39. Interest Income and Expense and Similar Items

39.1. Interest and similar income

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

Interest and Similar Income. Breakdown by Origin.	Millions of Euros
	2011	2010	2009
Central Banks	250	239	254
Loans and advances to credit institutions	535	402	631
Loans and advances to customers	18,729	16,002	18,119
Government and other government agency	767	485	485
Resident sector	6,135	5,887	7,884
Non resident sector	11,827	9,630	9,750
Debt securities	3,413	3,080	3,342
Held for trading	1,090	956	1,570
Available-for-sale financial assets and held-to-madurity investments	2,323	2,124	1,772
Rectification of income as a result of hedging transactions	(198)	63	177
Insurance activity	992	975	940
Other income	467	373	312
Total	24,188	21,134	23,775

The amounts recognized in consolidated equity during the year in connection with hedging derivatives and the amounts derecognized from consolidated equity in 2011, 2010 and 2009 and taken to the consolidated income statement during the year are disclosed 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:

Adjustments in Income Resulting from Hedge Accounting	Millions of Euros
	2011	2010	2009
Cash flow hedging	62	213	295
Fair value hedging	(260)	(150)	(118)
Total	(198)	63	177

39.2. Interest and similar expenses

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

Interest and Similar Expenses. Breakdown by Origin	Millions of Euros
	2011	2010	2009
Bank of Spain and other central banks	164	184	202
Deposits from credit institutions	1,512	1,081	1,511
Customers deposits	5,471	3,570	4,312
Debt certificates	2,854	2,627	2,681
Subordinated liabilities	693	829	1,397
Rectification of expenses as a result of hedging transactions	(1,025)	(1,587)	(1,215)
Cost attributable to pension funds (Note 26)	259	259	274
Insurance activity	694	707	679
Other charges	406	144	52
Total	11,028	7,814	9,893

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

Adjustments in Expenses Resulting from Hedge Accounting	Millions of Euros
	2011	2010	2009
Cash flow hedging	-	-	(35)
Fair value hedging	(1,025)	(1,587)	(1,180)
Total	(1,025)	(1,587)	(1,215)

39.3. Average return on investments and average borrowing cost

The detail of the average return on investments in 2011, 2010 and 2009 is as follows:

Asset	Millions of Euros
	2011			2010			2009
	Average Balances	Interest and Similar Income	Interest Rates (%)	Average Balances	Interest and Similar Income	Interest Rates (%)	Average Balances	Interest and Similar Income	Interest Rates (%)
Cash and balances with central banks	21,245	250	1.18	21,342	239	1.12	18,638	253	1.36
Securities portfolio and derivatives	141,780	4,238	2.99	145,990	3,939	2.70	138,030	4,207	3.05
Loans and advances to credit institutions	26,390	639	2.42	25,561	501	1.96	26,152	697	2.66
Loans and advances to customers	341,922	18,846	5.51	333,021	16,296	4.89	328,969	18,498	5.62
Euros	219,887	7,479	3.40	219,857	7,023	3.19	222,254	9,262	4.17
Foreign currency	122,034	11,367	9.31	113,164	9,273	8.19	106,715	9,236	8.65
Other finance income	-	215	-	-	159	-	-	120	-
Other assets	37,241	-	-	32,894	-	-	31,180	-	-
Totals	568,579	24,188	4.25	558,808	21,134	3.78	542,969	23,775	4.38

The average borrowing cost in 2011, 2010 and 2009 is as follows:

Liabilities	Millions of Euros
	2011			2010			2009
	Average Balances	Interest and Similar Expenses	Interest Rates (%)	Average Balances	Interest and Similar Expenses	Interest Rates (%)	Average Balances	Interest and Similar Expenses	Interest Rates (%)
Deposits from central banks and credit institutions	77,382	2,037	2.63	80,177	1,515	1.89	74,017	2,143	2.89
Customer deposits	276,683	5,644	2.04	259,330	3,550	1.37	249,106	4,056	1.63
Euros	153,514	2,419	1.58	121,956	1,246	1.02	116,422	1,326	1.14
Foreign currency	123,169	3,225	2.62	137,374	2,304	1.68	132,684	2,730	2.06
Debt certificates and subordinated liabilities	109,860	2,613	2.38	119,684	2,334	1.95	120,228	3,098	2.58
Other finance expenses	-	734	-	-	415	-	-	596	-
Other liabilities	65,980	-	-	66,541	-	-	70,020	-	-
Equity	38,674	-	-	33,076	-	-	29,598	-	-
Totals	568,579	11,028	1.94	558,808	7,814	1.40	542,969	9,893	1.82

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 changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:

Interest Income and Expense and Similar Items. Change in the Balance	Millions of Euros
	2011 / 2010			2010 / 2009
	Volume Effect (1)	Price Effect (2)	Total Effect	Volume Effect (1)	Price Effect (2)	Total Effect
Cash and balances with central banks	(1)	12	11	37	(51)	(14)
Securities portfolio and derivatives	(114)	413	299	243	(511)	(268)
Loans and advances to credit institutions	16	122	138	(16)	(179)	(195)
Loans and advances to customers	436	2,114	2,550	228	(2,429)	(2,201)
Euros	1	455	456	(100)	(2,139)	(2,239)
Foreign currency	727	1,367	2,094	558	(521)	37
Other assets	-	56	56	-	39	39
Interest and similar incomes	370	2,684	3,054	693	(3,333)	(2,641)
Deposits from central banks and credit institutions	(53)	575	522	178	(806)	(628)
Customer deposits	238	1,855	2,093	166	(672)	(505)
Euros	323	850	1,173	63	(143)	(80)
Foreign currency	(238)	1,159	920	96	(522)	(425)
Debt certificates and subordinated liabilities	(192)	471	279	(14)	(750)	(764)
Other liabilities	-	320	320	-	(181)	(181)
Interest and similar expenses	137	3,077	3,214	288	(2,367)	(2,079)
Net Interest Income			(160)			(562)

(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.