Industry Trends

In the first quarter of 2012, banking activity in South America continued to perform well, driven by strong domestic demand and expansionary monetary policy in the region. Lending is growing at just under 15% year-on-year in Chile, slightly above Colombia and Peru and at a much faster pace in Argentina (up 37%) and Venezuela (up 50%), partly thanks to the lower nominal anchoring in the latter two economies. Deposit gathering also performed strongly, in line with economic growth, with annual rates in Chile, Colombia, Peru and Venezuela similar to those for lending, though lower in Argentina (24%) due to the decline in dollar deposits. Lastly, it is important to note that some countries, such as Colombia and Peru, recently announced measures affecting the financial system such as increasing provisions and reserve requirements to cool down their credit markets in particular and the economy in general.

With respect to exchange rate movements, there were general appreciations in the currencies in the region, both over the quarter and over the last 12 months. This has a positive impact on financial statements in South America. Unless indicated otherwise, all comments below on percentage changes refer to constant exchange rates, with the aim of providing a better understanding of the performance of the business in this area.

Income statement

(Million euros)

					Units:
	South America				Banking business				Pensions and Insurance
	1H12	Δ%	Δ% (1)	1H11	1H12	Δ%	Δ% (1)	1H11	1H12	Δ%	Δ% (1)	1H11
Net interest income	1,977	37.8	28.0	1,435	1,945	38.3	28.5	1,406	32	14.8	7.1	28
Net fees and commissions	636	24.2	16.2	513	455	24.0	16.5	367	185	21.7	13.0	152
Net trading income	241	(13.9)	(19.5)	280	216	(11.3)	(17.8)	243	25	(32.5)	(33.4)	37
Other income/expenses	(75)	(23.0)	(32.0)	(98)	(170)	(1.1)	(8.8)	(172)	99	23.9	20.9	80
Gross income	2,779	30.5	21.9	2,130	2,446	32.6	23.6	1,845	341	14.9	8.9	297
Operating costs	(1,158)	21.7	14.4	(951)	(1,027)	26.2	18.3	(814)	(117)	(6.0)	(11.0)	(124)
Personnel expenses	(592)	21.4	14.4	(488)	(521)	26.6	19.0	(411)	(58)	(8.4)	(13.3)	(63)
General and administrative expenses	(484)	23.2	15.7	(393)	(430)	27.8	19.7	(336)	(54)	(5.6)	(10.6)	(57)
Deprecation and amortization	(82)	15.9	7.5	(71)	(77)	15.2	6.8	(67)	(5)	27.7	20.1	(4)
Operating income	1,622	37.6	27.8	1,179	1,419	37.7	27.7	1,031	225	29.9	23.3	173
Impairment on financial assets (net)	(235)	12.5	3.5	(209)	(234)	12.4	3.4	(209)	(0)	n.m.	n.m.	-
Provisions (net) and other gains (losses)	(75)	236.3	204.8	(22)	(73)	239.6	205.2	(21)	(1)	n.m.	n.m.	3
Income before tax	1,312	38.5	29.0	948	1,112	38.9	29.2	800	223	27.3	20.8	175
Income tax	(288)	65.4	53.4	(174)	(247)	66.3	54.8	(148)	(48)	41.2	31.4	(34)
Net income	1,024	32.4	23.4	774	865	32.7	23.3	652	175	23.9	18.2	142
Non-controlling interests	(321)	29.9	20.5	(247)	(278)	29.8	19.9	(214)	(42)	26.2	20.2	(33)
Net attributable profit	703	33.6	24.8	526	587	34.0	25.0	438	133	23.2	17.6	108

(1) At constant exchange rate.

Balance sheet

(Million euros)

					Units:
	South America				Banking business				Pensions and Insurance
	30-06-12	Δ%	Δ% (1)	30-06-11	30-06-12	Δ%	Δ% (1)	30-06-11	30-06-12	Δ%	Δ% (1)	30-06-11
Cash and balances with central banks	8,453	24.6	10.8	6,786	8,453	24.6	10.8	6,786	-	-	-	-
Financial assets	11,417	37.6	24.8	8,296	9,916	45.0	31.1	6,837	1,473	4.4	(4.3)	1,412
Loans and receivables	48,541	38.3	24.7	35,095	48,147	39.4	25.5	34,546	253	(17.9)	(23.7)	308
Loans and advances to customers	43,828	37.2	23.4	31,939	43,751	37.3	23.4	31,873	78	(1.8)	(8.1)	80
Loans and advances to credit institutions and other	4,713	49.4	37.7	3,156	47,162	37.2	23.5	34,375	251	(18.0)	(23.9)	306
Tangible assets	868	29.8	16.8	669	817	32.2	18.6	618	51	0.8	(6.3)	51
Other assets	2,489	18.1	9.6	2,108	1,845	9.7	0.2	1,682	136	(3.8)	(11.2)	142
Total assets/Liabilities and equity	71,768	35.5	22.2	52,954	69,177	37.1	23.3	50,469	1,914	0.1	(7.9)	1,913
Deposits from central banks and credit institutions	6,546	49.2	33.3	4,387	6,545	49.2	33.3	4,386	1	(85.4)	(86.4)	5
Deposits from customers	47,752	37.6	23.6	34,706	47,882	37.6	23.6	34,808	-	-	-	-
Debt certificates	2,819	40.3	27.7	2,009	2,819	40.3	27.7	2,009	-	-	-	-
Subordinated liabilities	1,794	22.4	13.6	1,465	1,192	10.0	(0.5)	1,084	-	-	-	-
Financial liabilities held for trading	967	22.4	13.9	790	967	22.4	13.9	790	-	-	-	-
Other liabilities	8,915	27.0	15.7	7,021	6,952	32.6	20.1	5,242	1,765	18.2	8.7	1,493
Economic capital allocated	2,976	15.5	4.1	2,577	2,820	31.1	17.6	2,151	149	(64.1)	(66.9)	415

(1) At constant exchange rate.

Significant ratios

(Percentage)

	South America
	30-06-12	31-03-12	30-06-11
Efficiency ratio	41.7	40.5	44.7
NPA ratio	2.3	2.3	2.4
NPA coverage ratio	139	141	138
Risk premium	1.12	0.97	1.33

South America. Operating income

(Million euros at constant exchange rate)

(1) At current exchange rates: +37.6%.

South America. Net attributable profit

(Million euros at constant exchange rate)

(1) At current exchange rates: +33.6%