Spanish banks achieved an attributable profit of 5,310 million euros in the first half of 2013, 2,136 million more than in the same period of 2012. This result, which represents a 67% increase and a return of 0.44% on average total assets (ATA), is significantly better than that achieved in previous half-years, but it is still below the usual profit levels of prior years.
It is important to recall that, from the perspective of write-downs, 2012 was a unique year due to the application of two Royal Decree-Laws on extraordinary sector restructuring, which led to an unusual effort in provisions and now distorts the year-on-year comparison of attributable profit for both periods. Even so, the volume of provisions and allowances established during the first half of 2013, amounting to 12,382 million euros, represents 1.02% of ATA and is still much higher than the average level reached in the five-year period 2007-2011, which was 0.88% of ATA.
The economic scenario has stabilized throughout the year, although it remains adverse for banking activity. Lower credit demand and low interest rates explain the contraction in financial income and costs observed since the end of 2011, leading to a 10.7% decrease in the net interest margin for the first half of the year, 27 basis points lower on ATA than a year ago. Net commission income also decreased by 4.5% annually, although it showed a slight improvement in the second quarter of the year, similar to the net interest margin.
Despite the foregoing, Spanish banks have defended their gross margin, which amounts to 38,091 million euros, only 3.7% lower than that for the first half of 2012, due to good results obtained from financial operations, mostly from the realization of capital gains on the portfolio of available-for-sale fixed-income financial assets and from foreign exchange gains.
Higher extraordinary profits from sales and discontinued operations have offset lower results from business combinations, as well as the increase in minority interests and tax expenses, so that consolidated attributable profit increased by 67.3% compared to June 2012, reaching 5,310 million euros.
As of June 30, 2013, the total consolidated balance sheet of Spanish banks stands at 2.36 trillion euros, 3.8% lower than a year ago, marking a decrease for the third consecutive quarter. Weak economic activity and lower demand have led to a 7.3% reduction in lending (109,094 million euros) compared to June 2012. The non-performing loan (NPL) ratio, affected by economic deterioration and credit contraction, rose to 7.8%, almost two percentage points higher than a year ago, with coverage remaining above 60% (62% compared to 67% in June 2012).
On the liabilities side, customer deposits experienced a significant increase of 53,852 million euros, or 4.6%, over the last 12 months, which has placed the loan-to-deposit ratio at 114%, 15 percentage points lower than a year ago. Furthermore, the reduction in funding obtained through the issuance of debt securities continues, now representing 43,991 million euros less than in June 2012.
Funding needs derived from typical activity have decreased considerably, allowing for an improvement in the financial position of Spanish banks and a reduction in resources taken from financial intermediaries to 95,048 million euros (185,417 million a year earlier). Net recourse to central banks has been reduced to 9,551 million euros.
Liquidity also improved, as fixed-income securities portfolios collectively increased their balance by 42,254 million euros, a 12.9% annual rate.
Spanish banks continue their uninterrupted effort since the beginning of the crisis to increase their own funds. In the last twelve months, these have grown by 6.1%, reaching 166,800 million euros, which now represent, for the first time, 7% of the total balance sheet. The BIS ratio rose to 13.2%, with a Core Capital of 11% under Basel II criteria, 80 basis points higher than a year ago.
In summary, in the first half of 2013, Spanish banks continued their policies of deleveraging and balance sheet clean-up, improving their funding and liquidity position, and strengthening their solvency.
Regarding individual statements, the aggregated total balance sheet amounted to 1.53 trillion euros as of June 30, 2013, 5.4% lower than in June 2012. Over the last twelve months, there has been a decrease in typical funding needs, reflected in a 34% annual reduction in net recourse to central banks and credit institutions.
During this period, credit decreased by 81,000 million, or 9.2%. The non-performing loan ratio rose to 11.7% from 8.7% a year ago, with a coverage level representing 69% of doubtful balances, 11 percentage points higher than in June 2012.
The balance of customer deposits increased by almost 66,000 million euros, or 9.8% annually, placing the loan-to-deposit ratio at 109% (131% a year earlier).
Own funds, with a slight decrease in the last twelve months due to aggregated negative results at the close of 2012, now represent 8.3% of the total balance sheet, 0.5 percentage points above the previous year.
The income statement shows a 2.9% annual decrease in gross margin (502 million euros less), driven by lower interest and commissions, partially offset by better results from financial operations and foreign exchange differences.
Provisions for insolvencies established during the first half of 2013, although not comparable to the extraordinary regulatory requirements of the previous year, continue to maintain a high level, at 6,261 million euros, equivalent to 0.80% of ATA. Higher extraordinary results from discontinued operations have contributed to raising the accounting profit as of June 30, 2013, to 3,095 million euros, representing 0.40% of average total assets and comparing very favorably with the 729 million euros obtained in the same period of the previous year.
