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The Retail Banking Area is an extensive banking franchise that generates value for customers. In order to obtain an overall view of each segment, it integrates the distribution network (3,490 branches, including 108 in Portugal) with product creation (mutual funds, pension funds, insurance and cards) and the alternative channels (mortgage banking, phone banking, Internet banking, e-banking and the prescription unit). The progress we made in personalising marketing efforts while consolidating growing volumes of business in an efficient manner helped operating profit to grow 13.1% year-on-year (11.3% in the first quarter). Net attributable profit rose 12.5% to €793m and ROE now stands at 33.1%. The positive performance of operating profit was mainly due to net interest income, which rose 5.5% on sustained growth of business activity in all the area’s units. This was aided by more stable spreads between yield on loans and the cost of deposits, despite greater competition. At 30-Jun-05 lending came to €117 billion, rising 20.5% year-on-year (19.9% at 31-Mar-05). Growth was widely spread and balanced across units and business lines. Mortgages grew 24.3% (residential mortgages were up 22.8% and developers 33.1%). Lending to companies rose 22.6% and consumer finance increased 12.8% (32.0% at Finanzia and Uno-e). Total customer funds under management by the area (deposits, mutual and pension funds, and intermediation on various products) grew 10.7% (8.2% at 31-Mar-05). This included the gathering of stable savings, which increased 12.4%. Term deposits were up 20.8% (35.9% in insurance products); mutual and pension funds increased 9% and 12.1%, respectively; and placement of fixed-income securities rose 18.5%. Net fee income and insurance activity grew 8.2% in aggregate (6.6% in the first quarter). Net fee income in the first half grew 7.1% to €768m supported by fees related to banking services (these were up 9.6% and included an increase of 12.5% in credit cards). Fees on mutual and pension funds came to €330m (up 3.8%). The increase in insurance business together with claim management brought its contribution to €150m (up 14.1%). Higher revenues were complemented by trading income which doubled on the distribution of treasury products in the SMEs and retailer segments. Thus ordinary revenues increased 7.5% to €2.5 billion. The above results together with containment of operating costs (up 2.1% net of recoveries, and up 1.4% including amortisation) meant the cost/income ratio with amortisation further improved to 44.4% compared to 47.1% in the first half of 2004. This was achieved in the context of the branch network expansion plan for Madrid and the Mediterranean area (87 new branches in the last year). As a result, operating profit grew faster. It increased 13.1% to €1.37 billion and is the main factor supporting the increased profit (up 12.5%). This absorbed an increase in loan provisioning related to the higher lending volume (mainly generic provisions). The non-performing loan ratio improved to 0.67% (0.88% in June 2004) and coverage increased to 301.4% (236.2% a year earlier). Retail banking closed the quarter with an improvement in profitability due to higher revenues in all business lines and greater efficiency. FINANCIAL SERVICES The income statement for the financial services unit reflects the results obtained by personal, commercial and special financial services, which are about 90% of the area’s total. It shows that operating profit and net attributable profit grew 13% and 11%, respectively. This was due to the growing trend of net interest income, net fee income and trading income following the introduction of products of higher value for customers and greater efficiency. Lending and customer funds increased 21.0% and 10.3%, respectively (20.1% and 8.2% in March 2005). Personal Financial Services In the individual customer segment, BBVA increased the sale of products by 32.5% – particularly lending and customer funds as well as credit cards. Mortgages increased 24.3% compared to 30-Jun-04 with an 11.2% increase in new operations, bringing the total to €12.5 billion. Residential mortgages were €7.45 billion (up 9.7% following the launch of Easy Mortgage with bundling) and developer finance was €5.06 billion (up 13.7% and increasing the loan portfolio of the specialised mortgage-banking unit 29.9%). In the first half, the unit booked €1.86 billion of consumer finance (up 12.9%) supported by the launch of BBVA’s “Instant Credit” in April and the car loan campaign in June and July. Developments in customer funds included the launch of “Cuentas Claras” at the end of May. By making a fixed monthly payment, customers receive a comprehensive basket of banking products and services, household assistance, legal services and consumer protection. This innovative offer provides personalisation of services because the customer can choose the best system according to her or his needs. It also enhances transparency (there is a single contract with complete information on tariffs and services) and global services. The bank’s recent campaign (Quincena del Libretón BBVA) entailed 500,000 gifts and captured €1.3 billion in saving deposits. Stable customer funds reflect the positive impact of a broader range of mutual funds and term deposits. The managed fund portfolio is a product that takes customers’ profiles, amounts and time horizons into account. Some 5,610 contracts worth €323m have already been signed. Furthermore the three new guaranteed equity funds (BBVA Extra 5 Acciones II & III and BBVA 100 Ibex Positivo) and the four new guaranteed fixed-income funds (Planes Renta), captured €450m and €300m, respectively, in the quarter. Term deposits include the Depósito Doble Creciente that combines a conservative profile with a 100% guarantee of original capital and gains in the Ibex 35. There is also a new version of Doble Depósito that reduces the investment period and the Depósitos Crecientes at 3 and 5 years. As a result, deposit and mutual fund gathering in the quarter came to nearly €1.5 billion, about 40% more than the first quarter. Lastly, insurance products marketed through the network captured €446m. They included the rollout of BBVA Vida Ágil; a new financed single-premium policy for mortgage payment protection that integrates with the Easy Mortgage; a simplified household policy related to Cuentas Claras; and the launch of a card payment protection policy. In means of payment, the invoicing generated by retail purchases increased 13.4%. In terms of channels other than the branch network, the prescription unit (which complements Finanzia’s activities) increased sales by 26% in the first half (36.4% in the retailer-equipment