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Capital Markets

Bankinter maintained a presence in the fixedincome markets as a government bond and note market maker and co-leader in Spanish Treasury issues, as well as in the corporate bond market, with a distribution desk which is very active in all these markets.

The Bank managed its liquidity and capital actively, carefully and effectively, playing an active part in long- and short-term European capital markets whenever the difficult economic conditions permitted. This was possible thanks to Bankinter’s good image and known solvency within the investment community.

Access to the short-term markets was mainly by means of the programme of promissory notes registered with the CNMV. The balance of wholesale promissory notes as at 31 December 2014 was €371 million.

At long term, the Bank issued €400 million of mortgage covered bonds and €500 million of senior debt under the fixed income programme registered with the CNMV.

During 2014 two mortgage covered bond issues totalling €300 million were amortised. As for issues that affect the solvency ratios, on 21 January we carried out a partial early amortisation of several issues of subordinated debt for a total of €86.3 million.

Lending

Bankinter increases its lending portfolio by 3%, much of the increase in the corporate segment, despite the context of crisis and the deleveraging process of businesses and households.

In 2014 the Bank tripled the volume of new mortgage lending, to more than €1.55 billion.

Business lending portfolio in 2014
+6.7%

In 2014, the credit situation evolved positively compared with the previous year, both as regards households, with an improvement in new residential mortgage lending, and in the financing of businesses.

Specifically, customer lending reached €42,446.7 million at the end of 2014, 3% more than one year before, making Bankinter one of the few Spanish financial institutions to have succeeded in increasing its loan portfolio during the year. This positive development is due above all to another year of good progress in corporate business, with a lending portfolio up by 6.7% on the previous year, at €18.9 billion. This figure is €3.6 billion more than the corporate lending portfolio that the Bank had four years ago, in contrast to the double-digit contraction of corporate financing in the financial system as a whole.

The breakdown of the customer lending portfolio by type has developed as follows:

The structure of the portfolio continues to feature a significant proportion of loans to high-income profile customers secured by mortgages, which has shown a small decrease, less than €400 million, relative to the previous year. This slight fall in mortgage lending was due to the increase in repayments, which more than offset the sharp increase in new mortgage lending, which tripled relative to 2013, reaching a volume of €1.55 billion.

Apart from this, Bankinter has signed various agreements with national and international institutions aimed at facilitating the financing of small and medium enterprises and bringing its cost down. In this past year the following agreements stand out:

  • Financing line for small and medium enterprises from the European Investment Bank, for an overall volume of €400 million.
  • First agreement in Europe with the European Investment Fund (EIF) to support the granting of loans to innovative small and medium enterprises. In the framework of the ‘InnovFin’ programme, the EU financing initiative backed by the European Commission, the Bank will provide access to a total of €200 million over the next two years.
  • Alliance with Germany's Düsseldorfer Hypothekenbank (DHB) to finance real estate transactions in the service sector in the coming years.
  • Agreements with mutual guarantee societies such as Avalmadrid, Avalis and Iberabal aimed at improving access to financing for SMEs.

Means of payment

The stock of cards issued increased by 7% in 2014, surpassing one million cards (including those of the Bank and Obsidiana). The number of transactions carried out in merchant outlets reached 51.5 million for the year, an increase of 11% on the previous year, while the total volume increased by 8% to €4,509 million.

As for the acquiring business, we continue the activity with businesses and merchant outlets, with a similar growth to that of recent years, reaching a total volume handled in 2014 of €1,414 million in 26.5 million purchase transactions, representing percentage growth on the previous year of 20% and 15% respectively.

With regard to the ATM business, we have a network of 392 installed terminals from which 3.6 million cash withdrawals were made during the year by customers and non-customers, totalling €538 million, representing an increase of 26%.

Other business

Bankinter Asset Management

The growth of the asset management company, well in excess of that posted by the sector as a whole, accentuated in 2014.

Profitability and customer service improved after the team had been strengthened, the range of funds extended and new controls put in place.

Money is returning to investment funds. The mutual fund industry experienced a strong recovery in 2014, and Bankinter Gestión de Activos was able to turn this into profit. The company increased its assets under management in its own investment funds by 20.6%, to reach €7,233 million, placing it eighth among asset managers in Spain. This growth trend, in line with the growth in the sector, started in 2003 and was accentuated in 2014 thanks to the company's having strengthened its team and streamlined its processes for decision-making, control and customer service.

The objective of Bankinter Gestión de Activos, which was named best asset manager in Spain in 2013 by the business daily ‘Expansión’, is to offer customers an attractive return and good service. Return means not just the highest profit but also taking into account which risks are acceptable. And without overlooking the fact that customers do not only want to make money on their investments They also want to be kept punctually informed and advised on day-to-day matters.

The activity of Bankinter Gestión de Activos is based essentially on four categories of products:

  • Investment funds. Assets under management increased by 20.6%, to €7,233 million thanks to the positive trend in terms of the funds' profitability and the transfer of customers' money from deposits, which have lost their appeal in a context of all-time record low interest rates. If we include all the investment funds marketed by Bankinter, both those of its asset manager and those of other international asset managers, assets under management at the end of 2014 reached the record figure of €11,045 million, representing an increase of 39% on the previous year. One of Bankinter's defining characteristics is its open architecture, allowing the investment funds of another 80 international fund managers to be contracted; it is one of the few institutions to make this possibility available to all its customers. Assets in funds of these international fund managers grew by 78% over the course of the year.
  • Pension funds. Bankinter has an extensive range of Pension Plans for increasing savings with a view to retirement. In 2014, assets under management in this type of funds amounted to €1,936 million, 17.3% more than in the previous year.
  • However, undoubtedly the formats in which Bankinter grew most are those associated with Private Banking, SICAVs (open-ended collective investment companies) and discretionary portfolio management, which posted growth appreciably in excess of that shown by the sector as a whole.

