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The area of Spain includes all the segments of BBVA's banking and non-banking business in the country.

Spain Millions of Euros
2011 2010 % Change
NET INTEREST INCOME 4,399 4,878 (9.8)
Net fees and commissions 1,468 1,672 (12.2)
Net gains (losses) on financial assets and liabilities and net exchange differences 19 2 n.a.
Other operating income and expenses 471 504 (6.5)
GROSS INCOME 6,357 7,055 (9.9)
Operating expenses (2,801) (2,815) (0.5)
Administration costs (2,702) (2,717) (0.5)
Personnel expenses (1,694) (1,713) (1.1)
General and administrative expenses (1,009) (1,004) 0.4
Depreciation and amortization (98) (97) 0.9
OPERATING INCOME 3,556 4,240 (16.1)
Impairment losses on financial assets (net) (1,711) (1,316) 30.0
Provisions (net) and other gains (losses) 70 237 (70.6)
INCOME BEFORE TAX 1,914 3,160 (39.4)
Income tax (550) (902) (39.0)
NET INCOME 1,364 2,258 (39.6)
Net income attributed to non-controlling interests - (2) (100.0)

The changes in the principal headings of the income statement of this business area are:

“Net interest income” in 2011 stood at €4,399 million, a 9.8% decrease on the €4,878 recorded in 2010, marked by the deleveraging process undertaken in Spain. However, the lending repricing, the greater weight of transactional liabilities, the high percentage of renewals of time deposits at prices adjusted to the degree of customer loyalty and risk discrimination have resulted in the stabilization of net interest income in the last quarter, despite a second half of the year characterized by the rising cost of wholesale finance and the loss of value of the assets derived from difficulties in the markets.

The balance of the “Net fees and commissions” heading reached €1,468 million, down 12.2%, due to the reduction in fees and commissions applied to a growing number of customers, whose loyalty has increased, together with the decrease in the assets managed in mutual funds. Fee income accounted for more than 23% of the area’s recurring income (gross income minus NTI).

The balance of the “Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)” headings for 2011 totaled €19 million, compared with €2 million in 2010. These headings continue to be strongly affected by the negative performance of the financial markets.

The “Other operating income and expenses” heading totaled €471 million, a 6.5% reduction, due to the increased allocations to the Deposit Guarantee Fund, which were not offset by the good performance of income from the insurance business, which increased by 3.1% year-on-year.

Based on the above, the “Gross income” for 2011 stood at €6,357 million, 9.9% down on the €7,055 million in 2010.

The balance of “Operating expenses” in 2011 amounted to €2,801 million, with a decrease of 0.5% on the €2,815 million posted in 2010. This shows the competitive advantage of a high level of efficiency (44.1%), despite the fact that, unlike competitors, the number of branches remained practically the same. The main indices of productivity have also improved as a result of proper and efficient management of the various distribution channels.

“Operating income” for 2011 stood at €3,556 million, down 16.1% on the €4,240 million posted in 2010. This reflects the resilience of BBVA’s recurring earnings in a year plagued by economic and financial difficulties and, at the same time, reveals that it has the margin to meet the needs for loan-loss provisioning in the domestic market.

In 2011, the balance of “Impairment losses on financial assets (net)" amounted to €1,711 million, an increase of 30% on the figure of €1,316 million recorded in 2010, due to the additional allocations made to increase the balance of provisions, while maintaining the criterion of prudence in an extremely complex economic environment. Against this background, the quality of assets remains high in the area of Spain, with the NPA ratio well in check at the same level as of December 31, 2010 (4.8%), while the coverage ratio stood at 44%, the same level posted in the previous year. The practically stable volume of distressed assets is due to moderation in the rate of new entries, together with an increase of recoveries.

The balance of “Provisions expense (net) and other gains (losses)” in 2011 is €70 million, compared with €237 million in 2010, which included the gains from the second stage of the “Árbol” deal.

As a result of the above, “Income before tax” for 2011 stood at €1,914 million, a fall of 39.4% on the €3,160 million for 2010.

The balance of “Income tax” in 2011 amounted to €550 million, a year-on-year fall of 39% compared with €902 million in the previous year.

“Net income attributed to parent company” in 2011 totaled €1,363 million, 39.5% down on the €2,255 million in 2010.

Millions of Euros
2011 2010 % Change
Total Assets 309,912 297,641 4.1
Loans and advances to customers 214,156 218,127 (1.8)
Of which:

Residential mortgages 77,015 78,882 (2.4)
Consumer finance 8,114 9,205 (11.9)
Loans 6,484 7,499 (13.5)
Credit cards 1,631 1,706 (4.4)
Loans to enterprises 75,813 78,774 (3.8)
Loans to public sector 24,915 23,110 7.8
Total customer funds 117,174 112,852 3.8
Current and savings accounts 41,587 41,157 1.0
Time deposits 48,447 48,116 0.7
Other custumer funds 27,139 23,579 15.1
Off-balance-sheet funds 51,156 53,598 (4.6)
Mutual funds 20,366 23,445 (13.1)
Pension funds 17,212 16,799 2.5
Other placements 13,578 13,355 1.7
Economic capital allocated 10,306 10,160 1.4
Efficiency ratio (%) 44.1 39.9  
NPA Ratio (%) 4.8 4.8  
NPA Coverage Ratio (%) 44 44  
Risk premium (%) 0.78 0.60  

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 gross lending to customers stood at €214,156 million, down 1.8% on the €218,127 million posted as of December 31, 2010, as a result of the necessary and positive deleveraging process and weak consumption. The general trend has been of weak turnover, with the most notable falls recorded in the segment of highest-risk businesses and corporations, and in consumer loans.

