36. Interest income and expense and similar items

36.1 Interest and similar income

The breakdown of the interest and similar income recognized in the accompanying consolidated income statement is as follows:

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	Millions of Euros
Interest and Similar Income. Breakdown by Origin.	2014	2013	2012
Central Banks	132	262	259
Loans and advances to credit institutions	235	356	382
Loans and advances to customers	17,565	18,092	19,247
Government and other government agency	693	842	901
Resident sector	3,754	4,491	5,784
Non resident sector	13,118	12,758	12,562
Debt securities	3,486	3,465	3,651
Held for trading	1,134	980	1,225
Available-for-sale financial assets and held-to-maturity investments (*)	2,352	2,484	2,426
Rectification of income as a result of hedging transactions	(321)	(292)	(369)
Insurance activity	1,199	1,137	1,049
Other income	542	492	596
Total	22,838	23,512	24,815

(*) Held for sale portfolio was reclassified entirely to “Available for sale financial assets” in 2013.

The amounts recognized in consolidated equity in connection with hedging derivatives and the amounts derecognized from consolidated equity and taken to the consolidated income statement during 2014, 2013 and 2012 are given in the accompanying “Consolidated statements of recognized income and expenses”.

The following table shows the adjustments in income resulting from hedge accounting, broken down by type of hedge:

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	Millions of Euros
Adjustments in Income Resulting from Hedge Accounting	2014	2013	2012
Cash flow hedging	6	51	52
Fair value hedging	(327)	(343)	(421)
Total	(321)	(292)	(369)

36.2 Interest and similar expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

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	Millions of Euros
Interest and Similar Expenses. Breakdown by Origin	2014	2013	2012
Bank of Spain and other central banks	62	161	350
Deposits from credit institutions	1,012	1,165	1,499
Customers deposits	4,246	4,516	4,644
Debt certificates	2,062	3,067	3,008
Subordinated liabilities	484	516	668
Rectification of expenses as a result of hedging transactions	(930)	(1,182)	(1,180)
Cost attributable to pension funds (Note 26)	172	199	256
Insurance activity	912	855	742
Other charges	436	315	354
Total	8,456	9,612	10,341

The following table shows the adjustments in expenses resulting from hedge accounting, broken down by type of hedge:

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	Millions of Euros
Adjustments in Expenses Resulting from Hedge Accounting	2014	2013	2012
Cash flow hedging	(18)	1	9
Fair value hedging	(912)	(1,183)	(1,189)
Total	(930)	(1,182)	(1,180)

36.3 Average return on investments and average borrowing cost

The detail of the average return on investments in the year ended December 31, 2014, 2013 and 2012 is as follows:

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	Millions of Euros
	2014			2013			2012
Asset	Average Balances	Interest and Similar Income	Average Interest Rates (%)	Average Balances	Interest and Similar Income	Average Interest Rates (%)	Average Balances	Interest and Similar Income	Average Interest Rates (%)
Cash and balances with central banks	25,049	132	0.53	26,463	262	0.99	24,574	259	1.05
Securities portfolio and derivatives	176,497	4,505	2.55	166,013	4,385	2.64	164,435	4,414	2.68
Loans and advances to credit institutions	24,727	238	0.96	25,998	411	1.58	25,122	442	1.76
Loans and advances to customers	328,183	17,803	5.42	335,248	18,325	5.47	347,336	19,497	5.61
Euros	186,965	4,843	2.59	204,124	5,835	2.86	217,533	7,267	3.34
Foreign currency	141,218	12,960	9.18	131,125	12,489	9.52	129,802	12,230	9.42
Other finance income	-	-	-	-	-	-	-	-	-
Other assets	45,951	159	0.35	45,982	128	0.28	46,613	203	0.44
Totals	600,407	22,838	3.80	599,705	23,512	3.92	608,081	24,815	4.08

The average borrowing cost in the year ended December 31, 2014, 2013 and 2012 is as follows:

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	Millions of Euros
	2014			2013			2012
Liabilities	Average Balances	Interest and Similar Income	Average Interest Rates (%)	Average Balances	Interest and Similar Income	Average Interest Rates (%)	Average Balances	Interest and Similar Income	Average Interest Rates (%)
Deposits from central banks and credit institutions	81,860	1,292	1.58	86,600	1,551	1.79	104,231	2,089	2.00
Customer deposits	307,482	4,555	1.48	290,105	4,366	1.51	271,828	4,531	1.67
Euros	160,930	1,945	1.21	153,634	1,734	1.13	146,996	1,828	1.24
Foreign currency	146,552	2,521	1.72	136,470	2,632	1.93	124,832	2,703	2.16
Debt certificates and subordinated liabilities	80,355	1,611	2.00	94,130	2,812	2.99	102,563	2,783	2.71
Other finance expenses	-	-	-	-	-	-	-	-	-
Other liabilities	83,620	998	1.19	82,257	883	1.07	86,627	938	1.08
Equity	47,091	-	-	46,614	-	-	42,832	-	-
Totals	600,407	8,456	1.41	599,705	9,612	1.60	608,081	10,341	1.70

The change in the balance under the headings “Interest and similar income” and “Interest and similar expenses” in the accompanying consolidated income statements is the result of exchange rate effect, changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:

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	Millions of Euros
	2014 / 2013			2013 / 2012
Interest Income and Expense and Similar Items. Change in the Balance	Volume Effect (1)	Price Effect (2)	Total Effect	Volume Effect (1)	Price Effect (2)	Total Effect
Cash and balances with central banks	(14)	(116)	(130)	20	(16)	4
Securities portfolio and derivatives	277	(157)	120	42	(71)	(29)
Loans and advances to credit institutions	(20)	(153)	(173)	15	(46)	(31)
Loans and advances to customers	(386)	(135)	(521)	(679)	(494)	(1,173)
In Euros	(491)	(502)	(992)	(448)	(984)	(1,432)
In other currencies	961	(490)	471	125	135	259
Other assets	(0)	31	31	(3)	(72)	(75)
Interest and similar incomes	28	(702)	(674)	(342)	(961)	(1,303)
Deposits from central banks and credit institutions	(85)	(174)	(259)	(353)	(185)	(538)
Customer deposits	262	(73)	189	305	(469)	(164)
In Euros	82	129	211	83	(176)	(94)
In other currencies	194	(305)	(111)	252	(323)	(71)
Debt certificates and subordinated liabilities	(411)	(789)	(1,201)	(229)	257	28
Other liabilities	15	100	115	(47)	(7)	(56)
Interest and similar expenses	11	(1,167)	(1,156)	(142)	(586)	(729)
Net Interest Income			482			(575)

(1) The volume effect is calculated as the result of the interest rate of the initial period multiplied by the difference between the average balances of both periods. (2) The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the interest rates of both periods.