How were Bankinter's results in 2023?
They were very satisfactory, with Bankinter again achieving record profits. These profits were generated from our ordinary activity with our customers, not from financial operations or other types of extraordinary income.
The bank's net profit increased to 845 million euros in 2023, 51% higher than in 2022, despite the negative impact of the new financial sector tax, which represented an expense of 77 million euros for Bankinter.
These are our best-ever figures in terms of income, business volumes and customer acquisition, which show a pattern of gradual growth with no fluctuations. And most importantly, this is happening in a balanced way across all our business lines and in all the countries where we operate, from corporate banking to consumer lending, and from Bankinter Portugal to Avant Money in Ireland.
These figures also represent record lending, record retail funds, record net interest income and record fees, and, therefore, record gross operating income. This is all paving the way for our results to continue to be excellent in the future.
How do you explain these outstanding growth rates?
They are due to a combination of multiple factors. Favourable movements in interest rates obviously contributed to the improvement in our results. But it would be unfair to ignore the influence of the commercial drive by the network on this, which has enabled us to increase our loan book, and our defence of our net interest margin, our strategic focus on key segments and the effects of past investments. These initiatives have been successful and are bearing fruit. They include the expansion of our activity to Eurozone countries outside Spain, and projects and new businesses that have been successful or that have generated greater efficiency in our operations.
What other indicators for 2023 would you highlight?
The growth of all balance sheet items and effective management of spreads have enabled us to improve all our account ratios, which provide a true picture of our activity.
Profitability was one of the outstanding indicators in the year, with Bankinter leading listed banks in Spain. Our return on equity - RoE - improved to 17.1%, the highest level in the last decade, while our ROTE was 18.1%.
Bankinter Group's efficiency - its operating cost-to-income ratio - has continued to improve. We ended 2023 with a cost-to-income ratio of 37.3%, down 670 basis points compared to 2022.
Turning to capital adequacy, our CET1 (fully loaded) capital ratio was 12.3% - with a significant margin over the minimum 7.8% set for us by the ECB - and the lowest in the sector. This indicator is representative of the sustainability of our results. It is particularly commendable when we consider the inflationary backdrop of the Spanish economy in 2023. With regard to liquidity, our customer funding gap remained negative, meaning we have more customer deposits than loans, with a ratio of 106%.
And our non-performing loans remained similar to the previous year and consistent with all our asset quality indicators. This ratio stood at 2.1%, just 1 basis point higher than last year, close to the levels before the 2008 crisis.
Focusing on non-performing loans, how has the framework agreement with the government to help with mortgage payments for taxpayers who are vulnerable or at risk of becoming vulnerable worked?
The reform of the framework of codes of good practices - which includes facilities for bank customers with difficulties paying their mortgages - is working well. However, we have not received many requests. This is good news for two reasons. First, it means that the payment capacity of vulnerable customers has not suffered significantly at the moment due to robust levels of employment and accumulated household savings. Second, it means the banks are doing things well, and that we have our own mechanisms for mitigating the burdens on mortgage holders who have payment problems. No one is more interested in helping their customers in these circumstances than the banks.
Bankinter will always look for tailored solutions to help our customers overcome temporary difficulties. We demonstrated this during the 2008 crisis and again throughout the coronavirus pandemic, with measures to help companies and families. And we are doing it now, of course, when higher interest rates have increased mortgage payments.
Bankinter's lending increased in 2023 while the trend in the sector as a whole is the opposite, due to weak demand. Why is Bankinter going against the current?
Demand for credit contracted in Spain during the year, mainly due to the tightening of monetary policy by the European Central Bank (ECB) to fight high inflation. But Bankinter has been able to manage this dynamic, increasing its loan portfolio by 4% in the year. This was due to loans to companies, mortgages from Ireland, Portugal and EVO, and the consumer lending business, which more than offset lower mortgages in Spain. In short, it is because we have a diversified strategy, both geographically and in types of products, and because we have stayed close to our customers.
