María Dolores Dancausa 

‘In 2019, our results exceeded those of the previous year for the seventh year running’

How would you summarise what 2019 meant for Bankinter?

2019 was an excellent year for Bankinter. Our earnings exceeded those of the previous year for the seventh year running. We reported profit of 551 million euros, an increase of 4.6% compared to the figure of 526.4 million euros posted in 2018.

The top part of the income statement, which includes income and margins, was particularly strong, and for the first time it surpassed 2,000 million euros, just over half of which corresponded to net interest income, in an unfavourable context of interest rates that are close to zero.

The inclusion of EVO and Avantcard on 1 June 2019 contributed seven months of their activity to the above figures, and we expect these new acquisitions to provide a higher contribution to margins in 2020, when they will have been on our books for 12 full months.

What other indicators can be highlighted in the year?

It was also a satisfactory year in terms of asset quality, capital adequacy, profitability, efficiency and liquidity. The non-performing loan ratio dropped to 2.51%, down 39 basis points compared to 2018, and much lower than the sector average. Bankinter kept its CET1 capital ratio at 11.6%, well above the requirement of 8.20% established by the European Central Bank for our entity for both 2019 and 2020, the lowest in the whole banking sector. Our profitability, measured in terms of RoE, was 13%, the highest in the sector in Spain.

Our traditional banking business, excluding the recent acquisitions, reported a cost-toincome ratio of 45.3%. In terms of liquidity, the customer funding gap (difference between loans and receivables and customer funds) was also positive, narrowing to 1,300 million euros from 3,700 million euros.

In short, 2019 was an excellent year in which the main pillars that underpin our different business lines grew in size and stature, preparing the Bank for future success.

Which were the most notable business units?

All our business lines that have been operating for a longer time and, therefore, have greater maturity, performed well. The Corporate Banking business, the business line that traditionally contributes most to gross operating income, loans and receivables in Spain increased by 5.1% and we obtained a 1.9% market share of new transactions. I would highlight the expansion of the International Business and Investment Banking, which both saw sharp growth in their loan book. Commercial Retail Banking, which includes individual banking, continues to grow steadily in the areas of Private and Personal Banking. In the area of funds, the Salary Account is our star product and in 2019 it became clear why, as its balance grew by 25%. The mortgage portfolio ended the year on a positive note, in contrast the general decrease marked by the sector as a whole. More significantly, new mortgage loans increased by 17% despite the economic slowdown and problems caused by the entry into force of the new Real Estate Credit Act.

In the insurance business, both policies and premiums in the Linea Directa insurance area increased by around 5%, with particularly significant growth in the homeowners segment and the high profitability of the business was maintained, with an exceptional return on equity of 33%, although the increase in claims penalised profit before tax, which was down by 8%.

The performance of one of our key growth drivers, Bankinter Consumer Finance, stood out again this year. Transactions increased sharply even though there was some slowdown in internal consumption in Spain during the year. Customers rose to 1.4 million and the volume of new loans extended stood at a healthy 45%.

I would also like to highlight Bankinter Portugal, where business is more than meeting the expectations we had when it joined the Group in 2016. Its loan book and its deposits showed double-digit growth in 2019 and the entity reported a profit before tax of 66 million euros, 9% more than the previous year.

The inclusion of EVO Banco and Avantcard was a milestone in the year. How does this transaction fit with the Bank's strategy, which has historically been based on organic growth?

Effectively, at Bankinter we have traditionally sought organic growth. We have followed the criteria of growth through innovation not acquisition for more than half a century. There have been three exceptions: in 2012 we acquired our current bank in Luxembourg to strengthen the Private Banking business; in 2016, we acquired the retail network that today is Bankinter Portugal; and in 2019, we acquired EVO Banco in Spain and Avantcard in the Republic of Ireland. In all these cases, the decision was guided by the principle that the asset to be acquired was a fit with the Bank's strategic lines.

The acquisitions made in 2019 offer us new business opportunities and the possibility of diversifying in two key areas, digital banking and consumer finance, and in two different geographical areas. EVO Banco is a brand recognised by younger, online customers, which gives us a presence in this business segment and allows us to explore new ideas and products. The activity carried out by Avantcard supplements our consumer finance business, which is currently one of our biggest growth drivers.

How have they performed in their first seven months as part of the Group?

It is early to say, but preliminary data are positive. EVO Banco attracted 50,000 new customers and Avantcard's loan book grew by 23%. In any case, the two businesses have different short-term expectations, because EVO Banco will require more investment to make it profitable, which we expect to occur 2023. In contrast, Avantcard has been profitable since day one.

