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Growing business activity, higher revenues linked to new business lines and systematic cost control led to a year-on-year increase of 14.3% in operating profit in the year to September. The rate of growth of all margins on the income statement was higher than in June. Net attributable profit increased 13.3% to €1.2 billion and lifted ROE to 32.6%. The 6.2% increase in net interest income (5.5% in June) reflects vigorous activity at all the area’s units and appropriate price management in a context of lower interest rates. At 30-Sep-05 lending came to €121.6 billion after a year-on-year increase of 20.5%. The growth by loan type was as follows: mortgage finance grew 23.8% (loans to buyers were up 22.2% and developer finance 32.7%), lending to SMEs and retailers rose 22.4% and consumer finance increased 12.3%. Customer funds (deposits, mutual and pension funds and other brokerage products) grew 11.6%, beating the June figure of 10.7%. Growth was widespread. Current and savings accounts were up 6.0% and stable funds were up 13.4% (term deposits 22.1%, insurance products 36.7%, mutual funds 11.3%, pension funds 14.0% and fixed-income placements 8.2%). In the first nine months of the year, net fee income increased 8.0% over the same period of 2004. This was due to an 11.0% rise in fee income from banking services, including credit cards and operations with SMEs and retailers, and a 4.2% increase in fee income from mutual and pension funds. Moreover the insurance business contributed €228m, an increase of 17.8%. With the above increases in net interest income, net fee income and insurance, core revenues came to €3.72 billion, up 7.4% year-on-year. Distribution of cash management products to the SME and small business segment doubled net trading income to €83m in the first nine months. As a result, ordinary revenues grew 8.5% to €3.8 billion (7.5% at June). The increase in expenses was held to 2.4%, including depreciation and net of recoveries, despite opening 138 new branches in the last 12 months under the expansion plans for Madrid and the Mediterranean area. As a result the cost/income ratio including depreciation improved to 44.3% (46.9% for the first nine months of 2004). Thus operating profit obtained by the retail banking area in the first nine months came to €2.1 billion, an increase of 14.3% over the same period last year. Pre-tax profit grew by a similar amount (14.2%). Loan loss provisioning increased 13.2% on mainly generic provisions to cover higher lending activity and the non-performing loan ratio fell to 0.67% (0.86% at 30-Sep-04). After a further increase in the quarter, coverage stands at 298.0% (239.1% a year earlier). FINANCIAL SERVICES The main activities that influence the performance of retail banking are personal, commercial and special financial services (as defined above). Highlights include the sustained increased in business volume (lending grew 20.9% and customer funds rose 10.5%); the higher rate of growth in net interest income and net fee income; the significant progress in revenues from distribution of cash management products through SME and regular branches; and control of operating costs. The above factors combined to increase operating profit 14.1% and net attributable profit 13.3%. Personal Financial Services In the private individuals segment greater customisation led to a 40.1% increase in sales productivity (average products sold per salesperson). Both lending and customer funds recorded gains, especially credit cards and stable funds. Mortgages increased 23.8% year-on-year. In the first nine months new operations signed came to €17.94 billion (€5.43 billion in the third quarter). Of these €11.0 billion were for buyers and €6.92 billion for developers. Residential mortgages were up 22.2% supported by the launch of Hipoteca Fácil con Vinculación at the beginning of the year and marketing campaigns in the third quarter. Developer mortgages increased 32.7%. Events in the consumer credit business included a new-vehicle finance campaign that ended with sales of €185m and the launch of a new product, Crédito Fácil, for resident foreigners. In the third quarter, fund-gathering activities saw an improvement in transactional deposits due to the growing acceptance since roll-out, of Cuentas Claras by new and old customers. Furthermore, expansion of the product catalogue continued to boost the gathering of stable funds. Mutual fund activity included Carteras Gestionadas, which has booked €767m since its launch (€446m in the quarter); new guaranteed equity funds (BBVA 100 Ibex Positivo III and BBVA Garantizado Top Dividendo) and fixed income funds (four new Planes Renta). In term deposits the top performers this quarter were the guaranteed Depósito BBVA Bolsa Creciente 4-4-5, the Doble Depósito and the 3 and 5-year Depósitos Crecientes. In aggregate the above resulted in stable funds increasing nearly €3.8 billion in the first nine months (€1.26 billion in the third quarter). This was a year-on-year increase of 31.5%. The prescription unit, which is part of complementary banking channels, lifted invoicing 31.4% in the year to September, with contributions from consumer finance, mortgages, small businesses and the agent network. Furthermore at BBVAnet, the Internet banking service, transactions continued to grow at a high pace (up 52.9%). BBVAnet’s Bolsa Móvil, was launched in July. This service provides customers with information on their investments and lets them conduct trades in real-time via their cellphones. In payment channels, a 12.0% rise in retail purchases with credit cards lifted net fee income by 12.0%. Commercial Financial Services The area is the leader in commercial financial services, which deals with SMEs, micro-firms, professional practices, the self-employed and retailers. It has a