A good year in a complex environment

The 2018 results confirmed the strength of Bankinter's strategy, which is focussed on five complementary lines of activity (Corporate Banking, Commercial Banking, Consumer Finance, Línea Directa and Portugal) and focussed on the customer business to ensure stable, sustained growth over time.

All business lines performed positively over the course of the year, despite the complicated backdrop, which was worse than expected. Interest rates remained very low, or negative, putting a squeeze on margins, whilst securities markets evolved poorly, affecting the asset management business. The macroeconomic scenario also deteriorated, due to growing political instability (Brexit, Italy, Germany), the loss of momentum in the main European economies and trade tensions.

Despite this general climate of mistrust and uncertainty, results for the year demonstrated that the strategic model works. Traditional business lines, like Corporate Banking and Commercial Banking, maintained steady and stable growth rates (around 5%), while less mature lines registered very significant increases in income (in Consumer Finance, for example, they increased by 32%); as a result, their weight as a whole at the entity is steadily increasing and their composition is being realigned.

Customer orientation The orientation towards recurring business has also borne fruit. Both the customer margin and its weight in activities at the bank as a whole performed positively during 2018. These excellent results were supported by the strong management of volumes (based on active commercial management) and prices, which decreased on account of pressure from the competition, although not quite as much as expected. The contribution of digital transformation processes was also decisive in the improvement of results, both in Corporate Banking and Individual Retail Banking.

Meanwhile, generally speaking, costs were contained, although there were more significant increases in the insurance business and in Consumer Finance, which, based on their nature, required relevant investments in terms of attracting customers and marketing to continue growing.

Other characteristics of the year were as follows:

• Commercial banking. In 2018, this business line closed the gap to Corporate Banking and in 2019, it is foreseeable that it will end as the main contributor to the Group's business thanks to the contribution of its two star products: payroll accounts and mortgages.
• International business. Despite the impairment of international commercial activity, growth remained strong, thanks both to the financing of business projects and the relationship business (fees associated with payments and collections, guarantees, currency hedging and so on).
• Portugal. Ended the year strongly. Its results were better than expected, with balanced growth in different lines of the business (worth note are the stimulus provided by Corporate Banking and the contribution of Bankinter Consumer Finance in its first year) and the significant increase in new customers.
• Private banking. This strategic business to the Bankinter Group was affected in 2018 by the contraction of the securities markets and the subsequent loss of investor confidence. However, the high capacity of professionals and the traditional service quality offered to customers, made it possible to retain Bankinter's position as a point of reference in a very competitive market.
• Investment banking. Had a good year in terms of its ordinary advice activities and financing of business transactions. Furthermore, it actively collaborated in the placement of alternative investment funds in the Private Banking sector; this exclusive product helped to overcome volatility on the stock market and the bonds market.
• Insurance. It was another excellent year in this segment. Bancassurance activities, performed in collaboration with Mapfre, continued to perform well. In turn, Línea Directa, which is an important complement to the banking business, also had another year with excellent, despite price competition in the automotive market intensifying during the year.
• Mortgages. Mortgage production performed at a notable pace, with an increase in sums conceded of almost 20%, despite the controversy caused by the Supreme Court ruling, which distorted the market for weeks.
• Payroll Account. The star product in Individual Retail Banking had another spectacular year, partly as a result of the downgrading of conditions of similar offers made by the competition. The arrival of new customers through the Payroll Account division generated added value, thanks to the possibility of cross sales and greater productivity.

The great unknown in 2019

Expectations about the near future are still plagued by uncertainty. Problems in the macroeconomic scenario (trade tensions, loss of dynamism in the economy, Brexit) look unlikely to be resolved in the near future. There is also a question mark over the securities markets; although they should react positively following significant losses in 2018. In terms of the price of money, it is likely that the Euribor will progressively rise to around 0%, although given the slowdown of the European economy, official rates are not expected to be increased by the European Central Bank in 2019.

Special mention should also be made of acquisition of the banking business of EVO Banco in Spain and Avantcard, its consumer loan subsidiary in Ireland, which is expected to materialise in the first quarter of the year. The transaction has a strategic element. In terms of the banking business of EVO Banco in Spain, which is very focussed on digital customers, its integration will help Bankinter to improve its position in the young audience with a self-service profile, which is attracted by the model employed by fintech companies. Therefore, in terms of Avantcard, its acquisition will complement the range of Consumer Finance products and enhance the geographic diversification of the entity.