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In 2005 performance of the main Latin-American economies is so far very positive. Inflation has fallen to record lows and interest rates are stable. In this favourable economic environment the activity and results of BBVA in the Americas continue the upward trend noted in recent years. Thus net attributable profit for the year to September comes to €1.33 billion, a year-on-year increase of 60.2% or 61.6% if the depreciation of local currencies (which has moderated considerably) is stripped out. The good results are mainly due to the sharp increase in recurrent earnings and specifically net interest income. In the year to date this rose to €2.79 billion, a year-on-year increase of 30.3% at constant exchange rates (which will be the basis used from here on). Intense marketing activity at all banks in the area contributed decisively to the increase. These efforts are generating important growth and therefore the volume effect has been very positive in most countries. It is particularly evident in lending, which grew 38.9% year-on-year (20.2% on a like-for-like basis). All business units recorded significant advances, especially those related to retail business. Moreover, customer funds increased 15.6% (11.3% on a like-for-like basis). Deposits grew 14.5% thanks to continued performance of sight and savings accounts (up 16.2%) and to mutual funds (up 21.8%, confirming the recovery observed in previous quarters). Net fee income also performed extremely well. Year to date the cumulative figure is €1.49 billion and this is 14.0% higher than the first nine months of 2004. Fees from mutual funds and pension funds recovered strongly while those related to traditional banking services maintained the positive pace of recent quarters. The notable marketing activity at insurance companies is reflected in related income, which grew 33.2% to €169m. Net trading income performed well in the third quarter, compensating the flat trend at the beginning of the year. For the year to September it comes to €190m, more than double the same period last year. The important marketing effort is also the main cause of the increase in costs. Including depreciation, costs increased 17.3% year-on-year, or 10.9% excluding the new units (Hipotecaria Nacional, Laredo y Valley Bank). However, the increase is considerably lower than the increase in ordinary revenues (up 26.5%). This meant the cost/income ratio improved further to 45.7% (including depreciation), against 49.3% in the first nine months of 2004. Operating profit grew 37.3% to €2.4 billion. Loan loss provisions declined slightly (down 1.5%) on progressive improvement in asset quality. Non-performing loans fell year-on-year despite higher lending and the addition of new business units. As a result the non-performing loan ratio continued to improve, reaching 2.64% at 30-Sep-05 compared to 3.87% a year earlier. In addition coverage increased to 191.2% (176.1% at 30-Sep-04). The good performance was reflected in profitability. At the end of the quarter the ROE stands at 34.0% compared to 24.8% a year earlier. BANKS IN THE AMERICAS Net attributable profit generated by banking business in the Americas Area came to €1.1 billion for the year to September. This was 67.7% more than the same period last year, due mainly to higher activity at practically all banks. Brief comments on the performance of each bank are provided below. Mexico The Mexican economy continues to develop positively although certain signs of a slowdown have appeared. They do not affect the main indicators of banking activity and they will probably disappear by the end of the year. Inflation is clearly on a downward track and therefore interest rates have started to decline gradually. In this context BBVA Bancomer has performed very positively. In the first nine months of the year it has accumulated net attributable profit of €835m, a year-on-year increase of 73.6%. This figure includes €51m contributed by Hipotecaria Nacional. ROE now stands at 37.1%, amply exceeding the figure for the same period last year. The sharp growth in profit was possible thanks to the surge in activity, especially lending, which grew 27.2% year-on-year (not including Hipotecaria Nacional). All products lines grew, especially consumer finance and credit cards (up 71.8%). Lending to small and medium enterprises was up 29.3% as were mortgages in Mexican pesos, where the balance increased by more than 40%. Funds under management (deposits, repos placed through the branch network and mutual funds) increased 9.7% over September 2004. The increase included sight and savings accounts (up 7.3%) and mutual funds (up 25.7%). The result of the sharp increase in activity can be seen in net interest income, which grew 37.9% to €1.83 billion. Furthermore the positive business trend was also reflected by faster growth in net fee income. This rose 20.0% to €702m. The best performers were fees linked to transactional business. Net trading income benefited from interest rates that were steadier than the first part of the year. The increase in costs (20.2% including depreciation) was due to higher marketing activity and the impact of Hipotecaria Nacional. However ordinary revenues grew 35.1% and this meant the cost/income ratio (including depreciation) continued to improve. At 30-Sep-05 it stood at 40.4% compared to 45.3% a year earlier. Operating profit advanced 50.4% year-on-year to €1.45 billion. Non-performing loans (NPL) continued the downward trend of recent quarters. As a result the NPL ratio improved to 2.27% from 3.36% in September 2004. Coverage was 292.2%. Other countries In Argentina BBVA Banco Francés achieved high net attributable profit (€77m) in the first nine months on positive performance of recurrent earnings and capital gains generated from the sale of public assets previously provided in the group's books. Thus the bank achieved its double