Skip to main content

AI assistant

Sign in to chat with this filing

The assistant answers questions, extracts KPIs, and summarises risk factors directly from the filing text.

Sign up Log in

Bankinter S.A. Annual Report 2013

Dec 31, 2013

1799_10-k_2013-12-31_6a2d8679-eb01-434f-a71a-a63e7ae88d24.pdf

Annual Report

Open in viewer

Opens in your device viewer

2013 Annual accounts

Auditors' Report 4
Consolidated Balance Sheets 5
Consolidated Profit And Loss Accounts 6
Consolidated Recognised Income And Expenses Statements 7
Consolidated Statements of Changes in Net Worth 8
Consolidated Statements of Cash Flows 10
1
Nature of the Group and its activities and composition		 11
2
Accounting principles applied		 11
3
Appropriation of profit		 18
4
Deposit Guarantee Fund		 19
5
Accounting principles and valuation rules applied		 21
6
Cash and balances with central banks		 40
7
Trading portfolio of assets and liabilities and other financial assets
and liabilities at fair value with changes in profit and loss 41
8
Financial assets available for sale		 44
9
Held-to-maturity investments		 45
10
Loans and receivables		 45
11
Asset/liability hedging derivatives		 48
12
Non-current assets held for sale		 51
13
Investments		 53
14
Property, plant and equipment		 65
15
Intangible assets		 66
16
Reinsurance assets		 67
17
Tax assets and liabilities		 68
18
Other assets and other liabilities		 69
19
Financial liabilities at amortised cost		 70
20
Liabilities under insurance contracts		 79
21
Provisions		 81
22
Shareholders' equity		 82
23
Valuation adjustments (equity)		 88
24
Contingent risks and commitments		 88
25
Transfers of financial assets		 89
26
Financial derivatives		 91
27
Personnel expenses		 91
28
Fees received and paid		 98
29
Interest and similar charges/income		 99
30
Trading income		 100
31 Foreign currency translation (net) 100
32 Other general administrative expenses 101
33 Other operating income and expense 101
34 Gains and losses on derecognition of assets not classified
as non-current assets held for sale and Gains and losses
on non-current assets held for sale not classified
as discontinued operations 101
35 Transactions and balances with related parties 102
36 Remuneration of and balances with members of the Board of Directors 102
37 Environmental information 109
38 Customer service 110
39 Branches, centres and agents 112
40 Trust and investment services 112
41 Auditors' remuneration 113
42 Tax situation 113
43 Fair value of assets and liabilities 117
44 Risk policies and management 124
45 Information by segments 144
46 Holdings in the capital of credit institutions 145
47 Information required by Law 2/1981 of 25 March on Mortgage Market
Regulation and Royal Decree 716/2009 of 24 April implementing
certain aspects of said law 145
48 Exposure to the construction and property development sector 155
49 Additional Information on risks: Refinancing and restructuring
transactions: Geographical and sector risk concentration 159
50 Offsetting of financial assets and liabilities 173
51 Subsequent events 175
Appendices
I Related Party Transactions 176
II Segmented Information 180
III Financial Statements of Bankinter, S.A. 184
IV Individualised information on certain issues, buybacks
or redemptions of debt securities 190
MANAGEMENT REPORT 209

Bankinter Group

Consolidated annual financial statements on the year ended ended 31 December 2013 and Consolidated Management Report, together with the Auditor's Report

Deloitte. Deloitte, S.L.
Plaza Pablo Ruiz Picasso, 1
Torre Picasso
28020 Madrid
España
Tel.: +34 915 14 50 00
Fax: +34 915 14 51 80
Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in
force in Spain. In the event of a discrepancy, the Spanish-language version prevails.		 www.deloitte.es
AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders of Bankinter, S.A.:
We have audited the consolidated financial statements of Bankinter, S.A. ("the Bank") and the Companies
composing, together with the Bank, the Bankinter Group ("the Group"), which comprise the consolidated
balance sheet at 31 December 2013 and the related consolidated income statement, consolidated statement
of recognised income and expense, consolidated statement of changes in total equity, consolidated
statement of cash flows and notes to the consolidated financial statements for the year then ended. As
indicated in Note 2 to the accompanying consolidated financial statements, the directors of the Bank are
responsible for the preparation of the Group's consolidated financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union and the other provisions of
the regulatory financial reporting framework applicable to the Group. Our responsibility is to express an
opinion on the consolidated financial statements taken as a whole based on our audit work performed in
accordance with the audit regulations in force in Spain, which require examination, by means of selective
tests, of the evidence supporting the consolidated financial statements and evaluation of whether their
presentation, the accounting principles and policies applied and the estimates made comply with the
applicable regulatory financial reporting framework.
In our opinion, the accompanying consolidated financial statements for 2013 present fairly, in all material
respects, the consolidated equity and consolidated financial position of the Bankinter Group at 31
December 2013, and the consolidated results of its operations and the consolidated cash flows for the year
then ended, in conformity with International Financial Reporting Standards as adopted by the European
Union and the other provisions of the regulatory financial reporting framework applicable to the Group.
The accompanying consolidated directors' report for 2013 contains the explanations which the directors of
the Bank consider appropriate about the Group's situation, the evolution of its business and other matters,
but is not an integral part of the consolidated financial statements. We have checked that the accounting
information in the consolidated directors' report is consistent with that contained in the consolidated
financial statements for 2013. Our work as auditors was confined to checking the consolidated directors'
report with the aforementioned scope, and did not include a review of any information other than that
drawn from the accounting records of Bankinter, S.A. and its Subsidiaries.
DELOITTE, S.L.
Registered'in ROAC UNDER NO. S0692
Juan José Pérez Sáez
19 February 2014
Deloitte, S.L. Inscrita en el Registro Mercantil de Madrid, tomo 13.650, sección 8º, folio 188, hoja M-S4414, inscripción 96º. C.I.E: 8-79104469.
Domicilio social: Plaza Pablo Ruiz Picasso, 1, Torre Picasso, 28020, Madrid.

BANKINTER GROUP CONSOLIDATED BALANCE SHEETS AS AT 31 DECEMBER 2013 AND 2012 (€000s)

ASSETS Note 31-12-2013 31-12-2012(*) LIABILITIES AND EQUITY Note 31-12-2013 31-12-2012(*)
CASH AND BALANCES AT CENTRAL BANKS 6 886,118 665,374 LIABILITIES
FINANCIAL ASSETS HELD FOR TRADING 7 4,346,573 2,109,264
Deposits with credit institutions 920,112 - FINANCIAL LIABILITIES HELD FOR TRADING 7 1,751,721 1,797,324
Loans and advances 979,439 - Deposits 193,482 -
Debt securities 1,736,671 1,391,681 Derivatives 252,537 434,592
Equity instruments 66,662 61,072 Short positions 1,305,702 1,362,732
Derivatives 643,689 656,511
Memorandum items: Loaned or advanced as collateral 961,805 1,391,681 FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS		 7 - -
FINANCIAL ASSETS DESIGNATED AT FAIR
VALUE THROUGH PROFIT OR LOSS		 7 18,158 39,860 Deposits - -
Equity instruments 18,158 39,860
Memorandum items: Loaned or advanced as collateral - - FINANCIAL LIABILITIES MEASURED AT AMORTISED COST 19 48,912,731 52,079,071
Deposits from central banks 3,243,794 9,580,854
AVAILABLE-FOR-SALE FINANCIAL ASSETS 8 2,483,171 6,132,471 Deposits from credit institutions 4,587,188 4,008,226
Debt securities 2,321,671 5,971,654 Customer deposits 29,624,282 24,631,869
Equity instruments 161,500 160,817 Marketable debt securities issued 9,516,372 12,499,194
Memorandum items: Loaned or advanced as collateral 799,412 1,719,346 Subordinated financial liabilities 612,438 767,852
Other financial liabilities 1,328,657 591,076
LOANS AND RECEIVABLES 10 42,607,050 44,751,950
Deposits with credit institutions 1,182,215 1,093,728 MACRO-HEDGING ADJUSTMENTS TO
Loans and advances 41,307,010 43,575,351 FINANCIALLIABILITIES - -
Debt instruments 117,825 82,871
Memorandum items: Loaned or advanced as collateral 365,847 414,953 HEDGING DERIVATIVES 11 25,608 43,100
HELD-TO-MATURITY INVESTMENTS 9 3,220,721 2,755,355 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS AND
DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE		 - -
Memorandum items: Loaned or advanced as collateral 2,886,655 -
LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS 20 607,794 618,286
MACRO-HEDGING ADJUSTMENTS TO FINANCIAL ASSETS 11 - 3,018 PROVISIONS 21 53,753 48,200
Pension and other post-employment defined benefit obligations 1,456 2,811
HEDGING DERIVATIVES 11 84,481 152,201 Provisions for contingent risks and commitments and guarantees
given		 8,642 5,139
Other provisions 4,697 1,899
NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE 12 369,210 381,141 Allowances for taxes and other legal contingencies 38,958 38,351
INVESTMENTS 13 36,362 40,600 TAX LIABILITIES 17 217,766 221,565
Associates 35,932 40,279 Current tax liabilities 68,119 73,636
Entities with joint control 430 321 Deferred tax liabilities 149,647 147,929
PENSION-LINKED INSURANCE AGREEMENTS 27 1,327 2,750 OTHER LIABILITIES 18 162,744 127,247
ASSETS UNDER REINSURANCE 16 3,244 3,966 TOTAL LIABILITIES 51,732,117 54,934,793
TANGIBLE ASSETS 14 434,931 442,288 TOTAL EQUITY 3,403,545 3,231,097
Property, plant and equipment 421,887 433,336 SHAREHOLDERS EQUITY 22 3,360,373 3,228,045
For internal use 394,933 404,087 Capital 268,675 169,142
Assigned on lease
Real estate investments		 26,954
13,044		 29,249
8,952		 Registered
Share premium		 268,675
1,172,645		 169,142
1,118,186
Memorandum item: acquired under finance lease - - Reserves 1,744,134 1,789,781
Accumulated reserves (losses) 1,739,453 1,784,859
INTANGIBLE ASSETS 15 300,703 317,538 Accumulated reserves (losses) of entities accounted for using the 4,681 4,922
equity method
Goodwill 164,281 161,836 Other equity instruments 12,608 72,633
Other intangible assets
TAX ASSETS		 17 136,422
215,945		 155,702
235,489		 Remaining equity instruments
Less: treasury shares		 12,608
(511)		 72,633
(226)
Current 83,645 86,953 Profit or (-) loss attributable to owners of the parent 215,424 124,654
Deferred 132,300 148,536 Less: interim dividends (52,602) (46,125)
OTHER ASSETS 18 127,668 132,625 VALUE ADJUSTMENTS 23 43,172 3,052
Other 127,668 132,625 Available-for-sale financial assets
Foreign currency translation		 41,605
201		 3,145
209
Other value adjustments -
Entities accounted for using the equity method 1,366 (302)
NON-CONTROLLING INTERESTS
TOTAL ASSETS 55,135,662 58,165,890 TOTAL EQUITY AND TOTAL LIABILITIES 55,135,662 58,165,890
MEMORANDUM ITEMS:
CONTINGENT RISKS 24 2,401,895 2,482,865
CONTINGENT COMMITMENTS 24 13,548,719 11,239,659
ASSETS Note 31-12-2013 31-12-2012(*) LIABILITIES AND EQUITY Note 31-12-2013 31-12-2012(*)
CASH AND BALANCES AT CENTRAL BANKS 6 886,118 665,374 LIABILITIES
FINANCIAL ASSETS HELD FOR TRADING 7 4,346,573 2,109,264
Deposits with credit institutions 920,112 - FINANCIAL LIABILITIES HELD FOR TRADING 7 1,751,721 1,797,324
Loans and advances 979,439 - Deposits 193,482 -
Debt securities 1,736,671 1,391,681 Derivatives 252,537 434,592
Equity instruments 66,662 61,072 Short positions 1,305,702 1,362,732
Derivatives 643,689 656,511
Memorandum items: Loaned or advanced as collateral 961,805 1,391,681 FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE
THROUGH PROFIT OR LOSS		 7 - -
FINANCIAL ASSETS DESIGNATED AT FAIR
VALUE THROUGH PROFIT OR LOSS		 7 18,158 39,860 Deposits - -
Equity instruments 18,158 39,860
Memorandum items: Loaned or advanced as collateral - - FINANCIAL LIABILITIES MEASURED AT AMORTISED COST 19 48,912,731 52,079,071
Deposits from central banks 3,243,794 9,580,854
AVAILABLE-FOR-SALE FINANCIAL ASSETS 8 2,483,171 6,132,471 Deposits from credit institutions 4,587,188 4,008,226
Debt securities 2,321,671 5,971,654 Customer deposits 29,624,282 24,631,869
Equity instruments 161,500 160,817 Marketable debt securities issued 9,516,372 12,499,194
Memorandum items: Loaned or advanced as collateral 799,412 1,719,346 Subordinated financial liabilities 612,438 767,852
Other financial liabilities 1,328,657 591,076
LOANS AND RECEIVABLES 10 42,607,050 44,751,950
Deposits with credit institutions 1,182,215 1,093,728 MACRO-HEDGING ADJUSTMENTS TO
Loans and advances 41,307,010 43,575,351 FINANCIALLIABILITIES - -
Debt instruments 117,825 82,871
Memorandum items: Loaned or advanced as collateral 365,847 414,953 HEDGING DERIVATIVES 11 25,608 43,100
HELD-TO-MATURITY INVESTMENTS 9 3,220,721 2,755,355 LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS AND
DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE		 - -
Memorandum items: Loaned or advanced as collateral 2,886,655 -
LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS 20 607,794 618,286
MACRO-HEDGING ADJUSTMENTS TO FINANCIAL ASSETS 11 - 3,018 PROVISIONS 21 53,753 48,200
Pension and other post-employment defined benefit obligations 1,456 2,811
Provisions for contingent risks and commitments and guarantees
HEDGING DERIVATIVES 11 84,481 152,201 given 8,642 5,139
Other provisions 4,697 1,899
NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE 12 369,210 381,141 Allowances for taxes and other legal contingencies 38,958 38,351
INVESTMENTS 13 36,362 40,600 TAX LIABILITIES 17 217,766 221,565
Associates 35,932 40,279 Current tax liabilities 68,119 73,636
Entities with joint control 430 321 Deferred tax liabilities 149,647 147,929
PENSION-LINKED INSURANCE AGREEMENTS 27 1,327 2,750 OTHER LIABILITIES 18 162,744 127,247
ASSETS UNDER REINSURANCE 16 3,244 3,966 TOTAL LIABILITIES 51,732,117 54,934,793
TANGIBLE ASSETS 14 434,931 442,288 TOTAL EQUITY 3,403,545 3,231,097
Property, plant and equipment 421,887 433,336 SHAREHOLDERS EQUITY 22 3,360,373 3,228,045
For internal use 394,933 404,087 Capital 268,675 169,142
Assigned on lease 26,954 29,249 Registered 268,675 169,142
Real estate investments 13,044 8,952 Share premium 1,172,645 1,118,186
Memorandum item: acquired under finance lease - - Reserves 1,744,134 1,789,781
Accumulated reserves (losses) 1,739,453 1,784,859
Accumulated reserves (losses) of entities accounted for using the
INTANGIBLE ASSETS 15 300,703 317,538 equity method 4,681 4,922
Goodwill 164,281 161,836 Other equity instruments 12,608 72,633
Other intangible assets 136,422 155,702 Remaining equity instruments 12,608 72,633
TAX ASSETS 17 215,945 235,489 Less: treasury shares (511) (226)
Current 83,645 86,953 Profit or (-) loss attributable to owners of the parent 215,424 124,654
Deferred 132,300 148,536 Less: interim dividends (52,602) (46,125)
OTHER ASSETS 18 127,668 132,625 VALUE ADJUSTMENTS 23 43,172 3,052
Other 127,668 132,625 Available-for-sale financial assets 41,605 3,145
Foreign currency translation 201 209
Other value adjustments -
Entities accounted for using the equity method 1,366 (302)
NON-CONTROLLING INTERESTS
TOTAL ASSETS 55,135,662 58,165,890 TOTAL EQUITY AND TOTAL LIABILITIES 55,135,662 58,165,890
MEMORANDUM ITEMS:
CONTINGENT RISKS 24 2,401,895 2,482,865
CONTINGENT COMMITMENTS 24 13,548,719 11,239,659

(*) Shown solely for purposes of comparison.

Notes 1 to 51 contained in the report and Appendices I to IV form an integral part of the consolidated balance sheet as at 31 December 2013.

CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 (€000s)

(Debit) Credit
Note 2013 2012 (*)
INTEREST AND SIMILAR INCOME 29 1,476,230 1,707,696
INTEREST EXPENSES AND SIMILAR CHARGES 29 (840,326) (1,047,441)
NET INTEREST INCOME 635,904 660,255
INCOME FROM EQUITY INSTRUMENTS 8,946 11,791
SHARE OF RESULTS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD 22 15,545 17,677
FEE AND COMMISSION INCOME 28 313,082 274,455
FEE AND COMMISSION EXPENSES 28 (64,063) (70,615)
GAINS OR (-) LOSSES ON FINANCIAL ASSETS AND LIABILITIES (net) 30 188,664 104,853
Held for trading 18,163 30,510
Other financial assets designated at fair value through profit or loss 8,228 (1,952)
Financial instruments not designated at fair value through profit or loss 162,907 76,902
Other (634) (607)
FOREIGN CURRENCY TRANSLATION (net) 31 40,090 40,277
OTHER OPERATING INCOME 33 676,019 698,173
Income from insurance and reinsurance policies issued 652,217 667,712
Other operating income 23,802 30,461
OTHER OPERATING EXPENSES 33 (438,726) (482,825)
Expenses on insurance and reinsurance policies (380,758) (404,997)
Other operating expenses (57,968) (77,828)
GROSS INCOME 1,375,461 1,254,041
ADMINISTRATIVE EXPENSES (616,759) (599,004)
Staff expenses 27 (356,833) (342,498)
Other administrative expenses 32 (259,926) (256,506)
DEPRECIATION AND AMORTISATION 14/15 (63,088) (65,865)
PROVISIONS (NET) 21 (14,259) (21)
IMPAIRMENT LOSSES ON FINANCIAL ASSETS NOT MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS (NET) (290,202) (419,028)
Loans and receivables 10 (280,840) (410,356)
Other financial instruments not measured at fair value through profit and loss 8 (9,362) (8,672)
PROFIT FROM NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE NOT QUALIFYING AS DISCONTINUED OPERATIONS 391,153 170,123
IMPAIRMENT LOSSES ON OTHER ASSETS (net) (327) (536)
Goodwill and other intangible assets
Other assets (327) (536)
GAINS OR (-) LOSSES ON DERECOGNITION OF NON FINANCIAL ASSETS OTHER THAN HELD FOR SALE 34 (1,848) 39,301
NEGATIVE GOODWILL RECOGNISED IN PROFIT OR LOSS 1,379 -
GAINS OR (-) LOSSES ON NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE NOT QUALIFYING AS DISCONTINUED OPERATIONS 34 (92,791) (54,709)
PROFIT BEFORE TAX 297,566 154,179
INCOME TAX 42 (82,142) (29,525)
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 215,424 124,654
PROFIT OR (-) LOSS FROM DISCONTINUED OPERATIONS (net) - -
PROFIT FOR THE YEAR 215,424 124,654
Profit or (-) loss attributable to owners of the parent 215,424 124,654
Profit or (-) loss attributable to non-controlling interests
EARNINGS PER SHARE
Basic earnings (euros) 0.28 0.24
Diluted earnings (euros) 0.27 0.23

(*) Shown solely for purposes of comparison.

Notes 1 to 51 contained in the report and Appendices I to IV form an integral part of the consolidated income statement for the year ended 31 December 2013.

CONSOLIDATED RECOGNISED INCOME AND EXPENSES STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 (€000s)

Financial year Financial year
2013 2012 (*)
PROFIT FOR THE YEAR 215,424 124,654
OTHER COMPREHENSIVE INCOME 40,120 34,697
Items that will not be reclassified to profit or loss; - -
Actuarial gains or losses on defined benefit pension plans - -
Non-current assets and disposal groups held for sale - -
Entities accounted for using the equity method - -
Income tax relating to items that will not be reclassified - -
Items that may be reclassified to profit or loss; 40,120 34,697
Financial assets available for sale 54,944 46,275
Valuation gains or (-) losses taken to equity 161,238 72,655
Transferred to profit or loss (106,294) (26,380)
Other reclassifications - -
Cash flow hedges - -
Valuation gains or (-) losses taken to equity - -
Transferred to profit or loss - -
Transferred to initial carrying amount of hedged items - -
Other reclassifications - -
Hedging of net investments in foreign operations - -
Valuation gains or (-) losses taken to equity - -
Transferred to profit or loss - -
Other reclassifications
Foreign currency translation (11) 2
Translation gains or (-) losses taken to equity (11) 2
Transferred to profit or loss - -
Other reclassifications - -
Non-current assets and disposal groups held for sale - -
Valuation gains or (-) losses taken to equity - -
Transferred to profit or loss - -
Other reclassifications - -
Actuarial gains or (-) losses on defined benefit pension plans - -
Entities accounted for using the equity method 1,667 2,302
Valuation gains or (-) losses taken to equity 1,667 2,302
Transferred to profit or loss - -
Other reclassifications - -
Statement of comprehensive income - -
Income tax (16,480) (13,882)
TOTAL COMPREHENSIVE INCOME 255,544 159,351
Attributable to owners of the parent 255,544 159,351
Attributable to non-controlling interests - -

(*) Shown solely for purposes of comparison.

Notes 1 to 51 contained in the attached report and Appendices I to IV form an integral part of the consolidated statement of comprehensive income for the year ended 31 December 2013.

CONSOLIDATED STATEMENTS OF CHANGES IN NET WORTH FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012

(€000s)

EQUITY ATTRIBUTABLE TO OWNERSOFTHE PARENT COMPANY
EQUITY
Capital Share
premium		 Accumulated
reserves or (-)
losses		 Other equity (-)
Treasury
Shares		 Profit or
(-) loss
attributable
to owners of
the parent		 (-) Interim
dividends		 Total Equity Valuation
adjust
ments		 Total Non
controlling
interests		 Total net
worth
Opening balance at 31-12-2012 169,142 1,118,186 1,789,781 72,633 (226) 124,654 (46,125) 3,228,045 3,052 3,231,097 - 3,231,097
Effects of changes in accounting policies - - - - - - - - - - -
Effects of corrections of errors - - - - - - - - - - -
Adjusted opening balance 169,142 1,118,186 1,789,781 72,633 (226) 124,654 (46,125) 3,228,045 3,052 3,231,097 - 3,231,097
Total comprehensive income for the year - - - - - 215,424 - 215,424 40,120 255,544 - 255,544
Other changes in equity 99,533 54,459 (45,647) (60,025) (285) (124,654) (6,477) (83,096) - (83,096) - (83,096)
Increases in capital/endowment fund 99,533 54,459 (93,967) (60,025) - - - - - - - -
Capital reduction - - - - - - - - - - -
Conversion of debt to equity - - - - - - - - - - - -
Increase in other equity instruments - - - - - - - - - - - -
Reclassification of financial instruments from liability to equity - - - - - - - - - - -
Reclassification of financial instruments from equity to liability - - - - - - - - - - -
Dividends - - - - - (67,977) (67,977) - (67,977) - (67,977)
Sale or cancellation of treasury shares - - 924 (285) - - 639 - 639 - 639
Transfers among components of equity - - 63,154 - (124,654) 61,500 - - - - -
Equity increase or (-) decrease resulting from business combinations
(net)		 - - - - - - - -
Discretionary contributions to social funds and projects (Savings banks) - - - - - - - - - - -
Share based payments - - (16,970) - - - (16,970) - (16,970) - (16,970)
Other increase or (-) decrease in equity - - 1,212 - - - 1,212 - 1,212 - 1,212
Closing balance as at 31-12-2013 268,675 1,172,645 1,744,134 12,608 (511) 215,424 (52,602) 3,360,373 43,172 3,403,545 - 3,403,545

CONSOLIDATED STATEMENTS OF CHANGES IN NET WORTH FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012

(€000s)

EQUITY ATTRIBUTABLE TO OWNERSOFTHE PARENT COMPANY
EQUITY
Capital Share
premium		 Accumulated
reserves or (-)
losses		 Other equity (-)
Treasury
Shares		 Profit or
(-) loss
attributable
to owners of
the parent		 (-) Interim
dividends		 Total Equity Valuation
adjust
ments		 Total Non
controlling
interests		 Total net
worth
Opening balance at 31-12-2011 143,076 737,079 1,711,705 404,812 (742) 181,227 (58,516) 3,118,641 (31,645) 3,086,996 - 3,086,996
Effects of changes in accounting policies - - - - - - - - - - -
Effects of corrections of errors - - - - - - - - - - -
Adjusted opening balance 143,076 737,079 1,711,705 404,812 (742) 181,227 (58,516) 3,118,641 (31,645) 3,086,996 - 3,086,996
Total comprehensive income for the year - - - - 124,654 - 124,654 34,697 159,351 - 159,351
Other changes in equity 26,066 381,107 78,076 (332,179) 516 (181,227) 12,391 (15,250) - (15,250) - (15,250)
Increases in capital/endowment fund 26,066 381,107 - (332,179) - - - 74,994 - 74,994 - 74,994
Capital reduction - - - - - - - - - - -
Conversion of debt to equity - - - - - - - - - - - -
Increase in other equity instruments - - - - - - - - - - - -
Reclassification of financial instruments from liability to equity - - - - - - - - - - -
Reclassification of financial instruments from equity to liability - - - - - - - - - - -
Dividends - - - - - (64,496) (64,496) - (64,496) - (64,496)
Sale or cancellation of treasury shares (net) - - 1,119 516 - - 1,635 - 1,635 - 1,635
Transfers among components of equity - - 104,340 - (181,227) 76,887 - - - - -
Equity increase or (-) decrease resulting from business combinations
(net)		 - - - - - - - -
Discretionary contributions to social funds and projects (Savings banks) - - - - - - - - - - -
Share based payments - - (27,383) - - - (27,383) - (27,383) - (27,383)
Other increase or (-) decrease in equity - - - - - - - - - -
Closing balance as at 31-12-2012 169,142 1,118,186 1,789,781 72,633 (226) 124,654 (46,125) 3,228,045 3,052 3,231,097 - 3,231,097

(*) Shown solely for the purpose of comparison

Notes 1 to 51 contained in the report and Appendices I to IV form an integral part of the statement of changes in consolidated equity for the year ended 31 December 2013.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 (€000s)

2013 2012(*)
NET CASH FLOW FROM OPERATING ACTIVITIES 846,619 (132,587)
Consolidated profit for the year 215,424 124,654
Adjustments to obtain cash flow from operating activities 471,645 514,387
Depreciation and Amortisation 63,088 65,865
Other adjustments 408,557 448,522
Net increase/decrease in operating assets 3,461,242 740,429
Held for trading (2,237,308) 306,242
Other financial assets designated at fair value through profit or loss 21,703 (8,483)
Available-for-sale financial assets 3,694,903 (1,318,747)
Loans and receivables 1,907,794 1,880,506
Other operating assets 74,150 (119,089)
Net increase/decrease in operating liabilities (3,351,199) (1,576,509)
Held for trading (45,602) (563,260)
Other financial assets designated at fair value through profit or loss - -
Financial liabilities at amortised cost (3,302,805) (990,455)
Other operating liabilities (2,792) (22,794)
Corporation tax collections/payments 49,507 64,452
NET CASH FLOW FROM INVESTING ACTIVITIES (350,650) 515,325
Payments (530,362) (24,776)
Tangible assets (27,174) (15,969)
Intangible assets (12,758) (8,807)
Investments (23,025) -
Non-current assets and disposal groups classified as held for sale - -
Held-to-maturity investments (467,405) -
Collections 179,712 540,101
Tangible assets 1,035 1,602
Intangible assets - -
Investments - 35,713
Non-current assets and disposal groups classified as held for sale 178,677 112,680
Held-to-maturity investments - 390,106
NET CASH FLOW FROM FINANCING ACTIVITIES (174,876) 4,864
Payments (213,254) (147,228)
Dividends (63,441) (72,160)
Subordinated liabilities (111,348) -
Acquisition of own equity instruments (38,465) -
Other payments linked to financing activities - (75,068)
Collections 38,378 152,092
Subordinated liabilities - -
Issue of own equity instruments - -
Disposal of own equity instruments 38,378 77,099
Other inflows linked to financing activities - 74,993
EFFECT OF FOREIGN CURRENCY TRANSLATION RATE VARIATIONS - -
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (A+B+C+D) 321,093 387,602
CASH AND CASH EQUIVALENTS AT START OF PERIOD 1,020,319 632,717
CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,341,412 1,020,319
MEMORANDUM ITEMS:
BREAKDOWN OF CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,341,412 1,020,319
Cash 118,909 120,843
Balances equivalent to cash with central banks 767,209 544,531
Other financial assets 455,294 354,945
Total cash and cash equivalents at end of period 1,341,412 1,020,319

(*) Shown solely for the purpose of comparison

Notes 1 to 51 contained in the report and Appendices I to IV form an integral part of the consolidated statement of cash flows for the year ended 31 December 2013.

Bankinter Group

Consolidated Report on the year ended 31 December 2012 31 December 2013

1. Nature of the Group and its activities and composition

Bankinter, S.A. was incorporated by public deed executed in Madrid on 4 June 1965 under the name Banco Intercontinental Español, S.A. Its name was changed to the current one on 24 July 1990. It is registered in the Special Registry of Banks and Bankers. Its tax identification number is A-28157360 and it belongs to the Deposit Guarantee Fund under code number 0128. Its registered offices are located at Paseo de la Castellana number 29, 28046 Madrid, Spain.

The corporate object of Bankinter, S.A. (hereinafter referred to as the Bank or the Entity) comprises banking activities subject to the rules and regulations governing banks operating in Spain.

In addition to its direct operations, the Bank is the parent company of a group of subsidiary companies dedicated to a variety of activities (mainly asset management, credit cards and the insurance business) which, together with the Bank, make up the Bankinter Group (hereinafter referred to as the 'Group' or the 'Bankinter Group'). Consequently, in addition to its own individual financial statements, the Bank is obliged to draw up consolidated financial statements for the Group, which also include holdings in joint businesses and investments in associates.

The subsidiaries forming the Bankinter Group are listed in Note 13 'Investments'.

The Group's consolidated financial statements have been drawn up in accordance with the accounting principles described in the section "Accounting principles and Valuation Rules Applied."

The balance sheets of Bankinter, S.A. as at 31 December 2013 and 2012 and the income statements for the years then ended are shown in Appendix III.

2. Accounting principles applied

a) Basis of presentation of the financial statements

In accordance with EC Regulation No. 1606/2002 of the European Parliament and of the Council of 19 July 2002, all companies governed by the law of a member state of the European Union and whose securities are admitted to trading on a regulated market of any member state must present their consolidated financial statements for each financial year starting on or after 1 January 2005 in accordance with the International Financial Reporting Standards (IFRS) previously adopted by the European Union.

To adapt the accounting system of Spanish credit institutions to the new regulations, the Banco de España published Circular 4/2004, of 22 December, on Rules for Public and Reserved Financial Information and Model Financial Statements.

The Group's consolidated financial statements for the year ended 31 December 2013 were approved by the Bank's Directors in a meeting of the Board of Directors held on 19 February 2014, in accordance with the regulatory framework applying to the Group as established in the Spanish Commercial Code and other commercial legislation and with the International Financial Reporting Standards adopted by the European Union and taking account of Banco de España Circular 4/2004 applying the principles of consolidation, accounting policies, and valuation criteria described in Note 5 to the consolidated financial statements so as to give a true and fair view of the Group's financial situation as at 31 December 2013 and of the results of its operations, its comprehensive income and cash flows for 2013. These financial statements for 2013 are pending approval by the General Meeting of Shareholders. However, the Bank's Board of Directors believes that these accounts will be approved without modifications.

The Group's consolidated financial statements for 2012 were approved by the General Meeting of Shareholders held on 21 March 2013.

In accordance with the options established in IAS 1.81, the Group has opted to present separate statements, one displaying components of consolidated results ("Consolidated income statement") and a second statement which, beginning with those consolidated results, displays components of other comprehensive income ("Statement of comprehensive income"). In Spanish it is referred to using the terminology of Banco de España Circular 4/2004.

All figures in this report referring to financial year 2012 are presented solely for purposes of comparison.

The accounting policies and methods used to prepare these financial statements are the same as those applied in drawing up the consolidated financial statements for 2012, taking account of the standards and interpretations that came into effect in 2013. In this respect we would highlight the following:

Standards and interpretations effective in the year under review

During 2013 the following standards and interpretations adopted by the European Union and the Group came into force, with none of them having a significant impact on the consolidated financial statements:

  • Amendment to IAS 1 "Presentation of other comprehensive income": the amendments introduce improvements in and explanations of the presentation of "other comprehensive income" (valuation adjustments). The main change introduced is a requirement to group THE items on the basis of whether or not they can subsequently be reclassified to profit or loss.

The consolidated statement of comprehensive income has been adjusted to conform to this amendment.

  • Amendment to IAS 19 Employee benefits. The basic change introduced by this amendment to IAS 19 concerns the accounting treatment of defined benefit schemes; it eliminates the 'corridor' approach, which hitherto allowed recognition of a certain portion of the actuarial gains and losses arising from the valuation of pension commitments to be deferred. Starting from when the amendment comes into force all actuarial gains and losses will be recognised as they occur. It also includes significant changes to the way cost components are presented, such that the cost of services corresponding to commitments in respect of post-employment benefits (past-service, reductions and settlements) and net interest will be recognised in profit or loss, while the revaluation component (basically actuarial gains and losses) will be recognised in equity – valuation adjustments and will not be reclassified to profit or loss.

  • IFRS 10 Consolidated financial statements, IFRS 11 Joint arrangements, IFRS 12 Disclosures of interests in other entities, IAS 27 (Revised) Separate financial statements and IAS 28 (Revised) Investments in associates and joint ventures: These five standards or amendments, issued as a "package", replace the previous rules on the recognition and consolidation of investments in subsidiaries, associates and joint ventures and the related disclosure requirements.

  • IFRS 10 Consolidated financial statements: This standard replaces IAS 27 and SIC 12, introducing a single consolidation model based on control, irrespective of the nature of the investee. IFRS 10 also changes the definition of control. The new definition of control consists of three conditions to be met: the investor's power over the investee; that the investor is exposed, or has rights, to variable returns from its involvement with the investee; and that it has the ability to affect the results through its power over the investee.
  • IFRS 11 Joint arrangements: Replaces IAS 31. The basic change from IAS 31 is that proportional consolidation may no longer be applied to joint ventures, which must now be accounted for using the equity method.

  • IFRS 12 "Disclosure of interests in other entities": This standard brings together all the disclosure requirements relating to an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated entities and includes some new disclosure requirements. The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate the basis on which it is determined that control is exercised over an entity, any restrictions on assets or liabilities and the exposure to risks associated with interests in non-consolidated entities as well as other aspects.

  • Amendment to IFRSs 10, IFRS 11 and IFRS 12 on transition guidance:

  • The amendments to IAS 27 and 28 run parallel to the issue of the new IFRSs referred to above.

IFRSs 10, 11 and 12 apply to financial years beginning on or after 1 January 2013. The adoption of these standards by the European Union requires them to be applied no later than 1 January 2014. However, early adoption is permitted. In this case they must all be applied at the same time. The Group has decided to early adopt these standards.

  • IFRS 13 "Fair value measurement" sets out in a single IFRS a framework for measuring fair value adds certain disclosure requirements. The Group has considered the extent to which the new definition and the new requirements concerning fair value might affect the valuation of financial and nonfinancial items, concluding that they do not give rise to significant changes with regard to the assumptions, methods and calculations currently used.

However, this standard has significantly added to the disclosures required in the notes to the financial statements regarding the fair value of financial instruments, as well as introducing new disclosure requirements for non-financial items.

  • Amendment to IFRS 7 "Disclosures offsetting of financial assets and liabilities". This amendment introduces additional disclosures for financial assets and liabilities that are set off in the balance sheet, as well as for other financial instruments subject to an enforceable netting arrangement.
  • Amendment to IAS 12 "Deferred Tax– Recovery of underlying assets". The fundamental change is the introduction of an exception to the general principles of IAS 12, which affects deferred tax on investment property valued using the IAS 40 Investment Property fair value model based on the assumption, for purposes of calculating deferred tax, that the carrying amount of these assets will be recovered in full through their sale.

No significant effects on the Group's financial statements have arisen from application of the aforementioned accounting standards.

Lastly, as at the date on which these consolidated financial statements were approved, the following standards and interpretations which come into force after 31 December 2012 were pending adoption by the European Union:

  • Amendment to la IAS 32 "Offsetting of financial assets and liabilities": The amendment clarifies some of the requirements for offsetting financial assets and liabilities on the balance sheet. Applies to financial years beginning on or after 1 January 2014.

The Group is currently studying the impact of these standards and amendments, and intends to adopt such of them as eventually prove to apply to it when they come into force. From the preliminary study carried out to date, the Group does not believe that their initial application will have a significant impact on the consolidated financial statements.

  • IFRS 9 "Financial instruments". IFRS 9 will in future replace IAS 39. So far the sections on classification, valuation and accounting for hedges have been issued, although the rules on impairment are still pending. There are important differences from the current standard, relating to financial assets, including the approval of a new classification model based on only two categories - amortised cost and fair value, the elimination of the present "investments held to maturity" and "available-for-sale financial assets" categories, analysis of impairment only for assets shown at amortised cost and an end to separate accounting for embedded derivatives.

The categories proposed by IFRS 9 for financial liabilities are similar to those already existing in IAS 39, so there should not be any significant differences except for those resulting from the requirement to recognise changes in fair value relating to the actual credit risk directly in equity in the case of financial liabilities measured at fair value.

b) Accounting principles and valuation rules

In preparing the consolidated financial statements, the generally accepted accounting principles and valuation rules referred to in Note 5 as "Accounting principles and valuation rules applied" have been followed.

Unless otherwise indicated, these consolidated financial statements are presented in thousands of euros.

c) Judgements and estimates made

The information contained in these consolidated financial statements is the responsibility of the Group's Directors. In valuing certain assets, liabilities, revenues, expenses and commitments, use has been made as necessary of estimates made by the Group's Senior Management and ratified by its Directors. These estimates relate mainly to:

  • impairment losses on certain assets (Note 10)
  • the useful lives attributed to items of property, plant and equipment and intangible assets (Notes 14 and 15)
  • the fair value of certain unlisted assets (Note 43)
  • the actuarial assumptions used to calculate liabilities and commitments for post-employment benefits (Note 27)
  • the calculation of provisions (Note 21)

Although these estimates have been made based on the best information available as at 31 December 2013 on the items concerned, it is possible that future events might require them to be revised in coming financial years. Any such revision would be carried out prospectively, in accordance with the provisions of IFRS 8, recognising the effects of the change in the corresponding consolidated income statement for the financial years affected.

d) Principles of consolidation

The Group has been defined in accordance with current applicable accounting regulations. Group Companies comprise Subsidiaries, Joint Arrangements and Associates.

Subsidiaries are entities forming a single decision-making unit with the parent company, in other words entities over which the parent company has the power to exert control directly or indirectly through other Group Companies. This power to exert control is generally, although not invariably, reflected in the parent company's holding, directly or indirectly through one or more other Group Companies, 50% or more of the voting rights in the Group Company. Control means the power to govern the financial and operating policies of a Group Company with a view to obtaining benefits from its activities, and may be exerted even if the abovementioned percentage of voting rights is not held.

Key information on investments in subsidiaries as at 31 December 2013 and 2012 is given in Note 13. In 2013 there was no company considered to be a subsidiary in which the Group's holding was less than 50%.

The overall integration procedure for the annual accounts of dependent entities has been applied to the consolidation process. Consequently, all significant intercompany balances and transactions have been eliminated in the consolidation process. Third party or minority interests in the Group's equity are presented under the heading Non-controlling interests in the consolidated balance sheet and the portion of the year's profit attributable to them is shown under Profit (loss) attributable to non-controlling interests in the consolidated income statement.

Results generated by entities acquired by the Group during the financial year are consolidated only insofar as they relate to the period between the date of acquisition and year-end. Similarly, results generated by entities disposed of by the Group during the financial year are consolidated only insofar as they relate to the period between the beginning of the financial year and the date of the disposal.

Joint Arrangements are Group Companies which, while not being Subsidiaries, are jointly controlled by the Group and by one or more other entities not related to the Group (Joint Ventures), and Joint Operations. Joint Operations are contractual agreements by virtue of which two or more entities or participants perform transactions or maintain assets in such a way that any financial or operational strategic decision which affects them requires the unanimous consent of all participants, without these transactions or assets being integrated in financial structures different from those of the two participants.

Joint Arrangements are accounted for using the equity method. Relevant information on investments in Joint Arrangements as at 31 December 2013 and 2012 is presented in Note 13.

Associates are those over which the Group has a significant influence. Said significant influence is generally, although not invariably, reflected in the parent company's holding, directly or indirectly through one or more other Group Companies, 20% or more of the voting rights in the Group Company.

The equity method for associated entities has been applied to the consolidation process. Consequently, investments in Associates are valued at the proportion represented by the Group's holding in their capital, less dividends received and any other eliminations in equity. Transactions with Associates are eliminated in the proportion represented by the Group's holding. If an Associate's equity is negative as a result of losses incurred, it is shown as zero in the Group's consolidated balance sheet unless the Group is under an obligation to support it financially.

The relevant information on stockholdings in associates as at 31 December 2013 and 2012 is included in Note 13. In 2013 there was no company considered to be an associate in which the Group's holding was less than 20%.

Note 13 includes information on the most significant acquisitions and disposals during the year of investments in Subsidiaries, Joint Arrangements and Associates.

Business combinations are operations whereby two or more entities or economic units combine to become a single entity or group of companies.

e) Comparison of information

In accordance with business law, the Directors present the information contained in this report referring to 2012 exclusively for purposes of comparison with the 2013 figures, and therefore it does not constitute the Group's consolidated financial statements for 2012.

f) Equity

Banco de España Circular 3/2008 of 22 May for credit institutions on determining and controlling minimum equity, regulates the minimum equity to be maintained by Spanish credit institutions - both individually and as a consolidated group and the way in which said equity is to be determined, as well as the various processes for capital self-assessment to be carried out by the institutions and the public information they must forward to the market.

During 2013 the Group applied this Circular as updated by successive provisions. With Banco de España approval, the Group uses the internal ratings based (IRB) method to calculate capital requirements for the credit risk on certain credit exposures, and the standard method for all other exposures. In subsequent financial years, in accordance with the progressive implementation plan described in Rule 24 of Circular 3/2008 and subject to authorisation from the Banco de España, new portfolios will be incorporated into the IRB Approach.

The goal set by the Group's Management in relation to equity management consists in complying at all times with the applicable regulations, in accordance with the risks inherent in its activity and the context in which it operates, while at the same time seeking to make the process as efficient as possible. Capital consumption, together with other risk and return variables, is considered a fundamental variable in the analyses associated with the Group's investment decisions.

In order to meet this goal, the Group has a series of policies and processes for managing equity, the main guidelines in which are:

  • The Equity Division, which reports to the Capital Markets Area, performs the monitoring and control of solvency ratios, and has warning systems that ensure that the applicable rules are being applied at all times and that the decisions made by the various areas and units of the Group are consistent with the targets set for compliance with minimum capital requirements. Accordingly, there are contingency plans to ensure that the limits laid down in the applicable regulations are met.
  • The impact that decisions will have on the Group's equity and on the balance between capital consumption, risk and return, is taken into account as a key factor in planning, analysing and monitoring the Group's operations.

Thus, the Group considers equity and the capital requirements established by the abovementioned regulations to be a key factor in its management, affecting the entity's investment decisions, the analysis of the viability of any transaction, strategy for the distribution of results by subsidiaries and issues by the entity and the Group, etc.

Banco de España Circular 3/2008 of 22 May and complementary provisions (information available - in Spanish - on the Banco de España's website, at: http://www.bde.es/bde/es/secciones/normativas/Regulacion_de_En/Estatal/ Solvencia_y_recursos_propios.html ) establishes which items are to be counted as capital for the purpose of complying with the minimum requirements established in the rule. For the purposes of the above rule, equity is classified as basic and second category equity and it differs from equity as calculated in accordance with EU-IFRS as it includes certain items that are not included under EU-IFRSand excludes others that are. In addition, the methods to be implemented for the consolidation and appraisal of holdings for the purposes of calculating the Group's minimum equity requirements differ, in accordance with standing regulations, from those implemented in drawing up these annual consolidated accounts, which also leads to the existence of differences for the purposes of calculating equity under one regulation or the other.

As regards the conceptual definitions, the Group's management of its shareholders' equity is in compliance with the terms of Banco de España Circular 3/2008. Accordingly, the Group deems computable equity to be as indicated in rule 8 of Banco de España Circular 3/2008.

The minimum equity requirements laid down in this Circular are calculated according to the Group's exposure to credit risk and dilution (depending on the assets, commitments and other memorandum accounts these risks present, in accordance with their amounts, characteristics, counterparties, guarantees, etc.), the counterparty, position and settlement risks on the trading portfolio, the exchange and gold position risk (depending on the net global position in foreign currency and the net gold position) and operational risk. In addition, the Group is also subject to compliance with the risk concentration limits laid down in the aforementioned Circular and the Group is subject to compliance with the internal Corporate Governance obligations, capital self-assessment and measurement of the interest rate risk and the public information obligations to be forwarded to the market, which are also laid down in the aforementioned Circular. With a view to guaranteeing compliance with the aforementioned targets, the Group performs integrated management of these risks, in accordance with the aforementioned policies.

Banco de España Circular 7/2012 of 30 November on minimum core capital requirements changed the definition of core capital that credit institutions would have to comply with starting in 2013. The definition is adjusted to bring it into line with the Core Tier 1 capital criteria of the European Banking Authority (EBA), and the minimum level of core capital is set at 9% with effect from 1 January 2013.

As at 31 December 2013 and 2012 and throughout the years then ended, the computable equity of the Group and of the Group entities subject to this obligation, considered on an individual basis, exceeded the requirements laid down under the rules referred to.

Consolidated equity as at 31 December 2013 and 2012 and the corresponding capital ratios are shown in the following table:

€000s
31-12-13 (*) 31-12-12(*)
Capital and Reserves 3,300,372 2,991,426
Other equity instruments 12,608 72,633
Preference shares 60,844 60,844
Treasury shares (511) (226)
Intangible and other assets (267,772) (283,117)
Other deductions (165,200) (103,581)
Tier 1 2,940,341 2,737,979
Revaluation reserve - 94,308
Subordinated financing 443,524 568,686
Other deductions (164,467) (96,551)
Tier 2 279,057 566,443
Total Equity 3,219,398 3,304,422
Risk-weighted assets 22,777,831 25,580,597
Tier 1 (%) 12.91% 10.77%
Tier 2 (%) 1.23% 2.23%
Capital ratio (%) 14.13% 13.00%

(*) Figures in accordance with Banco de España Circular 3/2008 on determining and controlling minimum equity. The lower limit of shareholders' equity requirements provided for in Transitional Provision Eight of the aforementioned Circular is not applied. Internal models are applied to the following portfolios: Home mortgages for private individuals, Small companies, Medium-sized companies, Project Finance and Unsecured loans.

Bankinter complied throughout 2013 with the regulatory requirements, and with the objective of strengthening its capital ratios it undertook the following financial transaction aimed to strengthen its capital base, as described hereunder.

In April 2013 the Bank's Board of Directors resolved to put into effect a capital increase in the form of a bonus issue charged entirely to the asset revaluation reserve, which had been approved by the General Meeting of Shareholders on 21 March 2013. This bonus issue led to an increase of €94 million in Core Tier 1 Capital.

