Earnings are growing at a steady pace despite falling interest rates

Gloria Ortiz. Chief Executive Officer of Bankinter

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What do you think about the performance of the economy in 2024?

The Spanish economy demonstrated significant strength, exceeding the expectations and outperforming other developed countries, both in terms of growth and employment, largely due to the activity in the tourism sector, household consumption and the export sector. The Portuguese and Irish economies, in which Bankinter has an increasingly important stake, also performed positively, in contrast to the concerning weakness of the French and German economies.

Some threats are still on everyone's mind and, in some cases, they represent harsh realities. For example, the war between Russia and Ukraine or the highly tense situation in the Middle East. Trump's arrival at the White House also poses much uncertainty. And then there is, of course, the downward correction of interest rates, which directly affects economic and financial activity.

How did the downward correction of interest rates affect the banking sector?

In 2024, the fall in interest rates somewhat compressed banking profits due to its negative impact on net interest margin. However, this effect was offset by the significant increase in fees and, in the case of Spain, by the positive consequences of the economic boom, which allows a greater volume of investment to be secured, maintaining the historically low default rates. These positive dynamics influenced the sector's stock price, which grew by more than 20%.

In this macroeconomic and sector context, how was Bankinter's performance?

I think we can say that the results of the year were very good, as they increased at a sustained pace and reflect the bank's ability to continue growing organically in a context of lower interest rates. Customer credit increased by 4.18%, reaching 80 billion euros. Gloria Ortiz. Chief Executive Officer of Bankinter Bankinter 2024 Integrated Annual Report 8 Of particular note was the growth rate of off-balance sheet assets, which totalled 58 billion as of 31 December, i.e. a 22% increase. Net income amounted to 953 million euros, representing an improvement of 12.8% compared to 2023 and a return on equity of 17.9%, compared to 17.1% in the previous year.

Thanks to the intense commercial activity, all operating statement lines in the income statement improved, including the interest margin, which closed at 2.3 billion euros, 2.9% above the previous year, despite the drop in interest rates, as mentioned above. The bank's fees rose by 15% to 717 million euros, driven by the asset management business, payment and collection transactions, and the brokerage business. The customer wealth of the Commercial Retail Banking area increased by 12%, with an additional contribution of 14 billion euros. The Corporate & SME Banking area's loan book increased by 6%, up to 34.7 billion. Moreover, a new step forward was taken within the territorial diversification process, so all income generated by the subsidiaries in Portugal and Ireland now represent 15% of the Group's gross operating income.

These results are a new record for the bank, which has been achieved despite the fact that for another year we had to face the bank levy, which we consider unfair and discriminatory. The tax, which is being appealed and is an anomaly on the European tax map, meant deducting 95 million euros from profits. Nevertheless, I think we can legitimately say that for yet another year we have exceeded the most optimistic expectations.

A bank's profits are important, but so is its financial soundness...

This is a fact. This is why we are committed to making Bankinter not just a dynamic, diversified and profitable bank. Moreover, Bankinter is still seen as a benchmark in terms of asset quality, with a non-performing loan ratio of 2.11%, one of the lowest in the sector and a cost-to-income ratio of 36.3%, the best in the Spanish banking sector. Also noteworthy is the bank's comfortable position in terms of solvency, which is reflected in a CET1 capital ratio of 12.41%, i.e. 440 basis points higher than the minimum required by the European Central Bank for Bankinter for 2025: 8.01%, the lowest among listed Spanish banks.

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.

One of Bankinter's main developments in 2024, which will be implemented during 2025, was the decision to merge with EVO Banco, which until now had been operating as an independent subsidiary. What is the reason for this operation?

When we merged with EVO in 2019, we thought it made sense to have a stand-alone, digital-only business with a simple value proposition and the capacity for growth and profitability. Five years later, with EVO already profitable and growing at double digits, we have demonstrated that this project was viable. However, we now believe that it is the right time to start a second phase. For several reasons. We aim to equate the return on equity of EVO with that of all other businesses of the bank. We also seek to make EVO's innovations in the digital realm transcend all our customers, something that has not been happening until now. We believe that the operation will allow us to meet both objectives more quickly, since we combine investment strength and economies of scale with digital talent, all of which will allow us to attract more customers.

What other milestones characterised the past year?

The merger with EVO was not the only strategic decision adopted in 2024. The creation of a new Digital Organisation (which will incorporate EVO's customers) was also agreed, which will be a key tool for customer acquisition in the future. With regard to our products, we achieved some significant successes. The growth of the investment fund business was very positive and the Bankinter Premium Fixed Income fund became the third largest in Spain in terms of inflows. During its first year, 15,774 customers opened the Digital Account, with a balance of 1.7 billion euros. Likewise, the volume of the Dual Mortgage totalled 250 million. Moreover, two areas celebrated very important and highly successful anniversaries. Partner Banking, which already has over 50,000 active customers, thanks to the agreements signed with large corporations, celebrated its thirtieth anniversary, as did Bankinter Investment, a pioneer in alternative investment, with a committed capital exceeding 5 billion euros.

What are the bank's expectations for 2025?

I am very optimistic. The drop in interest rates will force us to manage margins well, because there will be a narrowing of the net interest margin, but I believe that we will be able to compensate for this with higher volumes and higher earnings from fees and intermediation. We are also confident that the commitment and enthusiasm of our professionals will help us face the upcoming challenges. To sum up, I believe that in 2025 we are in a position to improve on the record profits of 2024, to maintain the high level of return on equity and to maintain the growth rate of all our businesses. Moreover, I hope that geopolitical risks, which are a source of great uncertainty, remain contained. Having said all that, I have no doubt that in 2025 Bankinter will continue to be a strong leader in the Spanish market in many aspects, such as asset quality, solvency, profitability and efficiency. In addition, in 2025 we celebrate the bank's sixtieth anniversary, the perfect reason to feel proud of what we have achieved in the past and to be excited about our future achievements.