Rest of Eurasia
Highlights
- Positive trend in lending activity.
- Performance of deposits strongly influenced by the environment of negative interest rates.
- Despite the control costs, earnings affected by decrease in revenues.
- Improvement of the NPL and NPL coverage ratios.
Financial statements and relevant business indicators (Millions of Euros and percentage)
| IFRS 9 | IAS 39 | ||
|---|---|---|---|
| Income statement | 2018 | ∆% | 2017 |
| Net interest income | 175 | (2.5) | 180 |
| Net fees and commissions | 138 | (15.9) | 164 |
| Net trading income | 101 | (17.3) | 123 |
| Other operating income and expenses | (0) | n.s. | 1 |
| Gross income | 415 | (11.4) | 468 |
| Operating expenses | (291) | (5.6) | (308) |
| Personnel expenses | (136) | (12.8) | (156) |
| Other administrative expenses | (149) | 5.4 | (141) |
| Depreciation | (6) | (44.2) | (11) |
| Operating income | 124 | (22.5) | 160 |
| Impairment on financial assets not measured at fair value through profit or loss | 24 | 4.0 | 23 |
| Provisions or reversal of provisions and other results | (3) | (40.4) | (6) |
| Profit/(loss) before tax | 144 | (18.5) | 177 |
| Income tax | (51) | (2.6) | (52) |
| Profit/(loss) for the year | 93 | (25.2) | 125 |
| Non-controlling interests | - | - | - |
| Net attributable profit | 93 | (25.2) | 125 |
| IFRS 9 | IAS 39 | |||||
|---|---|---|---|---|---|---|
| Balance sheets | 31-12-18 | ∆% | 31-12-17 | |||
| Cash, cash balances at central banks and other demand deposits | 273 | (68.9) | 877 | |||
| Financial assets designated at fair value | 504 | (49.1) | 991 | |||
| of which loans and advances | - | - | - | |||
| Financial assets at amortized cost | 16,930 | 12.8 | 15,009 | |||
| of which loans and advances to customers | 15,731 | 5.8 | 14,864 | |||
| Inter-area positions | - | - | - | |||
| Tangible assets | 39 | 10.4 | 36 | |||
| Other assets | 254 | (27.8) | 352 | |||
| Total assets/liabilities and equity | 18,000 | 4.3 | 17,265 | |||
| Financial liabilities held for trading and designated at fair value through profit or loss | 42 | (6.3) | 45 | |||
| Deposits from central banks and credit institutions | 1,316 | (44.3) | 2,364 | |||
| Deposits from customers | 4,876 | (27.2) | 6,700 | |||
| Debt certificates | 213 | (39.9) | 354 | |||
| Inter-area positions | 9,977 | 76.8 | 5,643 | |||
| Other liabilities | 819 | (34.2) | 1,246 | |||
| Economic capital allocated | 757 | (17.1) | 913 | |||
| Relevant business indicators | 31-12-18 | ∆% | 31-12-17 |
|---|---|---|---|
| Performing loans and advances to customers under management (1) | 16,553 | 7.7 | 15,362 |
| Non-performing loans | 430 | (22.7) | 556 |
| Customer deposits under management (1) | 4,876 | (27.2) | 6,700 |
| Off-balance sheet funds (2) | 388 | 3.2 | 376 |
| Risk-weighted assets | 15,449 | (0.3) | 15,150 |
| Efficiency ratio (%) | 70.2 | - | 65.9 |
| NPL ratio (%) | 1.7 | - | 2.4 |
| NPL coverage ratio (%) | 83 | - | 74 |
| Cost of risk (%) | (0.11) | - | (0.16) |
- (1) Excluding repos.
- (2) Includes mutual funds, pension funds and other off-balance sheet funds.
Macroeconomic environment
Growth in the Eurozone moderated in the third quarter of 2018 to 0.2% quarterly from 0.4% in the second quarter, according to the latest Eurostat information. This performance is mainly explained by a worse exports evolution, while the contribution of domestic demand remained stable despite the lower growth of private consumption. Domestic fundamentals remain solid, with an improvement in the labor market which, together with the moderation in prices, continues to support the growth of private spending, while favorable financial conditions and the absorption of the economy's idle capacity will continue to sustain the recovery of investment. For its part, the depreciation of the euro from the second quarter of 2018 will continue to support the competitiveness of exports. As a result, GDP growth could have been somewhat below 2% in 2018, after a total of 2.5% in 2017.
Headline inflation moderated to 1.6% in December after the strong rebound since mid-year due to the significant deceleration in the prices of energy products, while core inflation remained relatively stable at low levels (1.1%). In this context, the ECB announced the completion of asset purchases in December of 2018, although it will continue to reinvest in those that reach their maturity term and will maintain interest rates at low levels until, at least, the summer of 2019. The recent increase in downside risks to growth will keep the ECB cautious.
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 31-December-2018 in this area were:
- Lending (performing loans under management) showed a year-on-year change of 7.7%.
- Credit risk indicators improved in the last twelve months: the NPL ratio closed at 1.7% (2.4% as of the close of 2017) and the NPL coverage ratio closed at 83% (74% as of 31-December-2017).
- Customer deposits under management were still strongly influenced by the negative interest rate environment in the region and showed a decline of 27.2%.
- Regarding results, gross income declined (-11.4% year-on-year): Europe (excluding Spain) fell by 13.6% and Asia grew by 11.0%. On the other hand, operating expenses continued to fall (down 5.6%), due to tight control of personnel costs. Impairments on financial assets recorded a release of provisions that were 4.0% higher than the previous year, as a result of lower loan-loss provisions in Europe. As a result, the cumulative net attributable profit of 2018 stood at €93 million (down 25.2% year-on-year).