financial statements 2013

South America

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The South American area manages the BBVA Group's banking and insurance businesses in the region.

Industry Trends

In most South American countries (except Brazil), economic growth has been even higher than expected, despite the gradual deterioration abroad, given that commodity prices have remained high and financial tensions have eased toward the end of the year. In this context, both consumption and investment have continued to be shored up by the strength of the labor and credit markets and by still expansive monetary policies.

In South America, the financial system in most countries remains sound. Lending continues to grow strongly, although it tends to moderate in some countries, fueled by economic policies geared toward boosting domestic economic activity and by the structural changes seen in recent years, which support sustainable growth in most of these countries. As a result, the financial systems in the region are posting high levels of profitability and moderate NPA ratios.

In terms of the area's currencies, there has been widespread depreciation of both final and average exchange rates in 2013. Therefore, the impact of currencies on the year-on-year changes in the Group's financial statements has been negative for the year as a whole (due particularly to the devaluation of the Venezuelan bolivar in early 2013).

Activity and Earnings

The year-on-year comparison of this area's financial statements is affected by the change in the exchange rates of the region’s currencies against the euro, which as indicated above have depreciated, particularly in the case of the Venezuelan bolivar. This has generated a negative impact on both activity and the income statement. For this reason, the most important figures include a reference to changes at constant exchange rates.

The sale of the pension fund administrators in Colombia, Peru and Chile was closed in 2013. As noted above, the earnings from this activity are classified under earnings from corporate operations in the Corporate Center.

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South America Millions of Euros
2013 2012 % Change
NET INTEREST INCOME 4,703 4,288 9.7
Net fees and commissions 976 913 6.9
Net gains (losses) on financial assets and liabilities and net exchange differences 764 443 72.3
Other operating income and expenses (812) (284) n.m.
GROSS INCOME 5,630 5,360 5.0
Operating expenses (2,386) (2,293) 4.0
Administration costs (2,213) (2,120) 4.4
Personnel expenses (1,184) (1,148) 3.1
General and administrative expenses (1,029) (972) 5.9
Depreciation and amortization (173) (173) (0.5)
OPERATING INCOME 3,244 3,066 5.8
Impairment losses on financial assets (net) (701) (593) 18.3
Provisions (net) and other gains (losses) (157) (202) (22.6)
Income tax (530) (494) 7.4
Profit from discontinued transactions (net) - - n.m.
PROFIT 1,856 1,777 4.5
Profit attributable to non-controlling interests (608) (578) 5.1

The changes in the main headings of the income statement of this business area are:

"Net interest income" in 2013 stood at €4,703 million, an increase of 9.7% on the €4,288 million registered in 2012, or 33.6% at constant exchange rates. This good performance during the year is due to strong activity, maintenance of customer spreads and the effect of hyperinflation in Venezuela.

The balance under the heading “Net fees and commissions” at the close of 2013 totaled €976 million, up 6.9% (27.7% at constant exchange rates) on the €913 million posted the previous year, in line with the strong activity in the region. In addition, it is worth noting that income from fees and commissions benefited throughout the year from a certain charge for VISA in Argentina.

The total under the headings “Net gains (losses) on financial assets and liabilities” and “Exchange differences (net)” is €764 million in 2013, up 72.3% on the €443 million posted in 2012.

At the close of 2013, the heading "Other operating income and expenses" registered a loss of €812 million, compared with a loss of €284 million in 2012. This line includes basically the adjustment for hyperinflation in Venezuela, which has been more negative in 2013 than in the previous year, and the increased contribution to deposit guarantee funds in the different countries. These two effects have neutralized the good performance of the insurance business in the area.

As a result, "Gross income" for 2013 amounted to €5,630 million, an increase of 5.0% (25.3% at constant exchange rates) on the €5,360 million as of December 31, 2012. The reason for the improvement is the strength of activity, excellent price management and favorable NTI.

