You are stepping down as Bankinter chairman after the Annual General Meeting at your own request. What are you feeling as that moment draws near?
Immense gratitude. Gratitude to our shareholders for their trust. Gratitude to everyone in the bank's team for their commitment. And gratitude to our customers for being so loyal, and so demanding. Bankinter will be sixty in 2025, and I have had the honour of chairing it for seventeen of those years. We have come a long way in that time in terms of our size, our market share, our territorial presence, our quality of service, our capital adequacy and our commitment to society. But none of this would have been possible without the support of our shareholders and the work of our team, or without the push from our customers to become better and better. They have made Bankinter deserve the national and international recognition it now enjoys. It has been an extraordinary experience for me.
What would you highlight from your 17 years at the helm of Bankinter?
I think the most important thing has been the development of our business model: today, we are much more diversified, profitable and resilient. Some of the highlights of recent years include the assets managed by private banking having multiplied by more than four, making us one of the leaders in the Spanish market. Something similar has happened with consumer lending - in which we had only a token presence in 2007 - and international business. We have launched our investment banking and alternative management businesses with extraordinary success, becoming market leaders. And we are now an international brand active in Portugal, Ireland and Luxembourg, in addition to Spain. This all gives us much greater potential and reach.
I am particularly pleased about the leap forward Bankinter has made in sustainability. We are one of the most sustainable entities in the financial sector worldwide. We enjoy well-deserved recognition in this area, which is demonstrated by Bankinter being included in the Dow Jones Sustainability World Index - the flagship international sustainability index - for seven consecutive years. The work of the Bankinter Innovation Foundation has also been outstanding. It has repeatedly been recognised as one of the leading science and technology think tanks in the world.
Building on all this, and our increasingly powerful and diversified business lines, we have more than doubled our assets, lending and market share in Spain since 2006: we made a pre-tax profit of 316 million euros in 2006, whereas in 2023 we exceeded 1,300 million euros*, excluding Línea Directa. Our capital adequacy has also improved significantly. Our CET1 ratio has almost doubled since 2006, and our cost-to-income ratio has improved by almost 15 percentage points. When I take stock of these 17 years, these numbers show a trend and underpin our confidence in the future.
This has only been possible because we have the best team in the Spanish financial system, managed by a brilliant executive line led by our current chief executive officer and future chairman, María Dolores Dancausa. Their work has been extraordinary.
Turning to last year, the subject of this annual report. How would you describe economic conditions in 2023?
The outlook was bad at the start of the year. But the much-feared recession never materialised, not even in the eurozone. The world economy grew more strongly than expected - by three percent. This was led by a very good performance by North America, which grew by 2.5%, and relatively weak growth by emerging economies of 4%; with scant, but positive, growth in the eurozone, at 0.7%. This was marked by employment - which is undoubtedly influenced by demographics - being particularly strong, and inflation - while still high - coming down, particularly core inflation.
Against this backdrop, Spain performed reasonably well, with an increase in GDP and a better improvement in employment figures than our European neighbours, although both of these indicators lost steam after the summer. Domestic consumption and tourism were decisive for this growth, compensating for the slowdown in exports due to the lack of dynamism in the large European economies, which are our main trading partners.
What do you think the prospects are for 2024?
The ongoing war in Ukraine and the escalating conflict in the Middle East between Israelis and Palestinians remain very important sources of geopolitical and financial uncertainty, with significant potential to destabilise economic decision-making in general and the energy market in particular. This will only worsen if new actors appear on the scene, destabilising very delicate situations. Despite this risk, the signs of relaxation of monetary policy by the European Central Bank and the Federal Reserve at the end of 2023 point to a better climate for lending, which is essential for levels of activity to increase.
The main international organisations and analysts forecast a positive performance for the world economy, but with slightly lower growth than in 2023.
Lower growth and falling inflation in expected for Spain. However, the intensity with which fiscal consolidation proceeds - in line with recommendations from Brussels - and financial resources are released for the private sector will be key. With the same objective, the necessary mechanisms must be established for the flow of Next Generation European funds, which raised so many expectations when they were announced.
