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This area comprises the banking, pensions and insurance business conducted in Mexico by the BBVA Bancomer financial group.

The year-on-year comparison of this area’s financial statements is negatively affected by the depreciation of the Mexican peso against the euro compared with December 2010. The impact is greater on the balance sheet than on the income statement, since the fixed exchange rate has depreciated by 8.3% year-on-year, while the depreciation in terms of the average exchange rate has been lower (3.2%). For the most important figures, a reference is given to indicate the percentage change at constant exchange rates.

Mexico Millions of Euros
2011 2010 % Change
NET INTEREST INCOME 3,827 3,688 3.8
Net fees and commissions 1,194 1,233 (3.2)
Net gains (losses) on financial assets and liabilities and net exchange differences 302 395 (23.4)
Other operating income and expenses 227 179 26.8
GROSS INCOME 5,550 5,496 1.0
Operating expenses (2,012) (1,899) 5.9
Administration costs (1,905) (1,813) 5.1
Personnel expenses (860) (856) 0.4
General and administrative expenses (1,045) (956) 9.2
Depreciation and amortization (107) (86) 23.7
OPERATING INCOME 3,539 3,597 (1.6)
Impairment losses on financial assets (net) (1,180) (1,229) (4.0)
Provisions (net) and other gains (losses) (60) (87) (30.7)
INCOME BEFORE TAX 2,299 2,281 0.8
Income tax (555) (570) (2.6)
NET INCOME 1,744 1,711 2.0
Net income attributed to non-controlling interests (3) (4) (32.4)

The results for 2011 in the area have been positive. The changes in the principal headings of the income statement of this business area are:

“Net interest income” in 2011 stood at €3,827 million, up 3.8% on the €3,688 million recorded in 2010. This increase amounts to 7.2% at constant exchange rates, driven mainly by positive business activity, with greater volumes of both lending and funds, and by good price management.

“Net fees and commissions” in 2011 totaled €1,194 million, down 3.2% on the €1,233 million posted in 2010. At constant exchange rates, this income remained at the same level as in the previous year, since fees and commissions from customer asset management (investment companies and pension funds) managed to offset the less favorable performance of the banking fees and commissions affected by regulatory changes.

The balance of the “Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)” headings in 2011 stood at €302 million, down 23.4% on the €395 million recorded in 2010. The situation observed in the financial markets, especially towards the end of the year, resulted in lower intermediation income.

The balance of “Other operating income and expenses” for 2011 amounted to €227 million, a 26.8% increase on the €179 million recorded in 2010, as a result of the strength of the insurance business.

Based on the above, “Gross income” for 2011 amounted to €5,550 million, with an increase of 1% (4.3% at constant exchange rates) on the€ 5,496 million recorded in 2010.

“Operating expenses” in 2011 stood at €2,012 million, up 5.9% (9.4% in constant euros) on the €1,899 million posted in 2010. This is the result of BBVA Bancomer's investment in infrastructure, innovation and technology to make the most of the growth opportunities in the Mexican market. Over the course of 2011, its distribution network grew by 14 additional branches on the figure for December 31, 2010, 950 ATMs and 20,300 POSTs. The efficiency ratio stood at 36.2%, confirming that BBVA Bancomer is one of the most efficient banks in the Mexican system.

As a result of the above, “Operating income” for 2011 reached €3,539 million, compared with €3,597 million in 2010, down 1.6%, due to the effect of the depreciation of the Mexican peso. Not including this impact, operating income grew by 1.6%.

The balance of the “Impairment losses on financial assets (net)” heading in 2011 fell to €1,180 million, down 4% (0.9% excluding the exchange-rate effect) on the €1,229 million posted in 2010. Growth in lending volumes has been accompanied by good risk management, allowing impairment losses on financial assets to remain at levels similar to those recorded the previous year and the accumulated risk premium to improve by 36 basis points, reaching 3.29%. The NPA and coverage ratios closed the year at 3.5% and 120% respectively.

