Business Performance September 2012 26 October 2012 1
In the third quarter of the year the Bankia Group generated operating income before provisions of 306 million euros, supported mainly by net interest income of 744 million euros and net fee and commission income of 226 million euros. Cumulative operating income for the first nine months of the year was 1,457 million euros. Cumulative administrative expenses for the first nine months of the year amounted to 1,537 million euros, down 131 million euros (-7.9%) compared to the same period of the previous year on a recurring basis. In addition, September saw the satisfactory completion of the IT integration of Caja Segovia. By 30 September the Group had satisfactorily covered 98% of the wholesale funding maturities scheduled for 2012, totalling 17,438 million euros, and had reduced its customer funding gap by 3,781 million compared to December 2011. Provisions for impairment losses amounted to 11,485 million euros, giving rise to an attributable loss for the first nine months of 7,053 million euros. These provisions include approximately 75% of the provisions required under the Royal Decree-Laws on financial sector restructuring. On 12 September, through a capital increase, BFA-Bankia received 4,500 million euros from the Fund for the Orderly Restructuring of the Banking Sector ( FROB by its Spanish abbreviation), authorised both by Banco de España and by the competent authorities of the European Union. This capital injection was implemented through a capital increase in BFA, which was subscribed by the FROB. Subsequently, a subordinated loan agreement was signed whereby BFA extended a loan to the Bankia Group in the amount of the capital increase. The purpose of this transaction is to continue to strengthen the balance sheet and reestablish the regulatory capital levels of the Bankia Group. According to the result of the stress test carried out by Oliver Wyman, published on 28 September 2012, the capital needs of the BFA Group amounted to 13,230 million euros in the base scenario and 24,743 million euros in the adverse scenario. On 23 May the BFA Group notified Banco de España and the FROB of its proposal to request a capital contribution of 19,000 million euros. This amount lies in middle of the range marked by the base and adverse scenarios. However, in the exercise carried out by Oliver Wyman different methods were used, the differences concerning mainly the macroeconomic hypotheses, which gave rise to differences in expected losses, capital requirements, and treatment of tax benefits. 2
GLOBAL ECONOMIC ENVIRONMENT The world economy continued to show signs of weakness during the third quarter. US growth remains below potential and the recession in the euro area appears to have deepened, due to a sharper deterioration in the peripheral countries and a cooling of the German economy. The emerging economies have also slackened pace, although overall they continue to show relatively strong rates of growth (4.5% on average). In any case, expectations are modest, given that the scope for a recovery of the global economy will continue to be limited by excess debt and political uncertainty, which remains high both in the United States and in the euro area. In fact, the main risk for the current scenario is still the sovereign crisis in Europe, although in recent months decisive steps have been taken to resolve it. The mechanisms that should act as firewalls in future episodes of instability and deliver the financial resources to stabilize the current situation are ready to be activated in the relatively near future: the European Stability Mechanism is already operational and, most important of all, the ECB has announced its willingness to intervene in the secondary debt market under certain conditions, with unlimited capacity (which is the most effective tool). The combination of these two has eliminated the risk of a complete bailout of Spain and Italy and may make sufficient resources available to avoid a break-up of the euro. Thanks to this, the peripheral debt markets have started to stabilise, risk premiums are moderating and the prices of risk-bearing assets have been able to form a floor. In Spain, although the environment continues to be marked by the weakness of economic activity, job destruction, loss of confidence among investors and a tightening of fiscal policy, the deterioration of economic activity did not accelerate in Q3-2012. The July and August figures show the rates of decline stabilising, thanks