specialised sales force of nearly 3,000 officers spread over 214 special SME branches and 1,630 regular branches. Operations in 2005 are summed up by the year-on-year increase of 35% in marketing productivity. The purpose of the 3x3 campaign was to capture new customers in this segment through three products at three years and 3.3% interest plus 0.9% commission linked to insurance. It generated 23,539 operations, 46.4% more than a similar campaign last year. It was also instrumental in cross-selling of Keyman policies, which provide life cover for owners and/or senior management. Lending exceeds €42 billion and continues to increase at more than 23% as a result of higher activity in all business lines. Leasing, renting and confirming, for example, rose by 22.9%. Moreover, distribution of a wide range of cash management services helped recurrent revenues (reported under net trading income) to double. Fund-gathering activities included €877m from fixed-income mutual funds that optimise liquidity (BBVA Cash and BBVA Corto Plus Empresas). Of this amount, €87m were booked in the third quarter. Special Financial Services This unit focuses on consumer and car finance, cards, renting and the e-banking business. Loans now stand at €3.24 billion (up 23.7% over 30-Sep-04) following a 24% increase in turnover (to €2.21 billion). Highlights in this segment included car loans (up 19% to €863m), equipment and equipment renting (up 15% to €337m) and 10,100 car renting operations (up 14%). Business volume at Uno-e included an increase of 56% in lending associated with universal credit cards (Visa and MasterCard) and 28% in consumer finance. Funds under management rose to €1.0 billion with significant increases in term deposits (up 108% after relaunch of the on-line bank via the Uno-e Depósito 8 campaign). Mutual funds rose 38.8% and pension funds 24.9%. ASSET MANAGEMENT AND PRIVATE BANKING At the end of September this unit handled €73.28 billion of business (up 14.8% over 30-Sep-04) and net attributable profit came to €90m (up 9.9%). BBVA Gestión launched six new guaranteed funds in the third quarter. Two were equity funds (BBVA 100 Ibex Positivo III and BBVA Garantizado Top Dividendo) and the other four were Planes Renta. In the first nine months of the year gathering of new funds came to €2.51 billion (€1.34 billion in guaranteed equity funds and €0.81 billion in fixed income funds). Thus total funds under management came to €44.41 billion (up 9.3%) and market share was 18.34%. The unit was once again the fund manager with the biggest net gathering of funds in the year to September (€1.98 billion). After adding €1.7 billion from real estate funds, which continue to grow strongly (up 71.7%), total assets in mutual funds came to €46.1 billion (up 10.8%). At 30-Sep-05 BBVA had assets under management of €14.4 billion in Spanish pension funds, 13.8% more than a year earlier. Of this amount, €6.57 billion was in group plans (up 9.9%) and €7.82 billion was in individual plans (up 17.3%). The bank has significantly advanced its positioning in these areas, lifting net fee income 4.9 basis points in the last year. The private banking business in Spain manages €15.87 billion in assets (up 24.3%). BBVA Patrimonios manages €9.19 billion (up 34.4%) and Personal Banking €8.75 billion (€6.61 billion directly and €2.13 billion via BBVA Patrimonios). In conjunction with the business projects unit from the Wholesale and Investment Banking area, the asset management and private banking unit set up two risk capital vehicles during the quarter. They were BBVA Elcano Empresarial I and II. The goal is to acquire interests in unlisted medium-size companies in Spain and Portugal that have growth potential and solid fundamentals and generate a cash flow. The share capital is €100m; 50% will be subscribed by customers of BBVA Patrimonios (co-investment model) and they will be BBVA’s partners in these companies. Furthermore and in view of the excellent reception of Real Estate Deal SII by customers, BBVA Patrimonios has set up another real estate investment company (Real Estate Deal II) with a seven-year horizon. It will enjoy synergies with the real estate fund (BBVA Propiedad). EUROPEAN INSURANCE This unit consists of various separate insurance companies that provide direct insurance, reinsurance and brokering in Spain and Portugal. They market their products through the area’s branch networks although they also use external channels for group insurance. BBVA Seguros handles life, household, multiple risk and construction insurance. In the first nine months of 2005 it issued net premiums of €1,377m, a year-on-year increase of 32.7%. Repayment protection policies increased 79.8% to €161m in premiums, guaranteed income funds increased 33.6% (€66.7m), household policies 17.9% (€90m) and group welfare insurance rose 31.7%. BBVA Seguros continues to lead in life insurance in the bancassurance sector, increasing its market share by 540 basis points in the last 12 months. Apart from its own policies, the unit has brokered premiums of €140m with a year-on-year increase of 15.1%.> As part of BBVA Seguros’ project to complete integration with the branch network this year, an insurance portal was set up at the end of the quarter. This tool will improve products and procedures as well as the ability of officers in the branches to handle processing, contract problems and claims. BBVA PORTUGAL This unit continues to record significant gains in business activity including lending, which is up 13.5% (42.4% in mortgages and 15.7% in SMEs), and customer funds, up 22.9% (18.9% in deposits, 28.4% in mutual funds and 28.1% in other off-balance sheet funds). Thus operating profit in the first nine months rose 27.6% and net attributable profit came to €5m (€3m in the same period last year).
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