The balance of “Provisions expense (net)” and “Other gains (losses)” in 2011 stood at €60 million, compared with €87 million in 2010.

As a result of the above, “Income before tax” in 2011 totaled €2,299 million, up 0.8% on the €2,281 million in 2010 (4.2% not including the exchange-rate effect).

The balance of “Income tax” in 2011 stood at €555 million, down 2.6% on the €570 million recorded in 2010, due to exchange rates.

As a result of the above, “Net income” for 2011 stood at €1,744 million, an increase of 2% (5.3% in constant euros) on the €1,711 million in 2010.

“Net income attributed to parent company” for 2011 totaled €1,741 million, a 2% increase on the €1,707 million in 2010 (+5.4% without the impact of the depreciation of the peso).

Millions of Euros
2011 2010 % Change
Total Assets 74,283 75,152 (1.2)
Loans and advances to customers 36,205 36,526 (0.9)
Of which:      
Residential mortgages 8,234 8,511 (3.2)
Consumer finance 8,070 7,186 12.3
Loans 3,584 2,931 22.3
Credit cards 4,486 4,255 5.4
Loans to enterprises 14,104 14,792 (4.7)
Loans to public sector 3,316 3,275 1.2
Total customer funds 37,704 38,051 (0.9)
Current and savings accounts 21,129 20,963 0.8
Time deposits 7,398 8,333 (11.2)
Other custumer funds 9,176 8,756 4.8
Off-balance-sheet funds 34,499 34,895 (1.1)
Mutual funds 15,612 15,341 1.8
Pension funds 13,132 12,781 2.8
Other placements 5,754 6,773 (15.0)
Economic capital allocated 4,444 3,714 19.7
Efficiency ratio (%) 36.2 34.6  
NPA Ratio (%) 3.5 3.2  
NPA Coverage Ratio (%) 120 152  
Risk premium (%) 3.29 3.65  

The changes in the principal headings of activity in this area of the business are as follows:

As of December 31, 2011, the balance of loans and advances to customers (gross) stood at €36,205 million, down 0.9% on the €36,526 million as of December 31, 2010. Without the impact of exchange rates and not including existing housing, there would have been a growth of 9.3%, driven mainly by retail finance. In 2011, wholesale lending has been affected by specific events that have limited its growth. These include the early payment by the Federal Government of a credit line underwritten with a number of banks in the country; and the switch made by large corporations from bank lending to financing in wholesale markets due to the low interest rates. The retail portfolio, which includes consumer finance, credit cards, individual mortgages and loans to small businesses, performed strongly and grew by 14.3% year-on-year in constant euros (ce) as of December 31, 2011 to €17,717 million. Within the retail portfolio, consumer finance (including credit cards) presented a balance of €8,070 million, up 23.6% (ce) year-on-year. The boost from consumer loans (car, payroll and personal) led to an increase of 16.3% (ce) in new loans over the year, while the outstanding balances increased at a rate of 36.2% (ce) over the same period. Credit card lending amounted to €4,486 million, up 15.0% (ce) on the previous year. As a result, BBVA Bancomer gained 68 basis points and maintained its position as market leader.

BBVA Bancomer’s extensive expertise in mortgage lending has enabled it to grant the highest number of new mortgages - one out of every three - out of all the banks and Sofoles. Thus, it has granted more than 32,900 individual mortgages, which as of December 31, 2011 represented a year-on-year increase of 13.2% in turnover and a mortgage loan balance (excluding existing housing) of €8,234 million, up 5.5% (ce) on 2010.

At the same time, the wholesale portfolio, which includes loans to corporations, SMEs, financial institutions and the public sector, increased by 3.7% (ce) year-on-year. Broken down by segment, lending to corporates increased by 6.2% (ce) to €6,371 million, while lending to SMEs grew by 14.8% (ce). Finally, loans to the public sector increased by 10.4% (ce) to €3,316 million.

