Retail Banking in Spain and Portugal includes business with customers who are individuals, retailers or small and medium companies plus the management of mutual funds, pensions and insurance products. It also covers special financial services (Finanzia, Uno-e and Dinero Express), conducts the e-banking business, consumer finance, the distribution of cards, renting and transfers of immigrant funds.

In the first quarter of 2004 Retail Banking stepped up marketing activity with the launch of new products. The innovative and timely nature of these products was received positively by customers. The favourable acceptance of products distributed by the Group led to a significantly higher growth in business volume when compared to 31-Mar-03 and to December 2003. 

The year-on-year increase of 16.3% in lending, the 10.9% increase in total funds under management including mutual and pension funds, and the very moderate increase in operating expenses, were the basis of the 8.1% increase in operating profit. 

The positive trend in operating profit, the higher level of loan provisioning (in line with greater volume) and capital gains from the sale of the holding in Direct Seguros, resulted in attributable net income of 345 million euros in the quarter. This figure was an increase of 12.7% over the same period in 2003 and is higher than any quarter last year. Thus, ROE rose to 33.0% (from 30.8%).

At 31-Mar-04 total lending in retail banking came to 94 billion euros with a year-on-year increase of 16.3%, compared to 13.9% at 31-Dec-03. The higher rate of growth extended to all products and segments: market mortgages grew by 20.5% (18.5% in December) and lending to SMEs and business by 18.0% (15.0% in December).

Total funds on and off the balance sheet (the sum of deposits, mutual funds and pensions) increased by 10.9% in terms of final balances compared to 31-Mar-03 and by 10.5% on average balances. This increase compares favourably with the 7.4% (excluding the Law Courts account) recorded in December 2003. On balance, creditors overall recorded an increase of 1.5% and within these transactional deposits increased 9.1%. Off-balance sheet items were more active and increased by 17.3%. This included a 20.7% increase in mutual funds which helped to lift year-on-year growth of stable customer funds to 13.0% in terms of final balances and 12.8% on average balances (10.3% in December 2003).

This important increase in business volume together with appropriate management of prices, helped to absorb the impact of the reduction in interest rates on net interest margins when compared to the first quarter of 2003. Core revenues in the area thus increased by 3.8%, with an advance of 2.1% in net interest income and of 7.8% in net fee income. These increases included fee income linked to mutual and pension funds which together rose 12.8% and banking services which grew by 9.1%.

There was a year-on-year increase of 4.0% in ordinary revenues and of 0.7% in operating expenses. The cost/income ratio further improved to 44.1%. This was 1.4 points better than the level of 45.5% in the first quarter of 2003.

Some 122 million euros were set aside for loan provisioning, 9.8% more than the first quarter of 2003 due to greater activity and the contribution to the statistical provision. This was because specific provisioning requirements fell on improvement in the non-performing loan ratio (NPLs over total risks). The NPL ratio was 0.76% (0.93% at 31-Mar-03) and the coverage ratio was 298.2% (234.8% a year earlier). Group operations include 26 million euros generated by the sale of the Bank’s holding in Direct Seguros. As a result of these movements, attributable net income came to 345 million euros.

Commercial banking and SME banking together achieved operating profits of 532 million euros and attributable income of 272 million euros. As these activities represent more than 75% of the total Retail Banking Area, the profile of the income statement was broadly similar: net interest and net fee income grew, costs were contained, the cost/efficiency ratio improved (to 45.5%) and asset quality also improved.

Innovative activity in all customer segments was the most notable feature of the quarter. In regard to assets, attention is drawn to the launch of Hipoteca Fácil (Easy Mortgage) with a final payment, advantages for families in terms of flexibility and east of payment. This led to new mortgage operations in the first quarter of close to 3.1 billion euros – a year-on-year increase of 48%. Including promoters, the total value of mortgages signed exceeded 5.1 billion euros in the quarter (up by 47%). In addition, the Bank’s social action plan was set in motion with the New Baby Loan to cover the cost of a birth or adoption, which carries zero interest and no commissions.

