Letter-Interview with the CEO

Letter-Interview with the CEO

‘Bankinter had an excellent year across all its lines of business’

María Dolores Dancausa, Chief Executive Officer

Our results are not only satisfactory; they are also robust and sustainable over time

How were Bankinter’s results in 2018?

The results for the year were undoubtedly very satisfactory. For the fourth consecutive year, the Group achieved the largest profit in its history, confirming the strength and sustainability of its activity. Net profit grew by 6.3% to 526.4 million euros. The trend in pre-tax profit followed similar lines and increased to 721.1 million euros, up 6.5% compared with last year. As a result, the Group’s level of profitability, measured in terms of ROE, stood at 13.2%, one of the highest levels amongst listed banks in Spain. Our margins also continue to improve year on year. Net interest income totalled 1,094 million euros in 2018, up 5.8% year on year, and operating profit stood at 936.4 million euros, an increase of 6.5%.

And how was the year in terms of capital adequacy?

The capital adequacy indicators also performed very well. The fully-loaded CET1 capital adequacy ratio. (assuming a year in advance the Basel criteria for 2019, stood at 11.75%), a level comfortably higher than regulatory requirements. Equally noteworthy is the good result obtained by Bankinter in the stress tests conducted in 2018 by the European Central Bank, in parallel to those carried out by the European Banking Authority (EBA). In the adverse scenario posited,(in conditions of severe macroeconomic tension), Bankinter would have a healthy fully-loaded CET1 capital ratio of 10.61% at 31 December 2020, which represents a minimal impact compared with the current figure. This result is one of the best in the European banking sector and illustrates Bankinter’s ability to cope in crisis situations.

What other indicators stand out in 2018?

Asset quality, which is one of our traditional strengths, remains positive, with a nonperforming loan ratio which continues to fall: it stood at 2.9% across all banking activity in Spain and Portugal and 2.84% when limited to lending activity in Spain, less than half of the sector average figures released. We are also making progress on the efficiency front, with the expense to revenue ratio improving by almost a percentage point to 46.8%.

In short, how could we rate the year?

We can rate 2018 as an excellent year overall, which confirms the Group’s strength in terms of profitability, capital adequacy, asset quality, resilience to adverse external environments and efficiency.

The acquisition of EVO Banco and Avantcard complements and diversifies our business structure

Within this trend of improvement, which were the outstanding business segment areas?

All the business segment areas grew and made a positive contribution to our results. Both the most mature areas, such as Corporate Banking, Commercial Banking and Línea Directa, and the youngest areas, including Consumer Finance and Portugal, had a magnificent year; in particular the latter two units, which confirms the wisdom of the decision to launch them in 2013 and 2016. Furthermore, they all showed a balanced development underpinned by recurring revenues.

At Corporate Banking, which makes the biggest contribution to gross operating income, the loan portfolio grew by 3.2% in Spain, with support for the international business activities of companies faring especially well. We know this internally as International Trade Finance. Commercial Banking also made satisfactory progress, with excellent results for products such as payroll accounts, mortgages and investment funds. Línea Directa Aseguradora delivered another strong performance, posting above sector average premium growth. Bankinter Consumer Finance continued with its extraordinary growth rate for customers and investment, while at the same time maintaining a strict and rigorous selection policy for credit risk granted.

I would like to make particular mention of the results of Bankinter Portugal, one of the lines doing most to drive the diversification of our revenues. Its activity is outperforming expectations and within a short space of time it has become a growth driver for the Group. In 2018, Portugal progressed in all business segment areas and its gross operating income increased by 14%. Furthermore, pre-tax profit followed totalled €60 million, almost doubling the figure from the previous year.

Also worthy of a particular mention is our digital activity, which is one of the cornerstones of our transformation process as a Group. 92.5% of our customers are now considered digital, either exclusively or occasionally. The success of our financial services portal COINC, whose users have grown by 17% in a year, is a reflection of this reality.

The Group has posted record results for four years running. Is it possible to continue this trend in 2019 and thereafter?

That’s our intention though we are aware that it won’t be easy, especially in the current environment, which is so full of uncertainty and changes. But, if in the past we have been able to rise to the challenges we have faced and to grow in adverse circumstances, I think that, with the good work, dedication and unwavering attention of everyone who works for the bank, we will achieve all the goals that we set, even in a new and undoubtedly complex environment in which technological, regulatory and legislative changes are multiplying and accelerating. We will need to be able to respond swiftly but above all effectively to all these challenges.

The banking sector is at a crossroads and needs to take decisions that will shape its future

How does the acquisition of several EVO Banco businesses fit into this future strategy?

While working to ensure that our main lines of activity grow organically, we remain alert to the opportunities that arise in the market to complement and diversify our business structure. This is the rationale behind the agreement to purchase the banking business of EVO Banco in Spain and of Avantcard, its consumer credit subsidiary in the Republic of Ireland, which we announced in the final quarter of 2018. This transaction, which we expect to be approved by the regulators and competent authorities in the first quarter of 2019, is going to provide the Group with a significant boost.

We are strengthening and enhancing two of the pillars of our business: our activity in digital banking and the growth capacity of Bankinter Consumer Finance, to which we are adding, while at the same time increasing our geographic diversification.

In summary, I think it is an acquisition that can and must enrich the offering of Bankinter while also diversifying our activity and preparing us for a future where technology is set to play an even more key role than it does at present.

If we widen our focus to the sector as a whole, what are the expectations for the future?

The banking sector in Spain and Europe is at a crossroads and needs to take key decisions for its future. It’s true that this sector has strengthened its capital structures and, therefore, is better placed to cope with any adverse situations that may arise in the future. However, profitability levels need to be addressed and are far from attractive owing to low interest rates, the direct and indirect costs associated with the increase in regulatory obligations, which are very high, and the fierce competition. In addition, the digital transformation, and the changes in customer behaviour that it entails, oblige the entire sector to review its business model in an environment that is set to be more complex and open than ever before.

And to this must be added the general problem of reputation, which is very difficult to deal with as it is partly due to the inherent characteristics of our activity and also to recent episodes such as the doubts caused by the mortgage tax ruling. These do not help to restore the credibility which I feel that the sector merits for its transformation, restructuring and modernisation endeavours in recent years. But it is necessary to persist and to clearly communicate that channelling saving, encouraging investment and facilitating relations between economic agents make a crucial contribution to economic growth, social progress and the prosperity of society.

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