financial statements 2013


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Eurasia includes activity in the rest of Europe and Asia. For these purposes, Europe mainly includes the management information for the activity of the Garanti Group (Turkey), BBVA Portugal, the Consumer Finance businesses in Italy and Portugal, the retail businesses of the branches in Paris, London and Brussels, and wholesale activity carried out in the region (except Spain). Asia includes all the wholesale and retail businesses in that continent and the stake in the CITIC Group, which includes the banks CNCB (continental China) and CIFH (Hong Kong).

Industry Trends

The macroeconomic situation in Europe has improved in 2013, although at a moderate rate and with some differences between countries. In this context, and given the environment of low inflation, the ECB has cut interest rates to record-low levels in order to speed up recovery.

As for the area's financial system, the political leaders have continued to make progress toward the creation of banking union. On October 23, the ECB released information on the process for a comprehensive assessment of the balance sheets of the nearly 130 banks that will be supervised in the second half of 2014. The results of this process will be of great importance in allaying doubts about the solvency of the European banking system, recovering investor confidence and quantifying the problems inherited from the crisis, which will have to be resolved at national level.

Economic activity in Turkey continued to show a positive trend in 2013, despite the adverse events that took place in the second half of the year. The macro scenario has been affected by renewed volatility in the financial markets as a result of the withdrawal of monetary stimuli by the Fed. In addition, further uncertainty arose in the domestic political landscape. In this context, both the government and the Central Bank of Turkey (CBT) have embarked on a policy aimed at encouraging saving and stimulating the productive fabric through a series of measures designed to slow down the growth in consumer lending and promote funding for SMEs and exports. The Turkish financial sector maintains sound levels of capitalization and a high level of profitability, despite the toughening of monetary policy measures and the changes in interest rates. Lending appears to have started moderating its year-on-year rate of growth in recent months, although it remains at levels above 20%, while fund gathering continues to improve, but at a slower pace than lending.

In China, economic growth in the first half of the year showed some slowdown, due to a large extent to the implementation of policies aimed at limiting the growth of lending, although the liquidity tensions in the Chinese interbank market also had an influence. However, the latest available figures confirm a recovery in GDP growth (up 7.8% year-on-year in the third quarter). This improvement has been underpinned by the fiscal stimulus measures applied by the authorities, but also by the recovery in the levels of confidence. Worth noting in the financial sector has been the audit of local financial institutions conducted in the last quarter of 2013, as well as the plans, announced by the Communist Party at its most recent plenary session, to liberalize interest rates, open up to foreign banks and the plan to introduce a guarantee scheme for deposits. The significant growth of lending has continued in recent months, despite the government's efforts to limit the risk of high levels of debt, which has resulted in moments of liquidity tension in the interbank market. There has also been a moderate upturn in the NPA ratio, more visible in small and medium-sized banks, which have a greater concentration of small companies (and are therefore more vulnerable to a less favorable economic environment).

Earnings and Activity

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Eurasia Millions of Euros
2013 2012 % Change
Net fees and commissions 391 451 (13.4)
Net gains (losses) on financial assets and liabilities and net exchange differences 194 131 47.8
Other operating income and expenses 225 232 (2.7)
GROSS INCOME 1,721 1,665 3.4
Operating expenses (733) (779) (5.8)
Administration costs (683) (724) (5.8)
Personnel expenses (381) (404) (5.8)
General and administrative expenses (301) (320) (5.8)
Depreciation and amortization (51) (54) (6.7)
Impairment losses on financial assets (net) (330) (328) 0.5
Provisions (net) and other gains (losses) (65) (49) 31.5
Income tax (139) (105) 32.6
Profit from discontinued transactions (net) - - n.m.
PROFIT 454 404 12.4
Profit attributable to non-controlling interests - - -

As already mentioned, in relation to earnings in Eurasia, to assist in the understanding of the area's recurring business, the fourth quarter earnings from the repricing of BBVA's current stake in CNCB at market value and the equity-adjusted earnings for both 2013 and 2012, have been classified as earnings from corporate operations within the Corporate Center. Also worth noting is the negative impact of exchange rates on earnings throughout 2013.

The “Net interest income” generated by the area in 2013 totaled €911 million, up 7.0% on the €851 million registered in 2012, due mainly to the performance of Garanti, whose net interest income in the first half of the year has been very positively affected both by strong activity and by good management of customer spreads. However, in the second half of the year this positive trend has been partially reversed by the negative impact of increased interest rates on customer spreads, with a rising cost of liabilities that has not been offset by the yield on loans. Nonetheless, a slight improvement has been seen in the last weeks of the year as a result of stronger performance in new loan production and the easing in the rising cost of deposits.

