How would you assess Bankinter’s results for 2017?
I honestly believe that we can be very satisfied. From the viewpoint of the income statement, it was a somewhat unusual year, due to the influence of the inclusion of the Portuguese business in 2016, which put a negative slant on our earnings in 2017. Despite this effect, net profit grew by 1% to 495.2 million euros. The trend in pre-tax profit followed similar lines and increased to 677.1 million euros, around the same figure as last year. In like-for-like terms, in other words stripping out the effect of Portugal, gross and net profit increased by 19.1% and 20.2%, respectively, in line with previous years. This means that in year-on-year terms, the Bank’s profits have maintained a double-digit annual growth rate over the last five years, with 2017 setting yet another record year for results in the Group’s history.
Apart from profits, what other financial indicators would you highlight this year?
Both asset quality and solvency, profitability and efficiency levels have remained very positive. Non-performing loans fell to 3.45%, which is 56 basis points lower than in 2016, and which compares very favourably with the sector average of over 8%. ‘At the same time, we maintained a CET1 capital ratio (‘fully loaded‘, that is assuming in advance the Basel criteria that come into force in 2019) of 11.46%, considerably higher than regulatory requirements. Our profitability, measured in terms of RoE, was 12.6%, the highest among listed banks in Spain. We also improved in terms of the cost-to-income ratio, which closed the year at 46.8%, compared to 48.6% in 2016, and which is a very representative indicator of the sustainability of our results. In summary, we can say that 2017 was a very good year for Bankinter, full of achievements and good projects.
How would you sum up these achievements and projects from the business’s point of view?
‘Our profitability, measured by RoE, is the highest among listed banks in Spain.’
We have five main business lines, very well oriented and complementing each other. Our main source of generating gross operating income is corporate banking, which is an inherent activity for us, since Bankinter began life as an industrial bank. In 2017, corporate banking maintained its moderate growth rate, with the increase in international business particularly standing out. In retail and commercial banking, the higher wealth segments performed well and we are also very happy with the ability of our new payroll account to attract customers. Bankinter Consumer Finance had yet another dynamic year and we are now one of the major operators in the consumer lending business. Portugal also performed well last year, the first full year with us, and experienced notable increases in retail funds and loans and receivables, partly as a result of the country’s improved macroeconomic situation. Finally, our insurance company, Línea Directa, was one of our strongest businesses in 2017, recording growth rates above the market average, both in car and home insurance. In short, I believe that we have a set of very balanced business lines with plenty of room to continue growing.
To what extent can these good results be maintained in 2018 and onwards?
We are working to ensure the growth rate is sustainable over time. As was said before, our cost-to-income ratio has improved. This indicator measures the relationship between costs and income and is very significant in guaranteeing the sustainability of our business model. Certainly, the results obtained in 2017 come from the traditional customer business, and that is the most stable base on which to continue to grow in the future. If we do things right and the economy evolves as forecast, I think we can be ambitious in our growth targets. This does not mean it is going to be easy, because the financial sector faces some major challenges.
What are these challenges?
First of all, regulation. Three new regulations come into force in 2018 that will have a very relevant and direct impact on our activity. On one side is the new IFRS 9 accounting standard, which modifies the treatment of non-performing loan provision and is likely to require us to make more provisions. Two European directives will also come into force, MiFID2, that is changing the way financial products are marketed, and PSD2, that regulates payment services and opens the way for the banks to share information on their customers with third parties, subject to them authorising it. I believe that in general terms the regulation is a good thing, because it requires banks to be disciplined and better organised, but only as long as it is developed within reasonable limits. I think that at the moment it is legitimate to ask if these limits have been exceeded. In any case, at Bankinter we have worked hard in the last few months and we are adequately prepared to deal with these changes.
‘There is a solid demand for loans from companies, especially in relation to overseas business activity.’