With regard to the 2011 issue of Mandatorily Convertible Subordinated Bonds, in both May and November of 2013 voluntary conversion periods were established. As a result of these two conversion windows, Core Tier 1 Capital increased by €60 million.

Thanks to these transactions the Bank's capital ratios increased during the year. As at 31 December 2013 the core capital ratio in accordance with the Banco de España Circular referred to was 12.35% (10.18% at year-end 2012).

g) Minimum reserve ratio

Monetary Circular 1/1998 of 29 September, effective 1 January 1999, abolished the cash coefficient which had been in place for ten years and replaced it with the minimum reserve ratio.

As at 31 December 2013 and 2012 and throughout the years then ended, the consolidated entities complied with the minimum amounts for this coefficient required by applicable Spanish regulations.

The amount of cash which the Group held immobilised on account with the Banco de España for this purpose stood at €767.02 million and €544.43 million as at 31 December 2013 and 2012 respectively, although the obligation of the various Group companies subject to this coefficient to maintain the balance required by applicable regulations in order to comply with the aforementioned minimum reserves coefficient is calculated on the average of closing balances for the day held by each of them in this account during the period for which it is maintained.

h) Information on deferrals in payments to suppliers. Third additional provision. "Duty of information" in Law 15/2010 of 5 July

The following information is provided in order to comply with the provisions of Law 15/2010 of 5 July amending Law 3/2004 of 29 December, establishing measures to combat payment delinquency in commercial transactions, as implemented by the Resolution of 29 December 2010 of the Spanish Accounting and Audit Institute on disclosures to be included in the notes to the financial statements with regard to delayed payments to suppliers in commercial transactions:

Amounts paid and pending payment
as at year end
2013
2012
Amount % Amount %
Paid within the maximum legal timeframe 692,140 100% 798,937 100%
Other - - - -
Total payments for the year 692,140 100% 798,937 100%
Weighted average days past due - - - -
Deferrals which exceed the legal
maximum term as at year-end		 - - -
-

The legal timeframe has been defined in accordance with that which corresponds depending on the nature of the good or service received by the company under the terms of Act 3/2004, of 29 December, defining measures to combat default in trade operations.

3. Appropriation of profit

The proposal to distribute the profits of Bankinter, S.A. for the year ending 31 December 2013, made by the bank's administrators and subject to the approval of the General Shareholders Meeting is as follows:

€000s
31-12-13
31-12-12
Appropriation:
Voluntary reserves 156,661 86,708
Statutory reserve 23,391 -
Interim dividends 53,856 61,500
Profit appropriated 233,908
148,208
Profit or (-) loss
for the year		 233,908 148,208

Details of interim dividends distributed and the corresponding liquidity statements are given in Note 22.

The proposed appropriation of profit for the year ended 31 December 2013 of the subsidiaries of Bankinter, S.A. drawn up by their respective Directors and pending approval by the respective General Shareholders Meetings is as follows:

€000s
Result Dividend Reserves Applica
tions
Bankinter Consultoría, Asesoramiento y
Atención Telefónica, S.A.		 117 - 117
Bankinter Gestión de Activos, S.A.,
S.G.I.I.C.		 16,783 16,783 - -
Hispamarket, S.A. (2,164) - (2,164) -
Intermobiliaria, S.A. (105,881) - (105,881) -
Bankinter Consumer Finance, E.F.C., S.A. 23,706 11,853 11,853 -
Bankinter Capital Riesgo, S.G.F.C.R., S.A. 186 - 186 -
Bankinter Sociedad de Financiación, S.A. 716 - 716 -
Bankinter Emisiones, S.A. - - - -
Bankinter Capital Riesgo I, Fondo Capital 1,312 - 1,312 -
Grupo Línea Directa Aseguradora 90,952 60,000 30,952 -
Arroyo Business Development, S.L. (2) - (2) -
Relanza Gestión, S.A. 30 - 30 -
Gneis Global Services, S.A 13,282 7,000 6,282 -
Mercavalor, S.V., S.A. (264) - (264) -
Bankinter Luxembourg, S.A. (1,081) - (1,081) -
Naviera Goya, S.L. (2) - (2) -
Naviera Sorolla, S.L. (2) - (2) -

The appropriation of profits for the year ended 31 December 2012 of the subsidiaries of Bankinter, S.A., approved by their respective General Shareholders Meetings, was as follows:

€000s
Result Dividend Reserves Applica
tions
Bankinter Consultoría, Asesoramiento y
Atención Telefónica, S.A.		 596 - 596
Bankinter Seguros Generales (formerly
Bankinter Servicios de Consultoría S.A)		 - - - -
Bankinter Gestión de Activos, S.A.,
S.G.I.I.C.		 11,026 11,026 - -
Hispamarket, S.A. (4,929) - (4,929) -
Intermobiliaria, S.A. (79,428) - (79,428) -
Bankinter Consumer Finance, E.F.C., S.A. 22,149 11,075 11,074 -
Bankinter Capital Riesgo, S.G.F.C.R., S.A. 196 - 196 -
Bankinter Sociedad de Financiación, S.A. (8) - (8) -
Bankinter Emisiones, S.A. 259 - 259 -
Bankinter Capital Riesgo I, Fondo Capital 1,426 - 1,426 -
Grupo Línea Directa Aseguradora 86,605 - 86,605 -
Arroyo Business Development, S.L. - - - -
Relanza Gestión, S.A. 35 - 35 -
Gneis Global Services, S.A 13,992 - 13,992 -

4. Deposit Guarantee Fund

Royal Decree –Law 16/2011, of 14 October, created the Credit Institution Deposit Guarantee Fund, following the merging of the three previously existing deposit guarantee funds into a single Credit Institution Deposit Guarantee Fund, which retains the functions and characteristic features of the three funds it replaced. This Royal Decree - Law increased the legal limit on banks' annual contributions from 0.2% to 0.3% to ensure that the fund has maximum operating capacity. Additionally, the Ministerial Orders establishing optional short-term reductions in contributions to 0.06%, 0.08% or 0.1% depending on the type of entity, were repealed. The result of these two changes is that there is now a limit of 0.3% on contributions for guaranteed deposits and a real contribution of 0.2% instead of the percentages referred to above.

Additionally, Banco de España Circular 3/2011, of 30 June, laid down the rules for applying the changes introduced by Royal Decree 771/2011, of 3 June, amending Royal Decree – Law 216/2008, of 15 February. on guaranteed deposits remunerated in excess of any of the following limits:

a. In the case of term deposits or similar instruments at terms of up to three months whose agreed annual interest is more than 150 basis points higher than average three-month EURIBOR; or more than 150 basis points higher than average sixmonth EURIBOR for terms of between three months and one year, or more than 100 basis points higher than average one-year EURIBORfor terms of one year or more.

b. In the case of sight deposits whose annual interest paid in the periodic settlement of the account is more than 100 basis points higher than average one-month EURIBOR.

The treatment of contributions to the Fund is changed, by applying a 500%weighting to the amounts of deposits whose agreed remuneration is in excess of the above limits. The difference between this (weighted) contribution and the contribution that would apply in the absence of these circumstances had to be paid in to the Fund every quarter.

With the publication during 2012 of Royal Decree – Law 24/2012, of 31 August, on the restructuring and resolution of credit institutions, this requirement was cancelled.

2012 also saw the publication of Royal Decree – Law 2/2012, of 3 February, on restructuring of the financial sector, whereby, by virtue of the provisions of Royal Decree – Law 19/2011, of 2 December, amending Royal Decree – Law 16/2011, of 14 October, creating the Credit Institution Deposit Guarantee Fund, on the carrying out of the actions necessary to restore the Fund to sufficiency, on 30 July 2012 the Management Committee of the Credit Institution Deposit Guarantee Fund adopted a resolution to apply a surcharge to member entities, estimated based on the contributions made as of 31 December 2011 and payable in equal annual payments over the next ten years.

Royal Decree – Law 24/2012, of 31 August, on restructuring and resolution of credit institutions, establishes, subject to the Banco de España, decisions that the Deposit Guarantee Fund shall reimburse the amounts of guaranteed deposits when a deposit that is due and payable is unpaid, always providing no proceedings have been initiated to resolve the entity. In this respect the Fund may adopt measures in support of the resolution of a credit institution such as granting guarantees or loans and acquiring assets or liabilities, either carrying out such actions itself or entrusting them to a third party. The Bank is a member of the Deposit Guarantee Fund.

Royal Decree Law 21/2012, of 13 July, on liquidity measures for public administrations and the financial sector established an exceptional contribution of 0.3% on deposits of member institutions as at 31 December 2012, requiring the first tranche, equivalent to two fifths of the amount, to be paid in the first twenty business days of 2014, after any deductions granted in the terms of this decree law. The Managing Committee of the Deposit Guarantee Fund, in its meeting of 22 November 2013, resolved to adopt the deductions envisaged therein, and in particular not to apply this first tranche to the institutions referred to by the ninth additional provision of Law 9/2012, of 14 November, concerning institutions obliged to transfer assets to the SAREB (Spain's "bad bank").

On 30 July 2012, the Managing Committee of the Credit Institutions' Deposit Guarantee Fund agreed an extra payment by charge to the member entities estimated on the basis of the contributions at 31 December 2011, payable in ten equal annual instalments.

Royal Decree-Law 6/2013, of 22 March 2013, on protection for holders of certain savings and investment products and other financial measures, imposed an exceptional, one-off increase of 0.3% in the annual contribution provided for in Article 3 of Royal Decree 2606/1996, of 20 December, on Credit Institutions' Deposit Guarantee Fund to be paid by member institutions on their deposits as at 31 December 2012, in order to strengthen the Fund's assets.

The cost for 2013 and 2012 of the company's contributions to the Deposit Guarantee Fund was €39.17 million and €68.78 million respectively. These costs are included under the heading 'Other operating charges' in the Income Statement (Note 33). During 2013 exceptional contribution made by the Bank to the Deposit Guarantee Fund amounted to €2.28 million. The remainder will be settled starting in 2014 in a maximum period of seven years in accordance with a calendar of payments to be established by the Managing Committee of the Deposit Guarantee Fund.

5. Accounting principles and valuation rules applied

These consolidated financial statements have been prepared in accordance with the accounting principles and valuation rules currently in effect. A summary of the most important of these is given below:

a) Going-concern principle

In preparing the consolidated financial statements it was assumed that the management of the entities included in the Group will continue for the foreseeable future. Therefore, application of accounting standards is not aimed at determining the value of the consolidated equity with a view to their total or partial disposal or the amount that would result in the event of their liquidation.

b) Accrual principle

These consolidated financial statements, with the exception of the statements of cash flows, have been prepared based on the real flow of goods and services, regardless of the payment or receipt dates, with the exception of the interest relating to loan and receivables and other non-investment risks with borrowers deemed to be impaired, which are credited to profit and loss at the time they are collected.

The accrual of interest on both lending and deposit transactions with settlement periods in excess of 12 months are calculated using the financial method. For transactions with a lesser period, accrual is performed using either the financial method or the linear method.

Following general financial practice, transactions are recognised on the date they occur, which may differ from their corresponding value date on which financial revenue and expense calculations are based.

c) Transactions and balances in foreign currency

i. Functional Currency:

The Group's functional currency is the euro. Consequently all balances and transactions denominated in a currency other than the euro are considered to be denominated in "foreign currency".

ii. Criteria for conversion of foreign currency balances:

Balances and transactions in foreign currency have been converted into euros using the following conversion rules:

  • Monetary assets and liabilities have been converted into euros using the average spot exchange rates in the currency market at year end.
  • Non-monetary items valued at historical cost have been converted into euros using the exchange rates of the date of acquisition.
  • Non-monetary entries valued at fair value have been converted into euros using the exchange rates of the date on which the fair value was determined.
  • Revenue and expenses have been converted into euros using exchange rates of the date of the transaction (using the average exchange rates for the year for all transactions performed in that year). Depreciation and amortisation have been converted into euros at the exchange rate applied to the corresponding asset.

Exchange rate differences have been recognised in consolidated profit and loss except for differences arising in non-monetary items at fair value, for which fair value adjustments are recognised directly in equity.

d) Consolidated statements of cash flow

The Group used the indirect method to prepare the cash flow statements, which use the following expressions and classification criteria:

  • Cash flows:inflows and outflows of cash and cash equivalents; cash equivalents are understood as short-term investments with high liquidity and a low risk of alterations to their value. Cash and cash equivalents refer to the balances shown under the heading "Cash and deposits with central banks" as well as other accounts with highly liquid credit institutions in the enclosed balance sheets.
  • Operating activities: typical activities of credit institutions, and other activities that cannot be classified as investing or financing.
  • Investing activities: acquisition, disposal or provision by other means of longterm assets and other investments not included in cash and cash equivalents.
  • Financing activities: activities that produce changes in the size and composition of liabilities and equity and which do not form part of operating activities.

e) Consolidated statement of comprehensive income

This section of the consolidated statement of changes in equity shows the revenue and expenses generated by the Group as a consequence of its activity during the year. A distinction is made between items recognised in consolidated profit and loss for the year and other comprehensive income as provided by current regulations recognised directly in equity.

Therefore, this statement shows:

  • a. Consolidated income for the year.
  • b. The net amount of revenue and expenses temporarily recognised in consolidated equity as valuation adjustments.
  • c. The net amount of revenue and expenses definitively recognised in consolidated equity.
  • d. Corporation tax accrued on b) and c) above, except for valuation adjustments on investments in associates or joint arrangements accounted for using the equity method, which are reported in net terms.
  • e. Total consolidated comprehensive income calculated as the sum of the above sections, showing separately the amount attributable to owners of the parent company and that attributable to non-controlling interests.

The amount of revenue and expenses corresponding to entities accounted for using the equity method recognised directly in equity is reported in this statement, regardless of its nature, under the heading "Entities accounted for using the equity method".

Changes in comprehensive income recognised in equity as valuation adjustments are broken down into:

- Gains or (-) losseson valuation: This shows the amount of income, net of expenses arising in the period, recognised directly in consolidated equity. The amounts recognised during the year under this heading are kept under this heading, even if in the same year they are transferred to consolidated profit and loss at the initial value of other assets or liabilities or reclassified under another heading.

  • - Amounts transferred to profit and loss: This covers the amount of gains or losses on valuation previously recognised in consolidated equity, even if in the same financial year, which are now recognised in the consolidated Income Statement.
  • - Amounts transferred to the initial carrying amount of the hedged items: This records the amount of valuation gains or losses previously recognised in consolidated equity, even if in the same financial year, which are now recognised in the initial value of the assets or liabilities as a result of cash flow hedges.
  • - Other reclassifications: This records the value of the transfers made in the period between entries for valuation adjustments in accordance with the criteria provided in current regulations.

The amounts of these items are reported by gross amount and, except as indicated above for items corresponding to valuation adjustments for the valuation of entities accounted for using the equity method, they show their corresponding tax effect under the heading "Corporate tax" of the statement.

f) Consolidated statement of changes in total equity

This part of the consolidated statement of changes in equity shows all changes in equity that have occurred during the year, including those arising from changes in accounting principles and the correction of errors. This statement therefore shows a reconciliation between the carrying amount at the start and end of the year of all components of consolidated equity, grouping together the movements based on their nature under the following headings:

  • - Adjustments arising from changes in accounting principles and the correction of errors: This includes changes to consolidated equity arising as a result of the retroactive restatement of balances in the financial statements due to changes in accounting standards or the correction of errors.
  • - Income and expenses recognised in the period: This comprises, in aggregate form, the total of the items recognised in the statement of comprehensive income referred to above.

- Other changes in equity: This comprises all other items recognised in equity, such as increases or decreases in the endowment fund, appropriation of profits, transactions with own equity instruments, payments with equity instruments, transfers between equity headings and any other increases or decreases in consolidated equity.

g) Recognition, valuation, and classification of financial instruments

Financial assets and liabilities are recognised when the group converts a portion of the contractual agreements in accordance with the provisions of these agreements.

Financial liabilities

Financial liabilities are classified in the consolidated balance sheet according to the following criteria:

  • i. Trading portfolio which includes financial liabilities issued with a view to short-term realisation. They are part of a portfolio of financial instruments jointly identified and managed for which recent actions have been taken to obtain short-term gains, or they are derivative instruments not designated as hedging instruments or they come from the firm sale of financial assets acquired temporarily or received on loan.
  • ii. Other financial instruments at fair value through profit or loss: This includes financial liabilities designated as "at fair value through profit or loss" with the purpose of obtaining more relevant information, as this significantly reduces accounting imbalances.
  • iii. Financial liabilities at amortised cost which cannot be included under any other heading in the balance sheet and which are part of the normal funding activities of financial institutions, regardless of the type of instrument used or their maturity dates.
  • iv Hedging derivatives including financial derivatives acquired or issued by the Bank which qualify to be considered accounting hedges.

Financial liabilities are recognised at their amortised cost, as defined for financial assets, except in the following cases:

  • i. Financial liabilities under the headings 'Trading portfolio' and "Other financial liabilities at fair value through profit or loss" are carried at fair value as defined for financial assets. Financial liabilities hedged in fair-value hedging operations are adjusted and any changes in their fair value relating to the risk hedged in the hedging transaction are recognised.
  • ii. Financial derivatives that have as their underlying equity any instruments whose fair value cannot be determined in a sufficiently objective manner and which are settled on delivery, are valued at cost.

Changes in the carrying amount of financial liabilities are recognised, in general, with a balancing entry in profit and loss, with a distinction between those originating in the accrual of interest and similar items, which are recognised under the heading 'Interest and similar charges', and those due to other causes, which are recognised for their net amount in 'Results of financial transactions' in the income statement.

Regarding financial liabilities designated as hedged items and accounting hedges, differences in valuation are recognised on the basis of the criteria indicated for financial assets.

Financial assets

Financial assets bought and sold by means of contractual agreements, meaning those in which the reciprocal obligations of the parties must be performed within a particular timeframe established by law or by market conventions and may not be settled by netting off, such as stock market and spot currency trades, are recognised upon acquisition as assets and are derecognised in the balance sheet upon sale, on the date from which the benefits, risks, rights and duties inherent in ownership pass to the acquiring party which, depending on the type of asset or market involved, may be the contracting date or the settlement or delivery date.

Financial debt instruments are recognised from the date on which the legal right to receive or duty to pay cash arises, and derivatives are recognised from the date on which they are contracted. As a general rule, the Group derecognises financial instruments in the balance sheet on the date from which the benefits, risks, rights and responsibilities inherent in them are or control of them is transferred to the acquiring party.

Financial assets are classified in the consolidated balance sheet in accordance with the following criteria:

  • i. Cash and balances with central banks, corresponding to the cash balances and balances deposited with the Banco de España and other central banks.
  • ii. Financial assets and liabilities held for trading, which includes financial assets acquired with a view to short-term realisation. They are part of a portfolio of financial instruments jointly identified and managed for which recent actions have been taken to obtain short-term gains, or they are derivative instruments not designated as hedging instruments. Changes in the fair value of the instruments in this portfolio are recognised directly in profit or loss.
  • iii. Other financial assets at fair value through profit or loss, including (1) financial assets which, while not part of the financial assets and liabilities held for trading, are considered hybrid financial assets and are stated entirely at their fair value, and (2) those managed jointly with liabilities by insurance contracts carried at their fair value, or with financial derivatives

that have the aim of significantly reducing their exposure to variations in their fair value, or which are managed jointly with financial liabilities and derivatives in order significantly to reduce overall exposure to interest rate risk.

  • iv. Available-for-sale financial assets which are debt securities not classified as held-to-maturity investments, as other financial assets at fair value through profit or loss, as loan and receivables or as financial assets and liabilities held for trading, and the equity instruments of entities which are not subsidiaries, associates or joint ventures and which are not included in the categories of financial assets and liabilities held for trading or other assets at fair value through profit or loss. Changes in the fair value of instruments in this portfolio are recognised directly in equity worth until the financial asset is derecognised from the balance sheet.
  • v. Loan and advances including financial assets not traded on an active market and not requiring to be carried at fair value but with cash flows of determined or determinable amounts whereby the Group's entire disbursement will be recovered, barring reasons attributable to the debtor's solvency. This includes both the investments from typical lending activity, such as the cash amounts drawn down and pending repayment by clients in the form of loans, and deposits lent to other entities, regardless of how they are legally implemented, and unlisted debt securities, as well as debt assumed by the buyers of goods or the users of services, all of which are part of the Group's business.
  • vi. Investment portfolio held to maturity which corresponds to fixed-term debt securities and cash flows of a determined or determinable amount for which the company has, as from the start and as at any subsequent date, both the positive intention and the financial capacity to hold them to maturity.

The Bank may not classify any financial asset as a held-to-maturity investment if during the financial year in progress or the two previous financial years it has sold or reclassified assets included in this portfolio for more than an insignificant amount in relation to the total amount of the assets included in this category.

  • vii.Adjustments to financial assets in relation to macro-hedges, being the balancing entry for the amounts credited to profit and loss arising from the valuation of the portfolio of financial instruments which are effectively hedged against interest rate risk by means of fair value hedge derivatives.
  • viii.Hedging derivatives including the financial derivatives acquired or issued by the Bank which qualify to be considered as accounting hedges.
  • ix. Investments which include equity instruments in Joint Ventures or Associates.

In general, financial assets are initially recognised at cost. Their subsequent valuation at the end of each period is carried out on the basis of the following criteria:

  • i. Financial assets are carried at fair value, with the exception of loan and receivables, the portfolio of held-to-maturity investments, equity instruments whose fair value cannot be determined with sufficient objectiveness, investments in Subsidiaries, Joint Arrangements and Associates, and financial derivatives for which the underlying assets are said equity instruments and which are settled by delivery thereof.
  • ii. The fair value of a financial asset on any given date is deemed to be the amount for which it could be delivered between duly informed, willing parties in an arm's length transaction. The best evidence of fair value is the listed market price on an active market which is organised, transparent and of sufficient depth.

When there is no market price for a certain financial asset, its fair value may be estimated by valuation techniques which must comply with the following characteristics:

  • The techniques must be as consistent and appropriate as possible and will include observable market data such as recent transactions with other instruments that are substantially the same; discounted cash flows and market models to value options.
  • The techniques used must be those which provide the most realistic estimate of the price of the instrument, and preferably they will be those which are normally used by market participants when valuing the instrument.
  • The techniques will maximise the use of observable market data, with the use of non-observable data being restricted as far as possible. The valuation method must be maintained over time as long as the factors that led to its being chosen have not altered. In any event, the valuation technique must be assessed periodically and its validity examined using observable prices for recent transactions and current market data.
  • In addition, consideration must also be given to factors such as the time value of money, credit risk, exchange rates, prices of equity instruments, volatility, liquidity, the risk of early cancellation and administrative costs.

Certain equity instruments are measured at cost because their fair value cannot be reliably estimated. The inability to make a reliable estimate of fair value is due to the wide range of estimates and the impossibility of reasonably assessing the probabilities of each estimate in the range.

iii. The fair value of financial derivatives with a quoted value on an active market is the daily trading price. If for any exceptional reason there is no trading price for a particular date, then methods similar to those used to estimate the value of OTC financial derivatives are used.

The fair value of OTC financial derivatives is the sum of future cash flows originating from the instrument and discounted to the valuation date using methods recognised by the financial markets.

iv. Loans and receivables and the portfolio of investments held to maturity are carried at amortised cost determined using the effective interest rate method. Amortised cost means the acquisition cost of a financial asset corrected by the principal repayments and the portion of the difference between the initial cost and the repayment value at maturity that is charged to profit and loss, using the effective interest rate model, less any reduction in value due to impairment recognised directly as a decrease in the value of the asset or by means of an account to correct its value. If they are hedged by fair-value hedging transactions, any variations arising in the fair value relating to the risk or risks hedged in said hedging transaction are recognised.

The effective interest rate is the rate which, when used to discount the estimated future cash flows over the life of the financial instrument, produces a present value exactly equal to the price of the financial instrument, based on the contractual conditions such as early repayment options, but without taking account of future losses due to credit risk. For fixed interest financial instruments, the effective interest rate is the contractual interest rate established at the time of acquisition plus any applicable fees or commissions which, by their nature, are equivalent to an interest rate. For variable interest financial instruments, the effective interest rate coincides with the yield rate in force for all items up to the first scheduled revision of the reference interest rate.

v. Investments held in the capital of other entities for which the fair value cannot be determined in a sufficiently objective manner and financial derivatives for which these instruments are the underlying assets and which are settled by delivering the assets are carried at cost, corrected where applicable by the losses due to impairment which they have experienced.

Changes in the carrying amount of financial assets are recognised, in general, with a balancing entry in profit and loss, with a distinction between those originating in the accrual of interest and similar items, which are recognised under the heading 'Interest and similar income', and those due to other causes, which are recognised for their net amount in 'Results of financial transactions' in the income statement.

However, variations in the carrying amount of the instruments included under the heading 'Available-for-sale financial assets' are temporarily recognised under the heading 'Equity valuation adjustments' except when they are due to exchange rate differences. The amounts included under the heading 'Valuation adjustments' continue to be part of equity until the assets to which they relate are removed from the balance sheet, at which time the entry is cancelled against profit and loss.

For financial assets designated as hedged items or accounting hedges of fair value, the valuation differences in both the hedging and the hedged items, as far as the type of risk hedged is concerned, are recognised directly in profit and loss.

In hedges of the fair value of the interest rate risk of a portfolio of financial instruments, gains or losses arising on valuing the hedging instrument are recognised directly in profit and loss, while gains or losses due to changes in the fair value of the hedged amount, with regard to the hedged risk, are recognised in profit and loss with a balancing entry under the heading 'Adjustments to financial assets due to macro-hedges'.

h) Recognition of income and expenses

Income and expenses from interest and related items are recognised generally according to the period of accrual and by application of the effective interest-rate method. Dividends received from other entities are recognised as income at the moment the right to receive them arises.

Fees paid or received for financial services, regardless of how they are described in contractual terms, are classified in the following categories, thereby determining their assignment in the income statement:

i. Financial fees which are an integral part of the return or effective cost of a financial transaction, and which are taken into profit and loss over the expected lifetime of the transaction as an adjustment to the cost or effective return. These include commitment fees and fees for the study of asset products, fees for excess credits, and overdraft fees on liability accounts.

ii Non-financial fees, which are those that derive from the provision of services and that might arise in the execution of a service provided during a period of time and in the provision of a service that is executed in a single act.

Income and expenses are generally recognised in profit and loss, in accordance with the following criteria:

  • i. Those relating to financial liabilities at fair value through profit or loss are recognised when received.
  • ii. Those relating to transactions or services that are provided over a period of time are recognised during the period of such transactions or services.
  • iii. Those relating to a transaction or service executed in a single act are recognised when such act is performed.

Non-financial income and expenses are recognised on an accrual basis. Deferred collections and payments, for a term in excess of one year, are recorded as the amount resulting from the financial updating of anticipated cash flows at market rates.

i) Impairment of financial assets

The carrying amount of financial assets is generally corrected as a charge against consolidated profit and loss when there is objective evidence that a loss has occurred owing to impairment, which occurs in the following cases:

  • i. In cases of debt instruments, meaning loans and debt securities; when, after their initial recognition, there is an event or combined effect of several events that has a negative impact on future cash flows.
  • ii. In the case of equity instruments, when after recognition there is an event or combined effect of several events with the effect that its carrying amount will not be recovered.

As a general principle, the correction of the carrying amount of financial instruments owing to impairment is made against the income statement of the period in which the impairment is manifested; and the recovery of the losses owing to previously recognised losses from impairment, if any, is recognised in the income statement in the period in which the impairment is eliminated or reduced. If the possibility of recovering an amount owing to recognised impairment is considered remote, the impairment is eliminated from the consolidated balance sheet, although the Group may perform the actions necessary to attempt to achieve collection until the final expiration of rights owing to prescription, cancellation or other causes.

In the case of debt instruments valued at their amortised cost, the amount of losses owing to impairment incurred is equal to the negative difference between its carrying amount and the present value of estimated future cash flows. For listed debt instruments, use can be made, as a substitute for the present value of future cash flows, of their market value provided that it is sufficiently reliable to be considered representative of the value the Group may recover.

Estimated future cash flows of a debt instrument are all the sums, both principal and interest, that the Group estimates it will obtain during the lifetime of the instrument. This estimate takes account of all the relevant information available as at the date of preparation of the consolidated financial statements that provides data on the possible future collection of the contractual cash flows. Similarly, when estimating the future cash flows of instruments that have tangible securities, the flows that would be obtained from their realisation are taken into account, minus the costs necessary for their collection and subsequent sale, regardless of the probability of execution of the guarantee.

In calculating the present value of estimated future cash flows the original effective interest rate of the instrument is used as the discount rate if its contractual rate is fixed, or the effective interest rate on the date referred to in the financial statements determined in accordance with the contractual conditions is used if it is variable.

Portfolios of debt instruments, contingent risks, and contingent commitments, regardless of the customer, the instruments used or guarantees held, are analysed to determine the credit risk to which the Group is exposed and to estimate the requirements for covering any impairment in value. In drawing up the financial statements, the Group classifies its transactions according to the credit risk, with a separate analysis of the insolvency risk attributable to the client and the country-risk to which they are exposed, if any.

Objective evidence of impairment will be determined individually for all debt instruments that are significant, and individually and collectively for groups of debt instruments that are not individually significant. When a specific instrument cannot be included in any asset group with similar risk characteristics, it will be analysed in an exclusively individual manner to determine whether it is impaired and, if necessary, to estimate the loss from impairment.

Collective evaluation of a group of financial assets in order to estimate the losses from impairment is carried out as follows:

i. Debt instruments are included in groups that have similar credit-risk characteristics that indicate the capacity of debtors to pay all sums, principal and interest, as per contractual conditions. The characteristics of credit risk used to group assets are, among others, the instrument type, the debtor's activity sector, the geographical area of the activity, the type of guarantee, the aging of the due amounts and any other factor that may be relevant to an estimate of future cash flows.

  • ii. Future cash flows in each group of debt instruments are estimated for instruments with credit risk characteristics similar to those of the respective group, after making the adjustments necessary to adapt historical data to present market conditions.
  • iii. Loss due to impairment of each group is the difference between the carrying amount of all debt instruments and the present value of their estimated future cash flows.

Debt instruments not valued at fair value through profit or loss, contingent risks, and contingent commitments are classified according to the default risk attributable to the customer or to the transaction, into the following categories: normal risk, sub-standard risk, doubtful risk owing to customer delinquency, doubtful risk owing to reasons other than customer delinquency, and bad risk. For debt instruments not classified as normal risk, estimates are made of the specific coverage necessary for impairment on the basis of the aging of the unpaid amounts, the guarantees provided and the financial situation of the customer and, if applicable, of the guarantors. This estimate is generally made on the basis of arrears calendars.

In addition to the specific coverage for impairment indicated above, the Bank covers inherent losses incurred on debt instruments not valued at fair value through profit or loss and contingent risks classified as a normal risk through collective provisioning.

In this regard, the Banco de España determines the parameters, methods and amounts to be used to cover losses from inherent impairment that occur in debt instruments and contingent risks that have been classified as normal risk.

The calculation method as provided in Appendix IX to Banco de España Circular 4/2004 is divided into two stages.

In the first stage, balances are divided into six types of risk as per the regulation. These types are: No significant risk, low risk, medium-low risk, medium risk, medium-high risk and high risk.

The impaired amount is therefore the sum of the following:

  • the result of multiplying the value of the change in the balance of each risk type in the period by the relevant alpha regulatory parameter, plus
  • the sum of the results of multiplying the total balance of transactions included in each of the risk types at the end of the period by the relevant beta regulatory parameter, minus
  • the net amount of additions to overall specific provisions made during the period.

The overall balance of generic provisions must not exceed 125% of the amount resulting from adding the product obtained by multiplying the amount of each type of risk by its relevant alpha regulatory parameter. During 2012 the Group released its entire generic provision,

The α and β regulatory parameters, for each class of risk, are as follows:

α β
No appreciable risk 0% 0 %
Low risk 0.6% 0.11%
Medium-low risk 1.5% 0.44%
Medium risk 1.8% 0.65%
Medium-high risk 2.0% 1.10%
High risk 2.5% 1.64%

Recognition in the income statement of the accrual of interest on the basis of contractual terms is interrupted for all debt instruments individually classified as impaired, and for those for which losses from impairment have been collectively calculated because they have outstanding amounts more than three months old. The amount of financial assets which would be in an irregular situation if it were not because their conditions were renegotiated is not significant considering the group's financial statements as a whole.

The amount of losses from impairment incurred in debt securities and other equity instruments included under the item 'Available-for-sale financial assets' is equal to the positive difference between their acquisition cost, net of amortisation of the principal, and their fair value minus any loss from impairment previously recognised in the consolidated income statement.

When there is objective evidence that the decrease in fair value is due to impairment, the latent losses expressly recognised under the item 'Valuation adjustments' in consolidated equity are recognised immediately in the consolidated income statement. If some or all of the losses from impairment are subsequently recovered, the amount is recognised, in the case of debt securities, in the consolidated income statement for the period when recovered and, in the case of equity instruments, under the heading 'Valuation adjustments' in consolidated equity.

Impairment losses on equity instruments valued at their acquisition cost reflect the difference between their carrying amount and the present value of future expected cash flows, discounted at market rates of returns on other similar securities. These impairment losses are recognised in profit and loss in the period in which they occur, directly decreasing the cost of the financial asset, where the amount cannot be recovered except in case of sale.

In the case of equity instruments constituting holdings in joint ventures and associates, the Group estimates the amount of losses from impairment by comparing its recoverable amount with its carrying amount. Said losses from impairment are recorded in the consolidated profit and loss account of the period in which they occur and subsequent recoveries are recorded in the profit and loss account of the recovery period.

In the case of listed equity instruments, and in addition to the above, checks are carried out to ensure that their market value is higher than the carrying amount recognised for the instrument.

j) Financial derivatives

Financial derivatives are instruments that not only provide a profit or loss but also can allow, under certain conditions, offsetting of all or part of the credit and/ or market risks associated with balances and transactions, using as underlying such elements as interest rates, certain indices, the prices of certain securities, exchange rates between different currencies and other references of a similar kind. The Group uses financial derivatives traded on organised markets or bilaterally with over-the-counter trading (OTC) both in its own transactions and with retail or wholesale customers.

The Group takes positions in derivatives with the purpose of hedging its positions, performing active management with other financial assets and liabilities or benefiting from the changes in their prices. Financial derivatives that cannot be considered as hedging are considered to be trading derivatives.

Derivatives with an active market are valued according to the listed prices on said markets.

Derivatives without a market, or for which the market has a low level of activity, are valued on the basis of the most consistent and appropriate economic methodologies, maximising the use of observable data and including any factor that a participant in the market would consider, such as a) recent transactions with other instruments that are substantially the same; b) discounted cash flows and c) market models to value options. The techniques applied are those mainly used by market participants and have shown their capacity to provide the most realistic estimate of the price of the instrument.

All financial derivatives are initially recognised at their fair value. For the case of financial swaps, said value is presumed to be zero, except when the entity shows otherwise by means of appropriate valuation techniques. In this case, the initial recognition of fair value generates a gain or a loss that must be recognised in the income statement when all the model variables come exclusively from observable market data, thereby generating so-called 'day one gains'. On the basis of the principle of prudent supervision stipulated for the entity by Banco de España, the Board of Directors decided to apply an alternative criterion of linear accrual of these 'day one gains' during the lifetime of the financial swaps by which they are generated.

A derivative may be designated as a hedging instrument only if it meets the following criteria:

  • i. It may be considered a hedging instrument in its entirety, even if it is only a hedging instrument for a percentage of its total amount, except in the case of options, in which case the change in its intrinsic value may be deemed to be a hedging instrument, excluding the change in its time value or in forward contracts, which may be so considered for the difference between the cash prices and the forward prices of the underlying asset.
  • ii. It is considered a hedge for the whole of its remaining term.
  • iii. Where more than one risk is hedged, the different risks hedged may be clearly identified, each part of the instrument may be designated as hedging specific hedged items, and the effectiveness of the different hedges may be demonstrated.

The effectiveness of derivatives hedging defined as hedging is duly documented by way of the effectiveness tests, which are tools that prove that the differences caused by variations in market prices between the hedged items and their hedging are within fair parameters throughout the lifetime of the transactions, thereby meeting the forecasts made at the time of procurement.

If this is not the case at some point, the transactions related to the hedging group would be deemed to be trade transactions and duly reclassified in the balance sheet.

The hedging performed by the Group belongs to the fair value hedging type:

  • Micro-hedging or individual hedging (when there is a specific identification between instruments hedged and hedging instruments) hedges against exposure to changes in the fair value of the item hedged. The gain or loss arising from valuing the hedge instruments is recognised immediately in the income statement.
  • Portfolio hedging (interest rate risk hedging in a portfolio of financial instruments) hedges exposure to changes in the fair value of the amount hedged in response to changes in the interest rate. The gain or loss arising from valuing the hedge instruments is recognised immediately in the income statement. In the case of the hedged amount, the gain or loss that arises when valuing it is directly recognised in the income statement, using as

the balancing entry "Adjustments to financial assets by macro-hedging", or "Adjustments to financial liabilities by macro-hedging", depending on whether the hedged amount corresponds to financial assets or financial liabilities.

k) Transfers and removal of financial instruments from the balance sheet

Transfers of financial instruments are recognised taking into account the manner in which the transfer of risks and profits related to the financial instruments transferred is performed, on the basis of the following criteria:

  • i. If risks and profits are substantially transferred to third parties, as in unconditional sales, sales with repurchase agreements for fair value as at the repurchase date, sales of financial assets with a call or put option issued out of the money, securities of assets in which the assignor does not withhold subordinated financing or give any type of credit enhancement to the new holders, etc. the financial instrument is removed from the balance sheet, with simultaneous recognition of any debt or obligation held or created as a consequence of the transfer.
  • ii. If there is substantial retention of risks and profits associated with the financial instrument transferred, as in the sales of financial assets with a repurchase agreement, or for the sale price plus interest, securities loan agreements where the borrower is obliged to return the same or similar assets, etc., the financial instrument transferred is not removed from the balance sheet and it is still valued with the same criteria used prior to the transfer. However, the attendant financial liability is acknowledged in books at an amount equal to that of the consideration received, which is subsequently valued at its amortised cost. Income from financial assets transferred but not removed and the costs of the new financial liability are recognised directly in the income statement.
  • iii. If there is no transfer or substantial retention of the risks and profits attending the financial instrument transferred, as in the sales of financial assets with an acquired call option or an issued put option which are not in or out of the money, the securities in which the assignor assumes a subordinated financing

or another type of credit enhancements for a part of the transferred asset, there is a distinction between:

  • Where the Group does not retain control of the financial instrument transferred, in which case it is removed from the Balance Sheet and any right or obligation retained or created as a result of the transfer is recognised.
  • Where the Group retains control of the financial instrument transferred, in which case it continues to recognise it in the Balance Sheet for an amount equal to its exposure to the changes in value it may undergo, and a financial liability linked to the financial asset transferred is recognised.

The net amount of the asset transferred and the associated liability will be the amortised cost of the rights and obligations retained, where the asset transferred is measured by its amortised cost, or for the fair value of the rights and obligations retained, where the asset is measured by its fair value.

Therefore, financial assets are derecognised only when the cash flows they generate have ceased or when the risks and benefits they have implicit have substantially been transferred to third parties. Similarly, financial liabilities are derecognised only when the obligations they generate have expired or when they are acquired with the intent of cancelling them or disposing of them again.

l) Property, plant and equipment

Property, plant, and equipment is shown for its acquisition cost, updated in accordance with certain legal rules and appreciated as permitted under the transition to the new accounting standard, minus the relevant accumulated depreciation and any loss from impairment.

Depreciation is calculated systematically according to the linear or sum of the digits method, applying estimated years of service life of the different elements to the acquisition cost of assets minus their residual value. In the case of land on which buildings and other constructions stand, it is deemed that these have an indefinite lifetime, and therefore they are not subject to depreciation. Annual allocations for the depreciation of tangible assets are charged to the profit and loss account and calculated according to the estimated years of service life, which coincide with the legal minimums.

Depreciation method
Depreciation and Amortisation
Buildings Straight-line over 50 years
Fixtures and fittings and others Straight line from 6 to 12 years
Computer equipment Sum of the digits

The Group reviews, at least at the end of the year, the period and method for depreciation of each tangible asset.

Maintenance expenses and maintenance of tangible assets which do not improve their use or lengthen the service life of the respective assets, are charged to profit and loss at the time they occur.

At each accounting closure, the group analyses whether there are internal and external indications that the net value of aspects of its tangible assets exceeds their corresponding recoverable amount. In this case, the group reduces the carrying amount of the corresponding element to its recoverable amount and adjusts future depreciation charges in proportion to its adjusted carrying amount and for its remaining useful life, in the event that a re-estimate is necessary. In addition, when there are indications that the value of an asset has recovered, the group reverses the impairment loss recognised in prior periods and adjusts future depreciation charges. Reversal of the impairment loss on an asset may in no circumstances entail an increase in its carrying amount above what it would be if impairment losses had not been recognised in previous years.

The heading "Investment property" in the consolidated Balance Sheet comprises the net value of land, buildings and other constructions held either for renting out or with a view to obtaining a possible capital gain on their sale.

The criteria applied for recognition of the acquisition costs of investment properties, for depreciation, for estimating their respective useful lives and recognising any impairment losses are the same as those outlined above.

m) Intangible assets

Intangible assets are such identifiable, though invisible, non-monetary assets as arise as a consequence of a legal transaction or have been developed internally by the consolidated entities. Only those intangible assets whose cost can be estimated in a reasonably objective way and from which consolidated entities consider it likely that they will obtain future economic benefits are recognised in the accounts.

Intangible assets are recognised initially at their acquisition or production cost and are subsequently valued at cost, less, as appropriate, their corresponding cumulative amortisation and any impairment losses they may have suffered.

Goodwill

Differences between the cost of holdings in the capital of consolidated entities and entities accounted for using the equity method and other forms of business combinations and the corresponding net fair values of the assets and liabilities acquired, adjusted for the percentage holding acquired in these net assets and liabilities in the case of purchase of holdings, as at the date of their acquisition, are accounted for in the following way:

    1. If the acquisition price exceeds the aforementioned fair value, as goodwill under "Intangible assets – goodwill" in the consolidated balance sheet. In the case of acquisition of holdings in associates or joint ventures accounted for using the equity method, any goodwill arising on acquisition is recognised as forming part of the value of the holding and not individually under the heading "Intangible assets – goodwill".
    1. Negative differences between the acquisition cost and the fair value referred to are recognised once the valuation process has been reviewed, as income in the consolidated income statement under "Negative differences in business combinations".

Positive goodwill (excess of the acquisition price of a holding in a company or business over the net fair value of the assets, liabilities and contingent liabilities acquired) - which are recognised in the consolidated balance sheet only when acquired for valuable consideration - therefore represent prepayments made by the acquiring entity for future economic benefits deriving from the assets of the entity or business acquired which are not individual and separately identifiable and recognisable.

Impairment losses recognised on goodwill shown under "Intangible assets – goodwill" are not subsequently reversed.

Other intangible assets

Intangible assets other than goodwill are recognised in the consolidated balance sheet at their acquisition or production cost, net of cumulative amortisation and any impairment they may have suffered.

Intangible assets may have an "indefinite useful life" - when, based on the analyses performed of all relevant factors, it is concluded that there is no foreseeable limit to the period during which net cash flows are expected to be generated in favour of consolidated entities - or a "definite useful life" in the remaining cases.

Intangible assets with an indefinite useful life are not amortised, while for the close of each accounts period, consolidated entities review their remaining respective useful lives in order to ensure that these continue to be indefinite or if not, to take appropriate action.

Intangible assets with a definite life are amortised based on this life, applying criteria similar to those adopted for the depreciation of tangible assets. The annual amortisation of intangible assets with a definite useful life is recognised in "Amortisation" in the consolidated income statement.

Both for intangible assets with indefinite useful lives and those with definite useful lives, the consolidated entities recognise any impairment losses, using as a balancing item "Impairment losses on other assets (net – goodwill and other intangible assets" in the consolidated income statement. The criteria for recognising impairment losses on these assets and, if applicable, recoveries of impairment losses recognised in preceding years are similar to those applying to tangible assets for own use.

The balances recognised in the intangible asset items in the Balance Sheet, both under goodwill and under other intangible assets, essentially correspond to Línea Directa Aseguradora, S.A ("LDA").

n) Leases

Leases are presented in accordance with the economic basis of the transaction, independently of their legal form, and are classified from the start as finance or operating leases.

i. A lease is deemed to be a finance lease when essentially all risks and benefits inherent in ownership of the asset that is the subject of the contract are transferred to the lessee.

When the Group acts as lessor, the total annual values of the amounts it will receive from the lessee plus a guaranteed residual value, which is usually the price of the purchase option held by the lessee upon termination of the contract, are recognised as financing granted to a third party, and as such included under the heading 'Loan and receivables' in the balance sheet, in accordance with the nature of the lessee.

On the other hand when the Group acts as lessee, the cost of the assets leased is recognised in the balance sheet according to nature of the asset that is the subject of the contract, and simultaneously as a liability for the same amount, which will be the lower of the fair value of the asset leased or the sum of the present values of the amounts to be paid to the lessor plus, where applicable, the price of the purchase option. These assets are depreciated using similar criteria to those applied to tangible assets for own use.

ii. Lease agreements that are not considered finance leases are classified as operating leases.

When the Group acts as lessor, it recognises the acquisition cost of the assets leased under the heading 'Tangible assets'. Such assets are depreciated in accordance with the policies in effect for similar tangible assets for own use and the income from lease agreements is recognised in profit and loss on a straight line basis.

On the other hand when the Group acts as lessee, leasing costs including any incentives granted by the lessor are recognised on a straight line basis in profit and loss.

o) Non-current assets held for sale

Non-current assets for sale are those with a carrying amount that is to be recovered mainly through their sale, and which are available for immediate sale, and for which their sale is considered to be highly likely.

Non-current assets for sale are shown at the lower of fair value minus selling costs and their carrying amount, and they are not subject to depreciation or amortisation. In the case of repossessed assets, the acquisition cost corresponds to the net value of the financial assets delivered in exchange for taking possession thereof.

Losses from impairment are recognised under the item 'Losses from impairment of non-current assets for sale' in the consolidated income statement. Recoveries of value are recognised in the consolidated income statement up to an amount equal to the losses from impairment recognised previously.

Buildings repossessed in payment of debt are recognised at the lower of fair value minus selling costs and carrying amount. Losses from impairment are recognised under the item 'Losses from impairment of non-current assets for sale' in the consolidated income statement, calculated individually for those remaining for a period longer than that initially foreseen for their sale.

p) Offsetting of balances

Balances due and receivable originating from transactions which include the possibility of set-off, either contractually or pursuant to a legal rule, and where the intention exists to settle them at their net value or to realise the asset and pay the liability simultaneously, are presented in the consolidated balance sheet at their net amount.

q) Securities lent or in guarantee

Security lending is a transaction in which the borrower receives full ownership of the securities without paying out more than commissions, with the undertaking to return to the lender securities of the same type as those received.

Contracts for security lending in which the borrower bears the obligation to return the same assets, other assets that are substantially the same, and other similar assets with the same fair value are deemed to be transactions in which the risks and benefits attending ownership of the asset are substantially retained by the lender.

r) Financial guarantees

Financial guarantee contracts are considered as being contracts that require the issuer to make specific payments in order to refund the creditor for the loss incurred when a specific debtor defaults on its payment duties pursuant to the (original or amended) conditions of a debt instrument, irrespective of the legal form thereof, and which may be, amongst others, a surety, financial collateral, a contract of insurance, or a loan derivative.

