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South America

South America highlights in the fourth quarter

  • Net interest income reflects the high rate of growth in business activity.
  • Improved business in pensions and insurance.
  • Stable growth forecasts for the region.
  • NPA ratio at an all-time low.

The South American area manages the Group’s banking, pension and insurance businesses in the region. The first half of 2011 saw the incorporation of Crédit Uruguay (purchased at the end of 2010 and merged with BBVA Uruguay in May 2011) and the sale of the Group’s stake in the insurance company Consolidar Retiro of Argentina. An additional 24.5% stake in the company Forum Chile was also purchased in September 2011.

In the last quarter of the year, the South American economy continued to grow strongly, supported by resilient domestic demand. Even so, turbulence in Europe and the U.S. has led to greater difficulties in the financial markets in the region, including increased market volatility and a reduction of capital inflows. However, many countries still have a considerable buffer (sounder public finances and better macroeconomic management than in the past) and are in a good position to introduce stimulus policies to counteract weaker foreign demand. In general, a more negative external environment has shifted the focus in emerging countries from overheating to downside risks and, increasingly, to the possible need for support policies. Thus, not only has the cycle of interest-rate rises been halted, but also some countries have actually begun to reduce rates in an effort to stimulate growth.

In terms of exchange rates evolution, there were general gains in the official exchange rates of the main currencies in the region during the quarter. In year-on-year terms, only the Argentinean and Chilean peso lost value. In average terms over the last 12 months all the currencies except for the Chilean peso have weakened. Over the quarter, the variations are not significant. There were minor losses for the Chilean and Colombian peso and gains (also minor) in the remaining currencies. To sum up, the impact of exchange rates over the last year is positive for the balance sheet but negative for earnings. Unless otherwise indicated, all comments below refer to changes at constant exchange rates.

Against this background, the area has maintained its growth levels in both business activity and earnings. The loan book at the end of December amounted to €40,219m, a year-on-year increase of 27.0% and a gain of 10 basis points in market share over the last 12 months (November figures, the latest available). This increase in lending has been accompanied by a significant rise in customer deposits (up 25.7%), focused on

lower-cost transactional current and deposit accounts, which increased over the year by 32.0%. Including the assets under management by mutual funds, customer funds managed by the banks closed December at €48,624m, 23.3% up on the same date in 2010.

From the point of view of earnings, the cumulative net interest income was €3,164m, 31.6% up on the figure for 2010. This reflects the significant growth in business and the good management of spreads, despite strong competitive pressure. Net income from fees and commissions was up 15.7% on the previous year to €1,077m. Net trading income (NTI) was down 3.4% year-on-year to €477m. It was strongly affected by the value of US dollar positions in Banco Provincial in Venezuela and by the turmoil on the markets. As a result of the above, gross income stood at €4,457m, a rise of 21.4% on the figure for 2010.

Expenses in the area were strongly influenced by the expansion and differentiation projects carried out in most of the units. As a result, they grew by 27.1% year-on-year to €2,042m, but the efficiency ratio stood at 45.8% thanks to the positive trend in revenues. As a result, operating income was up 17.0% to €2,415m.

The last quarter of the year maintained the same trend in terms of asset quality. The NPA ratio closed on 31-Dec-2011 at 2.2%, with yet again another reduction over the quarter of 10 basis points thanks to the rigorous policy of risk admission and the outstanding management of recoveries policy. The coverage ratio improved considerably again this quarter to 146%. The increase in lending in the area explains the 10.5% year-on-year rise in impairment losses on financial assets to €449m.

In short, the excellent growth of revenues thanks to the boost provided by business combined with good price management has enabled the Bank to continue with its investment effort in the area, increase loan-loss provisions due to the growing lending volumes and achieve a net attributable profit of €1,007m, a rise of 16.2% over the year.

Income statement

(Million euros)



Units:

