012.
This performance of funds has been highly conditioned by the strategy applied by the area in 2013, aimed at ensuring a profitable mix of liabilities. As a result, BBVA Bancomer maintains an adequate fund mix, with greater relative weight of demand deposits, which are performing well. The biggest rises here are in the corporate and institutional banking unit and the retail segment. In contrast, a strategy of increasing profitability has continued to be applied to time deposits, giving priority to lower-cost products, which has resulted in a year-on-year decline in this heading.
Lastly, the area's insurance business continues to perform well, contributing favorably to the earnings of the BBVA Bancomer Insurance area, which continues to be the country's second largest insurance company in terms of written premiums within the Bancassurance market, and the sixth considering the insurance market as a whole. This unit's earnings at the close of 2013 stood at €291 million, up 6.5% (at constant exchange rates) on the previous year.