The Bank recognises financial guarantee contracts under the heading 'Other financial liabilities' for their fair value plus the costs of the transaction that are directly attributable to their issue. At the start, and save where there is evidence to the contrary, the fair value of financial guarantee contracts issued in favour of an unrelated third party, as part of an isolated transaction at arm's length, will be the premium received plus, where appropriate, the present value of the cash flows receivable, using an interest rate similar to that of financial assets granted by the Bank with a similar term and risk; simultaneously, it recognises the present value of the future cash flows pending receipt as a credit in the assets using the aforementioned interest rate.

Subsequent to the initial recognition, the contracts are treated in accordance with the following criteria:

  • a. The value of the fees or premiums receivable for financial guarantees are discounted to present value, with the differences being recognised in profit and loss as financial income.
  • b. The value of financial guarantee contracts which have not been classed as doubtful will be the amount initially recognised under liabilities less the part attributed to profit and loss on a linear basis over the expected lifetime of the guarantee or using another criterion, provided that this reflects more appropriately the receipt of the economic benefits and risks of the guarantee.

Financial guarantees are classified in accordance with the default risk attributable to the customer or to the transaction, and where appropriate, consideration is given to the need to establish provisions, applying criteria similar to those indicated in Note (g) for debt instruments valued at amortised cost.

In the event it should be necessary to establish a provision for financial guarantees, any fees pending accrual are reclassified to the corresponding provision.

s) Employee benefits

Post-employment benefits

The Bank has made commitments with its personnel with regard to pensions arising under the Private Sector Banking Collective Labour Agreement.

Commitments in respect of post-employment benefits made by the Bank to its personnel are deemed to be 'Defined contribution plans', where the Bank makes contributions of a predetermined nature to a separate entity, without any legal or effective duty to make additional contributions should the separate entity be unable to honour the payments due to personnel in relation to the services provided in the current period and previous periods. Post-employment commitments that do not meet the above conditions are deemed to be 'Defined benefit plans'.

Defined contribution plans

The contribution accrued during the financial year for this item is carried under the heading 'Personnel expenses' in the consolidated income statement.

If at 31 December of the financial year there is an outstanding amount pending contribution to the external plan through which the commitments are fulfilled, this is recognised at its present value under the heading 'Provisions - pension fund and similar obligations'. As at 31 December 2012 and 2011, there were no outstanding amounts pending contribution to external defined contribution plans.

Defined benefit plans

The Group records the present value of the post-employment fixed-provision benefits under the heading 'Provisions – Pension fund and similar obligations' in the liabilities of the consolidated balance sheet. As explained below, this value is recognised net of the fair value of the assets that meet the requirements in order to be considered as "Plan assets".

"Plan assets" are those linked to a particular defined benefit commitment with which these obligations will be settled directly, and which meet the following conditions: They are not owned by the Group, but by a legally separate third party that is not a related party; they are available only for paying or financing post-employment benefits; and they cannot return to the consolidated entities, except where the assets remaining in the plan are sufficient to meet all the obligations of the plan or the entities related to the benefits of the current or former personnel or to refund employee benefits already paid by the Group.

If the Bank can require insurance companies to pay part or all of the payout required to cancel a defined benefit obligation, and it is practically certain that said insurer will reimburse some or all of the payouts required to cancel this obligation, but the insurance policy does not meet the conditions to be a plan asset, the Bank recognises its right to reimbursement on the asset side of the balance sheet under the heading "Insurance contracts linked to pensions", which is otherwise treated as a plan asset.

Post-employment benefits are recognised in the following way:

  • The cost of services is recognised in profit and loss and consists of the following components:
  • Current service cost the increase in the current value of the obligations arising as a result of employees' service during the year - is recognised under the heading Employee benefits.
  • Past service costs, which arise from changes made to existing postemployment benefits or the introduction of new benefits, and include the cost of curtailments, are recognised under Additions to provisions (net).
  • Any gains or losses on settlements are recognised in Additions to provisions (net).
  • Net interest on the liability (asset) for defined contribution commitments defined as the change during the year in the net liability (asset) in respect of defined contributions as a result of the passage of time - is recognised under "Interest expense and similar charges" (or Interest and similar income if the net result is positive) in profit and loss.
  • The recalculation of the net liability (asset) for defined contributions is recognised under Valuation adjustments, and includes:
  • Actuarial gains and losses during the year arising from differences between previous actuarial assumptions and the reality and from changes in the actuarial assumptions used.
  • The return on the assets allocated to the scheme, excluding amounts that are included in net interest on liabilities (assets) in respect of defined contributions.

Any change in the effects of the limit on assets, excluding amounts that are included in net interest on liabilities (assets) in respect of defined contributions.

Other long-term benefits

Early retirement

The Group guarantees certain commitments made to personnel who have retired early - both with regard to salaries and other social benefits - from the time of early retirement to the date of effective retirement.

Early retirement commitments up to the date of effective retirement are treated for accounting purposes, where applicable, using the same criteria as explained above for defined benefit post-employment benefits, except that all costs for past services and actuarial gains or (-) losses are recognised as soon as they arise with a balancing entry in the consolidated income statement.

Death and invalidity of active personnel

The commitments made by the Group to cover the contingencies of death and invalidity of employees during the time that they are active and are covered by an insurance policy taken out by way of co-insurance with Axa and Caser are recognised in the consolidated income statement for an amount equal to the that of the premiums on these insurance policies accruing in each financial year.

t) Other provisions and contingencies

The Group records provisions at the estimated value in order to meet current obligations resulting from past events that are clearly specified as regards their nature but which are indeterminate as regards amounts or the date of cancellation, and where cancellation will require disposal of resources that contain economic benefits. Said obligations may arise from the following:

  • A legal or contractual provision.

  • An implicit or tacit obligation originating from third parties' valid expectation, created by the Group, regarding the assumption of certain types of responsibilities. These expectations are created when the Group publicly accepts responsibilities, or they arise from past conduct or from business policies in the public domain.

  • Practically certain changes in the rules on certain issues, particularly regulatory measures which the Group will not be able to avoid.

Contingent liabilities are possible obligations of the Group that arise as a consequence of past events, the materialisation of which depends on whether future events outside the Group's control occur or not. Contingent liabilities include present obligations of the Group, the cancellation of which is improbable and which leads to a reduction of resources including economic benefits and the amount of which, in extremely rare cases, cannot be quantified with sufficient reliability.

Contingent obligations and liabilities are considered probable when there is a greater likelihood that they will materialise than that they will not, possible when there is less likelihood that they will materialise than that they will not, and remote when their occurrence is extremely rare.

The Group includes in its consolidated financial statements all significant provisions for which it is estimated that the probability that the obligation will have to be met is greater than that it will not. Contingent liabilities are not recognised in the consolidated financial statements but are instead reported on unless the possibility is considered remote that that there will be a loss of resources that includes economic benefits.

Provisions are quantified on the basis of the best information available on the consequences of the event that gives rise to them and they are estimated at the end of each accounting year, including the financial effect if it is significant. These are used to meet specific obligations for which they were recognised, and are reversed either totally or partially when said obligations no longer exist.

As at 31 December 2012 and 2011 various legal proceedings and claims were being pursued against the Group in relation to the performance of its regular activities. Both the Group's legal advisors and the managers of the entity believe that the conclusion of these proceedings and claims will not have a significant impact on the consolidated financial statements, or as the case may be a significant additional impact to that already provided for.

u) Tax on Income

Corporate tax is considered an expense and is recognised under the heading 'Corporate Tax' in the income statement except when it is the result of a transaction recognised directly in equity, in which case it is recognised directly in equity, or of a business combination, where the deferred tax is recognised as an asset of the combination.

Expenses under the heading 'Corporate Tax' are determined by the tax calculated on the tax base for the year, taking account of changes during the year arising from temporary differences, tax credits for deductions and allowances and negative tax bases. The tax base for the year may differ from the net profit or loss for the year as presented in the income statement, since it excludes income and expense items that are taxable or deductible in other financial years as well as items for which this is never the case.

Deferred tax assets and liabilities correspond to taxes that are expected to be payable or recoverable on the differences between the carrying amounts of the assets and liabilities in the financial statements and the corresponding tax bases. They are recognised using the liability method in the balance sheet and are quantified by applying the tax rate at which they are expected to be recovered or settled to the corresponding time difference or credit.

Deferred tax assets, such as tax paid in advance, credits for deductions and allowances, and credits for negative tax bases are recognised whenever it is probable that the Group will obtain sufficient taxable profits in the future against which to apply them. It is considered likely that the Group will obtain sufficient taxable profits in the following cases, amongst others:

  • i) There are liabilities from deferred taxes that may be cancelled in the same year as the realisation of the deferred tax asset or in a subsequent year in which it can offset the negative tax base in existence or generated by the amount paid early.
  • ii) The negative tax bases have been produced by identified causes that are unlikely to occur again.

Notwithstanding the foregoing, deferred tax assets that arise upon recognition of investments in joint ventures or associates are recognised only when it is probable that they will be realised in the foreseeable future, and sufficient taxable profits are expected in the future against which to apply them. Deferred tax assets are also not recognised when an asset that is not a business combination is initially recognised, and where at the time of recognition they have not affected the accounting or tax result.

Deferred tax liabilities are always recognised, except when goodwill is recognised or if they arise upon recognition of investments in joint ventures or associates, if the Group is able to control the timing of the reversal of the temporary difference and it is also probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are also not recognised when an asset that is not a business combination is initially recognised, and where at the time of recognition they have not affected the accounting or tax result.

At the end of each financial year the deferred taxes are revised, both assets and liabilities, in order to verify that they are still in effect and that the proper corrections are made.

The Group recognises deferred tax assets arising from tax-deductible temporary differences, credits for deductions or allowances, or for negative tax bases, only if the following conditions are met:

  • that it is considered probable that the consolidated entities will have sufficient future taxable profits against which to realise them; or that they are guaranteed in accordance with the provisions of Royal Decree Law 14/2013, of 20 November, concerning urgent measures for adapting Spanish law to that of the European Union in the field of supervision and solvency of financial institutions, and
  • in the case of deferred tax assets arising from negative tax bases, these have arisen for identified reasons which are unlikely to be repeated.

On the occasion of each accounting closure, the deferred taxes recognised are reviewed (both assets and liabilities) with a view to ensuring that they remain valid, with any necessary corrections to same being made in accordance with the results of the tests performed.

v) Off-balance sheet customer resources

Resources entrusted by third parties for investment in companies and mutual funds, pension funds (insurance contracts), and discretionary portfolio management contracts are not included in the Group balance sheet. Information on these resources as at 31 December 2013 can be found in Note 40.

Equity managed by consolidated companies owned by third parties is not included in the consolidated balance sheet. Fees generated by this activity are recognised under the heading 'Fees income' in the consolidated income statement. Note 40 provides information on third-party equity managed by the Group on 31 December 2013 and during the financial year ended on the aforementioned date.

Investment funds managed by consolidated companies are not recorded in the Group's consolidated balance sheet, as the equity in same is owned by third parties. Fees accrued in the financial year for the various services rendered to these funds by the companies in the Group (wealth management services, portfolio custody, etc.) are recognised under the heading "Fees received" in the consolidated Income Statement.

w) Insurance policies

In accordance with the accounting practices that are generally used in the insurance sector, insurance institutions record in the profits the amounts of the premiums that they issue and debit from their income statement the cost of claims that they meet at the time of the final settlement thereof. These accounting practices oblige insurance institutions to accrue at the close of each financial year both the amounts paid for the premiums issued to their profit and loss accounts and not accrued at that date, and the foreseeable costs for claims that have occurred and which are pending debit to the income statement.

The most significant liabilities of these institutions as regards the direct insurance hired by same refer to the following: Provision for unearned premiums, for unexpired Risks, Provision for services, Mathematical provision, Life Insurance when the investment risk is undertaken by the policyholders and Participation in profits and for rebates. These technical provisions for direct insurance are recognised in the consolidated balance sheets under 'Insurance liabilities' to cover claims arising from said insurance contracts.

The item 'Reinsurance assets' contains the amounts that the institutions are entitled to receive that originate from the reinsurance contracts they hold with third parties. These are calculated according to the reinsurance contracts that have been signed and applying the same criteria that are used for direct insurance.

The results of the group's insurance companies from their insurance activity are recognised under the heading 'Insurance Activity' in the income statement.

6. Cash and balances with central banks

This heading comprises cash balances and balances held at the Banco de España and other central banks. The breakdown for the years ended 31 December 2012 and 2011 is as follows:

€000s
31-12-13 31-12-12
Cash 118,909 120,843
Banco de España 767,020 544,429
Other central banks 147 -
Valuation adjustments 42 102
886,118 665,374
In euros 885,151 664,160
In foreign currency 967 1,214
886,118 665,374

Included in valuation adjustments is an amount of €42,000 representing accrued interest as at 31 December 2013 (€102,000 as at 31 December 2012).

7. Trading portfolio of assets and liabilities and other financial assets and liabilities at fair value with changes in profit and loss

The breakdown of these items of the consolidated balance sheets as at 31 December 2013 and 2012 is as follows:

€000s
31-12-2013 31-12-2012
Asset:
Deposits with credit institutions 920,112 -
Loans and advances to customers 979,439 -
Debt instruments 1,736,671 1,391,681
Other equity instruments 84,820 100,932
Trading derivatives 643,689 656,511
4,364,731 2,149,124
In euros 4,277,421 2,145,082
In foreign currency 87,310 4,042
4,364,731 2,149,124

The amounts recognised in "Deposited with credit institutions" and "Loaned to customers" as at 31 December 2013 relate mainly to temporary acquisitions of assets.

"Other equity instruments" includes the securities forming part of the trading portfolio, as well as other financial assets at fair value through profit or loss. The balance of the latter, as at 31 December 2013, stood at €18.16 million (€39.86 million as at 31 December 2012).

The fair value of the loaned assets (assets assigned temporarily) from the trading portfolio of the assets of the balance sheet as at 31 December 2013 stood at €961.81 million (€1.39 billion as at 31 December 2012). Practically the whole of these assets have been ceded for terms of less than one year.

The breakdown of the financial assets and liabilities held for trading and other financial assets at fair value through profit or loss in the consolidated balance sheet as at 31 December 2013 and 2012, by instrument type and counterparty, is as follows:

As at 31 December 2013

€000s
Al 31 de Diciembre de 2013
Credit ins
titutions		 Non
resident
Public
Admins.		 Non
resident
Public
Admins.		 Other
Private
Sector
Resident		 Other
Private
Sector Non
resident		 Total
Deposits with credit
institutions		 920,112 - - - - 920,112
Loans and advances
to customers		 - - - 979,439 - 979,439
Debt instruments 60,828 1,672,857 2 1,986 998 1,736,671
Other equity
instruments		 48,787 - - 16,561 19,472 84,820
Trading derivatives 524,630 16 - 118,477 566 643,689
1,554,357 1,672,873 2 1,116,463 21,036 4,364,731

As at 31 December 2012

€000s
Non
Other		 Other
resident Private Private
Credit ins Public Sector Sector Non
titutions Admins. Resident resident Total
Debt instruments 95,267 1,292,582 3,204 628 1,391,681
Other equity instruments 36,113 - 22,464 42,355 100,932
Trading derivatives 392,879 - 261,874 1,758 656,511
524,259 1,292,582 287,542 44,741 2,149,124

The fair value of the guarantees received by the Group (financial and nonfinancial assets) that the Group is authorised to sell or pledge without the owner of the guarantee having defaulted on payment is lacking in relative importance considering the Group's financial statements as a whole.

The breakdown of the liabilities in the trading portfolio is as follows:

€000s
Liabilities 31-12-13 31-12-12
Customer deposits 193,482 -
Trading derivatives 252,537 434,592
Short positions in securities 1,305,702 1,362,732
1,751,721 1,797,324
In euros 1,750,015 1,793,967
In foreign currency 1,706 3,357
1,751,721 1,797,324

The amount recognised in "Deposited by customers" as at 31 December 2013 relates mainly to temporary sales of assets.

The breakdown of the effect on the consolidated 2013 and 2012 profit and loss account of the changes in the fair value of the financial assets and liabilities held for trading of both assets and liabilities and the financial assets at fair value with changes to profits and losses is as follows:

€000s
2013 2012
Trading portfolio (Note 30) 18,163 30,510
Organised market 22,877 37,440
Non-organised market (4,714) (6,930)
Other financial assets designated at fair value through profit
or loss (Note 30)		 8,228 (1,952)
26,391 28,558

The net results by financial operation, broken down by the type of instrument in the trading portfolio and other financial assets at fair value through profit or loss recognised in financial years 2013 and 2012, are as follows:

€000s
2013 2012
Fixed income for trading (Note 30) 21,822 27,539
Other equity instruments (Note 30) 22,986 (14,934)
Held for trading 14,758 (12,982)
Other financial assets designated at fair value through
profit or loss 8,228 (1,952)
Trading derivatives (Note 30) (18,417) 15,953
26,391 28,558

a) Debt instruments

The breakdown of this item in financial assets held for trading in the consolidated balance sheet as at 31 December 2013 and 2012 was as follows:

€000s
31-12-13
31-12-12
Public Administrations 1,672,857 1,292,582
Other private sectors 63,814 99,099
1,736,671 1,391,681

The breakdown of this item in accordance with the nature of the securities that make it up as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Treasury Bills 188,990 494,319
Bonds 919,228 599,787
Debentures 512,904 107,563
Scrip 43,909 75,060
Other 71,640 114,952
1,736,671 1,391,681

All of the amounts in this item are denominated in euros. The asset trading portfolio is composed of securities traded on organised markets as at 31 December 2013 and 2012.

b) Other equity instruments

The breakdown and changes under this heading of the asset trading portfolio and of the other financial assets at fair value through profit or loss for financial years 2013 and 2012 is as follows:

€000s
From Credit
Institutions		 From other
resident
sectors		 From other
non-resident
sectors		 Total
Balance as at 31-12-2012 36,113 22,464 42,355 100,932
Balance as at 31-12-2013 48,787 16,561 19,472 84,820

The majority of the instruments under "Other equity instruments" on the Bankinter Group balance sheet are denominated in euros both in 2013 and in 2012.

c) Trading derivatives

The breakdown of this item in the financial assets and liabilities held for trading for assets in the consolidated balance sheet as at 31 December 2013 and 2012 is as follows:

€000s
Fair value
31-12-13 31-12-12
Assets Liabilities Assets Liabilities
Purchase and sale of unmatured
forward exchange contracts:		 439,769 16,060 263,980 21,711
Currency purchases against euros 56,918 3,534 123,341 13,649
Currency purchases against other
currencies		 10,415 4,581 1,526 134
Currency sales against euros 371,594 6,488 139,113 7,928
Currency sales against other
currencies		 842 1,456 - -
Securities and interest rate
futures:		 - - - -
Bought - - - -
Securities options: 19,022 45,399 36,562 48,874
Bought 19,022 12,285 36,562 11,210
Issued - 33,114 - 37,664
Interest rate options: 889 1,079 1,528 1,741
Bought 889 1,079 1,528 -
Issued - - - 1,741
Currency options: 47 754 57 468
Bought 47 - 57 -
Issued - 754 - 468
Other interest rate operations: 183,962 189,246 354,384 361,798
Interest-rate swaps (IRSs) 183,962 189,246 354,384 361,798
Credit derivatives - - - -
Credit derivatives - - - -
643,689 252,537 656,511 434,592

d) Short positions in securities

This heading in the Balance Sheet consists of the financial liabilities originated by short selling to the value of €1.31 billion as at 31 December 2013 (€1.36 billion as at 31 December 2012). The balances are denominated in euros. These short positions are generated by the firm sale of financial assets acquired temporarily.

8. Financial assets available for sale

The breakdown of this heading in the consolidated balance sheet as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Debt instruments 2,321,671 5,971,654
Other equity instruments 161,500 160,817
2,483,171 6,132,471
In euros 2,472,373 6,132,471
In foreign currency 10,798 -
2,483,171 6,132,471

The breakdown of this item in accordance with the nature of the securities that make it up as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13
31-12-12
Fixed Income 2,321,671 5,971,654
Bills of exchange - 1,846,234
Debt 831,870 2,788,762
Other Fixed Income 1,489,801 1,336,658
Equities 161,500
160,817

The fair value of the assets under this item of the consolidated balance sheet as at 31 December 2013, loaned or under guarantee, was €799.41 million (€1.72 billion as at 31 December 2012). Practically all these assets are assigned for terms of less than one year.

The breakdown of these assets as at 31 December 2013 and 2012 is as follows (€000s):

€000s
31-12-13
Resident Public
Administrations		 Total
Debt instruments 831,870 1,489,801 2,321,671
Other equity instruments - 161,500 161,500
831,870 1,651,301 2,483,171
€000s
31-12-12
Resident Public
Other Private
Total
Administrations
Sectors
Debt instruments 4,634,996 1,336,658 5,971,654
Other equity instruments - 160,817 160,817
4,634,996 1,497,475 6,132,471

The effect on the item "Valuation adjustments" of consolidated equity was €41.61 million as at 31 December 2013 (€3.15 million as at 31 December 2012).

The following is the breakdown of the movement:

€000s
2013
2012
Valuation adjustments as at 1 January 3,145
(29,248)
Valuation gains and losses 161,238 72,655
Income tax (16,484) (13,882)
Transferred to results (106,294)
(26,380)
Valuation adjustments as at 31 December 41,605
3,145
Debt securities 42,415 10,175
Equity instruments (810) (7,030)

Geographically, the portfolio of available-for-sale financial assets is concentrated practically entirely in Spain as at 31 December 2013 and 2012.

In 2013 and 2012 the Group recognised impairment losses of €9.36 million and €8.67 million respectively, under the headings "Impairment losses on available-forsale financial assets" and "Other financial instruments at fair value through profit or loss" in the enclosed consolidated Income Statement.

The impairments for the year ended 31 December 2013 related mainly to the Group's holdings in the Eolia Group (€4.12 million).

Results recognised in the consolidated Income Statements for the years ended 31 December 2013 and 2012 from financial transactions (Note 30) by type of instrument in the portfolio of available-for-sale financial assets, were as follows:

€000s
31-12-13
31-12-12
Debt instruments 99,435 23,386
Other equity instruments 6,858
2,994
106,293 26,380

9. Held-to-maturity investments

The breakdown of this item in the consolidated balance sheets as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13
31-12-12
Public administrations 3,174,823 2,486,154
Credit institutions 45,898
269,201
3,220,721 2,755,355

The changes that occurred in the chapter "Held-to-maturity portfolio" in the financial years 2013 and 2012 are as follows:

€000s
2013 2012
Balance at start of period 2,755,355 3,150,930
Additions 465,366 -
Withdrawals - (395,575)
Other movements
Balance at close of period 3,220,721
2,755,355

There were no transfers in 2013 or 2012.

As at 31 December 2013 the portfolio of held-to-maturity investments wasmore than 90% concentrated in Spanish Public Administration bodies, and the remainder was guaranteed by the State.

The Market Risks division values these references on a monthly basis to confirm that they can be counted as liquid assets for calculating the Basel III Liquidity Coverage Ratio (LCR).

As at 31 December 2013 and 2012 the entire portfolio was denominated in euros.

10.Loans and receivables

The breakdown of this item in the consolidated balance sheets as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Deposits with credit institutions 1,174,050 1,085,765
Valuation adjustments 8,165 7,963
Total bank deposits 1,182,215 1,093,728
Loans and advances to customers 42,268,292 44,539,674
Valuation adjustments (961,282) (964,323)
Total customer lending 41,307,010 43,575,351
Total debt instruments 117,825
82,871
42,607,050 44,751,950
In euros 39,237,733 40,281,112
In foreign currency 3,369,317 4,470,838
42,607,050 44,751,950

The valuation adjustments of the loan and receivables portfolio, as at 31 December 2013 and 2012 present the following figures:

€000s
31-12-13 31-12-12
Valuation corrections due to asset impairment (947,984) (953,385)
Accrued interest 99,029 98,881
Other (104,162)
(101,856)
(953,117)
(956,360)

The following are the details of the changes that occurred during 2013 and 2012 in the balance of the financial assets classified as loans and receivables and considered to have been impaired due to their credit risk.

€000s
2013
2012
Balance at start of period 1,956,688 1,500,788
Net additions 510,524 670,514
Transferred to bad debts (232,230) (214,614)
Balance at close of period 2,234,982
1,956,688

After the relevant provisions have been deducted, this amount is the Group's best estimate of the fair value of the impaired assets:

The breakdown of this item in the consolidated Balance Sheet as at 31 December 2013 and 2012, by type of instrument and counterparty, irrespective of the fair value that may be attributed to any kind of guarantee to ensure performance, is as follows:

The following are the changes that occurred, during 2013 and 2012, in the balance of the allowances that cover losses due to impairment of the assets that make up the balance of the "Loans and Receivables" headings.

€000s
31-12-13 31-12-12
Balance at start of period 953,385 765,454
Provisions charged to results for the year 243,098 360,935
Of which:
Calculated on an individual basis 1,021,662 948,842
Calculated on a collective basis - (97,479)
Recoveries credited to P&L (778,564) (490,428)
Used (232,275) (187,732)
Transfer of funds - 17,290
Other movements (16,224) (2,562)
Transfer to Non-current assets held for sale (Note 12) (4,245) -
Transfer to provisions (Note 21) (10,000) -
Other (1,979) (2,562)
Balance at close of financial year 947,984 953,385
Of which:
Calculated on an individual basis 947,984 953,385
Calculated on a collective basis - -
€000s
31-12-2013 31-12-2012
Bank
deposits		 Loans and
advances to
customers		 Debt
instruments		 Total Bank
deposits		 Loans and
advances to
customers		 Debt
instruments		 Total
Banks 1,182,215 - 1,182,215 1,093,728 - - 1,093,728
Resident Public Administrations - 2,340,652 16,110 2,356,762 - 1,612,967 15,985 1,628,951
Other private sectors - 38,966,358 101,715 39,068,073 - 41,962,384 66,886 42,029,271
1,182,215 41,307,010 117,825 42,607,050 1,093,728 43,575,351 82,871 44,751,950

Assets in suspense recovered during 2013 and 2012 totalled €20.19 million and €11.18 million respectively. During financial years 2013 and 2012, the Group recognised impairment losses of €57.93 million and €60.60 million respectively on foreclosed assets (Note 12).

Considering these amounts and those recognised in the account "Provisions charged to results" in the previous table, impairment losses on "Loans and Receivables" amounted to €280.84 million and €410.36 million, recognised under the heading "Losses due to (net) impairment of financial assets" in the Income Statement.

Interest and analogous income from deposits with credit institutions and lending to customers recognised in the consolidated income statement for the years ended 31 December 2013 and 2012 was as follows:

€000s
2013 2012
Deposits with credit institutions (Note 29) 10,268 28,128
Loans to customers (Note 29) 1,074,747 1,286,893
1,085,015 1,315,021

1. Deposits with credit institutions

The breakdown of this item in the loans and receivables portfolio for the assets in the consolidated balance sheet as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Term accounts 24,040 46,060
Assets held temporarily 299,131 503,337
Other accounts 850,853 536,368
Of which, managed as cash 455,294 354,945
Impaired assets 25 -
Valuation adjustments 8,166 7,963
Accrued interest 8,111 7,986
Other 55 (23)
1,182,215 1,093,728
In euros 1,068,205 945,606
In foreign currency 114,010 148,122
1,182,215 1,093,728

2. Loans and advances to customers

The breakdown of this item in the loans and receivables portfolio for the assets in the consolidated balance sheet as at 31 December 2013 and 2012 is as follows:

€000s
Loans and advances to customers 31-12-13
31-12-12
Public Administrations 2,340,652 1,612,967
Loans to Public Administrations 2,332,642 1,607,289
Impaired assets 562 817
Valuation adjustments 7,448 4,862
Accrued interest 7,968 5,300
Other (520) (438)
Other private sectors 38,966,358 41,962,384
Commercial lending 2,052,599 2,177,584
Receivables secured by collateral 25,269,668 27,421,466
Assets held temporarily 110,559 1,515,467
Other non-current receivables 8,449,344 7,963,701
Finance leases 796,605 807,586
Sight debtors and miscellaneous 1,021,918 1,089,894
Impaired assets 2,234,395 1,955,871
Valuation adjustments (968,730) (969,185)
Valuation corrections due to asset impairment (947,984) (953,385)
Accrued interest 82,950 85,595
Other (103,696) (101,395)
41,307,010 43,575,351
In euros 38,051,703 39,252,635
In foreign currency 3,255,307 4,322,716
41,307,010 43,575,351

The breakdown of impaired assets by maturity as at 31 December 2013 and 2012 was as follows:

€000s
31-12-13
Up to 6 months 534,916
More than 6 months but not more than 9 221,027
More than 9 months but not more than 12 184,084
More than 12 months 1,294,955
2,234,982
€000s
31-12-12
Up to 6 months 516,951
More than 6 months but not more than 9 223,979
More than 9 months but not more than 12 220,246
More than 12 months 995,512
1,956,688

Assets matured and not impaired as at 31 December 2013 amounted to €92.27 million (€171.87 million as at 31 December 2012).

Finance lease agreements for financial years 2013 and 2012, have the following characteristics:

2013 2012
Average life 4.9 years 4.8 years
Maximum differential 9.00% 9.00%

The distribution of finance lease lending as at 31 December 2013 and 2012 is as follows:

31-12-13 31-12-12
Tourism 10.48% 18.05%
Assorted machinery 63.57% 57.97%
Transport vehicles 24.63% 22.89%
Other 1.32% 1.09%
100.00% 100.00%

3. Debt instruments

The breakdown of the heading 'Debt securities' in the loans and receivables section of the consolidated Balance Sheet as at 31 December 2013 and 2012 is as follows:

€000s
2013 2012
Resident Public Administrations 16,110 15,985
ICO Instituto de Crédito Oficial (Official Spanish government
credit agency) 5,147 5,145
Other resident sectors 96,568 40,500
Other non-resident sectors - 21,241
117,825 82,871

11.Asset/liability hedging derivatives

As at 31 December 2013, the Group held hedging derivatives in the amount of €84.48 million recognised on the assets side of the balance sheet and €25.61 million recognised on the liabilities side (€152.20 million and €43.10 million on the assets and liabilities sides respectively as at 31 December 2012). Net derivatives amounted to €58.87 million and €109.10 million as at 31 December 2013 and 2012 respectively.

The breakdown of the hedging derivatives and the corresponding hedged elements, differentiating according to the type of hedging, is as follows:

€000s
Nominal
Hedged		 Nature of Fair value of the Hedged
Instrument attributed to
the hedged risk		 Fair Value of the Hedging
Instrument (ex-coupon)
Hedged Instrument Type of Hedging Hedging Instrument (€
million)		 Hedged Risk 31-12-13 31-12-12 31-12-13 31-12-12
Individual hedges or Micro-hedges:
Financial assets
Public Debt Individual hedges or
Micro-hedges:		 Interest-rate swaps 150 Interest Rate 21,998 29,611 (21,865) (29,345)
Loan Individual hedges or
Micro-hedges:		 Interest-rate swaps 17 Interest Rate (74) - 70 -
Financial liabilities
Subordinated Debt Individual hedges or
Micro-hedges:		 Interest-rate swaps 290 Interest Rate (44,317) (59,848) 45,677 61,572
Senior Debt Individual Hedges or
Micro-hedges:		 Interest-rate swaps 79 Interest Rate - (131) - 64
Customer Deposits Individual hedges or
Micro-hedges:		 Interest-rate swaps 5 Interest Rate (1,412) (1,871) 1,412 1,872
Mortgage Bond Issues Individual hedges or
Micro-hedges:		 Interest-rate swaps 3,090 Interest Rate (20,244) (47,853) 20,393 48,124
Macro-hedging-
Mortgage Loans Macro-hedging Interest-rate swaps 1,875 Interest Rate - 3,018 - (2,990)
(44,049) (77,074) 45,687 79,297

The following is a comparison of cum-interest and ex-interest hedging instruments as at 31 December 2013 and 2012:

€000s
31-12-13 31-12-12
With
interest		 Ex-interest With
interest		 Ex-interest
Public Debt (24,765) (21,865) (32,011) (29,345)
Loan 63 70 - -
Subordinated Debt 47,898 45,677 63,661 61,572
Customer Deposits (514) 1,412 1,462 64
Senior debt - - 562 1,872
Backed issue - - - -
FAAF bonds - - - -
Mortgage Bond Issue 36,191 20,393 86,523 48,124
Macro-hedging - Mortgage loans - - (11,095) (2,990)
Other - - - -
58,873 45,687 109,102 79,297

The Group uses interest-rate swaps as hedging instruments. These swaps give rise to an economic interest rate exchange with no principal being exchanged.

The following is a description of the main characteristics of the bank's hedges as at 31 December 2013.

The Bank uses interest-rate swaps as hedging instruments. These swaps give rise to an economic interest rate exchange with no principal being exchanged.

The following is a description of the main characteristics of the bank's hedges as at 31 December 2013.

1.- Public Debt Hedging classified in the portfolio of available-for-sale assets

In this type of hedging, the hedged elements are Spanish State Public Debt securities at 5.50% for a total nominal value at closure of €150 million recognised under the heading "Available-for-sale financial assets" in the assets included in Note 8. The risk hedged is the change in the fair value of these securities as a result of changes in the risk-free interest rate. The accounting hedge is used to exchange exposure to fixed interest for exposure to variable interest. In each case, the amount hedged represents 100% of the issue.

2.- Hedging of issues of subordinated bonds

In this case the items hedged are subordinated bonds issued by Bankinter at fixed interest rates of 6.00% and 6.375% for a total amount of €290 million, shown under the heading 'Financial liabilities at amortised cost' included in Note 19. The risk hedged is the change in the fair value of these securities as a result of changes in the risk-free interest rate. This accounting hedge is used to transform exposure to a fixed interest rate into exposure to a variable interest rate. In each case, the amount hedged represents 100% of the issue.

3.- Hedging of Customer Deposits

The elements hedged are various fixed-rate deposits taken from customers in the amount of €5 million and shown under the heading "Financial liabilities at amortised cost" included in Note 19. The risk hedged is the change in the fair value of these deposits as a result of changes in the risk-free interest rate. This accounting hedge is used to transform exposure to a fixed interest rate into exposure to a variable interest rate. The amount hedged is 100% of the issue.

4.- Hedging of mortgage-backed bond issues

The instruments hedged are issues ES0413679178 (€1,000 million) ES0413679202 (€500 million) ES0413679269 (€1,000 million) ES0413679277 (€590 million) of mortgage bonds for a total nominal value of €3.09 billion.

The risk hedged is the six-month interest rate risk at the start of each interest period to which the above fixed-income instrument is exposed as a consequence of changes in the risk-free interest rate, excluding changes due to possible credit risk premiums, market liquidity or any other than the aforementioned interest-rate risk.

5.-Loan hedging

The item hedged is a loan in US dollars with pre-established quarterly repayments, for a nominal amount of €17 million.

The risk hedged is the change in the fair value of this loan as a result of changes in the risk-free interest rate. This accounting hedge is used to transform exposure to a fixed interest rate into exposure to a variable interest rate. The amount hedged is 100% of the deposit.

Effectiveness of the hedging:

The micro-hedges previously described are highly effective. The Bank performs and documents the necessary analyses to verify that at the start and during the lifetime of same, it is possible to expect, on a prospective basis, that the changes in the fair value of the hedged item that are attributable to the hedged risk will be almost fully compensated for by the changes in the fair value of the hedging instrument and, on a retrospective basis, that the results of the hedging will have fluctuated within a range of variation of between eighty and one hundred and twenty-five per cent from the result of the hedged item.

As regards portfolio hedges, as well as the foregoing, the Bank verifies compliance with the alternative, described in current applicable accounting regulations, of appraising their effectiveness by comparing the amount of the net asset position in each of the time periods with the hedged amount designated for each one. According to this alternative, the hedge would be ineffective only if upon review the amount of the net asset position were lower than the hedged amount.

12.Non-current assets held for sale

The breakdown and changes in the non-current assets for sale are as follows:

€000s
Balance at 31-12-2011 308,514
Additions 275,853
Valuation adjustments (54,630)
Cancellations (148,596)
Balance at 31-12-2012 381,141
Additions 256,804
Valuation adjustments (28,092)
Cancellations (240,643)
Balance at 31.12.2013 369,210

Movements in valuation adjustments to non-current assets for sale throughout the financial year 2013 were as follows:

€000s
2013 2012
Starting balance 230,524 175,894
Net provisions charged to results 100,277 100,729
Of which due to insolvency (Note 10) 57,929 60,597
Of which due to ageing effect (Note 34) 42,348 40,132
Application of funds (76,430) (46,099)
Transfer of funds (Note 10) 4,245 -
End balance 258,616 230,524

Net losses recognised in 2013 (Note 34) on disposals of non-current assets held for sale amounted to €50.44 million (€14.58 million in 2012).

The following is the classification of repossessed properties by category and average length of time in the portfolio of non-current assets for sale:

€000s
Residential assets Industrial assets Other Assets Totals
31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12
Up to one
month		 14,390 14,615 9,689 6,162 6,783 2,402 30,862 23,179
Between one
and three
months		 22,183 33,836 7,492 11,923 1,895 3,631 31,570 49,390
Between
three and six
months		 16,058 34,520 9,446 10,504 1,285 3,010 26,789 48,034
Between six
and twelve
months		 28,628 40,375 21,379 19,157 7,301 2,050 57,308 61,582
More than one
year		 105,102 96,233 55,934 53,240 61,645 49,483 222,681 198,956
186,361 219,579 103,940 100,986 78,909 60,576 369,210 381,141

Repossessed assets that are not destined for proprietary use or property investments should be disposed of within a maximum timeframe of one year from the moment that they become available for immediate sale. This latter circumstance determines that the period for which a repossessed asset remains in the balance sheet may exceed one year.

The distribution of repossessed assets by business segment is as follows, as at December 2013 and 2012:

Segments 31-12-13 31-12-12
Companies 48% 44%
Commercial Banking 52% 56%
Grand total 100% 100%

From 31 December 2013 to the date on which these financial statements were drawn up, no significant amounts have been recognised under the item 'Non-current assets for sale' in the consolidated balance sheet.

Repossessed assets consist of assets repossessed in payment of debts, dations in payment of debts and acquisitions of assets with subrogation to companies in the Group. Initially, these assets are recognised at the net carrying amount of the debts from which they originated and the losses recognised on impairment are not released. Subsequently, these assets are valued at the lower of the net carrying amount of the relevant loan on the date of the acquisition or the fair value of the repossessed asset (estimated on the basis of its appraisal value), with a downward adjustment according to the time that the asset has remained in the consolidated balance sheet. The appraisal value of non-current assets for sale has been estimated, basically, using appraisals performed by firms registered in the Register of Bodies Specialising in Appraisal held at the Banco de España. All these assets were denominated in euros as at 31 December 2013 and 2012.

The Bankinter Group uses its subsidiary Intermobiliaria, S.A., as the management company for assets originating from problem lending (repossessions, properties accepted in payment of debts, etc.) This company was incorporated on 16 February 1976 and has its registered offices at Paseo de la Castellana 29, Madrid. The Group's general policy is that all assets originating from problem loans should be registered in the name of this subsidiary, although there may occasionally be circumstances that make it desirable for such registration to be carried out directly in the name of the parent company.

Since the current policy on repossessions was adopted and up until the date of these financial statements, the cumulative volume of assets originating from problem lending in this subsidiary is €111 billion.

The acquisition of these assets is financed by the parent company on market terms. The resources made available to Intermobiliaria by the parent company as at 31 December 2013 and 2012 are summarised in the following table:

€000s
31-12-13
31-12-12
Capital contributions 7,319 7,391
Participating loans 400,000 300,000
Loan account 259,628 169,197
Collateralised loans 132,067 196,550
799,014 673,138

In this past year the volume of assets transferred to Intermobiliaria was €237.44 million (€255.38 million in 2012), generating a loss of €57.93 million (€57.04 million in 2012). These acquisitions are financed entirely by the parent company.

13.Investments

The breakdown of this item in the consolidated balance sheets as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Associates 35,932 40,279
Entities with joint control 430 321
36,362 40,600

The changes that occurred in the balance for this heading are shown below:

€000s
2013 2012
Balance at start of period 40,600 28,341
Transfers from Group entities - 14,970
Change of status from associate to consolidated subsidiary (644) -
Share of results of entities accounted for using the equity
method		 15,545 17,677
Dividends received by the Bank (17,005) (20,961)
Other movements (2,134) 573
Balance at close of financial year 36,362 40,600

With the purpose of complementing its private banking strategy, Bankinter, S.A. reached agreement in December 2012 with Dutch bank Van Lanschot Bankiers N.V. to acquire its Luxembourg subsidiary Van Lanschot Bankiers (Luxembourg) S.A. for an amount of €21.55 million, leading to goodwill of €2.45 million being recognised. The agreement was executed and the company accordingly incorporated into the Group in the first half of 2013.

Naviera Goya, S.L. and Naviera Sorolla, S.L. are special purpose vehicles established to support the financing of shipbuilding by Spanish shipyards.

Castellana Finance Limited is a special purpose vehicle established in 2007. This vehicle was initially outside the perimeter of consolidation, basically because the Group had no material risks or benefits with regard to it. However, during the first half of 2013 its situation of control was reviewed, and it was concluded that it should be integrated into the Group as at 30 June 2013. This review was undertaken after successive purchases by Bankinter, S.A. of bonds issued by the vehicle, which had also restructured its balance sheet.

During the fourth quarter of 2013 the Group, which held 25.01% of the shares in Mercavalor, S.V, S.A., acquired all the remaining shares in the company, which was accordingly then fully consolidated, leading to a reduction of €0.64 million in the portfolio of associates as at 31 December 2013.

The financial statements of Eurobits Technologies, S.L. and Helena Activos Líquidos, S.L. are for the period ended 30 November 2013. The impact on the consolidated financial statements deriving from the use of financial statements as at dates prior to 31 December 2013 for these companies is not material.

Intermobiliaria S.A. is in a negative equity situation. Bankinter uses this company as the management company for all the Group's real estate activity, and is committed to compensating its losses and restoring it to positive equity within the legal timeframes by granting a participating loan. This participating loan was granted by Bankinter, S.A. on 24 June 2010 for an amount of €100 million. It was later increased, to €200 million on 29 December 2011, and to €300 million on 27 December 2012. At 31 December 2013 the amount of this loan stood at €400 million. The participating loan is recognised under "Long-term debt to group companies and associates" on the liabilities side of the subsidiary's balance sheet; this participating loan meets the requirements laid down by Royal Decree Law 7/1996, of 7 June, on urgent tax measures and measures to foster and deregulate economic activity for it to be considered as equity for the purposes of company law. By means of this transaction the Company has re-established its positive equity position.

During the fourth quarter of 2012, the Bank sold 40.1% of the share capital of Bankinter Seguros Generales S.A. de Seguros y Reaseguros (formerly Bankinter Servicios de Consultoría, S.A) for €12 million.

Following this sale, the Group retains a 49.9% interest in the company, but no longer has control. The company is now accordingly accounted for using the equity method. This led to an increase of €14.97 million in the portfolio of associates in 2012.

The Group recognised a gain of €17.45 million under "gains or (-) losses on disposals of assets not classified as non-current assets held for sale" in respect of this transaction (Note 34). The portion of this gain corresponding to the recognition of the fair value of the investment retained in the subsidiary amounted to €9.49 million.

Details of fully consolidated Group companies as at 31 December 2013 are as follows:

% holding Summary financial information
Name Tax code Registered
office		 % of
Bankinter's
direct equity
holding		 % of
Bankinter's
indirect
equity
holding		 % of
Bankinter's
total equity
holding		 Dividends
paid		 No. of
shares		 Nominal
value
(euros)		 Capital Reserves Profit or
(-) loss for
the year		 Theoretical
carrying
amount		 Equity Cost Assets Liabilities
Bankinter
Consultoría,
Asesoramiento,
y Atención
Telefónica, S.A.		 A78757143 Paseo de la
Castellana 29.
28046 Madrid		 99.99 0.01 100 35,222 30 1,060 28,928 117 30,106 30,106 28,060 30,830 724
Bankinter
Gestión de
Activos,
S.G.I.I.C.		 A78368909 Calle Marqués
de Riscal 11.
28010 Madrid		 99.99 0.01 100 21,026 144,599 30 4,345 17,170 16,783 38,299 28,307 4,518 43,712 15,405
Hispamarket,
S.A.		 A28232056 Paseo de la
Castellana 29.
28046 Madrid		 99.99 0.01 100 4,516,452 6 27,144 2,039 (2,164) 27,019 27,247 26,962 148,956 121,710
Intermobiliaria,
S.A.		 A28420784 Paseo de la
Castellana 29.
28046 Madrid		 99.99 0.01 100 243,546 30 7,319 (202,874) (105,881) (301,436) (301,436) 42,497 504,357 805,793
Bankinter
Consumer
Finance, E.F.C.,
S.A.		 A82650672 Avda. de
Bruselas 12.
Alcobendas.
28108 Madrid		 99.99 0.01 100 21,575 1,299,999 30 39,065 33,867 23,706 96,638 86,138 60,002 345,185 259,047
Bankinter
Capital Riesgo,
SGECR, S.A.		 A83058214 Paseo de la
Castellana 29.
28046 Madrid		 96.77 3.23 100 3,100 100 310 552 186 1,049 1,049 239 1,227 178
Bankinter
Sociedad de
Financiación,
S.A.		 A84129378 Paseo de la
Castellana 29.
28046 Madrid		 100 0 100 602 100 60 1,639 716 2,415 2,415 60 5,181,470 5,179,055
Bankinter
Emisiones, S.A.		 A84009083 Paseo de la
Castellana 29.
28046 Madrid		 100 0 100 602 100 60 1,663 0 1,723 1,723 60 63,161 61,437
Bankinter
Capital Riesgo I
Fondo Capital		 V84161538 Paseo de la
Castellana 29.
28046 Madrid		 100 0 100 30,000 1,000 30,000 3,299 1,312 34,610 30,239 30,000 32,031 1,793
Arroyo Business
Consulting
Development,
S. L.		 B84428945 Calle Marqués
de Riscal 13.
28010 Madrid		 100 0 100 2,976 1 3 1 -2 2 2 6 3 1
% holding Summary financial information
Name Tax code Registered
office		 % of
Bankinter's
direct equity
holding		 % of
Bankinter's
indirect equity
holding		 % of
Bankinter's
total equity
holding		 Dividends
paid		 No. of
shares		 Nominal
value
(euros)		 Capital Reserves Profit or (-)
loss for the
year		 Theoretical
carrying
amount		 Equity Cost Assets Liabilities
Gneis Global
Services, S.A.		 A85982411 Calle Pico de
San Pedro 2.
28760 Madrid		 100 0 100 7,000 30,000,000 1 30,000 15,564 13,282 58,846 51,962 30,116 84,629 32,667
Relanza
Gestión, S.A.		 A85593770 Avda de
Bruselas 12.
Alcobendas.
28018 Madrid		 0 100 100 1,000 60 60 124 30 214 214 60 267 52
Línea Directa
Aseguradora,
S.A., Compañía
de Seguros y
Reaseguros		 A80871031 Av Europa 7.
28760 Tres
Cantos, Madrid		 100 0 100 60,000 2,400,000 16 37,512 356,159 101,792 495,463 457,986 372,061 1,270,647 812,661
Línea Directa
Asistencia,
S.L.U.		 B80136922 C. Cerro de
los Gamos 1.
28224 Pozuelo
de Alarcón,
Madrid		 0 100 100 500 60 30 13,434 8,909 22,373 22,373 418 36,214 13,841
LDACTIVOS,
S.L.U.		 B86322880 Rd Europa 7.
28760 Tres
Cantos, Madrid		 0 100 100 3,003,000 1 3,003 12,820 53 15,876 15,877 8,133 16,246 369
Moto Club LDA,
S.L.U.		 B83868083 C. Isaac Newton
7. 28760 Tres
Cantos, Madrid		 0 100 100 30 100 3 274 184 461 461 3 633 172
Centro
Avanzado de
Reparaciones
CAR, S.L.U.		 B84811553 Av Sol 5. 28850
Torrejón de
Ardoz, Madrid		 0 100 100 10,000 60 600 (59) 404 945 945 2,103 2,461 1,516
Ambar Medline,
S.L.		 B85658573 Av Europa 7.
28760 Tres
Cantos, Madrid		 0 100 100 100,310 10 1,003 30 14 1,047 1,047 1,003 2,052 1,005
Mercavalor,
S.V., S.A.		 A79203568 Marqués de
Riscal 11.
28010 Madrid		 100 0 100 938 4,285 601 2,576 2,505 (264) 4,817 4,817 2,120 6,568 1,751
BANKINTER
LUXEMBOURG,
S.A		 LU001623854 37, avenue
J. F Kennedy
L - 1855
Luxembourg		 100 0 100 10,000 870 8,700 9,567 (1,081) 17,186 17,186 21,548 86,455 69,269

Group companies accounted for using the equity method as at 31 December 2013 were: Helena Activos Líquidos S.L., Eurobits Technologies S.L., Bankinter Seguros de Vida S.A. de Seguros y Reaseguros and Bankinter Seguros Generales S.A. de Seguros y Reaseguros. These companies are accounted for using the equity method as opposed to proportional consolidation, in accordance with the accounting regulations in force, since as there is no joint management with the other shareholders, this method allows the economic basis of the relationship between the companies to be more accurately reflected.

