Interview with the Chairman, Pedro Guerrero

How do you see 2016 from a macroeconomic viewpoint?

We came off a good 2015 in which Spain had recorded GDP growth rates exceeding 3%. During 2016 the Spanish economy maintained its expansionary trend and returned to 3.2% growth thanks to domestic spending, the creation of employment and a favourable trade balance encouraged by low oil prices. It is true that the unprecedented political stagnation situation, whose immediate consequence was the country having an acting government for nearly a year, did not help. But, despite everything, the macroeconomic data continue to be positive which demonstrates that our economy has started to recover its former strength and it is in a position to overcome obstacles that not that long ago would have seemed overwhelming. This gave rise to strong job creation that lowered the unemployment rate to 18.6% at the end of the year, the lowest level since 2009. The unemployment rate continues to be extraordinarily high, but it cannot be forgotten that just 4 years ago it was around 27% and therefore recent trends have been very positive.

Is it possible to maintain that trend?

In a global economy nobody is alone. The outlook for worldwide growth continues to be modest. There are many uncertainties deriving from geopolitical tensions that could cause problems if they are not result in time. For example, the decision of the United Kingdom to leave the European Union, the execution of which is still not defined, as well as the threat of protectionist policies could affect global economic growth.

The complicated internal political situation also gives rise to uncertainties. There is still much to do to reach tax consolidation and we must persist with the reforms that best contribute to growth and employment with the highest level of consensus possible, which will not be easy. 

Can you provide a specific forecast for 2017?

Everything is pointing to Spain continuing to grow, although at a slightly lower rate. That is the forecast of both the Government, which foresees GDP growth of 2.5%, as well as the European Commission and the International Monetary Fund, which predicts somewhat more modest growth of 2.3%.

Just the increase in oil prices and the strengthening of the dollar will significantly reduce the contribution of the export sector to Spanish GDP growth. And then there are the uncertainties regarding the international economy and the political environment that were mentioned previously.

Nevertheless, the strength of domestic demand and the inertia of the economy lead me to have good confidence that in 2017 we will continue on the path of economic growth and job creation.

How has the banking sector situation evolved in Spain?

Our business is undergoing very profound changes. On these same pages last year, I indicated that we were at a crossroad after the financial crisis required the sector's capacity to be notably reduced and caused a contraction of asset volume that is unprecedented in the history of Spain. The new regulatory requirements also gave rise to a very high cost in terms of capital and resources, which was particularly burdensome due to coinciding with the tightening of margins as a result of low interest rates.

All of this continues to be in place and requires us to seek more efficiency and in that we have a great ally in digitalization as it allows us to generate economies of scale in sales and product and customer management. That does not mean to say, of course, that we are leaving traditional channels since personal relationships are key to our industry and, in particular, to our business model. But we do have to take maximum advantage of the possibilities offered by technology, as is being done by the new competitors that have appeared in the market. 

If this is not done, it will be difficult for the banking sector to attain a level of profitability above the cost of capital as is demanded by investors. It must be borne in mind that digitalization facilitates the rendering of more and better services to customers, apart from reducing costs, that may translate into new revenues that will therefore increase our margins. Of course, it isn't a magic wand that reflects results the next day but rather a long-term effort that will be successfully completed by those that are most consistent and offer the best responses to society's demands at any given time. This must always be backed by reinforced honesty and transparency to assist overcoming the serious reputation problems that were generated by the financial crisis.

In that context, what is Bankinter's role?

Our company has been characterised by rigor and innovation over the course of its more than 50 years of history.  Thanks to that rigor, we were not tempted by the easy money available during the real estate boom. Then, before then and now, we apply prudent and responsible management of credit risk and that explains why our non-performing asset rate is clearly lower than the average in the sector. We of course experienced difficulties during the crisis, but less than other banks to the point that we continued to grow organically in terms of loan volume and the number of employees and we were the only exception to the general trend in the sector in sharp contraction.

Our innovative vocation has always had, and will continue to have, a special place in our corporate strategy. The constant search for innovation in terms of products, channels and processes allows us to create a new type of banking that is more modern and close to, and appreciated by, customers. Telephone banking, Internet banking and mobile banking are very consolidated tools today and entered into the Spanish market through us and made us pioneers in the rendering of services of increasing quality.

Today we must work on that line of innovation with more intensity than ever.

