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Earnings

BFA-Bankia beats targets and earns 818 million euros in 2013

The BFA-Bankia Group achieved like-for-like net profit of 818 million euros in 2013, thus accomplishing the goal set in the Strategic Plan 2012-2015 of obtaining earnings of 800 million euros.
Bankia Comunicación

By  Bankia Comunicación

Publish on 
02 February 2014

  • Bankia achieved net profit of 509 million, or 608 million if the effect of the subordinated loan is excluded
  • Pre-provision profit is up 2.3% thanks to the recovery of core banking business revenue and the reduction of expenses
  • Bankia generated more than 200 basis points of EBA capital, ending 2013 with an EBA core tier 1 ratio of 11.71%
  • The balance of non-performing loans held stable over the year and without the reclassification of refinanced loans would have been down some 1,200 million euros
  • The Bank increased its managed customer funds (strict deposits plus off-balance-sheet funds) by 763 million euros in the fourth quarter
  • Bankia granted 14,903 million euros of new loans in 2013, 50% more than projected, and increased its resident sector market share to 9.56%
  • The BFA-Bankia Group thus completes a key year: a year in which it beat the earnings forecast, completed the restructuring two years ahead of schedule, gained market share in key segments, improved its liquidity and solvency, and gained the confidence of the market

The BFA-Bankia Group achieved like-for-like net profit of 818 million euros in 2013, thus accomplishing the goal set in the Strategic Plan 2012-2015 of obtaining earnings of 800 million euros.

The accounting profit of the BFA Group, taking the net effect of the exchange of hybrid instruments and various tax effects into account, came to 2,171 million euros, after setting aside 1,200 million to cover the arbitration process.

Bankia's profit after tax was 509 million euros, after allocating the whole of the year's extraordinary income to provisions to strengthen the balance sheet. If the subordinated loan granted by BFA to Bankia and now cancelled is excluded, Bankia's net profit would have been 608 million.

Bankia's chairman, José Ignacio Goirigolzarri, said, "These results confirm that we are fulfilling the commitments we announced to the market and achieving the goals we set in our Strategic Plan 2012-2015 ahead of plan".

"2013 has been a key year," he added. "It has confirmed some of our strengths. Besides beating our earnings forecast by a small margin and significantly improving the efficiency ratio, we have completed the restructuring (two years earlier than planned) and have regained commercial momentum, improving our productivity levels."

The Bankia chairman emphasised that at the end of the first year of implementation of the Strategic Plan, "our liquidity position is more solid, we have generated more than 200 basis points of capital and we have gained the confidence of the market".

In the eight months since Bankia's new shares started trading (28 May 2013), the proportion of international investors in Bankia's capital has gone from 3.8% to the current 10.4%. In addition, the Bank returned to the market with an issue of senior debt which was 3.5 times oversubscribed and 85% of which was taken up by foreign investors.

Income statement

In Bankia, revenue from the banking business once again rose compared to the previous quarters. Net interest income reached 690 million euros in the fourth quarter, the year's highest level, giving a cumulative total of 2,567 million euros for the year as a whole. Excluding the effect of the subordinated loan that BFA granted to Bankia in September 2012 and that was cancelled on 23 May 2013, this represents a decrease of 19.7%.

The increase in net interest income in the fourth quarter was driven by a rise in the loan yield and the continued fall in the cost of deposits, which brought the net interest spread to 0.95% in the fourth quarter, its highest level in the whole year.

Fee and commission income also improved in the quarter, to 249 million euros, bringing the total for the year to 935 million euros, down 5.8%. Core banking revenue (interest and fees) thus account for more than 90% of total revenue for the year as a whole. The steady growth in core banking revenue from the beginning of 2013 highlights the recurring nature of earnings generation. This is a significant trend, as it has coincided with the closure of 38% of the branch network that existed at the end of 2012.

Gross income, meanwhile, was 3,772 million euros, down 8.4% on 2012 (excluding the effect of the subordinated loan).

Expense reduction

By accelerating the implementation of the restructuring plan, Bankia was able to reduce operating expenses by 16.9% compared to 2012, to 1,905 million euros.

The quarter-on-quarter improvement in core revenue, combined with the reduction of expenses, brought Bankia's fourth-quarter recurring efficiency ratio (ex net trading income and exchange differences) to 52.6%, compared to 63.3% in the same period of 2012. The accounting efficiency ratio for 2013 was 50.5%, compared to 55.7% the previous year.

Pre-provision profit in 2013 reached 1,867 million euros, up 2.3% on 2012 (excluding the effect of the subordinated loan), reversing the trend of year-on-year falls posted in previous quarters.