to the positive contribution of tourism and, above all, a bringing forward of spending in advance of the VAT increase. However, the few September data released so far are markedly worse. Consequently, the decline in GDP over the quarter as a whole is likely to have been similar to that of Q2-2012 ( 0.4% over the quarter). The scenario is influenced by the pace of resolution of the crisis in the euro area and the implementation of structural reforms that will enhance growth potential. In any case, the key variable will be the risk premium; only a substantial drop in the premium, boosting the confidence of the markets, will succeed in reactivating the economy. In this regard, the implementation of the ECB s bond buying programme would significantly alleviate debt service costs and probably also avoid the government s having to make further fiscal adjustments, which would counteract the recessionary inertia. In the banking sector, the process of recapitalisation and restructuring continues in accordance with the road map established in the MoU, signed on 20 July. The latest milestones include the approval of RDL 24/2012 and the publication of the results of individual stress tests on Spanish banks. The RDL, which is aimed at regulating the processes of early intervention, restructuring and orderly resolution of credit institutions, one of which is the creation of an Asset Management Company, is the first example in Europe of an adaptation to the laws on bank resolution and the new European banking model. The individual stress tests, carried out by consultants O.W., estimated the capital needs at 53,700 million euros in an adverse scenario, to be shared among seven institutions. The final amount of the aid requested from the EU, estimated at around 40,000 million euros, will be determined after taking into account the measures adopted by the banks in their recapitalisation plans, which will have to be approved by Banco de España and the European Commission. 3
THE BANKIA SHARE The Bankia share ended the third quarter of the year at 1.30 euros, up more than 30 cents on the end of June, largely thanks to the strong overall performance of the securities markets. Thus, the Ibex 35 rose 8.5% in the quarter, ending September at 7,708 points. The financial sector as a whole did not remain immune to the rally, as was reflected by the increases in its most representative indices: the FTSE Banks rose 7.8% in the quarter while the Euro Stoxx Banks was up 12.8%. The average traded volume of the Bankia share in the third quarter was 8.9 million shares, 30% higher than in the second quarter, giving an average traded value of 10.2 million euros. In the year to date, the average daily traded volume was 6.8 million shares, representing a traded value of 12.2 million euros. BANKIA (third quarter figures) 3Q 2012 Number of shares in issue 1,993,963,354 Average daily trading volume (no. of shares) 8,857,563 Average daily trading volume (euros) 10,185,152 High (euros) 1.51 Low (euros) 0.53 Closing price (euros) 1.30 Closing market capitalisation (euros) 2,592,152,360 4
BANKIA GROUP KEY FIGURES Balance sheet (millon euros) Sept-12 Dec-11 Change vs. Dec-11 Total assets 288,808 302,846 (4.6%) Net loans and advances to customers 165,375 184,110 (10.2%) Loans and advances to the resident private sector (gross) 139,584 158,376 (11.9%) Secured loans and advences (gross) 107,991 118,814 (9.1%) On-balance-sheet customer funds 154,922 211,378 (26.7%) Funding via clering houses and customer deposits 111,498 155,338 (28.2%) Borrowings, marketable securities 38,574 55,714 (30.8%) Subordinated liabilities 4,849 326 1,388.4% Total managed customer funds 173,233 231,390 (25.1%) Business volume 338,608 415,500 (18.5%) Equity 6,681 13,068 (48.9%) Risk management (million euros and %) Sept-12 Dec-11 Change vs. Dec-11 Total risk assets 190,059 200,598 (5.3%) Non-performing assets 25,314 15,311 65.3% Provisions for non-performing assets 18,070 9,214 96.1% NPA ratio 13.3% 7.6% +5.7 p.p. NPA coverage ratio 71.4% 60.2% +11.2 p.p. Capital adequacy (%) Sept-12 Dec-11 Change vs. Dec-11 BIS II core capital 4.7% 8.3% (3.6) p.p. Solvency ratio (BIS II ratio) 8.0% 8.5% (0.5) p.p. Additional information Sept-12 Dec-11 Change vs. Dec-11 No. of branches (1) 3,107 3,248 (4.3%) No. of employees (1) 20,126 20,833 (3.4%) (1) Number of branches and employees used in financial activities in Spain and abroad 5
