Industry Trends

In the third quarter of 2012 the financial system in South America remained sound. Lending has continued to grow, boosted by monetary policies focused on supporting economic activity. Lending continued to grow at a fast pace in all the countries in the region, particularly in Venezuela, Uruguay and Argentina, and also in Colombia, Chile and Peru, although at lower rates. Rising deposits have also reflected strong economic activity, with rates similar to those for lending. Peru has announced measures aimed at increasing its reserve requirements. In Argentina, the Central Bank has established the obligation for banks to keep a minimum credit line for SMEs based on their deposits. Peru together with Argentina have made changes to the method used for calculating their reserve requirements, which will result in an increase in the level of reserves.

With respect to exchange rate movements, there were general appreciations in the average rates for currencies in the region, both in the quarter and over the last 12 months. In terms of final exchange rates, there was a notable general appreciation over the year, but over the quarter this was limited to the Chilean peso. The above has had a positive impact on the year-on-year figures in financial statements and business activity in the area and on the quarterly figures in the income statement. However, the effect of exchange rates on the balance sheet and activity in the quarter is negative. 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 South America.

Income statement

(Million euros)

					Units:
	South America				Banking business				Pensions and Insurance
	Jan.-Sep. 12	Δ%	Δ% (1)	Jan.-Sep. 11	Jan.-Sep. 12	Δ%	Δ% (1)	Jan.-Sep. 11	Jan.-Sep. 12	Δ%	Δ% (1)	Jan.-Sep. 11
Net interest income	3,087	36.9	25.6	2,255	3,042	37.6	26.3	2,211	45	4.9	(3.0)	43
Net fees and commissions	982	25.8	16.2	780	704	25.5	16.6	561	283	27.1	15.7	223
Net trading income	367	3.4	(4.6)	355	325	(2.8)	(10.9)	335	42	101.2	106.5	21
Other income/expenses	(158)	(10.4)	(21.4)	(176)	(292)	1.5	(7.7)	(288)	141	17.6	13.3	120
Gross income	4,278	33.1	22.7	3,214	3,779	34.1	23.5	2,818	511	25.7	17.2	406
Operating costs	(1,814)	24.0	15.2	(1,463)	(1,611)	27.8	18.4	(1,261)	(180)	1.3	(5.6)	(178)
Personnel expenses	(921)	23.4	15.0	(747)	(812)	26.9	18.0	(640)	(90)	2.9	(4.4)	(87)
General and administrative expenses	(762)	26.2	17.2	(604)	(675)	31.4	21.6	(514)	(83)	(2.3)	(8.7)	(85)
Deprecation and amortization	(131)	16.3	6.6	(113)	(124)	15.5	5.8	(107)	(7)	32.2	22.4	(6)
Operating income	2,463	40.7	29.0	1,751	2,168	39.2	27.5	1,558	330	44.7	35.0	228
Impairment on financial assets (net)	(409)	26.9	15.7	(322)	(409)	26.8	15.6	(322)	-	-	-	-
Provisions (net) and other gains (losses)	(128)	194.0	166.3	(44)	(124)	165.4	138.4	(47)	(3)	n.m.	n.m.	2
Income before tax	1,926	39.1	27.7	1,385	1,635	37.6	26.3	1,188	327	42.2	32.7	230
Income tax	(433)	53.4	40.6	(282)	(363)	47.6	35.9	(246)	(81)	67.3	53.5	(48)
Net income	1,493	35.4	24.3	1,103	1,273	35.0	23.8	943	246	35.5	27.0	181
Non-controlling interests	(479)	37.0	25.0	(349)	(419)	36.2	23.8	(308)	(59)	39.7	30.6	(42)
Net attributable profit	1,014	34.7	24.1	753	853	34.4	23.8	635	187	34.3	25.9	139

(1) At constant exchange rate.

Balance sheet

(Million euros)

					Units:
	South America				Banking business				Pensions and Insurance
	30-09-12	Δ%	Δ% (1)	30-09-11	30-09-12	Δ%	Δ% (1)	30-09-11	30-09-12	Δ%	Δ% (1)	30-09-11
Cash and balances with central banks	9,261	18.2	12.1	7,833	9,261	18.2	12.1	7,833	-	-	-	-
Financial assets	11,584	17.1	7.2	9,891	10,052	19.1	9.4	8,441	1,518	9.0	(1.6)	1,393
Loans and receivables	50,245	29.3	19.7	38,853	49,821	30.3	20.6	38,238	306	(20.2)	(22.7)	383
Loans and advances to customers	45,417	29.3	19.3	35,135	45,358	29.4	19.3	35,062	60	(30.1)	(32.3)	85
Loans and advances to credit institutions and other	4,828	29.9	24.0	3,718	4,463	40.5	35.2	3,176	246	(17.4)	(20.0)	298
Tangible assets	880	20.8	13.3	728	826	22.1	14.9	677	53	4.1	(7.7)	51
Other assets	2,107	(14.7)	(21.5)	2,469	2,044	1.8	(8.0)	2,008	165	8.6	0.5	151
Total assets/Liabilities and equity	74,077	23.9	14.8	59,774	72,005	25.9	16.7	57,196	2,042	3.2	(5.5)	1,979
Deposits from central banks and credit institutions	6,307	12.2	0.5	5,623	6,307	12.2	0.5	5,622	1	(79.9)	(79.1)	5
Deposits from customers	49,434	27.2	18.9	38,866	49,591	27.2	19.0	38,983	-	-	-	-
Debt certificates	3,459	61.4	44.4	2,144	3,459	61.4	44.4	2,144	-	-	-	-
Subordinated liabilities	1,223	(19.4)	(26.1)	1,518	1,223	12.4	(0.2)	1,088	-	-	-	-
Financial liabilities held for trading	1,127	(18.0)	(27.9)	1,373	1,127	(18.0)	(27.9)	1,373	-	-	-	-
Other liabilities	9,421	24.3	15.3	7,582	7,350	30.9	22.5	5,616	1,887	11.9	2.6	1,685
Economic capital allocated	3,106	16.4	8.0	2,668	2,948	24.4	15.6	2,370	154	(46.6)	(51.4)	289

(1) At constant exchange rate.

Significant ratios

(Percentage)

	South America
	30-09-12	30-06-12	30-09-11
Efficiency ratio	42.4	41.6	45.5
NPA ratio	2.2	2.3	2.3
NPA coverage ratio	142	139	140
Risk premium	1.26	1.12	1.31

South America. Operating income

(Million euros at constant exchange rate)

(1) At current exchange rates: +40.7%.

South America. Net attributable profit

(Million euros at constant exchange rate)

(1) At current exchange rates: +34.7%