This business area comprises the ten banks that the BBVA Group manages on the American continent, plus its insurance companies in seven countries and pension fund managers in another ten. The area also includes the Group’s international private banking business in Andorra, Miami and Switzerland.

2004 has so far been a year of high economic growth in Latin America, even in countries that have suffered recent crises.  Interest rates are relatively low, although they are showing an incipient tendency to rise that will be accentuated in the next few months. Exchange rates for local currencies, in general, have not recorded any sudden depreciation against the dollar. However, a year-on-year comparison for the half year shows a significant weakening of the dollar against the euro, which affects the accounts.  This report thus gives the rate of growth for different items in local currencies and in constant euros in order to better understand the underlying patterns. 

In the first half of 2004 the Americas area obtained an attributable profit of 527 million euros, 49.8% higher in current euros and 68.3% higher in constant euros than the same period in 2003. These growth rates were bolstered by the increased holding in Bancomer after the minority buy-out operation of the first quarter. But even net profit before minority interests shows strong growth of 28.7% in constant euros.

Greater economic activity in the region as a whole is driving growth in lending by all the Group banks in the region (excluding the old Bancomer mortgage portfolio and problem loans). At the end of June, lending was growing year-on-year at 15.8%, as against the 9.6% growth recorded to 31-Mar-04. The increase mainly stems from investment-grade countries (Mexico, Chile and Puerto Rico) which grew at 19.2%. Meanwhile, customer funds (traditional fund gathering, repos placed through the branch network and mutual funds) grew 11.7%, with an excellent 14.4% growth in deposits and a 20.5% growth in current and savings accounts. Additionally, assets under management for the pension funds grew 5.5% and insurance companies’ premiums 36.7%.

Net interest income for the area showed 15.5% growth while fee income grew 11.8%. However, net trading income recorded a large fall, mainly due to higher interest rates in Mexico over the second quarter.  Staff and general administrative expenses only went up 5.7% (7.7% in the first quarter of 2004) and including depreciation this figure reduces to a mere 4.6%. All of this allowed operating profit to grow 11.2%. But the most recurrent part of profit generation –operating income minus net trading income– grew 26.1%, demonstrating the quality of the results achieved. 

The recurrence ratio (fee income divided by expenses) is already at 82.4%, ie, 5.4 percentage points up on one year ago. The cost-income ratio has not progressed as fast because of the performance of net trading income, although it has improved 0.7 points, to 43.2%.

Below the operating income line, there is a clear reduction in loan provisioning and in extraordinary losses.  The causes were enhanced risk quality (which can be appreciated in the drop of over one percent in the non-performing loan ratio which went down to 3.88%) and the high coverage ratio which currently stands at 145.9%. Moreover, in the first half of 2003 substantial extraordinary provisions were made that will not recur this year.

All of which has led to an increase in pre-tax profit of 30.6% and an increase in profit after-tax of 28.7%, reaching 649 million euros, after a second quarter whose 353-million euros profit was the highest recorded in recent years, even in current euros. As explained above, attributable profit increased 68.3% due to the drop in minority interests.

In Mexico, the first half of the year was characterised by a significant improvement in the economic climate, with expectations of higher growth for the year as a whole. However, it was also marked by high volatility in interest rates, especially during April and May. In this context, BBVA Bancomer has taken advantage of greater economic activity to speed up considerably its own rate of activity growth. This has enabled it to more than offset the negative effect of volatile interest rates on market results.  Consequently, the net profit of the Mexican companies in the Group increased 35.0% against the first half of 2003. Moreover, the increased Group interest in BBVA Bancomer –now 99.7% following the bid to buy out minority holdings in the first quarter of this year- has allowed attributable profit to rise to 346 million euros, 107.7% more than the previous year (77.7% at current exchange rates). Of this attributable profit figure, 291 million euros come from the banking business, 35 million from pension fund management and 20 million from insurance companies. 

Greater activity in the first six months is especially evident in the higher loan-book growth.  Manageable lending (ie, excluding the old mortgage portfolio or problem loans) presents a year-on-year increase of 22.1%, as opposed to 17.5% in March 2004 and 14.6% in December 2003. As in previous periods, consumer credit and credit cards are the fastest-growing items (standing 42.0% higher than June 2003), although loans to small and medium sized enterprises have also gone up significantly, growing at over 30%, while mortgage lending (excluding the old mortgage portfolio) have been growing at 18.3%.

On 30-Jun-04, customer funds as a whole (traditional fund gathering, branch-placed repos and mutual funds) recorded a 12.7% increase against the same date on the previous year (as compared to a growth of 11.8% at 31-Mar-04 and 10.0% at 31-Dec-03). Deposits went up 17.7% and, as in several recent quarters, sight and savings accounts in pesos have recorded the best year-on-year growth, at 18.4%, which allows the structure of customer funds to go on becoming even more cost efficient.

