Integrated Report
Governance Report
Financial Statements
Special 50th anniversary
annual report 2015
01. Letters

“The quality of these results strengthens our confidence in Bankinter's capacity to generate future profits”

María Dolores Dancausa, CEO

How can 2015 be qualified?

I believe that 2015 can be rated as excellent. However, to not blow our own horn, I think it suffices to say that the year's results were most satisfactory. If we take a look at the income statement, the Bankinter Group obtained a net profit of 375.9 million euros and a profit before tax of 520.3 millions, representing year-on-year increases of 36.3% and 32.5%, respectively, where last year's results also had significant growth compared to the year before that. We are speaking of the highest profit level ever obtained by the bank to date, largely due to customers' recurring business, not from financial transactions or atypical profits, which is extremely important despite being repeated, as this type of recurring business is what has led to the increase in interest income and gross income, despite a scenario of unusually low rates. The quality of these results also strengthens our confidence in Bankinter's capacity to generate future profits.

Similarly, in 2015 we underscore our traditional strengths of the quality of assets and solvency. The non-performing loans ratio dropped to 4.1%, compared to 4.7% in 2014, representing less than half of average rate for the sector. Línea Directa Aseguradora was also the company with the best combined ratio, meaning the best insurer income on the market. With regards to solvency, Bankinter maintained a solid CET1 capital ratio (fully loaded – at the end of the transition process) of 11.6%, among the highest in the banking system and well above regulatory requirements. Similarly, we have a profitability index, measured in terms of ROE, that is the highest in the sector in Spain, and an efficiency ratio that is among the best.

Even our stock list price--which had showcased the best behaviour of all banks listed on the Spanish stock exchange during the long crisis period- -grew stronger in 2015, and indeed was the only institution in the sector to offer profits to its shareholders after adding capital gains and dividends. Stock market capitalisation losses for banks were extremely tough over the course of 2015, with several losing up to 35% of their value. Bankinter generated employment and it increased credit in 2015, when the sector is immersed in a process of reducing its capacity.

Why this trend against the tide?

It is fair to say that we are moving somewhat against the tide. In fact, Bankinter was the only bank in Spain that created net employment in 2015. Additionally, we grew in total assets, in deposits and in credit. With respect to the credit portfolio, I would like to emphasise that in a period during which one of the main complaints has been about the lack of credit, Bankinter has increased the total balance of its portfolio for the second consecutive year.

The majority of the main parameters of our business' health show greater dimension and strength than in 2007, the year that preceded the long period of recession. This has been due to our structure and some of our characteristics, which let us on the one hand suffer less from the impact of the crisis and, on the other, let us recover faster from its effects. These results are also the consequence of a healthy business model, with potential for the long term, joined to a series of lines of business in which we permanently invest so that they continue to develop and grow.

What are these encouraging results down to, in a financial context marked by complexity and uncertainty?

Of course, there are several different reasons, some of them owing to our merits and others that were outside of our control.

Starting with the latter external reasons, I must admit that some of it boiled down to luck. The good development of the Spanish economy and its growth rate helped us, where the uncertainty caused by the high number of electoral calls in the year impacted us less than expected. The European Central Bank's monetary policy, low oil prices and other factors also helped us. And as for the internal causes, those attributable to the decisions of the different people that make up Bankinter, I have to say that the first of them is the quality, dedication, attitude and effort of all of them. That is the key of everything else. That is why persevering in our strict selection process is important, in the high number of training opportunities we provide, in taking care of the enormous potential that we have right before our eyes that we don't always notice. The dedication and spirit of so many people, who appreciate working at a stable and solid company, at which they can look into the medium-term future with security, has been the overriding factor of our success.

As a second cause of our achievements, I consider to be significant the investments made in previous years in each and every one of the lines of business, which have matured and have borne fruit. In other words, owed to the good decisions taken in the immediate past.

And lastly, I would mention the improvements to our control systems, which are highly important for maintaining a balance between different efforts, different stimuli and different incentives.

All of this, joined to our firm determination to uphold strict action and behaviour principles, are what I believe are the roots of Bankinter's success last year, which will continue to be equally critical to obtain success in 2016 and in successive years.

What were the most outstanding business areas in 2015?

I am very satisfied with the results of the vast majority of the business areas. I would distinguish between the areas that we have relaunched and that still have limited experience, and those that have reached a higher level of maturity.

Among the first, the good behaviour of consumer financing merits mention, driven forward by Bankinter Consumer Finance, one of our strategic commitments in 2015, obtaining investment figure growth of 71%, taking advantage of the changing trend in internal consumption throughout the year. Additionally, I have to mention the Personal Banking sector, which obtained in that same financial year growth in gross operating income above 50%. Among the traditional lines, with years of continued success, I must mention one the Private Banking line again this year, whose managed assets totalled 28,000 million euros, a 21.2% year-onyear increase. Or our business in the Business Banking division, in which investment increased by 5.6% and in which I also want to underline the successes achieved in the products and services of the International Business.

And last but in no way least, I must mention the magnificent year of Línea Directa Aseguradora, whose contribution to Group earnings and profits is simply exceptional year after year. In 2015, its policies increased by 6.4%, reaching a total of 2.37 million, and within that general growth trend, the Household branch was the one that achieved the most growth, with 18%.