BANKIA GROUP CONSOLIDATED INCOME STATEMENT Change 9M12 / 9M11 (millon euros) 3Q 2012 9M 2012 9M 2011 pro forma Amount % Net interest income 744 2,449 1,981 468 23.6% Dividends 2 37 28 10 34.4% Share of profit/(loss) of companies accountes for using the equ 3 (37) 41 (77) - Total net fees and commissions 226 750 807 (57) (7.1%) Gains/(losses) on financial assets and liabilities (27) 331 277 54 19.5% Exchange differences 9 25 19 7 37.6% Other operating income/(expense) (92) (359) (30) (329) 1,089.5% Gross income 866 3,197 3,122 75 2.4% Administrative expenses (491) (1,537) (1,557) 20 (1.3%) Staff costs (338) (1,059) (1,032) (28) 2.7% General Expenses (153) (478) (526) 48 (9.1%) Depreciation and amortisation (69) (203) (226) 23 (10.2%) Operating income/(expenses) before provisions 306 1,457 1,338 118 8.9% Provisions (net) (353) (404) (24) (380) - Impairment losses on financial assets (net) (3,470) (10,098) (837) (9,261) - Operating profit (3,517) (9,045) 477 (9,523) - Impairment losses on non-financial assets (26) (63) (20) (44) - Other gains and other losses (180) (974) (60) (914) - Profit before tax (3,723) (10,083) 397 (10,480) - Corporate income tax 1,118 3,024 (113) 3,137 - Return from continuing operations (2,604) (7,059) 285 (7,343) - Return from discontinued operations (net) (2) (2) (0) (2) - Profit after tax (2,606) (7,060) 285 (7,345) - Profit attributable to minority interests (1) (7) (10) 3 - Profit attributable to the Group (2,605) (7,053) 295 (7,348) - 6
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Business Performance September 2012 CONSOLIDATED EARNINGS NET INTEREST INCOME In the first nine months of 2012 net interest income reached a cumulative total of 2,449 million euros, representing growth of 23.6% compared to the same period of the previous year. For the third quarter of 2012, net interest income was 744 million euros, up 4.6% on the same period of the previous year. Quarterly net interest income ( m) 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% Spreads evolution (%) loan yields vs costumer loans 3.25% 3.41% 3.46% 3.41% 2.99% 3.03% 3.13% 2.04% 1.94% 1.95% 1.88% 1.95% 1.70% 1.73% 1.58% 1.29% 1.31% 1.46% 1.68% 1.18% 0.99% 1.24% 1.30% 1.13% 0.98% 1.05% 0.97% 1.15% 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 pro forma pro forma Loan Yield Cost of deposits Gross interest margin Net interest margin 712 744 FEES AND COMMISSIONS 3Q 2011 3Q 2012 As regards credit spreads and deposits, the net interest margin for the third quarter was 1.15%, with an average loan yield of 3.13% and a cost of deposits of 1.95%. The decrease in the return on the loan portfolio is attributable mainly to the sharp drop in the yield curve. Meanwhile, the cost of customer deposits remained stable compared to the third quarter of 2011, but was up 27 basis points compared to the previous quarter, due to the general increase in the return on banking sector deposits as a result of the abolition of the penalty imposed on high-interest deposits in the form of a larger contribution to the FGD. Cumulative net fee and commission income at 30 September was down 7.1% year-on-year, at 750 million. This change is attributable to the decline in income from the securities brokerage service and the structuring, design and underwriting of corporate transactions and issues. GAINS/(LOSSES) ON FINANCIAL ASSETS AND LIABILITIES Gains on financial assets and liabilities in the first nine months of the year amounted to 331 million euros, 54 million more than in the same period of the previous year. This figure mainly reflects the results of the management of fixed income portfolios and of the repurchase of the Group's securitisation bonds in March (229 million euros). It should be mentioned that no portfolio transactions took place during this quarter. GROSS INCOME 2.300 2.100 1.900 1.700 1.500 1.300 1.100 0.900 0.700 0.500 EURIBOR 12M Evolution Euribor All the above, combined with the income from equity investments and other operating income and expenses brings the cumulative gross income of the Group for the first three quarters to 3,197 million euros, slightly above the 3,122 million recorded in the same period of the previous year, despite the large increase in contributions to the Deposit Guarantee Fund under the new regulation. 7
