Specifically, consolidated groups obtained an attributed profit of 4,683 million euros, representing a 36.4% increase compared to the same quarter of the previous year. Profit before tax rose by 29.1% to 6,553 million euros, while the aggregate account for individual banks reached 3,720 million euros, an 80% increase.
Regarding profitability, measured in terms of the balance sheet (ROA), it rose to 1.03%, an improvement of 37 basis points. On a consolidated basis, it stood at 1.21%, 18 basis points higher than in March 2006. ROE (return on equity) also experienced strong year-on-year growth.
Although first-quarter results are heavily influenced by gains from the disposal of securities in the available-for-sale portfolio, the fact is that without these and other extraordinary gains, results for the period would have grown by 38.8% in individual statements and 13% in consolidated statements compared to the first quarter of 2007.
The positive performance of banks in the first quarter is reflected not only in increased results but also in their quality and recurrence, which can be seen in the improvement across all margins. This progress in margins is due to both the quality, recurrence, and improvement of income, as well as cost containment.
Regarding income, if dividends—the most volatile part of this item—are excluded, the increase in the net interest margin is 13.6%, a rise driven by higher intermediated volumes and better management of contracted spreads.
As a result of all this, the net interest margin, which had been experiencing a prolonged decline for several years, has begun to recover slightly in this first quarter. Nevertheless, Spanish banks continue to operate with much narrower spreads than those in other European Union countries, a long-standing situation resulting from the intense competition that characterizes the Spanish banking market.
Furthermore, the first quarter was characterized by strong growth in net fee and commission income, due to a higher volume of activity and a diversification of income sources—primarily toward securities activity and contingent risks—as well as considerable savings in commissions paid. This progress occurred despite the containment seen in fees for payment method services, a result of the recent commercial policy of some banks that have lowered the cost of these services for their customers.
Operating expenses remain contained, with growth lower than that of total assets; the efficiency ratio continues to improve and is now below 40%, both in the individual aggregate and the consolidated total. This high level of efficiency is especially significant considering that Spanish banks have specialized in the commercial banking business, oriented toward serving customers locally, which requires extensive branch networks.
Although the number of employees and branches continues to grow, the level of efficiency has continued to improve because the sector has been recording steady advances in productivity, whether measured by resources generated per employee and branch, or by loans and deposits.
During the first quarter of 2007, banks continued the process, initiated in previous years, of diversifying credit investment in a clear attempt to anticipate the slowdown in the mortgage market, although an orderly and gradual adjustment of the construction sector is expected.
In this credit reorientation process, lending to companies and consumer financing stand out. However, banks have also continued to diversify their funding sources, thereby managing to reduce their dependence on interbank financing; maintain lower exposure in the fixed-income portfolio; and intensify their financing through the issuance of securities and securitizations to adapt the balance sheet to a rising interest rate environment.
Regarding geographical diversification, a key strategic line for some Spanish banks, it can be said that subsidiaries represent 30% of the average total assets of the aggregate consolidated balance sheet and contribute 40% to the consolidated result.
Despite the strong growth in activity, Spanish banking maintains the strength of its balance sheet, both due to the high level of equity available and the low non-performing loan ratio of its investments and their high coverage level.
Equity remains high, with a BIS solvency ratio of 12.31%, representing a surplus of 53.91% over the minimum required capital.
Furthermore, credit growth has not led to an increase in the non-performing loan ratio, which is slightly lower than a year ago, nor a reduction in coverage, which remains at the same levels.
Although these ratios could suffer some deterioration in the future, the fact is that, currently, the non-performing loan rate is at record lows and coverage is very high; therefore, the current situation allows the future to be faced with great confidence.