31 December 2013:

% holding Summary financial information
Name Tax code Registered
office		 % of
Bankinter's
direct equity
holding		 % of
Bankinter's
indirect equity
holding		 % of
Bankinter's
total equity
holding		 Dividends
paid		 No. of
shares		 Nominal
value
(euros)		 Capital Reserves Profit or (-)
loss for the
year		 Theoretical
carrying
amount		 Equity Cost Assets Liabilities
Helena Activos
Líquidos, S.L.		 B84199173 Calle
Serrano
41. 28001
Madrid		 29.53 0 29.53 706,932 0 24 1,761 -189 1,596 1,596 325 1,732 136
Eurobits
Technologies,
S.L.		 B83852160 Avda de
Bruselas 7.
Alcobendas.
28108
Madrid		 32.01 0 32.01 2,845 1 9 1,119 214 1,342 1,342 162 1,991 649
Bankinter
Seguros de Vida,
S.A. de Seguros
y Reaseguros		 A78510138 Avda de
Bruselas
12.
Alcobendas.
28018
Madrid		 50 0 50 16,067 185,049 30 6,969 30,793 32,407 70,169 48,102 2,433 414,164 366,062
Bankinter
Seguros
Generales,
S.A.de Seguros
y Reaseguros		 A78510138 Paseo de la
Castellana
29. 28046
Madrid		 49.9 0 49.9 998 5,030 10,060 464 73 10,597 10,597 5,020 10,651 54

Details of fully consolidated Group companies as at 31 December 2012 are as follows:

% holding Summary financial information
Name Tax code Registered
office		 % of
Bankinter's
direct equity
holding		 % of
Bankinter's
indirect
equity
holding		 % of
Bankinter's
total equity
holding		 Dividends
paid		 No. of
shares		 Nominal
value
(euros)		 Capital Reserves Profit or
(-) loss for
the year		 Theoretical
carrying
amount,
Equity		 Equity Cost Assets Liabilities
Bankinter
Consultoría,
Asesoramiento,
y Atención
Telefónica, S.A.		 A78757143 Paseo de la
Castellana
29. 28046
Madrid		 99.99 0.01 100 35,222 30 1,060 40,332 596 41,989 41,989 40,060 42,971 983
Bankinter
Gestión de
Activos,
S.G.I.I.C.		 A78368909 Calle
Marqués
de Riscal
11. 28010
Madrid		 99.99 0.01 100 2,533 144,599 30 4,345 17,170 11,026 32,542 32,536 4,509 43,191 10,655
Hispamarket,
S.A.		 A28232056 Paseo de la
Castellana
29. 28046
Madrid		 99.99 0.01 100 4,516,452 6 27,144 6,968 -4,929 29,183 27,321 26,962 147,972 120,651
Intermobiliaria,
S.A.		 A28420784 Paseo de la
Castellana
29. 28046
Madrid		 99.99 0.01 100 243,546 30 7,319 (123,447) (79,428) (195,556) -195,556 42,496 484,450 680,006
Bankinter
Consumer
Finance, E.F.C.,
S.A.		 A82650672 Avda de
Bruselas
nº 7-
Alcobendas.
28108
Madrid		 99.99 0.01 100 5,600 1,299,999 30 39,065 22,793 22,149 84,007 84,007 60,002 317,205 233,198
Bankinter
Capital Riesgo,
SGECR, S.A.		 A83058214 Paseo de la
Castellana
29. 28046
Madrid		 96.77 3.23 100 3,100 100 310 356 196 862 862 239 1,042 180
Bankinter
Sociedad de
Financiación,
S.A.		 A84129378 Paseo de la
Castellana
29. 28046
Madrid		 100 0.00 100 602 100 60 1,647 -8 1,699 1,699 60 4,055,243 4,053,545
Bankinter
Emisiones, S.A.		 A84009083 Paseo de la
Castellana
29. 28046
Madrid		 100 0.00 100 602 100 60 1,404 259 1,723 1,723 60 63,273 61,549
Bankinter
Capital Riesgo I
Fondo Capital		 V84161538 Paseo de la
Castellana
29. 28046
Madrid		 100 0.00 100 29,661 1,000 30,000 1,872 1,426 33,299 31,404 30,000 33,708 2,304
% holding Summary financial information
Name Tax code Registered
office		 % of
Bankinter's
direct equity
holding		 % of
Bankinter's
indirect
equity
holding		 % of
Bankinter's
total equity
holding		 Dividends
paid		 No. of
shares		 Nominal
value
(euros)		 Capital Reserves Profit or
(-) loss for
the year		 Theoretical
carrying
amount,
Equity		 Equity Cost Assets Liabilities
Arroyo
Business
Consulting
Development,
S. L.		 B84428945 Calle
Marqués
de Riscal
13. 28010
Madrid		 100 0 100 2,976 1 3 1 0 4 4 6 4 0
Gneis Global
Services, S.A.		 A85982411 Calle Pico de
San Pedro
2. 28760
Madrid		 100 0 100 30,000,000 1 30,000 1,572 13,992 45,564 45,564 30,000 80,636 35,072
Relanza
Gestión, S.A.		 A85593770 Avda de
Bruselas 12.
Alcobendas.
28018
Madrid		 0 100 100 1,000 60 60 89 35 185 185 60 250 66
Línea Directa
Aseguradora,
S.A., Compañía
de Seguros y
Reaseguros		 A80871031 Av Europa
7. 28760
Tres Cantos,
Madrid		 100 0 100 20,961 2,400,000 16 37,512 277,741 78,418 393,671 401,347 372,061 1,121,437 720,090
Línea Directa
Asistencia,
S.L.U.		 B80136922 C. Cerro de
los Gamos
1. 28224
Pozuelo de
Alarcón,
Madrid		 0 100 100 500 60 30 25,152 8,282 33,464 33,464 418 46,782 13,318
LDACTIVOS,
S.L.U.		 B86322880 Rd Europa
7. 28760
Tres Cantos,
Madrid		 0 100 100 3,003,000 1 3,003 5,132 189 8,324 8,324 8,133 8,583 259
Moto Club
LDA, S.L.U.		 B83868083 C. Isaac
Newton 7.
28760
Tres Cantos,
Madrid		 0 100 100 30 100 3 84 190 277 277 3 461 183
Centro
Avanzado de
Reparaciones
CAR, S.L.U.		 B84811553 Av Sol
5. 28850
Torrejón
de Ardoz,
Madrid		 0 100 100 10,000 60 600 -322 263 541 541 2,103 2,164 1,624
Ambar
Medline, S.L.		 B85658573 Av Europa
7. 28760
Tres Cantos,
Madrid		 0 100 100 100,310 10 1,003 4 26 1,033 1,033 1,003 2,399 1,366

Group companies accounted for using the equity method as at 31 December 2012 were Mercavalor S.V. S.A., Helena Activos Líquidos S.L., Eurobits Technologies S.L., Bankinter Seguros de Vida S.A. de Seguros y Reaseguros and Bankinter Seguros Generales S.A. de Seguros y Reaseguros. These companies are accounted for using the equity method as opposed to proportional consolidation, in accordance with the accounting regulations in force, since as there is no joint management with the other shareholders, this method allows the economic basis of the relationship between the companies to be more accurately reflected.

% holding Summary financial information
Name Tax code Registered
office		 % of
Bankinter's
direct equity
holding		 % of
Bankinter's
indirect
equity
holding		 % of
Bankinter's
total equity
holding		 Dividends
paid		 No. of
shares		 Nominal
value
(euros)		 Capital Reserves Profit or
(-) loss for
the year		 Theoretical
carrying
amount		 Equity Cost Assets Liabilities
Mercavalor,
S.V., S.A.		 A79203568 Avda. Brasil, 7
Madrid		 25.00 0.00 25.00 938 4,285 601 2,576 6,424 -299 8,701 9,091 644 15,995 16,294
Helena
Activos
Líquidos, S.L.		 B84199173 Calle Serrano 41.
28001 Madrid		 29.53 0.00 29.53 706,932 0 24 1,711 -30 1,705 -30 325 1,738 1,768
Eurobits
Technologies,
S.L.		 B83852160 Avda. de
Bruselas 7.
Alcobendas.
28108 Madrid		 32.01 0.00 32.01 2,845 1 9 1,171 -177 1,003 1,003 162 1,798 795
Bankinter
Seguros de
Vida, S.A. de
Seguros y
Reaseguros		 A78510138 Avda. de
Bruselas 12.
Alcobendas.
28018 Madrid		 50.00 0.00 50.00 16,067 185,049 30 6,969 3,259 35,635 45,862 35,605 2,433 409,225 373,620
Bankinter
Seguros
Generales,
S.A.de
Seguros y
Reaseguros		 A78510138 Paseo de la
Castellana 29.
28046 Madrid		 49.90 0.00 49.90 998 5,030 10,060 464 0 10,524 10,524 5,020 10,528 10,528

During 2013 the Group added the following companies to its perimeter of consolidation:

Society % of control Activity
Mercavalor, S.V, S.A 100% Securities Broker
Bankinter Luxembourg, S.A. 100% Private Banking
Naviera Goya, S.L. 100% Special purpose vehicle
Naviera Sorolla, S.L. 100% Special purpose vehicle
Castellana Finance Limited 100% Special purpose vehicle

The following is a detailed breakdown of the activities of the group companies, joint ventures and associates:

Activity
Group companies
Bankinter Consultoría, Asesoramiento, y Atención Telefónica, S.A. Telephone helpline
Bankinter Gestión de Activos, S.G.I.I.C. Asset management
Hispamarket, S.A. Holding and acquisition of securities
Intermobiliaria, S.A. Property management
Bankinter Consumer Finance, E.F.C.,S.A. Finance company
Bankinter Capital Riesgo, SGECR, S.A. Fund management and private equity companies
Bankinter Sociedad de Financiación, S.A. Issue of debt securities
Bankinter Emisiones, S.A. Issue of preferred shares
Bankinter Capital Riesgo I Fondo Capital Private equity fund
Arroyo Business Consulting Development, S.L. Inactive
Gneis Global Services, S.A. Consultancy
Relanza Gestión, S.A. Collection and recovery services
Línea Directa Aseguradora, S.A. Compañía de Seguros y Reaseguros Insurance company
Línea Directa Asistencia, S.L.U Insurance assessments, vehicle inspections and travel assistance
Moto Club LDA, S.L.U Services to motorcycle users
Centro Avanzado de Reparaciones CAR, S.L.U Vehicle repair
Ambar Medline, S.L Insurance mediation
Línea Directa Activos, S.L. Property management
Naviera Soroya, S.L Special purpose vehicle
Naviera Goya, S.L Special purpose vehicle
Castellana Finance Limited Special purpose vehicle
Bankinter Luxembourg Private Banking
Mercavalor, S.V., S.A. Securities broker
Joint arrangements and associates:
Helena Activos Líquidos, S.L. Other financial services
Eurobits Technologies, S.L. Advanced digital services
Bankinter Seguros de Vida, S.A. de Seguros y Reaseguros Insurance company
Bankinter Seguros Generales, S.A. de Seguros y Reaseguros Insurance company

Group securitisation funds. Structured entities

31 December 2013:

Non-consolidated structured entities
Name Tax code Registered office Activity Date originated Total securitised
exposures at
origination date		 Total securitised
exposures at 31
December 2013
Bankinter 2 Fondo de titulización Hipotecaria V82463423 Cl Lagasca 120, 28006 Madrid Financial services 25-10-1999 320,000 27,633
Bankinter 3 Fondo de titulización Hipotecaria V83123406 Cl Lagasca 120, 28006 Madrid Financial services 22-10-2001 1,322,500 194,304
Bankinter 4 Fondo de titulización Hipotecaria V83419192 Cl Lagasca 120, 28006 Madrid Financial services 24-09-2002 1,025,000 210,598
Bankinter 5 Fondo de titulización Hipotecaria V83501460 Cl Lagasca 120, 28006 Madrid Financial services 16-12-2002 710,000 150,152
Bankinter 6 Fondo de titulización Hipotecaria V83756114 Cl Lagasca 120, 28006 Madrid Financial services 25-09-2003 1,350,000 378,137

2012

Non-consolidated structured entities
Name Tax code Registered office Activity Date originated Total securitised
exposures at
origination date		 Total securitised
exposures at 31
December 2012
Bankinter 2 Fondo de titulización Hipotecaria V82463423 Cl Lagasca 120, 28006 Madrid Financial services 25-10-1999 320,000 33,910
Bankinter 3 Fondo de titulización Hipotecaria V83123406 Cl Lagasca 120, 28006 Madrid Financial services 22-10-2001 1,322,500 229,548
Bankinter 4 Fondo de titulización Hipotecaria V83419192 Cl Lagasca 120, 28006 Madrid Financial services 24-09-2002 1,025,000 241,386
Bankinter 5 Fondo de titulización Hipotecaria V83501460 Cl Lagasca 120, 28006 Madrid Financial services 16-12-2002 710,000 169,934
Bankinter 6 Fondo de titulización Hipotecaria V83756114 Cl Lagasca 120, 28006 Madrid Financial services 25-09-2003 1,350,000 424,693

31 December 2013:

Consolidated structured entities
Name Tax code Registered office Activity Total % of
control		 Date
originated		 Total securitised
exposures at
origination date		 Total securitised
exposures at 31
December 2013
Bankinter 7 Fondo de titulización Hipotecaria V83905075 Cl Lagasca 120, 28006 Madrid Financial services 100 18-02-2004 490,000 138,384
Bankinter 8 Fondo de titulización de activos V83923425 Cl Lagasca 120, 28006 Madrid Financial services 100 03-03-2004 1,070,000 304,377
Bankinter 9 Fondo de titulización de activos V84246099 Cl Lagasca 120, 28006 Madrid Financial services 100 14-02-2005 1,035,000 388,709
Bankinter 10 Fondo de titulización de activos V84388115 Cl Lagasca 120, 28006 Madrid Financial services 100 27-06-2005 1,740,000 677,825
Bankinter 11 Fondo de titulización Hipotecaria V84520899 Cl Lagasca 120, 28006 Madrid Financial services 100 28-11-2005 900,000 409,087
Bankinter 2 Pyme Fondo de titulización de activos V84892272 Cl Lagasca 120, 28006 Madrid Financial services 100 26-06-2006 800,000 165,139
Bankinter 13 Fondo de titulización de activos V84752872 Cl Lagasca 120, 28006 Madrid Financial services 100 20-11-2006 1,570,000 831,214
Bankinter 3 FTPyme Fondo de titulización de activos V85264117 Cl Lagasca 120, 28006 Madrid Financial services 100 12-11-2007 617,400 212,529
Bankinter 4 FTPyme Fondo de titulización de activos V85524791 Cl Lagasca 120, 28006 Madrid Financial services 100 15-09-2008 400,000 163,221
Summary financial information
Name Tax code Registered office % of Bankinter's
Nominal
Profit or
Theoretical
No. of
direct equity
value
Capital
Reserves
(-) loss for
carrying
shares
holding
(euros)
the year
amount		 Equity Cost Assets Liabi
lities
NAVIERA SOROYA, S.L B86728185 Paseo de la Castellana 29. 28046 Madrid 100 3,000 1 3 0 -2 3 1 3 3 2
NAVIERA GOYA, S.L B86728193 Paseo de la Castellana 29. 28046 Madrid 100 3,000 1 3 0 -2 3 1 3 48,519 48,518
CASTELLANA FINANCE 909654647G Cl Norta Wall Quay 25 28001 Dublin 100 - - - - - - - - 127,814 127,814

2012

Consolidated structured entities
Name Tax code Registered office Activity Total % of
control		 Date
originated		 Total
securitised
exposures at
origination
date		 Total securitised
exposures at 31
December 2012
Bankinter 7 Fondo de titulización Hipotecaria V83905075 Cl Lagasca 120, 28006 Madrid Financial services 100 18-02-2004 490,000 153,184
Bankinter 8 Fondo de titulización de activos V83923425 Cl Lagasca 120, 28006 Madrid Financial services 100 03-03-2004 1,070,000 340,346
Bankinter 9 Fondo de titulización de activos V84246099 Cl Lagasca 120, 28006 Madrid Financial services 100 14-02-2005 1,035,000 429,232
Bankinter 10 Fondo de titulización de activos V84388115 Cl Lagasca 120, 28006 Madrid Financial services 100 27-06-2005 1,740,000 743,651
Bankinter 11 Fondo de titulización Hipotecaria V84520899 Cl Lagasca 120, 28006 Madrid Financial services 100 28-11-2005 900,000 446,216
Bankinter 2 Pyme Fondo de titulización de activos V84892272 Cl Lagasca 120, 28006 Madrid Financial services 100 26-06-2006 800,000 207,993
Bankinter 12 Fondo de titulización hipotecaria V84634575 Cl Lagasca 120, 28006 Madrid Financial services 100 06-03-2006 1,200,000 606,926
Bankinter 13 Fondo de titulización de activos V84752872 Cl Lagasca 120, 28006 Madrid Financial services 100 20-11-2006 1,570,000 898,701
Bankinter 3 FTPyme Fondo de titulización de activos V85264117 Cl Lagasca 120, 28006 Madrid Financial services 100 12-11-2007 617,400 254,599
Bankinter 4 FTPyme Fondo de titulización de activos V85524791 Cl Lagasca 120, 28006 Madrid Financial services 100 15-09-2008 400,000 195,468

Investment Funds/SICAVs and Pension Funds, 2013;

Total Assets Total equity
Pension funds 1,653,911 1,650,496
Guaranteed fixed income 402,575 401,820
Guaranteed equities 14,901 14,864
Mixed fixed income 63,305 63,210
Mixed equities 108,424 108,201
Short-term fixed income 374,767 374,028
Long-term fixed income 242,843 242,184
Equities 447,096 446,189
Investment funds 6,011,665 5,998,750
Guaranteed fixed income 1,177,239 1,175,635
Guaranteed equities 397,636 390,539
Overall 10,300 10,266
Passive management 1,678 1,674
Mixed fixed income 55,525 55,454
Money market funds 1,799,105 1,798,137
Long-term fixed income 290,419 290,018
Fixed Income, short-term 1,304,066 1,303,125
International mixed fixed income 35,515 35,465
International equities 159,946 159,431
Euro equities 556,846 556,013
International equities 100,656 100,487
Euro mixed equities 63,539 63,445
International mixed equities 30,677 30,640
Absolute return 28,518 28,421
SICAVs (open-ended collective investment
companies)		 1,758,758 1,728,471
Overall 1,758,758 1,728,471
Grand total 9,424,334 9,377,717

2012

Total Assets Total equity
Investment funds 3,589,275 3,585,306
Guaranteed fixed income 886,246 885,178
Guaranteed equities 369,279 368,605
Overall 18,863 18,841
Passive management 1,728 1,723
Mixed fixed income 26,909 26,872
Money market funds 1,139,883 1,139,119
Long-term fixed income 67,159 67,063
Fixed Income, short-term 528,843 528,417
International mixed fixed income 24,461 24,433
International equities 117,037 116,834
Euro equities 269,367 269,016
International equities 55,946 55,834
Euro mixed equities 46,174 46,103
International mixed equities 18,538 18,510
Absolute return 18,842 18,758
Pension funds 1,395,352 1,392,575
Guaranteed fixed income 348,247 347,736
Guaranteed equities 16,011 15,984
Mixed fixed income 49,833 49,714
Mixed equities 83,624 83,471
Short-term fixed income 365,013 364,138
Long-term fixed income 214,419 213,890
Equities 318,205 317,642
SICAVs (open-ended collective investment
companies)		 1,356,212 1,325,441
Overall 1,356,212 1,325,441
Grand total 6,340,839 6,303,322

14.Property, plant and equipment

The breakdown of this heading in the balance sheet as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
For internal use 394,933 410,839
Real estate investments 13,044 2,200
Other assets assigned under operating leases 26,954 29,249
434,931 442,288

The following is a summary of the elements of the tangible assets and their movements during financial years 2013 and 2012:

€000s
Transfers Depreciation
Cancella and and
31-12-12 Additions tions others Amortisation 31-12-13
For internal use 404,087 20,673 1,035 2,200 30,992 394,933
Computer
systems and
equipment		 7,960 721 683 - 1,767 6,231
Furniture,
vehicles,
and other
installations		 119,245 16,586 352 - 24,087 111,392
Buildings 276,075 542 - 1,260 5,138 272,739
Work in
progress 793 2,824 - 940 - 4,558
Other 14 - - - - 14
Real estate
investments		 8,952 6,498 - (2,200) 206 13,044
Other assets
assigned under
operating
leases 29,249 3 - - 2,298 26,954
442,288 27,174 1,035 - 33,496 434,931
€000s
Transfers Depreciation
Cancella and and
31-12-11 Additions tio ns others Amortisation 31-12-12
For internal use 435,354 15,966 4,024 (9,116) 34,093 404,087
Computer systems
and equipment		 11,116 500 1,068 - 2,588 7,960
Furniture,
vehicles, and other
installations		 133,143 14,386 2,084 - 26,200 119,245
Buildings 289,233 886 - (9,116) 4,928 276,075
Work in progress 1,847 194 871 - 377 793
Other 15 - 1 - - 14
Real estate
investments		 - - - 9,116 164 8,952
Other assets
assigned under
operating leases		 31,547 - - - 2,298 29,249
466,901 15,966 4,024 - 36,555 442,288

The breakdown by asset type of the gains and losses recognised in 2013 and 2012 on sales of investment property and other items is as follows (Note 34):

€000s
2013 2012
Gains Losses Gains Losses
Other 9 1,878 253 2,675
9 1,878 253 2,675

Note 43 "Fair value of assets and liabilities" states the fair value of the main items of property, plant and equipment and the method used to calculate them.

As at 31 December 2013 and 2012, the Bank had no tangible assets for its own use or under construction that were subject to any ownership restrictions or had been given as collateral in cover of debts. Neither are there any commitments to third parties on those dates for the acquisition of tangible assets. During said financial years, the Bank did not receive or expect to receive any amounts from third parties as compensation or indemnity for the impairment or loss of value of tangible assets for its own use.

The whole of the Bank's tangible assets for internal use as at 31 December 2013 and 2012 was denominated in euros.

The balance of assets leased out under operating leases and included under this heading in the balance sheet as at 31 December 2013 was €26.95 million (€29.25 million at 31 December 2012).

15.Intangible assets

The following is a breakdown of this item on the consolidated balance sheet and of its movements during financial years 2013 and 2012:

€000s
Depre Depre
ciation ciation
Can and Can and
Addi cella Amor Addi cella Amor
31-12-11 tions tions tisation 31-12-12 tions tions tisation 31-12-13
Goodwill 161,836 - - - 161,836 2,445 - - 164,281
Other
intangible
assets 176,204 8,808 - 29,310 155,702 10,312 - 29,592 136,422
338,040 8,808 - 29,310 317,538 12,757 - 29,592 30,703

The acquisition in 2009 of 50% of the share capital of Línea Directa Aseguradora S.A. Compañía de Seguros y Reaseguros ("LDA") led to the recognition of goodwill amounting to €161.84 million and Other Intangible Assets amounting to €221.93 million. During 2013, the acquisition of Bankinter Luxembourg S.A. involved the recognition of goodwill for €2.45 million.

In accordance with the estimates made and the projections available to the Group's Directors, the expected earnings attributable to the goodwill of these companies or cash-generating units to which they are linked, perfectly support the net value of the goodwill recognised.

In this regard, the entity subjects the goodwill recognised on the acquisition of 100% of LDA to the annual impairment analysis established in the accounting standards. This analysis is based on the impairment of the cash-generating unit to which this goodwill has been allocated; in this case LDA. This unit would be impaired if its carrying amount were more than the present value of its estimated future cash flows. This circumstance has not arisen in the last two financial years.

The estimated cash flows are taken from LDA's business plan in its most prudent scenario, with moderate growth rates and excluding the positive net flows that might be derived from structural changes in the business or in its efficiency, in accordance with best practices. Specifically, projected cash flows are based on the assumption that forecasts for next year's profits will be achieved. For the remaining years the trend in cash flows has been estimated as the lower of the company's most recent forecasts and the objective inflation of the economic environment in which it conducts its business, namely 2%. Both past experience and forecasts are in excess of this 2%.

The discount rate applied to the projected cash flows is 10% (after tax), this being the internal cost of capital. This estimated cost of capital is in line with those applied by independent analysts in the sector. Also, 10% is the discount rate commonly used for this kind of analysis in the insurance sector in which LDA conducts its business.

The period used for this estimate is five financial years, and the growth rate in perpetuity is equal to target inflation, 2%.

A similar procedure is applied to the goodwill arising on the acquisition of Bankinter Luxembourg S.A.

Other Intangible Assets generated by the acquisition of 50% of LDA essentially relate to the valuation of customer relationships at the time of the acquisition. Amortisation is linear over a period of 10 years from the date of acquisition, which is the estimated useful life of this asset. Amortisation of these assets during 2013 totalled €22.19 million, the same amount as in 2012. As at 31 December 2012 and 2013, this intangible asset did not show any sign of impairment.

Capitalisation of IT developments is the other main source of new intangible assets. During 2013 the Group capitalised €8.81 million in this respect (€2.45 million in 2012).

As at 31 December 2013 and 2012 the Group reviewed the useful lives of its intangible assets, no changes resulting.

16.Reinsurance assets

As at 31 December 2013, the balance of the item "Insurance contract assets" contains the assets recognised by Línea Directa Aseguradora, S.A., Compañía de Seguros y Reaseguros in the course of its activity.

Movement in 2013 and 2012 in Reinsurance Assets was as follows:

€000s
Provision for
Unearned
Premium		 Provision for
Claims		 Total
Balance as at 31-12-2012 547 3,418 3,966
Additions 489 3,035 3,524
Applications (547) (3,418) (3,966)
Adjustments and settlements (280) (280)
Balances at 31 December 2013 489 2,755 3,244

The reinsurance scheme followed by the Company is mostly based on an Excess Loss (XL) structure, with the aim of obtaining protection against serious or peak losses and events caused by natural events not covered by the Insurance Compensation Consortium, using reinsurance as a stabilising element for these kinds of losses which are random in both occurrence and amount.

Reinsurers must be registered with the CNSF (National Financial Services Commission) and comply with strict prudential requirements; they must also have excellent ratings proving their financial solvency. Foreign companies have to present a certificate of residence in Spain.

The criterion used to establish the reinsurance framework stipulates that the reinsurers' rating must not be lower than A. However, a deposit clause will be included in the contracts of reinsurers with S&P ratings of AA-. Lastly, any exceptions must be approved by the Board of Directors.

There is quarterly control over the ratings of the various companies that make up the reinsurance panel, with monitoring of the credit risk ratings published by Standard & Poor's, Moody's and Fitch, meaning that changes in the probability of default on the commitments undertaken are subject to control.

17.Tax assets and liabilities

The breakdown of these items in the consolidated balance sheet as at 31 December 2013 and 2012 is as follows:

€000s
Current Deferred
31-12-13 31-12-12 31-12-13 31-12-12
Retentions and payments on account 7,984 8,733
Income tax 65,283 71,813 132,300 148,536
VAT 10,378 6,407
Tax assets 83,645 86,953 132,300 148,536
Retentions and payments on account 4,005 7,576
Income tax 48,882 57,359 149,647 147,929
VAT 10,022 3,542
Other items 5,209 5,159
Tax liabilities 68,119 73,636 149,647 147,929

The movements in assets and liabilities due to deferred taxes during financial years 2013 and 2012, are as follows:

€000s
Deferred Taxes
Assets Liabilities
Balance as at 31-12-2011 103,529 118,983
Additions 64,519 28,952
Cancellations 19,512 6
Balance as at 31-12-2012 148,536 147,929
Additions 12,935 10,240
Cancellations 29,172 8,522
Balance as at 31-12-2013 132,300 149,647

The reconciliation of the movements in deferred taxes during 2013 is as follows:

€000s
31-12-12 Charged/credited
through profit
or loss		 Charged/credited in
equity		 31-12-13
Deferred tax assets 148,536 (14,775) (1,461) 132,300
Deferred tax liabilities 147,929 (13,301) 15,019 149,647

The reconciliation of the movements in deferred taxes during 2012 is as follows:

31-12-11 Charged/credited
through profit
or loss		 Charged/credited in
equity		 31-12-12
Deferred tax assets 103,529 55,926 (10,919) 148,536
Deferred tax liabilities 118,983 25,981 2,965 147,929

The details of deferred tax assets and liabilities are as follows:

€000s
31-12-13 31-12-12
Deferred Tax Assets 132,300 148,536
Less than 10 years:
Impairment of property assets 64,665 55,202
Provisions for real estate promoter risk - 46,407
Other provisions and accruals 53,816 39,826
Impairment in holdings 2,740 -
Early retirement fund 212 -
Software 43 -
Loan fees 1,858 2,204
Other 5,408 5,035
Available-for-Sale Portfolio 2,235 4,081
Consolidation adjustments 1,323 (4,219)
Deferred Tax Liabilities 149,647 147,929
Less than 10 years: 100,564 98,032
Available-for-Sale Portfolio 20,555 5,536
Intra-group sales 12,525 10,107
Other 22,080 20,767
Consolidation adjustments 45,404 61,623
Of which:
Revaluation of Assets of Activos de Línea Directa
Aseguradora, S.A.		 40,167 46,927
More than 10 years:
Revaluation of buildings 49,083 49,896

The deferred tax assets recognised during the year basically concern the increase in deferred tax assets due to net additions to provisions of various kinds.

Derecognitions are due basically to the elimination of the deferred tax asset relating to the release of provisions that were not tax deductible at the time they were established.

Royal Decree Law 14/2013, of 29 November, concerning urgent measures for adapting Spanish law to that of the European Union in the field of supervision and solvency of financial institutions adds a twenty-second additional provision to the Consolidated Text of the Corporation Tax Act, establishing the conversion of certain deferred tax assets into claims on the tax authorities. The Group estimates that approximately €89.20 of deferred tax assets will be eligible for conversion, although at the date on which these consolidated financial statements were drawn up the definitive amount had yet to be determined.

The Group has carried out an analysis of its ability to recover the deferred tax assets recognised as at 31 December 2013, the results of which support their recoverability before they prescribe legally.

18.Other assets and other liabilities

€000s
Assets Liabilities
31-12-13 31-12-12 31-12-13 31-12-12
Accrued expenses and deferred
income		 110,328 91,764 99,897 75,098
Operations in progress 963 11,760 27,321 16,953
Other items 16,377 29,101 35,526 35,196
127,668 132,625 162,744 127,247
In euros 127,584 132,534 162,741 127,209
In foreign currency 84 91 3 38
127,668 132,625 162,744 127,247

El desglose de estos epígrafes del balance consolidado al 31 de diciembre de 2013 y 2012 es el siguiente:

The heading "Other items" in liabilities includes sundry payables, provisions for expenses and remuneration pending payment corresponding to the insurance business.

19.Financial liabilities at amortised cost

The breakdown of these items of the consolidated balance sheets as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Deposits from central banks 3,243,794 9,580,854
Deposits from credit institutions 4,587,188 4,008,226
Customer deposits 29,624,282 24,631,869
Marketable debt securities 9,516,372 12,499,194
Subordinated liabilities 612,438 767,852
Other financial liabilities 1,328,657 591,076
48,912,731 52,079,071
In euros 48,428,606 51,555,534
In foreign currency 484,125 523,537
48,912,731 52,079,071

The breakdown of the 'Valuation adjustments' in the portfolio of financial liabilities at amortised cost as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Accrued interest- 294,188 408,456
Deposits with central banks 43,794 80,854
Deposits with credit institutions 12,526 11,973
Customer deposits 156,936 138,651
Marketable debt securities 71,851 170,359
Subordinated liabilities 9,081 6,619
Micro-hedging operations 84,209 146,791
Other (11,591) (64,166)
366,806 491,081

Note 44 "Risk-management policies" includes the breakdowns of the maturity dates and interest-rate review terms for the items making up financial liabilities at amortised cost.

Note 43 "Fair value of assets and liabilities" states the fair value by type of instrument of financial liabilities at amortised cost and the method used to calculate them.

a) Deposits from central banks

The composition of "Financial liabilities at amortised cost" in the consolidated balance sheet was as follows as at 31 December 2013 and 2012:

€000s
31-12-13
31-12-12
Central Banks 3,200,000 9,500,000
Valuation adjustments 43,794 80,854
Accrued interest 43,794 80,854
3,243,794 9,580,854

b) Deposits from credit institutions

The composition of "Financial liabilities at amortised cost" in the consolidated balance sheet was as follows as at 31 December 2013 and 2012:

€000s
31-12-13 31-12-12
Term accounts 1,559,511 1,354,023
Temporary assignment of assets 2,937,500 2,144,742
Other accounts 77,651
Valuation adjustments- 12,526 11,973
Accrued interest 12,526 11,973
4,587,188 4,008,226
In euros 4,579,547 4,000,585
In foreign currency 7,641 7,641
4,587,188 4,008,226

c) Deposits from customers

The composition of "Financial liabilities at amortised cost" in the consolidated balance sheet was as follows as at 31 December 2013 and 2012:

€000s
31-12-13 31-12-12
Public Administrations 2,637,924 430,863
Deposits received 2,635,575 429,581
Valuation adjustments 2,349 1,282
Accrued interest 2,349 1,282
Other private sectors 26,986,358 24,201,006
Sight deposits 12,098,651 9,269,136
Term deposits 11,245,992 10,592,220
Temporary assignment of assets 3,485,716 4,200,410
Valuation adjustments- 155,999 139,240
Accrued interest 154,587 137,369
Micro-hedging operations 1,412 1,871
29,624,282 24,631,869
In euros 29,002,370 24,196,331
In foreign currency 621,912 435,538
29,624,282 24,631,869

d) Debts represented by negotiable securities

The composition of "Financial liabilities at amortised cost" in the consolidated balance sheet was as follows as at 31 December 2013 and 2012:

€000s
31-12-13 31-12-12
Promissory notes and bills of exchange 789,378 2,390,395
Mortgage-backed securities 11,194,047 12,683,345
Other securities linked to transferred financial assets 2,593,686 2,867,439
Treasury stock (5,811,056) (7,999,014)
Hybrid securities 482,373 225,871
Other non-convertible securities 179,840 2,155,887
Valuation adjustments 88,103 175,271
Accrued interest 71,851 170,359
Micro-hedging operations 27,594 68,710
Other (11,341) (63,798)
9,516,372 12,499,194
In euros 8,724,123 11,706,945
In foreign currency 792,249 792,249
9,516,372 12,499,194

Own securities at 31 December 2013 comprised mortgage bonds for €5.79 billion, promissory notes for €14.26 million and other non-convertible securities for €2.35 million. Own securities at 31 December 2012 comprised mortgage bonds for €6.47 billion, promissory notes for €77.97 million and other non-convertible securities for €1.45 billion.

Promissory notes and bills of exchange

As a consequence of the planning required to manage the Bank's capital and liquidity, Bankinter, S.A. maintains diverse financing programmes and instruments on both the domestic market in Spain and international markets, to obtain financing or issue different kinds of securities, both short-term (promissory notes and euro commercial paper) and long-term (bonds, debentures and notes and mortgage bonds) under all kinds of debt arrangements (guaranteed, senior, subordinated, etc.)

As at 31 December 2013, the outstanding balances of promissory notes and euro commercial paper issued were €831.76 million and €15 million respectively (€2.52 billion and €7 million respectively as at 31 December 2012). The differences between the amounts recognised in the books and the nominal values of these issues are the financial expenses pending accrual.

The following is a breakdown of the issues of promissory notes in force as at 31 December 2013 and 2012, at their redemption value:

€000s
Outstanding Outstanding
balance at balance at
31-12-13 31-12-12
Date of registration with the CNMV (Spain's securities
regulator)
09-11-2010 - 5,219
03-11-2011 19,206 1,788,265
08-11-2012 653,717 728,713
08-11-2013 158,837
Promissory notes 831,760 2,522,197
Euro Commercial Paper 15,000 7,000
Non-accrued interest (26,913) (61,837)
Total 819,847 2,467,360

These issues are denominated in euros.

Interest accruing on these issues of promissory notes during 2013 amounted to €40.10 million (Note 29) (€109.58 million in 2012).

Mortgage-backed securities, other non-convertible securities and hybrid securities

Mortgage-backed securities, other non-convertible securities, and hybrid liabilities state, as at 31 December 2013 and 2012, the outstanding volume for the issues of bonds, debentures, and mortgage bonds carried out by the Bank.

The following is a breakdown of the issues of bonds, debentures and mortgage bonds in circulation as at 31 December 2013 and 2012 (nominal values, €000s):

31-12-13
Issue Nominal
(€000s)		 Type of Security % Interest Listed Final
maturity of
the issue
Jul 2007 100,000 Mortgage bond Eur 3m + 0.217% NO Jul 2015
Dec 2007 100,000 Mortgage bond Eur 3m + 0.343% NO Dec 2015
Jun 2008 200,000 Mortgage bond Eur 3m + 0.006% NO Jun 2016
Nov 2009 1,000,000 Mortgage bond Fixed rate 3.25% YES Nov 2014
Jul 2010 200,000 Mortgage bond Euribor 3m + 1.90% YES Jul 2018
Jan 2011 20,000 Mortgage bond Fixed rate 3.90% YES Jan 2014
Mar 2011 400,000 Mortgage bond Fixed rate 3.25% YES Nov 2014
Sept 2011 900,000 Mortgage bond Fixed rate 4.25% YES Mar 2015
Oct 2011 10,000 Mortgage bond Fixed rate 4.25% YES Jan 2014
Jan 2012 700,000 Mortgage bond Fixed rate 4.675% YES Jan 2016
Jan 2012 200,000 Mortgage bond Eur 3m + 3.50% YES Jan 2020
Mar 2012 1,000,000 Mortgage bond Fixed rate 4.125% YES Mar 2017
Aug 2012 100,000 Mortgage bond Eur 3m + 4.90% YES Aug 2022
Oct 2012 500,000 Mortgage bond Fixed rate 3.875% YES Oct 2015
Nov 2012 1,250,000 Mortgage bond Eur 3m + 4.00% YES Nov 2019
Nov 2012 600,000 Mortgage bond Eur 3m + 4.00% YES Nov 2017
Nov 2012 700,000 Mortgage bond Eur3m + 4.00% YES Nov 2018
Jan 2013 200,000 Mortgage bond Zero coupon YES Jan 2016
Jan 2013 500,000 Mortgage bond Fixed rate 2.75% YES Jul 2016
Feb 2013 200,000 Mortgage bond Euribor 3m + 3.25% YES Feb 2021
Feb 2013 500,000 Mortgage bond Fixed rate 3.125% YES Feb 2018
Apr 2013 90,000 Mortgage bond Fixed rate 3.125% YES Feb 2018
May 2013 1,300,000 Mortgage bond Eur3m+2.50% YES May 2023
May 2013 500,000 Mortgage bond Fixed rate 2.75% YES Jul 2016
11,270,000
Interest
Discounted
up-front		 (75,953)
11,194,047
31-12-2013 31-12-2013
Issue Nominal
Value
(€000s)		 Type of Security % Interest Listed Final
maturity of
the issue		 Issue Nominal
Value
(€000s)		 Type of Security % Interest Listed Final
maturity of
the issue
Hybrid
securities		 Hybrid
securities
Jun 2011 6,375 Structured bonds YES Jun 2014 Apr 2013 9,150 Structured bonds YES Apr 2018
Jun 2011 1,285 Structured bonds YES Jun 2016 Apr 2013 1,450 Structured bonds YES Apr 2018
Jul 2011 3,780 Structured bonds YES Jul 2014 Apr 2013 1,000 Structured bonds YES Apr 2016
Aug 2011 6,775 Structured bonds YES Aug 2016 Apr 2013 5,050 Structured bonds YES May 2018
Aug 2011 386(*) Structured bonds YES Aug 2016 May 2013 5,000 Structured bonds YES May 2018
Aug 2011 2,340 Structured bonds YES Aug 2016 May 2013 16,321 Structured bonds YES Jun 2018
Oct 2011 5,980 Structured bonds YES Oct 2016 May 2013 5,000 Structured bonds YES Jun 2018
Oct 2011 1,000 Structured bonds YES Oct 2015 May 2013 1,088(*) Structured bonds YES May 2015
Nov 2011 1,895 Structured bonds YES Nov 2016 May 2013 1,100 Structured bonds YES Jun 2014
Nov 2011 65(*) Structured bonds YES Nov 2016 Jun 2013 5,000 Structured bonds YES Jun 2018
Dec. 2011 370 Structured bonds YES Dec 2016 Jun 2013 16,504 Structured bonds YES Jul 2018
Dec. 2011 440 Structured bonds YES Dec 2016 Jul 2013 725(*) Structured bonds YES Jan 2015
Jan 2012 375 Structured bonds YES Jan 2015 July 2013 4,950 Structured bonds YES Jul 2018
Feb 2012 1,088 Structured bonds YES Feb 2017 Jul 2013 16,450 Structured bonds YES Jul 2018
Mar 2012 600 Structured bonds YES Mar 2017 Jul 2013 2,000 Structured bonds YES Jul 2015
Mar 2012 530 Structured bonds YES Mar 2017 Jul 2013 5,000 Structured bonds YES Jul 2018
Mar 2012 960 Structured bonds YES Apr 2017 Jul 2013 2,000 Structured bonds YES Jul 2018
Apr 2012 1,000 Structured bonds YES Jun 2017 Jul 2013 5,000 Structured bonds YES Jul 2018
Apr 2012 550 Structured bonds YES Apr 2017 Jul 2013 5,000 Structured bonds YES Aug 2018
Jun 2012 195 Structured bonds YES Jun 2017 Jul 2013 2,000 Structured bonds YES Aug 2018
Jun 2012 550 Structured bonds YES Jun 2015 Jul 2013 1,900 Structured bonds YES Aug 2018
Sep 2012 420 Structured bonds YES Sep 2017 Jul 2013 1,900 Structured bonds YES Aug 2018
Dec 2012 1,200 Structured bonds YES Dec 2018 Aug 2013 30,700 Structured bonds YES Aug 2018
Dec 2012 1,052(*) Structured bonds YES Dec 2017 Aug 2013 5,000 Structured bonds YES Aug 2018
Jan 2013 2,600 Structured bonds YES Jan 2018 Aug 2013 5,000 Structured bonds YES Sep 2018
Feb 2013 10,250 Structured bonds YES Mar 2018 Sep 2013 725(*) Structured bonds YES Sep 2018
Feb 2013 2,900 Structured bonds YES Mar 2018 Sep 2013 5,000 Structured bonds YES Oct 2018
Mar 2013 8,400 Structured bonds YES Mar 2018 Sep 2013 5,000 Structured bonds YES Sep 2018
Apr 2013 9,800 Structured bonds YES Apr 2018 Sep 2013 1,000 Structured bonds YES Sep 2016
Apr 2013 2,700 Structured bonds YES Apr 2018 Sep 2013 5,000 Structured bonds YES Oct 2018

(*) Issued in USdollars

(*) Issued in USdollars

31-12-13
Issue Nominal
Value
(€000s)		 Type of Security % Interest Listed Final
maturity of
the issue
Hybrid
securities
Oct 2013 1,800 Structured bonds YES Oct 2017
Oct 2013 20,000 Structured bonds YES Oct 2018
Oct 2013 10,450 Structured bonds YES Oct 2018
Oct 2013 2,000 Structured bonds YES Oct 2016
Oct 2013 5,000 Structured bonds YES Oct 2018
Oct 2013 1,000 Structured bonds YES Oct 2018
Oct 2013 5,000 Structured bonds YES Oct 2018
Oct 2013 5,000 Structured bonds YES Oct 2018
Oct 2013 40,675 Structured bonds YES Nov 2018
Oct 2013 13,900 Structured bonds YES Nov 2018
Oct 2013 1,000 Structured bonds YES Oct 2014
Oct 2013 1,000 Structured bonds YES Oct 2018
Oct 2013 1,000 Structured bonds YES Oct 2018
Oct 2013 1,200 Structured bonds YES Nov 2018
Oct 2013 1,000 Structured bonds YES Nov 2018
Oct 2013 5,000 Structured bonds YES Nov 2018
Oct 2013 1,000 Structured bonds YES Nov 2018
Oct 2013 1,000 Structured bonds YES Nov 2018
Oct 2013 1,000 Structured bonds YES Nov 2014
Oct 2013 3,000 Structured bonds YES May 2015
Oct 2013 1,000 Structured bonds YES Oct 2014
Nov 2013 5,000 Structured bonds YES Nov 2018
Nov 2013 3,150 Structured bonds YES Nov 2016
Nov 2013 8,775 Structured bonds YES Dec 2018
Nov 2013 1,100 Structured bonds YES Nov 2017
Nov 2013 1,150 Structured bonds YES Nov 2016
Nov 2013 12,600 Structured bonds YES Nov 2018
Nov 2013 5,000 Structured bonds YES Dec 2018
Nov 2013 1,500 Structured bonds YES Dec 2018
Nov 2013 5,000 Structured bonds YES Nov 2018
31-12-13
Issue Nominal
Value
(€000s)		 Type of Security
% Interest		 Listed Final maturity of
the issue
Hybrid
securities
Nov 2013 1,700 Structured bonds YES Nov 2017
Nov 2013 1,000 Structured bonds YES Nov 2018
Nov 2013 1,500 Structured bonds YES Nov 2018
Nov 2013 3,000 Structured bonds YES Dec 2014
Nov 2013 1,000 Structured bonds YES Dec 2017
Dec 2013 16,625 Structured bonds YES Dec 2018
Dec 2013 9,675 Structured bonds YES Dec 2018
Dec 2013 3,150 Structured bonds YES Dec 2016
Dec 2013 5,000 Structured bonds YES Dec 2018
Dec 2013 5,000 Structured bonds YES Dec 2018
Dec 2013 1,200 Structured bonds YES Dec 2016
Dec 2013 1,350 Structured bonds YES Dec 2016
Dec 2013 5,000 Structured bonds YES Dec 2018
Dec 2013 5,000 Structured bonds YES Dec 2018
Dec 2013 5,000 Structured bonds YES Jan 2019
Dec 2013 5,000 Structured bonds YES Jan 2019
482,374

(*) Issued in USdollars

31–12-13
Issue Nominal
Value
(€000s)		 Type of
Security		 % Interest Listed Final maturity of the
issue
Other non-convertible securities
Jun 2006 150,000 Bonds Eur3m + 0.17% YES Jun 2016
Oct 2010 30,000 Bonds Fixed rate 4.27% YES Jul 2016
180,000
Interest
Discounted
up-front		 (160)
179,840
31-12-12
Issue Nominal
Value
(€000s)		 Type of Security % Interest Listed Final maturity
of the issue
Hybrid
securities
Mar 2005 75,000 Bonds Eur3m flat
(3% - 5%)		 YES Mar 2015
Jun 2010 300 Structured bonds YES Jun 2013
Nov 2010 16,850 Structured bonds YES Nov 2014
Jun 2011 6,375 Structured bonds YES Jun 2014
Jun 2011 1,285 Structured bonds YES Jun 2016
Jul 2011 3,780 Structured bonds YES Jul 2014
Aug 2011 6,775 Structured bonds YES Aug 2016
Aug 2011 404(*) Structured bonds YES Aug 2016
Aug 2011 2,340 Structured bonds YES Aug 2016
Oct 2011 5,980 Structured bonds YES Oct 2016
Oct 2011 1,000 Structured bonds YES Oct 2015
Nov 2011 1,895 Structured bonds YES Nov 2016
Nov 2011 68(*) Structured bonds YES Nov 2016
Dec 2011 370 Structured bonds YES Dec 2016
Dec 2011 4,400 Structured bonds YES Dec 2016
Jan 2012 3,750 Structured bonds YES Jan 2015
Jan 2012 9,050 Structured bonds YES Jan 2013
Feb 2012 7,250 Structured bonds YES Feb 2017
Feb 2012 3,850 Structured bonds YES Feb 2013
Mar 2012 600 Structured bonds YES Mar 2017
Mar 2012 2,650 Structured bonds YES Mar 2017
Mar 2012 4,800 Structured bonds YES Apr 2017
Apr 12 1,000 Structured bonds YES Apr 2015
Apr 12 2,750 Structured bonds YES Apr 2017
Jun 2012 2,450 Structured bonds YES Jun 2017
Jun 2012 550 Structured bonds YES Jun 2015
Jun 2012 1,300 Structured bonds YES Jun 2017
Aug 2012 4,800 Structured bonds YES Aug 2017
Sep 2012 4,200 Structured bonds YES Sep 2017
Oct 2012 4,100 Structured bonds YES Oct 2013
Oct 2012 600 Structured bonds YES Nov 2015
Oct 2012 3,000 Structured bonds YES Oct 2013
(partial
amortisation,
90%) and total
in Oct 2017
31-12-12
Issue Nominal
Value
(€000s)		 Type of Security % Interest Listed Final maturity
of the issue
Nov 2012 1,450 Structured bonds YES Nov 2014
Nov 2012 8,500 Structured bonds YES Nov 2017
Nov 2012 10,600 Structured bonds YES Nov 2015
Nov 2012 1,000 Structured bonds YES Nov 2017
Nov 2012 1,000 Structured bonds YES Nov 2017
Dec 2012 1,200 Structured bonds YES Dec 2017
Dec 2012 5,900 Structured bonds YES Dec 2013
Dec 2012 11,600 Structured bonds Dec 2015
Dec 2012 1,099(*) Structured bonds YES Dec 2017
225,871

(*) Issued in USdollars

31–12-12
Issue Nominal
Value
(€000s)		 Type of
Security		 % Interest Listed Final maturity of the
issue
Other non-convertible securities
Jun 2006 150,000 Bonds Eur3m + 0.17% YES Jun 2016
Jan 2010 498,050 Bonds Eur3m + 0.95% YES Jan 2013
Jan 2010 78,800 Bonds Fixed rate 3% YES Jan 2013
Oct 2010 30,000 Bonds Fixed rate 4.27% YES Jul 2016
Feb 2012 800,000 Bonds Eur3m + 2.80% YES May 2015
Jun 2012 320,000 Bonds Eur3m + 4.25% YES Jun 2016
Jun 2012 280,000 Bonds Eur3m + 4.25% YES Jun 2015
2,156,850
Interest
Discounted
up-front		 (963)
2,155,887

(*) Issued in USdollars

31–12-12
Issue Nominal
(€000s)		 Type of Security % Interest Listed Final
maturity of
the issue
Jun 2005 68,213 Mortgage bond in
foreign currency		 Libor 3m – 0.040% NO Jun 2013
Jul 2007 100,000 Mortgage bond Eur3m + 0.217% NO Jul 2015
Dec 2007 100,000 Mortgage bond Eur3m + 0.343% NO Dec 2015
Mar 2008 50,000 Mortgage bond Eur6m + 0.27% YES Mar 2013
Jun 2008 200,000 Mortgage bond Eur3m + 0.006% NO Jun 2016
Nov 2009 1,000,000 Mortgage bond Fixed rate 3.25% YES Nov 2014
Apr 2010 1,000,000 Mortgage bond Fixed rate 2.625% YES Apr 2013
Jul 2010 200,000 Mortgage bond Euribor 3m +
0.37%		 YES Jul 2018
Jul 2010 400,000 Mortgage bond Fixed rate 2.625% YES Apr 2013
Sept 2010 650,000 Mortgage bond Fixed rate 3.75% YES Sep 2013
Jan 2011 500,000 Mortgage bond Fixed rate 4.875% YES Jan 2013
Jan 2011 20,000 Mortgage bond Fixed rate 3.90% YES Jan 2014
Mar 2011 400,000 Mortgage bond Fixed rate 3.25% YES Nov 2014
May 2011 25,000 Mortgage bond Fixed rate 4.875% NO Jan 2013
May 2011 25,000 Mortgage bond Fixed rate 4.875% NO Jan 2013
Sept 2011 1,000,000 Mortgage bond Fixed rate 4.25% YES Mar 2015
Oct 2011 10,000 Mortgage bond Fixed rate 4.25% YES Jan 2014
Dec 2011 1,000,000 Mortgage bond Fixed rate 4.25% YES Mar 2015
Jan 2012 1,200,000 Mortgage bond Fixed rate 4.675% YES Jan 2016
Jan 2012 200,000 Mortgage bond Eur3m + 3.50% YES Jan 2020
Mar 2012 1,000,000 Mortgage bond Fixed rate 4.125% YES Mar 2017
Jun 2012 500,000 Mortgage bond Eur3m + 3.00% YES Jun 2014
Aug 2012 100,000 Mortgage bond Eur3m + 4.90% YES Aug 2022
Oct 2012 500,000 Mortgage bond Tipo Fijo 3.875% YES Oct 2015
Nov 2012 1,250,000 Mortgage bond Eur3m + 4.00% YES Nov 2019
Nov 2012 600,000 Mortgage bond Eur3m + 4.00% YES Nov 2017
Nov 2012 700,000 Mortgage bond Eur3m + 4.00% YES Nov 2018
12,798,213
Interest
Discounted
up-front		 (114,868)
12,683,345

During 2013 mortgage-backed bonds were issued for €3.29 billion (€6.05 billion in 2012), there were no issues of senior bonds (€1.44 billion in 2012) and no issues of hybrid securities (€106.65 million in 2012), with the characteristics indicated in the foregoing tables.