ADMINISTRATIVE EXPENSES The administrative expenses of the Group for the first nine months of the year totalled 1,537 million euros, down 131 million euros (-7.9%) compared to the first nine months of the previous year on a recurring basis, i.e., excluding certain extraordinary effects in 2011 (a release of provisions for staff costs and other non-recurring expenses linked to the Group restructuring and the IPO). It should be pointed out that staff costs were down 10.6% compared to the previous year, again on a recurring basis. On a quarterly basis, the administrative expenses of the Group for the third quarter amounted to 491 million euros. The Integration Plan continues to progress satisfactorily. The cost savings and other synergies resulting from the restructuring process continue to have a significant impact on the Group s income statement. Thus, at 30 September 2012 a total of 947 branches had been closed and the workforce has been reduced by more than 4,300 people since March 2010. In addition, in September 2012 the IT integration of Caja Segovia was completed, with the result that the Bankia Group's systems now cover nearly 95% of the Group's customers. This process will be completed during the next few months, with the integration of the platforms of Caixa Laietana, scheduled for November, and of Caja Rioja and Caja Insular de Canarias in the first quarter of 2013. OPERATING INCOME BEFORE PROVISIONS After deducting administrative expenses from gross income, operating income before provisions for the first nine months of the year was 1,457 million euros, up 118 million on the same period of 2011. The figure for the current quarter was 306 million euros. PROVISIONS During the third quarter the Group continued with the balance sheet clean-up and restructuring plan. A total of 4,015 million of provisions for impairment of financial and other assets were recorded during the period. These provisions bring the overall level of provisions at 30 September to more than 75% of the level required by Royal Decree-laws 2/2012 and 18/2012, while also covering part of the estimated provisions for the rest of the loan portfolio. 8
BANKIA GROUP CONSOLIDATED BALANCE SHEET change vs. Dec -11 Sept-12 (millones de euros) Dec-11 Amount % Cash and balances at central banks 2,504 6,280 (3,776) (60.1%) Financial assets held for trading 35,125 29,083 6,042 20.8% Of which: Loans and advances to customers 26 16 10 58.6% Available-for-sale financial assets 30,793 25,269 5,524 21.9% Debt securities 29,697 23,922 5,775 24.1% Equity instruments 1,096 1,347 (251) (18.6%) Loans and receivables 181,706 207,791 (26,085) (12.6%) Bank deposits 12,199 18,190 (5,991) (32.9%) Loans and advances to customers 165,349 184,094 (18,744) (10.2%) Rest 4,157 5,507 (1,350) (24.5%) Held-to-maturity investments 10,337 10,894 (557) (5.1%) Hedging derivatives 6,084 5,266 817 15.5% Non-current assets held for sale 4,158 3,898 260 6.7% Equity investments 2,241 2,349 (108) (4.6%) Tangible and intangible assets 3,394 3,572 (178) (5.0%) Other assets, prepayments and accrued income, and tax assets 12,466 8,445 4,022 47.6% TOTAL ASSETS 288,808 302,846 (14,038) (4.6%) Financial liabilities held for trading 32,523 26,879 5,644 21.0% Financial liabilities at amortised cost 245,158 257,951 (12,793) (5.0%) Deposits from central banks 61,890 22,432 39,459 175.9% Deposits from credit institutions 26,214 22,522 3,691 16.4% Customer deposits and funding via clearing houses 111,498 155,338 (43,839) (28.2%) Debt securities in issue 38,574 55,714 (17,140) (30.8%) Subordinated liabilities 4,849 326 4,523 1,388.4% Other financial liabilities 2,133 1,619 514 31.7% Hedging derivatives 2,599 2,025 574 28.3% Liabilities under insurance contracts 278 356 (78) (22.0%) Provisions 1,375 1,284 90 7.0% Other liabilities, accruals and deferred income, and tax liabilities 1,658 1,858 (200) (10.8%) TOTAL LIABILITIES 283,590 290,353 (6,763) (2.3%) Minority interests 122 128 (7) (5.1%) Valuation adjustments (1,585) (703) (881) (125.3%) Equity 6,681 13,068 (6,387) (48.9%) TOTAL EQUITY 5,218 12,493 (7,275) (58.2%) TOTAL EQUITY AND LIABILITIES 288,808 302,846 (14,038) (4.6%) 9
GROUP BUSINESS PERFORMANCE The Bankia Group ended the third quarter of the year with total assets of 288,808 million euros and a business volume of more than 330,000 million euros. CUSTOMER FUNDS At the end of September 2012, on-balancesheet customer funds totalled 154,922 million euros. On-balance-sheet customer funds decreased during the first nine months of the year due to wholesale maturities, the repurchase of securitisation bonds issued by Group vehicles (movements recorded under Debentures and other marketable securities ) and the decrease in customer deposits, this latter motivated by, among other things, the smaller amount of funding sourced through clearing houses and the decline