- Earnings: the strength and recurrence of BBVA revenues were once again evident. Gross income exceeded €21 billion for the whole year
- Risks: risk indicators tended to stabilize. Excluding real estate activity in Spain, the Group’s NPA ratio stands at 4.6% and the coverage ratio is 59%. Entries to NPLs show an improvement in their behavior. Non-performing assets were down in Spain in the fourth quarter
- Capital adequacy: the core capital ratio under Basel II stands at 11.6% compared to 10.8% a year earlier.
BBVA ended 2013 with very solid earnings despite a complex environment. The Group’s geographic diversification and the businesses’ positive developments provided a boost to annual earnings. Net attributable profit rose 32.9% year-over-year to €2.23 billion.
BBVA chairman Francisco González said, “The outlook for 2014 has improved significantly and at BBVA, we are in an excellent position to respond to the growth of the solvent demand for credit.”
The most recurring forms of revenue (net interest income and net fee income) increased 3.5% before taking exchange rate fluctuations into account, to €19.04 billion (down 2.2% at current exchange rates). Both figures saw a significant growth in the last quarter compared to the previous three-month period (up 5% at current rates and 7.9% at constant exchange rates.)
Net interest income continued to climb in the fourth quarter. Together with the good performance of NTI, this explains the rise in gross income to €21.40 billion (up 2.6% at constant exchange rates, down 2.3% at current rates). Turkey, Asia and Latin America contributed 60% of gross income.
BBVA continued to invest in emerging regions while keeping costs at bay in developed economies. These actions led to operating income of €10.20 billion (down 3.0% at constant rates and down 8.2% at current rates). This helped to absorb the loan-loss provisions associated with Spain when refinanced loans were classified in the third quarter. The strength of the Group’s operating income puts BBVA at the top of the list in profitability, measured by operating income over average total assets.
The Group’s NPA ratio —excluding real estate activity in Spain— closed the year at 4.6%, with a coverage ratio of 59%. Risk indicators tended to stabilize in Spain in the latter part of the year, with a fall in non-performing assets in Q4. Excluding the impact of the classification of refinanced loans, entries to NPLs hardly changed in Q4 compared to the previous quarter. They were also lower than the NPLs in each of the first two quarters of the year.
BBVA’s solvency continued to grow. The core capital ratio under Basel II added 82 basis points to reach 11.6%. Furthermore the core capital ratio according to the Basel III fully-loaded rules was 9.8%, well above the regulatory minimum requirements.
The liquidity position also improved during the year. BBVA cut its funding gap by €33 billion and it improved the structure of its balance sheet thanks to a positive evolution in deposits.
The year also saw some atypical events. In Spain they included a court ruling on floor clauses in mortgages to consumers and the classification of refinanced loans. In Venezuela hyperinflation increased compared to the 2012 level and it had a currency devaluation. There were also transactions at the corporate level in Latin America (BBVA Panama and the pension businesses), in Spain (insurance) and in China (new agreement with CITIC Group), among others.
During 2013 BBVA continued to invest in technology to offer customers the ability to operate anywhere at any time and receive the same value proposition regardless of the channel they use. As Francisco González pointed out, “At BBVA we are re-inventing ourselves, from an analog bank, extremely efficient and profitable for the 20th century’s standards, into a digital, knowledge-based company, with the capability to meet the requirements of the 21st century.”
By business areas, banking activity in Spain found itself once again in a complex environment although this time improvement is on the horizon. Despite a context of deleveraging the area gained market share in lending and deposits. It also diversified its sources of revenue in credit cards, insurance and pensions. However, the classification of refinanced loans affected the year-over-year comparison of risk indicators. The NPA ratio in December stood at 6.4% and the coverage ratio was 41%. Net attributable profit came to €583 million, down 49.8% compared to 2012.
The real estate business in Spain continued to reduce its net exposure to this sector (down 19.1% since December 2011) and it increased the pace of sales. During 2013 it sold 14,390 units (+43.2%) apart from 6,993 additional operations on behalf of third parties. The area’s net attributable result was -€1.25 billion.
The United States reported a jump in business activity despite the background of low interest rates. In 2013 BBVA Compass increased lending 12.8% and customer funds by 4.0%. Asset quality is exceptional: the NPA ratio was 1.2% and the coverage ratio stood at 134%. It managed to contain costs as it continued to consolidate its technology platform. The area earned €390 million, which was 8.8% less than 2012 at constant exchange rates.
In Eurasia Turkey’s Garanti performed well in terms of revenue generation and asset quality. BBVA signed an agreement with China’s CITIC Group that included the sale of a 5.1% stake in China CITIC Bank (CNCB). With this transaction BBVA confirms its strategic commitment to the Chinese market and obtains an improvement in its core capital ratio under Basel III rules. The area reported net attributable profit of €454 million (up 20.7% at constant exchange rates).
In Mexico all items on the income statement reflected the bank’s buoyant business activity, both in lending and customer funds. Moreover the risk indicators improved: the NPA ratio was 3.6% and the coverage ratio rose to 110%. In 2013 this franchise generated net attributable profit of €1.81 billion (up 7.2% in constant euros).
The high pace of the business in South America led once again to double-digit growth in revenue. For the full year net interest income jumped 33.6% year-over-year to €4.70 billion; gross income rose 25.3% to €5.63 billion and operating income was up 27.0% to €3.24 billion (all in constant euros). The NPA ratio fell to 2.1% and the coverage ratio increased to 141%. The region generated net attributable profit of €1.25 billion, which was 22.6% higher than the previous year at constant exchange rates.