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In the positive economic environment of the region as a whole, BBVA America maintained its upward trend. The most obvious evidence of this was net attributable profit, which came to €823m in the first half. This represents a year-on-year increase of 62.7% (69.1% at constant exchange rates). The year-on-year rate of increase is still affected by the group’s takeover bid for the minority interests of BBVA Bancomer in the first quarter of 2004. However net profit, which is not affected by the bid, also presents a considerable year-on-year increase. It was 49.6% higher at current rates and 55.9% higher at constant rates. The key to this excellent performance is in the faster growth of revenues, especially net interest income. This climbed to €1.76 billion in the first half, an increase of 29.7% at constant exchange rates. (All rates given from here on are also calculated at constant exchange rates.) The increase in net interest income was mainly due to a sharp jump in business activity translated into a substantial positive volume effect in most countries. Lending grew at 40.9% year-on-year performing strongly in all areas, particularly those related to retail business. Customer funds increased their rate of growth to 15.2% over June 2004. Deposits grew 17.2% and mutual funds also recorded a significant recovery. On a like-for-like basis, ie, excluding Hipotecaria Nacional, Laredo and Valley Bank, lending increased 22.7% and customer funds 10.8%. Net fee income increased 13.4% year-on-year to €951m. This was supported by fee income related to traditional banking business, although other sources (especially pension funds and securities) also grew strongly. The surge in business activity was also reflected in insurance revenues which contributed €100m, 29.1% more than in the first half of 2004. Net trading income in the first half came to €70m (up 15%). In the second quarter this overcame the negative impact caused by interest rate fluctuations in the first months of the year. Expenses (including amortisation) came to €1.35 billion in the first half with an increase of 16.1% over the same period last year. The decisive factor here was the important marketing activity that led to the higher business growth and the incorporation of new units (without which the increase would have been limited to 11.1%). Despite the increase in expenses, the cost/income ratio (including amortisation) continued to improve to 46.9% compared to 49.8% in the first half of 2004. The area also recorded progressive improvement in asset quality as shown by the decline in non-performing loans (NPLs) whose year-on-year balance fell 5.1% (despite the addition of new units). This meant the NPL ratio continued to fall, reaching 2.79% at 30-Jun-05, compared to 4.18% on the same date last year. The improvement in NPLs led to a 39.3% reduction in loan provisioning. Despite this there was no reduction in the level of coverage, which increased to 182.4% (163.6% at 30-Jun-04). The combination of these factors meant that the area continued to improve profitability. ROE in the first half climbed to 32.4%, significantly higher than the figure of 23.5% in the same period last year.
BANKS IN THE AMERICAS
In the first half, BBVA America’s banking business continued to grow strongly in activity as well as results. This brought overall net attributable profit of the banks to €672m, some 73.9% more than the first half of 2004. The performance of the individual banks is described below. Mexico The Mexican economy continued to grow in the second quarter thanks to the increasing strength of internal demand. Furthermore, inflation remained moderate and interest rates have been more or less stable since the end of March. These factors had a favourable effect on banking activity, especially lending. BBVA Bancomer is the leading Mexican bank and participated in this trend. It obtained net profit of €490m, a year-on-year increase of 61.4%. In terms of net attributable profit the increase was 79.1% because the group’s larger holding after the takeover bid hardly had any effect on the first quarter results in 2004. Profit contributed by Hipotecaria Nacional was €27m. ROE now stands at 32.8%, compared to 27.3% in the first half of 2004. Lending continued to grow strongly. The manageable loan portfolio grew 33.9% in like-for-like terms (excluding Hipotecaria Nacional). All types of loans performed well. Consumer finance and credit cards grew 71.9% year-on-year, loans to small and medium-size enterprises increased 39% while housing loans in pesos are growing at more than 40%. Funds under management (deposits, repos placed through the branch network and mutual funds) also performed well, growing 8% year-on-year (11% on average balances). Deposits grew 9.9% helped by current and savings accounts which increased 12.9% compared to June 2004 despite high interest rates. Moreover mutual funds grew 11.1% in the quarter. The increase in activity, together with more stable interest rates in the second quarter, helped net interest income to maintain its upward trend. In the first half it rose to €1.15 billion with year-on-year growth of 39.3%. The high level of activity was also responsible for the 17.2% increase in net fee income, which rose to €436m. Services more closely related to transactional business continued to record the highest rates of growth. Stable interest rates in the second quarter led to a recovery in net trading income and compensated for the negative results in the first quarter. Expenses continue to reflect the incorporation of Hipotecaria Nacional and the higher level of commercial activity. The latter led to an increase in expenses directly related to business activity. Despite this, the cost/income ratio (including amortisation) improved to 42.8%, compared to 45.8% in the first half of 2004. As a result, operating profit rose 44.1% year-on-year to €851m. Non-performing loans (NPLs) continued to fall clearly (the NPL ratio improved to 2.38% compared to 3.81% at 30-Jun-04). This meant that provisioning requirements also fell, although this did