The balance of “Net fees and commissions” in 2013 is €391 million, down 13.4% on the €451 million posted the previous year. At constant exchange rates, the decrease has been 10.1% and is due to lower revenue from wholesale customers. This heading has been improving gradually throughout the year, due to the more favorable performance of net fees and commissions from Garanti, especially in those headings more related to the activity with customers.

As of December 31, 2013 “Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)” totaled €194 million, an increase of 47.8% (54.2% at constant exchange rates) compared with the €131 million registered in the previous year, thanks to the excellent earnings from the Global Markets unit.

The balance of the "Other operating income and expenses" heading for 2013 totaled €225 million, down 2.7% on the €232 million posted in 2012.

As a result, “Gross income” at the close of 2013 stood at €1,721 million, up 3.4% (8.6% at constant exchange rates) on the €1,665 million in 2012.

The balance of “Operating expenses” in 2013 totaled €733 million, down 15.8% (1.4% at constant exchange rates) on the €779 million at the close of 2012. Operating expenses continue to be kept in check despite the effects of the expansion plans implemented by Garanti throughout the year. Since the close of 2012, the Turkish bank's branch network has expanded by 65 offices and the ATM network by 495 units, to which the costs arising from the launch of i-Garanti before the summer should be added.

As a result, “Operating income” in 2013 stood at €987 million, up 11.4% on the €886 million posted in 2012.

The balance under the heading “Impairment losses on financial assets (net)” stood at €330 million at the close of 2013, up 0.5% (3.8% at constant exchange rates) on the amount registered in 2012. This increase has been affected by the greater provisions resulting from the growth in activity.

The balance of “Provisions (net)” and “Other gains (losses)” in 2013 totaled €65 million, compared with €49 million in 2012.

As a result of the above, "Income before tax" at the close of 2013 is €593 million, up 16.6% on the €508 million registered in 2012.

The balance of “Income tax” in 2013 is €139 million, up 32.6% on the €105 million posted in 2012.

In 2013 Eurasia generated “Net income” of €454 million, an increase of 12.4% on the €404 million posted at the close of 2012. At constant exchange rates the increase is 20.7%. Of the €454 million in earnings, €267 million come from Garanti's contribution (58.9%).

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Eurasia Millions of Euros
2013 2012 % Change
Total Assets 41,223 48,324 (14.7)
Loans and advances to customers 28,397 30,228 (6.1)
Customer deposits under management (*) 16,475 16,484 (0.1)
Off-balance-sheet funds 1,966 2,016 (2.5)
Economic capital allocated 3,115 4,607 (32.4)
Efficiency ratio (%) 42.6 46.8
NPA Ratio (%) 3.4 2.8
NPA Coverage Ratio (%) 87 87
Risk premium (%) 1.11 0.97
(*) Does not include repurchase agreements.

The changes in the main headings of activity in this business area are as follows:

As of December 31, 2013, the balance of “Loans and advances to customers (gross)” stood at €28,397 million, down 6.1% on the €30,228 million as of December 31, 2012. This decrease is due basically to reduction of the wholesale customer loan portfolio, as a result of the deleveraging process underway in Europe, since retail activity continues to perform favorably. Worth noting is the strong performance of the Garanti portfolios, particularly loans in liras, which are up 27.6% year-on-year at constant exchange rates. There is also an increase in the foreign currency portfolio, related to project finance (up 9.7% year-on-year at constant exchange rates).

As regards risk indicators, there has been an increase in the NPA ratio, which as of December 31, 2013 stood at 3.4%, compared with 2.8% in 2012. The coverage ratio remains in line with the figure for 2012 and the risk premium has increased to 1.11%.

As of December 31, 2013, the balance of “Customer deposits” stood at €16,475 million, practically unchanged compared with the figure for December 2012. However, at constant exchange rates there has been an increase of 12.6% due to the strong performance of wholesale customer deposits, which increased 9.3% over the year, and the retail business, which has grown 13.6% year-on-year. As for Garanti's customer funds, the Turkish bank showed strong performance in gathering deposits in the local currency (up 20.6% at constant exchange rates), well above the sector average (up 14.8%), which has resulted in a year-on-year increase in market share of around 50 basis points, according to the latest information available as of December 2013. The annual increase in deposits in foreign currencies is 3.5% at constant exchange rates.