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

The year 2004 is proving positive and economic growth in the region will be around 5% – the highest figure in the last six years. The situation is boosting banking activity. However, interest rates vary widely across the continent. They are significantly higher in some countries and at a minimum level or in decline in others. This has a positive impact on net interest income in countries such as Mexico and a negative impact due to the price effect in countries such as Venezuela and Chile. With regard to exchange rates, it should be noted that although the overall effect of variations in local currencies against the dollar, and of the dollar against the euro, is negative, the result is less pronounced than last year.

The overall situation has been highly favourable for the area’s results. Thus in the first nine months of the year attributable net income rose to 866 million euros, a year-on-year surge of 60% in current euros and practically 80% at constant exchange rates. Even net income before minority interests (which eliminates the effect of the Bancomer take-over at the beginning of the year) grew by 33.2% at constant exchange rates. Unless otherwise indicated, all variations below are calculated at constant exchange rates. Furthermore year-on-year growth has improved progressively for all revenue figures on the income statement – whether at current or constant exchange rates.

Net interest income grew 20.9% (15.5% in the first half) and as mentioned above, this is the result of the uneven price effect depending on the country in question and it is also the result of greater business activity. Recovery of lending activity, which had been established as one of the main goals for the year, is growing faster month-by-month. Lending handled by all the Group’s banks in the region (excluding the old Bancomer mortgage portfolio and non-performing assets) increased by 22.7% on final balances at the end of September (the figure being 17.0% on average balances) – compared to 15.8% and 12.5%, respectively, at 30-Jun-04. This increase was particularly strong in credit cards, consumer loans and mortgages. With regard to customer funds (traditional fund gathering, repos placed through the branch network and mutual funds) year-on-year growth of 11.4% was maintained in September. In the case of deposits, growth was 13.2% and it was more than 20% in current and savings accounts. This indicates a significant structural improvement.

Fee income grew by 10.6% but net trading income declined by 55.1% to 80 million euros due to the negative effect of interest rate hikes – especially in Mexico.

Operating expenses, including amortisation, grew 5.4% and in most countries this was lower than the inflation rate. As a result, operating profit increased 21.3%, which was a clear improvement compared to 11.2% in the first half. For the first time in recent years, the increase is greater than the impact of currency depreciation. Thus in current euros terms, the growth rate of 6.4% was positive. Furthermore the fastest-growing part of operating profit consists of recurrent earnings. Excluding net trading income, these earnings are growing at more than 30%. The cost/income ratio (personnel and general expenses over ordinary revenues) stands at 42.4%, which is 0.8 points lower than the first half and 2.5 points lower than the first nine months of 2003. The recurrency ratio, which measures the percentage of general expenses covered by fee income, was 83.3%. This is 0.9 points more than in June and 3.9 points more than last year.

The strong performance of items above the operating profit line on the income statement is complemented by an improvement below the line. The provisions made in past years allow for a reduction in 2004 and this year is also favoured by a clear improvement in non-performing loans. These declined from 4.76% a year earlier to 3.66%. Thus the aggregate of provisions and extraordinary items fell 10.3% and pre-tax profit therefore rose 33.7%. After deducting taxes and minority interests this results in the figures for attributable net profit given above. ROE was 25.8% (21.8% in the first nine months of 2003).

In the third quarter the Mexican economy confirmed the signs of recovery detected in previous quarters and forecast growth for 2004 was revised upwards. In addition, the volatility of long-term interest rates was lower while short-term rates rose steadily and slowly. These factors indicate that economic activity in the country is clearly on the upturn and this is being translated into an expansion in lending without precedent in recent years.

In such a favourable environment, BBVA Bancomer maintained its high rate of growth in activity and results. It continues to position itself as the leading financial entity in Mexico. Cumulative net profit of the Group’s Mexican subsidiaries in the first nine months of the year was 617 million euros, an increase of 42.5% compared to the same period in 2003 (22.2% in current euros). Moreover the Group’s larger holding in BBVA Bancomer – 99.7% following the take-over in the first quarter of this year – helped attributable net profit to rise to 580 million euros, 127% more than the previous year (94.8% more at current exchange rates). Of this amount, 485 million euros are contributed by the banking business, 61 million by the pension fund manager and 34 million by the insurance companies.

Lending activity continues to grow vigorously. This is demonstrated by the performance of manageable lending (which excludes the old mortgage portfolio and NPLs). It grew faster year-on-year: 28.0% (24.6% on average balances) compared to 22.1% in June and 17.5% in March. This acceleration is across the board and affects all the main business lines. Consumer credit and credit cards are growing 52.5% year-on-year, loans to small and medium-sized enterprises increased by more than 50% while mortgage loans (excluding the old mortgage portfolio) are growing at 24.0%.

