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Earnings

Bankia posts attributable net profit of 237 million euros, up 2.1%

Bankia posted an attributable net profit of 237 million euros during the first quarter of the year; 2.1% higher than in the same period of the previous year on a like-for-like basis.
Bankia Comunicación

By  Bankia Comunicación

Publish on 
29 April 2016

  • Fully-loaded Basel III CET 1 ratio a further 26 basis points higher over the quarter, standing at 12.52%
  • NPLs down 431 million euros, leaving the NPL ratio at 10.5% while the coverage ratio increases and foreclosed assets decrease
  • Business and consumer loans book 0.8% higher over the quarter fuelled by an 11.7% increase in new loans
  • Sales across network remain buoyant, with 36.8 products sold per employee on average
  • New customer strategy sees 19,100 customers arranging for their salaries to be paid directly into their accounts with the Bank (direct deposits) in two months, while new credit card applications almost triple
  • Turning to customer funds, share of investment fund market grows 5.61% after attracting 12.19% of contributions until March
  • Focus on business segment leads to boost in share of trade finance, reverse factoring and POS markets
  • Control over costs and lower provisions help offset drop in income from lower yield on SAREB bonds and Euribor rate moving into negative territory
  • Efficiency rate excluding NTI stands at 50.9%, compared to sector average of 62.2%

Bankia posted an attributable net profit of 237 million euros during the first quarter of the year; 2.1% higher than in the same period of the previous year on a like-for-like basis.

Cost containment and lower provisions thanks to an improvement in asset quality offset the drop in income resulting from the current adverse interest rate climate and the effect of the new strategy of not charging commission launched on 11 January. The 2015 figures do not include the contribution of City National Bank of Florida (CNBF), the subsidiary sold in October. Profit would be 3.3% lower if this is included.

Bankia’s CEO, José Sevilla, underlined that: “the Bank remains strong in a challenging interest rate climate. Bankia’s efficiency is very high and the low level of NPLs has allowed us to set aside less provisions, which result in earnings and profitability remaining stable”.

He went on: “Turning to the balance sheet, the signs are very encouraging. Bankia has considerable capacity to generate capital which makes us increasingly solvent, and the offloading of distressed assets is accompanied by higher coverage of those remaining on the books”.

On the sales side, “the new customer proposition is bearing significant fruits, with an increase in direct deposits, big leaps in the number of products such as credit cards being taken out, and notable gains in the investment fund market”.

Bankia’s CEO went on to say that: “Looking at lending, the results of focusing on extending more consumer loans to households and lending to SMEs are starting to show, with around a 40% rise in billing for new loans”.

Results

Net interest income has fallen (stripping out CNBF) 12.4% to 577 million euros, as a result of the poorer yield from SAREB bonds, the cut in the Euribor rate, with the 12-month benchmark entering negative territory over the quarter, and the decision to remove floor clauses from mortgage agreements.

The process of rebalancing the balance sheet towards assets offering higher returns, especially consumer and business loans, partially compensated these effects which, along with the fall in the cost of funding, led to the gross customer margin rising versus the first quarter of the previous year from 1.40% to 1.56%.

Fee and commission income is down due to the Bank’s new policy on commissions. On 11 January, Bankia announced it would stop charging commission to customers who arrange direct deposits with the Bank.

This benefit for customers, and the fact no irrecoverable loan books were sold off during the quarter led to fee and commission income dropping 13.2% to 200 million euros.

The lower fixed-income portfolio turnover caused a 15.2% slide in net transaction income (NTI), whereby gross income was down 10.6% in the first quarter at 853 million euros. Stripping out the repricing of SAREB bonds, gross income would be down 6.8%.

On the cost side, Bankia continued to strive to cut spending, resulting in a 1.2% decrease in operating expenses and depreciation and amortisation charges. The Bank therefore managed to maintain its efficiency ratio ex NTI at 50.9%, 11.3 points higher than the sector average (62.2%).

The pre-provision margin stood at 454 million euros in the first three months, down 17.5%.

The improvement in asset quality achieved by the Bank meant that provisions could be slashed 41.4% to 128 million euros.

Profit before tax was therefore 315 million euros, in line with the first quarter of 2015, while attributable net profit totalled 237 million euros, up 2.1%. If the CNBF contribution is included, profit would have fallen by 3.3%.

More buoyant sales

Bankia posted great sales figures in the first three months of the year, which have epitomised the Bank’s performance in recent years. The number of products sold per employee rose to 36.8 for the quarter versus 30.7 a year earlier.

On the lending side, Bankia’s focus on awarding more consumer and business loans resulted in 2,889 million euros of loans being arranged – 11.7% higher year on year, with a 37.5% rise in loans to SMEs and the self-employed.

Consequently, the loan book in these segments grew 0.8% over the quarter and 2.3% year on year.

Another area of growth has been trade finance. At the end of March, Bankia boasted a 10.38% share of this market compared to 6.5% in March 2015. Its share of the reverse factoring market went up from 3.95% to 5.7% over the 12 months. Meanwhile, the share of the POS market grew from 12.8% to 13.08%.

