THE NOTABLE INCREASE IN DEPOSITS HAS ENABLED IMPROVED CREDIT GRANTING AND REDUCED DEPENDENCE ON WHOLESALE MARKETS
OPERATING INCOME GREW BY 10% THANKS TO THE QUALITY AND RECURRENCE OF RETURNS FROM CORE BANKING ACTIVITIES
TIER 1 CAPITAL EXCEEDS 104,000 MILLION EUROS AND CORE CAPITAL (HIGHEST QUALITY REGULATORY CAPITAL) RISES TO 9% OF RISK-WEIGHTED ASSETS
For the third consecutive year since the international financial crisis began, Spanish banking groups have closed a fiscal year with highly satisfactory results. Specifically, Spanish banks obtained a consolidated attributed profit of 14,078 million euros in 2010, 5.8% lower than the figure recorded a year earlier. These positive results, together with the strengthening of solvency and the notable reduction in wholesale funding, constitute the three fundamental elements of the 2010 banking year.
Regarding solvency, the ratio referring to the highest quality regulatory capital (core tier 1) reached 9% in December 2010, with an increase of 64 basis points compared to the close of the previous fiscal year. In the case of the tier 1 ratio, the level rises to 10.1%, from 9.6% in December 2009, with a tier 1 capital volume exceeding 104,000 million euros, according to information published by the Bank of Spain.
As of December 2010, the consolidated balance sheet of Spanish banking groups was 127,000 million euros higher than that existing at the end of the preceding fiscal year, representing a growth of 6% to reach the figure of 2.2 trillion euros. Of this increase, 68,000 million euros correspond to the increase in customer lending, which grew by 5% compared to the outstanding balance at the close of 2009.
The funding structure has been characterized by an increase of more than 162,000 million euros in customer deposits, which has enabled Spanish banks to very significantly reduce wholesale funding of their activities, improve their financial balance, and reactivate their core lending activity.
Thanks to the increase in deposits, it has been possible to reverse the dependence on funding obtained from central banks to reach a net lending position of approximately 50,000 million euros, the most comfortable since the beginning of the crisis. Likewise, this advance in deposits has enabled an increase in customer lending at the aforementioned annual rate of 5%. And finally, it has offset the reduction of 63,000 million euros recorded by resources raised through the issuance of negotiable securities.
The positive evolution of the balance sheet experienced throughout the past fiscal year has been reflected in an improvement in the deposit-to-loan coverage ratio to reach a level of 80%, eight percentage points higher than that existing in December 2009 and almost 18 points since the beginning of the crisis in mid-2007.
The non-performing loan ratio experienced a slight increase of 26 basis points (compared to 166 basis points in 2009) to stand at 4.37%. For its part, the coverage level with provisions remains stable at 65%, barely 1 percentage point below the level reached the previous year.
As has been occurring almost uninterruptedly since the beginning of the crisis, accounting equity increased at a rate higher than that of assets, 9.7% in 2010, and raised its weight to 6.6% of the total balance sheet. In particular, the positive evolution of equity stands out, growing at a rate of 10.6% during the year, both through capital raising via issuances in the capital markets and through organic generation via undistributed results accumulated as reserves.
Regarding the income statement, the high recurrence of income from ordinary activities stands out, as shown by the increases recorded in net interest income and gross margin, of 858 and 1,209 million euros, respectively. This has not prevented, given the evolution of interest rates throughout the fiscal year, the return on Average Total Assets (ATA) of net interest income from falling from 2.33% in 2009 to 2.24% in 2010. This trend is also observed in the lower return on assets of the gross margin which, nevertheless, for the first time exceeds 75,000 million in a fiscal year.
Operating income grew by 10%, that is, it was 1,946 million euros higher than that of the previous fiscal year. The return on assets of this item also improved, rising from 0.93% in 2009 to 0.97% a year later. This result is reached after deducting operating expenses of 33,000 million and provisions and impairment losses on financial assets of 21,000 million euros (1.49% and 0.96% on ATA, respectively). Despite the moderate upturn in operating expenses, the efficiency ratio stood at 43.6%, slightly above the 41.3% of the previous year.
The lower non-recurring results obtained in 2010 from gains on sales and the higher corporate income tax expense contributed to the attributed profit of Spanish banking groups standing at 14,078 million euros, 5.8% lower than that recorded in 2009 and eight basis points lower in return on ATA (0.63%).
The sum of the individual balance sheets of Spanish banks rose to 1.5 trillion euros as of December 31, 2010, a size that remained practically stable compared to that of the previous year, although it recorded a slight increase of 0.6%. Regarding its composition, the same trends already noted in the consolidated balance sheet are observed.
In aggregate terms, an increase in core activity is observed, both in customer deposits (10.4%) and in lending (3.8%). Consequently, the deposit-to-loan coverage ratio also improved, rising from 79% in 2009 to 84% a year later. The non-performing loan ratio in individual accounts stood at 5.8% with coverage of 57%. The aggregate non-performing loan and coverage figures include doubtful balances transferred from savings banks to the aggregate balance of banks, due to the restructuring process of these institutions.
Unlike what occurred in the consolidated accounts, in the individual aggregate net interest income decreases by 16.1%, which means going from a return on ATA of 1.37% in 2009 to 1.13% the following year. This evolution is due to the fact that financial income has decreased at a rate higher than that recorded by costs. However, the operating margin increased by 8% (eight basis points on ATA) thanks to the good performance of dividends received and results from financial operations, to which was added the notable effort made in cost containment. In this area, the improvement experienced by the efficiency ratio by more than one percentage point stands out, rising from 40.9% in 2009 to 39.3% a year later.
The increase in the operating margin before provisions could only partially offset the worse performance of non-recurring results and the increase in provisions, 23.3% higher than those made in 2009. Thus, the result for fiscal year 2010 of Spanish banks reached the figure of 8,402 million euros, 16.1% lower than that obtained in fiscal year 2009 and 12 basis points lower in terms of return on ATA.