In the case of SICAVs, Bankinter ended 2014 with 383 companies under management, 90 more than in 2013, rising to second place in the sector by number of companies, with a market share of 11.9%. As for discretionary portfolio management, in which it has more than 2,600 portfolios, the Bank is one of the few companies to offer this service to customers in other retail segments, as opposed to only those in Private Banking.

Special mention must be made in this section of the sales efforts of the Network of Agents of Bankinter and Banca Partnet, who play a fundamental role for the business of Bankinter Gestión de Activos. One figure that illustrates their growing importance is that around 18% of the assets in the Bank's investment funds comes from customers of the Network of Agents.

Lastly, we should point out that this past year an extra effort was made to bring all products and product sign-up procedures into line with the new legal requirements established by the CNMV, Spain's Securities Market Commission. Always with the objective of achieving greate transparency and bringing ourselves into line with the new regulatory requirements.

Bankinter Asset Management
€7,233 million assets under management
8th biggest asset manager in Spain
by volume of assets

Equities

In 2014 Bankinter posted the best year in its history in the equities business.

The growth in activity on the Spanish stock exchange, in both spot and credit transactions stands out among all the business lines.

Online broker
+43% compared with 2013
Online broker
10,000 New customers
Volume traded by Bankinter
+38% compared with the 26% growth posted by the Spanish stock market

A year in which history was made. Prominent among the wide range of products and services offered by Bankinter to its customers for operating on the stock exchange are spot trading on the Spanish and international stock markets, and investment in derivatives (warrants and futures). It also offers the possibility of trading on credit, taking advantages of opportunities in rising and falling markets, and of investing in a wide range of exchange traded funds (ETFs). Investors also have available various tools for improving their risk management: stop orders, dynamic orders, referenced orders, related orders, conditional and limit orders, etc.

With all these services Bankinter led the value proposition to the retail investor and ended 2014 with the best year in its history in the equities business. With revenues of €46.7 million, it posted a 24% increase on the previous year. Moreover, it succeeded in capturing 10,000 new active clients for its online broker, representing an increase of 43% up on the previous year, and posted increased operational activity. Thus the volume traded through Bankinter increased by 38% compared with 2013, a particularly significant figure when we compare it with the 26% growth of the Spanish stock market.

Also, the nominal value of the securities deposited with Bankinter grew by 33% over the same period, and the effective value of these portfolios grew by 13%, representing an increase in the depository business.

Among all these business lines, growth was especially notable in the Spanish stock market business, both in spot trades and through Bankinter's trading on credit service.

An excellent performance by the business, which was due to the expansion of the offering of products available through the broker, the new mobile-based version of the broker for tablets and smartphones and thanks to the intense training efforts made by the Bank to tell existing and potential customers about the advantages
and possibilities of these kinds of investments.

Advisory services also played a major part in the offering, with a large variety of reports and recommendations to help customers improve their investment decision-making.

All this, together with very competitive prices and a comprehensive offer of banking and investment services available to the customer, make Bankinter's broker a leading service in the market.

‘Equities Masterclass’
During 2014 ‘Equities Masterclass’ was held in 21 Spanish cities. This initiative was aimed at existing and potential customers. With an average of 150 people attending each time, Bankinter's Analyst Department explained their market outlook and the key considerations for investing in equities.

Bankinter Consumer Finance

Bankinter has laid the foundations for boosting the consumer finance business and turning it into a major source of revenue for the Bank.

Customer base
+9% compared with 2013
Cards issued
512,367

A help in day-to-day economy. Bankinter intensified its commitment to the consumer finance business during 2014, with the long-term strategic objective of turning it into a third source of revenue to join pure banking and insurance. The gap that has opened with the crisis and the business opportunities that exist have helped Bankinter Consumer Finance - Bankinter's credit card and loan specialist - to consolidate its position in the consumer finance sector. Not only strengthening its distribution of revolving cards through strategic alliances but also, with a view to the future, expanding its offering of automotive financing, consumer finance, points of sale and direct business.

The main mission of Bankinter Consumer Finance is to meet customers’ financing requirements by providing them with flexible means of payment for managing their day-to-day finances. All this with the Bankinter style, with innovation, in multi-channel mode, disintermediating the market and putting its ability to work with partners, its flexibility and agility, its knowledge and long-term commitment to work in the service if its customers.

Throughout 2014 the Bank pursued a risk management policy focused on the risk-return trade-off, adjusting the price of each offer in line with the customer profile so as to ensure profitability.

Bankinter has designed a new website for its Obsidiana brand (obsidiana.com) and incorporated the partner card to its commercial offering. It has also created the private operating zone, in which customers can sign their transactions by mobile phone with a one-time password.

Consequently, during this past year Bankinter Consumer Finance saw its customer base grow by 9% compared with 2013, reaching a total of 512,367 cards issued at year-end.

The portfolio maintained its quality and in 2014 average customer lending came to €419 million, growing by 9% relative to 2013. The gross margin also grew by 7% and the cost of non-performing loans was held at well-controlled levels.