In 2013 Bankia recorded provisions totalling 1,733 million euros, part of which were charged against the extraordinary gains made in the year (330 million euros), which were allocated in their entirety to strengthening the balance sheet. These amounts include a provision of 230 million to cover contingencies arising from litigation in progress associated with the exchange of the Group's hybrid instruments. Bankia and BFA have signed an agreement under which any amount arising from the costs related to the execution of arbitration decisions in which Bankia is ordered to pay in excess of the amount of the abovementioned provision will be borne by BFA

As a result of all the above, at year-end 2013 Bankia posted profit after tax of 509 million euros. Without counting the effect of the subordinated loan, the net profit would have been 608 million.

Bankia ended the year with 20,022 million euros of non-performing loans (NPLs), after reclassifying 1,404 million euros of customer loans in line with the recommendation of the Banco de España on refinanced loans. The rise in NPLs compared to the previous year is less than 1%, up from 19,819 million euros. On a recurring basis, the balance of NPLs was down by around 1,200 million euros.

As a result of the reclassification of the abovementioned loans and the balance sheet reduction, Bankia's NPL ratio at the end of 2013 was 14.65%, compared to 12.99% in 2012. The NPL coverage ratio, meanwhile, was 56.5% at the end of 2013. Overall loan portfolio coverage improved during the year, from 8% to 8.2%. If developer loans (accounting for scarcely 3% of the balance sheet) are excluded, the coverage ratio rises from 6.7% in 2012 to 7.2% in 2013.

Strong capital generation

 In the fourth quarter Bankia once again demonstrated its ability to improve its solvency position organically. The EBA core tier 1 ratio ended the year at 11.71%, compared to 11.06% in September and 9.62% at the end of 2012 on a like-for-like basis.

In just one year Bankia was able to generate more than 200 basis points of capital organically through profits and a reduction of risk-bearing assets. BFA's EBA core tier 1 ratio went from 9.44% on a like-for-like basis in December 2012 to 11.81% in December 2013.

Correct balance sheet management allowed Bankia to reduce the commercial gap (difference between loans and deposits) by 24.6%, to 25,100 million euros. This improvement, together with the liquidity generated by disposals of non-strategic assets, allowed the Bank to meet the maturities falling due in 2013. The loan-to-deposit ratio fell by more than five points, to 115.4%.

Gain in market share of lending

One of the most significant developments in 2013 was undoubtedly the growth in lending. Bankia granted new loans totalling 14,903 million euros, 50% more than forecasted. The Bank reports on the growth of its lending activity each month through the website darcuerda.com

In balance sheet terms, household and business deleveraging and the conversion of the loan signed with the Fondo para la Financiación de Pago a Proveedores into a bond resulted in a decline in net lending of 11%, to 129,818 million euros.

However, Bankia is capable of gaining market share. According to the latest figures from the Banco de España, the Bank's market share of lending to the resident sector was 9.56%, as against 9.22% in December 2012. In lending to businesses the market share increased to 5.97%, up from 5.55% at the end of 2012.

Turning to customer funds, in the fourth quarter of the year Bankia succeeded in increasing funds under management by 763 million euros, through a combination of strict customer deposits and off-balance-sheet funds.

Over the year as a whole, private sector funds remained virtually stable, declining 0.1% to 101,561 million euros. Last year Bankia reduced the amount of funds sourced from the European Central Bank by 8,700 million euros, while the equivalent reduction at BFA was 19,350 million.

End of the branch restructuring

This business performance is especially significant bearing in mind that in 2013 Bankia closed 1,143 branches, bringing the planned restructuring process to completion more than two years ahead of schedule.

As regards the workforce, Bankia has already made 90% of the planned adjustments, with the exit of some 5,400 employees (including divestments pending approval), out of a planned total of 6,000. Through outsourcing and sales of businesses, Bankia has succeeded in preserving more than 1,300 jobs.

These adjustments have not affected the Bank's commercial capacity. In December 2013 Bankia was able to sell 466,000 products to its customers, compared to 382,000 in the same month of 2012, an increase of 22%.

Similarly, while in December 2012 each Bankia employee sold an average of 30.1 products, in the same month of 2013 each employee sold 44.8 products, an increase of 49%. 

Other significant events in the fourth quarter

 On 3 October the Bank reported the launch of "agile branches" to serve customers during extended opening hours, from 8:15 to 18:00 without interruption

On 3 October the Bank entered into an agreement to lease the Foster Tower as the new corporate headquarters of CEPSA

On 9 October Bankia closed a deal to sell its stock market subsidiary, Bankia Bolsa, to GVC

On 16 October Bankia announced the launch of the Plan PYMES plan to stimulate lending to the SME segment

On 17 October the Bank announced the approval of a new Code of Ethics and Conduct

On 23 October Bankia appointed Alfredo Lafita as lead independent non-executive director as a further step towards the improvement of its corporate governance

On 22 November Bankia completed the restructuring of its branch network

On 19 December BFA applied to surrender its license to operate as a credit institution

On 26 December Bankia reached an agreement for the sale of its investments in 33 private equity funds

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