BBVA in 2012

ArgentinaEconomic activity in Argentina has slowed in 2012, following the strong performance seenin 2011. It has been affected by the drought, low growth in Brazil and the impact of recentrestrictions imposed on the foreign-exchange market. GDP over the first nine months of 2012posted a 1.8% increase on the same period the previous year (latest public data available).The Argentinean financial system has maintained good liquidity and solvency indicators,although growth has been more sluggish compared with the previous year, as it was affectedby various regulatory changes. In the foreign exchange market, the limits imposed on foreignexchange trading and capital movement have been tightened up. New regulations have alsobeen issued on the establishment of reserve coefficients and the interest rate and allocation offunds for financing investment projects.In this new scenario, BBVA in Argentina has once again proved its great flexibility and capacityto adapt quickly, not only developing new products and services, but also managing itsresources more efficiently. The bank’s loan portfolio has increased 23.8%, fueled mainly byconsumer finance and lending to businesses, achieving a market share of 7.5% (data as ofNovember 2012). As for risks, the quality indicators for the financial system’s portfolio havedeteriorated. However, prudent risk management has enabled BBVA Francés to maintain itsratios at optimal levels and maintain its leading position in this respect. Customer funds are up16.9% in year-on-year terms. It is important to point out that following the regulations imposed onthe forex market, there has been a major outflow of deposits in dollars. For this reason, the bankhas posted a 38.8% reduction in its balance of deposits in foreign currencies. However, depositsdenominated in pesos have grown at a rate of 31.0%, driven by the increase inlower-cost deposits (up 39.2%).In earnings, Argentina has improved its net attributable profit by 23.9% thanks to the increasein net interest income, fees and commissions, and the excellent performance of the insurancebusiness. This is despite the increase in operating expenses, which is mainly the result of thegeneral increase in prices.ChileThe macroeconomic environment in Chile has been favorable in 2012. The economy grewat a good pace thanks to strong investment and domestic demand. In 2012, GDP is expectedto grow slightly above 5%. Full employment has been maintained, since the unemploymentrate is expected to close the year at 6.2%, and inflation remains low, at around 1.5%, accordingto the country’s Central Bank forecasts. Against this background, the main risks the localeconomy faces continue to come from abroad. Nevertheless, the economic outlook for 2013continues to be favorable, with growth rates expected to once again reach 5% and inflationwell within the Central Bank’s target range (3%). The monetary policy rate should remain atcurrent levels (5%).In an environment of strong economic activity, the financial system has seen a significantexpansion in lending in 2012, concentrated mainly in consumer finance and mortgageloans. According to November figures released by the Superintendency of Banks and FinancialInstitutions, lending is growing year-on-year at 14.3% (at constant exchange rates), with strongactivity in the consumer portfolio (up 17.7%) and accelerating growth in corporate loans (up15.6%). The earnings posted by the local banks show a 1.1% contraction compared with theprevious year (figures as of November), due in part to the negative impact of the increase inexpenses (up 10.3%) and loan-loss provisions (up 14.2%). The levels of return on equity havetherefore been adjusted downward: from 17.4% as of November 2011 to 15.1% as of November2012. However, the capitalization ratios of the banks in Chile have increased.180 Business areas