In what kind of macroeconomic environment did the Bank carry out its activity in 2017?
Overall, 2017 was quite a good year from the viewpoint of economic activity. Last year we began to see the global and domestic economic cycle clearly change from contractionary to expansionary. The consolidation of this new and better environment is occurring despite the uncertainties that are affecting geostrategic and political stability.
In Spain, GDP growth was balanced and rose by over 3% for the third consecutive year, thanks to strong performances in consumption, investment and exports.
Central banks began, though tentatively, the slow process of removing monetary stimulus. In the United States the Fed raised interest rates three times in 2017 and the ECB began to reduce the size of its liquidity injections into the eurozone. This is an indication that there is an adequate process of economic stabilisation taking place, as it is clear that monetary stimulus is becoming less needed. In other words, the global economy is beginning to be able to function adequately without external help.
Perhaps the most positive aspect of this growth cycle is its high degree of geographic synchronisation. It is not easy to identify a major economy that is being left out of this process. This fact is especially important for the future performance of Spanish companies abroad and, in particular, it reinforces the long-term sustainability of the growth cycle. These factors taken together offer a hopeful starting point for 2018.
Will it be possible to maintain this growth trend?
‘We can trust that the positive inertia of the economy that is underway will extend into 2018 and even beyond.’
I think so. Economies have some strong inertias, both positive (expansion) and negative (contraction), which are not easy to break down in the short term. I think we can trust that, barring unexpected events, the positive inertia that is underway will extend into 2018 and even beyond. It is worth remembering that, in general, expansionary cycles last two or three times longer than contractionary ones. At least this is what economic history since the start of the twentieth century tells us, and there are currently no concrete arguments to cast doubt on this fact. What is more, now that we are in the twenty-first century, the ever faster advance in technology combined with the more professional management of the economy, both public and private, should further reduce the likelihood of this trend reversing.
How do you see the situation in the banking sector?
The banking industry is a survivor of a set of adverse conditions that occurred over a period of ten years (2007/2017). As a result, there are currently only a dozen banks remaining in Spain, when before the financial crisis there were more than sixty. The survivors among us are stronger and have more solid balance sheets than ever before. This puts us in a good position to take advantage of the improved climate that we believe will gradually be seen over the next few years.
On one side the recovery of activity volumes benefits us, combined with an improvement in credit quality thanks to the upturn in the economic cycle. On the other side, it is very difficult to see interest rates falling and it is most likely they will rise. This is not something we will see short term in the eurozone, at least during 2018, but it will eventually have to happen, as it already has done in the United States. This will also be a positive factor in sector results.
That said, we cannot forget the threats, which are many, mainly resulting from the competition of companies related with the latest technologies; excessive, at times suffocating, regulation; and even the possibility of bubbles forming due to excess liquidity.
What role will digitalisation play in all this?
A very important role, as it is not only increasingly demanded by customers, but it is also vital to give the business scalability without the need to incur the costs that an extensive branch network requires.
Up to now Bankinter’s digital channels have been directed towards transactional banking, in other words, to facilitate the self-service banking of our customers. This has enabled Bankinter to have a much smaller physical branch network than would correspond to its market share. However, today’s technology allows us to give a new impulse to digital channels so that they support sales and attract new customers, giving them a much greater commercial orientation and not merely a transactional one. In this regard, in 2017 we introduced a new Individual Banking website with a much improved customer experience, and tools to attract customers, such as simulators, comparison tables and search engines, along with selling a bigger product range.
We feel particularly proud of the mass use our customers now make of virtual channels in their relationship with the Bank. 91% of our customers are digital, either pure (31%) or mixed.
From the viewpoint of internal digitalisation we are redesigning our processes and applying new technologies to them, such as facial recognition, OCR (Optical Character Recognition) and BPM (Business Process Management), to reduce the processing times and internal resources dedicated to administrative tasks. All of this will lead to an improvement in the quality perceived by customers, of the productivity of commercial staff and finally in processes more adapted to the digital world.
Does that mean we should forget the way we have done banking before now? Absolutely not. In the highest segments, human relationships and advice remain a core part of our value proposition, in which the physical branch network will continue to play a central role, but it will dedicate more time to sales, to attracting customers and advisory services, and much less to operational tasks.
What would you highlight about Bankinter in 2017?
‘The achievement comes from an exceptional human resources team, which is motivated, committed and has decisive leadership.’
The most important factor has been the strength of our commercial activity. In a market which, despite the economic boom, is still decreasing (loans, the Bank’s main source of income, continue to decline), Bankinter alone has been able to grow and, therefore, gain market share in all segments, both for individuals and businesses. We have grown in individual retail banking, personal banking, private banking, in SMEs, in medium-sized enterprises and in corporate banking
We have also done so in those businesses which we consider strategic and which we have focussed on over the last few years. This has been the case with consumer finance which performed exceptionally well with growth of 42% in the year. International Business and Investment Banking also did well and made a significant contribution to the Bank’s results.