not affect the level of coverage, which rose to 277.3% from 244.2% in June 2004. Other countries In Argentina, BBVA Banco Francés closed the first half with a high level of net attributable profit (€57m). It benefited from capital gains on divestment of public assets against which provisions had been made in the group’s books, while taking advantage of higher prices. Thus the bank achieved its double objective of reducing the weight of the public sector on its balance sheet and its position in inflation-adjustable assets. In terms of business activity, lending to the private sector increased 63% over June 2004 (although it started from a low base). Short-term finance operations also increased, focusing on companies but with increases in lending to individuals, including credit cards and personal loans. Deposits maintained the healthy trend of recent quarters, achieving year-on-year growth of 21.0%. These changes were reflected in net interest income (up 18.8%) and net fee income (up 55.3%). Treasury operations also provided a greater contribution in the period following the government debt swap. As a result, operating profit grew 43.5% year-on-year. BBVA Chile continued to record high growth in lending and customer funds. This helped it to compensate an adverse environment, given the structure of the bank’s balance sheet, and achieve growth of 8.8% year-on-year in net interest income. The high level of activity was also reflected in higher fee income (up 11.1%). It was accompanied by rigorous cost control and improvement in asset quality that in turn led to lower provisioning. Thus net attributable profit increased 89.3% to €15m in the first half. BBVA Colombia generated net attributable profit of €24m in the half-year. This was a year-on-year increase of 51.9%. Lending increased 23.6% over June 2004, including consumer finance and mortgages, and customer funds were up 22.9%. These increases together with a strict policy on cost of deposits, in a context of historically low interest rates in this country, led to an 8.6% increase in net interest income. Together with net fee income (up 14.9%) and cost control, this meant operating profit increased 56.5% over first half last year. The United States unit achieved net attributable profit of €23m in the first half, including €5m contributed by Laredo National Bancshares since May. There was evident recovery at BBVA Puerto Rico. Lending grew 13.8% year-on-year, supported particularly by lending to individuals (mortgages, car purchase loans and consumer finance). The higher level of activity drove net interest income and net fee income higher, rising 8% and 13.8%, respectively, year-on-year. Together with the moderate increase in expenses, this led to net attributable profit of €15m, which was 7.1% higher than the same period last year. In Peru, BBVA Banco Continental generated net attributable profit of €22m, an increase of 79.9%. This was mainly due to recurrent results together with some extraordinary items booked in the first half. Ordinary revenues grew 15.3%, supported by higher net interest income and treasury operations. They were further helped by lower provisions following the positive impact of substantial recoveries in the half-year. Activity continued to be strong with year-on-year growth of 22.1% in lending and 10.6% in customer funds. BBVA Banco Provincial in Venezuela closed the half-year with net attributable profit of €29m, supported by strong growth in net fee income (up 31.2% year-on-year), by lower provisions and extraordinary items (including the sale of repossessed assets). Net interest income was flat in the first half. In a context of regulated interest rates the bank managed to compensate the negative price effect with higher volume. Thus lending doubled with respect to June 2004 and customer funds grew 70.1%. In regard to the other banks, Panama and Paraguay generated net attributable profit of €8m and €4m, respectively, with small changes year-on-year. Uruguay generated net attributable profit of €1.4m, compared to a breakeven position a year earlier.
PENSION FUNDS AND INSURANCE
The pension fund managers and insurance companies in BBVA America contributed net attributable profit of €121m. This was a year-on-year increase of 49.2%. Brief comments on the performance of the main companies are provided below. Pensions Despite slower job growth in Mexico, revenues at Afore Bancomer in the first half continued to grow. Ordinary revenues came to €94m, which was 7.9% more than the first half of last year. Together with cost containment, this helped net attributable profit to rise 21.1% year-on-year, to €40m. In Chile, AFP Provida generated net attributable profit of €14.4m in the first half supported by a strong year-on-year increase in net fee income (up 13.5%). This reflected the higher business volume with increased subscriptions, higher contributions from the results of regulatory ratios and lower operating expenses. Other pension managers included Consolidar AFJP in Argentina, which generated net attributable profit in the first half of €3.5m. Horizonte Perú contributed €5.8m and Horizonte Colombia €4.1m. All the above units recorded important increases in commercial activity during the first half. This spilled over into higher contributions and therefore greater fee income. They also benefited from the positive financial performance in the period. Insurance Among the insurance companies, business was particularly positive at Seguros Bancomer, where premiums grew 50% year-on-year. The increase in activity meant that net attributable profit contributed by the insurance business in Mexico came to €32m in the first half, exceeding the same period last year by 44.6%.
INTERNATIONAL PRIVATE BANKING
Activity in international private banking continued to grow. Higher revenues together with lower expenses meant that net attributable profit rose to €38m, which was an increase of 10% over the first half last year. Of this amount, the private banking unit in Andorra contributed €21m (up 21.3%) and Switzerland contributed €12m (up 7.4%).
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