In the SME and businesses segment, which includes the self-employed, professional practices and small companies, there was intense marketing activity conducted through the two specialised branch networks that comprises 1,048 branches and 1,930 specialists. As a result, the point of sale terminals (TPV Móvil and TPV-PC) helped to increase the number of retailers that accept credit cards by 39%. SME banking also launched a number of initiatives. They included a capital markets service for SMEs which introduced structured finance, project and syndicated products to this segment. Initiatives also included the roll-out of market risk coverage products (interest rates and currency) via the branch network as well as the ICO-SME finance 2004 campaign. Lastly, a new multi-insurance product (Segurpyme) was launched with a wide range of coverage. All these activities were reflected in the increase in turnover of close to 40% in leasing, renting and SME loans, and more than 30% in factoring.

In regard to customer funds, the range of guaranteed products was extended. This entailed the launch of Depósito BBVA Óptimo, a five-year product that consolidates gains and allows the client to benefit from the best of three baskets of mutual fund managers (conservative, balanced and dynamic) chosen from among the best in the world. After two months of marketing, this product has captured 28,000 customers and 428 million euros. Encouraged by this experience the BBVA Triple Óptimo mutual fund was launched in March. It builds on the advantages of it predecessor and in less than one month it reached net subscriptions of 375 million euros from more than 16,000 customers. Furthermore, two guaranteed fixed income funds of 3 and 5 years were launched in March. These were BBVA Plan Rentas 2007 and BBVA Plan Rentas 2009. In this case customers receive fixed quarterly income up to the expiry date. In less than three weeks of marketing it collected more than 500 million euros.

The success of these marketing campaigns meant that at 31-Mar-04 the value of mutual funds managed by BBVA rose to 38.9 billion euros – a year-on-year increase of 18.6%. Following the gains recorded in the first quarter, the increase in market share since September 2003 comes to 45 basis points. Average fee commission increased by 4 basis points to 1.41% compared to March 2003. In addition, real estate funds rose to 687 million euros, which is 77.8% higher than at 31-Mar-03. The return is 8.7% or 198 basis points above the sector average.

Total funds under management by the asset management and private banking unit grew 18.3% in year-on-year terms to nearly 62 billion euros including mutual funds with a total of 39,578 million euros. BBVA is the leader in pensions funds with 20.0% of the market according to the latest data. The pension funds unit closed the quarter with total assets under management of 12,515 million euros, some 13.4% more than a year earlier. The wide-spread acceptance of the personal plan campaign (Planes Protección), concluded in February, led to the collection of more than 1 billion euros. The private banking unit currently manages 12.7 billion euros, which is an increase of 5.1% compared to 31-Dec-03. Of these, 6.8 billion euros is handled by BBVA Patrimonios (HNW individuals) and 5.9 billion euros by personal banking. Asset management and private banking achieved attributable net income of 28 million euros. This was 42.4% higher than the first quarter of 2003 due to the increase in net fee income (up by 19.1%) and the reduction in operating expenses (down by 4.9%).

The Special Finance Services unit recorded a year-on-year increase of 16.1% in lending which rose to 2,689 million euros while funds under management came to 1,095 million euros. At Finanzia there was an increase of 64% in car loans, 22% in equipment loans and 33% in equipment renting. Purchases associated with car renting grew by 94%. Uno-e obtained operating profit of 3.8 million euros in the quarter (compared to a loss of 8 million euros in the first quarter of 2003). Earnings before tax came to 2.4 million euros (compared to a loss of 7.2 million euros). In regard to Dinero Express, it should be noted that the volume of transfers made by immigrants has tripled. Selected new offices continue to be added and new co-operative agreements have been reached with banks in Ecuador and Colombia. There are now more than 1,000 points of payment in the region.

BBVA Portugal also improved its market share in lending (up by 14 basis points) and in customer funds (7 basis points) through the launch of innovative products. The marketing of the Easy Mortgage brought year-on-year growth in mortgage loans to 32.9% while off-balance sheet funds increased by 16.5%. Operating profit grew by 52.7% thanks to net fee income (up by 37.4%) and control of costs (1.1% increase).

The BBVA insurance operations generated earnings before taxes of 54 million euros. This was 12.3% more than the first quarter of 2003. The product range has been extended with a life policy that has a single financed premium associated with mortgage loans. Other products were added including Segurpyme (mentioned above), Leasing Autos and Multiagros (for agriculture). Attention is also drawn to the 29% increase in sales of guaranteed-return products.