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

In the third quarter this area consolidated the upward trend in results. Operating profit for the first nine months of 2004 rose to 2,012 million euros, an increase of 11.5% over the same period in 2003 (11.0% in the first half and 8.1% in the first quarter). This was due to greater activity in lending and customer funds, to the action taken to defend customer spreads, to the positive trend in net fee income and to the zero increase in expenses. The performance in operating profit carried over to attributable net income which grew 12.3% to 1,026 million euros. This brought the ROE to 31.7% compared to 30.5% for the first nine months of 2003.

At 30-Sep-04 total lending was nearly 104 billion euros and year-on-year growth accelerated to 19.2% (18.0% at 30-Jun-04). Lending to individuals performed well especially in residential mortgages, increasing by 24.4% (23.3% in June). This also applies to consumer loans (up 14.5%) and SMEs and small businesses lending (which surged 20.0%).

Total customer funds managed by the area (deposits, mutual funds and pension funds) also grew faster – 9.2% year-on-year (8.9% in June). During the first nine months of 2004 they increased by 6,105 million euros (3,865 million euros in the same period last year). There was considerable activity in the sale of mutual funds. This was general in nature and not focused on a particular product or type. It was the result of the innovative products and personalised customer service. Mutual funds grew 15.0% year-on-year compared to 10.4% for the banking system as a whole. Thus BBVA Gestión is the fund manager with the greatest gain in market share (an increase of 56 basis points since December 2003 and 77 basis points in the last 12 months) bringing market share at 30-Sep-04 to 19.09%. Stable funds (mainly time deposits, mutual funds and pension funds) increased 10.5% compared to 30-Sep-03 while transactional deposits grew 7.9%.

The high levels of business activity and monitored pricing of assets and liabilities led to a year-on-year increase in net interest income of 2.7% in the year to date. Net fee income grew 11.6%, confirming the significant and growing recovery observed since the beginning of the year. This applied to mutual and pension funds as well as other fee income (12.3% and 11.1%, respectively). Thus in the first nine months of the year core revenues and ordinary revenues grew 5.4% and 5.5%, respectively.

The area recorded a new improvement of 2.4 points in the cost/income ratio which fell to 42.7%. This demonstrates the positive performance of revenues together with stable costs. Furthermore, the percentage of costs covered by fee income (the recurrency ratio) increased 7.8 percentage points to 75.3%.

Up to September, 420 million euros have been booked to loan-loss provisions. This is 13.5% more than the same period last year and it took the form of generic provisions based on the sharp increase in business activity and increases in statistical reserves. The non-performing loan ratio continued to improve, to 0.62% at 30-Sep-04 (0.90% a year earlier), and it remains below average for the banking sector. Coverage increased to 369.4%, compared to 254.8% at 30-Sep-03, following the 17.8% decline in non-performing assets and the 19.2% increase in reserves. As a result attributable net income now stands at 1,026 million euros as mentioned above.

The results in Commercial and SME Banking, which together represent more than 84% of Retail Banking in Spain and Portugal exhibited the same trends: strong revenues and fee income, and a new improvement in the cost/income ratio. Operating profit grew 9.5% and attributable net income grew 12.2% to 866 million euros. 

With regards to the individuals segment, residential mortgage loans grew strongly. In the third quarter some 3.2 billion euros in new mortgages was concluded. Cumulative turnover for the year came to nearly 10 billion euros, increasing 44.2% compared to the same period last year. Including developers, the total volume of mortgages signed came to 16.4 billion euros. This was 44.8% higher than the first nine months of 2003. In addition, the Mutua Solred BBVA card for customers of the Mutua Madrileña insurance company was launched in the third quarter following an agreement between this insurer and the Repsol Group.

As part of the Commercial Financial Services Plan, the sales force that specialises in SMEs and small businesses was extended, now covering a total of 1,640 branches. At 30-Sep-04 lending activity was growing at more than 20% (22% in leasing and more than 35% in renting, factoring and confirming). During the quarter a multirisk policy was launched for SMEs and small businesses and a life policy for business owners. Furthermore a new vendor agreement was signed with Ausa that extends renting of construction equipment to SMEs. Another agreement was signed with Michelin providing preferential financial conditions to customers of its finance network.