How would you sum up these achievements and projects from the point of view of the business?
The bank's diversification strategy has continued to work, in both our most mature and established areas and in our international business lines, particularly Portugal and Ireland, which grew more quickly.
Our Corporates business, which contributes most to the Group's income, maintained its solid commercial momentum, increasing its lending - unlike the sector - despite the difficult environment in which it was operating. Its loan portfolio increased to 32,800 million euros, 4.6% higher than in the previous year. This was mainly due to the dynamism of International Business activity, where the loan portfolio now exceeds 8,800 million euros, and effective management of European funds.
Growth in all segments of commercial retail banking - banking with individual customers - remained constant, with assets under management for Wealth Management and Retail Banking customers exceeding 100,000 million euros for the first time, up 11% on the previous year.
This growth was particularly strong for what are known as "value products", which are more tailored to the profiles of each customer and generate greater returns for the bank through fees and commission. The increases in investment and pension funds were notable, as was the increase in wealth management, due to attracting external assets and internal transfers from accounts and deposits.
On the asset side, Bankinter Group's residential mortgage portfolio increased by 3.5% to 34,900 million euros, due, in particular, to growth in the Irish and Portuguese markets. Cooling of the real estate market due to increases in interest rates was most noticeable in new mortgage production, which was 14% lower than in 2022. However, despite this, we continued to improve our market share, which now stands at 7% in Spain.
Bankinter's activity in other geographies performed very strongly. This is best represented by our Portugal business, which confirmed our best expectations in 2023. The excellent growth in lending, customer funds and off-balance sheet funds fed through to the income statement, with pre-tax profit of 166 million euros, more than double the previous year.
Our business in Ireland also performed positively, through the Avant Money brand. Its loans and receivables increased by 34%, to 3,000 million euros, with mortgages, a relatively recent activity in Ireland, growing by 41% in the year to 2,200 million. We have already established ourselves as a very important player in this area.
Our activity in Ireland is consolidated through our Bankinter Consumer Finance subsidiary, which also reported extraordinary figures. In addition to Avant Money's mortgage portfolio, its consumer activity achieved strong momentum during the year, particularly the personal loan portfolio, which increased by 19% to 3,100 million euros.
Finally, EVO Banco, the Group's digital brand, was also very dynamic, particularly in the mortgage market and the consumer business. Its loan book increased by 25% during the year, to 3,400 million euros.
With these business foundations, what is the growth strategy for the immediate future?
We are committed to organic growth. This has always been the case at Bankinter and we have no reason to change now. We have a defined and well-established strategy, with no wavering or changes of course, that is clearly identifiable for customers, analysts and investors. Therefore, we are going to continue with a business model based on diversifying our sources of income, controlling costs and risks, and applying technology to our processes to improve our efficiency and the quality of service for our customers.
This does not mean we would not be interested in takeover and partnership opportunities that might complement our main businesses, provided they are prudent and suitable for our scale. This is what we did in Luxembourg, Portugal and Ireland, and with the acquisition of our digital bank, EVO.
For example, it is worth noting the agreement signed by Bankinter Consumer Finance and the Portuguese group Sonae in 2023 to establish a joint venture that will create the first consumer credit institution in the Portuguese market, with a portfolio of more than one million customers. We are very excited about this operation. It will strengthen Bankinter's presence in Portugal and may lead to other partnership agreements in future.
The strong results in the banking sector over the last two years have opened a debate about the surplus capital generated. What is Bankinter's view?
In general, at times of uncertainty - like those we are living through - it is prudent to try to preserve capital, because this uncertainty means we do not know whether we are going to need more own funds to cover any incidents that affect asset values or non-performing loans. And if the strong performance of the business generates capital levels that exceed what is reasonable, we think the surplus should be dedicated to growth and investing in new projects. That is why we are not considering the possibility of share buy-backs, which other banks have done. Our dividend, with a 50% payout, is very attractive for investors in itself. We see no need to complement our dividends with this type of operation.