In short, in 2014 we designed a project for Bankinter Consumer Finance to take advantage of a great business opportunity, moving before the major players do and placing itself among the top group in the ranking for this business.

Insurance

Consolidation of the business. In 2014 revenue from commissions received by Bankinter in its capacity as a Tied Bancassurance operator amounted to €40.7 million, a very similar figure to that of the previous year. This involves the consolidation of Bankinter's Insurance business and reflects the measures taken over the course of the year.

This past year saw the start of activity of Bankinter Seguros Generales, which has become Bankinter's main provider of non-life (casualty) insurance. This company sells insurance for Companies, Shops, Offices and Death Benefits. The new company's product portfolio comprises Business Multi-risk, Shop and Office Multi-risk and various forms of Death Benefit policies
(Single Premium, Standard Universal and Foreign Residents), although it has gradually added new products, mainly Health. The offering is distributed exclusively through Bankinter's Branch Network, while Mapfre, which holds 50.1% of the company, takes charge of the technical design and management of the policies.

The relationship between Mapfre and Bankinter started in March 2007, when it was agreed to develop jointly the Pure Life, Casualty, Endowment and Pension Plan insurance business through another joint venture: Bankinter Seguros de Vida.

In Seguros de Vida we see that mediation continues to see strong growth in commissions, thanks to the business lines created during the previous years, particularly pension funds.

The creation in 2013 of a special team to retain insurance also started to bear fruit in 2014. This team is formed by a group of people who study each individual request for cancellation and offer clients alternatives for appropriate cover so as to avoid losing them.

As for assets managed by Bankinter in Pension Funds and EPSVs (Basque complementary pension schemes), they increased by €286 million during 2014, to reach €1,936 million, thanks to intense activity to capture new funds (+€198 million net) and the good work of the asset manager.

The Bank markets 19 individual pension funds, two funds belonging to the employment system and an EPSV with which a total of nine pension plans are registered, one fewer than in 2013.

By types of assets, the composition of the portfolio is very balanced, and has been repositioned in accordance with customers' investment profiles. 30.58% of the portfolio is made up of equities; 26.22% short-term fixed income; 24.49% is in guaranteed fixed income; and the remaining 18.7% is invested in mixed funds and long-term fixed income.

Bankinter Luxembourg

‘Bankinter Luxembourg’ had a year of consolidation in 2014, following its launch in 2013. The Bank's first foreign subsidiary focuses particularly on strengthening the Bank's leadership and strategic positioning in Private Banking. Having a presence in a major international financial centre such as Luxembourg, enables Bankinter to increase its knowledge of the workings of international markets, to incorporate new practices, to have a direct view of the European market and to meet the needs of a customer segment that increasingly requires global financial proposals.

The Luxembourg subsidiary has enabled Bankinter to capture new customers, mainly international ones. At the end of 2014, nearly 66% of customer funds deposited with Bankinter Luxembourg came from other institutions. Looking ahead, Bankinter aims to grow both in number of clients and in assets under management, and to round off the Bank's value proposition in the area of structuring of large fortunes and asset management.

Gneis

This past year Gneis took a qualitative leap forward, with new tasks and processes, consolidating its position as Bankinter's technological and operational service company.

Its involvement in international markets brings with it knowledge and experience and enables it to put its assets to profitable use by providing services to other companies.

After four years of development, 2014 served to enable Gneis Global Services to consolidate its role as the Bankinter Group's technological and operational service company, as reflected in its change of brand, from ‘Gneis, a Bankinter idea’ to ‘Gneis, a Bankinter company’.

Gneis' mission is to maximise the value created for the Group's shareholders by providing top quality operational and technological services, and this past year it took a qualitative leap forward in fulfilling this mission, in terms of the agility with which it provides its services and the scalability of these services, incorporating new tasks and processes into the existing portfolio.

Adapting the organisation to requirements. To fulfil the mission established requires organisational adjustments focused on the provision of services and on control. Accordingly, the company has adapted its organisational structure, not only so as to enable it to continue evolving into a service company as it has been doing since 2010, but also to reflect the increased emphasis now placed on operational and technological control.

With a growing portfolio of services. With a view to seeking the maximum possible efficiency and the greatest possible synergies among Group companies, in 2014 Gneis expanded the range of services that it carries out for both Bankinter and its subsidiaries. Gneis played a particularly important role in the incorporation of two new companies, Bankinter Luxembourg and Mercavalor, taking charge of implementing the necessary technological and operational facilities in the companies.

It also continued to incorporate new services to provide to Bankinter, in line with its strategy of boosting the Group's profitability and efficiency.

And generating value for the Group. During this past year, Gneis has consolidated its activity with companies in the retail, insurance and banking sectors in Spain, Peru and Chile. It worked in areas of technology with customer relations solutions (CRM), multi-channel processes, biometric signatures and secure storage (StoneCloud). In short, it capitalised on its experience, contributing value to companies in sectors or markets which can use these capabilities as an appropriate complement for accelerating their technological development strategies.

Gneis' involvement in international markets provides an additional input of knowledge and experience, enabling it to increase its differential capabilities. At the same time it succeeds in putting its assets to profitable use by means of providing services to these companies.

A special mention is required for the signing of the alliance between Gneis and Telefónica for the sales and marketing of GEM, a short messaging platform.

And this work was recognised by awards and nominations received.

In March the magazine Actualidad Económica presented the ‘100 Best Ideas of the Year’ awards, which recognise all those businesses and individuals which each year launch products and services onto the Spanish market that improve their customers' quality of life as well as the companies' profit and loss accounts. Gneis won the award on the strength of its Digital Biometric Signature.

