Rest of Eurasia
Highlights
- Positive trend in lending activity.
- Performance of deposits strongly influenced by the environment of negative interest rates.
- Earnings affected by decrease in revenues.
- Good performance of the NPL and NPL coverage ratios.
Macro and industry trends
Growth in the Eurozone slowed in the first quarter of this year to 0.4% quarter-on-quarter, according to the latest information from Eurostat. This moderation is mainly explained by the worse performance of exports, due to the lagging effects of the appreciation of the euro last year, and the recent increase in oil prices. Nonetheless, domestic demand continues solid. In addition, the labor market is still supporting the growth of private spending. The recent depreciation of the euro during the second quarter of 2018, added to the continued buoyancy in world trade, will continue to support both the competitiveness of exports and the dynamism of investment. In this context, headline inflation rose to 2.0% in June, mainly due to the rise in energy and food prices, while core inflation remained at low levels (1.2%). In this scenario, the ECB will gradually reduce asset purchases over the coming months and end them in December. The ECB has also announced that it will keep interest rates low until, at least, the summer of 2019. The objective is to avoid shocks to the financial markets. This is particularly important due to wage pressures (still limited) and rising political risks in Europe and global risks associated with protectionism.
Activity and result
This business area basically includes the Group's retail and wholesale business in Europe (excluding Spain) and Asia.
The key aspects of the activity and results as of 30-June-2018 in this area were:
- Lending (performing loans under management) grew by 8.3% year-to-date (down 0.4% year-on-year).
- Credit risk indicators improved in the last three months: the NPL ratio closed June at 1.7% (2.1% as of March 2018 and 2.4% as of December 2017) and the NPL coverage ratio closed at 93% (88% as of 31-March-2018 and 74% as of 31-December-2017).
- Customer deposits under management were still strongly influenced by the environment of negative interest rates. Data as of June 2018 showed a year-to-date decline of 21.9%. In the last twelve months, there was a fall of 28.4%
- Regarding earnings, gross income declined by 15.8% year-on-year: the Rest of Europe fell by 18.1% while Asia grew slightly, by 5.9%. Operating expenses continued to fall (down 7.9% year-on-year), due to tight control of personnel and discretionary costs. This geographic area contributed a cumulative net attributable profit in the first half of 2018 of €58 million, down 20.3% on the same period of 2017.
Financial statements and relevant business indicators (Million euros. Percentage)
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Income statement | 1H18 | ∆% | 1H17 | |||
| Net interest income | 82 | (13.8) | 95 | |||
| Net fees and commissions | 79 | (3.4) | 82 | |||
| Net trading income | 55 | (31.1) | 80 | |||
| Other operating income and expenses | (0) | (91.5) | (0) | |||
| Gross income | 216 | (15.8) | 256 | |||
| Operating expenses | (142) | (7.9) | (154) | |||
| Personnel expenses | (67) | (16.9) | (80) | |||
| Other administrative expenses | (72) | 6.9 | (68) | |||
| Depreciation | (3) | (52.6) | (6) | |||
| Operating income | 74 | (27.6) | 102 | |||
| Impairment on financial assets not measured at fair value through profit or loss | 14 | 52.5 | 9 | |||
| Provisions or reversal of provisions and other results | 2 | n.s. | (7) | |||
| Profit/(loss) before tax | 90 | (13.4) | 104 | |||
| Income tax | (32) | 2.5 | (31) | |||
| Profit/(loss) for the year | 58 | (20.3) | 73 | |||
| Non-controlling interests | - | - | - | |||
| Net attributable profit | 58 | (20.3) | 73 | |||
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Balance sheets | 30-06-18 | ∆% | 31-12-17 | |||
| Cash, cash balances at central banks and other demand deposits | 884 | 0.7 | 877 | |||
| Financial assets designated at fair value | 539 | (45.6) | 991 | |||
| of which loans and advances | - | - | - | |||
| Financial assets at amortized cost | 16,618 | 10.7 | 15,009 | |||
| of which loans and advances to customers | 15,287 | 2.8 | 14,864 | |||
| Inter-area positions | - | - | - | |||
| Tangible assets | 37 | 3.4 | 36 | |||
| Other assets | 380 | 7.9 | 352 | |||
| Total assets/liabilities and equity | 18,457 | 6.9 | 17,265 | |||
| Financial liabilities held for trading and designated at fair value through profit or loss | 41 | (8.6) | 45 | |||
| Deposits from central banks and credit institutions | 2,624 | 11.0 | 2,364 | |||
| Deposits from customers | 5,233 | (21.9) | 6,700 | |||
| Debt certificates | 290 | (18.0) | 354 | |||
| Inter-area positions | 8,617 | 52.7 | 5,643 | |||
| Other liabilities | 866 | (30.5) | 1,246 | |||
| Economic capital allocated | 786 | (13.9) | 913 | |||
| Relevant business indicators | 30-06-18 | ∆% | 31-12-17 |
|---|---|---|---|
| Performing loans and advances to customers under management (1) | 16,630 | 8.3 | 15,362 |
| Non-performing loans | 402 | (27.8) | 556 |
| Customer deposits under management (1) | 5,233 | (21.9) | 6,700 |
| Off-balance sheet funds (2) | 388 | 3.2 | 376 |
| Risk-weighted assets | 15,002 | (1.0) | 15,150 |
| Efficiency ratio (%) | 65.8 | 65.9 | |
| NPL ratio (%) | 1.7 | 2.4 | |
| NPL coverage ratio (%) | 93 | 74 | |
| Cost of risk (%) | (0.15) | (0.16) |
- (1) Excluding repos.
- (2) Includes mutual funds, pension funds and other off-balance sheet funds.