The above explains the gradual shift in the composition of the loan portfolio over the year towards a more profitable mix. In this regard, the weight of consumer loans grew from 21% in 2010 to 24% in 2011, while mortgage loans represented 24% of the total in 2011 and the commercial portfolio, the largest in volume, stood at 52% as of December 31, 2011.

As of December 31, 2011, on-balance customer funds amounted to €37,704 million, down 0.9% on the €38,051 million posted as of December 31, 2010, due to the exchange-rate effect. Excluding this effect translates into an increase of 8.1%. There is a notable increase in local-currency demand deposits which, with a balance of €21,129 million at the close of 2011, grew by 10.0% (ce) compared with the same date in 2010. Retail demand deposits have performed well, with a rise of 8.2% (ce) compared with the close of 2010. This rise maintains the profitable mix of liabilities, as 76% of customer deposits are now low-cost funds.

In terms of off-balance sheet funds, the performance of mutual funds has been excellent, with the balance up 11.0% year-on-year to €15,612m as of December 31, 2011.

As for the provisional business, Afore Bancomer continued to perform well thanks to the stability of the labor market, and at the close of 2011 the assets under management in pension funds amounted to €13,132 million, a year-on-year increase of 12.1% (ce).

New products and services in Mexico

The main products and services launched by the area in 2011 are as follows:

Banking Business:

BBVA Bancomer has been awarded the PyME prize by the Secretariat for the Economy for being the bank that has supported the largest number of micro, small and medium-sized businesses in 2011. The specialized products and services for the small businesses and companies segment includes “Movimiento Pyme”, an innovative online banking product through which small businesses can obtain financing, distribute their products, sell and bill their customers, and manage and improve their operating efficiency. A new version of the “Tarjeta MicroNegocios" card has also been developed to include businesses registered as small taxpayers and individuals running a business.

In the second quarter of 2011, the BBVA Group acquired 100% of the shares of the Mexican company Facileasing S.A. de C.V. This operation will reinforce the bank’s leadership in the vehicle and equipment lease market in Mexico, offering an innovative product by combining the strengths of two companies specializing in fleet financing, administration and management.

Committed to extending banking penetration among the low-income population, BBVA Bancomer has launched the first account in Mexico linked to cell phones, “Cuenta Express”. With this account, customers can make transactions using their cell phone, such as paying for services, transferring money, checking their balance and other services. Customers can also use the network of stores that act as banking correspondents for Bancomer to make transactions such as deposits or cash withdrawals . More than 940,000 customers use Bancomer’s “Cuenta Express” account, according to data available for the first nine months since its launch.

In 2011, BBVA Bancomer continued to rely on technological innovation in order to encourage access to financial products and services and expand and facilitate the use of alternative non-branch channels. BBVA Bancomer has a signed an agreement with a number of stores that act as correspondents for the bank, which has made it possible to increase the number of points of sale outside the branch network by approximately 12,000 during the year.

As regards home loans, BBVA Bancomer maintained its leadership position and in 2011 granted one out of every three new mortgages granted by all banks and Sofoles. Standard & Poor’s has confirmed BBVA Bancomer’s “excellent” rating as mortgage manager.

For HNWI customers, in addition to several new investment options available through mutual funds, the bank has launched the “CHNTRAC ETF”, which enables customers to invest in China, one of the world’s largest economies and with the greatest potential for expansion. Thus, BBVA Bancomer’s ETF offering at the end of 2011 has been expanded to six, confirming the bank’s role as the second most important player in this market in Latin America, which it entered in 2009.

Insurance business

The commercial performance in the insurance business in 2011 has been very positive. Of note are the uptake on the ILP (Free Wealth Investment), the solid performance of the “Creditón Nómina” loan, the “HogarSeguro” loan, the “VidaSegura Preferente” loan, as well as the positive performance of “AutoSeguro". The new “Auto Alerta” product is an outstanding example of technological innovation. It uses GPS to report accidents by simply pressing a button on a cell phone. The low levels of claims in the car and life insurance business have favorably contributed to earnings in 2011.