In April, Computing, a leading leader in the Information Technology sector, presented its awards, which recognise the efforts of users, both companies and professionals, in the field of Innovation and Information Technology. The CEO of Gneis-Bankinter Group was presented with an award for his contribution to the ICT sector over the course of his 'Career Path'.

Bankinter's Biometric Signature solution was nominated Finalist in the 17th annual Financial World Innovation Awards. The solution was chosen as one of the five Most innovative
applications of technology worldwide, competing with equivalent solutions by companies from the US, Singapore, South Africa, Israel, Turkey, Malta, India and the UK.

Línea Directa

The insurer, in constant growth, once again posted strong increases in both policies and market share.

Línea Directa rises nine places in the Merco 2014 ranking and consolidates its position as one of the Spanish companies with the best reputation.

The Línea Directa Foundation is born of the company's firm commitment to road safety.

The ‘SUMA en Línea’ programme is the company's first plan to focus on the loyalty of its more than two million customers.

Growth in all branches. Línea Directa Aseguradora, a wholly-owned subsidiary of Bankinter, is the leading company in direct sales of insurance in Spain, with a market share of close to 60% among direct sales companies. As well as maintaining the highest rate of growth in the sector, it also boasts one of the best Satisfaction Indices, consolidating its position as a benchmark for quality, profitability and job creation, with a workforce of nearly 2,000 professionals and a portfolio of more than 2.2 million policies at the end of 2014.

Línea Directa operates in the Motor and Home branches, and is special in that its products are only distributed by phone or over the Internet, enabling it to offer its customers high-end services at very competitive prices. In this respect its business model, direct and without intermediaries, is based on direct contact with customers, prudence in selecting risks and sales strength, making it very flexible from an operational standpoint in what is a very complex economic setting.

By business lines, Home insurance, which has to cope with a flat property market and a product traditionally linked to mortgages, has shown strong growth, surpassing 300,000 policies, while in the Auto branch, Línea Directa is succeeding in restoring growth in premiums, following several years of sectoral decline caused largely by transfers of coverage and plummeting sales of new vehicles.

Meanwhile, Penélope Seguros, a product designed for women, and Nuez, a brand that is revolutionising the sale of insurance through the Internet and social networks, have consolidated their positions as growth drivers for the Group, contributing specialisation, diversification and flexibility to the company's product portfolio. Furthermore, Nuez has consolidated its position as the sector leader in social networks, with more than 200,000 followers on Facebook and nearly 30,000 on Twitter.

A benchmark in reputation. For the third consecutive year, Línea Directa confirmed its status as one of the companies with the best reputations in Spain, according to the MERCO Empresas 2014 report, reaching 55th place, which is nine places higher than in 2013. In this way, thanks to its financial results, its responsible practices and its communication strategy, the company has also consolidated its upward trend in this ranking, rising 27 places in just two years.

By sector, the company has also risen one place, reaching fourth position in the ranking of insurance companies and consolidating its position as the company with the most growth in the Auto branch. Moreover, in the opinion of the business journalists consulted by Merco, Línea Directa is ranked tenth in terms of reputation for all companies in all sectors in Spain, up ten
places from the previous year.

Miguel Ángel Merino, new CEO of the Línea Directa Group. In January 2014, the Board of Directors of Línea Directa Aseguradora appointed Miguel Ángel Merino as CEO of the company, in recognition of his work as General Manager of the insurance Group, a position he has held since October 2010.

In his four years at the head of Línea Directa, Miguel Ángel Merino has driven a strategy based on innovation, quality and commitment to people, which has enabled the company to
increase its customer portfolio by more than 400,000 policies.

Miguel Ángel Merino has spent most of his professional career with Línea Directa Aseguradora, which he joined in 1995 as Manager of the Accident Processing department, forming part of the small group of people involved in the company's creation and launch.

‘Suma en Línea’ Loyalty Programme. Línea Directa has created the first plan focusing on cementing the loyalty of the more than two million customers that the insurance group has in Spain. Associated with the totally free SUMA points card, with which points can be accumulated with expenditure relating to the vehicle, such as refuelling, repair and maintenance and roadworthiness tests, among others, the programme enables customers to pay less for renewing their car insurance. The insurer's top-level partners in this initiative are CEPSA, Norauto and Midas.

A Foundation to promote road safety
Línea Directa has put the finishing touch to its firm commitment to road safety, which it has promoted and developed since its inception in 1995, with the creation of the Línea Directa Foundation. Under the motto ‘For Road Safety. Here and Now’, its main objective is to promote safe driving habits in society and to reduce the number of road fatalities to zero.
The Foundation centres its activity on four lines of action: information, research, training and social action, with Road Safety being the common denominator.. These lines of actions are materialised through a number of different initiatives, such as the organising and holding of the Journalists Road Safety Award, the creation of the Entrepreneurs and Road Safety Award, the preparation of in-depth studies allowing various aspects of driving to be analysed, the holding of Driving Courses for those interested in improving their skill at the wheel, and the publication of a Solidarity Calendar for the benefit of an association or foundation acting to promote road safety. Its Board of trustees includes important personalities from politics, business and the media, such as Pedro Guerrero, Chairman of Bankinter; Pere Macias, Chairman of the Parliamentary Road Safety Committee; Pere Navarro, former Director General of Traffic; and Matías Prats, journalist and Antena 3 TV news presenter.