What do you think about the banking sector?
There were some international episodes that generated concerns in the markets. There was the collapse of Credit Suisse, preceded by a series of scandals that seriously damaged its reputation, and the bankruptcy of Silicon Valley Bank, the second largest in US history.
Both of these episodes were resolved immediately and time has shown they were isolated cases.
In Spain, the return of interest rates to normal levels, after being at zero or negative for many years, has resulted in an improvement in net interest income, leading to a very positive development in profitability for the sector.
There was no significant deterioration in credit quality, largely due to the strong performance of employment.
This does not mean we can stop being vigilant, as restrictive monetary policy will necessarily translate, at some point, into lower demand for credit and economic activity, negatively impacting non-performing loans. The pace at which the European Central Bank decides to relax its monetary policy and lower interest rates in 2024 - as the market expects - will be key, as inflation subsides and economic activity slows.
What do you think about the extension of the windfall banking tax?
We spoke out against the windfall banking tax when it was introduced and appealed against it to the Courts of Justice. However we did, of course, comply with it and have paid it. We believe that a sector tax is, in itself, discriminatory and goes against the principle of the general nature of taxation enshrined in our Constitution, which is a foundation of our modern Treasury. The arguments used to justify it are mistaken. After many years when profitability was greatly reduced by abnormal levels of interest rates (zero or negative), the profits of Spain's banking sector have recovered to slightly more than the cost of capital, which is essential for lending - and with it economic activity - to be able to grow sustainably. When in an off-hand way they say that last year's banking profits were scandalously high - or even obscene, as was said - they forget that they correspond to own funds contributed by shareholders of more than 220,000 million euros. What is a reasonable profit on lending of 220,000 million, which requires capital by law, when the cost of capital is over ten percent?
And in the Single Market, the tax discriminates against Spanish banks compared to their European competitors.
If we opposed the tax when it was created, we are even more opposed to extending it.
What do you think of Bankinter's performance in 2023?
There were two major milestones for profit in 2022. The historical record of 2019 - before the outbreak of the pandemic - was beaten, despite no longer having the income from Línea Directa. And the objective set for 2023 was reached a year early. So the bar was set very high. Even so, we had another excellent year, with significant improvements in all account margins and ratios.
Although I do not want to stray into what our chief executive officer is going to say in the following pages, I would like to offer a few examples that clearly demonstrate the health and robustness of our bank. Our return on equity (RoE) rose by no less than six percentage points, to 17.1%. Our highest quality capital (fully loaded) stood at 12.3%, almost five points higher than the regulatory minimum requirement the ECB has set for Bankinter. And our non-performing loans remained at an optimal 2.1%, compared to a sector average of 3.5%.
In 2023, the health and strength of Bankinter enabled it to once again be the most resistant Spanish bank to an adverse scenario in the stress tests of leading European financial institutions by the European Banking Authority and the European Central Bank, under the worst three-year economic scenario ever proposed. And we were one of the 5 best among the 70 European banks in the exercise.
Thanks to this strong performance in all areas, we can once again fulfil our commitment to distribute a dividend equivalent to 50% of our profit. Therefore, the board of directors plans to submit a proposed final dividend of 96,823,850 euros for the consideration of the Annual General Meeting. This means our shareholders will receive 422,393,685 euros against our 2023 results, 51% more than in 2022.
Did Bankinter continue its commitment to innovation in 2023?
The sections of this report detail our main innovation initiatives introduced last year. I will mention some of them as an example.
We have improved our loan offering with the creation of our Dual mortgage, which combines the advantages of fixed- and variable-rate mortgages. This is not a typical mixed mortgage. Both interest rates coexist throughout the term of the loan, each affecting the part of the principal decided by the customer. This is a step forward in the tailoring of such products.