Línea Directa Aseguradora has once again had a brilliant year. It has grown significantly, gaining market share in the car insurance and home insurance categories. It has launched a new line of business, health insurance, through the Vivaz brand. It also beat its record profits, which is a major achievement in a year in which it has invested heavily in growth.
Finally, I must highlight the fine performance of the business in Portugal. In the first full financial year since we acquired the branch network from Barclays in 2016, we have achieved significant in customer funds and loans and receivables and made a profit. The operational integration is also now practically complete.
In my view it is a very notable event, bearing in mind that this is the first significant overseas acquisition that Bankinter has undertaken in its history.
In summary, 2017 was once another record year for Bankinter, and one in which we also laid down solid foundations for our future growth.
The good performance in 2017 has been possible, thanks to the trust of our customers, and the professionalism, dedication and hard work of our employees.
The achievement comes from an exceptional human resources team, which is motivated, committed and has decisive leadership.
To everyone who forms part of that team, I want to congratulate and thank them.
What about the Bank’s results?
Although the chief executive officer will refer to the results later, I would like to highlight two things.
The first is the amount. Net profit reached 495 million, our highest ever, meaning that at Bankinter we have now beaten our record profits four years in a row. In addition, this year there were no extraordinary items, unlike last year when we had 145 million euros of EBT resulting from the badwill generated in the Portuguese acquisition, having bought it at a very favourable price. Stripping out this effect, net profit grew by 20.2% in the year.
The second factor I want to highlight is the quality of the results.
As I have said, there were no extraordinary items, but in addition they have come almost exclusively from business with customers.
EFTs (earnings from financial transactions) were 61 million euros, just 3.3% of gross operating income. The Bank’s debt portfolio is less than 150% of our own funds, which is considered to be technically correct to cover interest rate risk.
These results have provided a RoE (return on equity) of 12.6%, the highest by some way among Spanish banks and one of the best in commercial retail banking in Europe.
If we add to this our solid capital and liquidity ratios, which our chief executive officer will comment on in more detail, and our low non-performing loan and foreclosed assets ratio, we can conclude that we are in an enviable position to face the future.
In summary, Bankinter ended 2017 more profitable and solvent than it started.
In what ways will shareholders notice these improvements?
Mainly in two ways.
The first is the share price. It went up by 7.4% in 2017. This increase is significant, if we put it in context. Our share is the bank stock that has increased the most in value in the IBEX 35 in each of the last four years. Also, in the entire five-year period from 2013 to 2017 (both included) our share price increased the most among the 40 banks listed on the STOXX® Europe 600 index.
The good results for the year, which were partially discounted by the market, have seen our share price rise by 17% in the month of January 2018.
The second way is through dividend yield. This year we are proposing to the annual general meeting of shareholders, the payment of a cash dividend totalling 247.6 million euros, an increase of 24%, in both the total dividend and dividend per share, compared with last year. We believe this is a reward to our shareholders that is line with results and at the same time ensures the conservation of capital and the maintenance of an appropriate level of capital adequacy.
What is new in Bankinter’s commitment to sustainability?
It is a clear commitment, that comes from our belief that everyone, from all of our respective areas of activity and as far as is possible, must contribute to a better world. We are delighted that our efforts have been recognised, as was shown last year when Bankinter was included in the Dow Jones Sustainability Index Europe, the stock market index that includes those companies with the best social, environmental and corporate governance performance in Europe.
In 2017 we continued developing the objectives set in the ‘Tres en raya’ (‘Three in a row’) plan, which is so named because it aligns the three dimensions of Bankinter’s sustainability policy: economic, social, and environmental. What is the aim of it? Basically to establish a balanced, transparent and clear relationship with our stakeholders (shareholders, customers, employees, suppliers and society in general); to assist with the financial integration of people with disabilities; to undertake the responsible management of people, as the Bank’s primary asset; contribute to the development of the community; and reduce our impact on the environment to a minimum.
Elsewhere in this report their is a detailed description of the achievements of this plan. However, I will take this opportunity to emphasise the Bank’s commitment to sustainability, which increasingly permeates all areas of our business. It is a commitment that has a clear effect on corporate governance, which is subject to the most demanding international practices and the planned requirements of the European Banking Union.
‘I want to emphasise the Bank's commitment to sustainability, which increasingly permeates all areas of our business.’
I would also like to express my recognition of the commendable work carried out by the Bankinter Innovation Foundation, which aims to find answers to our concerns, especially in relation to the key role of innovation and entrepreneurship in human progress. It has four programmes focused on achieving this. The Future Trends Forum, which is the top science and technology think tank in Spain and the 27th in the world, according to the University of Pennsylvania. The Akademia programme, which spreads the importance of business innovation in the major university centres and helps students to start-up new self-employment projects. The Entrepreneurs programme, which invests capital in the early stages of these projects. Cre100do which collaborates in the growth and internationalisation of medium-sized companies, helping to make them bigger.
We believe that the fruits of these four programmes, along with the specific characteristics of our business, will occupy an important place in the Bank’s legacy.
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