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Corporate Governance
Customers

Capital Markets

Bankinter maintained a presence in the fixedincome markets as a government bond and note market maker and co-leader in Spanish Treasury issues, as well as in the corporate bond market, with a distribution desk which is very active in all these markets.

The Bank managed its liquidity and capital actively, carefully and effectively, playing an active part in long- and short-term European capital markets whenever the difficult economic conditions permitted. This was possible thanks to Bankinter’s good image and known solvency within the investment community.

Access to the short-term markets was mainly by means of the programme of promissory notes registered with the CNMV. The balance of wholesale promissory notes as at 31 December 2014 was €371 million.

At long term, the Bank issued €400 million of mortgage covered bonds and €500 million of senior debt under the fixed income programme registered with the CNMV.

During 2014 two mortgage covered bond issues totalling €300 million were amortised. As for issues that affect the solvency ratios, on 21 January we carried out a partial early amortisation of several issues of subordinated debt for a total of €86.3 million.

Lending

Bankinter increases its lending portfolio by 3%, much of the increase in the corporate segment, despite the context of crisis and the deleveraging process of businesses and households.

In 2014 the Bank tripled the volume of new mortgage lending, to more than €1.55 billion.

Business lending portfolio in 2014
+6.7%

In 2014, the credit situation evolved positively compared with the previous year, both as regards households, with an improvement in new residential mortgage lending, and in the financing of businesses.

Specifically, customer lending reached €42,446.7 million at the end of 2014, 3% more than one year before, making Bankinter one of the few Spanish financial institutions to have succeeded in increasing its loan portfolio during the year. This positive development is due above all to another year of good progress in corporate business, with a lending portfolio up by 6.7% on the previous year, at €18.9 billion. This figure is €3.6 billion more than the corporate lending portfolio that the Bank had four years ago, in contrast to the double-digit contraction of corporate financing in the financial system as a whole.

The breakdown of the customer lending portfolio by type has developed as follows:

The structure of the portfolio continues to feature a significant proportion of loans to high-income profile customers secured by mortgages, which has shown a small decrease, less than €400 million, relative to the previous year. This slight fall in mortgage lending was due to the increase in repayments, which more than offset the sharp increase in new mortgage lending, which tripled relative to 2013, reaching a volume of €1.55 billion.

Apart from this, Bankinter has signed various agreements with national and international institutions aimed at facilitating the financing of small and medium enterprises and bringing its cost down. In this past year the following agreements stand out:

  • Financing line for small and medium enterprises from the European Investment Bank, for an overall volume of €400 million.
  • First agreement in Europe with the European Investment Fund (EIF) to support the granting of loans to innovative small and medium enterprises. In the framework of the ‘InnovFin’ programme, the EU financing initiative backed by the European Commission, the Bank will provide access to a total of €200 million over the next two years.
  • Alliance with Germany's Düsseldorfer Hypothekenbank (DHB) to finance real estate transactions in the service sector in the coming years.
  • Agreements with mutual guarantee societies such as Avalmadrid, Avalis and Iberabal aimed at improving access to financing for SMEs.

Means of payment

The stock of cards issued increased by 7% in 2014, surpassing one million cards (including those of the Bank and Obsidiana). The number of transactions carried out in merchant outlets reached 51.5 million for the year, an increase of 11% on the previous year, while the total volume increased by 8% to €4,509 million.

As for the acquiring business, we continue the activity with businesses and merchant outlets, with a similar growth to that of recent years, reaching a total volume handled in 2014 of €1,414 million in 26.5 million purchase transactions, representing percentage growth on the previous year of 20% and 15% respectively.

With regard to the ATM business, we have a network of 392 installed terminals from which 3.6 million cash withdrawals were made during the year by customers and non-customers, totalling €538 million, representing an increase of 26%.

Other business

Bankinter Asset Management

The growth of the asset management company, well in excess of that posted by the sector as a whole, accentuated in 2014.

Profitability and customer service improved after the team had been strengthened, the range of funds extended and new controls put in place.

Money is returning to investment funds. The mutual fund industry experienced a strong recovery in 2014, and Bankinter Gestión de Activos was able to turn this into profit. The company increased its assets under management in its own investment funds by 20.6%, to reach €7,233 million, placing it eighth among asset managers in Spain. This growth trend, in line with the growth in the sector, started in 2003 and was accentuated in 2014 thanks to the company's having strengthened its team and streamlined its processes for decision-making, control and customer service.

The objective of Bankinter Gestión de Activos, which was named best asset manager in Spain in 2013 by the business daily ‘Expansión’, is to offer customers an attractive return and good service. Return means not just the highest profit but also taking into account which risks are acceptable. And without overlooking the fact that customers do not only want to make money on their investments They also want to be kept punctually informed and advised on day-to-day matters.

The activity of Bankinter Gestión de Activos is based essentially on four categories of products:

  • Investment funds. Assets under management increased by 20.6%, to €7,233 million thanks to the positive trend in terms of the funds' profitability and the transfer of customers' money from deposits, which have lost their appeal in a context of all-time record low interest rates. If we include all the investment funds marketed by Bankinter, both those of its asset manager and those of other international asset managers, assets under management at the end of 2014 reached the record figure of €11,045 million, representing an increase of 39% on the previous year. One of Bankinter's defining characteristics is its open architecture, allowing the investment funds of another 80 international fund managers to be contracted; it is one of the few institutions to make this possibility available to all its customers. Assets in funds of these international fund managers grew by 78% over the course of the year.
  • Pension funds. Bankinter has an extensive range of Pension Plans for increasing savings with a view to retirement. In 2014, assets under management in this type of funds amounted to €1,936 million, 17.3% more than in the previous year.
  • However, undoubtedly the formats in which Bankinter grew most are those associated with Private Banking, SICAVs (open-ended collective investment companies) and discretionary portfolio management, which posted growth appreciably in excess of that shown by the sector as a whole.