South America Banking business Pensions and Insurance

2011 Δ% Δ% (1) 2010 2011 Δ% Δ% (1) 2010 2011 Δ% Δ% (1) 2010
Net interest income 3,164 26.8 31.6 2,495 3,103 26.4 31.2 2,455 61 50.2 53.2 41
Net fees and commissions 1,077 12.6 15.7 957 783 13.5 18.1 690 299 5.9 5.7 282
Net trading income 477 (7.2) (3.4) 514 442 16.1 20.7 381 35 (73.7) (72.5) 133
Other income/expenses (261) 55.3 65.9 (168) (405) 35.9 44.4 (298) 154 10.9 16.8 139
Gross income 4,457 17.4 21.4 3,797 3,924 21.5 26.0 3,229 549 (7.7) (5.6) 594
Operating costs (2,042) 22.4 27.1 (1,668) (1,770) 23.8 28.7 (1,430) (236) (2.0) 0.9 (241)
Personnel expenses (1,040) 21.9 26.4 (854) (894) 23.4 28.2 (725) (116) (4.4) (1.7) (122)
General and administrative expenses (844) 23.4 28.3 (684) (725) 24.8 30.0 (581) (112) (0.3) 2.8 (113)
Depreciation and amortization (158) 20.5 25.4 (131) (151) 20.9 25.9 (125) (7) 13.3 15.2 (7)
Operating income 2,415 13.4 17.0 2,129 2,155 19.8 23.8 1,799 313 (11.5) (9.9) 354
Impairment on financial assets (net) (449) 7.2 10.5 (419) (449) 7.2 10.5 (419) - - - -
Provisions (net) and other gains (losses) (89) 120.0 124.3 (40) (90) 269.9 278.9 (24) 1 n.m. n.m. (8)
Income before tax 1,877 12.4 16.0 1,670 1,616 19.2 23.3 1,356 314 (9.3) (7.7) 346
Income tax (390) (1.7) 2.3 (397) (346) 12.6 17.6 (307) (60) (31.4) (29.2) (88)
Net income 1,487 16.8 20.2 1,273 1,270 21.1 24.9 1,049 253 (1.8) (0.5) 258
Non-controlling interests (480) 25.3 29.4 (383) (422) 32.9 38.0 (317) (59) (12.8) (12.2) (67)
Net attributable profit 1,007 13.2 16.2 889 848 16.0 19.3 732 195 2.0 3.6 191
(1) At constant exchange rate.

Balance sheet

(Million euros)



Units:

South America Banking business Pensions and Insurance

31-12-11 Δ% Δ% (1) 31-12-10 31-12-11 Δ% Δ% (1) 31-12-10 31-12-11 Δ% Δ% (1) 31-12-10
Cash and balances with central banks 8,335 18.0 13.9 7,064 8,335 18.0 13.9 7,064 0 72.2 76.2 0
Financial assets 8,912 4.2 5.7 8,550 7,393 10.8 11.9 6,671 1,474 (20.8) (18.7) 1,860
Loans and receivables 43,069 27.3 26.6 33,845 42,531 28.6 27.8 33,067 394 (30.0) (28.8) 563
Loans and advances to customers 38,831 27.7 27.1 30,408 38,759 28.2 27.6 30,228 85 (56.9) (55.9) 197
Loans and advances to credit institutions and other 4,238 23.3 22.9 3,437 3,772 32.9 31.0 2,839 309 (15.6) (14.4) 366
Tangible assets 805 23.5 22.2 652 755 26.6 24.6 596 50 (10.2) (5.3) 56
Other assets 2,322 48.9 50.9 1,559 1,848 35.3 37.5 1,366 182 7.8 11.8 168
Total assets/Liabilities and equity 63,444 22.8 22.1 51,671 60,863 24.8 23.9 48,764 2,100 (20.7) (18.7) 2,648
Deposits from central banks and credit institutions 5,205 21.1 20.5 4,299 5,205 21.2 20.7 4,295 4 15.2 14.9 4
Deposits from customers 42,468 26.8 25.3 33,496 42,655 26.9 25.4 33,605 - - - -
Debt certificates 2,282 22.5 24.3 1,864 2,282 22.5 24.3 1,864 - - - -
Subordinated liabilities 1,568 17.8 19.2 1,331 1,125 (3.9) (2.6) 1,171 - - - -
Financial liabilities held for trading 1,006 14.8 21.9 876 1,006 14.8 22.0 876 - - - 1
Other liabilities 8,002 9.8 10.6 7,286 5,939 21.8 21.1 4,877 1,831 (16.2) (13.9) 2,186
Economic capital allocated 2,912 15.6 15.0 2,519 2,651 27.6 26.0 2,077 249 (43.7) (42.8) 442
(1) At constant exchange rate.

Significant ratios

(Percentage)


South America

31-12-11 30-09-11 31-12-10
Efficiency ratio 45.8 45.5 43.9
NPA ratio 2.2 2.3 2.5
NPA coverage ratio 146 140 130
Risk premium 1.31 1.31 1.52

South America. Data per country (banking business, pensions and insurance)

(Million euros)


Operating income Net attributable profit
Country 2011 Δ% Δ% at constant
exchange rate
2010 2011 Δ% Δ% at constant
exchange rate
2010
Argentina 315 5.1 14.7 299 157 18.9 29.7 132
Chile 454 6.0 5.4 429 224 0.7 0.2 223
Colombia 411 (3.4) (1.4) 425 251 12.6 14.9 223
Peru 518 0.6 2.9 515 154 2.8 5.2 149
Venezuela 670 67.9 78.5 399 201 63.0 73.3 123
Other countries (1) 48 (22.9) (25.0) 62 20 (48.6) (50.8) 39
Total 2,415 13.4 17.0 2,129 1,007 13.2 16.2 889
(1) Panama, Paraguay, Uruguay, Bolivia and Ecuador. Additionally, it includes eliminations and other charges.

South America. Operating income

(Million euros at constant exchange rate)

(1) At current exchange rate: +13.4%

South America. Net attributable profit

(Million euros at constant exchange rate)

(1) At current exchange rate: +13.2%
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