Our new fund manager, Bankinter Investment SGEIC, S.A.U., launched the first alternative management fund, enabling small investors to access a wide universe of investments in the real economy in a diversified way that was previously restricted to high-net-worth and institutional customers, given the large amounts involved.
With regard to equity investing, we launched our "Broker 0" service, which enables customers to trade in the Spanish market at zero cost, with the only requirement being that they make the securities deposited in their accounts available to the bank for its securities lending service.
Finally, at a time when the financial industry is exploring the use of generative artificial intelligence, we have already begun the implementation of ChatGPT for internal use, subject to the strictest security standards. This will make us more efficient when comparing documents, analysing complex texts, writing some communications, and translating and summarising large volumes of information. Of course, this will always be supervised by our employees.
Innovation is why the Foundation exists…
Absolutely. Innovation and entrepreneurship, through the four programmes that are its core pillars. The Future Trends Forum, a think tank comprising more than 700 national and international experts in a range of fields, mainly related to science and technology, which is one of the most recognised of its kind in the world. Akademia, which has already enabled over 2,000 students from 12 universities to access the knowledge of the experts in the think tank. Startups, a project through which the bank has so far invested in the initial phases of development of fifty such companies. And Scale Up, a programme to promote the consolidation and growth of successful startups.
We also have a fifth programme - Cre100do - which is designed to foster the Spanish middle market. It was launched ten years ago and has merited becoming an independent foundation due to its success and impact on Spain's business community.
The ultimate objective of this is to transform society, not just by creating knowledge but by sharing it and applying it in decisions that have real impact. The Foundation has been promoting this for twenty years, an anniversary that was celebrated in 2023 with a major event at Madrid's Callao cinemas, which addressed key issues such as artificial intelligence and the energy transition.
That was not the only anniversary in 2023…
2023 also marked thirty years since the launch of a unique business model - Bankinter Partner, which features 270 large companies, including almost all of the Ibex index. These companies have signed agreements with Bankinter, which offers their employees tailored financial services and products under special conditions through specific virtual offices, sharing the profits the activity generates with them.
With 47,910 customers, a loan book of 3,400 million euros and management of more than 14,000 million euros of savings and investment, this business model has established itself as an original and pioneering banking formula for Spain and is obtaining an increasingly significant weight in Bankinter's accounts.
Let's talk about sustainability, which the bank has been committed to for years.
Indeed, Bankinter has been developing a sustainability strategy based on solid corporate governance foundations and committed to social and environmental management. We are establishing a responsible culture that integrates ESG (Environmental, Social and Governance) criteria into the Group's value chain. We do this to promote the economic growth and social development of the countries where we operate and to protect the environment. Managing sustainability provides a magnificent opportunity for innovation and for the sustainable transformation of the economy, comparable to the digital transformation in which we have also been pioneers.
Within the Strategic Sustainability Plans we have implemented over recent years - such as the one we completed in 2023 - I would highlight the management of environmental and social risks, both those deriving from operational activity and those associated with financial activity. For example, we achieved neutrality in our carbon footprint in 2020, and we have calculated the CO 2 intensity of our financial activity, for which we have defined a path of progressive decarbonisation to achieve net zero emissions before 2050.
We have identified and are capturing the new business opportunities that are emerging in the necessary transition to a sustainable economy. We are working with our corporate customers on the transformation and adaptation of their business models for the needs of this new economic system.
I should also mention our management of the quality of the service we provide to our customers, and our management of the people who are part of our Group, which promotes diversity, work-life balance, health and talent.
Bankinter's commitment to sustainable and inclusive development, and excellent performance in managing environmental, social and governance aspects, have been recognized by the leading ESG rating agencies and analysts, which have ranked the bank in the main sustainability indices, such as the IBEX ESG, the selective FTSE4Good and the Dow Jones Sustainability family, which recognises Bankinter as one of the twenty-seven most sustainable banks in the world. These are excellent non-financial credentials that go hand-in-hand with the Group's exceptional financial results in the last financial year.
* Without considering the banking windfall tax (77 million euros), to make the figure for PBT comparable with previous years.
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