As is almost always the case, Bankinter got up early to open the earnings season and this morning presented very reasonable 2020 operating results, with increases of 6.8% in net interest income, 3.6% in gross income and 4.5% in operating income. It closed the year with a 42.7% fall in attributable profit to 317 million, impacted by the 37% increase in loan provisions and the special charge of 242.5 million called “Impact of the change in macroeconomic scenario” due to the pandemic. The result of recurrent banking activity fell by 13% to EUR 473 million due to the aforementioned provisions.
With these figures, Bankinter achieved in this year a profitability on tangible capital (ROTE) of 7.4% and a profitability on assets (ROA) of 0.35%, highlighting the excellent cost structure (efficiency ratio of 48.5%) and very powerful indicators of non-performing loans (2.37%, approximately half that of the system, with coverage of 60.5%) and solvency (CET1 FL of 12.3%). Commercial activity is more than satisfactory, with growth of 6.6% in lending and 12.4% in retail customer funds. Bankinter’s fundamentals are thus very positive, always leading the sector.
Among the six main Spanish banks, Bankinter, now the sixth largest in terms of assets, is the only one that has remained outside the consolidation process, and it continues to be strategically convinced without being a candidate for bank mergers. By the new standards of size, it is now a medium sized bank, but its profitability levels far exceed those of the big three. Its focus is on management excellence and organic growth, and in each results presentation it demonstrates that it has sufficient size and solvency to stand alone, providing a first class service to its customers.
Bankinter’s model therefore challenges the proposition that the Spanish banking sector should be reduced to three or four macro institutions, while at the same time giving good arguments to those who think, including myself, that the sector does not need more concentration, which would be detrimental to customers and employees, and to society as a whole. This should apply, in my opinion, to the fourth and fifth ranked banking groups in Spain, Sabadell and Unicaja, which should be wary of the siren songs that the only strategic option is a merger to become bigger. It is more interesting to be profitable with the right size, as Bankinter has been demonstrating.
I would like to put an important caveat to Bankinter’s current strategy, which is the planned delivery to its shareholders of 82.6% of the capital of its subsidiary Línea Directa Aseguradora (LDA), while maintaining a 17.4% stake. The transaction – announced in December 2019 and expected to be executed in September 2020 – is postponed due to the pandemic, but would reduce Bankinter’s revenues by one-fifth and reduce its profitability in terms of ROTE. In 2020 LDA has contributed 43.8% of the group’s profit before tax, demonstrating its ability to act as a cushion in difficult banking times. I therefore believe that the board of directors should rethink the wisdom of this operation.
Bankinter is, together with Banco Santander, the only Ibex entity whose chief executive is a woman, María Dolores Dancausa, who in October completed ten years as CEO.
Under her leadership the group remains on the efficiency podium, generating value for employees, shareholders and society. A job well done, which is a pleasure to watch.