in retail customer deposits, as has happened throughout the sector in Spain. attributable mainly to the decline in the amount of funding sourced through European trading platforms and central counterparty clearing houses, totalling 2,667 million euros; the amortisation of cédulas singulares (singlecertificate covered bonds) in the amount of 1,832 million euros; and the fall in retail customer deposits. Non-resident and public sector deposits decreased by 21,692 and 2,529 million euros, respectively in the first nine months, due almost entirely to the decrease in funding through CCP clearing houses. Lastly, the volume of subordinated loans rose to 4,849 million euros over the period as a result of recognition of the subordinated loan in the amount of 4,500 million euros extended by BFA to the Bankia Group. At the end of September 2012, customer funds from the resident private sector totalled 104,304 million euros, down 15.8% on the end of the previous year. This decrease is change vs. Dec -11 (millones de euros y %) Sept-12 Dec-11 Amount % Spanish public sector 2,347 4,876 (2,529) (51.9%) Repo transactions 0 2,791 (2,791) (100.0%) Other resident sectors 104,304 123,922 (19,618) (15.8%) Current accounts 12,995 15,454 (2,458) (15.9%) Savings accounts 24,105 27,907 (3,802) (13.6%) Term deposits and other 67,204 80,561 (13,357) (16.6%) Repo transactions 1,412 4,079 (2,667) (65.4%) Singular mortgage securities 12,805 14,637 (1,832) (12.5%) Rest 52,987 61,845 (8,858) (14.3%) Non-residents 4,847 26,540 (21,692) (81.7%) Repo transactions 1,074 22,628 (21,554) (95.3%) Funding via clearing houses and customer deposits 111,498 155,338 (43,839) (28.2%) Debentures and other marketable securities 38,574 55,714 (17,140) (30.8%) Subordinated loans 4,849 326 4,523 1,388.4% TOTAL ON-BALANCE-SHEET CUSTOMER FUNDS 154,922 211,378 (56,456) (26.7%) 10
Retail customer deposits At 30 September 2012 retail customer deposits totalled 98,793 million euros, including the commercial paper issued by the Group. In the period from June to August, Bankia's market share of total resident sector deposits went from 9.6% to 9.4%. The Group's deposits in the third quarter of the year followed a similar trend to those of the sector as a whole over period. Thus, the month-on-month change in Bankia s deposits was -3.6% in July and -1.2% in August, compared to falls of -3% and -0.3% in the system as a whole, according to the latest official figures published by Banco de España This decline affected both retail customers and businesses, although it is worth noting that in the businesses segment the share of new term deposits increased by slightly over 2% in the same period Market share of deposits in the domestic sector (%) 10.4% 9.6% 9.5% 9.4% Dec 2011 Jun 2012 Jul 2012 Aug 2012 (*) Source: Bank of Spain change vs. Dec -11 (millon euros and %) Sept-12 Dec-11 Amount % Resident public sector 2,347 2,085 262 12.5% Other resident sectors 90,087 105,106 (15,019) (14.3%) Current accounts 12,995 15,454 (2,458) (15.9%) Savings accounts 24,105 27,907 (3,802) (13.6%) Time deposits 52,987 61,745 (8,758) (14.2%) Commercial paper 2,586 1,947 639 32.8% Non residents 3,773 3,912 (139) (3.5%) Total retail customer deposits including commercial paper 98,793 113,050 (14,257) (12.6%) 11
LOANS AND ADVANCES TO CUSTOMERS The Bankia Group s gross loans and advances to customers totalled 182,904 million euros at the end of September 2012. The bulk of the loans and advances to customers were resident sector loans, specifically secured loans, which amounted to 107,991 million euros, accounting for 59.0% of total gross loans. Personal guarantee loans amounted to 19,947 million euros and business loans to 11,646 million euros, respectively accounting for 10.9% and 6.4% of total loans. At the end of the third quarter of the year the Bank had limited exposure to the Spanish public sector, with credit transactions totalling 9,068 million euros. At the end September 2012 the Group s doubtful loans totalled 24,585 million euros, with an NPL ratio of 13.3%. Loan loss provisions totalled 17,529 million euros, bringing NPL coverage at the end of the third quarter to 71.3%. (millon euros) change vs. Dec-11 Sept-12 Dec-11 Amount % Spanish public sector 9,068 6,595 2,473 37.5% Other resident sectors 139,584 158,376 (18,792) (11.9%) Secured loans and advences 107,991 118,814 (10,823) (9.1%) Personal guarantee loans 19,947 24,994 (5,047) (20.2%) Business loans and other credit facilities 11,646 14,568 (2,922) (20.1%) Non-residents 7,977 9,545 (1,568) (16.4%) Repo transactions 94 791 (697) (88.1%) Other financial assets 1,057 2,299 (1,242) (54.0%) Other valuation adjustments 539 328 211 64.2% Non-performing assets 24,585 14,921 9,664 64.8% Gross loans and advances to customers 182,904 192,855 (9,951) (5.2%) Loan loss reserve (17,529) (8,745) (8,784) 100.4% NET LOANS AND ADVANCES TO CUSTOMERS 165,375 184,110 (18,735) (10.2%) NPL coverage ratio 71.3% 58.6% 12.7% +12.7 p.p. 12