In the case of SICAVs, Bankinter ended 2014 with 383 companies under management, 90 more than in 2013, rising to second place in the sector by number of companies, with a market share of 11.9%. As for discretionary portfolio management, in which it has more than 2,600 portfolios, the Bank is one of the few companies to offer this service to customers in other retail segments, as opposed to only those in Private Banking.

Special mention must be made in this section of the sales efforts of the Network of Agents of Bankinter and Banca Partnet, who play a fundamental role for the business of Bankinter Gestión de Activos. One figure that illustrates their growing importance is that around 18% of the assets in the Bank's investment funds comes from customers of the Network of Agents.

Lastly, we should point out that this past year an extra effort was made to bring all products and product sign-up procedures into line with the new legal requirements established by the CNMV, Spain's Securities Market Commission. Always with the objective of achieving greate transparency and bringing ourselves into line with the new regulatory requirements.

Bankinter Asset Management
€7,233 million assets under management
8th biggest asset manager in Spain
by volume of assets

Equities

In 2014 Bankinter posted the best year in its history in the equities business.

The growth in activity on the Spanish stock exchange, in both spot and credit transactions stands out among all the business lines.

Online broker
+43% compared with 2013
Online broker
10,000 New customers
Volume traded by Bankinter
+38% compared with the 26% growth posted by the Spanish stock market

A year in which history was made. Prominent among the wide range of products and services offered by Bankinter to its customers for operating on the stock exchange are spot trading on the Spanish and international stock markets, and investment in derivatives (warrants and futures). It also offers the possibility of trading on credit, taking advantages of opportunities in rising and falling markets, and of investing in a wide range of exchange traded funds (ETFs). Investors also have available various tools for improving their risk management: stop orders, dynamic orders, referenced orders, related orders, conditional and limit orders, etc.

With all these services Bankinter led the value proposition to the retail investor and ended 2014 with the best year in its history in the equities business. With revenues of €46.7 million, it posted a 24% increase on the previous year. Moreover, it succeeded in capturing 10,000 new active clients for its online broker, representing an increase of 43% up on the previous year, and posted increased operational activity. Thus the volume traded through Bankinter increased by 38% compared with 2013, a particularly significant figure when we compare it with the 26% growth of the Spanish stock market.

Also, the nominal value of the securities deposited with Bankinter grew by 33% over the same period, and the effective value of these portfolios grew by 13%, representing an increase in the depository business.

Among all these business lines, growth was especially notable in the Spanish stock market business, both in spot trades and through Bankinter's trading on credit service.

An excellent performance by the business, which was due to the expansion of the offering of products available through the broker, the new mobile-based version of the broker for tablets and smartphones and thanks to the intense training efforts made by the Bank to tell existing and potential customers about the advantages
and possibilities of these kinds of investments.

Advisory services also played a major part in the offering, with a large variety of reports and recommendations to help customers improve their investment decision-making.

All this, together with very competitive prices and a comprehensive offer of banking and investment services available to the customer, make Bankinter's broker a leading service in the market.

‘Equities Masterclass’
During 2014 ‘Equities Masterclass’ was held in 21 Spanish cities. This initiative was aimed at existing and potential customers. With an average of 150 people attending each time, Bankinter's Analyst Department explained their market outlook and the key considerations for investing in equities.

Bankinter Consumer Finance

Bankinter has laid the foundations for boosting the consumer finance business and turning it into a major source of revenue for the Bank.

Customer base
+9% compared with 2013
Cards issued
512,367

A help in day-to-day economy. Bankinter intensified its commitment to the consumer finance business during 2014, with the long-term strategic objective of turning it into a third source of revenue to join pure banking and insurance. The gap that has opened with the crisis and the business opportunities that exist have helped Bankinter Consumer Finance - Bankinter's credit card and loan specialist - to consolidate its position in the consumer finance sector. Not only strengthening its distribution of revolving cards through strategic alliances but also, with a view to the future, expanding its offering of automotive financing, consumer finance, points of sale and direct business.

The main mission of Bankinter Consumer Finance is to meet customers’ financing requirements by providing them with flexible means of payment for managing their day-to-day finances. All this with the Bankinter style, with innovation, in multi-channel mode, disintermediating the market and putting its ability to work with partners, its flexibility and agility, its knowledge and long-term commitment to work in the service if its customers.

Throughout 2014 the Bank pursued a risk management policy focused on the risk-return trade-off, adjusting the price of each offer in line with the customer profile so as to ensure profitability.

Bankinter has designed a new website for its Obsidiana brand (obsidiana.com) and incorporated the partner card to its commercial offering. It has also created the private operating zone, in which customers can sign their transactions by mobile phone with a one-time password.

Consequently, during this past year Bankinter Consumer Finance saw its customer base grow by 9% compared with 2013, reaching a total of 512,367 cards issued at year-end.

The portfolio maintained its quality and in 2014 average customer lending came to €419 million, growing by 9% relative to 2013. The gross margin also grew by 7% and the cost of non-performing loans was held at well-controlled levels.