Driven on by faster activity growth, net interest income was 931 million euros, showing a year-on-year growth of 14.3%, although average interest rates in Mexico during the first half of 2004 were nearly 2 percentage points below the same period in the previous year. 

Brisker activity also affected fee income, which grew 10.6% against the first half of 2003, reaching 506 million euros. As in previous periods, services more closely related to transactional business (especially cards, account maintenance, cheques and payment orders) grew most dynamically.  As pointed out above, the high volatility of interest rates over the last months has had a very negative effect on the trading income results for the entire Mexican financial industry.  But despite this, BBVA Bancomer has still managed to avoid significantly negative figures in its net trading income for these six months.

The cost-income ratio in BBVA Bancomer has improved again, reaching 40.2% this semester, ie, 0.7 percentage points lower than the previous year. The improvement is not only due to good revenue performance but also to the overall trimming of general expenses, which grew only moderately despite greater commercial activity over the six months.  This moderation in expenses has allowed 87.6% of costs to be covered by fee income, 3.7 percentage points better than in the first half of 2003.

The year-on-year drop in net trading income has significantly slowed growth in the half-year operating profit. Its +10.9% growth rate would be +22.1% excluding NTI results. Below the operating income line, there is a drop in loan-loss provisioning, both because of extraordinary provisions made in the first half of 2003 and because less provisioning was required as asset quality improved. On 30th June 2004, the NPL ratio was 3.47%, 65 basis points below where it stood a year earlier, with a coverage ratio of 226.5%.

Below, we give the most relevant aspects of the rest of the countries in the area over the last six months.

Banco Provincial of Venezuela has had an excellent half year, with attributable profit growing 36.9% at constant exchange rates, to 43 million euros. This was due to high growth of fee income (+47.6%); higher net trading income figures and the positive contribution of provisions and extraordinary items (through recoveries of loans and disposal of assets repossessed). These have offset the drop in net interest income which, although volumes grew strongly, were affected by significantly lower interest rates, which fell to less than half their earlier levels.

In Chile, the bank has maintained its dynamic growth in activity, leading to a continuous gain in its market share for loans (up 67 basis points over the last twelve months) and deposits (up 78 bp). This growth in volume offsets the adverse impact of interest rates, allowing attributable profit to reach 11 million euros this semester. The bank’s strong commercial drive and growing penetration in different business segments was reflected in the performance of fee income, which increased 11.7%. Meanwhile, AFP Provida has ended the six months with an attributable profit of 4 million euros, affected by an extraordinary charge to cover insurance costs higher than provisioned, as matured policies pending payment were regularised ahead of time. These charges apart, the business has developed positively, managing to offset the lower contribution from regulatory ratios to the half-year results via higher commissions. 

Banco Continental of Peru has also recorded a good half year, with an 11-million euro attributable profit growing at 31.5% thanks to the favourable performance of all the lines in the income statement. Thus, revenue growth –net interest income plus fee income– was accompanied by efficient cost control and lower provision requirements due to the continuous quality improvement of the loan book.  AFP Horizonte obtained attributable profit of 5 million euros, as a result of its dynamic business performance, which has continually boosted its fee income. 

In Argentina manageable business has evolved positively, with 13 million euros in attributable profit in the first six months.  Effective price management and strong transactional business have meant healthy growth in net interest income and fee income, which were also boosted by the gradual recovery of brokerage business.  Strict cost control and the positive contribution of provisions also helped, benefiting from  the company’s effective credit-risk management and loan recoveries. In pensions and insurance, the Consolidar Group has obtained a half-year attributable profit of 8 million euros.

BBVA Colombia has reported record half-year performance.  Attributable profit was 18 million euros, which compares very favourably against net losses of 4 million euros in the first six months of 2003. The good performance of revenue lines, especially net interest income which grew at 21.8%, along with the moderate growth of expenses, are the key elements explaining the bank’s radical turnaround.  The other companies in Colombia, AFP Horizonte and the insurance companies, contributed 5 million euros to the Group’s attributable profit. 

In the rest of the countries, Puerto Rico, with low interest rates and higher provisioning, obtained a 15-million euro attributable profit (as against 18 million in the first half of 2003), Panama contributed an attributable profit of 9 million euros (+8.1%) and Paraguay 4 million (+29.8%), while Uruguay reduced its losses to 3 million (against 6 million in the same period of the previous year).

Finally, the results of International Private Banking have shown improvement in recurring income, especially fee income which improved 5.2% (at constant exchange rates). Attributable profit for the first half was 34 million euros.