In 2011, BBVA confirmed the main trends maintained since the start of the crisis: recurring earnings, stable credit quality, organic capital generation and prudent liquidity management. This standout performance is due to BBVA’s approach to banking based on four pillars: a business model focused on long-term and lasting relationships with its customer base; management based on anticipation; a corporate governance framework underpinned by principles of integrity, prudence and transparency; and finally, an appropriate diversification strategy in terms of geographical areas, businesses and customers.
In terms of earnings generation, the main points to highlight over the quarter are as follows:
- The continuing upward trend in the most recurring revenue, i.e. gross income not including NTI or dividends:
- Resilient net interest income, with an upward quarterly trend over the year, thanks to the positive business activity in emerging countries and the appropriate price management carried out in all geographical areas.
- Income from fees and commissions was extremely stable, despite the regulatory limitations that came into force in some geographies, the lower activity in Spain and the increasing efforts to maintain customer loyalty.
- Equity-accounted income rose considerably, boosted by the contribution from CNCB.
- Operating expenses increased due to the Group’s investment program. Despite this, the efficiency ratio closed December at 48.4%, one of the best among the Bank’s European peers.
- Impairment losses on financial assets in the fourth quarter were higher than in previous quarters, due primarily to the increase in the level of the Group’s generic loan-loss provisions, aimed at taking advantage of the higher revenue of the period. Nevertheless, the accumulated impairment losses on financial assets totaled €4,226m in 2011, 10.4% under the previous year’s figure.
- In the last quarter of 2011, the value of goodwill in the United States was adjusted down by €1,011m after taxes. Despite the positive performance of the franchise in 2011, the slower-than-expected economic recovery and low interest rates expectations, combined with growing regulatory pressure, all imply a slowdown in the earnings growth forecast in this area. This adjustment is of an accounting nature only and does not have any negative consequence on the Group’s liquidity or capital adequacy.
- The net attributable profit before applying the goodwill impairment was €4,015m for the year. Including the adjustment, the Group’s net attributable profit for 2011 came to €3,004m.
BBVA’s ongoing profitability compares favorably with the sector’s average. The Group maintains an outstanding position in terms of the main items on the income statement over average total assets (ATA). For instance, the net interest income over ATA stands at 2.31%, which is slightly below the figure for 2010. This datum is very favorable when considering the primary causes explaining its course. On the one hand, the 1.7% growth of the ATA, mainly explained by the incorporation of Garanti and, to a lesser extent, to the favorable business activity in the emerging markets. On the other hand, the higher cost of customer funds (fundamentally starting in the second half of 2010) and of wholesale funding (as a result of the European sovereign debt crisis) experienced in 2011. This, together with the decreased contribution from net trading income (NTI), places the gross income over ATA at 3.62% (vs 3.74% in 2010). Moreover, if we consider the investment effort carried out by the Group over the year, the operating income over ATA falls back 27 basis points to 1.87%. Finally, the positive course of
loan-loss provisions explains how the ROA fell less than the operating income over ATA and reached 0.79% before the adjustment for the impairment of goodwill in the United States. If we include the above mentioned impairment, the ROA was 0.61%.