FUNDING STRUCTURE, LIQUIDITY, AND NON-CURRENT ASSETS HELD FOR SALE FUNDING STRUCTURE AND LIQUIDITY By the end of the third quarter of 2012 the customer funding gap (adjusted for repo and reverse repo transactions and single-certificate covered bonds) had been reduced to 66,489 million euros, 3,781 million less than in December 2011. The loan-to-deposit ratio at 30 September 2012 was 167%, the same as one year earlier, despite the fall in retail customer deposits during the year. Meanwhile, in the first three quarters of the year the Bank met wholesale funding maturities totalling 17,438 million euros, representing 98% of the total maturities for the year, thus meeting in just one year an amount greater than the maturities for the whole of the period 2013-2015. Debt maturities over the period to 2015, inclusive, total 16,713 million euros, made up of 13,620 million euros of cédulas (covered bonds), mainly cédulas hipotecarias (mortgage covered bonds), and 3,094 million euros of senior and guaranteed debt. As pointed out subsequently in the section on capital adequacy, the Bankia Group will carry out a capital increase, guaranteed by BFA, in order to be able to meet maturities for several years, improve its funding structure and reduce its dependence on the ECB. Maturities calendar ( mn) Accounted in 9M 2012 Future maturities 14.099 Senior debt and GGBs 61 2.019 764 250 1.743 9M 2012 4T 2012 2013 2014 2015 > 2016 Senior debt GGBs 18.295 Covered bonds 3.339 232 3.287 7.226 2.874 9M 2012 4T 2012 2013 2014 2015 > 2016 Mortgage covered bonds Public sector covered bonds Total 17.438 293 5.306 7.990 3.124 20.039 13
MANAGEMENT OF REAL ESTATE ASSETS The Group actively manages sales from its property portfolio, resulting in a total of 9,463 units managed in the first nine months of the year, of which 3,466 were sales of foreclosed assets and 5,840 were mortgage transfers. The cumulative value of the assets managed as of 30 September 2012 is nearly 1,100 million euros, the properties being concentrated in the Community of Madrid and the Valencian Community. Evolution of rented and sold units (cumulative) 42 2,234 1,306 74 4,294 2,405 3,466 In the current economic context, characterised by a decline in credit quality and an increase in NPAs, credit monitoring and recovery is vitally important to the Bank. 157 5,840 Mar-12 Jun-12 Sep-12 Rentals Subrogations Foreclosed Assets To halt the rise in mortgage delinquency, in March the Spanish government issued a Royal Decree-Law to protect mortgage debtors who have no resources. The RDL includes a code of good practices and facilitates the renegotiation of mortgage loans, allowing the transfer of the mortgaged property in satisfaction of the debt as a last resort. Accordingly, Bankia has launched an action protocol to help and study all possible ways of enabling customers to pay their loans and credits. For customers who do not have sufficient income or assets to repay the loans, the possibility of transferring the property in satisfaction of the debt is always available. As of the end September 2012 the Bankia Group has foreclosed assets held for sale with a net book value of 4,294 million euros. The NPL coverage ratio has risen 2.2 percentage points since June to reach 47.7% at the end of September. 72% of the portfolio is concentrated in liquid real estate assets: mortgages and completed buildings. Bankia (million euros) Net book value SEPT-12 Coverage (%) Real estate assets from construction and property development loans 2,847 36.4% Real estate assets from residential lending 1,160 63.3% Other real estate assets 287 50.5% Total 4,294 47.7% 14
