39. Interest income and expense and similar Items

39.1 Interest and similar income

The breakdown of the interest and similar income recognized in the accompanying consolidated income statement is as follows:

Download Excel

Interest and Similar Income. Breakdown by Origin.	Millions of Euros
	2012	2011	2010
Central Banks	259	250	239
Loans and advances to credit institutions	414	527	398
Loans and advances to customers	20,282	18,656	16,002
Government and other government agency	901	767	485
Resident sector	5,783	6,069	5,887
Non resident sector	13,598	11,820	9,630
Debt securities	4,029	3,413	3,080
Held for trading	1,229	1,090	956
Available-for-sale financial assets and held-to-maturity investments	2,800	2,323	2,124
Rectification of income as a result of hedging transactions	(369)	(198)	63
Insurance activity	1,051	992	975
Other income	596	540	373
Total	26,262	24,180	21,130

The amounts recognized in consolidated equity in the two periods in connection with hedging derivatives and the amounts derecognized from consolidated equity and taken to the consolidated income statement during these periods are given in the accompanying “Consolidated statements of recognized income and expenses.”

The following table shows the adjustments in income resulting from hedge accounting, broken down by type of hedge:

Download Excel

Adjustments in Income Resulting from Hedge Accounting	Millions of Euros
	2012	2011	2010
Cash flow hedging	52	62	213
Fair value hedging	(421)	(260)	(150)
Total	(369)	(198)	63

39.2 Interest and similar expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Download Excel

Interest and Similar Expenses. Breakdown by Origin	Millions of Euros
	2012	2011	2010
Bank of Spain and other central banks	351	164	184
Deposits from credit institutions	1,717	1,512	1,081
Customers deposits	5,190	5,471	3,570
Debt certificates	3,043	2,854	2,627
Subordinated liabilities	669	693	829
Rectification of expenses as a result of hedging transactions	(1,181)	(1,025)	(1,587)
Cost attributable to pension funds (Note 26)	257	259	259
Insurance activity	742	694	707
Other charges	352	406	144
Total	11,140	11,028	7,814

The following table shows the adjustments in expenses resulting from hedge accounting, broken down by type of hedge:

Download Excel

Adjustments in Expenses Resulting from Hedge Accounting	Millions of Euros
	2012	2011	2010
Cash flow hedging	9	-	-
Fair value hedging	(1,190)	(1,025)	(1,587)
Total	(1,181)	(1,025)	(1,587)

39.3 Average return on investments and average borrowing cost

The detail of the average return on investments in 2012, 2011 and 2010 is as follows:

Download Excel

Asset	Millions of Euros
	2012			2011			2010
	Average Balances	Interest and Similar Income	Interest Rates (%)	Average Balances	Interest and Similar Income	Interest Rates (%)	Average Balances	Interest and Similar Income	Interest Rates (%)
Cash and balances with central banks	26,148	259	0.99	21,245	250	1.18	21,342	239	1.12
Securities portfolio and derivatives	167,080	4,793	2.87	141,780	4,238	2.99	145,993	3,939	2.70
Loans and advances to credit institutions	26,500	475	1.79	26,390	632	2.39	25,561	497	1.95
Loans and advances to customers	358,716	20,533	5.72	341,922	18,846	5.51	333,023	16,296	4.89
Euros	217,378	7,267	3.34	219,887	7,479	3.40	219,857	7,023	3.19
Foreign currency	141,337	13,266	9.39	122,034	11,367	9.31	113,167	9,273	8.19
Other finance income	-	-	-	-	-	-	-	-	-
Other assets	45,470	202	0.44	37,241	214	0.57	32,895	158	0.48
Totales	623,912	26,263	4.21	568,579	24,180	4.25	558,814	21,130	3.78

The average borrowing cost in 2012, 2011 and 2010 is as follows:

Download Excel

Liabilities	Millions of Euros
	2012			2011			2010
	Average Balances	Interest and Similar Expenses	Interest Rates (%)	Average Balances	Interest and Similar Expenses	Interest Rates (%)	Average Balances	Interest and Similar Expenses	Interest Rates (%)
Deposits from central banks and credit institutions	107,917	2,307	2.14	77,382	2,037	2.63	80,177	1,515	1.89
Customer deposits	283,211	5,207	1.84	276,683	5,644	2.04	259,330	3,551	1.37
Euros	146,833	1,963	1.34	153,514	2,419	1.58	121,956	1,246	1.02
Foreign currency	136,377	3,244	2.38	123,169	3,225	2.62	137,374	2,304	1.68
Debt certificates and subordinated liabilities	104,117	2,818	2.71	109,860	2,613	2.38	119,685	2,126	1.78
Other finance expenses	-	-	-	-	-	-	-	-	-
Other liabilities	85,834	808	0.94	65,980	734	1.11	66,542	622	0.94
Equity	42,833	-	-	38,674	-	-	33,079	-	-
Totales	623,912	11,140	1.79	568,579	11,028	1.94	558,814	7,814	1.40

The change in the balance under the headings “Interest and similar income” and “Interest and similar expenses” in the accompanying consolidated income statements is the result of changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:

Download Excel

Interest Income and Expense and Similar Items. Change in the Balance	Millions of Euros
	2012 / 2011			2011 / 2010
	Volume Effect (1)	Price Effect (2)	Total Effect	Volume Effect (1)	Price Effect (2)	Total Effect
Cash and balances with central banks	58	(48)	9	(1)	12	11
Securities portfolio and derivatives	756	(202)	555	(114)	413	299
Loans and advances to credit institutions	3	(159)	(157)	16	118	135
Loans and advances to customers	926	762	1,687	435	2,114	2,549
Euros	(85)	(126)	(212)	1	455	456
Foreign currency	1,798	101	1,899	727	1,367	2,094
Other assets	47	(59)	(12)	21	35	56
Interest and similar incomes	2,353	(270)	2,083	369	2,681	3,050
Deposits from central banks and credit institutions	804	(534)	270	(53)	575	522
Customer deposits	133	(569)	(436)	238	1,855	2,093
Euros	(105)	(351)	(456)	323	850	1,173
Foreign currency	346	(326)	20	(238)	1,159	920
Debt certificates and subordinated liabilities	(137)	342	206	(175)	661	487
Other liabilities	221	(147)	73	(5)	117	112
Interest and similar expenses	1,073	(960)	113	137	3,077	3,214
Net Interest Income			1,970			(164)

(1) The volume effect is calculated as the result of the interest rate of the initial period multiplied by the difference between the average balances of both periods.(2) The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the interest rates of both periods.