Total customer funds managed by BBVA Bancomer (traditional fund gathering, repos placed through the branch network and mutual funds) increased 12.6% compared to September 2003 despite year-on-year stability of repos and the negative effect of markets on the assets of mutual funds. The situation with deposits is much more positive with year-on-year growth of 15.8%. The best performers continue to be current and savings accounts in pesos and these grew around 17%. The growth in term deposits was somewhat lower (10.4%) compared to September last year. It can be seen that low cost liabilities continue to gain ground against other deposits and this helps to create a less onerous financial structure. The higher growth in business activity, the increase in short-term interest rates and an increasingly profitable balance sheet structure meant that net interest income rose to 1,458 million euros, which was 23.1% higher than the first nine months of 2003.

Net fee income came to 779 million euros, 7.7% more than the same period in 2003. The best performance continues to be provided by activities associated with transactional business (cards, account administration, cheques and payment orders). The high volatility of long-term interest rates, especially in the second quarter, had a very negative effect on markets in the entire Mexican financial sector. Because of this, BBVA Bancomer’s trading income shows a substantial decline compared to last year’s figures.

General expenses continued to be largely contained despite higher activity during the year. This, together with the sharp rise in revenues, meant that the cost/income ratio continued to improve and now stands at 39.2% (2.6 percentage points lower than the same period last year). Furthermore 88.8% of general expenses is now covered by net fee income, compared to 87.8% in the same period of 2003.

Operating profit rose to 1,197 million euros, a year-on-year increase of 21.9%. This is double the figure of 10.9% recorded at the end of the half year and is even positive (4.5%) in current euro terms. 

The better economic climate in Mexico, together with appropriate risk management policies, meant that BBVA Bancomer continued to improve the non-performing loan ratio. At the end of September this stands at 2.94% (3.72% at 30-Sep-03) and coverage is 266.0%. This improvement in asset quality led to lower loan-loss provisioning requirements during the year.

The most relevant aspects of the other countries in the region for the first nine months of 2004 are summarised below:

In the year to September Banco Provincial de Venezuela obtained attributable net income of 64 million euros. This was an increase of 22.8% at constant exchange rates. This positive development was largely due to the 44.3% increase in net fee income, the higher returns from trading income and the positive effect of provisions and extraordinary items (mainly due to loan recoveries). These factors compensated for the decline in net interest income. Despite the sharp growth in business activity, interest income was affected by the significant decline in interest rates over the last twelve months.

In Chile, performance was also positive during the year. In the first nine months attributable net income grew 10.3% to 22 million euros. The sustained and important increase in activity helped the bank to compensate for the effect of an adverse interest-rate environment and to achieve a substantial increase in net fee income (17.6%). The strong performance of items above the operating profit line on the income statement is complemented by lower provisioning needs. AFP Provida generated attributable net income of 8 million euros despite an extraordinary charge to cover insurance costs that were higher than expected. These costs were associated with expired policies pending payment that were regularised ahead of time as a precaution. Aside from these factors, higher business activity and net fee income (up 22.3%) managed to offset lower contributions from regulatory ratios that were affected by market conditions.

Banco Continental de Peru achieved attributable net income of 19 million euros (up 41.0%) with positive performance in all items on the income statement. Revenues – net interest income plus fee income – grew 8.5%, expenses were flat and provisioning requirements were lower due to improvements in the quality of the portfolio. AFP Horizonte obtained attributable net income of 8 million euros.

In Argentina the positive performance of the manageable part of the Banco Francés income statement led to attributable net income of 18 million euros in the first nine months of the year. Strict control of the cost of liabilities and higher returns on assets pegged to inflation, together with much higher transactional business, led to a notable increase in net interest income and net fee income. These items were also helped by the gradual recovery in brokerage business and the growth in lending. The effect was aided by effective cost control and positive contributions in the form of loan recoveries. In the pensions and insurance area, the Consolidar Group generated attributable net income of 13 million euros.

The performance of BBVA Colombia in 2004 has confirmed the radical turnaround in recent years. It achieved the highest net attributable profit in its history: 25 million euros, compared to 4 million euros for the same period of 2003. The key to this change can be found in the surge in activity, which favoured all sources of revenue. Special attention is drawn to net interest income which grew 22.0% year-on-year and to the moderate advance in expenses. The Group’s other companies in Colombia, AFP Horizonte and the insurance companies, contributed 8 million euros in attributable net income.

BBVA Puerto Rico probably faces the most challenging economic environment of any group company in Latin America. A slight rise in business activity has been accompanied by lower interest rates and higher provisioning associated with certain isolated operations. As a result, attributable net income came to 25 million euros – similar to 2003.

In other countries the Group obtained the following attributable net income for the first nine months of the year: 14 million euros in Panama (up 11.5%) and 6 million euros in Paraguay (up 12.6%). Uruguay reduced its loses to 6 million euros (14 million euros in 2003).

Lastly, international private banking continued to develop slowly but surely. It generated an attributable net income of 54 million euros.