Interest accruing on issues of other non-convertible securities during 2013 amounted to €19.52 million (€58.85 million in 2012).

e) Subordinated liabilities

The composition of this heading in the portfolio of financial liabilities at amortised
cost is as follows:
€000s
31-12-13 31-12-12
Marketable debt securities 487,626 624,547
Non-convertible 487,626 624,547
Preference shares 60,844 60,844
Valuation adjustments 63,968 82,461
Accrued interest 9,081 6,619
Micro-hedging operations 55,203 76,210
Other (316) (368)
612,438 767,852
In euros 612,438 767,852
612,438 767,852

These liabilities meet the requirements of Rule 8 in Banco de España Circular 3/2008, of 22 May, for inclusion as Tier 2 capital, and Banco de España approval has been obtained for them to be classified as such.

All current issues are denominated in euros.

The following is the breakdown as at 31 December 2013 and 2012 of the subordinated debentures and preference shares (nominal value, €000s):

Balance as at 31 December 2013

Thousands
of Euros
Nominal Maturity
Issue value % Interest Issue
III SUBORDINATED BONDS 1998 14-05-98 81,893 Fixed rate 6.00% 18-12-28
I SUBORDINATED BONDS March 2006 21-03-06 18,800 Eur3m + 0.50% 21-03-16
II SUBORDINATED BONDS June 2006 23-06-06 59,000 Eur3m + 0.80% 23-06-16
III SUBORDINATED BONDS December 2006 18-12-06 39,600 Eur3m + 0.84% 18-12-16
I SUBORDINATED D. March 2007 16-03-07 44,700 Eur3m + 0.82% 16-03-17
I SUBORDINATED BONDS September 2009 11-09-09 250,000 Fixed rate 6.375% 11-09-19
I SUBORDINATED BONDS July 2010 07-07-10 40,000 Fixed rate 6.75% 07-12-20
I SUBORDINATED BONDS February 2011 10-02-11 47,250 Fixed rate 6.375% 11-09-19
581,243
Interest and other (93,617)
487,626

Balance as at 31 December 2012

Thousands
of Euros
Issue Nominal
value		 % Interest Maturity
Issue
III SUBORDINATED BONDS 1998 14-05-98 84,141 Fixed rate 6.00% 18-12-28
I SUBORDINATED BONDS March 2006 21-03-06 32,800 Eur3m + 0.50% 21-03-16
II SUBORDINATED BONDS June 2006 23-06-06 89,000 Eur3m + 0.80% 23-06-16
III SUBORDINATED BONDS December 2006 18-12-06 50,000 Eur3m + 0.84% 18-12-16
I SUBORDINATED D. March 2007 16-03-07 49,400 Eur3m + 0.82% 16-03-17
I SUBORDINATED BONDSOctober 2008 10-10-08 50,000 Eur3m + 3.00% 10-10-18
I SUBORDINATED BONDS September 2009 11-09-09 250,000 Fixed rate 6.375% 11-09-19
I SUBORDINATED BONDS July 2010 07-07-10 40,000 Fixed rate 6.75% 07-12-20
I SUBORDINATED BONDS February 2011 10-02-11 47,250 Fixed rate 6.375% 11-09-19
692,591
Interest and other (68,044)
624,547

On 10 October 2013 the Bank prepaid subordinated bonds for a nominal amount of €50 million.

During 2012 an issue of subordinated bonds for a nominal amount of €36.06 million matured.

Preference shares

During 2013 there were no changes in preference shares.

In July 2012 Bankinter S.A. made an offer to holders of preferred shares issued by Bankinter Emisiones, S.A.U. The offer consisted in exchanging 70%of the nominal value of the preferred shares for newly issued shares in Bankinter, S.A. and the remaining 30% for cash, payable two years after the date of the exchange, subject to the new shares still being held.

As a consequence of this exchange, by 31 December 2012 the Group had issued 27,270,552 new shares in Bankinter S.A, at a subscription price of €2.75 per share, leading to increases in the share capital and the share premium account of €8.18 million and €66.81 million respectively (See Note 22).

Additionally, the Group recognised an amount of €27.91 million under the heading "Financial liabilities at amortised cost - Other financial liabilities" to meet any cash payments deriving from the exchange. (See Note 19).

The profit obtained from this exchange transaction in the year ended 31 December 2012 was €4.24 million, recognised under the heading "Result of financial transactions" in the enclosed consolidated Income Statement (see Note 30).

The movement brought about by this transaction in 2012 was as follows:

€000s
Nominal Value
(€000s)		 No. of shares
Balance as at 31 December 2011 168,165 3,363,293
Redeemed by means of exchange (see Note 22) (107,321) (2,146,407)
Balance as at 31 December 2011 60,844 1,216,886

The breakdown of issues in the Balance Sheet as at 31 December 2013 and 2012 is as follows:

31-12-13
Nominal Issue
Issue value % Interest maturity
Eur+3.75% min
BK Emisiones Serie I 28-07-2004 60,844 4%- max 7% PERPETUAL
Balance at 31 Dec. 2013 60,844

Interest accruing on these bond issues over the course of 2013 totalled €30.25 million (€32.85 million in 2012). Interest paid on subordinated deposits, which are recognised under the heading "Interest and similar charges" in the enclosed consolidated Income Statement (see Note 29), amounted to €2.59 million (€6.53 million in 2012).

31-12-12
Nominal Issue
Issue value % Interest maturity
Eur+3.75% min
BK Emisiones Serie I 28-07-2004 60,844 4%- max 7% PERPETUAL
Balance at 31 Dec. 2012 60,844

h) Other financial liabilities

The composition of "Financial liabilities at amortised cost" in the consolidated balance sheet was as follows as at 31 December 2013 and 2012:

€000s
31-12-13 31-12-12
Bonds payable- 156,555 128,218
Payables in respect of factoring 23,532 15,503
Others (*) 133,023 112,715
Security deposits received 614,938 79,587
Clearing houses 126,269 38,963
Tax collection accounts 195,532 186,799
Special accounts- 125,137 67,225
Stock market transactions pending settlement 124,287 67,225
Other items 110,226 90,284
1,328,657 591,076
In euros 1,318,060 580,480
In foreign currency 10,597 10,596
1,328,657 591,076

(*) As at 31 December 2013 and 2012, it included drafts pending settlement to the value of €23.62 million and €39.84 million respectively.

The amount shown against "Security deposits received", relates to collateral received for securities loaned to credit institutions.

20.Liabilities under insurance contracts

As at 31 December 2013 and 2012, the balance of "Liabilities under insurance contracts" contains the liabilities undertaken by Línea Directa Aseguradora, S.A. de Seguros y Reaseguros in the course of its activity. The changes occurring in the financial years 2013 and 2012 for each of the technical allowances included in the balance sheet attached hereto, are as follows:

€000s
31-12-13 31-12-12
Provision
for
Unearned
Premium		 Provision for
Claims		 Total Provision Provision for
Claims		 Total
Balance
at start of
period		 324,322 293,964 618,286 337,283 305,499 642,782
Additions due
to change in
scope
Additions 321,202 272,287 604,031 324,322 279,709 604,031
Applications (324,322) (293,964) (618,286) (337,283) (305,499) (642,782)
Adjustments
and
settlements		 - 14,305 14,255 - 14,255 14,255
Balance
at close of
period		 321,202 286,592 618,286 324,322 293,964 618,286

The allowance for unearned premiums represents the fraction of the premiums accrued in the financial year that is attributed to the period between the closing date and the end of the policy coverage period, using the policy-by-policy procedure and taking as the basis for calculation the fee premiums accrued in the financial year, with the security surcharge being deducted.

The provision for claims represents the total amount of the insurer's pending obligations derived from claims occurring prior to the date on which the financial year is closed.

The Company establishes this provision for an amount that is sufficient to cover the cost of claims, meaning an amount that includes all the expenses, both external and internal, in managing and handling the files, regardless of their origin, incurred or to be incurred until the claims are fully settled and paid, less the amounts already paid.

The provision for claims in turn comprises two provisions: one for claims pending settlement or payment and for accidents pending claim; and another for internal expenses associated with the settlement of claims.

On 18 January 2008 the Company was authorised by the Directorate-General of Insurance and Pension Funds to apply statistical methodology in calculating the Technical Provision for Claims in accordance with Article 43 of the Regulation on the Organisation and Supervision of Private Insurance following the amendment introduced by Royal Decree 239/2007 of 16 February.

As for the provision for internal expenses associated with the settlement of claims, a sufficient amount is added to it to meet the expenses necessary to finalise claims pending at year-end.

Procedures used to determine the main assumptions affecting assets, liabilities, income and expenses arising from insurance contracts and sensitivity analysis.

Income arising from insurance contracts consists mainly of insurance premiums paid in consideration of the risks assumed. Trends in premium income can be analysed using indicators such as average premium, product mix, percentage of cancellations, etc.

The main liability deriving from insurance contracts is that shown in the technical reserves, while the biggest expenses recognised in the Income Statement are the payment of claims and any additions considered necessary to provisions for payments pending at the end of the reporting period. To estimate these liabilities the Company analyses the changes over time in the frequency and average cost of events. Lastly, in estimating insurance liabilities the effect of reinsurance contracts is taken into account.

The net combined ratio measures the weight of the cost of claims and other expenses associated with the insurance business relative to the premiums accrued in the profit and loss account, net of the reinsurance effect. Changes in the conditions influencing the insurance risk are reflected in increases or decreases in the net combined ratio.

The following table shows the impact that a 1%change in net income recognised in equity would have in 2012 and 2011, together with the volatility index of this ratio calculated on the basis of its typical deviation over the past five years:

€000s
2013 2012 Volatility
Profit Equity Profit Equity Index
1% change in combined
ratio		 4.95% 0.98% 5.36% 1.09% 1.79%
1% change in combined
ratio		 4,498 4,646

Objectives, policies and procedures for managing the risks arising from insurance contracts

El riesgo de la actividad aseguradora se centra en el riesgo de suscripción de no-vida The risks involved in the insurance business are centred on the subscription risk in non-life insurance, which in turn consists of the premium sub-risk (the risk that premiums may not be sufficient)and the reserves sub-risk (the risk that the technical reserves may not be sufficient).

The Company makes use of reinsurance as the main means of mitigating the premium and reserves sub-risks. Reinsurance in turn forms part of counterparty risk, in view of the possibility of default by reinsurers on recoverable amounts.

Premium Sub-risk

The Technical Division of LDA is responsible for adjusting products and prices to the Company's general strategy. All such adjustments are supported by actuarial analyses duly documented in technical memoranda, and are approved by the Technical Committee, which is the body responsible for managing this sub-risk.

The Technical Committee takes operational decisions affecting prices and risk underwriting conditions of products offered by LDA, ensuring that they are consistent with the strategy and objectives laid down by the Board of Directors. In so doing it evaluates proposals presented by the Technical Division, also taking into account information on the business situation and future prospects provided by the business units.

Reserves Sub-risk

To estimate liabilities arising from insurance contracts, the Company uses statistical methods based on chain ladder methodology and stochastic methods based on bootstrap methodology. Finally it performs a validation using the average cost method.

The Claims and Reserves Committee is the body responsible for managing the Company's reserve risk and reinsurance credit risk. Its functions are to monitor the Company's reserves and provisions to ensure that claims are properly covered, and to approve changes to policies on opening and provisioning of claims under the various kinds of cover and guarantees, so as to ensure that reserves are adequate, in accordance with directives approved by the Company's Board of Directors.

It also approves the annual reinsurance programme and reports on it to the Management Committee.

Also, to ensure that the Company complies with the obligations deriving from Article 29 of the ROSSP ("Reglamento de Ordenación y Supervisión de los Seguros Privados", or Private Insurance Supervision Regulations) whereby the technical reserves must reflect in the Balance Sheet the obligations deriving from contracts written, the following controls are in place regarding additions to the technical reserves:

  1. Analysis of future trends in cost deviations of events occurring before the end of each financial year. The analysis is carried out on the basis of events occurred and reported as at the end of the reporting period. The purpose of this is to check and correct any cost deviations arising on so-called long-tail claims caused by not having sufficient information to evaluate them at the end of the reporting period.

    1. Producing monthly and quarterly projections of accident cost expense.
    1. The company's reserves situation is also subjected to an analysis carried out by independent consultants at least once a year, which is presented to the Board of Directors.

Change during 2013 to the technical reserves (not counting cover for fines and travel assistance) corresponding only to claims pending as at 31 December 2012, broken down by branches, is as follows:

€000s
Reserves
as at
31-12-2012		 Net
Payments		 Reserves
as at
31-12-2013		 Surplus
(Deficit)
Motor, Civil Liability 201,175 80,057 88,878 32,240
Motor, Other Coverage 63,042 32,321 19,107 11,614
Home 5,165 3,166 1,101 898
269,382 115,544 109,086 44,752

Changes during 2012 in the Company's technical reserves, not counting cover for fines and travel assistance, corresponding only to claims pending as at 31 December 2011, excluding losses incurred but not reported, broken down by branch, were as follows:

€000s
Reserves
as at
31-12-2011		 Net
Payments		 Reserves
as at
31-12-2012		 Surplus
(Deficit)
Motor, Civil Liability 207,114 90,361 100,977 15,776
Motor, Other Coverage 69,492 39,014 21,741 8,737
Home 3,408 2,498 810 100
280,014 131,873 123,528 24,613

The above table includes the home insurance branch, which at year-end 2012 had had five full years of operation since its launch. Losses incurred but not reported (IBNR) are included in the reserves at the end of 2011 not in the home insurance branch but in the motor branches, since the reserve for pending losses incurred, reported and not reported, were calculated together using statistical methods.

Insurance risk concentrations

The Company's insurance business is located entirely in Spain, with no especially significant concentration in any particular geographical region.

The Company's business is centred on non-life branches, mainly motor, and is distributed as follows:

€000s
2013
Total Motor Multi-risk
Home
Premiums billed 642,474 595,835 46,639
Premiums ceded (3,478) (698)
€000s
2012
Total Motor Multi-risk
Home
Premiums billed 650,584 613,768 36,816
Premiums ceded (3,313) (2,820) (493)

The Company is in the process of adapting to the Solvency II project, which will alter the focus of risk management for Europe's insurance companies.

21.Provisions

The breakdown of this item in the consolidated balance sheets as at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Pension funds and similar obligations 1,456 2,811
Provisions for contingent risks and commitments 8,642 5,139
Other provisions 4,697 1,899
Allowances for taxes and other legal contingencies 38,958 38,351
53,753 48,200

The breakdown of the allocations made to allowances during the financial years 2013 and 2012 is as follows:

€000s
31-12-13
31-12-12
Net allocations charged to income:
Pension funds and similar obligations (1,566) (5,645)
Provisions for contingent risks and commitments 3,505 1,787
Other provisions (426) (2,874)
Allowances for taxes and other legal contingencies 12,746 6,753
14,259 21

The balance shown against "Provisions for taxes and other legal contingencies" in the "Provisions" section includes, among other items, those corresponding to provisions for tax and legal proceedings, which have been estimated using prudent calculation methods consistent with the uncertainties inherent in the obligations that they cover. In some cases, the time at which resources involving economic benefits for the Group will have to be released for the obligation in question has been determined as not having a fixed term, and in other cases it has been set in accordance with the status of the proceedings that are underway.

The heading "Provisions for contingent risks and commitments" comprises the provision for contingent risks as at 31 December 2013 and 2012. In 2013 and 2012 there were net additions to these provisions of €3.51 million and €1.79 million respectively.

Movement in "Other provisions" during the years ended 31 December 2013 and 2012 was as follows:

€000s
Balance as at 31-12-2011 64,122
Net additions to reserves for the year charged to profit and loss 21
Application of funds (1,881)
Transfer of funds (17,290)
Other movements 3,228
Balance as at 31-12-2012 48,200
Net additions to reserves for the year charged to profit and loss 14,259
Use of funds (Note 10) (26,189)
Transfer of funds (Note 10) 10,000
Other movements 7,483
Balance as at 31-12-2013 53,753

"Other movements" reflects the reclassification of balances under the heading "Provisions for taxes and other legal contingencies".

The remaining amount under this heading refers to risks for which the Institution has estimated there is a probability that disbursements may be required in the future for past events.

22. Shareholders' equity

The breakdown of the composition and movements in the Group's shareholders' equity in financial years 2013 and 2012 is included in the Overall Statement of Changes in Consolidated Public Net Worth.

a) Capital

As at 31 December 2013, the share capital of Bankinter, S.A. was represented by 895,583,800 registered shares with a nominal value of €0.30 each, fully subscribed and paid up. These shares all have equal voting and economic rights. As at 31 December 2012, the share capital of Bankinter, S.A. was represented by 563,806,141 registered shares with a nominal value of €0.30 each.

All the shares are represented by book entries, officially listed on the Madrid and Barcelona stock exchanges and traded by the Spanish computer-assisted trading system.

The following changes were recorded in the shares in circulation in financial years 2013 and 2012:

€000s
Number of Nominal
Shares value
Balance as at 31-12-2010 473,447,732 142,034
Additions 3,471,282 1,042
Of which alternative dividend 3,471,282 1,042
Balance as at 31-12-2011 476,919,014 143,076
Additions 86,887,127 26,066
Of which on conversion of subordinated bonds 59,616,575 17,885
Of which on exchange of preferred shares (Note 19) 27,270,552 8,181
Balance as at 31-12-2012 563,806,141 169,142
Additions 331,777,659 99,533
Capital increase by way of bonus issue charged to asset
revaluation reserves 313,223,298 93,967
May 2013 conversion of subordinated bonds 146,175 44
October 2013 conversion of subordinated bonds 18,408,186 5,522
Balance as at 31-12-2013 895,583,800 268,675

La ampliación de capital en el ejercicio 2013 es consecuencia del aumento de capital The increase in capital in 2013 is the result of the bonus issue charged to asset revaluation reserves and the conversions of mandatorily convertible subordinated bonds into shares in May and October.

The increase in capital in 2012 was the result of the conversion of mandatorily convertible subordinated bonds into shares and the exchange of preferred shares issued by Bankinter Emisiones S.A.U. (see Note 19).

The breakdown of shareholders with a percentage holding equal to or greater than 10% of share capital as at 31 December 2013 and 2012 is as follows:

Number of Shares held
Directly		 Number of Shares held
Indirectly		 % of share capital
Shareholder 31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12
Cartival, S.A. 204,681,888 131,565,493 - - 22.85 23.34
Credit Agricole, S.A. 2,392,922 85,146,775 7,005 18,505 0.27 15.10

b) Share premium

During 2013 and 2012 the share premium account increased by the difference between the nominal value of the new shares and their subscription price.

Movements in the share premium account in 2013 and 2012 were as follows:

€000s
Share premium
Balance as at 31-12-2011 737,079
Additions 381,107
Of which on conversion of subordinated bonds 314,294
March conversion 313,990
May conversion 146
November conversion 158
Of which on exchange of preferred shares (Note 19) 66,813
Balance as at 31-12-2012 1,118,186
Additions 54,459
Of which on conversion of subordinated bonds 54,459
May conversion 486
November conversion 53,973
Balance as at 31-12-2013 1,172,645

c) Reserves

The breakdown of this item in the consolidated balance sheet is as follows:

€000s
31-12-13 31-12-12
Statutory reserve 34,076 34,076
Freely-available reserve 1,544,786 1,466,590
Revaluation reserve 46,861 149,057
Treasury shares reserve- 85,367 106,773
By acquisition 432 225
By guarantee 84,935 106,548
Canary Islands investment reserve 28,363 28,363
Reserves (losses) of entities accounted for using the equity
method- 4,681 4,922
Associates 4,482 4,707
Entities with joint control 199 215
1,744,134 1,789,781

Statutory reserve

Companies are obliged to allocate 10% of their profits in each financial year to a reserve fund, until this reaches at least 20% of share capital. This reserve may not be distributed to shareholders and may be used only to cover losses if there are no other reserves available. In certain circumstances it may also be used to increase the share capital in the part of this reserve that exceeds 10% of the increased capital figure.

As at 31 December 2013 the legal reserves were not fully constituted.

Revaluation reserves

This heading in the consolidated Balance Sheet shows the effect on the reserves of the revaluation of properties carried out on 1 January 2004, as allowed in the transition to the IFRS. This heading also includes the revaluation reserves generated by business combination transactions.

During 2013 the Group carried out a capital increase, charging it to asset revaluation reserves, in an amount of €93.97 million (see point a).

Voluntary reserves

Voluntary reserves are freely available for use.

Reserves (losses) of entities accounted for using the equity method-

The breakdown of the reserves and losses in companies accounted for using the equity method is as follows:

€000s
31-12-13
31-12-12
Reserves Reserves
Bankinter Seguros Generales, S.A 232 232
Mercavalor, S.V., S.A. - 1,607
Bankinter Seguros de Vida, S.A. 4,048 2,681
Helena Activos Líquidos, S.L. 202 187
Eurobits Technologies, S.L. 199 215
4,681 4,922

The decrease in the reserves for accounting using the equity method of Mercavalor S.V. S.A., in amount of €1.61 million, is the consequence of the Group's acquisition during the year of all the shares in this company, which is therefore now fully consolidated (see Note 13).

d) Other equity instruments

On 11 May 2011 the Bank issued mandatorily convertible bonds for €404.81 million, in two series: Series I for a nominal amount of €175.00 million and Series II for a nominal amount of €229.81 million maturing 11 May 2014 with an annual remuneration of 7%. The terms of the issue conform to the definition of equity instrument since i) there is no obligation to deliver cash or other financial assets since conversion is mandatory, and since the remuneration is subject, inter alia, to the discretion of the Bank's Board of Directors, and ii) the conversion rate is fixed for all conversions as the result of dividing the nominal value of the bonds by the established conversion price (€6.28 and €5.03 per share for Series I and Series II respectively), subject in any case to fixed numbers of bonds being exchanged for fixed numbers of shares. The issue is therefore recognised in equity as "Equity - Other equity instruments".

During 2013 the following voluntary conversions of mandatorily convertible subordinated bonds into newly issued shares in Bankinter, Series I and II took place:

On the ordinary voluntary conversion date, 11 May 2013, requests were made for the conversion of 6,130 Series I bonds with a nominal value of €306,000 and 4,469 Series II bonds with a nominal value of €224,000. To meet these conversion requests a total of 146,175 new shares were issued.

On the ordinary voluntary conversion date, 25 October 2013, requests were made for the conversion of 40,896 Series I bonds with a nominal value of €2,045,000 and 1,148 Series II bonds with a nominal value of €57,450,000. To meet these conversion requests a total of 18,408,186 new shares were issued.

None of the exchange transactions described involved the recognition of any amount in the enclosed consolidated Income Statement for the years ended 31 December 2013 or 2012.

During the first half of 2012 the following mandatorily convertible subordinated bonds were voluntarily converted into new Series Iand II Bankinter shares:

The Company's AGM, held on 15 March 2012, in its eighth resolution, approved the setting of 29 March 2012 as an extraordinary date for voluntary conversion. Consequently on that date requests were made for the conversion of 3,240,012 Series I bonds, with a nominal value of €162 million (93% of Series I) and 3,397,138 Series II bonds, with a nominal value of €169.86 million (74% of Series II). To meet these conversion requests a total of 59,559,333 new shares were issued.

Holders of bonds who took part in the voluntary conversion of March 2012 were entitled to special remuneration consisting of 14.82% of the nominal value of the bonds. This amount was paid in tranches (5% in April 2013, 5% in March 2012 and 4.82% in May 2013), subject to the same conditions as the original subordinated bonds and also to certain requirements for maintaining balances.

On the ordinary voluntary conversion date, 11 May 2012, requests were made for the conversion of 1,186 Series I bonds with a nominal value of €59,000 and 1,901 Series II bonds with a nominal value of €95,000. To meet these conversion requests a total of 28,279 new shares were issued.

On the ordinary voluntary conversion date, 12 November 2012, requests were made for the conversion of 2,170 Series I bonds with a nominal value of €108,000 and 1,182 Series II bonds with a nominal value of €59,000. To meet these conversion requests a total of 28,963 new shares were issued.

Remuneration accruing during 2012 on this product amounted to €57,362. This amount, net of corporation tax (€40.15 million), is recognised directly in equity as a deduction from reserves.

€000s
Balance as at 31-12-2011 404,812
Additions -
Subordinated bonds cancelled upon conversion 332,179
March conversion 331,857
May conversion 154
November conversion 168
Balance as at 31-12-2012 72,633
Subordinated bonds cancelled upon conversion 60,025
May conversion 530
November conversion 59,495
Balance as at 31-12-2013 12,608

e) Treasury shares

As at 31 December 2013, the Group held 102,541 treasury shares (76,316 shares as at 31 December 2012).

During 2013, stock market transactions were carried out for the purchase of 11,656,062 shares (22,014,342 in 2012) and the sale of 11,629,837 shares (22,100,646 in 2012) on which gains of €245,000 were obtained, recognised under "Reserves" in the Balance Sheet.

The breakdown of treasury stock as at 31 December 2013 and 2012 is as follows:

€000s Euros €000s
Number of shares Nominal value Average acquisition price Acquisition cost Treasury-stock reserve Percentage of capital
31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12 31-12-13 31-12-12
Bankinter, S.A. 102,459 76,316 31 23 3.43 2.95 432 226 432 226 0.01 0.01
Hispamarket, S.A. 82 - - - 3.61 3.19 - - - - - -
Total 102,541 76,316 31 23 3.30 3.07 432 226 432 226 0.01 0.01

f) Results attributed to the Group

The breakdown of the individual pre-tax results for each of the companies belonging to the Group during the financial years 2013 and 2012 is as follows:

€000s
2013 2012
Bankinter, S.A. 291,991 187,958
Bankinter Consultoría, Asesoramiento y Atención
Telefónica, S. A.		 167 853
Bankinter Gestión de Activos, S. A., SGIIC 23,976 15,806
Hispamarket, S. A. (3,091) (7,085)
Intermobiliaria, S. A. (151,240) (113,463)
Bankinter Consumer Finance, E.F.C., S.A. 33,879 31,636
Bankinter Capital Riesgo, SGECR, S. A. 266 280
Bankinter Sociedad de Financiación, S. A. 1,023 (12)
Bankinter Emisiones, S. A. - 370
Bankinter Capital Riesgo I, Fondo Capital 1,143 1,426
Grupo Línea Directa Aseguradora 128,513 121,497
Arroyo Business Consulting Development S.A (2) -
Relanza Gestión S.A 43 50
Gneis Global Services, S.A 16,952 18,223
Mercavalor (352) -
Bankinter Luxembourg, S.A. (1,081) -
Naviera Goya, S.L and Naviera Sorolla, S.L (4) -
Castellana Finance Limited - -

The result of the companies consolidated by the equity method for years 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Mercavalor, S.V., S.A.(*) (27) (75)
Eurobits Technologies, S.L. 68 (57)
Helena Activos Líquidos, S.L. (56) (9)
Bankinter Seguros Generales, S.A (644) -
Bankinter Seguros de Vida, S.A. de Seguros y Reaseguros 16,204 17,818
15,545 17,677

(*) Accounted for using the equity method until September 2013

g) Earnings per share

Earnings per share are calculated by dividing profit attributable to the Group by the weighted average number of ordinary shares in circulation during the financial year, excluding any treasury stock acquired by the Group. In financial years 2013 and 2012, earnings per share are as follows:

2013 2012
Profit for the year (€000s) 215,424 124,654
Average number of shares (000s) 784,085 521,177
Earnings per share (euros) 0.27 0.24

To calculate diluted earnings per share, the weighted average number of ordinary shares in circulation is adjusted to reflect the conversion of all the potentially dilutive ordinary shares. The potentially dilutive ordinary shares that the Group holds are bonds convertible into shares. It is assumed that convertible bonds are converted into common shares.

The calculation of diluted earnings per share for the Group is as follows:

2013 2012
Diluted profit for the year (€000s) 215,424 124,654
Average number of diluted shares (000s) 793,197 527,659
Diluted earnings per share (euros) 0.27 0.23

h) Dividends and remuneration

The Bank has a system of quarterly dividend payments, in January, April, July and October of each year.

The breakdown of the dividends distributed from results of 2013 and 2012 is as follows, not including treasury shares in the Bank's possession:

Date Dividend per
Share (Euros)		 Number of
shares		 Amount
(€000s)		 Date approved
by Board		 Results
for the year
Jul 2012 0.028661 536,506,626 15,375 Jun 2012 2012
Oct 2012 0.027276 563,777,178 15,375 Oct 2012 2012
Jan 2013 0.027275 563,806,141 15,375 Dec 2012 2012
Apr 2013 0.027272 563,806,141 15,375 Feb 2013 2012
Total 0.110484 61,500
July 2013 0.0184252 877,175,614 16,161 Jun 2013 2013
Oct 2013 0.0188483 877,175,614 16,531 Oct 2013 2013
Jan 2014 0.0222344 895,583,800 19,910 Dec 2013 2013
Apr 2014 0.0014000 895,583,800 1,254 Feb 2014 2013
Total 0.060908 52,602

The provisional accounting statements drawn up by the Bank in accordance with legal requirements, which prove the existence of sufficient resources for the distribution of interim dividends, were as follows:

June
2013		 September
2013		 December
2013
First Second Third
Profit after tax (€000s) 114,107 130,765 210,770
Dividends paid (€000s) - 16,161 32,691
Interim dividend (€000s) 16,161 16,531 19,910
Accumulated interim dividends (€000s) 16,161 32,691 52,602
Gross dividend per share (euros) 0.0184252 0.0188483 0.0222344
Payment date Jul.-13 Oct.-13 Jan-14

23.Valuation adjustments (equity)

The breakdown of this item is as follows:

€000s
31-12-13 31-12-12
Financial assets available for sale 41,605 3,145
Foreign currency translation 201 209
Entities accounted for using the equity method 1,366 (302)
43,172 3,052

24.Contingent risks and commitments

The composition of this item is as follows:

€000s
31-12-13 31-12-12
Contingent risks:
Financial guarantees- 661,879 631,925
Financial guarantees 661,879 631,925
Loan derivatives sold - -
Other financial guarantees - -
Assets associated with third-party obligations - -
Irrevocable documentary credits 123,893
Other guarantees and sureties given 1,676,110
Other contingent risks 50,937
2,401,895 2,482,865
Contingent commitments:
Available to third parties 8,237,265 6,684,740
Commitments to purchase financial assets in instalments 10,021 13,209
Contractual agreements to acquire financial assets 5,278,585 4,524,597
Subscribed securities pending disbursement 120 120
Other contingent commitments 22,728 16,993
13,548,719 11,239,659

The item "Contingent commitments available by third parties" consists entirely of commitments on immediately available credit.

25.Transfers of financial assets

The breakdown of transfers of financial assets carried out by the Group at 31 December 2013 and 2012 is as follows:

€000s
31-12-13 31-12-12
Removed from the balance sheet prior to 1 Jan. 2004 960,824 1,099,471
Retained in the balance sheet in full 3,290,485 4,276,316
4,251,309 5,375,787

During 2013 the Bankinter 12 FTH securitisation fund was prepaid.

During 2012 the following securitisation funds were prepaid: Bankinter 14 FTH, Bankinter 15 FTH, Bankinter 17 FTA, Bankinter 18 FTA, BK Empresas 1 FTA and BK Leasing I.

The derecognised assets refer to the loans securitised prior to 1 January 2004, as described below:

  • In 2003, mortgage loans valued at €1.35 billion were transferred to "Bankinter 6, Asset Securitisation Fund", and loans to SMEs valued at €250 million were transferred to "Bankinter I FTPYME, Asset Securitisation Fund".
  • In 2002 mortgage loans valued at €1.03 billion were transferred to "Bankinter 4, Mortgage Securitisation Fund", and mortgage loans valued at €710 million were transferred to "Bankinter 5, Mortgage Securitisation Fund".
  • In 2001 mortgage loans valued at €1.33 billion were transferred to "Bankinter 3, Mortgage Securitisation Fund".
  • In 1999, mortgage loans valued at €600 million were transferred to "Bankinter 1, Mortgage Securitisation Fund", and mortgage loans valued at €320 million were transferred to "Bankinter 2, Mortgage Securitisation Fund".

Assets retained in their entirety on the Bank's balance sheet, according to the criteria referred to in Note 5 section (i), refer to loans securitised after 1 January 2004 as described below.

As at 31 December 2013 the Balance Sheet included securitisation bonds issued by securitisation funds forming part of the consolidated Group for an amount of €883.81 million (€1.54 billion as at 31 December 2012). These securities are recognised as liabilities in the Balance Sheet, as deductions from the amount of the corresponding issues under the heading "Customer deposits".

The main characteristics of the securitisations carried out subsequent to 1 January 2004 are as follows (amounts in €000s):

Fund Series Rating Amount Interest Maturity
Serie A Aaa/AAA: 471,800 Eur 3 m. + 0.21% 26-09-2040
BK 7 FTH Serie B A2/A: 13,000 Eur 3 m. + 0.55%
Serie C Baa3/BBB: 5,200 Eur 3 m. + 1.20%
Total 490,000
Serie A Aaa/AAA: 1,029,300 Eur 3 m. + 0.17% 15-12-2040
BK 8 FTA Serie B A2/A: 21,400 Eur 3 m. + 0.48%
Serie C Baa3/BBB: 19,300 Eur 3 m. + 1.00%
Total 1,070,000
Serie A1 (P) Aaa/AAA: 66,600 Eur 3 m. + 0.07% 16-07-2042
Serie A2 (P) Aaa/AAA: 656,000 Eur 3 m. + 0.11%
Serie B (P) A2/A+: 15,300 Eur 3 m. + 0.50%
Serie C (P) Baa3/BBB: 7,100 Eur 3 m. + 0.95%
Total (1) 745,000
BK 9 FTA Serie A1 (T) Aaa/AAA: 21,600 Eur 3 m. + 0.07% 16-07-2042
Serie A2 (T) Aaa/AAA: 244,200 Eur 3 m. + 0.11%
Serie B (T) A1/A: 17,200 Eur 3 m. + 0.50%
Serie C (T) Baa1/BBB-: 7,000 Eur 3 m. + 0.95%
Total (2) 290,000
Total 1,035,000
BK 10 FTA Serie A1 Aaa/AAA: 80,000 Eur 3 m. + 0.08% 21-06-2043
Serie A2 Aaa/AAA: 1,575,400 Eur 3 m. + 0.16%
Serie B A1/A: 20,700 Eur 3 m. + 0.29%
Serie C Baa1/BBB-: 22,400 Eur 3 m. + 0.70%
Serie D Ba3/BB-: 19,100 Eur 3 m. + 2.00%
Serie E Caa3/CCC- 22,400 Eur 3 m. + 3.90%
Total 1,740,000
Serie A1 Aaa/AAA: 30,000 Eur 3 m. + 0.05% 21-08-2048
Serie A2 Aaa/AAA: 816,800 Eur 3 m. + 0.14%
Serie B Aa3/A: 15,600 Eur 3 m. + 0.30%
BK 11 FTH Serie C Baa1/BBB-: 15,300 Eur 3 m. + 0.55%
Serie D Ba3/BB-: 9,800 Eur 3 m. + 2.25%
Serie E Ca 12,500 Eur 3 m. + 3.90%
Total 900,000
Fund Series Rating Amount Interest Maturity
Serie A1 Aaa/AAA: 49,000 Eur 3 m. + 0.06% 16-05-2043
Serie A2 Aaa/AAA: 682,000 Eur 3 m. + 0.12%
Serie B Aa3/A+: 16,200 Eur 3 m. + 0.22%
BK 2 Pyme FTA Serie C Baa2/BBB 27,500 Eur 3 m. + 0.52%
Serie D Ba3/BB 10,700 Eur 3 m. + 2.10%
Serie E C/CCC- 14,600 Eur 3 m. + 3.90%
Total 800,000
Serie A1 Aaa/AAA: 85,000 Eur 3 m. + 0.06% 17-07-2049
Serie A2 Aaa/AAA: 1,397,400 Eur 3 m. + 0.15%
Serie B Aa3/A: 22,400 Eur 3 m. + 0.27%
BK 13 FTA Serie C A3/BBB 24,100 Eur 3 m. + 0.48%
Serie D Ba1/BB- 20,500 Eur 3 m. + 2.25%
Serie E Ca/CCC- 20,600 Eur 3 m. + 3.90%
Total 1,570,000
Serie A AAA 83,700 Eur 3 m. + 0.30% 08-01-2050
Serie B1 AA 26,000 Eur 3 m. + 0.70%
CASTELLANA Serie B2 AA 10,000 Eur 3 m. + 0.85%
FINANCE Serie C1 A+ 38,700 Eur 3 m. + 1.20%
Serie C2 A 23,900 Eur 3 m. + 1.50%
Serie D 2,850 Eur 3 m. + 7.00%
Total 185,150
Serie A1 Aaa/AAA: 180,000 Eur 3 m. + 0.09% 18-02-2046
Serie A2 Aaa/AAA: 288,900 Eur 3 m. + 0.20%
A3 Series
(guaranteed)		 Aaa/AAA: 91,200 Eur 3 m. + 0.02%
BK 3 FTPyme FTA B-Series Aa3/AA: 23,100 Eur 3 m. + 0.35%
Serie C Baa2/BBB 6,000 Eur 3 m. + 0.90%
Serie D Ba3/BB 10,800 Eur 3 m. + 1.80%
Serie E C/CCC- 17,400 Eur 3 m. + 3.90%
Total 617,400
Serie A1 AAA 160,000 Eur 3 m. + 0.32% 18-10-2051
Serie A2 AAA 174,400 Eur 3 m. + 0.30%
BK 4 FTPyme FTA Serie A3
(guaranteed)		 AAA 19,600 Eur 3 m. + 0.34%
Serie B A 30,000 Eur 3 m. + 0.50%
Serie C BBB 16,000 Eur 3 m. + 0.70%
Total 400,000

Outstanding balances of securitisations as at 31 December 2013 and 2012 were as follows:

€000s
31-12-13 31-12-12
Removed from the balance sheet prior to 01-01-04:
Bankinter 2 Mortgage Securitisation Fund 27,633 33,910
Bankinter 3 Mortgage Securitisation Fund 194,304 229,548
Bankinter 4 Mortgage Securitisation Fund 210,598 241,386
Bankinter 5 Mortgage Securitisation Fund 150,152 169,934
Bankinter 6 Mortgage Securitisation Fund 378,137 424,693
960,824 1,099,471
Retained on the balance sheet in full:
Bankinter 7 Mortgage Securitisation Fund 138,384 153,184
Bankinter 8 Asset Securitisation Fund 304,377 340,346
Bankinter 9 Asset Securitisation Fund 388,709 429,232
Bankinter 10 Asset Securitisation Fund 677,825 743,651
Bankinter 11 Mortgage Securitisation Fund 409,087 446,216
Bankinter 12 Mortgage Securitisation Fund - 606,926
Bankinter 2 Asset Securitisation Fund 165,139 207,993
Bankinter 13 Asset Securitisation Fund 831,214 898,701
Bankinter 3 Asset Securitisation Fund 212,529 254,599
Bankinter 4 Ftpymes, Asset Securitisation Fund 163,221 195,468
3,290,485 4,276,316

The amount of the associated financial liabilities as at 31 December 2013 was €2.32 billion (€2.63 billion at 31 December 2012).

26.Financial derivatives

Details of the notional values of the financial derivatives held by the Group as at 31 December 2013 and 2012 are as follows:

€000s
31-12-13 31-12-12
Financial derivatives (Notes 7 and 10):
Exchange-rate risk 6,341,818 6,701,672
Interest-rate risk 12,068,282 17,996,801
Equity risk 3,159,720 3,159,866
Credit risk - -
21,555,820 27,858,339

The notional amount of the contracts does not reflect the actual risk assumed by the Group in relation to such instruments.

27.Personnel expenses

The composition of the amounts included under this item in the consolidated income statement for financial years 2013 and 2012 is as follows:

€000s
2013 2012
Salaries and bonuses paid to active staff 262,723 244,105
Social Security contributions 58,371 57,387
Contributions to defined benefit plans 1,160 1,905
Contributions to defined plans 55 117
Severance packages 11,602 20,534
Other personnel expenses 22,922 18,450
356,833 342,498

The breakdown of the Group's personnel as at 31 December 2013 and 2012, in accordance with pension commitments, was as follows:

31-12-13 31-12-12
Active employees in service since before 8 March 1980 268 302
Personnel that are pension beneficiaries 69 59
Early retirees 16 38
Other active employees 3,820 3,853

Post-employment benefits

As regards pension commitments, under the terms of the Collective Labour Agreement in force, for personnel employed since before 8 March 1980 and for certain members of personnel according to individually established agreements, the Bank has undertaken the commitment to complement Social Security payments in cases of retirement (as defined benefits). This provident scheme is managed and guaranteed, externally as regards the management of the Bank, by means of a number of insurance policies covering all its risks, both financial (returns and changes in interest rates) and demographic (survival), thus obtaining firstly a high degree of immunisation and diversification among the various insurers; and secondly, the guarantee of an external management of the scheme as regard the risks of the Bank itself.

