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2018-2020 Strategic Plan

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2018 WAS THE FIRST YEAR OF BANKIA’S NEW STRATEGIC PLAN, THROUGH WHICH THE GROUP ASPIRES TO BECOME THE BEST BANK IN SPAIN BY 2020.

The bank presented its new road map for 2018-2020 after having met all the commitments of the previous Strategic Plan and having established itself as Spain’s fourth largest financial institution.

The plan is aimed at making Bankia the most profitable, most efficient and most solvent of all the large banks and the one with the most satisfied customers, the most committed teams and the widest social recognition.

The lines of action now under way build on a solid foundation of corporate governance, oriented towards the principles and values that underpin everything the bank does. The four objectives driving the strategy start from the merger with BMN; efficiency, cost control, revenue growth through increased sales of high value products, and accelerated reduction of non-performing assets. The bank started the plan from a position of balance sheet strength, thanks to the provisions and write-downs recorded in previous years, buoyed by strong sales momentum once the restrictions imposed by the European Union were lifted and by the impetus provided by the merger with BMN.

The plan targets, set out below, are calculated on the assumption of Spanish GDP growth of more than 2% over the three years, a Euribor of 0.73% at the end of the period and a gradual recovery in lending.

  • Profits: reach 1,300 million euros in 2020 (62% more than in 2017), bringing the return on equity (ROE) to 10.8% and the return on tangible equity (ROTE) to 11%; all this through cost containment and business volume growth.
  • Revenue: expand the customer base by 5% in retail customers (400,000 more) and 20% in corporate customers (12,500); and increase market shares in mortgages (from 7.3% to 10.8%), loans to companies (from 6.9% to 7.7%), consumer loans (from 5.5% to 6.6%), mutual funds (from 6.4% to 7.2%) and payment services (from 8.1% to 9% in the case of credit cards), among others.
  • Costs: reduce costs by 2.5%, in line with the policy pursued in recent years. The synergies generated by the merger with BMN over the period of the plan are estimated at 190 million euros, compared to the 155 million announced initially.
  • Dividends: increase the payout ratio from 45% to 50%, so as to bring earnings per share in 2020 to around 0.43 euros, well above the level of 0.26 euros recorded in 2017.
  • Solvency: reduce the balance of non-performing assets (non-performing loans and foreclosed assets) by 8,800 million, to 8,400 million, so that the NPA ratio falls below 6% gross (12.5% in 2017) and 3% net. On completion of the plan, the NPA ratio will be 3.9%, and the NPA coverage ratio 56%; and the ratio of provisions to loans will be 24 basis points.

Together with the purely financial parameters, the 2018-2020 Strategic Plan underlines Bankia’s commitment to improving the quality of service provided to its customers by adapting to customers’ demand, which is increasingly digital. For that purpose, the plan provides for IT investments in the amount of 1,000 million euros, more than half of which will be used to transform the business model.

Another of the plan’s objectives is that by 2020 at least 40% of the bank’s senior management positions should be held by women. Keeping pace with society is one of the bank’s fundamental goals. Bankia therefore focuses on what it considers to be the main challenges facing society today: education and employment, the environment and responsible digitisation.

OBJECTIVES FOR 2020: TO BE THE BEST BANK IN SPAIN

1 Adjusted to fully phased in CTE1 of 12%
2 Includes the cash payout and the capital returned in excess of 12% CET1 fully phased in

CONSUMER FINANCE ALLIANCE

Bankia and Crédit Agricole Consumer Finance (CA CF) reached an agreement for the creation of a joint venture specialising in consumer finance for individuals and the self-employed at the point of sale, which will enable the group to extend its activity to new businesses and so continue to generate value.

The new company will also help Bankia strengthen its competitive position in new business segments, while broadening its range of products and services.

According to the Strategic Plan, CA CF is expected to position itself over the next few years as one of the leading specialised credit institutions in Spain.

The agreement gives each partner an equal interest in the joint venture and specifies that CA CF will propose the CEO and Bankia, the CFO, in a Board made up of top-level executives of the two shareholders and a highly respected independent director.

The partners will agree on the main policies and plans, most notably: strategic and business plans; risk, financial management, regulatory compliance and audit policies; corporate agreements and brand strategy.

