The expected recovery of the world economy suffered another setback at the beginning of 2003 caused by continued uncertainty. This was due to economic factors and to reasons connected with the geopolitical situation, especially the conflict in Iraq. This situation led the Federal Reserve and the Central European Bank to reduce interest rates to all-time lows of 1.0% and 2.0%, respectively. 

Expectations, however, improved as the year advanced with a reduction in geopolitical tensions and signs of recovery in the U.S. economy, improved confidence and higher stock exchange prices. The main economies in the euro zone recorded weak growth although Spain with a 2% increase in GDP, outperformed the average for the European Union. Following the drop in GDP in 2002, the rebound in Latin America in 2003 was modest – around 1%. The year was also characterised by sharp drops in interest rates in most countries.

Currency markets were highly unstable during the year. The dollar fell sharply against the euro and against the currencies of most Latin-American countries. This is shown in the attached table on the following page, which details the changes recorded in the last two years. It shows the exchange rate at the end of each year (used to prepare the balance sheet and the company's key indicators in euros) and the average exchange rate for the year (used to convert the local currency income statement into euros).

In view of the sale of BBV Brasil to Bradesco (which means that in 2003 this country's results were incorporated via the equity method) and the accounting instability experienced in Argentina in 2002, we are presenting a uniform proforma income statement that contains the 2002 and 2003 results of Argentina and Brazil via the equity method. However this entails no change in the attributable net income. This proforma statement simply allows the changes in the Group's results to be evaluated on a uniform basis.

For the same reason, the intense depreciation of American currencies against the euro in recent years, which has an important effect on the year-on-year comparison of results obtained by the Group in the region when expressed in euros, has persuaded us to add a column to the proforma statement with the variations calculated at constant exchange rates (with Argentina and Brazil by the equity method).

Despite the unsettled economic environment mentioned above, the BBVA Group managed to achieve its objectives in terms of business and geographic areas with notable improvements in profitability, solvency and cost efficiency.

The most relevant aspects of the BBVA Group in 2003 are summarised below:

· Attributable net income was 2,227 million euros. This was an increase of 29.5% compared to the 1,719 million euros obtained in 2002 and an increase of 42.7% at constant exchange rates. The attributable net income figure was also 3.8% higher than the 2,146 million euros that would have been obtained in 2002 excluding the extraordinary provisioning made in the fourth quarter of that year. This was the objective set by Group management for 2003. 

· The positive results were also reflected in important gains in the main management ratios during the year. Return on equity (ROE) improved to 18.4%. This was higher than the 13.7% obtained in 2002 and also higher than the 17.1% that would have been obtained that year excluding the extraordinary provisioning mentioned above. Return on assets (ROA) increased to 1.04% from 0.85% in 2002 and earnings per share increased by the same amount as net attributable income (29.5%).

· Operating profit came to 4,883 million euros with Argentina and Brazil carried by the equity method. The decline of 4.3% of the 2002 figure was due to depreciation of Latin American currencies. Excluding this, operating profit would have increased by 8.7%, with gains in all business areas. The general trend during the year was positive: at constant exchange rates the main earnings lines on the income statement exceeded the equivalent figures for 2002 in each quarter.

· Likewise, it should be noted that net interest income and net fee income grew progressively in each quarter of 2003.

At constant exchange rates and excluding Argentina or Brazil, the net interest income grew by 5.9% in year-on-year terms. This was better than the 2.3% recorded in the first quarter, the 4.8% in the year to June and the 4.9% recorded in the year to September.

In addition, net fee income grew by 2.7% at constant exchange rates and excluding Argentina and Brazil. This figure is influenced by higher fee income from placements made in the last quarter of 2002. Without this, growth would have been 5.1% and that compares favourably with the 2.7% recorded in the first quarter, 2.8% in the year to June and 4.5% in the year to September.

· The growth in the more recurrent sources of income was generated by an increase in activity. Thus, in Retail Banking the year-on-year increase in lending accelerated to 13.9% at 31st December 2003, compared to 11.5% in June (18.5% and 17.1%, respectively, in mortgages) and the sum of deposits, mutual funds and pensions increased to 9.0% (5.3% in June). This trend was also observed in the Americas where lending increased by 4.4% in local currency (2.9% in June) and traditional customer deposits plus mutual funds increased by 12.5% (11.6% at 30th June 2003).

· Costs remained under control, falling by 9.6% in current euro terms and increasing by only 2.3% in constant euros. This was helped by zero growth in the domestic businesses (Retail Banking, Wholesale Banking and Corporate Activities). The increase in the Americas was held below the average inflation rate. With Argentina and Brazil carried by the equity method, the cost/income ratio was 46.6%. Once again this was an improvement, beating the figure of 47.6% for 2002, and with gains in all three business areas.

· Non-performing loans fell to 1.31% at the end of the year excluding Argentina and Brazil (1.70% at 31st December 2002) and coverage increased to 201.1% (191.1% at 31st December 2002). Non-performing loans in Spain (other resident sectors) stand at 0.72%. This level compares favourably with the banking system as a whole and is 0.13 points lower than the equivalent figure for 2002.

· The Group's capital base continued to strengthen. At 31st December 2003 core capital was 6.2%, Tier I was 8.5% and the BIS ratio was 12.7%. These ratios were all higher than the corresponding figures at 31st December 2002.

· The dividend per share for 2003, to be submitted to the General Shareholders Meeting for approval, increases to 0.384 euros per share. This is an increase of 10.3% compared to the 0.348 euros paid against the 2002 results.