Spanish banking groups obtained an attributable result of €2,243 million in the first quarter of 2014, representing a 28.6% decrease compared to the same period in 2013. This decline is primarily explained by the absence of extraordinary results, €829 million less, without whose effect the pre-tax return on average total assets (ATA) remains stable and even shows a slight increase.
In an environment not conducive to banking activity, with reduced economic activity growth and low interest rates, Spanish banks are defending business margins in the upper part of the income statement which, together with the reduction in operating expenses (-2.4%), have allowed them to improve the efficiency ratio and maintain high provisions and allowances: a total of €6,268 million, €499 million more than in the same period of 2013.
In closing balances, the aggregate balance sheet of Spanish banking groups, at the end of March 2014, stood at €2,246,731 million and showed a decrease of 7.8% compared to that existing one year earlier.
Analysis of the balance sheet shows, on the liability side, lower recourse, in net aggregate terms, to resources taken from central banks and other credit institutions amounting to €19,068 million (-20.7%), as well as a slight decrease in deposits taken from customers of €16,213 million (-1.3%). Likewise, the balance of marketable securities issued decreases by a total of €54,185 million (-14.2%).
This reduction in liabilities is reflected on the asset side in a decrease in investment in fixed-income securities of €22,789 million (-6.3%) and in a decline in customer lending of €67,183 million (-4.8%), percentages that must be considered in relation to the aforementioned contraction of the balance sheet by 7.8% annually. This decline in lending, together with the increase in doubtful assets, causes the non-performing loan ratio to rise to 8.5%, slightly more than one and a half percentage points compared to one year earlier, although coverage remains at 57%. On the other hand, the loan-to-deposit ratio (LtD ratio) has been reduced to 113%.
The aggregate equity of Spanish banking groups increased by €5,528 million, representing 3.4% more compared to the balance existing in March 2013. This strengthening is also observed in eligible own funds, which maintain a solvency ratio above 12% of risk-weighted assets, despite the fact that the new and more demanding CRD IV/CRR regulation began to be applied from January 1, 2014. The new Common Equity Tier 1 ratio, calculated for the first time as of March 31, 2014, stands at 10.68%.
In the first quarter of 2014, the income statement of Spanish banks shows insignificant variations compared to the previous year. Net interest income increases by 1.6% and gross margin shows a slight decrease of 0.4%. However, when both margins are considered in relation to lower ATA, they improve profitability by 23 and 29 basis points, respectively, on an annual basis.
This stability in the main margins of banking activity, together with the decrease achieved in operating expenses (-2.4%), improves the efficiency ratio by one percentage point, bringing it to 47.9%, and, above all, allows maintaining a high rate of provisions and allowances.
Spanish banking groups have continued their efforts to clean up their balance sheets during the first quarter of this year. From January to March they provisioned €6,268 million, €499 million more than in the same period of 2013. This greater effort in allowances and provisions places the result from operating activities and the result before taxes at levels similar to those of 2013, at 0.63% and 0.65% on ATA, respectively.
However, the absence of extraordinary results explains the decrease in the attributable profit of Spanish banks compared to the first quarter of the previous year by 898 million euros (-28.6%), reaching 2,243 million euros. Individual Statements
The individual aggregate balance sheet of Spanish banks shows the same trend as the consolidated balance sheet. At the end of the first quarter of 2014, the total assets of Spanish banks reached €1,397,381 million, 11.66% less than that existing one year earlier.
The evolution of equity items over these last twelve months is also similar to that explained in the case of the consolidated statement. On the liability side, net recourse to central banks and other credit institutions decreases by €23,546 million (-16.7%), the balance of customer deposits falls by €19,211 million (-2.6%), and the balance of securities issued is drastically reduced by €46,709 million (-24%).
On the asset side, customer lending falls by €49,330 million (-6.1%), as well as investment in fixed-income securities amounting to €40,697 million (-16.6%). This evolution of lending allows the loan-to-deposit ratio (LtD) to improve by four percentage points to stand at 108% in March 2014.
The only relevant increase is that which occurs in equity items, which increase by €6,138 million, representing 5% more than that existing one year earlier. For its part, the non-performing loan ratio reaches 14% as a consequence of the increase in doubtful assets and the decrease in the balance of the loan portfolio, with a coverage level, similar to the consolidated one, of 58%.
In the individual income statement, there is some different behavior compared to those explained in the consolidated statement. The 11% decrease in net interest income is offset by the good performance of results from financial operations, such that gross margin and operating margin before provisions increase by 9.7% and 16.9%, respectively.
As occurred in the consolidated statement, the analysis is somewhat different when observing returns on ATA. Net interest income maintains the same return, 0.88%, while gross margin and operating margin before provisions improve by more than 30 basis points to reach returns of 2.38% and 1.33%.
The level of allowances and provisions remains very significant and reaches €2,317 million in the first three months of the year, only €150 million less than one year earlier. Once the extraordinary results of the previous year, absent this year, have been taken into account, and after recording €211 million more for income tax, the result for the year stands at €1,913 million, 41.9% higher than that obtained in the first three months of 2013.