In short, in 2014 we designed a project for Bankinter Consumer Finance to take advantage of a great business opportunity, moving before the major players do and placing itself among the top group in the ranking for this business.

Insurance

Consolidation of the business. In 2014 revenue from commissions received by Bankinter in its capacity as a Tied Bancassurance operator amounted to €40.7 million, a very similar figure to that of the previous year. This involves the consolidation of Bankinter's Insurance business and reflects the measures taken over the course of the year.

This past year saw the start of activity of Bankinter Seguros Generales, which has become Bankinter's main provider of non-life (casualty) insurance. This company sells insurance for Companies, Shops, Offices and Death Benefits. The new company's product portfolio comprises Business Multi-risk, Shop and Office Multi-risk and various forms of Death Benefit policies
(Single Premium, Standard Universal and Foreign Residents), although it has gradually added new products, mainly Health. The offering is distributed exclusively through Bankinter's Branch Network, while Mapfre, which holds 50.1% of the company, takes charge of the technical design and management of the policies.

The relationship between Mapfre and Bankinter started in March 2007, when it was agreed to develop jointly the Pure Life, Casualty, Endowment and Pension Plan insurance business through another joint venture: Bankinter Seguros de Vida.

In Seguros de Vida we see that mediation continues to see strong growth in commissions, thanks to the business lines created during the previous years, particularly pension funds.

The creation in 2013 of a special team to retain insurance also started to bear fruit in 2014. This team is formed by a group of people who study each individual request for cancellation and offer clients alternatives for appropriate cover so as to avoid losing them.

As for assets managed by Bankinter in Pension Funds and EPSVs (Basque complementary pension schemes), they increased by €286 million during 2014, to reach €1,936 million, thanks to intense activity to capture new funds (+€198 million net) and the good work of the asset manager.

The Bank markets 19 individual pension funds, two funds belonging to the employment system and an EPSV with which a total of nine pension plans are registered, one fewer than in 2013.

By types of assets, the composition of the portfolio is very balanced, and has been repositioned in accordance with customers' investment profiles. 30.58% of the portfolio is made up of equities; 26.22% short-term fixed income; 24.49% is in guaranteed fixed income; and the remaining 18.7% is invested in mixed funds and long-term fixed income.

Bankinter Luxembourg

‘Bankinter Luxembourg’ had a year of consolidation in 2014, following its launch in 2013. The Bank's first foreign subsidiary focuses particularly on strengthening the Bank's leadership and strategic positioning in Private Banking. Having a presence in a major international financial centre such as Luxembourg, enables Bankinter to increase its knowledge of the workings of international markets, to incorporate new practices, to have a direct view of the European market and to meet the needs of a customer segment that increasingly requires global financial proposals.

The Luxembourg subsidiary has enabled Bankinter to capture new customers, mainly international ones. At the end of 2014, nearly 66% of customer funds deposited with Bankinter Luxembourg came from other institutions. Looking ahead, Bankinter aims to grow both in number of clients and in assets under management, and to round off the Bank's value proposition in the area of structuring of large fortunes and asset management.

Gneis

This past year Gneis took a qualitative leap forward, with new tasks and processes, consolidating its position as Bankinter's technological and operational service company.

Its involvement in international markets brings with it knowledge and experience and enables it to put its assets to profitable use by providing services to other companies.

After four years of development, 2014 served to enable Gneis Global Services to consolidate its role as the Bankinter Group's technological and operational service company, as reflected in its change of brand, from ‘Gneis, a Bankinter idea’ to ‘Gneis, a Bankinter company’.

Gneis' mission is to maximise the value created for the Group's shareholders by providing top quality operational and technological services, and this past year it took a qualitative leap forward in fulfilling this mission, in terms of the agility with which it provides its services and the scalability of these services, incorporating new tasks and processes into the existing portfolio.

Adapting the organisation to requirements. To fulfil the mission established requires organisational adjustments focused on the provision of services and on control. Accordingly, the company has adapted its organisational structure, not only so as to enable it to continue evolving into a service company as it has been doing since 2010, but also to reflect the increased emphasis now placed on operational and technological control.

With a growing portfolio of services. With a view to seeking the maximum possible efficiency and the greatest possible synergies among Group companies, in 2014 Gneis expanded the range of services that it carries out for both Bankinter and its subsidiaries. Gneis played a particularly important role in the incorporation of two new companies, Bankinter Luxembourg and Mercavalor, taking charge of implementing the necessary technological and operational facilities in the companies.

It also continued to incorporate new services to provide to Bankinter, in line with its strategy of boosting the Group's profitability and efficiency.

And generating value for the Group. During this past year, Gneis has consolidated its activity with companies in the retail, insurance and banking sectors in Spain, Peru and Chile. It worked in areas of technology with customer relations solutions (CRM), multi-channel processes, biometric signatures and secure storage (StoneCloud). In short, it capitalised on its experience, contributing value to companies in sectors or markets which can use these capabilities as an appropriate complement for accelerating their technological development strategies.

Gneis' involvement in international markets provides an additional input of knowledge and experience, enabling it to increase its differential capabilities. At the same time it succeeds in putting its assets to profitable use by means of providing services to these companies.

A special mention is required for the signing of the alliance between Gneis and Telefónica for the sales and marketing of GEM, a short messaging platform.

And this work was recognised by awards and nominations received.

In March the magazine Actualidad Económica presented the ‘100 Best Ideas of the Year’ awards, which recognise all those businesses and individuals which each year launch products and services onto the Spanish market that improve their customers' quality of life as well as the companies' profit and loss accounts. Gneis won the award on the strength of its Digital Biometric Signature.