BUSINESS DEVELOPMENT As part of its plan to grow in specialised segments, the Group aims to strengthen the Personal, Consumer and SME Banking segments as a strategic option for the future. Bankia Banca Personal offers a high value added service specifically designed for high net worth or high income customers. It is founded on three main pillars: personalised service through a personal investment manager, investment advice, and special high value products and services. Bankia Banca Personal represents nearly 12% of the Bank s customer base and accounts for approximately 65% of Bankia s total managed retail customer funds. Various marketing actions were undertaken during this period, aimed at enhancing the loyalty of personal banking customers, attracting deposits, retaining and recovering these customers resources, and reinforcing the relationship between each Banca Personal customer and his/her personal investment manager. As regards customer acquisition, during the first half of 2012 the No Fees programme, which was launched in the last quarter of 2011 for the Retail Customers segment, was extended to Micro-Enterprises and Independent Contractors. Under this programme, SMEs with annual sales of up to two million euros and independent contractors that maintain a minimum average balance in their current account and have acquired at least two basic banking products with Bankia related to their business activity pay no fees on everyday transactions such as credit transfers, account maintenance and debit card fees. As regards acquiring customer funds, the range of products designed to attract deposits from all customer segments was expanded during the third quarter. Thus, two new deposits were introduced in the third quarter: a new capitalguaranteed fixed-income investment fund and a new structured deposit, in which 50% of the investment, for a term of 12 months, earns a fixed return of 4.5%, while the remaining 50%, invested for a longer term (three and a half years), is indexed to a particular listed security. As regards financing, the third quarter saw the launch of the Dinero Ya Bankia service, a financing tool for credit card customers that allows them to transfer the balance on their card to the associated account in order to meet small and medium expenses. Furthermore, almost 2.5 million offers of financing were sent out through the FinanExpress service, a mobile phone-based service for financing card purchases. Bankia continues to lend to Businesses and has redoubled its efforts in this line. In the first nine months of 2012 Bankia Empresas acted as an intermediary for the main ICO credit lines designed to support lending to businesses for project development and liquidity needs. It extended a total of 6,803 ICO loans over the period, amounting to 1,184 million euros, thus consolidating its overall share of ICO lending at 11.7%. Bankia also took a prominent part in the procedure for settling amounts owed to local and regional (Autonomous Community) government contractors, channelling payments totalling more than 3,600 million euros to contractors throughout Spain. In this procedure, Bankia was a member of the syndicate that granted a syndicated loan to the Fund for Financing Payments to Contractors, acting as agent bank for the loans signed with local and regional governments and as issuing bank for the payments to be made to contractors. In the third quarter of the year, following approval by the relevant supervisors, Arcalia Patrimonio (transferor) merged with Bankia Banca Privada (transferee), thus bringing to a conclusion the merger of the private banking units of the former Caja Madrid and Bancaja. 15
OVERALL CAPITAL ADEQUACY On 31 August, Royal Decree-Law 24/2012, which introduces important changes with regard to capital adequacy, was published. The new law establishes, first, that from 1 January 2013 credit institutions must have core capital equal to at least 9% of their risk-weighted exposures. Second, it redefines the concept of core capital, adapting it to the EBA s concept of Common Equity Tier 1, and abolishes the obligation to hold additional core capital established by Royal Decree-Law 2/2012. Also, Royal Decree-Law 24/2012 announced the creation of a company to manage assets arising from bank restructuring. The creation of this company is likely to result in a marked improvement in the Bankia Group s risk profile and therefore also its capital adequacy. On 23 May 2012, in order to be able to implement the provisions and write-downs required under RDL 2/2012 and RDL 18/2012, Banco Financiero y de Ahorros, S.A. ( BFA ), Bankia s parent company, applied to Banco de España and the Ministry of Economy and Competitiveness for a capital contribution via the FROB in the amount of 19,000 million euros, in accordance with the provisions of Royal Decree-Law 9/2009 of 26 June on bank restructuring and the strengthening of the equity of credit institutions. On 24 May 2012 the