Banco Popular: Competir en la era de la austeridad: un entorno desafiante para los bancos minoristas

BoAML Banking & Insurance CEO Conference 2010'Competing inin thethe Age ofof Austerity’ AusterityLondon, September 28th 2010DisclaimerThis presentation has been prepared by Banco Popular solely for purposes ofinformation. It may contain estimates and forecasts with respect to the futuredevelopment of the business and to the financial results of the Banco PopularGroup, which stem from the expectations of the Banco Popular Group andwhich, by their very nature, are exposed to factors, risks and circumstances thatcould affect the financial results in such a way that they might not coincide withsuch estimates and forecasca ts. These facfa tc orsr include, but are not restricted to, (i)changes in interest rates, exchange rates or any other financial variables, bothon the domestic as well as on the international securities markets, (ii) theeconomic, political, social or regulatory situation, and (iii) competitive pressures.In the event that such factors or other similar factors were to cause thefinancial results to differ from the estimates and forecasts contained in thispresentation, or were to bring about changes in the strategy of the BancoPopup lu ara GroupGr, BanBa cn oc Popup lu ara does not undertake to publicly revise the contentof this presentation.This presentation contains summarised information and may contain unauditedinfoinf rmation. In no case shash la its content constitute an offof ef r, invin itatioa n orrecommendation to subscribe or acquire any security whatsoever, nor is itintended to serve as a basis for any contract or commitment whatsoever.2Agenda1. A c hallengingchallenging environmentenvironment for retailretail banksbanks 2. Banco Popular: managing through the cycle with a superior business model 3. Competing in the age of austerity: the path to a profitable model4. Conclusions3Agenda1. A c hallengingchallenging environmentenvironment for retailretail banksbanks 2. Banco Popular: managing through the cycle with a superior business model 3. Competing in the age of austerity: the path to a profitable model4. Conclusions4Competing in the age of austerity: a challenging environment for retail banks Deleveraging economyLow interest ratesDeleveraging banksPressure on growthPressure on Muted loan growthLower spreads& profitability5Competing in the age of austerity: deleveraging economy and Spanish banksMuted loan growth: Spanish Private Loans to GDPLoan to deposits Spanish banks (%)180%30%187160%25%181140%20%174120%170100%15%16480%10%60%5%40%0%20%0%-5%199519971999200120032005200720092011E20062007200820091H10Loans to GDP (Left axis)Loan growth (Right axis)Source: BoS, BoAMLSource: Quarterly reports; Spanish peers: Santander Spain, BBVA Iberia, Banesto, Sabadell & Bankinter 6Competing in the age of austerity: new competitive landscape in SpainMarket structure: loans market shareMarket structure: Net Profit market share banks vs. cajas58%55%53%48%50%25%50%49%49%40% 40% 45% 43% 40% 45% 36%48%4844%46%45% 45% 46%42%75%40%60% 60% 55% 57% 60% 55% 64%38%199419951998200120042007200820091995199619971998199920002001200220032004200520062007200820092010Banks Saving BanksBankn sSavingn s b abanksnksMarket structure: number of branchesSavings b anksbbanks would h avehhave have23,6161023,903to reduce branches by 25%, 20,06917,940according to the BoS17,55717,24514,88015,21314,0808414,715-94-95-96-97-98-99-00-01-02-03-04-05-06-07-08-09dicdicdicdicdicdicdicdicdicdicdicdicdicdicdicdicBanksSaving Banks7Source: BoS. Only Spanish operationsCompeting in the age of austerity: managing spreads and margins is the key Credit institutions front book yield vs. effective rate (*)Liabilities spread credit institutions(%)4.0SMEs: -7bp YTD 7%3.56%3.0Mortgages -7bp YTD5%2.5Corporates: +3bp YTDEffective Euribor*: +113bp YTD4%2.03%1.52%1.0Euribor 3M: +18bp YTD0.51%0.00%dic-09 ene-10 feb-10 mar-10 abr-10 may-10 jun-10 jul-10-1%dic-96dic-98 dic-00 dic-02 dic-04 dic-06 dic-08 mar-10* Note: Effective Euribor3M= Euribor 3M+ Spanish sovereign spreadEuribor 3MLiabilities spread financial institutionsSource: BoS; BloombergSource: BoSOur viewsOur views Front book spreads do not reflect hike in funding cost Deposits will be structur allystructurmore more expensiv eexpensiv Assets spreads will be at structurally high levels due Competition should ease in coming months, but will to risk perception, higher capital consumption andcontinue as attraction for new individual clientsscarcity of capital & liquidity Not a llall institutions a reare able to pa ypa equallyequally fofor  Only banks with client focus will be able to increasedepositsprices effectively Interest rates will remain lower for longer8Competing in the age of austerity: First conclusions – Not all institutions will be capable of competing in this demanding environment ChallengesRhesponse to these cla lllengesOiur v ewsNot all Not institall utions will be able to ions will be Gathering deposits/DeleveragingDeleveraging economypay e quallyeequally equally for depositsdeposits deposits oror or toto gaingain gaingaining mkt. sharemarket shareAdjusting spreads/Increasing importance of ea of client a Low interest ratesprofitable growthoriented business model Basel III implicationsBasel III Reducing RWA/ Deleveraging banksLimited access to capital for Limited access to some capital for raising Equity institutions9Agenda1. A c hallengingchallenging environmentenvironment for retailretail banks 2. Banco Popular: managing through the cycle with a superior business model 3. Competing in the age of austerity: the path to a profitable model4. Conclusions10