The big news of 2015 was the acquisition of the business of Barclays in Portugal. To what extent does that operation change the company's strategy?

The acquisition in Portugal has been an absolutely new initiative and experience for us, although it did not represent any strategic shift. It is a change because never before had we grown by acquiring other assets or other networks, and never before had we chosen to expand our business beyond the domestic Spanish market. With this decision, we have expanded and opened up our options to grow via acquisitions and grow outside of Spain. But our strategy, what we do and how we do it, the principles on which we operate, remain the same.

This decision is going to enrich our experience and knowledge. And it is going to be positive for everyone: for those we acquire and for those we integrate into our company. The new network, its customers, its qualified professionals and all services it offers will contribute to our success in 2016 and successive years, and will let us adapt and compare our practices in all areas in which we have the greatest capacities and that have given us the best results, like private banking, enterprise banking, assets management and personal banking. In addition, the operation lets us replicate the success of our alliance with Mapfre for life insurance and pension plans in Portugal.

If we measure it in figures, how does the appearance of Bankinter change with the Portugal operation?

In broad figures, the Barclays retail business in Portugal has a credit portfolio of 4,590 million euros, 2,785 million euros in off-balance sheet managed assets, a network of 84 branches, a staff of 940 employees and 177,000 customers, of which 15,200 are companies. That means that the operation allows us to increase our volumes and our customer base, and by no means trivially, since it represents increases of between 7% and 20% in the different parameters through which we measure the business.

The acquisition will consume 320 million in capital, of which 120 million will be financed with the negative goodwill and the rest with an issue of bonds. We believe, therefore, that the repercussion of the operation on the company's balance sheet, on its income statement and on its level of solvency is perfectly permissible and it allows us to create value for our shareholders from the first instant.

Having opened that path, are there any possibilities to continue to grow via acquisitions and to participate in the consolidation process that is anticipated in the sector?

We do not have any plans, although we will continue, as before, to pay attention to any opportunity that may arise in the market, provided that it fits with our model and, of course, that it provides value. In Spain, I must say that it will be complicated to find these types of opportunities, since the reduction in numbers of companies has been very extreme. And although it is fair to say that speculations abound about possible consolidation operations to supposedly resolve the problems of a sector beset by low interest rates and the consequent reduction of income, we do not see ourselves in any of these operations.

In addition, I believe that at this time we should not get distracted and we should focus all our efforts on successfully concluding the recent acquisition in Portugal.

¿What are the expectations for 2016?

Our expectations are to finish the year with a greater dimension than that which we had at the close of 2015, measured in terms of customers, volumes of investment and resources, and measured also in terms of income. In parallel, we must finish the year being a more efficient and more profitable company for our shareholders, as well as roundly complying with the requirements decreed by regulators on capital, solvency and other parameters that determine how robust and solid a financial institution is. Therefore our priorities will be aimed at transforming all these expectations and targets outlined into realities.

At the same time there are external effects that will also be decisive in fulfilling our expectations, because just as I have acknowledged the help of favourable winds in 2015, these can change, or disappear suddenly, as we have seen in the first few months of 2016, in which there has been a predominance of “dead calm”, that business stillness that is not the type we want when we want to rest and contemplate, but instead is the type of stillness born of desperation, because we have no control over the direction we want to go. However, I trust that the uncertainty stemming from the fragmentation of the Spanish Parliament after the general elections last December will be managed properly and that everything will be resolved in a reasonable period of time so that 2016 is once again a good year for the Spanish economy.

Lastly, in the financial sector, it is foreseeable that the scenario of interest rates close to zero will continue, which will mean another year of very low margins for credit institutions. However, if the trend in the Spanish economy strengthens and employment levels continue to increase, non-performing loans would also decrease and domestic consumer spending will be invigorated, which would be very positive for our sector.

¿Following on from this, how is Bankinter going to tackle the challenges of the technological revolution in the financial industry?

It is undoubtedly important to tackle the challenges we are faced with as a result of the speed acquired in the development and availability of new technological capacities. During Bankinter's 50 years of experience, technological advances have always been present, and we can proudly state that they have been wisely taken advantage of by our bank. What is more, we have been pioneers in it. But the truth is that these technological advances have never had the impact on business life that it is having today, and the acceleration of these advances and these changes has never had the vertiginous pace that they have today.

These advances are having a greater impact than all previous transformations in our relationships with customers, and they are also giving companies a “scalability” never known before, which allows volumes that are several orders of magnitude larger to be managed for only marginal increases in costs.

Precisely because of the opportunity to do much more without making much more of an effort, and due to the enormous possibilities that are opening up to us both with regard to traditional banking processes and in relational methods with our customers, we must give them proper service and care, and select the projects under careful criteria that will be applied to our business' new technologies. Because the playing field is practically infinite, and as a result it requires us to be very selective, and to get those decisions right, choosing those which provide the greatest return to the business in the least amount of time.

The last thing I want that is furthest from my intentions is for us to join a passing fad. Fortunately, we do not have the need to resort to any fads. Among other things, our size does not allow us to. Therefore everything that we do in the field of new technologies has to produce results; results that are measurable and clearly appreciated by those who have to account for their lines of business.

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