objective of decreasing the weight of the public sector on its balance sheet and reducing its position in inflation-adjustable assets. Lending fell in year-on-year terms, affected by the above sale of public assets. However lending to the private sector increased 53.0% over 30-Sep-04 (a low base figure). The gains came mainly from short-term finance for companies but there were also significant increases in individual customers (cards and personal loans). Deposits maintained the buoyant trend of recent quarters, with year-on-year growth of 28.3%. These gains are reflected by net interest income (up 26.9%) and net fee income (up 40.8%). Together with a bigger contribution from treasury operations (on reactivation of market activity following the government’s debt swap), this caused operating profit to grow 52.0% to €149m. BBVA Chile, with a year-on-year increase of 14.6% in lending, managed to offset adverse interest rates (in view of its balance sheet structure) and increased net interest income 2.2%. Net fee income grew 10.8% on higher activity, costs were controlled and the steady improvement in the NPL ratio opened the way to lower provisions. As a result net attributable profit rose to €21m, an improvement of 12.1% over the first nine months of 2004. BBVA Colombia generated net attributable profit of €40m in the year to September. This was a year-on-year increase of 79.5%. Lending increased 25.1% on stronger consumer finance and mortgages, and customer funds were up 23.7%. Helped by a strict policy on cost of funds and in the context of record-low interest rates, net interest income increased 9.5%. The above advances, higher fee income (up 15.6%) and cost control, caused operating profit to climb 51.6% higher over the same period last year. The banks in the BBVA USA unit generated net attributable profit of €31m. BBVA Puerto Rico continued to strengthen activity. Growth in lending is now 21.9% year-on-year. Individual customers (mortgages, cars and consumer finance) continue to be the most dynamic items with important increases. The advance in activity together with the positive changes in net fee income and the moderate increase in costs, has helped net attributable profit to reach €20m. Laredo National Bancshares, which joined the group in May has contributed with €8m to the net attributable profit and is in the implementation phase of new business plans. Bancomer Bank USA, the new name of Valley Bank has absorbed during the third quarter the offices that BTS had in California, the first step in the network expansion plan which will soon develop. Bancomer Transfer Services (BTS), the leading entity in money transfers between USA and Mexico has increased the number of transactions by 10.6% and 13.9% the amount of funds transferred (more than 5.5 billion US dollars in Jan-Sep). At BBVA Banco Continental in Peru, lending (up 28.1%) and customer funds (up 17.3%) boosted net interest income 29.0%. Together with contributions from treasury operations, ordinary revenues rose 29.1% and operating profit jumped 49.9%. Helped by lower provisions related to falls in NPLs, net attributable profit came to €37m, double the figure for the same period last year. In the year to September BBVA Banco Provincial in Venezuela generated net attributable profit of €43m, supported by strong growth in net fee income (up 32.2%) and by defence of the financial margin in a context of regulated interest rates. It compensated the negative price effect with higher volume. Lending grew 78.1% year-on-year and customer funds were up 36.4%. Net attributable profit in Panama came to €13m (similar to the same period last year). Net attributable profit in Paraguay was €7.5m (up 19.9%) and Uruguay managed €1m for the first nine months compared to a loss of €2.4m a year earlier. PENSION FUNDS AND INSURANCE The pension fund managers and insurance companies in BBVA America contributed net attributable profit of €188m in the year to September. This was a year-on-year increase of 38.5%. Brief comments on the performance of the main companies are provided below. Pensions The positive performance of revenues at Afore Bancomer was maintained in the third quarter despite a moderate advance in Mexican employment. Ordinary revenues for the year to September came to €146m, which was 6.4% higher than a year earlier. Net attributable profit came to €58m (up 12.8%). In Chile, AFP Provida generated net attributable profit of €19m supported by a 16.2% increase in net fee income (on higher activity and increased subscriptions). It was also helped by higher contributions from the results of regulatory ratios and lower operating expenses. Other pension managers include Consolidar AFJP in Argentina, with €6m. Horizonte Perú contributed €10.5m and Horizonte Colombia nearly €7m. All the above units recorded important increases in commercial activity. This spilled over into higher contributions and therefore greater fee income. They also obtained high financial returns, benefiting from the positive performance of markets. Insurance In general all insurance companies in this area had a good quarter. Seguros Bancomer continues to be one of the best performers. Premiums in the first nine months of the year are 56% higher than the same period last year. Higher activity meant that the insurance business in Mexico contributed net attributable profit of €56m to the group, a year-on-year increase of 44.0%. INTERNATIONAL PRIVATE BANKING The international private banking business continued to advance moderately in line with recent quarters. Total funds under management at 30-Sep-05 came to €15 billion. This was 5% more than a year earlier. The growth in customer funds continued to lift revenues and this, together with cost control, brought cumulative net attributable profit to €56m (3.8% higher than the first nine months of 2004. Of this figure, €31m corresponds to Andorra.
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