Turning to customer funds, the process of diverting funds from term to current and savings accounts continued, above all of off-balance sheet funds. During a highly volatile quarter for the markets, Bankia gained ground in the pension plan market, achieving a share of 7.2% (two basis points higher) and the investment fund market: 5.44% to 5.61%. Year on year, there was a 52 basis point advance. The share of new funds acquired rose from 8.56% in 2015 to 12.19% for the quarter.

Retail activity received a boost from the new customer proposition unveiled in January. Close to three times as many new credit cards were approved compared to the same period a year earlier; up to 79,600 new contracts in February and March. Over these two full months since the campaign was launched, 19,100 customers signed up to have their salaries and pensions paid directly into the Bank.

Digital transformation

Bankia is making notable progress with the Bank’s digital transformation, with an estimated investment of 159 million euros over this year – 77.8% higher than in 2015. This investment is resulting in a better customer service and higher productivity and efficiency in the Bank.

Now, 89% of transactions are performed out-of-branch. 45% of consumer loans are authorised beyond branch doors, compared to 34% a year earlier. During this first quarter, there has been a 2.6-fold increase in the number of these loans arranged by mobile phone and 1.9 times more through other online connections.

Vis-à-vis bringing in funds, 21% more new deposit accounts were opened online, while sales of pension plans through this channel rose 24% year on year.

Higher service quality

The growth in business is happening at the same time as a substantial increase in the quality of service received by customers, according to reports prepared for the sector by Stiga.

Customer satisfaction in the first quarter stood at 86.1% compared to 82.4% in December. This 3.7 percentage point rise is above that achieved in the whole of 2015 of 2.2 percentage points.

Mystery shopping scores are another key indicator of service quality. At March end, Bankia was given a score of 7.66 out of 10 in these surveys, compared to a sector average of 7.05. The gap compared to the Bank’s competitors has also increased from 0.54 to 0.61, since the scores in December were 7.28 versus 6.74.

Less NPLs and greater coverage

Bankia further reduced the balance of NPLs over the quarter by 431 million euros to 12,564 million euros, achieving a cumulative decrease of 7,500 million euros over the last nine months. The NPL ratio dropped from 10.8% to 10.5% over the first three months of the year, while the 12-month fall was 2.1 points from 12.6%.

This reduction in delinquencies was accompanied by an improvement in the coverage ratio of 0.5 points over the quarter to 60.5%, and 1.1 points year on year. At the same time, the Bank has managed to cut its stock of foreclosed assets by almost 9% over the last year to a carrying amount of 2,647 million euros.

Greater solvency

With regard to liquidity, Bankia maintained a loan-to-value ratio of 103.9%. The Bank was able to access the markets over the quarter, placing two mortgage covered bond issues totalling 2,000 million euros.

In terms of solvency, Bankia demonstrated for yet another quarter its strong capital generation capacity. The fully-loaded Basel III CET 1 ratio – which has been hit ahead of the regulatory deadline of 2019 – rose from 12.26% to 12.52%. This figure does not include the gains from sovereign debt portfolios.

BFA’s results

Bankia’s parent, BFA, meanwhile, posted a first-quarter net profit of 262 million euros – down 8% year on year, stripping out the non-recurring result obtained during 2015 from selling off practically all its debt portfolios.

First quarter 2016 highlights

On 11 January, Bankia stopped charging commission to 2.4 million customers, and announced that it would not charge commission to customers with direct deposits. This is the first step in its new customer strategy.

On 21 January Bankia placed a 1,000 million-euro five-year mortgage covered bond issue.

On 4 February, Bankia announced that it had earmarked 1.23 million euros to help differently-abled people find work through 37 NGOs across Spain.

On 5 February, Bankia and the EIB sealed an agreement to jointly lend 1,000 million euros to SMEs and the self-employed.

On 15 February, Bankia handed over 36 homes to the Catalan Regional Government to be rented out at subsidised rates. This takes the total number of homes donated by the Bank to vulnerable families in Catalonia to 152.

On 17 February, Bankia launched a process to refund all their investments to minority shareholders who acquired shares during the Bank’s IPO.

On 23 February, Fitch upgraded Bankia’s rating from 'BB+' to 'BBB-', whereby the Bank regained its status as investment grade.

On 29 February, Bankia Índicex – the tool used by Bankia to help SMEs measure their digital competitiveness – was enhanced by including website security among the six areas of analysis it covers.

On 1 March, Bankia launched ‘its mobile payment’ service through its Bankia Wallet app.

On 3 March, Bankia placed a 1,000 million-euro seven-year mortgage covered bond issue.

On 7 March, Bankia announced that it had donated over 1.25 million euros to 197 social projects chosen by its staff in 2015 as part of the Solidarity Network programme.

At the 15 March General Meeting, Bankia’s shareholders approved a 302 million-euro dividend pay-out (50% higher than in the previous year), 195 million euros of which went to the State, taking the total amount of state aid repaid to 1,627 million euros.

Shareholders also approved the appointment of Antonio Greño as independent non-executive director, replacing Alfredo Lafita.

On 17 March, Bankia increased to 620 million euros its lending with advantageous terms for SMEs and the self-employed through the SME Initiative line of credit; an instrument of the European Investment Fund.

On 17 March, Bankia and FCC sold their stake in Globalvia for 420 million euros.

On 30 March, Bankia launched a new service for arable and livestock farmers to help them apply for 2016 Common Agricultural Policy (CAP) grants.

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