Letter/Interview with the Chairman
‘Bankinter is still strong, despite the difficult environment’
How would you define 2019 from an economic standpoint?
2019 was a difficult year, in which some uncertainties that already existed in 2018 became more pronounced. On the international front, tensions between the United States and China once again curbed trade, even though there was some easing off towards the end of the year. In Europe, the prospect of the UK's disorderly exit was a serious threat for the performance of the EU economy. In Spain, the greatest concerns stemmed from the situation in Catalonia and the political paralysis caused by the caretaker government that was in power for most of the year.
Do you think that last year's figures suggest a new crisis is coming?
World economic growth slowed last year. In Spain, figures show a clear slowdown in both economic growth and employment. However, lest we forget, the Spanish economy is today growing at a higher pace than the euro area as whole.
However, in its last report (while it has lowered its forecasts for last October), the IMF expects a recovery in global growth from 2.9% in 2019 to 3.3% in 2020 and 3.4% in 2021. The economic outlook has also improved following the truce in the trade war and the emergence of a Brexit deal. The institution recognised that its new forecasts have a high component of uncertainty, with downside risk, due to such factors as the stagnation seen in the advanced economies, new trade tensions, this time between the United States and the EU, growing geopolitical tension and the worsening social unrest in many countries.
I do not believe a new crisis is likely to emerge in the short term, although it cannot be completely ruled out; but it would not be anywhere near the scale of the previous one.
Will our economy return to what it was before?
It is difficult to know and especially difficult to pinpoint when this could happen. There are very significant circumstances that are outside our control, such as the trade war, Brexit, geopolitical tensions affecting oil prices, etc.
From an internal standpoint, Spain needs to be able to provide stability to economic agents and facilities for companies to operate and create jobs. Entrepreneurs and investors need certainty, a legal framework that is not constantly changing, and a government that provides encouragement and fosters economic growth.
How do you see the situation in the financial sector?
The enduring scenario of negative interest rates is forcing banks to reassess their traditional business practices. Taking in money from customers and lending it to other customers is no longer as profitable as it once was. Of course, lending must continue and we must fight to preserve our margins, as we have always done. But now, this is no longer enough. New higher-value products and personalised advisory services have become inescapable challenges, that will bring with them - are already bringing with them - a more innovative, dynamic and supportive banking system.
The digital transformation of the world will also have a particularly strong impact on our industry.
How did Bankinter fare in 2019?
Last year's results are detailed by our Chief Executive Officer below. I can say that Bankinter remained strong despite the surrounding difficulties. Net profit stood at 551 million euros, 4.6% more than a year earlier. Return on equity was 13%, much higher than the sector average. And these achievements were made with no impact on the quality of our assets or capital adequacy. It is important to highlight that Moody’s raised all its ratings for Bankinter in 2019.
As a result, I am able to inform our shareholders that the board of directors will submit a motion at the annual general meeting to pay a dividend against 2019 profits of 0.0976 euros per share, resulting in the distribution of 263 million euros in the year as a whole, the same dividend paid in 2018. We believe this is satisfactory remuneration given the Bank's performance and that it complies with the principle of capital preservation, in line with regulatory requirements.
What are the minimum capital requirements set by the European Central Bank for Bankinter in 2020?
Exactly the same as in 2019: 8.20% for CET1, tier one capital, and 11.70% for total capital. These are the lowest requirements established by the European Central Bank for Spanish banks and Bankinter amply satisfied them at 31 December. I would also like to mention something that shows the extent to which the authorities hold our capital adequacy levels and prudent risk policy in high esteem. The European Central Bank has ruled to evaluate of Bankinter every two years from now on, instead of every year. We are extremely satisfied with this move, but it is also a responsibility.
How has the entry into force of the new Mortgage Act affected Bankinter?
The new law implies a considerable change in the procedure for granting and signing real estate credit contracts. The first few months following its entry into force were difficult for everyone (customers, financial institutions, notaries), due to infrastructure problems (among other issues) which affected the volume of mortgages signed. However, for Bankinter the new law did not have a damaging effect on new mortgage loans, which speaks highly to our teams’ agility and adaptability. In any case, this is a law that offers a great deal of protection to consumers, and will certainly lead to a decline in the number of complaints. That is good news for everyone. Moreover, financial institutions would like the regulatory framework (for this and other aspects) to be sufficiently stable to avoid putting legal certainty at risk.
What does the inclusion of EVO mean for the Bank?
Bankinter's acquisition of EVO and its consumer finance subsidiary in Ireland, Avantcard, took place in May, after all the pertinent regulatory authorisations had been obtained. This is an important transaction for the Bank.