BFA Group received notifications from the Banco de España and the FROB, indicating their willingness to provide the requested financial support. As an advance on the requested capital and in order to maintain the group s capital adequacy above the regulatory levels required by Circular 3/2008, in September the BFA Group carried out a capital increase in the amount of 4,500 million euros, subscribed by the FROB, and then subsequently extended a subordinated loan in this same amount to its subsidiary, Bankia. Once the rest of the funds requested from the FROB have been received, Bankia will carry out a capital increase with preemptive rights, to be underwritten in its entirety by BFA. This capital increase will allow the Bankia Group to meet its capital adequacy targets. 16
METHODOLOGICAL NOTE Bankia was created as an economic group with effect from 1 January 2011, so that the group in its current form is the result of various corporate and financial transactions that were carried out during 2011. Some of said transactions were effective for accounting purposes from 1 January 2011, while the rest were completed during the first half of last year. For comparative purposes and to give a representative picture of Bankia's financial performance in the first nine months of 2012, presented below is a pro forma consolidated Group income statement for the same period of 2011, prepared as if the group boundaries drawn in the company reorganisation had been effective from 1 January 2011 and in which, therefore, the financial conditions for internal transactions between Banco Financiero y de Ahorros (BFA) and Bankia have been adapted to the new corporate structure and a series of transactions, most of which were carried out in the first half of 2011, are also included, most notably: Elimination and inclusion of the results contributed by certain investees that were transferred between BFA and Bankia. Consolidation of Grupo Banco de Servicios Financieros Caja Madrid Mapfre using the full consolidation method, following the purchase in 2011 of additional shares that brought the total ownership interest to 100%. Inclusion of revenue and expenses arising from the integration last year of the assets and liabilities that became part of Bancaja Habitat as a result of the split of CISA, Cartera de Inmuebles. 17
Disclaimer This document has been prepared by Bankia, S.A. ( Bankia ) and is presented exclusively for information purposes. It is not a prospectus and does not constitute an offer or recommendation to invest. This document does not constitute a commitment to subscribe, or an offer to finance, or an offer to sell, or a solicitation of offers to buy securities of Bankia, all of which are subject to internal approval by Bankia. Bankia does not guarantee the accuracy or completeness of the information contained in this document. The information contained herein has been obtained from sources that Bankia considers reliable, but BANKIA does not represent or warrant that the information is complete or accurate, in particular with respect to data provided by third parties. This document may contain abridged or unaudited information and recipients are invited to consult the public documents and information submitted by Bankia to the financial market supervisory authorities. All opinions and estimates are given as of the date stated in the document and so may be subject to change. The value of any investment may fluctuate as a result of changes in the market. The information in this document is not intended to predict actual results and no assurances are given with respect thereto. Distribution of this document in other jurisdictions may be prohibited, and therefore recipients of this document or any persons who may eventually obtain a copy of it are responsible for being aware of and complying with said restrictions. By accepting this document you accept the foregoing restrictions and warnings. This document does not reveal all the risks or other material factors relating to investments in the securities/transactions of Bankia. Before entering into any transaction, potential investors must ensure that they fully understand the terms of the securities/transactions and the risks inherent in them. This document is not a prospectus for the securities described in it. Potential investors should only subscribe for securities of Bankia on the basis of the information published in the appropriate Bankia prospectus, not on the basis of the information contained in this document. 18