With regard to mutual funds BBVA Gestión has exceeded its target market share. The positive figures mentioned above reflect the success of the seven Planes Renta where total sales climbed to 1,730 million euros in the year-to-date. The BBVA Triple Óptimo I and II funds booked 900 million euros, the BBVA 4-100 Ibex I and II funds nearly 300 million euros and the BBVA Vencimiento 2009 fund nearly 400 million euros. It should also be noted that BBVA Gestión continues to be the leader in terms of fee income with 1.351% at 30-Sep-04. This is 10 basis points higher than the weighted average of the top 12 managers (which handle 80% of assets in this sector). Moreover BBVA Propiedad (a real-estate investment fund) achieved assets of 988 million euros, 95.8% more than at 30-Sep-03, and a return of 6.9%. This is 60 basis points above the banking system average in this category.

Total assets in the pension funds managed by the Group in Spain rose to 12.64 billion euros – with year-on-year growth of 10.2% (14.2% in individual plans and 6.0% in plans for employees and associates). According to the latest data (June 2004), BBVA continues to lead in this sector with an overall 19.9% market share. In individual pension plans the market share is 17.2% and the average fee income has increased 6 basis points since the beginning of the year thanks to the Planes Protección. In the case of plans for employees and associates, market share continues to rise and now stands at 23.5%. It should be remembered that in July BBVA won a tender for management and custody of the central government employee pension scheme in competition with the main Spanish financial institutions. This plan has an initial value of 55 million euros and some 530,000 participants. It increases the number of beneficiaries of employee pension plans by 75% (at 31-Dec-03 there were some 700,000). Thus the pension unit is now servicing more than 1,300,000 participants and beneficiaries.

At 30-Sep-04 the private banking unit was managing 12.77 billion euros. This is an increase of 6.4% over the end of 2003. Of this amount, 6.84 billion euros are managed by BBVA Patrimonios which has received net contributions of 644 million euros in 2004 – this is 10.5% higher than the amount of stable funds under management at 31-Dec-03. Apart from the funds transferred to BBVA Patrimonios, the personal banking unit directly manages 5.93 billion euros. Its campaigns attracted 335 million euros up to September, 5.2% more than the stable funds at 31-Dec-03.

The increased activity carried over to the income statement of the asset management and private banking unit. Year-on-year it increased attributable net income by 27.5% to 85 million euros – boosted by net fee income (up 14.7%) and cost cutting (costs were down 6.1%). Total assets under management by the unit exceeded 64 billion euros, growing 14.1% year-on-year.

In the insurance business, BBVA Seguros had net income before tax of 153 million euros. This was 9% higher than a year earlier. It maintained its leadership in bancassurance with regard to life policies. There were a number of marketing initiatives in the third quarter. They included the single premium policy financed through a mortgage which improved the percentage of life insurance policies sold in connection with mortgage operations to more than 65%. The Keyman product range, aimed at businesses, sold more than 8,000 life insurance policies in the quarter. In addition the campaign to bundle life and home insurance succeeded in increasing year-on-year activity by more than 25%.

The Special Financial Services unit increased lending to 2,973 million euros at 30-Sep-04 after generating 447 million euros in new finance in the quarter. This was an increase of 17.6% year-on-year and brought cumulative turnover to 1,685 million euros. The increase extended to all products. Vehicle finance rose 40%, equipment 20% and equipment renting 26%. In vehicle renting, purchases climbed 125% to 8,885 units. Funds managed by this unit rose to 955 million euros due to growth in off-balance sheet funds and the launch of Doble Tipo, a 6-month deposit that gathered more than 40 million euros in the third quarter. Uno-e obtained operating profit of 12 million euros in the quarter (compared to a 7-million euro deficit in the first nine months of 2003). Pre-tax profit came to 8 million euros (compared to a 10-million euro loss in 2003).

BBVA Portugal, with a year-on-year increase of 43% in mortgage loans and 20.5% in mutual funds, again increased its market share by 22 basis points in total lending and by 27 basis points in mutual funds over the last 12 months. Operating profit grew by 22.9% thanks to net interest income (up by 3.4%), net fee income (up by 9.1%) and cost control (a 3.4% increase). The attributable net income is 5 million euros.