In this connection, the digital transformation to which I referred previously, constitutes one of the most important aspects of our strategy.

What would you note about 2016?

It was an exceptional year for Bankinter for two reasons.

The first was the results obtained, again the best in the history of Bankinter. I will return to this topic again later.

The other reason is that in 2016 the first foreign venture of the Bank and the first relevant acquisition carried out by Bankinter was formally concluded.

Of course I am referring to the acquisition of the Barclays Commercial Banking and Insurance business in Portugal which was formally concluded on 1 April last year and has provided us with an adequately sized healthy network that has excellent professionals that are perfectly aligned with Bankinter's strategy and traditional orientation towards high income customers.

Bankinter's model may be perfectly replicated in Portugal and we will do so, given the good results obtained in Spain during the crisis.

The transaction is progressing in a very satisfactory manner. All of the milestones established for operational integration are being met. The business is growing in terms of customers, deposits and lending, and positive ordinary results are already being generated and they will surely grow notably this year and in coming years.

This is all independent of the very important extraordinary results generated by the negative goodwill deriving from the acquisition of the business at a price much lower than its book value.

How do you assess the Bank's results?

As I have already stated, we have once again broken records. They were again the best ever for the Bank, with or without extraordinary items. What is most important is that we are in a position to repeat that situation again this year.

As the CEO will explain, the Bank's commercial activities are at their best moment and we have therefore grown vigorously and gained market share in all strategic segments. Private Banking, Personal Banking, Mortgages, Consumer Loans, Corporate and Enterprise Banking, are good examples. Our subsidiary Línea Directa Aseguradora also had an excellent year.

This growth has allowed us to obtain earnings after taxes totalling 490.1 million euros, 30% more than last year. Without the extraordinary profits deriving from the bad will in Portugal and the extraordinary costs of the integration of the business in that country, ordinary and recurring results would have been 426.5 million euros after taxes, representing 13% growth compared to the preceding year.

Thanks to the efforts and brilliant performance of all of our professionals, the return on invested capital was again the highest in the sector.

I want to thank all of Bankinter's employees for their exceptional efforts and their commitment and dedication. They are the drivers of the Bank's success, which has obtained the best results in the Spanish financial system since the start of the crisis.

Our solvency and the improvement of the liquidity ratios due to the sharp increase in deposits during the year have been recognised by analysts and rating agencies. I also want to note that Standard and Poor's once again improved our credit rating a few days ago.

For all of these reasons the Board has proposed a cash dividend distribution to the General Shareholders' Meeting consisting of a 200 million euros charge against 2016, a 6.02% increase compared with last year.

Our objective is to increase returns for shareholders always within the framework of a prudent policy that contributes to the conservation of capital and allows us to maintain an adequate solvency level. 

In conclusion, we end 2016 bigger, more profitable, more robust, without compromising our loyalty to the principle of creating a top-quality bank that is attentive to the needs of our customers. The market rewarded us for all of this by making Bankinter the best performing bank stock on the Ibex 35 for the fourth consecutive year, obtaining a 12.5% return in 2016.

Does Bankinter also seek sustainability?

Without any doubt. These efforts are projected first on Corporate Governance, which is subject to the most demanding international practices and, of course, the content of the European Banking Union project. We believe that sustainability must also saturate the three broad business dimensions at Bankinter: its economic, social, and environmental facets. Accordingly, our sustainability plan is called ‘Tres en Raya’ (‘Three in a Row’). 

Through that plan we are committed to the establishment of a balanced, transparent and clear relationship with our customers, among other things, the financial integration of customers with disabilities, the responsible management of people as the Bank's primary asset and the development of the community in which we operate as well as the mitigation of our impact on the environment. 

This is also the case with the activities carried out by the Bankinter Innovation Foundation, which has four programs currently in progress: ‘Future Trends Forum’, a multi-disciplinary and international think tank, considered by the University of Pennsylvania to be the best in Spain with respect to Science and Technology and number 27 worldwide; Akademia, which attempts to initiate Spanish university students in the world of innovation and entrepreneurship; Entrepreneurs, which invests early stage capital in start-ups; and Cre100do, whose purpose is to assist medium-sized companies make the leap into international markets.

This is intended to reinforce our constant commitment to stakeholders (shareholders, customers, employees, society in general) who are the true points of reference for our work.