"Operating expenses" at the close of 2013 totaled €2,386 million, an increase of 4.0% on the €2,293 million posted in 2012, or 23.2% at constant exchange rates. This increase in expenses is mainly due to two factors. On the one hand the expansion and technological transformation plans being implemented, in order to make the most of the growth opportunities afforded by the region, including the launch of the 2013-2016 “Strategic Plan“. And on the other, the negative impact of high inflation in the area. This performance of revenue and expenses has resulted in the efficiency ratio closing 2013 at 42.4% (42.8% in 2012).

As a result, “Gross income” stood at €3,244 million as of December 31, 2013, up 5.8% on the €3,066 million registered in 2012. At constant exchange rates, this heading is up 27.0%.

At the close of 2013, the balance under the heading "Impairment losses on financial assets (net)" stood at €701 million, up 18.3% on the €593 million posted in 2012. This increase of loan-loss provisions is as much as 39.2% excluding the foreign-currency effect. This high increase is due to a great extent to the recovery of provisions and certain items registered in 2012. Without this effect, the heading would register an increase of 26%, in line with buoyant activity. Its performance would be similar to that seen in the loan book. The area's accumulated risk premium at the close of the year stands at 1.49% (1.34% in 2012).

The balance of “Provisions (net)” and “Other gains (losses)” in 2013 totaled €157 million, compared with €202 million in 2012.

The balance of “Income tax” in 2013 is €530 million, an increase of 7.4% on the €494 million posted in 2012.

“Net income” as of December 31, 2013 stands at €1,856 million, an increase of 4.5% on the €1,777 million registered as of December 31, 2012, although in constant euros the increase is 24.8%.

“Net income attributed to non-controlling interests” grew to €608 million, up 5.1% on the €578 million in 2012. In constant Euros there is an increase of 29.6%, mainly from the subsidiaries in Venezuela and Peru.

As a result, South America generated “Net income attributed to parent company” in 2013 of €1,249 million, with an increase of 4.1% on the €1,199 million posted at the close of 2012. At constant exchange rates, the figure is 22.6%.

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South America Millions of Euros
2013 2012 % Change
Total Assets 78,141 77,474 0.9
Loans and advances to customers 48,470 48,721 (0.5)
Total customer deposits (*) 58,881 56,933 3.4
Off-balance-sheet funds 6,552 6,436 1.8
Economic capital allocated 3,205 3,169 1.1
Efficiency ratio (%) 42.4 42.8
NPA Ratio (%) 2.1 2.1
NPA Coverage Ratio (%) 141 146
Risk premium (%) 1.49 1.34
(*) The figure does not include repurchase agreements and includes some trading debt securities.

At the close of 2013, South America once again performed strongly in practically all the countries where BBVA operates, both on the side of the loan book and in on-balance-sheet customer funds.

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

As of December 31, 2013, loans and advances to customers (gross) stood at €48,470 million, a slight decline of 0.5% on the €48.721 million as of December 31, 2012, but up 21.7% at constant exchange rates. Growth has been widespread across all the countries. Worth noting is the increase in lending from the retail segment, particularly in consumer finance (up 23.6%), credit cards (up 43.5%) and to a lesser extent mortgage loans (up 14.2%). The above is reflected in a year-on-year gain in market share in the individuals segment of 16 basis points, according to the latest information available as of October 2013. This improvement in lending activity has been accompanied by the rigorous risk admission policies applied by the Group in the region and good management of recoveries. Thanks to this, the NPA ratio remains at 2.1% with no changes on the figure for 2012. The coverage ratio stands at 141% (from 146% as of December 31, 2012).

On-balance-sheet customer funds closed the year at €58,881 million, up 3.4% (an increase of 30.0% at constant exchange rates) on December 2012. This growth has been fueled by lower-cost transactional deposits (current and savings accounts), with a 42.6% increase on December 2012. Including the assets under management by mutual funds, customer funds managed by the banks in South America amounted to €61,833 million, up 28.3% at constant exchange rates on the figure for 2012. This has resulted in a gain in market share over the last year of 30 basis points, also according to October 2013 figures.