Another of our big challenges is interest rates. For over five years now, official interest rates in the eurozone have been below 1%, and are currently 0%, with little expectation of this changing, at least during 2018, despite the price of money starting to rise in the United States. That interest rate scenario narrows our margins extraordinarily and we have to overcome unfavourable monetary conditions with imagination and hard work. Our objective is to make further progress in the process of attracting new customers and offering them higher added value products, so that our business model does not become over-dependent on movements in official interest rates. To do this we must take advantage of the fact that currently, as a result of the recovery, there is a solid demand for loans, especially in relation to overseas business activities, as many companies are investing abroad and need financing.
The third big challenge we face is the impact of technology, both on the processes and services that we offer, and on the consumer behaviour of our customers. This global metamorphosis poses us with major dilemmas as an organisation. On one side we must be capable of combining the service demanded by our traditional customers, who want advisory services, with the needs of our digital customers, who require technology, immediacy and very little dialogue. We are aiming products such as our mortgage that can be arranged 100% online, launched from the Coinc digital platform at the end of 2017, to these digital customers. We must also be careful when and how we adapt to the technological revolution, because the Bank does not always control the rate of change. At times you can implement a technology very quickly, but the customer may be slow to adapt to the changes and this complicates the process. Similarly, we must ensure we have suitably qualified professionals to cover our future needs, because the introduction of new technologies requires changes in that area too. To handle all the problems resulting from technological change in 2017, we strengthened Bankinter Global Services, which is the area responsible for providing the Bank’s technology and operational services, and as such is a key part of our transformation and growth process.
To what extent does the situation in Catalonia affect Bankinter?
It affects us negatively, as it does all of the banking sector and the economy and the whole society in general. It cannot be said that a situation of social, political and economic tension benefits anyone, but it clearly does not benefit the banking sector, which works on the basis of the principles of trust, solidity and stability. Therefore, we cannot speak about banks that have benefited or been harmed by the events in Catalonia. At Bankinter, we always take a long-term view of business and hope that in 2018 common sense will prevail, that social harmony will be restored and that the rate of economic growth recovers so we can continue to increase our market share in Catalonia, as we have done in the last few years.
What are Bankinter’s future long-term objectives?
First of all, we want to remain an independent bank. We have been so throughout out history and we aspire to being the same bank as always. Our track record supports this objective of stability, because we have never merged with anyone and we have not bought anyone in Spain. In such a volatile and fast-moving world as we live in today, we want to preserve our essence. This also means that we must be ambitious in our growth targets, but always be selective, remaining prudent in our risk policy and focusing on profitability. We also aim to preserve our commitment to doing things well and putting a seal of quality on all our products and processes. Our backing of innovation and respect for the customer are other characteristics that set us apart as a bank. All these traits, that historically form part of Bankinter’s DNA, still exist today and will continue to do so in the future, if we adapt them to meet customer needs and market changes.
‘We are ambitious in our growth targets, but we are always selective, prudent in our risk policy and focused on profitability.’
What is your view of the current situation in the Spanish banking sector?
I think the Spanish banking sector has overcome a serious crisis and can now work normally. The consolidation process which has reduced the number of banks from 60 to just 12, is practically completed, except for a few minor loose ends, and the capital adequacy level has increased considerably. What is more I believe that the sector has learnt from the mistakes of the past and is not going to repeat certain behaviour or management failures.
Naturally, there is still much to do, because, as we said before, the challenges in terms of regulation and supervision, the acceptance of technological change and the business model are of great importance and could cause problems for less solid banks. However, I think the restructuring of the sector is now complete and the crisis has been left behind. At times in Spain, we tend to undervalue what is our own, but I have no doubt that we have a solvent, dynamic and modern banking system, which is perfectly comparable with that of other European countries, and in which there is also a high degree of competition. This intense competitive pressure, as well as being paradoxical due to the reduction in the number of players, is very beneficial for customers and is also positive for the banks because it makes us improve and move out of our comfort zone. At European level, the Spanish banking sector is also very well placed in terms of efficiency, though this does not mean that we should not continue to try to improve our cost-to-income ratio.
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