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Strategy: overcoming challenges

In 2017 Bankinter's strategy was fundamentally focused on sustainable and balanced growth, with a business based on customers, who ensure a solid and recurring income base and guarantee returns maintained over time. These strategic objectives are being pursued in a macroeconomic environment with both light and shade. On the positive side, the improvement of the Spanish economy helped the business; on the negative side, the downward trend in interest rates continued and even accentuated, with the resulting unfavourable impact on banking business margins.

There was an additional challenge for 2017 growth targets: beat the previous year's profit, taking into account that to do this the need to be offset the extraordinary item for the badwill generated in the acquisition of the business in Portugal in 2016. The final net profit reached 495.2 million euros, 1.04% more than a year earlier. Measured in like-for-like terms, in other words, without taking into account these extraordinaries in the comparison and only including the figures for the business in Spain, Group net profit increased by 20.2% and pre-tax profit by 19.1%.

To achieve this, the Group focused even more closely on several of its strategic cornerstones, such as innovation, which is one of Bankinter's characteristic traits and allows it to have a differentiated offer of products and services in the market; and digitalisation, which responds to customers' demands and at the same time offers the possibility of improving the Bank's efficiency. 

Another important dimension of its strategy was the diversification of revenue and profit, which enabled a balanced contribution between the various lines of business to be achieved. Although corporate banking remains the main area of activity, the notable growth of retail and commercial banking, Bankinter Consumer Finance, Portugal and Insurance enabled a more homogeneous business mix to be generated, in which the traditional lines, with less potential to expand, evolve solidly and are adequately complemented by the faster rate of growth of those areas with greater upside potential. 

At the same time, the Bank has strengthened its business lines that are less dependent on net interest income, such as added value products and services for corporate banking (including transactional banking, international business and investment banking), wealth management for private banking customers and personal banking and other businesses less affected by low interest rates, such as Insurance.

Similarly, the Bank made a big marketing push to attract customers and increase its volume of activity, with the aim of ensuring the sustained flow of revenues, which in any case was combined with a prudent pricing policy and a rigorous and high-quality risk analysis. 

The results in 2017 of these strategic guidelines on the main areas of work were as follows:

Digital transformation. The digitalisation process, which was supported in 2017 by the strengthening of the Bank's technological structure, was focussed on generating business, with particular attention to attracting customers and to sales. To do this, the new projects centre on tangible proposals, that should give results in the short term and the rate of application of which should be carefully measured, with the aim of adapting them to meet customers' needs and preferences. The development of COINC, the 100% digital financial services platform that Bankinter created in 2012, is one of the pillars of the Bank's digital innovation. 

Portugal. The results of the Portuguese business developed positively over the year. All aspects of the integration of the Barclays retail business, the acquisition of which was completed in 2016, have now virtually been concluded and the results of the loan book were very positive. It was also a very good year for attracting customer deposits (investment funds, unit linked and so on) and the business evolved towards a personal and private banking customer profile, in line with the model for Spain. The good performance of the Portuguese economy, which has now exited the EU excessive deficit procedure and has been awarded an improved credit rating, helped to achieve these excellent results.

Private banking. This business is one of Bankinter’s identifying traits due to its ability to permanently reinvent itself with differentiated products and to compete in a very complex market. In 2017, the business grew significantly. The assets attracted were of high quality.

Corporate banking. It was a good year for this business segment area, thanks in particular to the SME business, whose contribution to earnings grew considerably. corporate banking, which focuses on the big companies, had more difficulty in growing, in an environment characterised by intense competition and in which these types of companies depend less on bank financing. The international business is a major driver of the area (generating 24% of its gross operating income), both for the financing of business projects and for the relationship business (fees associated with payments and collections, guarantees, currency hedging and so on). 

Bankinter Consumer Finance. This has been one of the most important drivers of growth over the last few years. The consumer loans market has much higher interest rates than other products and this enables to the boosting of net interest income, which was hit by the downward trend in the Euribor and its impact on mortgages. The area is supported by a very rigorous risk analysis team, which applies Big Data evaluation techniques to reduce risk exposure. Agreements with third parties (Vodafone and Air Europa) expanded the scope of the business and generated quality customers.

Insurance. The bancassurance activity, which is developed in partnership with Mapfre, was one of the business lines that most grew in fees, both in pension funds and life insurance, home and general insurance, as a result of a major sales drive. Línea Directa, which is an important complement to the banking business, also had another year with excellent results in terms of profitability and capital adequacy, and increased its product range with the launch of a promising new health insurance policy. 

For 2018, the Bank is working on the assumption that official interest rates will continue at 0% and, therefore, that net interest income will also continue to find it difficult to grow, although there is no fear of credit spreads worsening. On the other hand, the macroeconomic environment is expected to be favourable. The performance of the main developed countries economies will be good and synchronised, and there is also a positive outlook for Spain, with Catalonia the only uncertainty, although it seems that the worst part of the political conflict has now ended. In this scenario, it is key to further extend the strategy of attracting customers to increase the volume of activity. 

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