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.
- Improvement of the NPL and NPL coverage ratios.
Macro and industry trends
Growth in the Eurozone held steady in the second quarter of this year to 0.4% quarter-on-quarter, according to the latest information from Eurostat. This behaviour is mainly explained by the good performance of domestic demand, mainly due to the increase in investment, which offset the deterioration of external demand. The most recent indicators show that the improvement of the labor market is still supporting the growth of private spending, while the favorable financial conditions and the absorption of the idle capacity of the economy will continue to sustain the recovery of the investment. On the other hand, the depreciation of the euro since the second quarter of 2018, added to the continued buoyancy in world trade, will continue to support the competitiveness of exports. In this context, headline inflation rose to 2.1% in July, 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, which is important due to wage pressures (still limited) and rising political risks in Europe and global risks associated with protectionism.
Activity and results
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-September-2018 in this area were:
- Lending (performing loans under management) grew by 8.8% year-to-date (up 2.6% year-on-year).
- Credit risk indicators improved in the last three months: the NPL ratio closed at 1.6% (1.7% as of June 2018 and 2.1% as of March of the same year) and the NPL coverage ratio closed at 100% (93% and 88%, respectively, as of 30-June-2018 and as of 31-March-2018).
- Customer deposits under management were still strongly influenced by the negative interest rate environment in the region and showed a decline of 21.4% during the first nine months of 2018. In the last twelve months, there was a fall of 20.9%.
- Regarding earnings, gross income declined by 13.8% year-on-year: the Rest of Europe fell by 14.4% and Asia by 4.3%. On the other hand, operating expenses continued to fall (down 4.6% year-on-year), due to tight control of personnel and discretionary costs. Impairments on financial assets increased in the quarter due to specific provisions of certain wholesale customers in Europe and Asia. These geographic areas contributed a cumulative net attributable profit between January and September of 2018 of €57 million, down 42.9% year on year.
Financial statements and relevant business indicators (Millions of Euros and percentage)
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Income statement | Jan.-Sep. 18 | ∆% | Jan.-Sep. 17 | |||
| Net interest income | 124 | (13.3) | 144 | |||
| Net fees and commissions | 114 | (8.3) | 124 | |||
| Net trading income | 77 | (21.5) | 98 | |||
| Other operating income and expenses | 1 | (3.5) | 1 | |||
| Gross income | 317 | (13.8) | 367 | |||
| Operating expenses | (217) | (4.6) | (228) | |||
| Personnel expenses | (101) | (12.8) | (116) | |||
| Other administrative expenses | (111) | 8.4 | (103) | |||
| Depreciation | (5) | (48.5) | (9) | |||
| Operating income | 99 | (28.8) | 140 | |||
| Impairment on financial assets not measured at fair value through profit or loss | (9) | n.s. | 10 | |||
| Provisions or reversal of provisions and other results | 3 | n.s. | (8) | |||
| Profit/(loss) before tax | 94 | (33.4) | 141 | |||
| Income tax | (37) | (9.8) | (40) | |||
| Profit/(loss) for the year | 57 | (42.9) | 101 | |||
| Non-controlling interests | - | - | - | |||
| Net attributable profit | 57 | (42.9) | 101 | |||
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Balance sheets | 30-09-18 | ∆% | 31-12-17 | |||
| Cash, cash balances at central banks and other demand deposits | 700 | (20.2) | 877 | |||
| Financial assets designated at fair value | 531 | (46.4) | 991 | |||
| of which loans and advances | - | - | - | |||
| Financial assets at amortized cost | 16,893 | 12.6 | 15,009 | |||
| of which loans and advances to customers | 15,622 | 5.1 | 14,864 | |||
| Inter-area positions | - | - | - | |||
| Tangible assets | 38 | 6.3 | 36 | |||
| Other assets | 320 | (9.1) | 352 | |||
| Total assets/liabilities and equity | 18,482 | 7.0 | 17,265 | |||
| Financial liabilities held for trading and designated at fair value through profit or loss | 39 | (13.1) | 45 | |||
| Deposits from central banks and credit institutions | 2,301 | (2.7) | 2,364 | |||
| Deposits from customers | 5,196 | (22.5) | 6,700 | |||
| Debt certificates | 266 | (24.9) | 354 | |||
| Inter-area positions | 9,178 | 62.6 | 5,643 | |||
| Other liabilities | 778 | (37.6) | 1,246 | |||
| Economic capital allocated | 724 | (20.7) | 913 | |||
| Relevant business indicators | 30-09-18 | ∆% | 31-12-17 |
|---|---|---|---|
| Performing loans and advances to customers under management (1) | 16,731 | 8.9 | 15,362 |
| Non-performing loans | 390 | (29.9) | 556 |
| Customer deposits under management (1) | 5,196 | (22.5) | 6,700 |
| Off-balance sheet funds (2) | 383 | 1.9 | 376 |
| Risk-weighted assets | 13,889 | (8.3) | 15,150 |
| Efficiency ratio (%) | 68.6 | 65.9 | |
| NPL ratio (%) | 1.6 | 2.4 | |
| NPL coverage ratio (%) | 100 | 74 | |
| Cost of risk (%) | 0.13 | (0.16) |
- (1) Excluding repos.
- (2) Includes mutual funds, pension funds and other off-balance sheet funds.