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Report BFA - Bankia 2014 / Accomplishing our plansBusiness and earnings

  • Attributable profit
    €747 Mn (+83.3%)
  • Net interest income
    €2.98 Bn (+14.0%)
  • New loans and advances to customers
    +40%
  • Customer deposits
    +6.6%
  • Phase-in capital ratio
    12.28%
  • Fully-loaded capital ratio
    10.60% 

Bankia achieved ordinary attributable net profit of 966 million euros in 2014. This was up 58% on the 2013 result of 611 million euros, stripping out the effect of the subordinated loan. After setting aside the extraordinary provision of 312 million euros to cover potential contingencies related with the 2011 IPO, attributable net profit totalled 747 million euros in 2014. This result enabled Bankia to propose at its General Meeting paying out a dividend for the first time in its history.

Bankia’s parent, BFA Tenedora de Acciones – holding 62.21% of Bankia’s capital at year-end 2014 – generated a net profit of 418 million euros last year. At BFA Group level, the extraordinary provision for the IPO totalled 780 million euros. This aside, net profit for the year would have hit 1.10 billion euros.

The increase in profit stems from higher revenues due to the bank’s greater business volume and sales drive after the branch network restructuring in 2013. Bankia’s result was also driven by cost controls, with expenses being cut by 8.5%, and the improvement in the quality of the balance sheet leading to lower provisions.

A more dynamic marketing drive saw product sales per employee increasing, which led to a gain in market share in the main business lines. Each Bankia employee sold just over 31 products in December 2014 compared to 22 in the same month in 2013 – a 37% rise.

Marketing productivity

Customers also demonstrated their faith in the institution, with a notable rise in funds managed in both deposits and in investment funds and pension plans.

Customer deposits under management climbed by 7 billion euros during the year, driving an increase in market share in both term deposits and investment funds. The share of pension plans remained stable after the net balance of new contributions and drawdowns led to a rise of over 300 million euros.

The market for lending was also buoyant. Bankia awarded close to 15 billion euros of new finance to households and businesses in 2014.

80% of this amount went to the self-employed, SMEs and corporations, which received 12 billion euros – 5% more than in 2013.

In terms of the number of loans awarded, this uptick is even more impressive, with a rise of 40% to 26,800.

The bank also granted 118,000 consumer loans last year, 27% more year on year, while the number of loans to acquire new homes climbed almost 33%.

The business community is one of the bank’s target growth markets. The starting point in this regard is below the institution’s normal market share of 9%, although the trend was clear last year. The market share of trade discounting for instance rose from 6.8% to 7.4%, while the share of documentary letters of credit and guarantees moved from 4.3% to 5.6%.

Customer deposits

 

(108.7) Excluding Aseval contribution (2.1 billion euros), sold in 4Q14

Market shares of deposits and funds 

The bank awarded 8.5% of all new loans of over 1 million euros at year-end 2013, which rose to 12.5% in November 2014. The share of loans of less than 1 million euros granted increased from 9.5% to 11.1%.

In 2014, Bankia was the leading arranger of short-term ICO export trade credit lines with a market share of over 24%, having awarded 1.16 billion euros through this line. After arranging 9.3% of all ICO credit lines in 2013, it arranged more than 11% last year.

The rise in confidence is also reflected in the number of new customers, which rose during the year. Plans targeting businesses and the self-employed for instance, gave rise to decent results, with the number of new customers multiplying by 2.5 between the first and last quarters of the year. Bankia’s retail customer target was to end 2014 with over 20,000 new customers a month; a goal that was also achieved.

New business customers

New individual customers

Basically, a more robust sales drive and customer confidence were critical factors in generating earnings last year and form a springboard for increased profitability moving forward.

Looking at the income statement, net interest income hit 2.93 billion euros, some 14% higher year on year. This income statement item – the most important for a bank – increased quarter on quarter thanks to a widening of the net interest margin as a result of stable interest income and lower interest expenses.

While fees and commissions are subject to quarterly fluctuations due to seasonality, there was an improvement over the entire year with net fees and commission income of 948 million euros being obtained; some 1.3% higher than in 2013. Core banking revenues therefore totalled 3.86 billion euros in 2014; up 10.7% year on year.

Net interest income

Quarterly trend

Accumulated trend

1) Actual figures including the cost of the subordinated loan granted to Bankia by BFA – 89 million euros in 1Q13 and 53 million euros in 2Q13, which was cancelled on 23 May 2013, whereby the profits published in this period were lower


Core banking revenues

Quarterly trend

Accumulated trend

(1) Actual figures including the cost of the subordinated loan granted to Bankia by BFA – 89 million euros in 1Q13 and 53 million euros in 2Q13, which was cancelled on 23 May 2013, whereby the profits published in this period were lower

In Bankia’s case, the most recurrent revenues of the banking business account for more than 96% of its gross income, which was 4.01 billion euros in 2014.