and mortgage segment). Growth of transactions at BBVAnet, an on-line banking service, remained high with an average of 13 million operations and queries per month. The bank launched a new system of security keys without cost to customers. This was the Coordenadas card and it reinforces BBVA’s leadership in Internet banking. This position has been confirmed by AQ Metrix, an independent external firm, for six quarters running. Lastly, the number of self-service points increased 105 last year, to 4,646. Commercial Financial Services This unit services SMEs, micro-firms, the self-employed and retailers. It has a specialised sales force of nearly 3,000 staff located at the 213 branches of the SME banking unit and the 1,630 branches in the retail banking network. BBVA has launched a quality plan to help consolidate its leadership. The plan fixes goals and performance is evaluated through customer surveys. Lending exceeds €40 billion (up 23%) following a uniform advance in all business lines. In the 2005 ICO campaign, the bank started mass sale of interest-rate coverage. It covered 2,552 operations (20% financed with these funds). The unit invoiced €3.76 billion in leasing, renting and confirming. This was 17.2% more than the first half of 2004. Furthermore, a new flow of recurrent revenues was consolidated through the distribution of a wide range of treasury products. These were first implemented for SME banking in 2004 and extended to the retail banking network in 2005. Through the retail banking network BBVA has introduced a campaign focused on POS terminals. The goal is to develop new lines of revenue. So far it has captured 5,456 retailers which have purchased the DCC system. This allows retailers to accept payments in the customers own currency. Regarding customer funds, €692m was captured via fixed-income funds used to manage the liquidity of companies and people or groups with high assets (BBVA Cash and BBVA Corto Plus Empresas). Lastly, marketing of products that protect companies’ assets, their activity and their directors, resulted in 34,960 policies and €11m in premiums at 30-Jun-05. Special Financial Services Lending at this unit reached €3.05 billion (up 22.3% over 30-Jun-04). In the first half of 2005 sales were €1.49 billion, a year-on-year increase of 29%. Operations included car purchase loans (€567m and up 20%), equipment finance (€237m and 16%), 7,200 vehicle renting contracts (up 24%), a 52% increase in lending associated with universal credit cards (Visa and Mastercard) and a 32% increase in consumer finance. Funds under management increased 6.7% to €994m: 5.9% in deposits, 24.0% in mutual funds and 21.3% in pension funds. In terms of associate banking projects, Iberdrola’s Plan Quieres started in the first quarter. It was followed in the second quarter by SAFA's Productos Financieros, under which tailor-made financial services are made available to chemists. At 30th June, the first project has 1,809 associates and the second is handling €2 billion in volume.
ASSET MANAGEMENT AND PRIVATE BANKING
At 30-Jun-05 this unit was handling €70.5 billion of business (up 11%). In the first half, net attributable profit was €59m (up 8.2%). Continuing its policy of innovation, in the second quarter the BBVA asset management unit extended its product range. It added two types of deposit (Depósito Doble Creciente and Doble Depósito) and seven guaranteed funds of which three are equity funds (BBVA Extra 5 II & III and BBVA 100 Ibex Positivo) and four are new income plans. It also added two funds of funds (BBVA MF Europa del Este and BBVA Monetario Dinámico). With the launch of new real estate funds, total gathering of funds in the first half came to €1.82 billion (€1.05 billion in equity funds and €636m in fixed income). This brought assets under management to €43.24 billion (up 7.2%). The figure increases to €44.71 billion (up 8.5%) if the €1.47 billion from the real estate investment fund are added. This fund was the most profitable in the sector (up 3.24% in the first half). As a result, BBVA was the manager with the highest net contributions in the first half (€1.3 billion). The Spanish pensions and institutional management unit handled assets of €14.05 billion. This was 11.9% higher than in June 2004 (an increase of 14.9% in individual pension plans and 8.5% in group pension plans) and extended the bank’s leadership. Following the marketing success of the protection plans, BBVA now manages €7.62 billion in individual pension plans and has significantly advanced its market position, lifting fee income 9.9 basis points in the last year. In terms of group pension plans it was awarded management of eight new plans, bringing assets to €6.43 billion. The private banking business in Spain manages €14.8 billion (up 9.4% over 30-Jun-04). Of this amount €8.43 billion was handled by BBVA Patrimonios (up 14.5%) and €8.29 billion by Personal Banking (up 5.3%). The unit extended personalisation and improved customer service. Activity included Altitude Dynamic, a guaranteed capital structure based on hedge funds with two different formats (bonds and deposits) as well as a loyalty programme (Rewards Infinite BBVA) for holders of the VISA Infinite card. EUROPEAN INSURANCE This unit consists of various separate insurance companies that provide direct insurance, reinsurance and insurance brokering in Spain and Portugal. They mainly market their products through different parts of the area’s network although they also use external channels for group insurance. The direct insurance business for life products, multiple risk, home policies and construction are concentrated in BBVA Seguros. Total net issue was €1.03 billion, some 45.6% more than the first half of 2004. BBVA Seguros continues to lead in life insurance in the bancassurance sector, increasing its market share by 480 basis points in the last 12 months. In the first half the year-on-year increases were as follows: 141.8% in payment protection insurance, bringing premiums to €108m; 29.4% in income insurance (€478m); 17.1% in home insurance policies (€64m); and 90.8% in collective welfare insurance. Apart from the policies, the unit also brokered premiums worth €92m, an increase of 21.4% over the first half of 2004. BBVA PORTUGAL This unit continues to record significant increases in commercial activity and in lending (up 10.7%). This includes an increase of 43.2% in mortgages and 16.6% in SMEs. Customer funds gathering rose 17.8%: 13.2% in deposits, 25.7% in mutual funds and 27% in other off-balance sheet funds. Higher marketing productivity, cost control and lower non-performing loans helped operating profit to grow 24.5% year-on-year and brought net attributable profit to €6m.
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