Additionally, there is a group of early retirees who retired early in December 2002 and December 2003, to whom the Bank has committed to pay a financial benefit in fourteen monthly amounts not subject to revaluation until the date on which they attain 65 years of age, this amount being established individually with each early retiree, and a financial benefit in twelve monthly instalments until the date on which they attain 65 years of age for the contributions to the Special Social Security Agreement, on the terms established with each early retiree, which are subject to revaluation in accordance with increases in the Minimum Bases for Self-Employed Workers / Maximum Contribution Bases.

Lastly, for members of Senior Management appointed in or after 2012, a single contribution of €656,560 will be made to a Unit-Linked contract with AXA Seguros y Reaseguros S.A., such that in the event of retirement, death or incapacity, the beneficiary will receive the funds accumulated in the Unit-Linked contract at the time of the loss.

Other long-term benefits

Moreover, under the Collective Bargaining Agreement in force, the Bank has undertaken the commitment to complement Social Security payments to total, if necessary, certain payments for permanent invalidity, widowhood or orphanhood.

In order to cover the aforementioned pension commitments, the Bank has an insurance policy with Winterthur Seguros y Reaseguros S.A. (now AXA Seguros y Reaseguros S.A. as a result of the subsequent merger of the two companies) backed by the unconditional guarantee of the parent company, Winterthur A.G., which guarantees the future coverage of all pension supplements payable to non-active staff arising prior to financial year 2003. In addition, for non-active staff as from 2003 and for the cover of active staff, the aforementioned benefits are guaranteed under a co-insurance policy in which Winterthur Seguros y Reaseguros (now AXA Seguros y Reaseguros S.A.) has a 40% participation, acting as lead co-insurer, while Caser Ahorrovida S.A. de Seguros y Reaseguros and Allianz, Compañía de Seguros y Reaseguros S. A. each have a 30% participation.

In 2013 regular premiums paid for retirement cover, net of recoveries, totalled -€0.43 million (-€6.86 million in 2012)

Premiums paid for death and incapacity cover in 2013 amounted to €0.11 million, unchanged from 2012.

Active personnel

The basic assumptions used for the calculations in the actuarial study as at 31 December 2013 and 2012 for commitments to active personnel, are as shown in the following table:

31-12-13 31-12-12
Mortality Probabilities set in the GKM/-
95 tables, at 80%		 Probabilities set in the GKM/-
95 tables, at 80%
Survival
Men Probability associated with
PERM-2000 P table		 Probability associated with
PERM-2000 P table
Women Probability associated with
PERF- 2000 P table		 Probability associated with
PERF- 2000 P table
NPVdiscount rate iBoxx Corporate AA + 10 rate
of 3 Dec. 2013		 iBoxx Corporate AA + 10 rate
of 3 Dec 2012
Rise in CPI of 2% 2%
Rise in salaries 3.50% for remuneration items
linked to the collective
bargaining agreement		 3.50% for remuneration items
linked to the collective
bargaining agreement
Social Security evolution
Rise in Maximum
Bases 2% 2%
Maximum pension: 2% 2%

The most significant aspects of the actuarial study carried out as at 31 December 2013 and 2012 are as follows:

€000s
31-12-13 31-12-12
Value of the obligations 32,400 29,359
Fair value of plan assets:
Allianz 9,911 9,769
Caser 9,911 9,769
AXA 13,215 13,025

One significant aspect of the difference between the actuarial values as at 31 December 2012 and 2013 is that the additions to provisions for retirement commitments were increased as a consequence of the evolution of the financial markets during 2013. As at 30 October 2012 the 23-year return - this being the average financial duration of the commitments undertaken - based on the iBoxx Corporate AA10+ curve was 3.60%, and as at 3 December 2013, the 21-year return, based on the iBoxx Corporate AA10+ rate, stood at 3.10%, as a result of which coverage of pension commitments was increased by €2.65 million.

The financial duration of the payment obligations assumed or accrued at year-end for personnel in service is 21.48 years, distributed as follows:

up to 5 years 3%
from 5 to 10 years 11%
From 10 to 15 years 17%
from 15 to 20 years 17%
>20 years 52%

Personnel that are pension beneficiaries

The most significant aspects of the actuarial study carried out as at 31 December 2013 and 2012 are as follows:

31-12-13 31-12-12
Value of the obligations 9,524 9,012
Fair value of the plan assets 9,493 8,977
Actuarial assumptions
Tables used
Pensions deriving from the
initial premium		 PERMF/2000 P PERMF/2000 P
Pensions deriving from
subsequent contributions		 PERMF/2000 P PERMF/2000 P
Technical interest rate iBoxx Corporate AA + 10 rate
of 3 Dec. 2013		 iBoxx Corporate AA + 10 rate
of 3 Dec 2012
Rise in salaries Not applicable Not applicable
Pension revaluation rate Not applicable Not applicable

One significant aspect of the difference between the actuarial values as at 31 December 2012 and 2013 is that the additions to provisions for retirement commitments were increased as a consequence of the evolution of the financial markets during 2013. As at 31 October 2012 the 13-year return - this being the weighted average duration of the commitments undertaken - based on the iBoxx Corporate AA 10+ curve was 3.60%, and as at 3 December the return was 3.10% based on iBoxx Corporate AA10+ rates, the weighted average duration of payments committed to being 12 years for commitments assumed as at December 2013. Consequently the amounts corresponding to cover of pension commitments were increased by €435,000.

The financial duration of the payment obligations assumed or accrued at year-end for personnel in service is 12.04 years, distributed as follows:

up to 5 years 27%
from 5 to 10 years 23%
From 10 to 15 years 18%
from 15 to 20 years 13%
>20 years 19%

Men Probability associated with PERM-2000 P table. Probability associated with PERM-2000 P table. Women Probability associate with PERF-2000 P table. Probability associate with PERF-2000 P table. NPV discount rate Early retirement stage Retirement stage iBoxx Corporate AA 1-3 yr. rate 3 Dec. 2013 iBoxx Corporate AA + 10 rate of 3 Dec. 2013 iBoxx Corporate AA 1-3 yr. rate 3 Dec. 2012 iBoxx Corporate AA + 10 rate of 3 Dec. 2012 Rise in CPI: Early retirement stage 2% for re-valuable benefits 2% for re-valuable benefits Retirement stage 2% 2% Rise in salaries Retirement stage Not applicable Not applicable Changes in Social Security: - - Rise in Maximum Bases 2% 2% Maximum pension: 2% 2%

Survival:

31-12-13 31-12-12

Early retirees. Post-employment and other long-term benefits

In 2002 and 2003 the Bank organised two early retirement schemes for employees. The commitments undertaken towards them up until the date of retirement were insured with Nationale-Nederlanden Vida. Commitments to early retirees from the date of retirement are covered by the same co-insurance policy subscribed with Winterthur (now AXA) (40%), Allianz (30%) and Caser (30%) to cover personnel currently in service and entitled to a pension from 2003 on.

The basic assumptions used for the calculations in the actuarial study, as at 31 December 2013 and 2012, for commitments to active personnel, are as shown in the following table:

For the retirement stage of early retirees and for the part accrued and not accrued at 31 December 2013 and 2012, the same profitability as mentioned previously for commitments undertaken with active personnel were used.

The most significant aspects of the actuarial study carried out as at 31 December 2013 and 2012 are as follows:

31-12-13 31-12-12
Early Early
retirement Retirement retirement Retirement
stage stage stage stage
Other long-term benefits:
Early retirees 2002 5 205
Early retirees 2003 1,356 2,571
Post-employment benefits
Early retirees 2002 204 239
Early retirees 2003 5,367 6,981
Pension-linked insurance
agreements
Nationale Nederlanden Vida 1,327 - 2,750 -
Plan Assets
Allianz, Compañía de Seguros y
Reaseguros, S.A. - 1,671 - 2,245
Caser, S.A. de Seguros y Reaseguros
sobre la Vida - 1,671 - 2,245
Winterthur Vida, S.A. de Seguros y
Reaseguros sobre la Vida - 2,228 - 2,994

As regards commitments to early retirees, a significant aspect of the difference between the actuarial valuations as at 31 December 2012 and 2013 is that the contributions for pension commitments were reduced considerably as a result of a large proportion of this group's retiring.

As regards post-employment commitments, a significant aspect of the difference between the actuarial valuations as at 31 December 2012 and 2013 is that the contributions for pension commitments were reduced considerably as a result of benefits originally envisaged as income being taken as capital.

Explanation of changes in defined benefit pension commitments as at 31 December 2013 (relative to 31 December 2012) and their cover:

€000s
Valuation of commitments as at 31-12-2012: 48,368
Active Personnel 29,359
Early retirees (early retirement stage) 2,776
Early retirees (retirement stage) 7,221
Personnel who are pension beneficiaries 9,012
Changes in obligations during financial year 2013: 487
Accruals for the year 2013: 934
Pension fund interest: 1,681
Reductions for payments of benefits or cancellation of commitments: (5,682)
Actuarial profits and losses (deviation and changes to assumptions) 3,554
Breakdown: due to demographic assumptions – (€75,000).
due to financial assumptions – €3.63 million.
Valuation of commitments as at 31-12-2013: 48,855
Active Personnel 32,400
Early retirees (early retirement stage) 1,360
Early retirees (retirement stage) 5,571
Personnel who are pension beneficiaries 9,524
Coverage of obligations as at 31-12-2012: 51,773
Plan assets 49,023
Pension-linked insurance agreements 2,750
Other funds 0
Return anticipated from plan assets/insurance contracts: 1,736
Actuarial gains / (losses) 4,699
Contributions 488
Recoveries (5,230)
Benefits paid (4,037)
Coverage of obligations as at 31-12-2013: 49,429
Plan assets
Pension-linked insurance agreements		 48,102
1,327

Reconciliation of the components of pension expenses

€000s
Period ended 31 December 2013 Present value
of committed
benefits		 Value of the
associated funds
Value as at 1 January 2013 48,368 51,773
Normal cost (annual accrual) 934
Interest Cost (financial expenses) 1,681
Expected return on plan assets 1,736
Company contributions 488
Company recoveries (5,230)
Benefits paid (4,040) (4,037)
Early retiree risk premiums earned (6)
Reduction in commitments
Actuarial losses / (gain)		 (1,637)
3,555
(Losses) / gains on the value of the fund 4,699
Value as at 31 December 2013 48,855
49,429

Sensitivity to changes in the main valuation assumptions:

Changes in interest
rate Salary increases Survival
Year
end		 - 0.5%
2.6%		 + 0.5%
3.6%		 - 0.5%
3%		 + 0.5%
4%		 tablas PERM/F -
1 año
Present value of
committed benefits		 48,855 52,943 45,216 47,754 49,996 50,156
Value of the
associated funds		 49,429 53,523 45,784 49,256 49,463 50,724

The following is the reconciliation between the present value of defined benefit obligations and the fair value of the plan assets with the assets and liabilities recognised in the Balance Sheet as at 31 December 2013:

Post-employment benefits

Active, passive and early-retired personnel

Present value of committed benefits 47,464
Value of the associated funds 48,102
Pension assets 638

Other liabilities

Present value of committed benefits 31
Value of the associated funds 0
Pension liabilities 31

Other long-term benefits

Early retirees

Present value of committed benefits 1,360
Value of the associated funds 0
Pension liabilities 1,360
Insurance agreements linked to pensions 1,327

Pension costs incurred in 2013 for defined benefit commitments

The total cost recognised in the Income Statement for 2013 for coverage of pension commitments amounts to (€0.69 million), as per the following breakdown:

€000s
Cost of services in the current period: 934
Financial expenses (55)
Reduction in pension commitments (1,637)
Actuarial gains and losses (early retirees) 71

The method for determining pension costs has been changed to conform to Banco de España Circular 5/2013, of 30 October. This regulatory change entailed an increase in pension expenses (reduction in resulting income) for 2013 of €1.21 million, which was recognised in the Bank's reserves. If the new Circular had been applied in 2012, the impact on the accounting cost would have been a reduction (increase in resulting income) of €1.97 million.

The Bank's estimate of pension expenses for 2014 is €0.83 million.

Breakdown of plan assets associated with cover of defined benefit commitments

The following is a breakdown of insurance policies taken out with the various insurance institutions (at fair value):

Percentage
Axa – Winterthur 44%
Allianz 27%
Caser 26%
Nationale Nederlanden 3%

The expected return on plan assets at the beginning of the year was €1.74 million, whereas the actual return obtained was €6.43 million, the change being due almost entirely to the fall in market interest rates over the course of the year, leading to an increase in the value of the assets.

The Bank's estimate of expected contributions to the plan (net of recoveries) for 2014 is €0.69 million.

The expected return on plan assets for 2014 estimated at the start of the year is €1.47 million.

Details of changes in the present value of defined benefit pension commitments and the assets assigned to cover them as at each year-end

€000s
Defined Benefit Assets Net
actuarial
gains and
Year Obligations Assigned Other Funds Deficit/Surplus losses
2009 67,525 67,396 129 - 1,022
2010 73,154 74,925 44 1,814 1,090
2011 64,869 70,835 39 6,005 8,503
2012 48,368 51,773 35 3,440 6,535
2013 48,855 49,429 31 605 1,210

Pension costs incurred in 2013 for defined contribution commitments

The total cost recognised in profit and loss in 2013 for coverage of defined contribution pension commitments amounted to €55,000.

The average number of employees by category and sex during financial years 2013 and 2012 was as follows:

2013 2012
Men Women Men Women
Managers 405 168 393 170
Executives 973 823 957 780
Operatives 627 1,088 677 1,157
2,005 2,079 2,027 2,107

The breakdown of personnel by sex and category as at 31 December 2013 and 2012 was as follows:

2013 2012
Men Women Men Women
Managers 407 172 399 172
Executives 999 852 943 790
Operatives 604 1054 643 1121
2,010 2,078 1,985 2,083

28.Fees received and paid

Details of this heading in the consolidated income statement for the years ended 31 December 2013 and 2012 are as follows:

€000s
2013 2012
Fees expense:
Fees paid to other institutions and correspondents 24,323 29,010
Fees paid to brokers, virtual banking 23,861 19,596
Other fees 15,879 22,009
Total fees expense 64,063 70,615
Fee income:
For guarantees and documentary credits 29,500 27,853
For exchange of foreign currencies and foreign banknotes 7,678 7,499
For contingent commitments 15,819 14,139
For collections and payments- 70,340 58,573
Trade bills 5,271 5,468
Sight accounts 15,384 11,833
Credit and debit cards 33,938 32,867
Cheques 1,023 1,443
Payment orders 14,724 6,962
For securities services- 49,455 40,753
Underwriting and placement of securities 1,248 2,761
Securities trading (Note 40) 22,906 18,844
Administration and custody of securities 19,447 18,125
Wealth management (Note 10) 5,853 1,023
For the marketing of non-banking financial products- 101,478 87,546
Investment funds 50,029 36,928
SICAVs 7,432 6,130
Pension funds 4,533 3,912
Insurance 39,257 40,287
Other (advisory services) 226 289
Other fees 38,812 38,092
Total fee income 313,082 274,455

29.Interest and similar charges/income

The breakdown of these items in the consolidated income statement, in accordance with the nature of the operations that give rise to the results, for the financial years ended 31 December 2013 and 2012 is as follows:

€000s
Interest and similar income 2013 2012
Deposits with Banco de España (Note 6) 1,417 2,240
Deposits with credit institutions (Note 10) 10,268 28,128
Money market transactions through counterparties 3,027 5,429
Customer loans (Note 10) 1,074,747 1,286,893
Debt instruments 358,858 371,980
Impaired assets 18,471 18,936
Income corrections from hedging operations 6,652 (9,908)
Income from insurance contracts linked to pensions and
similar obligations		 1,715 1,856
Other interest 1,075 2,142
1,476,230 1,707,696

In 2013, the heading "Customer loans" includes €445.72 million corresponding to transactions with tangible security (€686 million in 2012). The item "debt securities" includes, in 2013, €269.98 million corresponding to State Debt (€257.19 million in 2012).

€000s
Interest expense and similar charges 2013 2012
On deposits with the Banco de España 41,316 81,629
On deposits with credit institutions 128,098 139,655
On money-market transactions through counterparties 1,591 7,921
On customer loans 421,719 423,922
On debt represented by negotiable securities (Note 19) 251,982 400,285
Subordinated liabilities (Note 19) 32,820 39,005
Expense corrections from hedging transactions (42,752) (48,543)
Pension fund interest costs 1,660 1,787
Other interest 3,892 1,780
840,326 1,047,441

The item "Debts represented by negotiable securities" (Note 19) includes in 2013 interest and charges for transactions with promissory notes and commercial paper to the value of €38.56 million (€107.45 million in 2012).

The average annual interest per item during financial years 2013 and 2012 was as follows:

31-12-13 31-12-12
Average Average
interest interest
Similar income:
Deposits with central banks 0.36% 0.46%
Deposits with credit institutions 0.47% 1.02%
Loans and advances to customers (a) 2.70% 3.06%
Debt instruments 3.23% 3.73%
Similar costs:
Deposits from central banks 0.58% 0.89%
Deposits from credit institutions 1.79% 1.91%
Customer resources (c) 1.73% 2.07%
Customer deposits 1.64% 1.94%
Marketable debt securities 1.97% 2.27%
Subordinated liabilities 4.62% 3.93%

30.Trading income

The breakdown of these items in the consolidated income statement for the years ended 31 December 2013 and 2012 is as follows:

€000s
2013 2012
From financial assets and liabilities held for trading (Note 7) 18,163 30,510
From debt securities 21,822 27,539
Other equity instruments 14,758 (12,982)
Trading derivatives (18,417) 15,953
Other financial instruments at fair value through profit and
loss account (Note 7)		 8,228 (1,952)
Other equity instruments 8,228 (1,952)
From financial assets available for sale (Note 8) 106,293 26,380
From debt securities 99,435 23,386
Other equity instruments 6,858 2,994
From financial liabilities at amortised cost 54,136 47,322
Debt instruments 38,360 43,085
Subordinated liabilities 5,777 4,237
Other subordinated liabilities 9,999 -
Other income and expense 1,844 2,593
188,664 104,853

31.Foreign currency translation (net)

The amount of the net foreign currency translation recognised in the consolidated Income Statement for the year ended 31 December 2013 was €40.09 million (€40.28 million in the year ended 31 December 2012).

The breakdown by currency of the assets and liabilities in the Group's balance sheet denominated in foreign currencies as at 31 December 2013 and 2012 is as follows:

€000s
2013 2012
Assets Liabilities Assets Liabilities
US dollar 392,879 576,839 334,129 460,900
Sterling 95,592 51,080 88,543 37,386
Japanese yen 2,291,059 8,278 3,290,617 5,871
Swiss franc 661,605 5,083 731,185 12,982
Norwegian krone 2,471 884 2,505 1,122
Swedish krona 1,089 416 1,421 649
Danish krone 85 2,115 13,813 135
Others 12,961 8,805 14,507 7,887
3,457,741 653,500 4,476,720 526,932

The breakdown of assets and liabilities denominated in foreign currencies as at 31 December 2013 and 2012 is as follows:

€000s
2013 2012
Assets Liabilities Assets Liabilities
Cash and balances with central banks 967 - 1,214 -
Financial assets and liabilities held for 1,769 3,372
trading 1,706 3,357
Loans and receivables 3,369,317 - 4,470,838 -
Financial assets available for sale 85,541 - 1,205 -
Accrued expenses and deferred
income		 40 - 45 -
Financial liabilities at amortised cost - 651,766 - 523,537
Other 107 28 46 38
3,457,741 653,500 4,476,720 526,932

32.Other general administrative expenses

The composition of the amounts included under this item in the consolidated income statement for financial years 2013 and 2012 is as follows:

€000s
2013 2012
Taxes 7,031 6,923
Buildings and supplies 32,353 31,187
Entertaining and travel expenses 4,607 4,139
Material and sundry expenses 12,672 12,320
External services 71,821 71,829
Software and communications 47,566 49,003
Advertising 59,312 57,888
Other expenses 24,563 23,217
259,925 256,506

33.Other operating income and expense

The breakdown of this item in the consolidated income statement for the years ended 31 December 2013 and 2012 is as follows:

€000s
2013 2012
Income Expenses Income Expenses
Income from the operation of investment property
and other operating leases		 6,536 - 7,305 -
Financial fees setting off direct costs 9,270 - 12,146 -
Contribution to the Deposit Guarantee Fund (Note 4) - 39,199 - 68,775
Income and expense from/on insurance and
reinsurance policies issued		 652,217 380,758 667,712 404,997
Other 7,996 18,769 11,010 9,053
676,019 438,726 698,173 482,825

The amount recognised under the heading "Contribution to the Deposit Guarantee Fund" is the result of the calculation made according to the rules described in Note 4.

The item "financial fees setting off direct costs" contains the part of the fees that offset direct costs linked to investment products.

The amounts shown under the heading Income and Expense on insurance and re-insurance contracts issued correspond to the operating activity of Línea Directa Aseguradora.

34.Gains and losses on derecognition of assets not classified as non-current assets held for sale and Gains and losses on non-current assets held for sale not classified as discontinued operations

The breakdown of these items in the consolidated income statement for the years ended 31 December 2013 and 2012 is as follows:

€000s
2013 2012
Differences in the derecognition of assets not classified as
non-current assets held for sale:
Gains on disposal of property, plant and equipment (Note 14) 9 253
Losses on disposal of property, plant and equipment (Note 14) (1,878) (2,675)
Gains on disposal of shares - 41,673
Gains on disposal of other equity instruments 21 50
(1,848) 39,301
Gains / (Losses) on non-current assets held for sale not
classified as discontinued operations:
Impairment losses on assets (Note 12) (42,348) (40,132)
Gains on disposals 77,791 55,870
Losses on disposals (128,234) (70,447)
(92,791) (54,709)

During 2012 the Group recognised €24.23 million under the heading "Gains on disposal of equity holdings" in respect of the first variable payment associated with the sale in 2007 of 50% of the shares in Bankinter Seguros de Vida S. A. to Mapfre Vida S. A. This variable payment is linked to the attainment of the business plan established for the Company.

Additionally, the Group recognised €17.45 million under this same heading for the sale in December 2012 of 40.1% of the share capital of Bankinter Seguros Generales, S.A de Seguros y Reaseguros to the Mapfre Group (Note 13).

35.Transactions and balances with related parties

The breakdown of transactions and balances with Group entities and other related entities and private individuals as at 31 December 2013 and 2012 is provided in Appendix I and the following Note 36.

36.Remuneration of and balances with members of the Board of Directors

Directors' remuneration

As it has demonstrated year after year, the Group pursues a remuneration policy in line with the principles and recommendations of good corporate governance and currently applicable laws and regulations. On 21 March 2013 Bankinter presented a remuneration policy report to its AGM for a consultative vote. The report included information on the Bank's general policy in this area, its application to financial year 2012 and the remuneration system applying to financial year 20131, a good corporate governance practice that the Group has carried out every year since the 2008 AGM. The remuneration policy report was approved by 84.739% (2012: 99.607%) of the total capital in attendance and represented at the aforementioned 2013 General Meeting of Shareholders. Among other information, it contained the remuneration for the Board and top management for the financial year 2013, which is detailed and broken down in this note.

This report also included the conclusions of the analysis of the degree to which the Group's remuneration policy as applied to Directors, Senior Management and other persons included in the Group's "risk takers" conformed to the rules set out in Royal Decree 771/2011. Since 2009, Bankinter has carried out an exhaustive analysis of the extent to which all remuneration systems and items in all the management, business, support and control areas, including Senior Management and the Board of Directors, comply with the principles contained in all the EU and Spanish standards and recommendations issued during this period2. In general terms, as can be seen from the remuneration reports submitted to our AGM in for the last two years, the conclusion has always been that the Bank's systems, principles and policies for remuneration were in line with the fundamental principles contained in the recommendations of the FSB (Financial Stability Board) and in the relevant EU Directives, and with the recommendations of the CUBG (Unified Code of Good Governance for listed companies) and currently applicable Spanish law.

Directors' remuneration for the performance of their functions of collegiate supervision and decision-making:

As regards the remuneration for the members of Bankinter's Board of Directors, the individual breakdown of the total remuneration received in their status as directors during financial years 2013 and 2012 is as follows:

1 Law 2/2011 on Sustainable Economy amended the existing legal framework, introducing new disclosure requirements for listed companies. It established the obligation to provide a report on directors' remuneration which must be distributed and submitted to a consultative vote as a separate agenda item in the AGM, thus making the recommendation of the Unified Code of Good Corporate Governance mandatory.

2 In December 2010, Directive 2010/76 of the European Parliament and Council, of 24 November 2010, was published, concerning capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies, establishing provisions for the policies and practices of credit institutions in the area of remuneration, in particular, regarding categories of staff that have a significant impact on the institution's risk profile or are engaged in control functions. Also in December 2010, the Committee of European Banking Supervisors (CEBS) published a guide to interpreting the contents of the aforementioned Directive (Guidelines on Remuneration Policies and Practices) with the aim of clarifying and detailing the criteria to be applied in interpreting the provisions of the aforementioned Directive.

On 5 June 2011 Royal Decree 771/2011 of 3 June came into force, amending Royal Decree 216/2008 of 15 February on financial institutions' equity and Royal Decree 2606/1996, of 20 December, on guarantee funds for deposits of credit institutions and incorporating a new Chapter XII on remuneration policy of credit institutions in Royal Decree 216/2008 on financial institutions' equity, thus completing the transposition of Directive 2010/76/EU into Spanish law. This Royal Decree introduces a mandatory framework for remuneration policies of credit institutions, which is applicable to remuneration accruing in 2011 and to that granted in 2010 but not yet paid.

In euros
Directors 2013 2012
Pedro Guerrero Guerrero 209,880 223,020
María Dolores Dancausa Treviño 165,880 163,800
Cartival, S.A. 182,820 163,800
Marcelino Botín-Sanz de Sautuola y Naveda 92,436 93,677
Fernando Masaveu Herrero 123,585 127,064
John de Zulueta Greenebaum 123,481 132,362
Gonzalo de la Hoz Lizcano 122,003 115,853
Jaime Terceiro Lomba 154,405 151,458
Pedro González Grau (1) 86,732 -
Rafael Mateu de Ros Cerezo 181,544 176,702
Former directors (2) 32,241 136,057
1,475,007 1,483,793

(1) Pedro González Grau was appointed a Director of Bankinter on 21 March 2013.

(2) In the category of former directors, the amounts shown in the table for 2013 and 2012 correspond to those received by José Antonio Garay Ibargaray, who ceased to be a director of Bankinter on 21 March 2013.

At year-end 2013 the number of Directors of Bankinter S.A. stood at ten, unchanged from year-end 2012.

Pursuant to Article 32 of the Articles of Association, the following items are included in the amounts shown in the above table:

  • a fixed amount for the role of director,
  • an amount that is accrued for attendance at meetings of the Board and its Committees (attendance fees).
  • And allocation of shares.

The breakdown of the amounts shown in the previous table by individual director and by type of remuneration is as follows. Fixed remuneration and fees for attending the meetings of the Board of Directors and the Board Committees in financial years 2013 and 2012:

In Euros
2013 2012
Fixed Attendance Fixed Attendance
Directors remuneration Fees remuneration Fees
Pedro Guerrero Guerrero 72,160 93,720 72,160 106,860
María Dolores Dancausa Treviño 54,120 78,760 54,120 76,680
Cartival, S.A. 54,120 95,700 54,120 76,680
Marcelino
Botín-Sanz
de
Sautuola y Naveda 36,080 34,356 36,080 35,597
Fernando Masaveu Herrero 36,080 65,505 36,080 68,984
John de Zulueta Greenebaum 36,080 65,401 36,080 74,282
Gonzalo de la Hoz Lizcano 36,080 63,923 36,080 57,773
Jaime Terceiro Lomba 36,080 96,325 36,080 93,377
Pedro González Grau (1) 26,240 43,320 - -
Rafael Mateu de Ros Cerezo 46,904 106,040 46,904 101,198
Former directors (2) 9,840 17,512 36,080 77,977
Subtotals 443,784 760,562 443,784 769,408
Total 1,204,346 1,213,192

(1) Pedro González Grau was appointed a director of Bankinter on 21 March 2013.

(2) In the category of former directors, the amounts shown in the table for 2013 and 2012 correspond to those received by José Antonio Garay Ibargaray, who ceased to be a director of Bankinter on 21 March 2013. The individual breakdown of the allocations of shares to Directors by way of remuneration in 2013 and 2012 is as follows:

2013 2012
Amounts No. of shares Amounts No.of shares
Directors invested Allocated invested Allocated
Pedro Guerrero Guerrero 44,000 11,787 44,000 14,632
María Dolores Dancausa Treviño 33,000 8,839 33,000 10,973
Cartival, S.A. 33,000 8,839 33,000 10,973
Marcelino Botín-Sanz de Sautuola
y Naveda 22,000 5,892 22,000 7,315
Fernando Masaveu Herrero 22,000 5,892 22,000 7,315
John de Zulueta Greenebaum 22,000 5,892 22,000 7,315
Gonzalo de la Hoz Lizcano 22,000 5,892 22,000 7,315
Jaime Terceiro Lomba 22,000 5,892 22,000 7,315
Pedro González Grau (1) 17,172 4,228 - -
Rafael Mateu de Ros Cerezo 28,600 7,660 28,600 9,509
Ex consejeros (2) 4,889 1,684 22,000 7,315
270,661 72,497 270,600 89,977

(1) Pedro González Grau was appointed a Director of Bankinter on 21 March 2013.

(2) In the category of former directors, the amounts shown in the table for 2013 and 2012 correspond to those received by José Antonio Garay Ibargaray, who ceased to be a director of Bankinter on 21 March 2013.

Loans and guarantees

Loans granted to Directors as at 31 December 2013 amounted to €26.18 million (€26.33 million as at 31 December 2012). As at 31 December 2013 the Entity had outstanding guarantees in favour of its Directors for a total of €0.39 million (the same amount as at 31 December 2012).

The average term of the loans and lines of credit granted to the Bank's Directors was approximately 11 years in 2013 (the same as in 2011). The interest rates stand between 1.06% and 4.54% in 2013 (1.05% and 5.55% in 2012).

Remuneration of Executive Directors and Senior Management

As at 31 December 2013 the number of senior managers in the entity was seven, not including the Chairman, the Vice-chairman or the CEO. Taking this into account, remuneration of Senior Management3 in 2013, excluding executive directors, was €2.05 million, of which €1.59 million was fixed remuneration and €0.46 million variable remuneration. In 2012, this amount stood at €1.68 million (5 persons).

In 2013 the Chairman of the Board of Directors and the Executive Directors received the following amounts, approved by the Board of Directors at the proposal of the Nominations and Remuneration Committee as remuneration for their activity:

Fixed remuneration:

  • Pedro Guerrero, Chairman of Bankinter, received a total of €603,000, all by way of fixed remuneration.
  • Cartival, S.A., Vice-chairman of Bankinter, received a total of €378,000, all by way of fixed remuneration.
  • María Dolores Dancausa, CEO of Bankinter, received a total of €629,000, all by way of fixed remuneration.

Variable remuneration

Since the Bankinter AGM held in 2011, each year, as part of the remuneration policy report, an annual variable remuneration has been approved in favour of all Bankinter Group employees including Executive Directors, except for the Chairman, and members of Senior Management. This annual variable remuneration is linked to the attainment of the pre-tax profit objective for the Group's banking activity, as approved by the Board of Directors on the proposal of the Appointments and Remuneration Committee. Each Director has been assigned an amount that will be received if the objective is fully achieved. However, this variable incentive starts to accrue from an 80% achievement of the objective and up to a maximum of 120%, such that directors may receive between 70% and 120% of the variable amount assigned to each, depending on the degree of achievement. The attainment rates for 2013 and 2012 were 100.1% and 93.52% respectively.

3 "Senior management" shall mean those managers that report directly to the Board or to the CEO and in any case the Internal Auditor.

In the case of the two Executive Directors, the Board of Directors approved, at the proposal of the Appointments and Remuneration Committee, the application of certain measures on variable remuneration accrued in 2011 and 2012 (for remuneration accrued in 2012 these measures were also applied to senior management's variable remuneration), as introduced by Royal Decree 771/2011 of 3 June, and more specifically the deferral of 40% of the accrued incentive over three years by the linear method as well as the payment of 50% of the total incentive in the form of shares in the Bank. In the case of the Executive Directors, this later measures was subject to approval by the 2012 and 2013 General Meetings of Shareholders of Bankinter, as required by Article 219 of the Corporate Enterprises Act. The 2013 AGM approved the remuneration of the Executive Directors consisting in the allocation of shares as part of their variable remuneration for 2012, with 99.648% of votes in favour (99.771% in 2012). During 2013 the shares corresponding to the deferred variable remuneration accrued in 2011 and 2012 were delivered to the executive Directors in accordance with the details of the resolutions of the 2012 and 2013 AGMs respectively.

The Board of Directors also approved, at the proposal of the Appointments and Remuneration Committee, the application of the aforementioned measures to the variable remuneration accrued in 2013 to the executive directors, the allocation of shares being subject to the approval by the 2014 AGM.

The following are the amounts accruing during 2013 to the Executive Directors of the Company. The Chairman does not receive any variable remuneration for his activity.

At year-end 2013 the attainment rate was 100.1%, which led to the accrual of variable incentives of €150,150 for the Executive Vice-chairman and €200,200 for the CEO), which will be paid as follows:

The Vice-Chairman and the CEO each accrued the following amounts relating to this annual variable remuneration:

  • • In cash, 50% of the variable remuneration accrued in respect of variable incentive for 2013: Vice-chairman of the Board: €75,075 and CEO: €100.100.
  • • In shares (subject to approval of the AGM as mentioned above):
  • 10% of the variable remuneration accruing in 2013: 6,410 shares (2,747 to the Vice-chairman and 3,663 to the CEO), at a price of €5.464769231 per share, this being the average closing price of Bankinter shares between 2 January and 20 January 2014 inclusive.
  • The remaining 40% of the annual variable remuneration for 2013 will also be paid in shares. Since the reference share price used to obtain the number of shares to be allocated is the same as that previously indicated (€5.464769231 per share), the numbers of shares to be received in the coming years are as follows:
    • § Executive Vice-Chairman:
    • § 3,663 shares will be delivered within the first fifteen days of January 2015.
    • § 3,663 shares will be delivered within the first fifteen days of January 2016.
    • § 3,663 shares will be delivered within the first fifteen days of January 2017.

§ CEO:

  • § 4,884 shares will be delivered within the first fifteen days of January 2015.
  • § 4,884 shares will be delivered within the first fifteen days of January 2016.
  • § 4,884 shares will be delivered within the first fifteen days of January 2017.

The sum of the amounts accrued by the Chairman and the Executive Directors in 2013 under the heading of salaried remuneration was €1.98 million. In 2012 it was €2.13 million.

Bankinter has decided to apply the aforementioned principle of deferred payment and payment in shares to annual variable remuneration from 2012 onwards, and to extend it to members of Senior Management as referred to in this report, among others.

Bankinter has no pension commitments to its non-executive Directors, nor does it have commitments to its Executive Directors that are either new or different from those already mentioned in the Remuneration Reports for previous years. Bankinter has no commitments to members of Senior Management that are either new or different from those already mentioned in the Remuneration Reports for previous years.

Bankinter has not agreed "golden parachute" clauses in its contracts with any of its Executive Directors linking the accrual of financial rights to situations of change of control of the Bank (which is a common clause in these types of contracts). The indemnifications provided for in these contracts apply only in analogous cases to those established for ordinary labour relations in the Workers' Statute and are subject to a limit which, depending on the particular case, is equal to or lower than that established in the regulations for ordinary labour relations.

Bankinter has not agreed "golden parachute" clauses in its contracts with any of the members of its senior management or clauses linking the accrual of financial rights to situations of change of control of the Bank (common clauses in these types of contracts and covered by Royal Decree 1382/1985 regulating special labour relations with senior management). The indemnifications provided for in these contracts apply only to the cases envisaged for ordinary labour relations in the Workers' Statute, and are subject to a limit which is appreciably lower than that established in the Statute for ordinary labour relations.

Summary of Directors' remuneration, loans, and other benefits for Directors

Remuneration by type

€000s
2013
Fixed remuneration (1) 1,627
Variable remuneration (2) 350
Attendance fees (3) 760
Directors' Fees (4) 714
Options on shares and/or other financial instruments -
Other -
3,451

(1) Fixed remuneration corresponding exclusively to Executive Directors in their capacity as executives and to the Chairman of the Board.

(2) Variable remuneration corresponding to Executive Directors in their capacity as executives accrued in 2013 and linked to the achievement of a specific pre-tax profit objective for the Group's banking activity in 2013. Each executive Director was assigned an amount that he or she would receive if the objective was fully achieved, as explained in the heading "Remuneration of the Chairman, Executive Directors and Senior Management". The Chairman of the Board does not receive variable remuneration.

(3) Attendance fees for Board and Committee meetings (Directors).

(4) Comprises fixed remuneration plus the free allocation of shares (Directors).

Remuneration by type of director including all items

€000s
2013
Type of Director By Company By Group (**)
Executives (*) 1,721 -
External Proprietary Directors 216 -
External Independent Directors 700 22
Other External Directors 813 -
3,451 22

(*) The following are Executive Directors: Cartival,S.A., Vice-chairman, and María Dolores Dancausa Treviño, CEO.

(**) During 2013 Gonzalo de la Hoz Lizcano and Rafael Mateu de Ros, in their capacity as non-executive directors, received €8,400 and €6,000 respectively by way of attendance fees for meetings of the Board of Directors of Línea Directa Aseguradora, S.A. The amount received by Gonzalo de la Hoz Lizcano includes fees both as a member of the Board of Directors and as a member of the Control Committee of Línea Directa Aseguradora. Additionally, Gonzalo de la Hoz Lizcano is the Chairman of Gneis Global Services, S.A., the Group's technology and operating services company, and during 2013 he received €8,400 by way of fees for attending meetings of the Board of Directors.

Other benefits

€000s
Advances -
Loans granted (1) 39
Pension Funds and Plans: Contributions -
Pension Funds and Plans: Contractual obligations assumed 600
Life insurance premiums 0.6
Guarantees set up by the company in favour of directors -

(1) In order to ensure consistency among the various documents in which the company provides information on Directors' remuneration, Loans granted include those granted by the Company by way of remuneration, regardless of whether or not they are interest-bearing, as per the definition contained in CNMV Circular 4/2013 which, inter alia, establishes the model annual report on Directors' remuneration for listed companies.

Transactions with Members of the Board of Directors

In relation to transactions involving a transfer of resources or obligations between the Company and entities belonging to the Group and the Directors of Bankinter, S.A., its significant shareholders, managers and related parties for significant amounts, outside the scope of Bankinter S.A.'s ordinary operations or not carried out on normal market terms, please refer to section D (transactions with related parties) in the Annual Corporate Governance Report for 2013.

Article 229.2 of the revised text of the Corporate Enterprises Act provides that directors must declare any holding they may have in a company with the same, analogous or complementary type of activity to that which is carried out by the Entity, as well as any posts, duties and activities carried out and/or held in such companies.

As at 31 December 2013, the holdings declared by the directors of Bankinter in companies pursuant to Article 229.2 were as follows:

Director
Entity		 Office or
%Capital (1) functions
María Dolores Dancausa Treviño Banco Santander 0.00008% None
Banco Bilbao Vizcaya Argentaria 0.00003% None
Royal Bank of Scotland 0.00002% None
Cartival, S.A. Banco Santander 0, 02177% None
Fernando Masaveu Herrero Banco Santander 0.157% None
Banco Espíritu Santo 0.180% None
Banco Popular 0.011% None
Banco Español de Crédito 2% None
Lloyd'sBanking Group 0.002% None
UBS 0.001% None
Rafael Mateu de Ros Cerezo Banco Santander 0.00001% None
Pedro González Grau Banco Santander 0.0004% None
Banco Bilbao Vizcaya Argentaria 0.0007% None

(1) Direct and/or indirect shareholding.

Directors' holdings in share capital

In compliance with Law 26/2003 of 17 July amending Law 24/1988 of 28 July on the Securities Market and the revised text of the Corporate Enterprises Act approved by Royal Legislative Decree 1/2010 of 2 July, the Entity is obliged to provide information on the holdings of the Directors of Bankinter, S.A. in the entity's share capital.

The breakdown of the interests held by the members of the Board of Directors as at 31 December 2013 and 2012 is as follows:

31-12-13
(3)		 31-12-12 (4)
Total Shares % holding Direct Indirect Total Shares % holding Direct Indirect
Pedro Guerrero Guerrero 5,231,528 0.584 4,876,523 355,005 3,442,841 0.611 3,125,961 316,880
María Dolores Dancausa Treviño 1,287,225 0.144 1,286,756 469 810,631 0.144 810,327 304
Cartival, S.A. 204,681,888 22.855 204,681,888 - 131,565,493 23.335 131,565,493 -
Marcelino Botín-Sanz de Sautuola y Naveda 248,400 0.028 248,400 - 155,211 0.028 155,211 -
Fernando Masaveu Herrero 47,390,080 5.292 771,683 46,618,397 29,928,472 5.308 491,606 29,436,866
John de Zulueta Greenebaum 250,003 0.028 250,003 - 156,244 0.028 156,244 -
Gonzalo de la Hoz Lizcano 661,461 0.074 661,461 - 420,752 0.075 420,752 -
Jaime Terceiro Lomba 46,837 0.005 46,837 - 25,638 0.005 25,638 -
Pedro González Grau (1) 49,692 0.006 49,692 - - - - -
Rafael Mateu de Ros Cerezo 1,449,762 0.162 1,449,762 926,176 0.164 926,176 -
Ex – director (2) - - - 1,218,116 0.216 214,264 1,003,852
261,296,876 29.178 214,323,005 46,973,871 168,649,574 29.913 137,891,672 30,757,902

(1) Pedro González Grau was appointed a director of Bankinter on 21 March 2013.

(2) In the category of former directors, the amounts shown in the table for 2013 and 2012 correspond to those received by José Antonio Garay Ibargaray, who ceased to be a director of Bankinter on 21 March 2013.

(3) The capital of Bankinter as at 31 December 2013 was represented by a total of 895,583,800 shares.

(4) The capital of Bankinter as at 31 December 2012 was represented by a total of 563,806,141 shares.

37.Environmental information

In line with the Bankinter Group's firm commitment to conduct its business in compliance with the strictest principles of Corporate Responsibility, in 2012 it published the principles of its Sustainability Policy, which serves as an action framework for integrating environmental, social and ethical principles into its management model.

The Sustainability Committee, chaired by the Bank's Chairman, is the body charged with overseeing compliance with the principles contained in the Bank's Sustainability Policy. It is also responsible for defining the strategy and developing the objectives contained in the multi-year management programme.

In 2013 the Bank continued to develop the strategic lines defined in the 'Noughts and Crosses' Sustainability Plan, which takes its name from the integrated, transversal management of the Bank's economic, social and environmental dimensions in line with the business.

The Plan was drawn up on the basis of detecting the aspects of the banking activity that have an effect on the economy, society and the environment, with the aim of minimising the negative effects and maximising the positive ones.

Its preparation started out from a prior analysis which took account of changes in the economic, social and environmental spheres.

Its design is based on recognised standards such as the ISO 26000 corporate responsibility guidance and Forética's SGE21, and follows recommendations of international bodies such as sustainability rating agencies and corporate responsibility observatories.

In this regard, all the actions defined and implemented in the Plan are seen from three perspectives:

  • The economic aspect, through the Entrepreneurship Project, which embodies strategies focused on promoting and supporting the most innovative entrepreneurship and the development of Socially Responsible Investment, which incorporates ESG (Environmental, Social and Governance) principles into investment and financing policies.

  • The social perspective, through the 'One bank for all' project, which aims to develop an inclusive bank that is fully accessible to people with different disabilities, by removing physical, cognitive and technological barriers.

  • The environmental perspective, with the implementation of measures aimed at reducing the direct and indirect environmental impact of its activity, in which commitment it involves strategic stakeholder groups such as employees, customers and suppliers.

This Bankinter Sustainability Plan relies on four basic pillars for its implementation:

  • Quality, its people's commitment to excellence in the provision of services and attention to customers' financial needs.
  • The management systems, as tools for continuously improving economic, social and environmental performance, which moreover have been externally audited and certified in accordance with internationally accepted standards.
  • The involvement of its strategic stakeholder groups, especially employees, through training and awareness programmes and participation in volunteer actions.
  • The use of the best technology available and the most innovative solutions as defining features of the Bank.

The Sustainability department reports to the Chairman and the People Management and Corporate Communication area, which in turn reports to the CEO.

Bankinter is a member of the Spanish Network of the United Nations Global Compact and as such assumes the commitment to incorporate its ten principles of conduct and action in the field of human, labour and environmental rights and the fight against corruption. Bankinter is also a member of Forética, an association of Spanish companies whose mission is to promote a culture of ethical business management.

Additionally, Bankinter is a collaborating company with the Fundación Lealtad, a non-profit institution whose mission is to promote Spanish society's confidence in NGOs so as to achieve an increase in donations and in any other kind of collaboration with the third sector.

The Bank's sustainable management was recognised in 2013 by socially responsible investment indices such as the FTSE4Good, and environmental management rankings such as the Carbon Disclosure Project, together with the world's major companies by market capitalisation.

Similarly, Bankinter was included in the Sustainability Yearbook 2013 published by RobecoSAM and KPMG.

During the financial year, it was not considered necessary to recognise any allocation for environmental risks and liabilities as there were no contingencies linked to environmental protection and enhancement and no sanction or fine was imposed in relation to the environmental management carried out by the Bankinter Group. The Directors of the Group consider that the environmental risks inherent to its activities are minimal and adequately covered, and do not believe it is exposed to any additional liabilities in relation to such risks. Neither has the Group incurred any expenses or received any subsidies linked to these risks.

38.Customer service

Article 17 of Order 734/2004 of 11 March of the Ministry of Economy on customer service departments and services and ombudsmen at financial institutions stipulates, inter alia, that financial institutions are required to prepare a report on the activities performed by these services in the preceding financial year and, also, to include a summary of this report in the notes to their financial statements.

The Report on Activities for 2013 prepared by Customer Service, which will be presented to the Board of Directors on 19 February 2014, indicates that the number of complaints and claims once again declined this past year, to 3.13 cases for every million transactions (2012: 3.40)

There were a total of 5,778 complaints and claims in 2013, of which financial claims accounted for 4,247. Of these, 45.16% were resolved in the customer's favour.

2013 2012
Total number of Complaints and Claims:
Total no. of complaints (non-financial) 1,531 822
Total no. of claims (financial) 4,247 5,205
Total financial Complaints and Claims 5,778 6,027
Financial claims:
No. of claims in client's favour 1,918 2,228
In customer's favour (%). 45.16% 42.80%
No. of claims in the Bank's favour 2,329 2,977
% in the Bank's favour 54.84% 57.20%
Total financial claims 4,247 5,205

As regards resolution times, 47.8% of incidents were answered in less than 48 hours (slightly less than the previous year's 51.63%).

Time taken to resolve dossiers

Total Total
Timeframes 2013 Percentage 2012 Percentage
0 days 1,681 29.09% 1,951 32.37%
1 to 2 days 1,081 18.71% 1,161 19.26%
3 to 6 days 1,136 19.66% 964 15.99%
7 to 10 days 492 8.52% 402 6.67%
> 10 days 1,388 24.02% 1,549 25.71%
5,778 100.00% 6,027 100.00%

The External Ombudsman dealt with 694 incidents in 2013, 28.76% more than in 2012; 240 of them or 34.58% were resolved in the Bank's favour and 423 (60.95%) in the customer's favour.

2013 2012 Change
External Ombudsman:
Incidents processed 694 539 28.76%
Settled in the customer's favour 423 261 62.07%
Settled in the Bank's favour 240 254 (5.51%)
Excluded 31 24 29.17%

Also, in 2013 283 incidents were reported to the Banco de España (2012:198), 115 of them being resolved, with 26 of them in the Bank's favour.