Avantcard will allow us to continue to expand internationally in a country, Ireland, with a very robust economy and strengthen our consumer finance business at the same time. Through Avantcard we will gain 130,000 customers, on top of those we already have in Portugal and, of course, Spain.
EVO has a different and innovative approach and will be a key part of the Bank's digital strategy.
Is the digital transformation of Bankinter complete?
Digitalisation is an ongoing process that makes many demands on us; but it will also offer some hitherto unexpected opportunities. We have made a great deal of progress in the past few years. For instance, most Bankinter customers now relate to the Bank using digital channels, most of our transactions are made online and 89% of consumer loans are taken out using this channel. This allows us to maintain our ability to take advantage of new technologies to provide an increasingly better service.
But a lot more is needed. We have to adapt to a social environment that is changing faster every day due to digital transformation. We have great confidence in the capacities that EVO, our recent acquisition, can offer us, through its innovative and fully digital business model, reflecting the retail banking of the future.
How will the stock market listing of Línea Directa affect shareholders?
Since we acquired 100% of Línea Directa we have known that (as it was a financial investmentt), if the company remained successful, one day it would be listed. We believe that the time is right for several reasons. The company has over three million policyholders. It works in three insurance branches: auto, home and health insurance. The first two are extremely profitable and high-growth areas, and the latter, launched barely two years ago, is showing great potential. Línea Directa's business model, based on direct distribution, has proved to be much more powerful than the traditional models. This is extremely important in a sector that is entering a phase of profound transformation. We also consider that market conditions are right as the low interest rates are fuelling the appetite of companies with growth potential.
We have structured the transaction in the best way for our shareholders. Bankinter is not selling LDA shares on the market, but is distributing them for free among shareholders so that they keep their full rights over them. The formula used – the distribution of a share premium in kind– is fiscally neutral and the percentage distributed allows Bankinter to keep its capital ratio intact (or increase it slightly), while at the same time remaining a significant shareholder of the company with a stake of 17.4%.
Further, the separation of the two companies will allow them to develop their strategies independently, which is important in our changing world that offers a bright future full of opportunity but at the same time is filled with change and uncertainty.
What does the fact that Bankinter is considered to be one of the most sustainable banks in the world by specialist analysts mean?
The fact that Bankinter has been included in some of the most prestigious sustainability indices – Dow Jones Sustainability Index Global, FTSE4Good, CDP - is recognition of the company's extraordinary management, which in addition to its magnificent economic results, also shows an excellent social and environmental performance, and wellrecognised corporate governance.
The Bank's good ESG credentials (environmental, social and governance) are increasingly weighted by institutional investors and proxy advisors, who recognise corporate strategies that are based on longterm value creation.
While sustainability management has always been one of the Bank's priorities, in 2016 it drew up its Sustainability Policy, which the basis of the current Sustainability Plan for 2016-2020, known as the ‘Three in a Row’ plan because it has a three-fold management objective – economic, social, environmental – aligned with the inclusive and sustainable development recommended by the UN Agenda 2030.
This Plan includes commitments to develop good corporate governance, facilitate inclusion and financial education and draw up a climate-related strategy.
Therefore, in 2019, a new climate change strategy was approved, which, in addition to strengthening the environmental commitments adopted previously by the Bank to ensure carbon neutrality, addresses the management of indirect impacts, through the application of environmental and social criteria to its financing and investment policies.
The strategy also includes the far-reaching goal of increasing our offer of sustainable financial products and services, and a plan to involve our stakeholders in a joint climate action.
What activities were performed by the Foundation in 2019?
Bankinter Innovation Foundation has been a reference in Spain and abroad for several years. There is no other foundation in the world that focuses on innovation from a multidisciplinary standpoint. The purpose of its various programmes is to disseminate knowledge about the consequences of technological change and new trends for companies and for society as a whole, through its Future Trends Forum; to promote entrepreneurism among students in their final years of university through the Akademia programme and support companies in their early stages, through the Startups programme; and in the growth stage, through Cre100do. In 2019, the Future Trends Forum addressed two salient topics: artificial intelligence and the interaction between neuroscience and technology. I would also highlight the strengthening of the Startups programme, where the team has been enhanced with talented professionals with recognised experience, and I am sure they will help us to shore up our efforts.
Gender equality has been one of the most common issues discussed by companies in recent years. How is Bankinter addressing this subject?
The banking sector has traditionally been dominated by men, especially at management level. Fortunately, this is changing. 51% of Bankinter's workforce is female and there are a majority of women sitting on the management committee. Further, the number of female directors on the board of directors is higher than average, and has been over the recommended good practice level of 30% for several years. However, these figures are based on merit, not on a policy of quotas or positive discrimination. At Bankinter equality is merit-based.