While revenues rose during the year, expenses fell, with operating expenses dropping to 1.74 billion euros; 8.5% down on 2013.

In 2014, Bankia therefore achieved a significant improvement in its efficiency ratio, which measures what an entity has to spend to generate 100 euros of income. In the fourth quarter of 2013, 52.6 euros had to be spent to bring in 100 euros, compared to only 43.7 euros over the same period in 2014.

Operating expenses

The institution achieved a significant improvement in its efficiency ratio, which hit 43.7% at year end.

In addition to the restructuring carried out by the institution chiefly in 2013 – when the planned branch closures were completed – Bankia continued to divest stakes in companies such as Bankia Bolsa, Bancofar and Sala Retiro during last year, enabling it to cut costs.

Various cost saving projects were also rolled out to drive up the institution’s efficiency, primarily by redesigning processes and redefining policies.

This led to a sustained quarter-on-quarter rise in operating profit before provisions, which ended the year at 2.04 billion euros; 42.5% higher than in 2013.

Recurring margin before provisions(2)

€ Mn
(1) Actual figures including the cost of the subordinated loan granted to Bankia by BFA – 89 million euros in 1Q13 and 53 million euros in 2Q13, which was cancelled on 23 May 2013, whereby the profits published in this period were lower
(2) Operating profit excluding gains and losses on financial assets and liabilities and exchange differences.

Bankia’s healthier balance sheet deriving from a smaller balance of non-performing loans enabled the volume of recurring provisions to be reduced by 36.1% to 1.11 billion euros.

The non-performing loan (NPL) ratio also dropped by 179 basis points during the year from 14.65% at December 2013 to 12.86% at year-end 2014. This reduction stemmed from a sharp fall in the volume of loans in arrears from 20.02 billion euros to 16.56 billion euros.

The bank decreased the volume of NPLs and also increased the coverage for those left on its books. At year-end 2014, provisions covered 57.6% of loans in arrears, compared to 56.5% at the end of 2013.

THE RETURN ON EQUITY CLIMBED FROM 5.9% IN 2013 TO 8.6% IN 2014, PUTTING THE BANK IN A STRONG POSITION TO HIT ITS TARGET OF 10% FOR 2015

The combination of all these factors drove up profit before tax to 1.31 billion euros. Meanwhile, after income tax, attributable net profit amounted to 966 million euros, 58% higher than the proforma result in 2013 of 611 million euros. The return on equity climbed from 5.9% in 2013 to 8.6% in 2014, putting the bank in a strong position to hit its target of 10% for 2015.

Taking into account the extraordinary provision for the IPO, attributable profit stood at 747 million euros, with a ROE of 6.6%.

Non-performing loans

*(Billions of euros)

Bankia Group ROE

(1) ROE stripping out impact of the provision for contingencies associated with the IPO and calculated by dividing attributable profit for the period by the monthly average equity for the period.

Npl ratio (%)

 

2014 profit is 83.3% higher than that of 2013 restated under the new Bank of Spain criteria on calculating contributions to the Deposit Guarantee Fund, as attributable net profit amounts to 408 million euros in 2013.

These results along with the decrease in risk assets allowed Bankia to significantly increase its solvency, having stripped out the effect of the dividend pay-out and the IPO provision. In regulatory terms, the CET 1 capital adequacy ratio under Basel III rose from 10.69% to 12.28%. Applying the criteria that will be required under the regulation for 2019, the Tier 1 capital ratio rose from 8.6% to 10.6%.

Change in PHASE-IN CET 1 BIS III ratio

(1) Includes result for the year plus dividend pay-out of 202 million euros.
(2) Impact of Regulation (EC) 634/2014 on contributions to Deposit Guarantee Fund.

Change in FULLY LOADED CET 1 BIS III

(1) Includes result for the year plus dividend pay-out of 202 million euros.
(2) Impact of Regulation (EC) 634/2014 on contributions to Deposit Guarantee Fund.

Bankia’s solvency levels rose notably off the back of the results obtained and reduction in risks.

In terms of liquidity, Bankia was able to notably improve the loan-to-deposit ratio as deleveraging by economic agents coincided with an increase in customer deposits at the institution. Equally, the funding gap shrank by almost half during the year, bolstering the bank’s liquidity position.

Variation in LTD ratio (%)

LTD Ratio:
NET LOANS AND ADVANCES TO CUSTOMERS / STRICT CUSTOMER DEPOSITS + EIB/ICO DEPOSITS + SINGLE-CERTIFICATE COVERED BONDS

Variation in funding gap

*(Billions of euros)

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