Growth, profitability and digitalisation

The Spanish banking sector is currently facing two major challenges that are shaping its present and will greatly influence its future. First, to successfully complete the digital transformation process, and second, to learn to navigate a financial scenario characterised by low interest rates.

To address digital transformation, the sector is investing heavily in technology to optimise its processes and offer a better quality service. In turn, the low interest rate environment policy obliges companies to look for new revenue sources to maintain profitability margins.

Against this backdrop, Bankinter has several key strengths: a brand image that is synonymous with innovation and excellence in customer service; qualified and committed employees; and a strict risk culture to which the institution owes its robust health.

As a result, Bankinter can take the best advantage of opportunities such as the persistence of economic growth (albeit at lower rates than in previous years), customer

digitalisation and the possibility of continued organic growth, despite the shift towards concentration seen in the sector in Spain and other EU countries.

Based on this premise, Bankinter's strategy for 2019 focused on measures to foster growth in customers, volume and operations; to seek profitability through fees and highmargin services and implement more digital and efficient models in the area of commercial productivity.

These measures included maintaining the institution's risk policy, standing out in the area of customer service, consistently developing the product offer, increasing the Bank's presence in relatively closed segments, achieving higher levels of cross selling and taking advantage of technological investment.

All with the aim of preserving areas that are being made profitable (asset management through Private Banking and Personal Banking, the traditional business of Corporate Banking), strengthening other areas that are in the growth stage (Individual Retail Banking, consumer credit, Investment Banking, International Business) and developing skills in the digital and data exploitation fields.

The outcome of this strategy for the Bank's two main areas was as follows:

Commercial Retail Banking

The star product for attracting more customers, the Salary Account, remained an essential tool. Forty of every hundred customers were acquired through this channel, and now the plan is to increase the loyalty of these new customers through credit cards, personal loans, mortgages, investment funds and direct debits, among other products.

The number of active customers in the Individual Retail Banking segment grew to 373,617, on the back of the Salary Account, alongside control and management of customer retention. In this segment, the key lies in encouraging the transfer to other segments with a greater potential to sell value added services (Personal Banking and Private Banking), that can offer higher fee income.

The Personal Banking area made further progress in the digitalisation of its commercial management process, which contributed to a slight increase in mortgage loans, despite the decline seen in the sector as a whole.

In the Private Banking segment, the differentiation strategy rolled out by Bankinter, which includes alternative investment vehicles, contributed 2,000 million euros in new assets and put assets under management to 40,400 million euros.

Through the launch of Bk, a business line offering a global service (savings, loans and investment), and the acquisition of EVO Banco, an entity specialising in digital transactions, the company sought to diversify its customer base, with a focus on attracting young people.

Corporate Banking

The loan book totalled 25,500 million euros with no impact on margins, which were maintained thanks to the good fee management system, which showed double digit growth. This is essential for assuring customers that the price paid is consistent with the quality of the service provided.

The restructuring and strengthening of specialist teams, aimed at boosting efficiency, led to an 7% increase gross operating income in International Banking compared to 2018, also enhanced by the stronger partnership agreements with large international banks.

In the Corporate Banking area, a new portfolio management model by revenue tranche was introduced, to which specially trained professionals are assigned. In the SME segment, an effort was also made to improve service quality, which impacted customer satisfaction indices.

Lastly, the Investment Banking area continued to develop its traditional advisory and financing activities, bringing in new alternative investment vehicles.