Another development in the year was the renewal of the Investment Banking brand, which is now called Bankinter Investment. Why was that done?

2019 was the five-year anniversary of the launch of the investment banking business, which showed very positive results, and we thought that it was a good moment to strengthen and relaunch this business line that has become a key market player in a short space of time. With this move, we aim to give a firm boost to the alternative investment business, which we consider to be promising in today's context of very low interest rates and market volatility. We already have an established presence in this market, after setting up two SOCIMIs comprising hotel and commercial real estate assets, three renewable energy funds, two funds in the student residences and infrastructure segments, and one fund of funds focused on technology. The objective is to comfortably double our investment volumes in three years to over 8,000 million euros.

One of the main strategic decisions taken in the year was to submit a motion to the annual general meeting proposing the stock market listing of Línea Directa. What is the objective of this decision?

The board of directors approved a motion in December to submit a proposal to a vote at the 2020 annual general meeting for the stock market listing of Línea Directa, according to which 82.6% of the insurance company would be delivered to shareholders, while the Bank would retain the remaining 17.4%. The Chairman has explained above the reasons why this is the best time to perform this transaction.

Although the sum of the value of the two companies is identical whether taken together or separately, we believe that with the passage of time, they will be worth significantly more separately than together as one company. Once the spin-off has been carried out, each one will be able to operate in its own sector and under its own regulatory environment, with the appropriate capital structure and dividend policy.

After seven consecutive years of reporting an increase in profit compared to the previous year, what is the key to Bankinter's success?

This good performance is due to many factors: efficient risk management, which has been one of our core strengths, exposure to recurrent customer activities, agility and simplicity in our actions, diversification of revenues and a wish to be independent. But if I had to single out one reason for our success, it would be our people.

Bankinter has an exceptional team of people who are well qualified, committed and dedicated, with a determination to take advantage of opportunities and face up to obstacles. Without them, without these people who make up our different teams and strive to improve their work every day, Bankinter would not be where it is today.

Let us talk about the future. What is the outlook for 2020 and beyond?

2020 is another year marked by uncertainty, which appears to be the sign of our times. The slowdown in international economic activity, the impacts of an epidemic that is proving hard to contain, the rise in protectionism, a Europe without the United Kingdom, the abnormal surplus of liquidity and political instability are all factors that we will have to live with.

We have to continue expanding the projects and business lines that have already proven successful, and attend to every small detail day after day. This is what makes us different and efficient.

Is an interest rate hike still expected to improve profitability?

We do not base our business decisions on a hypothetical increase in interest rates. We expect them to remain very low, at around zero. When they do rise, which they will, although we do not know when, we will be prepared to take advantage of this. But until that moment arrives, we are well prepared to deal with the current situation.

For this reason, we have been developing business lines such as private banking, investment banking and supporting the international business lines of Spanish companies. These activities and associated services contribute a value that is recognised and appreciated by our customers, and that is billed in the form of fees.

There are also segments such as consumer finance, where net interest income remains attractive and which offer an appealing revenue channel. As a result, gross operating income has not only shown resilience to the environment of interest rates at close to zero, but continues to grow at a rate of 6%, breaking the 2,000 million euro barrier in 2019.

Are innovation and technology still essential values in Bankinter's strategy?

Bankinter would not be understood without these two variables, that have been a part of the Bank's identity and strategy practically since it was founded. At Bankinter, we see innovation as a competitive advantage that has allowed us to survive successfully and independently in a sector that has seen a complicated past few years. Early positioning in technology and a focus on digitalisation explain why today Bankinter is immune from some of the major problems affecting the sector, such as installed capacity surplus, and are behind our positive performance in the area of efficiency or profitability, for instance. More than 93% of the Bank's customers currently interact with us through digital channels, and this allows us to keep a streamlined branch network that is dedicated to tasks that contribute customer value.

However, our objective for 2020 is to continue to invest in technology to improve customer experience, optimise processes to reduce response times, and consolidate the competitive advantage our long history has provided us with.

Broadening our analysis, what is your view of the current situation in the Spanish banking sector?

The Spanish banking sector as a whole has seen a significant transformation over the last ten years, in line with European banks. In the last few years, the sector has had to deal with a very strict and demanding regulatory framework, a technology revolution that has forced banks to rethink their business models, lower margins and profits, the judicialisation of numerous banking practices and a loss of reputation among the general public. The latter is particularly concerning as the essence of the banking business, trust, has been damaged by this unjust perception. Despite the difficulties and obstacles in our path, we are part of a healthy financial system, which is much more robust and resilient than it was in the past, and that plays a major role in funding economic activity, a mission that is not fully recognised by the public authorities or by society.