2013 2012 Change
Banco de España:
Claims processed 283 198 42.93%
In the customer's favour 58 29 100%
Uncontested 27 23 17.39%
In the Bank's favour 26 33 (21.21%)
Pending settlement 168 107 57.01%
Outside Banco de España jurisdiction 4 6 (33.33%)
Shelved 0 0 -

No recommendations were issued in the Activities Report for 2013 drawn up by the Customer Support Service.

39.Branches, centres and agents

The breakdown of the Bankinter, S.A. branch offices, centres and agents as at 31 December 2013 and 2012 is as follows:

31-12-13 31-12-12
Branch Offices 360 367
Commercial management centres-
Corporate 48 45
SMEs 75 76
Private Banking and Personal Finance 36 38
Virtual Offices 369 353
Number of Agents 469 505
Telephone and Internet branches 3 3

40.Trust and investment services

The following table details the fees recorded in financial years 2013 and 2012 for the activities of investment services and complementary activities provided by the Group:

€000s
2013 2012
Wealth management (Note 28) 5,853 1,023
Management agreements 358 361
Safe deposit boxes 580 596
Securities trading (Note 28) 22,906 18,844
29,697 20,824

As at 31 December 2013 Bankinter S.A. had a network of 469 agents (432 agents plus 37 EAFIs ("Empresas de Asesoramiento Financiero" or Financial Advisory Companies), compared with 505 agents in 2012, composed of individuals or legal entities who have been granted powers to deal in the name and on behalf of Bankinter S.A. with the Bank's customers in negotiating and completing operations typical of a credit institution. This network handled regular customer deposits of €0.97 million as at 31 December 2013 (€1.04 million as at 31 December 2012) and average investments of €1.70 million (€1.89 million as at 31 December 2012). The list of agents is registered with the Financial Institutions Office of the Banco de España. EAFIs ("Empresas de Asesoramiento Financiero" or Financial Advisory Companies) are governed by the Stock Exchange Act, by Royal Decree 217/2008, of 15 February, on the legal regime of investment service companies and, in particular, Circular 10/2008, of 30 December, of the CNMV, the Spanish securities regulator, on EAFIs.

The following table states, in summary, the value of the investment funds, pension funds, and customer portfolios managed by the Group:

€000s
31-12-13 31-12-12
Own investment funds 5,998,747 3,585,303
External investment funds sold 1,966,424 1,444,421
Pension funds 1,650,496 1,392,575
Management of SICAVs (open-ended collective investment
companies)		 2,359,200 1,433,502
11,974,867 7,855,801

41.Auditors' remuneration

Set forth below are the fees for professional services incurred by the auditors of the individual and consolidated Annual Accounts for the Bank and the Group during financial years 2013 and 2012:

€000s
Bankinter, S.A. Bankinter Group
2013 2012 2013 2012
Auditing services 358 384 770 740
Audit-linked services 239 105 241 105
Tax services - - - -
Other services 100 80 181 80
697 569 1,192 925

The amount stated in the above table for auditing services includes all fees relating to auditing for the financial years 2013 and 2012, irrespective of when they were invoiced.

42.Tax situation

Profit, which is calculated in accordance with tax legislation, is subject to a 30% levy on the taxable base. Certain deductions can be made from the resulting amount.

The fact that a consolidated return is filed for Corporation Tax does not mean that the Corporation Tax payable by each Entity is substantially different from what it would be if assessed on an individual basis.

On 27 December 2000, the Bank notified the National Inspection Office at the Spanish Inland Revenue Authorities of its decision to apply the fiscal consolidation regime from financial year 2001 onwards. The Fiscal Group number allocated by the National Inspection Office at the Spanish Inland Revenue Authorities was 13/2001.

The list of subsidiary companies in the Bankinter tax group as at 31 December 2013 is as follows:

Bankinter Consultoría, Asesoramiento y Atención Telefónica, S.A. Bankinter Gestión de Activos, S.A., S.G.I.I.C. (formerly Gesbankinter, S.A.) Hispamarket, S.A. Intermobiliaria, S.A. Bankinter Emisiones, S.A. Bankinter Consumer Finance, E.F.C., S.A. Bankinter Capital Riesgo, S.G.E.C.R, S.A. Bankinter Sociedad de Financiación, S.A. Arroyo Business Consulting Development, S.L. Gneis Global Services, S.A. Relanza Gestión, S.A. Línea Directa Aseguradora, S.A Línea Directa Asistencia, S.L.U. Motoclub LDA. S.L.U. Centro Avanzado de Reparaciones CAR, S.L.U. Ambar Medline, S.L.U. LDActivos, S.L.U. Naviera Goya S.L.U. Naviera Sorolla, S.L.U.

There follows below a reconciliation of the consolidated accounting profit and tax profit for years 2013 and 2012:

€000s
31-12-13 31-12-12
Accounting profit before tax for the financial year 297,566 154,179
Permanent differences- (26,470) (21,607)
Application of prior years' tax losses (401) (263)
Profits (losses) of entities accounted for using the equity
method (15,545) (17,677)
Others (10,524) (3,667)
Accounting Base for Tax 271,096 132,572
Temporary differences (9,237) 138,174
Tax Base 261,859 270,746

The positive temporary differences in 2013 are essentially due to adjustments for provisions which are not tax-deductible. The negative temporary differences mostly consist of differences due to reversals of adjustments for provisions and other nontax-deductible items in previous financial years.

The tax expense for Corporation Tax for financial years 2013 and 2012 is calculated as follows:

€000s
2013 2012
Expenses corresponding to current financial year 81,329 39,772
Deductions and allowances (4,950) (6,258)
Other items 6,330 (2,540)
Tax adjustments from previous financial years (540) (1,449)
82,143 29,525

The item 'Tax adjustments from previous years' in 2013 states expenditure for Corporation Tax caused by tax adjustments carried out in the settlement of the Group's Corporation Tax corresponding to financial year 2012 not envisaged as at 31 December 2012.

The following is the reconciliation of the profit before tax with the tax expense for the financial year:

€000s
2013 2012
Pre-tax accounting profit 297,566 154,179
Tax at 30% 89,270 46,254
Breakdown of items to reconcile tax expense at the
tax rate and Corporation Tax expense for the year:
Non-deductible expenses 609 756
Non-computable income (9,673) (9,952)
Total deductions applied in the financial year (4,950) (6,258)
Negative Tax Bases (120) (79)
Others:
Corporate Tax adjustment from the previous financial
year		 (540) (1,449)
Amount of deductions pending application - (2,479)
Other 7,547 2,732
Corporate Tax expenditure for the financial year 82,143 29,525
Effective tax rate for the year 27.60% 19.15%

The expenditure incurred in corporate tax for the financial year is calculated by adding the current tax resulting from applying the tax rate to the tax base for the financial year, after applying the deductions that are fiscally allowed, plus the variation in the assets and liabilities due to taxes paid in advance and deferred and tax credits, both due to negative tax bases and deductions.

Assets and liabilities due to deferred taxes include the temporary differences that are identified as the amounts that are expected to be payable or retrievable due to the differences between the book value of assets and liabilities and their tax value, as well as the negative tax bases pending offset and the credits for fiscal deductions that are not fiscally applied. These amounts are recognised by applying to the temporary difference or credit in question the rate at which they are expected to be retrieved or settled.

Liabilities are recognised due to deferred taxes for all of the taxable temporary differences, except in general if the temporary difference is derived from the initial recognition of goodwill. Deferred tax assets identified with temporary differences are recognised only if it is considered probable that the consolidated entities will in future have sufficient taxable profits against which to realise them. The remaining deferred tax assets (negative tax bases and deductions pending offset) are recognised only if it is considered probable that the consolidated entities will in future have sufficient taxable profits against which to realise them.

On the occasion of each accounting closure, the deferred taxes recognised are reviewed (both assets and liabilities) with a view to ensuring that they remain valid, with any necessary corrections to same being made in accordance with the results of the tests performed.

As a consequence of the last general audit performed on the Bank for the financial years 2007 to 2009 for the following taxes:

Financial Years
Tax on Income 2007 to 2009
Value Added Tax 2007 to 2009
Withholdings/Payroll tax/Professional earnings 2008-2009
Withholding/Payment on account Return on Investments 2008-2009
Withholding/Payment on account Real-estate leases 2008-2009
Withholding on account Non-residents' income tax 2008-2009
Gambling tax: betting and games of chance 2008-2009
Annual declaration of transactions 2008-2009
Summary declaration of intra-community supply and acquisition of goods 2008-2009

During 2013 the Bank accepted, signed and paid assessments in respect of Value Added Tax for the years 2007 to 2009 for €11.32 million in VAT payments and €2.72 million in delay interest. It also signed deeds disputing assessments for Corporation Tax for the years 2007 to 2009 in an amount of €34.72 million in tax plus €8.96 million in delay interest, for Value Added Tax for the years 2007 and 2008 for €1.23 million in tax and €0.36 million in delay interest, for retentions and payments on account of personal income tax from salaries ('P.A.Y.E.') in 2008 and 2009 for €5.62 million tax and €1.41 million delay interest, and Retentions and payments on account of tax on moveable assets, 2007 and 2008 for €0.84 million in tax and €0.42 million in delay interest. As at 31 December 2013 the settlement agreements corresponding to these deeds of dispute had not yet been received.

As regards the inspection for the years 2004 to 2006, both the deeds disputing the assessment in 2011 for Corporation Tax in an amount of €14.24 million in tax plus €3.86 million in delay interest and those disputing the assessment for Retentions and payments on account of tax on movable assets for the years 2005 and 2006 in an amount of €1.09 million in tax plus €0.55 million in delay interest have been appealed before the Central Administrative Economic Tribunal (TEAC). Also appealed before the same tribunal are the sanctions imposed in respect of Corporation Tax for the years 2004 to 2006 in an amount of €3.57 million, retentions and payments on account of tax on investment income for 2005 and 2006 in an amount of €2.98 million and VAT for 2005 and 2006 in an amount of €0.33 million. Regarding the inspection of the years 2001 to 2003, the TEAC issued a ruling on 25 October 2012 revoking the deed of non-acceptance for Corporation Tax for the years 2001 to 2003 and the imposition of sanctions, specifically in respect of the regularisation of the Sogecable transaction, determining a reduction in the amount regularised in terms of tax, delay interest and sanction of approximately €14.49 million.

The remaining items regularised for Corporation Tax 2001 to 2003 in an amount of approximately €6.16 million in tax and delay interest have been appealed before the Spanish National Court.

Additionally, in relation to the fines imposed in respect of retentions corresponding to deposits of our Dublin Branch's customers, on 9 February 2010 Bankinter filed a complaint with the Council for the Defence of the Taxpayer, and received a favourable response on 13 July 2010. However, on 18 December 2012 the TEAC issued a ruling dismissing the complaints in respect of the years 2002 to 2005. An appeal will be lodged with the Spanish National Court for a total amount of €7.28 million.

In any case, the tax liabilities that may derive from the appeals lodged against the disputed assessments were adequately provided for as at the end of 2013 and preceding financial years.

Due to the possible interpretations of the tax regulations that apply to certain transactions carried out in the banking sector, there may be certain tax liabilities of a contingent nature. The Bank considers that the possibility of these contingent liabilities becoming actual liabilities is remote and that, in any case, the tax charge which would arise would not materially affect the consolidated annual financial statements.

The details of the deferred tax assets and liabilities that Bankinter's Administrators expect to be reversed in future financial years are as follows:

€000s
31-12-13 31-12-12
Deferred tax assets (Note 17) 132,300 148,536
Less than 10 years:
Impairment of property assets 64,665 55,202
Provisions for real estate promoter risk - 46,407
Other provisions and accruals 53,816 39,826
Impairment in holdings 2,740 -
Early retirement fund 212 -
Software 43 -
Loan fees 1,858 2,204
Other 5,408 5,035
Available-for-Sale Portfolio 2,235 4,081
Consolidation adjustments 1,323 -4,219
Deferred tax liabilities (Note 17)- 149,647 147,929
Less than 10 years 100,564 98,033
Available-for-Sale Portfolio 20,555 5,536
Intra-group sales 12,525 10,107
Other 22,080 20,767
Consolidation adjustments 45,404 61,623
Of which:
Revaluation of Assets of Línea Directa Aseguradora, S.A. 40,167 46,927
More than 10 years:
Revaluation of buildings 49,083 49,896

The various tax credits applied in the calculation of the Corporate Tax payable for the Group in financial years 2013 and 2012 are shown in the following table:

€000s
31-12-13 31-12-12
Applied to the tax base:
Exemptions under ETVE (Spanish holding company) tax regime 11,119 4,834
Allocation of NTBs from EIGs 3,992 5,933
15,111 10,767
Applied to the tax due:
Deductions for double taxation 743 1,765
Deduction for ID/IT 1,146 599
Deduction for reinvestment of extraordinary profits 2,105 1,476
Deduction for donations to institutions 454 512
Deduction for film productions 502 1,906
4,950 6,258

Income covered by the deduction for re-investment of extraordinary income in 2013 amounted to €17.54 million (€0 million in 2012 and €24 million in 2011), the Bank having met the reinvestment requirements established in Article 42 of Legislative Royal Decree 4/2002 of 5 March approving the consolidated text of the Corporation Tax Act.

The majority of the income covered in financial years 2009 and 2011 by the deduction for reinvestment corresponds to the amount obtained from the sale of 50 per cent of Bankinter Seguros de Vida. S.A. in 2007, the reinvestment of which was sufficiently materialised in financial year 2009 by Bankinter's purchase of 50 per cent of Línea Directa Aseguradora, S.A. for an amount of €426 million. The majority of the income covered in 2013 by the deduction for reinvestment corresponds to the amount obtained from the sale of 50.1% of Bankinter Seguros Generales S.A. in 2012, reinvestment of which was fully realised in 2013 by Bankinter's purchase of 100% of Van Lanschot Bankiers Luxembourg S.A. for €21.5 million and 100% of Mercavalor S.A. for €1.5 million.

During 2005 the Bank opted to apply the tax regime applicable to institutions holding foreign securities as regulated in chapter XIV of Title VII of Royal Legislative Decree 4/2002, of 5 March, approving the revised text of the Corporation Tax Act, the competent body of the Spanish Inland Revenue being notified of this decision on 21 April 2005.

In accordance with the provisions of Article 118.3 of this revised text, we report that during 2013 the Bank obtained capital gains of €10.48 million (€3.10 million in 2012) and received dividends amounting to €2.21 million (€1.38 million in 2012), and that €0.44 million (€0.21 million in 2012) were paid in foreign tax on said dividends.

43.Fair value of assets and liabilities

a) Fair value of financial instruments

The following is a breakdown of the fair value of financial instruments and the procedure used to obtain the price:

Carrying
amount		 Fair value Hierarchy of Fair
Value		 Fair value Valuation techniques Main inputs
1. Cash and balances with
central banks		 886,118 886,118 Level 2 886,118 Present value Expected cash flows discounted at market rates
Held for trading
2.1. Deposits with credit
institutions		 920,112 920,112 Level 2 920,112 Calculation of prices from market inputs
and explicit formulas		 Interest rate curves and fixing of interest rate
2.2. Loans and advances to
customers		 979,439 979,439 Level 2 979,439 Calculation of prices from market inputs
and explicit formulas		 Interest rate curves and fixing of interest rate
2.3. Debt instruments 1,736,670 1,736,670 Level 1 1,736,670 Direct capture of quoted market prices Observable market data
2.4. Equity instruments 66,662 66,662 Level 1 66,662 Direct capture of quoted market prices Observable market data
Level 1 2,922 Direct capture of quoted market prices - Equity fixing, volatility
- interest rate curves and EURIBOR fixing
Level 1 86 Calculation of prices from market inputs
and explicit formulas		 - Equity fixing, volatility
- interest rate curves and EURIBOR fixing
2.5. Trading derivatives 643,689 643,689 Level 2 7,229 Calculation of prices from market inputs
and explicit formulas		 Fixing of equity and volatility
Level 2 219 Calculation of prices from market inputs
and explicit formulas		 Fixing of currency, interest rate curves
Level 2 162,056 Calculation of prices from market inputs
and explicit formulas		 Interest rate curves and EURIBOR fixing
Level 2 24,932 Calculation of prices from market inputs
and explicit formulas		 Fixing of equity, volatility, interest rate curves and
fixing
Level 2 446,245 Calculation of prices from market inputs
and explicit formulas		 Fixing of currency, interest rate curves
Other financial assets at fair value through profit or loss
3.4. Equity instruments 18,158 18,158 Level 1 18,158 Direct capture of quoted market
prices		 Observable market data
Financial assets available for sale
Level 1 2,301,283 Direct capture of quoted market
prices		 Observable market data
4.1. Debt instruments 2,321,671 2,321,671 Level 2 20,389 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and EURIBOR
fixing
4.2. Equity instruments 111,880 111,880 Level 1 111,880 Direct capture of quoted market
prices		 Observable market data
4.3. Equity instruments measured at cost 49,620
Loans and receivables
5.1. Deposits with credit institutions 1,182,215 1,182,894 Level 2 1,182,894 Present value Expected cash flows discounted at
market rates
5.2. Loans and advances to customers 41,307,010 41,791,671 Level 2 41,791,671 Present value Expected cash flows discounted at
market rates
5.3. Debt instruments 117,825 135,850 Level 2 135,850 Present value Expected cash flows discounted at
market rates
Held-to-maturity investments
6. Held-to-maturity investments 3,220,721 3,326,368 Level 1 3,326,368 Direct capture of quoted market
prices		 Observable market data
Hedging derivatives
7. Hedging derivatives 84,481 84,481 Level 2 84,481 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and EURIBOR
fixing
LIABILITIES Carrying
amount		 Fair value Hierarchy Fair value Valuation techniques Main inputs
Held for trading
1.3. Customer deposits 193,482 193,482 Level 2 193,482 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and EURIBOR
fixing
Level 1 18,486 Direct capture of quoted market prices equity fixing, volatility
Level 1 1,781 Direct capture of quoted market prices Interest rate curves and EURIBOR
fixing
1.5. Trading derivatives 252,537 252,537 14,060 Calculation of prices from market
inputs and explicit formulas		 Equity fixing, volatility
Level 2 1,702 Calculation of prices from market
inputs and explicit formulas		 Currency fixing
163,871 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and EURIBOR
fixing
Calculation of prices from market
15,321		 inputs and explicit formulas Interest rate curves and currency fixing
37,316 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and equity fixing
1.6. Short positions in securities 1,305,702 1,305,702 Level 1 1,305,702 Direct capture of quoted market prices Observable market data
Financial liabilities at amortised cost
3.1. Deposits from central banks 3,243,794 3,243,872 Level 2 3,243,872 Present value Expected cash flows discounted at
market rates
3.2. Deposits from credit institutions 4,587,188 4,680,778 Level 2 4,680,778 Present value Expected cash flows discounted at
market rates
3.3. Customer deposits 29,624,282 29,721,242 Level 2 29,721,242 Present value Expected cash flows discounted at
market rates
3.4. Marketable debt securities 9,516,372 10,069,035 Level 2 10,069,035 Present value Expected cash flows discounted at
market rates
3.5. Subordinated liabilities 612,438 755,655 Level 2 755,655 Present value Expected cash flows discounted at
market rates
3.6. Other financial liabilities 1,328,657 1,328,657 Level 2 1,328,657 Present value Expected cash flows discounted at
market rates
Hedging derivatives
4. Hedging derivatives 25,608 25,608 Level 2 25,608 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and EURIBOR
fixing

2012:

ASSETS Carrying
amount		 Fair value Hierarchy of Fair
Value		 Fair value Valuation techniques Principales inputs
1. Cash and balances with central
banks		 665,374 665,374 Level 2 665,374 Present value Expected cash flows discounted at market
rates
Held for trading
1,391,681 1,391,681 Level 1 897,361 Direct capture of quoted market prices Observable market data
2.3. Securities representing debt 494,320 Discounted to present value Interest rate curves
2.4. Equity instruments 61,072 61,072 Level 1 61,072 Direct capture of quoted market prices Observable market data
Level 1 1,357 Discounted to present value Interest rate curves
Level 2 14,441 Direct capture of quoted market prices Observable market data
2.5. Trading derivatives 656,511 656,511 Level 2 2,310 - Direct capture of prices quoted on markets
- Calculate prices from market inputs and
explicit formulas		 - Equity fixing, volatility
- interest rate curves and EURIBOR fixing
Level 2 352,253 Calculation of prices from market inputs and
explicit formulas		 Fixing of equity and volatility
Level 2 19,952 Calculation of prices from market inputs and
explicit formulas		 Currency fixing, interest rate curves
Level 2 266,198 Calculation of prices from market inputs and
explicit formulas		 Interest rate curves and EURIBOR fixing
Other financial assets at fair value through profit or loss
3.4. Equity instruments 39,860 39,860 Level 1 39,860 Direct capture of quoted market prices Observable market data
Financial assets available for sale
Level 1 3,993,337 Direct capture of quoted market prices Observable market data
4.1. Debt instruments 5,971,654 5,971,654 Level 2 1,978,317 Calculation of prices from market inputs and
explicit formulas		 Interest rate curves and EURIBOR fixing
4.2. Equity instruments 160,817 160,817 Level 1 160,817 Direct capture of quoted market prices Observable market data
Loans and receivables
5.1. Deposits with credit institutions 1,093,728 1,094,567 Level 2 1,094,567 Present value Expected cash flows discounted at market
rates
5.2. Loans and advances to
customers		 43,575,351 43,833,390 Level 2 43,833,390 Present value Expected cash flows discounted at market
rates
5.3. Securities representing debt 82,871 90,124 Level 2 90,124 Present value Expected cash flows discounted at market
rates
Held-to-maturity investments
6. Held-to-maturity investments 2,755,355 2,735,664 Level 1 2,735,664 Direct capture of quoted market prices Observable market data
Hedging derivatives
7. Hedging derivatives 152,201 152,201 Level 2 152,201 Calculation of prices from market inputs and
explicit formulas		 Interest rate curves and EURIBOR fixing
LIABILITIES Carrying
amount		 Fair value Hierarchy Fair value Valuation techniques Main inputs
Held for trading
Level 1 28,986 Direct capture of quoted market prices Equity fixing, volatility
Level 1 45 Direct capture of quoted market prices Interest rate curves and EURIBOR
fixing
1.5. Trading derivatives 434,592 434,592 Level 1 13,197 Calculation of prices from market
inputs and explicit formulas		 Equity fixing, volatility
18,284 Calculation of prices from market
inputs and explicit formulas		 Equity fixing, volatility
Level 2 2,081 Calculation of prices from market
inputs and explicit formulas		 Currency fixing, and interest rate
curves
29,198 Calculation of prices from market
inputs and explicit formulas		 Equity fixing, volatility, interest rate
curves and EURIBOR fixing
311,088 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and currency fixing
31,713 Calculation of prices from market
inputs and explicit formulas		 Currency fixing, and interest rate
curves
1.6. Short positions in securities 1,362,732 1,362,732 Level 1 876,747 Direct capture of quoted market prices Observable market data
Level 2 485,985 Discounted to present value Interest rate curves
Financial liabilities at amortised cost
3.1. Deposits from central banks 9,580,854 9,721,707 Level 2 9,721,707 Present value Expected cash flows discounted at
market rates
3.2. Deposits from credit institutions 4,008,226 4,103,613 Level 2 4,103,613 Present value Expected cash flows discounted at
market rates
3.3. Customer deposits 24,631,869 24,889,408 Level 2 24,889,408 Present value Expected cash flows discounted at
market rates
3.4. Marketable debt securities 12,499,194 13,004,791 Level 2 13,004,791 Present value Expected cash flows discounted at
market rates
3.5. Subordinated liabilities 767,852 965,813 Level 2 965,813 Present value Expected cash flows discounted at
market rates
3.6. Other financial liabilities 591,076 591,076 Level 2 591,076 Present value Expected cash flows discounted at
market rates
Hedging derivatives
4. Hedging derivatives 43,100 43,100 Level 2 43,100 Calculation of prices from market
inputs and explicit formulas		 Interest rate curves and EURIBOR
fixing

The column "Level 1" shows the figures for financial instruments whose fair values are obtained from listed prices on active markets for the same instrument, i.e. without modifying or reorganising differently. The column "Level 2" shows the figures for financial instruments whose fair values are obtained from listed prices on active markets for similar instruments or using other valuation techniques in which all significant inputs are based on observable market data. The column "Level 3" shows figures for financial instruments whose fair values are obtained using valuation techniques in which one or more significant inputs are not based on observable market data.

Financial instruments at fair value and determined by listings published on active markets comprise the debt, private fixed income, variable income and organised market derivatives (corresponding to valuation level 1).

In cases where listings cannot be observed, the valuation of the various positions is determined using models that are compared with the market. This section includes two different cases. In general, inputs used are observable market data (at Level 2), and, on certain occasions, when the data are not observable, estimates are used (Level 3).

Certain equity instruments are measured at cost because their fair value cannot be reliably estimated. The inability to make a reliable estimate of fair value is due to the wide range of estimates and the impossibility of reasonably assessing the probabilities of each estimate in the range.

The fair value of financial instruments as derived from internal models takes account of the terms of contracts and observable market data including interest rates, credit risk, exchange rates, listings of shares, volatilities, etc. We assume that markets in which we operate are efficient and that therefore their data are representative. The valuation models do not incorporate subjectivities.

Additionally, in some cases and given the complexity of products valued the price used is that published by the counterparty in official media such as Reuters.

As at 31 December 2013 the main techniques used by internal models to determine the fair value of financial instruments were the net present value model, which discounts future flows to the present using market interest rates, and the Black-Scholes model and its derivative, which, by means of a closed formula and using exclusively market inputs, enable interest rate options to be valued.

Credit derivatives are valued in the same way as other interest rate derivatives, except that the market inputs include the (market)differentials corresponding to the underlying of the issue.

We constantly compare and contrast the various valuations with counterparties to ensure the validity of the models and inputs used at all times.

b) Fair value of non-financial assets and liabilities.

The following is a breakdown of the fair value of non-financial assets and liabilities as at 31 December 2013 and 2012:

€000s €000s
31-12-13 31-12-12
Recognised
value		 Fair
value		 Recognised
Fair
value
value
Asset:
Property, plant and
equipment		 434,931 436,236 442,288 455,115
Repossessed assets 369,210 369,210 381,141 381,141

Fair values of investment property were calculated based on observable market prices. For this calculation the appraisal values certified by Appraisal Companies were taken as the basis and altered by the price variation index if the appraisals had been made more than three years previously.

44.Risk policies and management

Risk management

The Framework Agreement on Risk Policy established by the Board of Directors sets out the Bank's risk strategy and profile for each year.

The Board of Directors, through the Executive Committee and the Audit and Compliance Committee, takes care of and supervises the policies, systems and internal control procedures relating to all the Bank's risks, as well as the prevention of money laundering in accordance with applicable current legislation.

The organisational structure of the entire risks function reports hierarchically to the CEO, thus establishing independence between the risks and business functions.

The identification, measurement, monitoring, control and management of all the risks inherent in banking operations constitute a fundamental aim within the framework of overall management of all risks.

Bankinter has received Banco de España approval for its internal rating models, methodologies, systems and policies for measuring most of its risks, applying them to the calculation of capital requirements as established by the regulatory solvency framework.

The basic principles governing general risk management are:

  • • Contribute towards maximising return on capital, safeguarding the Bank's solvency.
  • • Independence of the risk function.
  • • Alignment with the strategic objectives.
  • • Risk determination, approval and monitoring of new products.

  • • Comprehensive risk management.

  • • Importance of the automated approval systems.

  • • Risk diversification.
  • • Relevance of service quality in the risks function.
  • • Policy of sustainable investment.
  • • Policy of responsible lending.

The principles for managing risk in each business segment are determined in the Framework Agreement. There is a specific section relating to the Responsible Lending Policy, pursuant to the provisions of the Transparency Act, which contains the principles that the Bank has always applied in this field.

Policies for managing structural risks and market risks

Bankinter Group is guided by principles that constitute the basis of the general risk policy. These basic principles are of a permanent nature; they have been applied in recent years and continue to apply. In general, these policies are as follows:

1.- The purpose of Bankinter's policy on the management and control of "Structural Risks" and "Market Risk" is to neutralise the impact of variations in interest rates, in the main market variables and in the balance sheet structure itself, on the Bank's profit and loss account, by adopting the most appropriate investment or hedging strategies.

2.- To develop the most appropriate systems for measuring structural and market risks so as to provide information on the Entity's exposure to these risks, and to any possible deviations that might arise regarding established limits and procedures.

The Board of Directors decides the strategy and policy for the Bankinter Group's policy as regards "Structural Risks" and "Market Risk" and delegates management, monitoring and control to various Bodies in the Institution. It also decides on the risk profile that the Institution is willing to undertake, establishing the maximum limits that it delegates to said bodies and which are reviewed on an annual basis.

It should be noted that exchange rate risk is not significant in the Banking Group.

Structural risks

The Board of Directors delegates the on-going monitoring of decisions regarding structural balance sheet risks (interest rate risk and liquidity risk), stock market risk and exchange rate risk of the Bank's corporate positions, as well as the establishment of the financing policies, to the Assets and Liabilities Committee (ALCO). Moreover, each year it reviews, approves and delegates to the ALCO the limits applicable for managing the aforementioned risks. The Treasury and Capital Markets area implements the decisions taken by the ALCO with regard to the Bank's corporate positions.

To exercise these functions, the most appropriate financial instruments at any given time are used, which include interest-rate, exchange-rate and variable income derivatives. The financial instruments with which trading is undertaken must, in general, be sufficiently liquid and be associated with hedging instruments.

The Balance Sheet Management unit, which is part of the Capital Markets Directorate, has the function of measuring and managing the institution's structural risks.

Market Risk, reporting to the Risks Directorate has the independent function of controlling them:

Interest rate structural risk

Structural interest rate risk is the Entity's exposure to changes in market interest rates arising from timing differences between maturities and repricings of the various items in the overall Balance Sheet.

Bankinter performs active management of this risk in order to protect the interest margin and to preserve the economic value of the Bank against interest rate fluctuations.

In order to control exposure to the interest rate structural risk, the Bank has established a structure of limits that is reviewed and approved on an annual basis by the Board of Management, in accordance with Bankinter's strategies and policies in this regard.

Bankinter has tools to monitor and control the structural interest rate risk. We will now go on to specify the main measurements used by the Bank that enable to manage and control the interest rate risk profile approved by the Board of Directors:

a. Sensitivity of the Financial Margin:

Dynamic simulation measures are used to measure on a monthly basis financial margin exposure in different scenarios of variation in interest rates and for a 12-month time horizon. Financial margin sensitivity is obtained as the difference between the financial margin projected with the market curves at each analysis date and the one that is projected with the interest-rate curves altered in different scenarios, both of parallel movement of rates and changes in the slope of the curve.

Every year, the Board of Directors sets a reference for the financial margin in terms of sensitivity for 100 basis point parallel movements in the interest rate curves for a term of up to 12 months. The sensitivity in this scenario is followed by the ALCO.

The exposure of Bankinter's financial margin to interest rate risk in the event of +/- 100 bp parallel movements in market interest rates is approximately 5.5% for a 12-month horizon.

The sensitivity of the Bank's financial margin to changes in the slope of the curve for a 12-month horizon is 6.1%. This scenario is built by holding the 6-month rate constant and changing the short-term (up to 3 months) and 12-month rates by the same amounts but in opposite directions so as to alter the slope of the curve by 25 basis points in the period under consideration.

Financial Margin Sensitivity
2013 2012
100 bp parallel movements 5.5% 2.2%
25 bp slope variations 6.1% 4.5%

b. Sensitivity of Economic Value:

This is a measurement that complements the previous two and which is calculated on a monthly basis. It allows the exposure of the Bank's economic value to interest-rate risk to be quantified, and is obtained as the difference between the net present value of the items that are sensitive to interest rates calculated using the curves for rates in different scenarios and the rates curve listed in the market at each analysis date.

Every year, the Board of Directors sets a reference in terms of the economic value sensitivity for 200 bp parallel movements in market interest rates. Sensitivity to this scenario is measured, controlled and submitted to the ALCO.

The sensitivity of the Bank's Economic Value to 200 bp parallel movements, obtained by means of the criterion described above, was, at year-end 2013 and 2012, 2.7%and 7.5% of the Bank's equity, respectively.

Structural liquidity risk

The structural liquidity Risk is related to the Institution's capacity to fulfil its payment obligations and finance its investments. The Bank actively monitors the liquidity situation and its projection as well as actions to be taken both in normal market conditions and in exceptional situations arising from internal causes or market trends.

Management of this risk is the responsibility of the ALCO committee, delegated by the Board of Directors.

Liquidity requirements were covered by turning to the international medium- and long-term debt markets. During 2013, €3.29 billion of mortgage-backed bonds were issued under the fixed income programme registered with the CNMV, a portion being retained on the balance sheet.

To meet its requirements, the Group used short-term issue programmes, mainly in the domestic market with its commercial paper programme. The balance of promissory notes placed in the wholesale market was €593 million as at 31 December 2013 (€897 million as at 31 December 2012).

The Bank has various tools for analysing and monitoring the short- and long-term liquidity situation. These tools are static and dynamic. Back-testing is also carried out on projections made.

One of the analyses used for controlling and monitoring liquidity is the liquidity gap.

a) Liquidity plan or gap

This shows information on the distribution of the balances and cash flows of the asset and liability positions of the balance sheet between various timeframes depending on the expected date of completion or liquidation and in accordance with a series of assumptions based on the historical performance of these products. These assumptions are reviewed on a regular basis and, in such cases as where they are necessary, supported by models based on historical series.

The liquidity gaps at year-end 2013 and 2012 were as follows. The information provided by the liquidity plan is static, and does not show the expected financing needs as it does not include behavioural models of the asset items, that is, the prepayment of mortgage loans and the renewal of lines of credit or of liability items such as the renewal of fixed term deposits, among others.

Figures as of December 2013 in millions of euros Sight 1 day to
1 month		 1 to
3 months		 3 to
12 months		 12 months to
5 years		 More than
5 years		 TOTAL
ASSETS
Loans and receivables 2,054 2,775 6,725 12,656 26,635 50,845
Deposits with credit institutions 0 0 0 1,234 1,234
Loans and advances to customers 2,054 2,775 6,669 12,606 25,359 49,463
Other 0 0 56 50 42 148
525 14 401 3,318 5,374 9,632
Fixed Income Portfolio 43 1 237 1,095 725 2,101
Trading portfolio 60 12 78 924 2,186 3,260
Available-for-Sale Portfolio 422 1 86 1,298 2,463 4,271
Held-to-Maturity Portfolio
Other Assets 886 0 0 0 4,202 5,088
Total Assets 3,466 2,789 7,127 15,973 36,211 65,565
LIABILITIES
Fixed income portfolio 120 0 0 979 698 1,798
Trading portfolio 120 0 0 979 698 1,798
Financial Liabilities at Amortised Cost 15,009 4,112 1,340 8,470 9,406 13,331 51,668
Deposits from credit institutions 165 55 403 924 6,547 8,094
Customer deposits 15,009 3,913 1,277 7,450 2,872 3,056 33,577
Debts represented by negotiable securities 34 8 618 5,610 2,393 8,662
Other 0 0 0 0 1,335 1,335
Other liabilities 780 0 0 0 228 1,008
Equity 0 0 0 0 3,360 3,360
Total Liabilities and Equity 15,009 5,012 1,340 8,470 10,385 17,617 57,833
TOTAL LIQUIDITY GAP -15,009 -1,546 1,449 -1,344 5,588 18,594 7,732

Note 1: Foreign-currency positions are not material and so have not been included in the breakdowns of the attached Gaps.

Note 2: (*) The Entity has no non-listed positions

In addition to those previously mentioned, the means used by Market Risks to control the liquidity risk include checking to ensure compliance with the limits established by the Board and delegated to the department heads and the ALCO (Assets and Liabilities Committee). The calculation of limits is carried out by Market Risks based on the information prepared for the various regulators.

There are three broad types of limit:

1) Determining the liquidity buffer

The Bank uses both the definition of regulatory LCR (liquidity coverage ratio) and a similar ratio extended to ninety days and with a definition of liquid assets in accordance with those accepted by the European Central Bank as collateral for liquidity. Another reference for calculating the liquidity buffer is the schedule of upcoming maturities of wholesale issues over the next few months.

2) Wholesale financing concentration ratios

With the aim of avoiding Bankinter being subjected to stress as a result of a possible sudden shutdown of wholesale markets, limits are established on the amount of short-term wholesale financing that can be taken, as well as on the concentration of issue maturities.

3) Ratio of stable deposits to total lending

With a view to limiting reliance on wholesale financing, a minimum ratio of stable deposits to loans is established. In establishing the stability of deposits, use is made both of the regulatory definition of the NSFR (Net Stable Funding Ratio)and of experience of the Spanish finance sector.

As well as the limits established by the Board, monitoring also covers the evolution in the gap or 'liquidity plan' and information and analysis on the specific situation of the balances resulting from trade operations, wholesale maturities, interbank assets and liabilities and other sources of funding. These analyses are carried out both under normal market conditions and simulating different liquidity scenarios that could come about as a result of different trading conditions or changes in market conditions.

Market Risk

The Board of Directors delegates proprietary trading in the financial markets to Treasury and Capital Markets, which acts through its Trading Area with a view to taking advantage of trading opportunities that arise, using the most appropriate financial instruments at any given time, including interest and exchange rate derivatives and equity derivatives. The financial instruments with which trading is undertaken must, in general, be sufficiently liquid and be associated with hedging instruments. The risk that may derive from the management of the institution's own accounts is associated with movements in interest rates, stock market prices, exchange rates, volatility and credit spreads.

The Board of Directors delegates to the ALCO the continuous monitoring of the Treasury Trading area's proprietary trading activities and establishes maximum limits for the authorisation of the possible excesses that may arise in this activity.

Market Risk, which reports to the Risks Directorate, has the independent function of measuring, tracking and controlling the Bank's market risk and the delegated limits.

Market risk is measured mostly using the "Value-at-Risk" (VaR) methodology, considered both globally and segregated for each significant risk factor. The limits in VaR terms are supplemented by other measures such as stress testing, sensitivities, stop loss and concentration.

We will now go on to describe the methodology for measuring the main market risk indicators.

Value-at-Risk (VaR)

"Value-at-Risk" (VaR) is defined as the maximum loss that is anticipated from a particular portfolio of financial instruments, under normal market conditions, for a certain confidence level and time horizon, as a consequence of movements in prices and market variables.

The VaR is the main indicator used daily by the Group to measure and control on an integrated and global basis exposure to market risks arising from interest rates, equities, exchange rates, volatility and credit.

The method used to measure VaR is "Historical Simulation" based on the analysis of possible changes in the value of the position, using historical movements in the individual assets forming it. VaR is calculated with a level of confidence of 95% and a time horizon of one day, although additional monitoring is carried out with other levels of confidence.

There is also a monthly monitoring of the VaR of its subsidiary Línea Directa Aseguradora S.A. using the "Historical Simulation" method.

The following are the comparative VaR data by risk factor for the Bank's positions in 2013 and 2012, both for the total and differentiated by portfolio:

Total VaR 2013
million euros Year-end
Interest Rate VaR 7.16
Equities VaR 0.31
Exchange Rate VaR 0.07
Volatility Rate VaR 0.07
Credit VaR 0.00
7.28
Trading VaR 2013
million euros Year-end
Interest Rate VaR 0.39
Equities VaR 0.10
Exchange Rate VaR 0.07
Volatility Rate VaR 0.07
Credit VaR 0.00
0.38
Available-for-sale VaR 2013
million euros Year-end
Interest Rate VaR 6.84
Equities VaR 0.23
Exchange Rate VaR 0.00
Credit VaR 0.00
6.96

Confidence level 95%, time horizon of 1 day

Trading VaR 2012
million euros Year-end
Interest Rate VaR 0.86
Equities VaR 0.15
Exchange Rate VaR 0.07
Volatility Rate VaR 0.05
Credit VaR 0.00
0.91

18.80

Total VaR 2012

million euros Year-end Interest Rate VaR 18.71 Equities VaR 0.32 Exchange Rate VaR 0.07 Volatility Rate VaR 0.05 Credit VaR 0.00

Available-for-sale VaR 2012
million euros Year-end
Interest Rate VaR 18.35
Equities VaR 0.23
Exchange Rate VaR 0.00
Credit VaR 0.00
18.33

2013 saw a reduction in spreads on public debt of the so-called peripheral countries relative to Germany. This shift took place mainly in the last few months of the year, and was accompanied by a sharp upturn in the stock markets in which the Group habitually operates and by a fall in volatility compared with 2012.

In view of the instability seen in the past few years, the Group maintained its VaR limits of the previous year.

Apart from this, the VaR calculation was reinforced by extending the stress testing analysis by adding specific assumptions based on expectations of their occurring in the financial markets, as well as endeavouring to simulate the most adverse circumstances for the positions taken in trading operations.

The market risk (VaR) for the Línea Directa Aseguradora portfolio at the close of the financial years 2013 and 2012, was €3.15 million and €0.77 million respectively, calculated using the "Historical Simulation" method, with a level of confidence of 95% and a time horizon of one day. The difference is explained by the increase in the duration of the portfolio by one year, its increase in volume and the change of method for capturing the market tensions during the past few years.

Stress Testing

Stress testing, or the analysis of extreme scenarios, is a supplementary test to VaR. The estimates from the stress tests quantify the potential loss in portfolio value under extreme scenarios of change in the risk factors to which the portfolio is exposed.

Every year, the Board of Directors approves an extreme scenario based on significant movements in interest rates, securities exchanges, exchange rates and volatility, and certain upper references regarding these variations for each type of risk. Additionally, estimates are made using other scenarios which replicate different historical crisis situations and other relevant current market situations.

In 2013, the stress scenarios for Interest Rate and Volatility were updated to adapt them to each product type and to the evolution of events observed in the market for this type of risk factors.

The following is information on the results of one of the most extreme stress scenarios for the Bank in financial years 2013 and 2012:

Stress Testing 2013
million euros Year-end
Interest Rate Stress 52.86
Equities Stress 4.79
Exchange Rate Stress 0.13
Volatility Stress 3.48
Credit Stress 0.00
Total Stress 61.27
Stress Testing 2012
million euros Year-end
Interest Rate Stress 74.85
Equities Stress 5.14
Exchange Rate Stress 0.43
Volatility Stress 3.33
Credit Stress 0.00
Total Stress 83.75

At year-end 2013 the total level of interest rate stress testing had decreased relative to 2012, as a consequence of a reduction in the "Available-for-Sale portfolio" in public debt.

The result of the calculation of the stress scenarios for the portfolio positions of Línea Directa Aseguradora at the end of 2013 amounted to €37.23 million compared with €23.52 million in 2012.

Operational risk

Operational risk is defined as: "the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk". In general, risks that are to be found in the processes and that are generated internally by persons and systems, or as a consequence of external agents, such as natural disasters.

Our operational risk management model is based on the guidelines of the Basel II Capital Framework, complies with Banco de España Circular 3/2008 on the determination and control of Equity and incorporates the best practices in the sector, which are shared in the CERO (Spanish Operational Risk Consortium) and CECON (Spanish Business Continuity Consortium) groups, of which Bankinter is an active member.

Basic governing principles

With a view to achieving an adequate system for managing Operational Risk, Bankinter has laid down the following basic governing principles:

  • The basic aim is to identify and preventively mitigate the greatest operational risks, seeking to minimise the possible losses associated therewith.
  • Systematic procedures are defined for assessing, analysing, measuring and reporting risks and generating appropriate action plans for controlling them.
  • In terms of exploring the Bank's activities to draw up an inventory of operational risks, the unit selected for analysis is the business unit. Once the business units' risks have been analysed, the Bank's total risks are obtained by aggregating and consolidating them.
  • From the possible calculation systems for capital associated with Operational Risk in the framework of the Basel Accord, Bankinter has opted to apply the Standard Method. This method is reserved to institutions with efficient and systematic operational risk management.

Operational Risk Management Framework

The Bankinter Management Framework for Operational Risk is based on the following main elements:

  • Identification and evaluation of risks by developing maps showing the severity level of the risk, evaluating the appropriateness of existing control mechanisms and showing action plans for mitigating these risks.
  • Recording of loss events arising, with the associated management information, sorted and classified in accordance with Basel recommendations.

  • Monitoring risk by establishing a panel of indicators to provide information on the evolution of existing operational risk levels and alerts on the appearance of undesired trends.

  • Drawing up Continuity and Contingency Plans describing the alternative procedures to normal operations aimed at restoring critical services in the event of unforeseen interruptions.

  • Generating and disseminating management information suited to the needs of each governing body with responsibilities for managing Operational Risk.

Structure of Governance

The Group applies a decentralised model in which final responsibility for managing operational risk rests with the business and support units.

For governance purposes, the following control bodies and general lines of responsibility have been established:

Board of Directors: Approves the policies and the management framework, establishing the level of risk that the Group is willing to undertake.

Operational, Reputational and New Product Risk Committee: An executive governing body on which the Senior Management is represented and which undertakes the following main roles in managing operational risk:

  • Promoting the implementation of active risk management policies.
  • Tracking significant operational risks and the development of plans to mitigate them.
  • Ensuring that the protocol for evaluating risks associated with new product launches is applied.

Operational Risk: Reporting to the Risks Directorate, the Operational Risk unit has the following main functions:

  • Promoting management of operational risks in the various divisions, encouraging risk identification, allocation of responsibility, keeping of written records of controls, generation of indicators, drawing up of mitigation plans, regular review and action to be taken in the event of new significant losses or risks.

  • Equipping divisions and units with the methodologies, tools and procedures necessary for managing their operational risks.

  • Promoting the drawing up of contingency and business continuity plans that are appropriate and in proportion to the size and activity of the institution in the units that so require.
  • Ensuring that operational losses occurring in the institution are recorded correctly and in full.
  • Providing the organisation with a uniform view of its exposure to operational risk, in which the existing operational risks are identified, integrated and evaluated.
  • Providing information on operational risk to be forwarded to regulators, supervisors and external bodies.

Business Units: With the following functions:

  • Management of operational risk in the unit and specifically, identification, evaluation, control, monitoring, analysis and mitigation of the operational risk on which they have the ability to act.
  • Recording and communication of operational losses produced in the course of their activity.
  • Studying, defining, prioritising and funding the operational risk mitigation plans which they are responsible for running.
  • Maintaining and testing the business continuity plans supported by the unit.

As regards databases of loss events, the Group's operational risk profile is represented in the following graphs:

Insurance in managing operational risk

The Group uses insurance as a key element in managing certain operational risks, thus complementing the mitigation of risks where their nature makes this advisable.

l In amount

80% 70% 60% 50% 40% 30% 20% 10% 0 Commercial banking Retail Banking Asset management Intermediation Trading and sales 16% 49% 32% 1% 18% 72% 1% 9% 1% 1%

l Events

l In amount

To this end, the Insurance Area, together with the various areas in the Group and taking into account both the operational risk assessments and historical losses, assesses the advisability of altering the coverage perimeter of the insurance policies for the Bank's various operational risks.

Examples are insurance policies taken out with various companies of recognised solvency for contingencies affecting the Bank's premises (earthquake, fire, etc.), internal or external fraud (robbery, embezzlement, etc.), employees' civil liability, etc.

Credit risk

The Board of Directors establishes the Risks Policy and delegates its implementation to the Risks Committee, which is chaired by the Executive Vice-Chairman. Its delegated powers include approving operations and defining the powers of the committees at the next levels below.

The Risks, Incidents & Arrears Control and repossessed assets divisions each report directly and separately to the CEO, thus ensuring maximum attention to all the processes relating to risk management.