As of December 31, 2011, total customer funds, both those on the balance sheet and off the balance sheet, which include mutual funds, pension funds and customer portfolios, stood at €168,330 million, 1.1% up on the €166,450 million posted as of December 31, 2010, although with a different distribution, since turmoil in the markets reduced the value of assets under management and led to a change in customer preference from mutual funds to other liability products, basically promissory notes. Time deposits remained stable thanks to the high percentage of renewals during the third quarter of the maturities attracted in the same period of 2010.

As for mutual funds, it is worth pointing out that according to the latest data from October 2011, the effect of this fall in BBVA in Spain is still much less significant than in the rest of the system, given the more conservative profile of its mutual funds.

Pension funds, whose balance stood at €17,212 million as of December 31, 2011, increased by 2.5% on the €16,799 million recorded as of December 31, 2010, with BBVA maintaining its position as the leading pension fund manager in Spain, with an 18.3% share (last data available as of September 2011).

New products and services in Spain

The most relevant new products and services launched in 2011 are listed below:

In 2011, BBVA launched “BBVA Contigo”, a pioneering and innovative remote management service designed for customers who cannot or do not want to go to their branch office, but who demand personalized advice to complement the use of remote channels, such as the Internet, phone or ATMs. With this service, BBVA anticipates the market’s needs and moves forward with its differentiation strategy, as it represents a new customer relationship model that complements the branch network. BBVA already has more than 230 specialized advisers and 180,000 customers who have chosen this relationship model.

Thanks to this customer focus, BBVA has launched various asset and deposit products which have improved the area’s positioning.

In lending, the “General Restructuring Action Plan” and the implementation of new products such as “Solution III Mortgage – Grace Period” helped 45,000 families by adapting to their ability to pay. In the consumer finance segment, the 10% interest refund commercial campaign has been launched.

In on-balance sheet funds, several stable saving products have been launched, including the “Banco de Financiación Promissory Notes” in September.

In off-balance sheet funds, new guaranteed mutual funds began to be sold, while the range of pension funds has also been expanded. And to complement the offering of retirement pension products, Plan de Previsión Asegurado Acumulación (PPA Acumulación) (Cumulative Guaranteed Pension Plan) has been launched at the end of November. It offers a guaranteed return at maturity and the same tax advantages as pension plans.

The Internet plan is particularly relevant. This ambitious project is designed to digitize BBVA’s relations with its customers in order to reach 2 million active Internet users by December 2012. Developments in mobile devices also continue.

Also in 2011, BBVA’s Private Banking area continued with the strategy started two years ago, with special emphasis on attracting and retaining customers and on differentiation, supported by exclusive products: managed and guided portfolios, exclusive funds in the segment, third-party funds, personalized structured products, Visa Infinit and Brunara. This unit has been recognized for the second year in a row as the best private banking area in Spain in the 2011 “The Global Private Banking Awards” granted every year by The Banker, the prestigious Financial Times Group magazine specializing in international banking.

In businesses, for the self-employed segment, the “Plan + Professional” campaign has been launched aimed at attracting customers and encouraging loyalty, targeted at lawyers, economists, doctors, engineers, architects and the education sector (private schools and educational institutions), which included a specific value offer adapted to their needs.

In Corporate and Business Banking (BEC), BBVA has confirmed its leading role in the distribution of lines of credit under preferential conditions with the signing of the ICO-2011 agreement, with the lines “Inversión Sostenible” (Sustainable Investment), “Inversión Internacional” (International Investment), “ICO Liquidez” (ICO Liquidity) and those intended for the manufacturing sector, foreign and domestic trade, and tourism, among others. The new “Línea para Entidades Locales” (Line for Local Administrations) has been created in order to provide liquidity to local administrations for paying the debts they have outstanding with businesses and self-employed workers.

The catalog of products for BEC has been expanded. New “Bonos TPV BEC” (BEC POST Bonds), a new card offering and a new Suppliers website have been developed. In the Institutions segment, “Jessica Andalucía” (European Support for Sustainable Investment in City Areas) has been rolled out. This initiative has been promoted jointly by the European Commission (EC), the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB) in order to provide financial support for urban development or regeneration projects.

Finally, BBVA Seguros has expanded its catalog of retirement pension solutions with the launch of insured pension plan income schemes (PPA), and completed new issues of its product “Europlazo”, a mixed life-savings deferred capital insurance plan. In order to attract new insurance policy holders and reward their loyalty, the “Seguros Remunerados BBVA” (Remunerated Insurance BBVA) line has been launched by this unit. It offers a range of life, home and temporary disability insurance products that give money back to customers while the policy is in effect. Through it, they can even earn a 25% discount after three years.