The Americas business area includes the banks, pension-fund managers and insurance companies of the BBVA Group on that continent. It also incorporates the international private banking business that includes Andorra, Miami and Switzerland. With the relative normalisation of Argentina, it has become possible to report its results under this Area again, after some years during which it was included under Corporate Activities.

The economic environment has been noticeably more buoyant in 2004 than over the last two years. Significantly higher economic growth is forecast and inflation is expected to stay under control.  Interest rates are low throughout nearly all the Latam countries, although there are some signs of volatility, especially in Mexico.  In this context, the Area is aiming to focus on the Group's strongest points: boosting synergies between different units, gaining market share, controlling costs and maintaining good risk quality. 

Although exchange rates with the euro have levelled out this quarter, their impact is still present in year-on-year comparisons. The attached tables thus include variations at current and at constant rates. Unless otherwise indicated, any reference to variance will be at constant rates, which are more significant for analytical purposes. 

In the first quarter, revenues rose more than costs, with operating profit increasing 9.7%. Lower provisioning requirements due to a falling NPL ratio boosted profit after tax to 296 million euros, with a year-on-year increase of 26.2%. As the greater control over Bancomer has reduced minority shareholdings, attributable profit (220 million euros) is 54.2% higher than in the same period of 2003 at constant exchange rates (+35.7% at current rates). Of this, Mexico recorded 132 million; banks in America 60 million; pensions and insurance in America 14 million; and international private banking 14 million euros.

The most outstanding characteristic of the business activity has been the progressive upturn in growth rates.  Total lending excluding Bancomer’s old mortgage portfolio and doubtful loans, has risen 10.2% as compared to 6.8% growth in December 2003. Total customer deposits, the aggregate of current and savings accounts, repos placed through the branch network and mutual funds have grown 9.7% (+7.4% last December). Assets administered by pension-fund managers have gone up 11.4% and insurance companies have written 24.8% more business in premiums.

Net interest income was 699 million euros (7.7% more than in the first quarter of 2003) despite large falls in interest rates across the region, especially in Mexico and Venezuela.  Fee income, meanwhile, recorded year-on-year growth of 12.7%, the highest in recent quarters, as the implementation of specific plans are bearing fruit. Net trading income reached 54 million euros, although this was 14.5% below the exceptionally high figure for the first quarter of 2003, when the impact of the dollar exchange rate with local currencies was especially marked in Argentina and Uruguay.  This meant ordinary revenues were 1,179 million euros, increasing 8.2%.

Costs, including depreciation and others, went up 6.7%. The increase in overheads was mainly set-up costs for the Regional Data Processing Centre in Monterrey, which will permit savings and efficiencies in the longer term and bring down depreciation charges.

Thus, operating profit has shown a year-on-year growth of 9.7% (12.9% excluding net trading income) and the cost-income ratio continues to improve (at 43.2% as compared with 43.3% in the first quarter of 2003). Especially gratifying is the recurrence ratio (fees over costs), which rose to 83.6% from 79.1% in the same period last year.

Below the operating profit line, note should be taken of the 43.9% reduction in loan provisioning as well as 29% growth in extraordinary earnings, as risk quality improved throughout the entire region, coverage ratios remained high and there was no need to repeat the extraordinary, non-recurrent provisioning some countries had made in the first quarter of last year. Indeed, the non-performing loan ratio for the area (NPLs as a percentage of total risk) went down to 4.06%, against 4.46% at year-end 2003 and 5.52% at 31-Mar-03. The reductions were especially marked in Mexico (down to 3.63% from 4.45% at 31-Mar-03), and in Venezuela (4.10% from 8.46%). Meanwhile, the coverage ratio was 154.3%, showing year-on-year improvement of 6.1 points; in Mexico it was 238.2%.

After tax, net profit grew 26.2%. With the reduction in minority holdings after last year’s acquisitions and the recent tender offer over Bancomer shares, attributable profit rose to the already mentioned figure of 54.2%.

In Mexico, the macroeconomic environment was marked by volatile short-term interest rates, although they finished the quarter at more or less the same level as at the end of last year.  This volatility has not prevented the Group's earnings in Mexico from continuing the upward pattern of recent quarters.  Thus, after-tax profit was 167 million euros, 20.8% more than in the first quarter of 2003, and attributable profit was 132 million (+61.6%, or even +36.8% at current exchange rates). Banking operations accounted for 100 million; pension fund management for 24 million and insurance business for 8 million euros. 

Net-interest income was 441 million euros, growing 7.9% year on year.  It should be noted that the average level of interest rates in the first quarter of 2003 was nearly 4 percentage points higher than at present. Thus, increased income is entirely due to management of pricing and spreads over recent years and to a significant increase in business volumes.