In April, Computing, a leading leader in the Information Technology sector, presented its awards, which recognise the efforts of users, both companies and professionals, in the field of Innovation and Information Technology. The CEO of Gneis-Bankinter Group was presented with an award for his contribution to the ICT sector over the course of his 'Career Path'.

Bankinter's Biometric Signature solution was nominated Finalist in the 17th annual Financial World Innovation Awards. The solution was chosen as one of the five Most innovative
applications of technology worldwide, competing with equivalent solutions by companies from the US, Singapore, South Africa, Israel, Turkey, Malta, India and the UK.

Línea Directa

The insurer, in constant growth, once again posted strong increases in both policies and market share.

Línea Directa rises nine places in the Merco 2014 ranking and consolidates its position as one of the Spanish companies with the best reputation.

The Línea Directa Foundation is born of the company's firm commitment to road safety.

The ‘SUMA en Línea’ programme is the company's first plan to focus on the loyalty of its more than two million customers.

Growth in all branches. Línea Directa Aseguradora, a wholly-owned subsidiary of Bankinter, is the leading company in direct sales of insurance in Spain, with a market share of close to 60% among direct sales companies. As well as maintaining the highest rate of growth in the sector, it also boasts one of the best Satisfaction Indices, consolidating its position as a benchmark for quality, profitability and job creation, with a workforce of nearly 2,000 professionals and a portfolio of more than 2.2 million policies at the end of 2014.

Línea Directa operates in the Motor and Home branches, and is special in that its products are only distributed by phone or over the Internet, enabling it to offer its customers high-end services at very competitive prices. In this respect its business model, direct and without intermediaries, is based on direct contact with customers, prudence in selecting risks and sales strength, making it very flexible from an operational standpoint in what is a very complex economic setting.

By business lines, Home insurance, which has to cope with a flat property market and a product traditionally linked to mortgages, has shown strong growth, surpassing 300,000 policies, while in the Auto branch, Línea Directa is succeeding in restoring growth in premiums, following several years of sectoral decline caused largely by transfers of coverage and plummeting sales of new vehicles.

Meanwhile, Penélope Seguros, a product designed for women, and Nuez, a brand that is revolutionising the sale of insurance through the Internet and social networks, have consolidated their positions as growth drivers for the Group, contributing specialisation, diversification and flexibility to the company's product portfolio. Furthermore, Nuez has consolidated its position as the sector leader in social networks, with more than 200,000 followers on Facebook and nearly 30,000 on Twitter.

A benchmark in reputation. For the third consecutive year, Línea Directa confirmed its status as one of the companies with the best reputations in Spain, according to the MERCO Empresas 2014 report, reaching 55th place, which is nine places higher than in 2013. In this way, thanks to its financial results, its responsible practices and its communication strategy, the company has also consolidated its upward trend in this ranking, rising 27 places in just two years.

By sector, the company has also risen one place, reaching fourth position in the ranking of insurance companies and consolidating its position as the company with the most growth in the Auto branch. Moreover, in the opinion of the business journalists consulted by Merco, Línea Directa is ranked tenth in terms of reputation for all companies in all sectors in Spain, up ten
places from the previous year.

Miguel Ángel Merino, new CEO of the Línea Directa Group. In January 2014, the Board of Directors of Línea Directa Aseguradora appointed Miguel Ángel Merino as CEO of the company, in recognition of his work as General Manager of the insurance Group, a position he has held since October 2010.

In his four years at the head of Línea Directa, Miguel Ángel Merino has driven a strategy based on innovation, quality and commitment to people, which has enabled the company to
increase its customer portfolio by more than 400,000 policies.

Miguel Ángel Merino has spent most of his professional career with Línea Directa Aseguradora, which he joined in 1995 as Manager of the Accident Processing department, forming part of the small group of people involved in the company's creation and launch.

‘Suma en Línea’ Loyalty Programme. Línea Directa has created the first plan focusing on cementing the loyalty of the more than two million customers that the insurance group has in Spain. Associated with the totally free SUMA points card, with which points can be accumulated with expenditure relating to the vehicle, such as refuelling, repair and maintenance and roadworthiness tests, among others, the programme enables customers to pay less for renewing their car insurance. The insurer's top-level partners in this initiative are CEPSA, Norauto and Midas.

A Foundation to promote road safety
Línea Directa has put the finishing touch to its firm commitment to road safety, which it has promoted and developed since its inception in 1995, with the creation of the Línea Directa Foundation. Under the motto ‘For Road Safety. Here and Now’, its main objective is to promote safe driving habits in society and to reduce the number of road fatalities to zero.
The Foundation centres its activity on four lines of action: information, research, training and social action, with Road Safety being the common denominator.. These lines of actions are materialised through a number of different initiatives, such as the organising and holding of the Journalists Road Safety Award, the creation of the Entrepreneurs and Road Safety Award, the preparation of in-depth studies allowing various aspects of driving to be analysed, the holding of Driving Courses for those interested in improving their skill at the wheel, and the publication of a Solidarity Calendar for the benefit of an association or foundation acting to promote road safety. Its Board of trustees includes important personalities from politics, business and the media, such as Pedro Guerrero, Chairman of Bankinter; Pere Macias, Chairman of the Parliamentary Road Safety Committee; Pere Navarro, former Director General of Traffic; and Matías Prats, journalist and Antena 3 TV news presenter.