CA CF’s support for Bankia’s own consumer finance business is an essential part of the agreement, so as reinforce the bank’s positioning in this segment, which itself is a fundamental pillar of the 2018-2020 Strategic Plan.

Thus, the new company is expected to start operating in mid-2019, once the pertinent authorisations have been obtained and the technology platform is in place.

COMPLIANCE IN 2018

The economic environment last year was worse than forecast in the 2018-2020 Strategic Plan. The 12-month Euribor fell 12 basis points, instead of five. Total lending to companies dropped 5.8%, instead of 2.1%. And mutual fund assets decreased by 2.1%, instead of rising 11.8%.

Despite the adverse behaviour of these variables, which directly affect net interest income and business volume, Bankia met its management objectives:

  • Lending: Consumer lending grew 14.1% and business lending, 4.4%. In both cases, the bank gained market share: 14 and 35 basis points, respectively. In the financial sector as a whole, consumer lending rose 11.9%, while business lending fell 5.8%.
  • Synergies: The integration of BMN in Bankia brought savings of 130 million euros in 2018, twice the amount forecasted (66 million). The two entities’ combined operating expenses totalled 1,870 million, compared to the Strategic Plan estimate of 2,000 million.
  • Non-performing assets: The target was to reduce the non-performing exposure by 2,900 million euros, but in the end, it was reduced by 6,000 million. Total NPAs were reduced by 35% in just one year.
  • Capital: 775 million euros of capital were generated in 2018, including deals agreed but not yet authorised, such as the sale of insurance interests agreed with Mapfre after the merger with BMN.

INTEGRATION OF BMN

In terms of complexity and speed, integrating BMN was one of the biggest operations undertaken by Bankia during 2018.

The operational and technological integration was completed in a record two and a half months, so that by mid-March 2018, 613 BMN branches and 4,000 BMN professionals were already operating via the Bankia platform.

The integration programme was implemented through three different plans:

  • Functional Plan: 437 gaps or functional problems were identified. To solve them, 20 plans were carried out, comprising approximately 200 projects, 600 subprojects and 1,600 activities. The plan was gradual, first introducing a transitional model (from legal integration to IT integration) and subsequently the final model.
  • IT Plan: 304 operational and technological gaps were identified and more than 100 IT development projects were carried out. The data migration process required 911 interfaces and an infrastructure plan was designed for the distribution of jobs, devices and ATMs, among other things.
  • Support projects: Initiatives were launched to facilitate the integration of the BMN people, with various training, documentation and communication actions, and the neces-sary resources (material, staff, outsourcers, etc.) were provided to complete the process.

The integration of BMN has consolidated Bankia as the fourth largest financial institution in the Spanish market.

In total, 1.7 million customers, six million contracts, more than 1,000 ATMs and 22,000 office devices (computers, printers, servers, etc.) were migrated to Bankia. The former BMN workforce received 259,000 hours of training and, in all, 233 actions were taken, both at the operational or technological level and at the functional level.

This integration was carried out without BMN customers having to do anything and without changes in their usual banking transactions (credit or debit cards, ATMs, direct debits and credits, etc.) or in the contracts they had signed with the bank (accounts, mortgages, insurance, etc.).

A MERGER THAT REINFORCES BANKIA’S FOURTH PLACE IN THE MARKET

The merger of Bankia and BMN received all the necessary clearances from the Spanish government and the regulatory and supervisory bodies on 29 December last year. For legal purposes the merger took place a few days later, on 7 January 2018, with the registration of the merger instrument in the Valencia Company Register.

The merger has strengthened Bankia’s position as the fourth largest financial institution in the Spanish market, with 223,000 million euros of managed assets. BMN brought to the group approximately 38,000 million in assets and a leading franchise in the regions of Murcia and the Islas Baleares and the province of Granada.

As a result of the merger, the bank’s loan volume grew 20%; deposits, 28%; and the customer base, 26%.

After the merger, Bankia has market shares of more than 30% in Granada and the Region de Murcia and 25% in the Islas Baleares. The merger thus further strengthens a group that is already the market leader in large, fast-growing regions such as the Comunidad de Madrid and the Comunidad Valenciana.

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