News

Banco Sabadell obtained net profit of €167.7 million in the first half of 2014, 35.9% more than in the same period last year, after allocating €1,415.3 million to ordinary provisions and advance provisions for loans and other assets.

Margins expanded by more than expected by the market consensus, for the second consecutive quarter, and NPLs declined, as did the balance of doubtful and problematic loans.

As part of its focus on complying with the priority objective set out in its Triple Plan 2014-2016, namely, profitability, Banco Sabadell ended the quarter with good balance sheet performance and sound progress, based primarily on solid underlying revenues, rigorous cost control, higher business volumes and effective management of the real estate portfolio, via real estate unit Solvia.

Balance sheet
At the end of 2Q14, the total assets of Banco Sabadell and its group amounted to €161,557.1 million. 

Gross loans and advances to customers fell by 2.4% year-on-year to €122,837.6 million. Mortgage loans are the largest single component of gross lending (45%), amounting to €55,425.9 million at 30 June 2014. New mortgage production expanded by 54% in number and 61% in volume terms year-on-year.

At the end of June, Banco Sabadell maintained its position as a leader in Spain in handling ICO credit lines to companies, with a market share of 19.35%. It arranged over €2 billion in transactions, of which 80.6% are credit lines for businesses and entrepreneurs. 

Excluding Banco CAM assets covered by the Asset Protection Scheme, Banco Sabadell group had a 13.35% ratio of non-performing loans (NPLs) to total computable loans at the end of the second quarter of 2014 (-22bp compared with the end of 1Q14 and -28bp with respect tothe beginning of the year); the ratio declined for the second consecutive quarter.

The NPL coverage ratio expressed with respect to total exposure to loans and real estate is 13.8% (9.7% excluding the APS), compared with 13.4% in June 2013, and remains among the highest in the sector. NPLs (excluding APS) continued to decline in the period, and problematic assets (excluding APS) also fell for the second consecutive quarter.

Customer funds on the balance sheet expanded by 2.3% year-on-year to €95,043.2 million at 30 June 2014.

Demand accounts performed well, increasing by 14.1% in the last twelve months to €39,418.1 million as of 30 June 2014.Term deposits amounted to €58,903.3 million, i.e. down ‑3.4% compared with 2Q14, in line with the general market trend of investing in off-balance sheet products with prospects of better returns, which also make a greater contribution to the margin.

As a result of this growing shift in funds, assets in collective investment vehicles increased by 41.4% year-on-year, to €13,704.8 million (+24.4% in 1H14). Balanced and equity funds—which made the greatest contribution to revenues in terms of fees and commissions—increased by 22.8% and 14.1%, respectively, year-on-year.

Assets in pension funds marketed by the Group also rose in the period, to €4,375.1 million as of 30 June 2014 (+17.7% in year-on-year terms).Insurance sales increased by 8.6%, to €7,916.2 million at 30 June 2014. Off-balance sheet funds increased 29.5% year-on-year, bringing the total to €28,596.7 million.

As a result of performance by gross lending and customer funds on the balance sheet in 1H14, the loan-to-deposit ratio continued to improve steadily, reaching 103.6% (from 111.0% in June 2013), i.e. very close to the 100%target established in the Triple Plan 2014-2016.

Total funds under management amounted to €153,188.0 million at 30 June 2014, a 6% increase with respect to the same date in 2013.

Profit & loss account
Effective management of customer spreads, together with the lower cost of funding and the expansion of the consolidation scope, boosted net interest income for the fourth consecutive quarter to €1,076.0 million (+24.3% year-on-year).

Dividends received and results from equity-accounted affiliates together amounted to €8.5 million in 1H14, compared with €3.4 million in 1H13.

Net fees and commissions in the first half amounted to €414.5 million, up 16.2% with respect to the same period of 2013. This growth was attributable to banking services and the good performance by off-balance sheet funds, which contributed 10.9% and 62.1%, respectively, of this item on the consolidated income statement.

Income from financial transactions and exchange differences totalled €1,171.2 million (+11.9%) and include €1,083.5 million in gains on the sale of available-for-sale fixed-income financial assets. Contributions to the Deposit Guarantee Fund totalled €85.5 million. As a result, gross income in the quarter increased by 18.2%, to €2,598.1 million. 

Operating expenses amounted to €903.1 million in 1H14, of which €36.9 million are non-recurrent items, mainly in connection with the acquisition of the businesses consolidated in 2013. In like-for-like terms, operating costs declined by 5.6% year-on-year in the first half of 2014.

Consequently, net income before provisions amounted to €1,559.0 million in 1H14, 21.6% higher than in the same period of last year.

The increase in gross income coupled with the operating cost containment policy provided a notably better efficiency ratio of 55.57% at 30 June 2014 (60.04% at 30 June 2013), excluding non-recurrent income from financial transactions.

Provisions for loan losses and other assets amounted to €1,415.3 million. Non-recurrent income on financial transactions was allocated to additional provisions within that amount, to increase coverage and accelerate future risk reduction.

Capital gains on asset disposals include extraordinary revenues of €80 million from signing a reinsurance contract with SCOR Global Life for Mediterráneo Vida's individual death benefit insurance portfolio.  

After deducting income tax (€53.6 million) and minority interests, net income attributed to the group amounted to €167.7 million as of 30 June 2014, i.e. 35.9% higher than in the same period of 2013 (€123.4 million).

At 30 June 2014, Banco Sabadell maintained its position among the soundest and best-capitalised banks in the sector, with a core capital ratio of 11.4% (9.6% at 30 June 2013). The Basel III ratio was12.4% (10.3% at 30 June 2013). Net equity expanded by 17.9%, to €10,837.9 million.

Other key developments in 2Q14    
Solvia: improvement in revenues
At the end of the quarter, Solvia (www.solvia.es), the group's real estate unit, had strengthened its leading market position and reported strong sales compared with the same period last year (7,541 units), of which 30% were also financed. Transactions in the first six months increased by 7%, to €1,319 million (€662 million in the second quarter).  

During the first half of 2014, Solvia began offering rental properties via the branch network and undertook property servicing for third parties; it also introduced virtual reality in marketing properties and combined wholesale and retail sales; additionally, it improved its brand recognition among buyers.

Expansion of the joint venture with Zurich
In the second quarter of 2014, Banco Sabadell signed an agreement with insurance company Zurich to become the exclusive provider of life insurance, pension plans and general insurance in Spain. This new agreement, which was reached after a fruitful relationship of more than five years, strengthens the joint venture created by the two entities in 2008.

This agreement culminated the process of reorganising the group's insurance business, after integrating the insurance businesses and companies acquired in the concentrationprocess of recent years. The transaction amounted to €214 million; as a 50% partner in the joint venture, Zurich will contribute €107 million.