The return on ordinary activity over average total assets (ATA) stands at 1.07%, compared to 1.18% in September 2007, primarily due to increased provisioning efforts.
All margins in the consolidated income statement show increases above 10% annually in absolute values and improvements in profitability percentages over average total assets. The favorable performance of the net interest margin is particularly noteworthy, exceeding the figure obtained in September of last year by €3,928 million (a 16.7% increase), both due to higher managed volumes (average total assets grew 7.69% annually) and the maintenance of spreads. Specifically, the profitability of the net interest margin improved by 16 basis points, reaching 2.01% of average total assets.
Higher results from entities valued using the equity method on one hand, and on the other, results obtained from financial operations—more than €650 million of annual increase in each of these items—offset the sluggishness of net fee income and insurance activity as well as lower foreign exchange results, bringing the ordinary margin to 3.43% of average total assets, with an increase of 11 basis points compared to September 2007.
Operating expense growth remains contained, increasing at rates lower than those of average total balance, resulting in an efficiency ratio of 38.15%, compared to 39.75% a year earlier. Thus, the operating margin of €26,993 million exceeds the figure achieved in September 2007 by €3,253 million (13.7%).
This improvement is entirely absorbed by higher loan loss provisions (€3,251 million more) made in the first three quarters of 2008, with a 72% annual increase, and by higher provisions (€906 million more). After positive results from discontinued operations and corporate income tax expense, the attributed profit for the period remains at similar levels (+0.44%) to those of September 2007.
Regarding the consolidated balance sheet, total assets as of September 30, 2008 amount to €1.89 trillion, 7.17% higher than a year earlier.
Customer loans, which represent 64.5% of assets, maintain an annual growth rate of 6.5% and show an estimated non-performing loan ratio of 1.87%, with coverage funds constituted equivalent to 112% of doubtful loans. Customer deposits, meanwhile, grow at an annual rate of 7.87%, while consolidated equity has increased by 9.43% since September 2007.
Consolidated own funds remain high, with an excess of €30,907 million (41.4%) over the minimum required regulatory capital and a BIS ratio of 11.41%. Likewise, the TIER 1 ratio as of September 30 stands at 7.83%, 35 basis points above that of a year ago. These ratios demonstrate the high solvency of our institutions, given their risks and a diversified, sound, efficient, and profitable business model.
The strength and capitalization level of the Spanish banking system have been recently recognized by the International Monetary Fund. Its solvency ratios compare very favorably with those of its international competitors, which show risk profiles and provisioning levels very different from those of Spanish banks and which, in some cases, have required rescue or recapitalization by their governments.
Furthermore, the aggregate individual income statements of Spanish banks, which include Spanish subsidiaries of foreign entities, show a profit as of September 30, 2008 of €10,106 million, €265 million more (2.7%) than in September 2007. The return on average total assets stands at 0.98%, compared to 1.10% in September 2007.
As with the consolidated statement, in the individual statement the margins achieved are higher in amount than those corresponding to the previous year, although in this case, the return on average total assets decreases due to the strong increase experienced by these assets, exceeding 15% annually. Thus, the net interest margin increased by 18.58% and the ordinary margin grew by 10.32% in absolute values, despite lower fees charged to customers for the provision of non-banking services.
The moderate growth of operating expenses allows for a further improvement in efficiency, which shows a ratio of 36.78% compared to 38.29% in September of last year, and places the operating margin at €15,235 million, 13.28% (€1,786 million) higher than in the same period of the previous year.
The higher results achieved in the operating margin are allocated entirely to higher provisions for loan losses and provisions, with increases of €2,040 million and €298 million, respectively, over those recorded in September 2007.
Regarding the aggregate balance sheet, total assets amount to €1.44 trillion, 12.7% higher than a year ago.
Despite lower financing demand, customer loans have increased by €75 billion in the last twelve months, representing an annual growth rate of 10.1% compared to September 30. The non-performing loan ratio for credit to other resident sectors stood at 1.96%, with constituted funds representing 113% of doubtful loans.
Customer deposits have increased by more than €42 billion during the same period (6.9% annual increase) and balances of marketable securities issued and subordinated liabilities by another €22 billion (9.3%). Meanwhile, in the individual statements, the equity of Spanish banks, €92,192 million, represents 6.41% of the aggregate total balance as of September 30, 2008 and exceeds that existing in September 2007 by 11.4%.