Regulators and supervisors are pushing Spanish banks to increase remuneration on deposits. What are the expectations for the coming months about this?
With the utmost respect for everyone's opinions, I believe that the remuneration of liabilities should be an individual decision for each bank, as part of their commercial strategy, based on variables such as interest rates, competition, and their balance sheet management and liquidity levels.
If we analyse all of these variables, I believe it is very unlikely that there will be a war to capture or retain customer deposits in the sector, as there was at the end of the last century in Spain. We do not even expect a generalised offer by large or medium-sized banks, although a certain trend towards a gradual increase in the cost of liabilities has been observed.
Bankinter does not currently see a need to remunerate savings in general. We do pay interest on certain products, such as our Salary Account, the EVO Banco Smart Account and our Digital Account, as part of our business strategy. But we do not pay interest on all deposits, and we do not plan to do so in the short term.
Approval of the European Next Generation funds generated great expectations, in the belief they could be a powerful driver of growth for the Spanish economy. Have these expectations been met?
Not fully. The processing and implementation process would need to be speeded up. This is a huge opportunity to revitalise the Spanish economy and we cannot afford to miss it. These funds must be taken advantage of as they have the potential to transform and modernise sectors that will be key for the future. The banks should play a major role in the transmission of this aid. We are eager to work with the authorities to make distribution of these funds as efficient as possible.
Bankinter has been proactive in helping all companies - from SMEs to large corporations - with plans to advise them on managing and presenting projects. And we complement these with other financial solutions, such as guarantees, advances of funds and complementary funding.
Considering all of this, how might Bankinter develop in 2024?
It will be difficult to repeat such a positive year for income and profits, with such a fast growth rate, as 2023. The improvement in net interest income, which made a major contribution to boosting our results last year, will probably be more limited, as repricing of the loan book is running out. The increase in interest rates also has some side effects. These include higher liability costs and a trend, which is just beginning, towards an increase in non-performing loans, particularly for consumer credit.
We must also keep a careful eye on signs of a slowdown in the real estate market, both residential and, in particular, commercial. Extension of the banking tax will not help either. In addition to eating into our profitability, this tax negatively impacts investor confidence in Spain, as we have often pointed out.
We must also consider a foreseeable cooling of economic activity and keep an eye out for signs from key indicators, such as weakness in exports or household savings, with the reserves accumulated during the pandemic starting to run out. It never hurts to remember that banking is very dependent on the performance of the economy.
But having said that, I do not doubt that Bankinter will continue to grow in size in 2024 and will continue to maintain a robust position of leadership for asset quality, capital adequacy, profitability, efficiency and liquidity in Spain.
We cannot talk about 2024 without considering the proposed changes to the bank's senior management, which will be effective from the date of the forthcoming Annual General Meeting, 21 March. In particular, you are leaving your position as chief executive officer and becoming the non-executive chairman. What is the objective of these changes and what might they mean for the future of Bankinter?
The Bank's board of directors has proposed my appointment as non-executive chairman, replacing Pedro Guerrero, who is stepping down at his own request, and the appointment of Gloria Ortiz, the head of Commercial Retail Banking, as the new chief executive officer. This is an internal replacement that is part of the normal course of business, fitting perfectly into the renewal policy for Bankinter's management positions. I believe it is a necessary step forward to contribute new points of view to the bank's management, enhance its strategy and extend its path of success, always respecting the principles of prudent growth, quality and innovation that have characterised it throughout its history.
My work in the Bank will change significantly. After many years managing day-to-day activities, I will be leaving behind executive duties and starting to oversee the main lines of our strategy, in accordance with our governance model and European Central Bank guidelines. I am taking on this new challenge with great enthusiasm, convinced that Pedro Guerrero's brilliant career as chairman will serve as inspiration and guide me to lead Bankinter to the leading place it deserves.
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