Total customer deposits (traditional fund gathering, repos placed through the branch network and mutual funds) increased 11.8% (10.0% in December 2003). Their structure also improved with the excellent performance of lower-cost products (sight and savings accounts in pesos), which grew 19.1% against March 2003.

Total lending rose 7.1% year on year, while lending excluding the old mortgage portfolio and doubtful loans was up 17.5%, as compared to 14.6% at 31-12-03. As in previous quarters, the most dynamic performance came from consumer lending and cards, with a combined increase of 34.2%. Commercial lending increased 8.4%, while mortgage loans grew 11.4% against March 2003.

Net fee income remains buoyant, reaching 264 million euros, with year-on-year growth of 13.5%. Those from the traditional banking business have grown 17.2%, while those from Afore Bancomer have held up despite the sluggish growth of the Mexican job market. Net trading income showed excellent growth following on from a low figure in the same period of the previous year.

Administrative costs continued to grow at a moderate pace. Thus, the cost-income ratio has continued to improve (39.5% as opposed to 41.4% in the first quarter of 2003), while the percentage of costs covered by fees was 92.3%, compared with 87.3% in the first quarter of 2003.

All this generated an operating profit of 383 million euros, with year-on-year growth of 18.9% or even 0.6% at current exchange rates, despite the peso weakening against the euro. The increased operating profit led into a 20.8% growth in profit after-tax, because provisioning and extraordinaries as a whole were at similar levels to the first quarter of 2003. Lastly, attributable profit grew 61.6%, as mentioned, due to the increase in the Bancomer holding, up from 55.4% in the first quarter of 2003 to 99.4% on 31-Mar-04 as a result of acquisitions made last year and the take-over of Bancomer’s minorities this quarter.

The most relevant aspects of activity in the rest of the countries over this period were as follows: 

Banco Provincial de Venezuela obtained an attributable profit of 22 million euros (97.3% growth at constant exchange rates). This was helped by increased fee income and the positive contribution of lower provisioning and extraordinaries given the high level of existing coverage of non performing loans. Net interest income went down only moderately, offsetting the country’s plummeting interest rates with significant volume growth, while costs grew below inflation. 

BBVA Chile maintained dynamic performance in activity, increasing attributable profit 30.3% to 7 million euros. This was helped by increased net fee income (28.2%) and greater net trading income, which offset the lower net interest income obtained in a scenario of falling interest rates year on year.  Meanwhile, AFP Provida recorded increasing fee income and a higher contribution of its portfolio of investments, although attributable profit (2 million euros) was brought down by an extraordinary debit for insurance costs that had risen beyond the covered ratio. This was due to a decision to apply the principle of accounting prudence and regularise expired and payable outstanding policies with one single charge. 

Banco Continental de Perú contributed an attributable profit of 5 million euros, with 73.1% year-on-year growth, resulting from higher revenues and better cost control (operating income increased 13.2%) alongside lower provisioning requirements as asset quality continued to improve. AFP Horizonte obtained an attributable profit of 3 million euros, new business outstripping the loss of insurance-company fees imposed by new regulations. 

In Colombia, Banco Ganadero enjoyed its best quarter on record, with attributable profit of 9 million euros, as compared with net losses of 8 million in the first quarter of 2003. The implementation of its business plan, with excellent price management boosted net-interest income by 16.3% year on year. This, along with better cost control, led to an increase of 48.6% in its operating profit. AFP Horizonte and the Colombian insurance companies also contributed 2 million euros to attributable profit.

The difficult interest rate environment ate into BBVA Puerto Rico’s net-interest income, which dropped 3.4% year on year. Nonetheless, the good performance of fee income, lower costs and lower provisioning needs enabled pre-tax profit to grow 7.2%, but a significant rise in taxes, left attributable profit at 8 million euros.

In Argentina, as the financial industry emerged from the worst of its two-year crisis, Banco Francés’ net interest income grew thanks to the policy it pursued in 2003, which significantly reduced the cost of funds in a context of slow lending growth. Added to which, the drive to increase transactional business led to a 41% rise in fee income, while costs were kept under strict control. Furthermore, effective risk management and recoveries resulted in a positive contribution of the NPLs provision item as asset quality improved and bad debts were recovered.  All this led to an attributable quarterly profit of 5 million euros plus a further 3 million obtained by the Consolidar Group in the pension and insurance business. 

From the other countries, Panama recorded an attributable profit of 4 million euros, and Paraguay of 2 million euros (+30.1%).