The Risks Division, which covers the main risks (credit risk, market risk, structural interest rate and exchange risks and operational risks) is responsible for drawing up and publishing policies for the approval, control and management of risks. Its targets include the development of automated authorisation systems and all risk approval processes, while always seeking maximum efficiency and quality.

The Credit Risk division performs its functions through the following organisational units:

  • • Risk approval and policies are carried out by:
  • The Private Individual Risks Unit.
  • The Corporate and Developer Risks Unit.
  • The Corporate Risks Unit.
  • • The Risk Processes Unit is in charge of defining and enhancing the various risk processes and IT systems.
  • • The construction and maintenance of risk models and their components is carried out by the Global Risk Management Unit.

In addition to their own functions the various Units take part in the process of defining new products and determining the risk parameters and the approval process.

In accordance with the Bank's strategy and policies, the hierarchy and structure of the powers delegated to each of the risk Committees are established, and the approval systems automatically check that they are complied with.

The risk approval process is supported by an electronic proposal that enables integration and unification of all of the Bank's networks and channels. The use of statistical models enables retail risk approval to be automated and assists decisionmaking on risks requiring non-automated approval.

The Incident Control department is responsible for managing and handling the processes for the control, monitoring and collection of early arrears, developing automated systems to make the processes more efficient and establishing controls on data quality and transaction formalities.

The Arrears and Repossessed Assets department is responsible for managing and handling processes for the control, monitoring and non-amicable recovery of loans, establishing processes and systems to make this activity more efficient and improve recovery rates on non-performing loans.

It is also responsible for all matters relating to the policy on, and the study, approval and monitoring of refinancing transactions. Refinancing or restructuring transactions are carried out only when they can be shown to be viable, and incorporating additional guarantees whenever possible.

Apart from this, it is also responsible for setting prices for repossessed assets, establishing sales policies and taking care of the assets until they are sold, with a view to maximising the value for the Group, taking account of market conditions at any given time.

Forming part of the Arrears and Repossessed Assets Division is the Internal Validation Unit, which is responsible for validating the advanced risk models and their results, independently of its risk modelling functions.

Every year the Risks Division produces a Risk Map, to identify, quantify and uniformly summarise the various risks to which the Bank is exposed, as well as the situation of the management systems used to control them, with the aim of reducing potential losses as far as possible by means of mitigation measures.

Risk diversification is a fundamental management principle that has demonstrated its effectiveness in this crisis. The Bank periodically monitors risk diversification by sector, geographical location, product, security held, customers and counterparties, and has maximum permitted risk concentration policies.

Refinancing and Restructuring Policy:

The Refinancing Policy follows the best practices as contained in Banco de España Circular 6/2012, of 28 September, and letters from Banco de España dated 30 April 2013, and in this sense the main objective is to recover all amounts due, which implies the necessity of immediately recognising any amounts considered nonrecoverable.

Our policy for the refinancing of transactions includes:

  • Individualised, updated analysis of the economic and financial situation of the borrowers and guarantors and of their capacity to repay.
  • Situation and effectiveness of the security offered.
  • Experience with the borrower: sufficiently long track record of compliance or, failing that, equivalent record of principal repayment.
  • Half-yearly rating review.
  • End to NPL status. The refinancing or restructuring of a transaction that is in arrears (non-performing loan) does not bring an end to such NPL status, nor will it lead to its being reclassified, unless there is reasonable certainty that the customer can repay, or new effective security is provided, and in either case at the very least the normal accrued interest must be paid.

The refinancing of a transaction involves its being classified in one of the following categories:

  • Normal refinancing. Those for which objective evidence is held making it highly probable that all amounts owed will be recovered. In this respect the following factors are taken into account:
  • Grace period maximum 12 months.
  • Existence of an appropriate repayment plan.
  • Incorporation of guarantors of undoubted solvency, or of new effective collateral.
  • Doubtful refinancing. This classification will apply to transactions where there is evidence of weakness in the borrower's ability to repay. In this respect the following factors are taken into account:

  • Failure to provide new effective security, or failure to pay all interest due.

  • The granting of grace (interest only) periods in excess of 30 months.

  • The source of previous refinancings or restructurings.

Except, in all cases, if there is evidence of the borrower's having sufficient capacity to meet his commitments in the time and form contractually provided.

  • Sub-standard refinancing. All cases not covered by the two foregoing classifications.

Reclassifications

Reclassification between the categories of Refinancing or as a normal risk requires an exhaustive review of the asset and cash situation to conclude that the borrower is very unlikely to have financial difficulties. In this regard, the following factors are assessed:

  • Capacity to repay the debt of all transactions.
  • Payment of instalments from the refinancing on:
  • Residential mortgage with monthly instalments: minimum 6 months.
  • Rest: minimum 12 months.
  • Payment of 10% of the amount refinanced.
  • Residential mortgage:
  • Effort (less than 50%).
  • Grace period (less than 30 months).
  • Number of refinancing.
  • Financing of instalments.
  • Positive experience subsequent to refinancing.

- Companies:

  • Grace period (less than 30 months).
  • Incorporation of sufficient effective security.
  • Payment of interest.
  • Number of refinancing.
  • Financing of instalments.
  • Positive experience subsequent to refinancing.

In accordance with the Circular referred to, we differentiate among:

  • Refinancing transaction.
  • Refinanced transaction.
  • Restructured transaction.
  • Renewal transaction.
  • Renegotiated transaction.

  • Refinancing transaction: transaction which, irrespective of the borrower or security held, is granted or used for economic or legal reasons relating to financial difficulties —current or foreseeable — of the borrower(s) in order to cancel one or more transactions granted by the Bank or by other Group entities to the borrower(s) or to one or more other companies of the borrower's economic group, or whereby such transactions are brought totally or partially up to date with payments, in order to help the borrower(s) under the cancelled or refinanced transactions to pay their debts (principal and interest) because they cannot, or it is thought that they will not be able to comply in time and form with its conditions.

  • Refinanced transaction: transaction that is brought totally or partially up to date with payments as consequence of a refinancing transaction carried out by the Bank or another entity in its Group.

  • Restructured transaction: transaction in which, for economic or legal reasons relating to current or foreseeable financial difficulties of the borrower(s), the financial conditions are amended in order to help the borrower(s) under the cancelled or refinanced transactions to pay their debts (principal and interest) because they cannot, or it is thought that they will not be able to comply in time and form with its conditions, even if such amendment is envisaged in the contract. In any case, the following transactions shall be considered to be restructured: transactions involving a 'haircut' or debt forgiveness or where assets are accepted in part-payment of the debt, or where the conditions are amended to extend the maturity, change the repayment schedule to reduce the amount of the instalments in the short term or reduce their frequency, or establish or extend a grace period for principal, interest or both, except when it can be sown that the conditions are amended for reasons other than the borrower's financial difficulties and are analogous to those applied in the market at the date of the amendment to transactions granted to customers with a similar risk profile.
  • Renewal transaction: transaction entered into to replace another previously granted by the Bank, without the borrower having or being seen as likely to have financial difficulties in the future; i.e. when the conditions are amended for reasons other than refinancing.
  • Renegotiated transaction: transaction where the financial conditions are amended without the borrower having or being seen as likely to have financial difficulties in the future; i.e. when the conditions are amended for reasons other than restructuring.

In any case, for a transaction to be classified as a renewal or as renegotiated, the borrower must have the capability of obtaining, in the market, as at the date of the renewal or renegotiation, transactions for a similar amount and on analogous financial conditions to those applied by the Bank, and these is turn must be in line with those granted at that date to other customers with a similar risk profile.

The Group currently has 6,248 live refinanced transactions totalling €1.73 billion. This figure includes both regular status loans and substandard and delinquent balances. This figure represents 3.79% of total Credit Risk. Of the total amount refinanced, €301 million relates to risk on property developers.

For private individuals, the Group has refinanced 2,430 loans for a total of €383 million.

Restructuring of the Finance Sector

February 2012 saw the publication of Royal Decree-Law 2/2012 on restructuring of the finance sector, which laid down additional requirements for provisions and capital in respect of assets associated with real estate business. Bankinter made all the provisions required by this Royal Decree-Law during the first quarter of 2012. Also, its equity amply covered the top capital requirements established by this law as at 31 December 2012.

In May 2012 Royal Decree-Law 18/2012 on the write-down and sale of the finance sector's real estate assets established additional coverage requirements for impairment of lending linked to real estate business classed as performing. Bankinter made all the provisions required by this Royal Decree-Law during the second quarter of 2012.

Apart from this, the Council of Ministers, in its Resolution of 11 May, instructed the Ministry of Economy and Competitiveness to commission an external study to assess the ability of the Spanish banking sector as a whole to withstand a further severe deterioration in the economic situation. Banco de España, in coordination with the Ministry of Economy and Competitiveness, decided to commission Roland Berger and Oliver Wyman as independent consultants to carry out this strict evaluation of the Spanish banking sector.

Following analysis of the published information, in view of the Bank's delinquency ratios, which were the lowest in the sector, and its almost residual exposure to real estate, Bankinter showed a capital surplus of €399 million.

Maximum exposure to credit risk

The following table shows the maximum level of exposure to credit risk undertaken by the Group as at 31 December 2013 and 2012 for each class of financial instrument, without deducting from same tangible securities or other credit enhancements received to ensure borrowers' compliance:

As at 31 December 2013

Types of instrument €000s
Asset balances
Financial assets at fair value through
profit or loss
Held for trading Other assets Financial assets
available for sale		 Loans and
receivables		 Held-to-maturity
investments		 Hedging
derivatives		 Memorandum
accounts		 Total
Debt instruments
Deposits with credit
institutions		 920,112 - - 1,182,215 - - - 2,102,327
Negotiable securities 1,803,333 18,158 2,483,171 117,825 3,220,721 - - 7,643,208
Loans and advances to
customers		 979,439 - - 41,307,010 - - - 42,286,449
Total debt instruments 3,702,884 18,158 2,483,171 42,607,050 3,220,721 - - 52,031,984
Contingent risks -
Financial guarantees - - - - - - 661,879 661,879
Other contingent risks - - - - - - 1,740,016 1,740,016
Total contingent risks 2,401,895 2,401,895
Other exposure -
Derivatives 643,689 - - - - - - 643,689
Contingent commitments - - - - - - 13,548,719 13,548,719
Other exposure - - - - - 84,481 - 84,481
Total other exposure 643,689 84,481 13,548,719 14,276,889
MAXIMUM LEVEL OF
EXPOSURE TO CREDIT
RISK		 4,346,573 18,158 2,483,171 42,607,050 3,220,721 84,481 15,950,614 68,710,768

As at 31 December 2012

Types of instrument €000s
Asset balances
Financial assets at fair value through
profit or loss
Held for trading Other assets Financial assets
available for sale		 Loans and
receivables		 Held-to-maturity
investments		 Hedging
derivatives		 Memorandum
accounts		 Total
Debt instruments
Deposits with credit
institutions		 - - - 1,093,728 - - - 1,093,728
Negotiable securities 1,452,753 39,860 6,132,471 82,871 2,755,355 - - 10,463,310
Loans and advances to
customers		 - - - 43,575,351 - - - 43,575,351
Total debt instruments 1,452,753 39,860 6,132,471 44,751,950 2,755,355 55,132,389
Contingent risks -
Financial guarantees - - - - - - 631,925 631,925
Other contingent risks - - - - - - 1,850,940 1,850,940
Total contingent risks 2,482,865 2,482,865
Other exposure -
Derivatives 656,511 - - - - - - 656,511
Contingent commitments - - - - - - 11,239,659 11,239,659
Other exposure - - - - - 152,201 - 152,201
Total other exposure 656,511 152,201 11,239,659 12,048,371
MAXIMUM LEVEL OF
EXPOSURE TO CREDIT
RISK		 2,109,264 39,860 6,132,471 44,751,950 2,755,355 152,201 13,722,524 69,663,625

The adverse effects of the economic and financial crisis that started in 2007 continued to be felt through 2013, although over the course of the second half signs of economic stabilisation and indications of a timid recovery appeared.

Thus, once we had come through the financial turmoil of 2012 that tormented the euro zone, and Spain in particular, 2013 was characterised by a gradual return of confidence and of international capital inflows to Spain, thanks to the very significant progress made in restructuring the financial sector and the labour market and the substantial improvement in the Spanish economy's external financial position, with the balance of payments performing very well indeed. This performance was due to a very good year for tourism, and to the excellent way in which our export sector has adapted; it was also due to the weakness of domestic demand, as businesses and families continued the long and unavoidable process of adjustment and debt reduction (deleveraging).

Yet again in 2013 there was a sharp reduction in credit to the resident private sector, which was down by 12.9% at the end of the third quarter according to Banco de España data which show falls of 19.5% in lending to manufacturers and 5,7% in that to private individuals. This fall in lending, which slowed considerably in the second half of the year, was caused by several factors:

On the supply side, the crisis that continues to impact banks' earnings, the restructuring, the 'clean-up' and new capital requirements have inevitably reduced banks' lending capacity.

On the demand side, businesses and families have continued their efforts to deleverage so as to adapt to the new economic situation; furthermore, the years of crisis we have come through are also leading to a reduction in solvency on the part of would-be borrowers, while demand from solvent borrowers has remained very low, with so many investment projects suspended in the light of economic uncertainty.

All these factors combined to reduce the supply of and solvent demand for credit. The Group, while maintaining its high standards of credit quality, is committed to the recovery of credit for families and businesses. In this context, the solvency and quality of its balance sheet have allowed it to continue to perform much better than the sector as a whole. It is remarkable that the Group's lending to companies increased by 4.6% in a context in which, as already commented upon, lending to manufacturers by the sector as a whole fell by 19.5%.

Non-performing loans and problem assets continued to deteriorate in 2013 as a result of the prolonged crisis. Additionally, the recognition and clean-up of refinanced loans was tackled in accordance with criteria laid down by the regulator. All this is commented on in detail in the section 'Control, recoveries and real estate assets'. In spite of the deterioration, in 2013 the difference in credit quality between the Group's portfolio and that of the sector as a whole increased once again.

Analysis of credit risk

€000s 31-12-13 31-12-12 Amount %
Computable risk 45,653,137 46,355,295 (702,158) (1.51)
Doubtful debts 2,275,370 1,984,028 291,342 14.68
Provisions for credit risk 956,626 958,523 (1,897) (0.20)
NPL ratio (%) 4.98 4.28 0.70 16.36
Non-performing loans
coverage ratio (%)		 42.04 48.31 (6.27) (12.98)
Repossessed assets 627,826 611,665 16,161 2.64
Provision for impairment of
repossessed assets		 258,616 230,524 28,092 12.19
Coverage of repossessed
assets (%)		 41.19 37.69 3.50 9.29

Thanks to the Group's level of solvency and the quality of its assets, computable credit risk (which includes lending and contingent liabilities) fell by 1.5% during the year, much less than the sector as a whole, as explained above. These levels of asset quality and solvency will allow Bankinter to contribute to the reactivation of credit with an advantage over its competitors.

The Group has a solid risk culture, a team of highly qualified people and the support of advanced information systems that constitute basic pillars of the Bank's management.

In terms of arrears, we ended the year with a ratio of 4.98% compared with 4.28% the year before. This figure is less than half that of the sector as a whole, which was 13.08% at the end of November 2013 according to data from Banco de España.

The volume of problematic and repossessed assets continues to be well below those of the Group's main competitors in comparative terms.

The prudent credit approval policy applied both in times of economic growth and in times of contraction such as the present, and the proportion of risk secured by mortgages (60% at year-end) have allowed us to keep losses on the lending portfolio down throughout the crisis. The LTV (loan to value) ratio, which measures the ratio of the amount of the loan to the value of the house, has always been moderate (59% at year-end) and continues to provide an important safety margin in case of falling real estate prices. Also notable is the fact that 82% of the mortgage lending portfolio is secured by mortgages on residential properties, and this has been a great source of strength for the portfolio during the long recession.

Another example of the judicious risk policy was the decision to keep exposure to risk on property developers to a minimum (less than 2%). The highly restrictive policy followed in approving risk on property developers, with hardly any financing of land, continues to give the Bank a competitive advantage.

Private individuals

The personal lending portfolio maintained its high credit quality, amounting to €24.12 billion at year-end, down by 6.3% on the previous year, and an NPL ratio of 3.03%.

The policy for approving residential mortgage loans, the product with the biggest exposure, has always followed very conservative principles, with the maximum LTV having been set in 2003 at 80% in anticipation of a change of cycle, and this has proved decisive for the quality of the portfolio and its favourable difference from that of the sector as a whole.

The average effort (measured as the proportion of income that the customer allocates to paying mortgage loan instalments) in the mortgage portfolio remained at a very low level (23% at year-end).

The breakdown of the portfolio by LTV is as follows:

TOTAL BANK % OPERATIONS
LTV 00 - 10% 17.4
LTV 10 - 20% 12.5
LTV 20 - 30% 13.0
LTV 30 - 40% 13.6
LTV 40 - 50% 14.2
LTV 50 - 60% 13.2
LTV 60 - 70% 10.2
LTV 70 - 80% 4.4
LTV 80 - 90 % 0.9
LTV 90 - 100% 0.6
TOTAL LTV BRACKETS 100.0

The NPL ratio (2.64% at year-end) continues to be the best in the entire financial system, which in September 2013 (the latest information published by the Spanish Mortgage Association) had a ratio of 5.08% for this type of lending.

Corporate Banking

Since the onset of the crisis, the Group has seen lending to this segment as strategic: it has many years of experience in the segment, which compared with other segments is more internationalised and less exposed to the Spanish economic cycle, with a lower non-performing loan ratio. In 2013 it was once again the lending segment that performed best, ending the year up by 6.2% on the previous year, at €13,928 million. The NPL ratio at year-end stood at 3.44%.

The principles of lending have not changed, and increased lending continues to conform to them. These principles include notably:

  • Monitoring of current risks.
  • Systematic use of rating models based on statistical rating, together with subjective assessment by the Risks Committees.
  • Conservative customer portfolio management.

  • Optimisation of the risk-return trade-off.

  • Long-term investment, with the aim of a long-term relationship with the customer.

  • Diversification of sectors and terms.

Small and medium-sized enterprises

The credit risk on this segment amounted to €6,757 million at year-end, 3.9% up on the previous year, and with an NPL ratio of 11.49%. The Bank makes use of automated decision-making models in managing this segment, together with teams of highly experienced risk analysts. The performance of this portfolio in 2013 was affected by the flatness of demand for and supply of credit commented on above.

It should be highlighted that 64% of the outstanding arrears balance for SMEs has mortgage guarantees with an LTV ratio of 39%.

Incidence Control

In the first quarter of 2013 we separated the Credit Risk Control (prevention) and Incidents (early arrears) functions from Recoveries (NPLs) and Real Estate Assets, creating two independent units, each reporting directly to the CEO.

The Incidents Control unit is responsible for managing and handling the processes of control, monitoring and collection of early arrears by means of:

  • Preventive control from risk approval, detecting and interpreting warning signs by means of technological support.
  • Collection of unpaids from the moment they arise and up to 90 days, minimising their transition to NPL.
  • Review of correct formalisation of credit transactions and the correctness of the data input into the Bank's credit approval systems.
  • Efficient handling of early arrears.

This intensified attention given to incidents during the year helped to reduce unpaids 30 to 90 days overdue by 27.3% and transition to NPL by 18.1%.

NPLs and Repossessed Assets

The NPLs and Repossessed department manages and handles the processes of control, monitoring and non-amicable recovery of loans in accordance with Banco de España rules. Additionally, it is responsible for setting prices and sales policies for repossessed assets, taking care of them and selling them, with a view to maximising the value for the Group. It is also responsible for all matters relating to the policy on, and the study, approval and monitoring of refinancing transactions.

To do so, it performs its functions through the following organisational units:

  • Recoveries unit: manages and handles the processes of refinancing and non-amicable debt recovery, promoting systems and processes to improve the effectiveness of recovery.
  • NPL Analysis unit: analyses and reports on information relating to bad and doubtful debts for management and regulatory purposes.
  • Real Estate Assets Unit: Performs all functions relating to the handling of these assets.
  • Internal Validation unit: carries out internal validation of risk models.

Trend in NPLs:

In 2013 the team's wide experience and the excellent functioning of the processes and tools enabled us to optimise the level of recoveries.

Bankinter has had automatic systems in place for years for controlling and monitoring credit risk on a permanent basis.

The increase in non-performing loans was less in 2013 than in the previous year, thanks to intensive work in the area and an improvement in the processes, as a result of which the recovery rate increased, averaging over 83% monthly.

Our limited exposure to property developers, which have been most penalised by the crisis, has enabled us to widen our lead over the sector as a whole and over our closest rivals in terms of the arrears ratio.

The Recoveries process involves:

  • Support from technology (CRM).
  • Traceability.
  • Integration of all information from all parties involved, external and internal.
  • Behavioural models.

The Group has various applications for monitoring loans and advances.

  • Statistical customer alert.
  • Risk rating: "special watch" and "risk to be eliminated".
  • Centre alert.
  • Back-testing.

l Changes in NPLs

The portfolio of credit risk refinancing and restructuring transactions at the end of 2013 stood at €1.73 billion, with any amendment to credit risk conditions being considered as refinancing. The majority of refinancing operations have additional guarantees.

Information in 000s euros

Impaired assets 31-12-13 31-12-12 Var 13/12 %
Balance at start of period 1,984,028 1,515,767 468,260 31%
Net additions 523,572 660,973 (137,400) (21%)
Written off 232,230 192,712 39,518 21%
Balance at close of period 2,275,370 1,984,028 291,342 15%
Provision for impairment 956,626 958,523 (1,897) (0.2%)

Real estate assets

The balance of the real estate portfolio at year-end amounted to €627.83 million, representing an increase of €16.16 million on the previous year.

Real estate assets are highly diversified in geographical terms and as regards property type, which makes them easier to sell. The volume of sales amounted to €240.64 million, representing an increase of 65% compared with the previous year.

Regarding the Bank's real estate portfolio, it is worth noting that it does not include any properties currently in the development stage and that the proportion of rural land is very small; in the current situation the market for both these products is limited.

Repossessed assets 31-12-13 31-12-12 Change 13/12 %
Balance at start of period 611,666 484,408 127,257 26%
Net additions 16,161 127,257 (111,096) (87%)
Balance at close of period 627,826 611,665 16,161 3%
Provision for impairment
of repossessed assets		 (258,616) (230,525) (28,092) 12%
Net balance of
repossessed assets		 369,210 381,140 (11,930) (3%)

Provisions

Solvency levels and asset coverage allow the Group to face the current situation in good condition. At the end of the year the provision coverage rate for NPLs stood at 42%, compared with 48% at year-end 2012.

The doubtful mortgage portfolio with mortgage guarantees presents an LTV ratio of 47%, the same as the year before, and given this fact, plus the excellent default ratio with mortgage guarantees, losses on the mortgage portfolio are insignificant.

Reputational Risk

Reputational Risk is the risk of interactions with customers leading to negative publicity regarding business practices and relations, which may cause a loss of trust in the institution's moral integrity.

The responsibility is to detect, analyse and evaluate the potential impact (severity) of all practices and factors inherent in the activity carried out and which may induce reputational risk, as well as the task of establishing processes for monitoring and controlling such mitigating practices and measures or, if applicable and possible, eliminating the risk inherent in them.

The Operational, Reputational and New Products Risk Committee meets on a regular basis, with the following functions as regards reputational risks:

  • • To promote the implementation of reputational risk policies.
  • • To monitor actions taken to mitigate the most significant risks.
  • • To decide on the proposals put to the Committee on possible reputational risk events.

Validating compliance with procedures and protocols for identifying and assessing reputational risks. This function is particularly relevant where launches of new products or business lines are concerned.

45.Information by segments

The Group is divided into Retail Banking, Corporate Banking and Línea Directa Aseguradora (LDA): The ultimate authorities for taking operational decisions are the Management Committee of Bankinter, S.A. for the Commercial banking and Business Banking segments, and the Management Committee of LDA for Línea Directa Aseguradora.

  • Based on similarities in the nature of products and services offered, the type of target customer and distribution methods, Commercial Banking comprises:
  • - Private Banking, a business line that specialises in comprehensive advisory and management services for high net worth investors. It caters to customers with financial assets of over €1 million with Bankinter and elsewhere.
  • - Personal Banking: Customers not included in Private Banking and having:
    • Annual household income of more than €70,000.
    • or Deposits + Securities + Intermediation of between €75,000 and €1,000,000
    • or Financial assets with Bankinter and elsewhere of between €75,000 and €1,000,000
  • - Retail Banking: comprises the products and services offered to households. Other Private Individuals.
  • - Foreigners: Non-Spanish Europeans customers of any of the following. Regional Headquarters Catalonia, Levante, Balearic Islands, Andalusia and Canary Islands.
  • - Obsidiana: Consumer financing.
  • Corporate Banking offers a specialised service demanded by big companies, the public sector and SMEs. - Based on similarities in the nature of products and services offered, the type of target customer and distribution methods, this segment covers all the Bank's activity with businesses.
  • Línea Directa Aseguradora (LDA): includes the insurance business of the LDA subgroup.

46.Holdings in the capital of credit institutions

In accordance with the provisions of Article 20 of Royal Decree 1245/1995 of 14 July, we present hereunder a list of the Group's investments in the capital of national and foreign credit institutions that exceed 5% of capital or voting rights in same:

Percentage of
method
Bankinter Consumer Finance, E.F.C., S.A. 100%
Bankinter Luxemburgo, S.A. 100%

In accordance with the provisions of Article 20 of Royal Decree 1245/1995 of 14 July in relation to the Bank's holdings in the capital of financial institutions that exceed 5% of capital or voting rights in same and which are held by national or foreign credit institutions or by groups, as defined by Article 4 of the Securities Market Act, to which a national or foreign credit institution belongs, as at 31 December 2013 there was no entity or group that exceeded said percentage.

47.Information required by Law 2/1981 of 25 March on Mortgage Market Regulation and Royal Decree 716/2009 of 24 April implementing certain aspects of said law

The Risks Policy Framework Agreement is the document in which every year the Board of Directors establishes the basic principles of Risks Policy for each business segment. There is a specific section relating to the Responsible Lending Policy, pursuant to the provisions of the Transparency Act, which contains the principles that the Bank has always applied in this field.

The Policies regarding the granting of mortgage loans include, among others, the following criteria:

  • The ratio between the amount of the loan and the appraisal value of the property being mortgaged, and the existence of other complementary guarantees.
  • Selecting the valuation institutions.
  • The ratio between the debt and the borrower's income, and verification of the information provided by the borrower and the latter's solvency.

The following are the bases of the risks policy for this product:

  • Automated approval with discrimination by rating.
  • In the case of residential mortgage loans we seek to maximise the extent to which transactions can be approved using automated systems.
  • Bankinter has an internal rating model, developed and improved over the course of the last few years, based on statistical systems in accordance with solvency rules. Obtaining a rating for every transaction implies a given probability of default estimated in light of historical performance and projections of future scenarios. For each transaction, obtaining a rating is associated with a given probability of default based on historical data, and is the main indicator of the quality of a transaction. The rating is the fundamental variable in automated approval and an important factor in taking decisions on transactions for which approval is not automated.
  • Types of customers and ability to repay.
  • The approval of customer transactions is based on individualised studies of the customer, the rating, financial capacity and personalised prices depending on the customer's social and financial profile.
  • The maximum effort that a customer can make must always be taken into account. To calculate it, the following information is required: servicing of all debts and recurring income (exceptional income must not be taken into account). In this way we check whether final disposable income is enough to service our financing and the usual expenses. The documentation used to calculate the effort needed to repay the loan must be as up to date as possible.
  • Expected profitability.

  • The expected profitability of the mortgage applicant is one of the variables taken into account in the automated approval process. Providing the risk quality is good enough, measured in terms of rating, then the approval decision takes into account the profitability both of the mortgage loan itself and of any associated products.

  • Financing habitual dwelling and secondary residence.

  • The mortgage lending policy at Bankinter is geared to the financing of habitual place of residence and secondary residence for private individuals, not to investor-type financing.
  • LTV (Loan to Value, the ratio of the amount of the loan to the value of the property).
  • The Bank's general policy is to finance homes up to 80% LTV. Exceptionally, in the case of transactions for HNWcustomers with proven capacity to repay, a higher LTV may be allowed. The security needs to be valued correctly, both on approval and during the life of the loan.
  • In the approval process, the value of the security is determined by an official appraisal or by the purchase price as registered in the deed of conveyance, whichever is lower, subject to there not being a large difference between the two.
  • Non-residents.
  • More stringent requirements as regards the ratio of effort required. Additionally, LTDhas to be lower and checks must be made on the real equity contribution made by the customer.
  • Type of asset.
  • The residential property to be financed must be located in an established urban zone and there must be a property market with ample supply and demand.
  • Standardisation of the mortgage process.

  • Standardisation is of prime importance in achieving a process in which efficiency is paramount, particularly in Retail Banking.

  • The integrated handling of this process, and co-ordination with all the parties involved (mainly agencies and appraisal firms) is entrusted to a specialised department which takes charge of establishing the procedures, applications, organisation and control of the process. This ensures that the process is carried out smoothly with first-class customer service and excellent quality of mortgage lending.

  • Independent appraisal process.
  • The appraisal process is absolutely independent of the Sales network. It is carried out on a centralised basis, and the appraiser assigned to each valuation is selected at random, thus ensuring that transactions from any given branch have been valued by different appraisal companies.
  • Monitoring of the mortgage market.
  • Official reports are regularly obtained in order to monitor property market prices. In the event of any substantial change in the value of a property the value must be adjusted in the Bank's books.
  • Interest-rate hedges .
  • The risks policy for approving this type of transaction is restricted to customers with a mortgage loan from the Bank, and we never cover more than 75% of the balance of the transaction, nor do we ever go beyond an eight-year term.
  • Multi-currency.
  • Given the volatility associated with the currency, the existing portfolio requires to be monitored and controlled. A contingency plan will be drawn up weighing the decisions to be taken in the event of a strengthening of the currency, which would involve a reduction in the mortgage cover.

Policy on sale of repossessed assets

Prior to repossession, the team of specialised professionals forming the Real Estate Assets Unit has as its initial task the in-situ inspection of the property in order to perform a Technical Analysis which covers: characteristics, type, description and condition of the property, as well as a study of the market and of prices in the area

Selling prices are established centrally based on objective criteria and reviewed periodically to ensure that they are in line with the market, following the active policy of managing property as quickly and efficiently as possible.

For the sale of real estate assets the Bank has a network of external collaborating property market specialists. These collaborating specialists are selected individually based on considerations of proximity, local knowledge and product suitability. The effectiveness of this network is very closely monitored, with daily contact and evaluation of the level of sales and commitments.

By way of sales support the Bank relies on:

  • The branch network, which has a financial incentive to refer possible interested buyers.
  • Own property portal on the Bank's website.
  • https://www.bankinter.com/www/es-es/cgi/ebk+inm+home
  • The assets are published on the main national portals.
  • Our own property magazines, by type of property and location.
  • Sales service call centre.

There is an active policy of studying possibilities for disposing of the portfolio as a whole or in batches of repossessed assets.

Land and construction work in progress

As a consequence of the highly restrictive risk policy on financing for property developers, the amount relating to repossessed land is insignificant relative to the size of the Bank and particularly in comparison with the banking sector as a whole. Most of the repossessed land is urban and therefore does not require town planning and management.

Our knowledge of property developers, the size of the developments and the risk policy pursued have allowed us to support developers at least enough to ensure that financed projects are completed, which explains why there are no developments in progress among the repossessed assets. In any case the policy for managing land focuses on establishing controls to prevent the asset from losing value and improving its condition so as to ensure a quick sale.

Specific examples of these procedures include:

  • The selection and control of specialist providers for resolving planning issues with land and unfinished developments, accepting budgets and monitoring their execution.
  • Supervision and monitoring of the procedures for obtaining the necessary sale permits from official bodies or town halls.
  • Offering property investors and developers to analyse the feasibility studies on the developments.

Policy on financing granted to problematic property developers

Due to the low level of exposure to credit risk on property developers (less than 2% of total customer risk), there is no need to design recovery policies for problematic property development projects. Policy has focused on financing specific, small-scale projects in good locations and with well-established property developers. As a result most of the risk in this sector is on completed developments ready for sale. The Bank's real estate website has a sales section which can be used for selling projects of property developers financed by the Bank. Projects and selling prices are closely monitored with a view to reducing the risk.

a) Asset transactions

We now go on to present, as at 31 December 2013, the nominal value of the totality of mortgage credits and loans outstanding at that date in the Group entities indicated above, the nominal value of these eligible loans and credits, the mortgage credits and loans covering the issue of mortgage bonds, those that have been issued in the form of mortgage participations or mortgage transfer certificates and noncommitted transactions:

31 December 2013:

Nominal value NPV
1 Total loans 26,857,438
2 Mortgage participations issued 1,803,404
Of which: Loans retained on the balance sheet 960,426
3 Mortgage transmission certificates issued 2,439,674
Of which: Loans retained on the balance sheet 2,321,828
4 Mortgage loans assigned in guarantee of financing
received
5 Loans backing the issue of mortgage debentures and
bonds		 22,614,361
5.1 Non-eligible loans 4,512,147
5.1.1 They meet the eligibility requirements
except for the limit of Article 5.1 of Royal
Decree 716/2009
5.1.2 Other 4,512,147
5.2 Eligible loans 18,102,214
5.2.1 Non-computable amounts
5.2.2 Computable amounts 18,102,214
5.2.2.1 Loans covering issues of mortgage
debentures
5.2.2.2 Loans suitable for covering issues of
mortgage bonds		 18,102,214

31 December 2012:

Nominal value NPV
1 Total loans 29,033,037
2 Mortgage participations issued 2,640,009
Of which: Loans retained on the balance sheet 1,670,494
3 Mortgage transmission certificates issued 2,721,511
Of which: Loans retained on the balance sheet 2,591,555
4 Mortgage loans assigned in guarantee of financing
received
5 Loans backing the issue of mortgage debentures and
bonds		 23,671,517
5.1 Non-eligible loans 5,784,014
5.1.1 They meet the eligibility requirements
except for the limit of Article 5.1 of Royal
Decree 716/2009
5.1.2 Other 5,784,014
5.2 Eligible loans 17,887,503
5.2.1 Non-computable amounts
5.2.2 Computable amounts 17,887,503
5.2.2.1 Loans covering issues of mortgage
debentures
5.2.2.2 Loans suitable for covering issues of
mortgage bonds		 17,887,503

31 December 2013;

Loans backing the issue
of mortgage debentures and bonds		 Of which: Eligible loans
TOTAL 22,614,361 18,102,214
1 ORIGIN OF TRANSACTIONS 22,614,361 18,102,214
1.1 Originated by the entity 20,762,829 16,538,699
1.2 Subrogated from other entities 1,851,532 1,563,515
1.3. Other - -
2 CURRENCY 22,614,361 18,102,214
2.1 Euros 19,533,230 15,649,051
2.2 Other currencies 3,081,131 2,453,163
3 PAYMENT SITUATION 22,614,361 18,102,214
3.1 Normal 21,696,543 17,886,505
3.2 Other than normal 917,818 215,709
4 AVERAGE REMAINING MATURITY 22,614,361 18,102,214
4.1 Up to ten years 3,286,478 2,450,561
4.2 From ten to twenty years 7,900,713 6,234,004
4.3 From twenty to thirty years 8,757,846 7,311,655
4.4 More than thirty years 2,669,324 2,105,994
5 INTEREST RATES 22,614,361 18,102,214
5.1 Fixed 61,141 30,537
5.2 Variable 22,553,220 18,071,677
5.3 Mixed - -
6 BORROWERS 22,614,361 18,102,214
6.1 Companies and entrepreneurs 4,729,743 2,820,376
Of which: Property developers 529,846 323,465
6.2 Other companies and ISFLSH (Private non-profit
making institutions serving households)		 17,884,618 15,281,838
7 TYPE OF GUARANTEE 22,614,361 18,102,214
7.1 Finished assets/buildings 21,810,333 17,674,275
7.1.1 Residential 15,492,824 13,870,776
Of which: State-subsidised housing - -
7.1.2 Commercial 6,317,509 3,803,499
7.1.3 Other - -
7.2 Assets/buildings under construction 389,498 251,734
7.2.1 Residential 350,548 226,561
Of which: State-subsidised housing - -
7.2.2 Commercial 38,950 25,173
7.2.3 Other - -
7.3 Plots of land 414,530 176,205
7.3.1 Developed 285,475 176,205
7.3.2 Other 129,055 -

31 December 2012:

Loans backing the issue
of mortgage debentures and bonds		 Of which: Eligible loans
TOTAL 23,671,517 17,887,503
1 ORIGIN OF TRANSACTIONS 23,671,517 17,887,503
1.1 Originated by the entity 21,763,604 16,270,011
1.2 Subrogated from other entities 1,907,913 1,617,492
1.3. Other - -
2 CURRENCY 23,671,517 17,887,503
2.1 Euros 19,205,354 15,203,899
2.2 Other currencies 4,466,163 2,683,604
3 PAYMENT SITUATION 23,671,517 17,887,503
3.1 Normal 22,773,725 17,644,941
3.2 Other than normal 897,792 242,562
4 AVERAGE REMAINING MATURITY 23,671,517 17,887,503
4.1 Up to ten years 3,115,479 2,373,295
4.2 From ten to twenty years 7,788,683 5,844,019
4.3 From twenty to thirty years 9,736,943 7,305,873
4.4 More than thirty years 3,030,412 2,364,316
5 INTEREST RATES 23,671,517 17,887,503
5.1 Fixed 53,202 23,657
5.2 Variable 23,618,315 17,863,846
5.3 Mixed - -
6 BORROWERS 23,671,517 17,887,503
6.1 Companies and entrepreneurs 4,958,368 2,841,880
Of which: Property developers 623,346 372,682
6.2 Other companies and ISFLSH (Private non-profit
making institutions serving households)		 18,713,149 15,045,623
7 TYPE OF GUARANTEE 23,671,517 17,887,503
7.1 Finished assets/buildings 19,529,498 15,471,770
7.1.1 Residential 15,789,110 13,776,856
Of which: State-subsidised housing -
7.1.2 Commercial 3,740,388 1,694,914
7.1.3 Other - -
7.2 Assets/buildings under construction 3,670,026 2,195,702
7.2.1 Residential 3,303,023 1,976,132
Of which: State-subsidised housing - -
7.2.2 Commercial 367,003 219,570
7.2.3 Other - -
7.3 Plots of land 471,993 220,030
7.3.1 Developed 322,497 220,030
7.3.2 Other 149,496 -

The following is a breakdown of the nominal value of eligible mortgage loans and credits outstanding as at 31 December 2013 and 31 December 2012 by loan to value (LTV) based on the latest available appraisal of the mortgaged property:

31 December 2013:

RISK AS % OF AMOUNT OFLATEST AVAILABLEAPPRAISAL FOR MORTGAGE MARKET (loan to value)
TYPE OF GUARANTEE Equal to or less than
From 40% to 60% incl.
More than 60%
From 60 % to 80 % incl.
More than 80 %
TOTAL
40%
5 Loans eligible for
the issue of mortgage
debentures and bonds		 5,953,680 7,583,523 - 4,565,011 - 18,102,214
- On residential property 3,946,660 5,380,357 4,565,011 - 13,892,028
- On other assets 2,007,020 2,203,166 - 4,210,186

31 December 2012:

RISK AS % OF AMOUNT OFLATEST AVAILABLEAPPRAISAL FOR MORTGAGE MARKET (loan to value)
TYPE OF GUARANTEE Equal to or less than
From 40% to 60% incl.
More than 60%
From 60 % to 80 % incl.
More than 80 %
TOTAL
40%
5 Loans eligible for
the issue of mortgage
debentures and bonds		 5,383,854 7,236,882 - 5,266,767 - 17,887,503
- On residential property 3,515,361 5,025,339 5,266,767 - 13,807,467
- On other assets 1,868,493 2,211,543 - 4,080,036

2013

MOVEMENTS Eligible loans Non-eligible loans
1 Opening balance at 31-12-2012 17,887,503 5,784,014
2 Deductions in the period 2,393,463 1,793,298
2.1 Cancelled at due date 1,718,204 556,045
2.2 Pre-paid 675,259 581,342
2.3 Subrogated by other entities - -
2.4. Other - 655,911
3 Additions in the period 2,608,174 521,430
3.1 Originated by the entity 1,555,523 502,385
3.2 Subrogated from other entities 24,008 4,405
3.3. Other 1,028,643 14,640
4 Closing balance as at 31-12-2013 18,102,214 4,512,146

2012

MOVEMENTS Eligible loans Non-eligible loans
1 Opening balance at 31-12-2011 13,250,105 7,933,053
2 Deductions in the period 1,605,994 2,853,079
2.1 Cancelled at due date 1,204,591 533,974
2.2 Pre-paid 401,403 392,815
2.3 Subrogated by other entities - -
2.4. Other - 1,926,290
3 Additions in the period 6,243,392 704,040
3.1 Originated by the entity 794,327 441,344
3.2 Subrogated from other entities 13,522 2,574
3.3. Other 5,435,543 260,122
4 Closing balance as at 31-12-2012 17,887,503 5,784,014

31 December 2013;

Mortgage credit and loans Available balances. Nominal value
Total 293,319
– Potentially eligible 142,252
– Non-eligible 151,067

31 December 2012;

Mortgage credit and loans Available balances. Nominal value
Total 1,071,707
– Potentially eligible 152,997
– Non-eligible 918,710

As at 31 December 2013 and 2012 there were no replacement assets in cover of issues of mortgage bonds or debentures in the Group.

b) Liability operations

We present hereunder the aggregate nominal value of the mortgage bonds outstanding as at 31 December 2013 and 2012 issued by the Group, listed by remaining maturity, as well as mortgage participations and mortgage transfer certificates outstanding as at 31 December 2013 and 2012 issued by the Bank listed by remaining maturity:

31 December 2013:

MORTGAGE-BACKED SECURITIES Nominal value NPV Average remaining maturity
1 Mortgage debentures issued and outstanding -
2 Mortgage bonds issued 11,270,000
Of which: Not recognised as liabilities in the balance sheet 5,884,150
2.1 Debt securities. Issued in a public offering 11,270,000
2.1.1 Remaining maturity up to one year 1,430,000
2.1.2 Remaining maturity from one to two years 1,600,000
2.1.3 Remaining maturity from two to three years 2,100,000
2.1.4 Remaining maturity from three to five years 3,090,000
2.1.5 Remaining maturity from five to ten years 3,050,000
2.1.6 Remaining maturity over ten years
2.2 Debt securities. Other issues
2.2.1 Remaining maturity up to one year
2.2.2 Remaining maturity from one to two years
2.2.3 Remaining maturity from two to three years
2.2.4 Remaining maturity from three to five years
2.2.5 Remaining maturity from five to ten years
2.2.6 Remaining maturity over ten years
2.3 Deposits
2.3.1 Remaining maturity up to one year
2.3.2 Remaining maturity from one to two years
2.3.3 Remaining maturity from two to three years
2.3.4 Remaining maturity from three to five years
2.3.5 Remaining maturity from five to ten years
2.3.6 Remaining maturity over ten years
3 Mortgage participations issued 960,426 229
3.1 Issued by means of public offering 960,426 229
3.2. Other issues
4 Mortgage transmission certificates issued 2,321,828 229
4.1 Issued by means of public offering 2,321,828 229
4.2. Other issues

31 December 2012:

MORTGAGE-BACKED SECURITIES Nominal value NPV Average remaining maturity
1 Mortgage debentures issued and outstanding -
2 Mortgage bonds issued 12,798,213
Of which: Not recognised as liabilities in the balance sheet 6,541,150
2.1 Debt securities. Issued in a public offering 12,798,213
2.1.1 Remaining maturity up to one year 2,718,213
2.1.2 Remaining maturity from one to two years 1,930,000
2.1.3 Remaining maturity from two to three years 2,700,000
2.1.4 Remaining maturity from three to five years 3,000,000
2.1.5 Remaining maturity from five to ten years 2,450,000
2.1.6 Remaining maturity over ten years
2.2 Debt securities. Other issues
2.2.1 Remaining maturity up to one year
2.2.2 Remaining maturity from one to two years
2.2.3 Remaining maturity from two to three years
2.2.4 Remaining maturity from three to five years
2.2.5 Remaining maturity from five to ten years
2.2.6 Remaining maturity over ten years
2.3 Deposits
2.3.1 Remaining maturity up to one year
2.3.2 Remaining maturity from one to two years
2.3.3 Remaining maturity from two to three years
2.3.4 Remaining maturity from three to five years
2.3.5 Remaining maturity from five to ten years
2.3.6 Remaining maturity over ten years
3 Mortgage participations issued 1,670,494 237
3.1 Issued by means of public offering 1,670,494 237
3.2. Other issues -
4 Mortgage transmission certificates issued 2,591,555 237
4.1 Issued by means of public offering 2,591,555 237
4.2. Other issues -

In compliance with the request made by the Banco de España for credit institutions to publish their exposure to the construction and property development sector, Bankinter, S.A. publishes the following information as at 31 December 2013 and 31 December 2012, which goes beyond the level of detail and transparency requested:

48.Exposure to the construction and property development sector

Table 1: Financing for property development and its coverage

Figures as at 31-12-2013
Excess over Specific
Gross amount guarantee value (1) coverage
1. Lending recorded by the group's
credit institutions (businesses in
Spain) 848,149 100,509 140,253
1.1. Of which: Doubtful 288,886 41,762 129,809
1.2. Of which: Substandard 87,042 14,205 10,253

Information in €000s

Figures as at 31-12-2012

Gross amount Excess over
guarantee value (1)		 Specific
coverage
1. Lending recorded by the group's
credit institutions (businesses in
Spain) 983,522 95,636 302,700
1.1. Of which: Doubtful 330,758 49,828 135,555
1.2. Of which: Substandard 38,929 5,037 12,455

Information in €000s

(1) This is the amount of the excess of the gross value of each transaction over the value of any rights in rem received in guarantee, calculated in accordance with the provisions of Appendix IX to Circular 4/2004 (finished habitual residence 80%; offices, shops and multi-purpose industrial buildings 70%; other finished housing 60%; other assets 50%).

Table 2: Breakdown of financing for property construction and development

Figures as at 31-12-2013 Financing of property construction
and development.
Gross amount
Without a mortgage guarantee 115,227
With a mortgage guarantee 732,922
Finished buildings 492,475
Housing 340,237
Other 152,238
Buildings under construction 62,684
Housing 62,684
Other -
Land 177,763
Urban plots 166,620
Other land 11,143
TOTAL 848,149

Information in €000s

Figures as at 31-12-2012 Financing of property construction
and development.
Gross amount
Without a mortgage guarantee 134,171
With a mortgage guarantee 849,351
Finished buildings 579,391
Housing 398,307
Other 181,084
Buildings under construction 57,151
Housing 57,151
Other -
Land 212,809
Urban plots 197,309
Other land 15,500
TOTAL 983,522

Information in €000s

Figures as at 31-12-2013

Memorandum items:
- Total generic coverage (all businesses) -
- Bad debts 52,423
Memorandum items: Figures for the consolidated group
Carrying amount
1. Total lending to customers excluding Public Administrations
(businesses in Spain)		 38,966,358
2. Total consolidated assets (all businesses) 55,135,662

Table 3: Lending to households for purchase of residential property

Figures as at 31-12-2013

Gross amount Of which: Doubtful
Lending for the purchase of housing 20,861,461 555,850
Without a mortgage guarantee - -
With a mortgage guarantee 20,861,461 555,850

Information in €000s

Figures as at 31-12-2012

Gross amount Of which: Doubtful
Lending for the purchase of housing 22,741,182 491,258
Without a mortgage guarantee - -
With a mortgage guarantee 22,741,182 491,258

Information in €000s

Figures as at 31-12-2012

Memorandum items: -
- Total generic coverage (all businesses)
- Bad debts 44,063
Memorandum items: Figures for the consolidated group
Carrying amount
1. Total lending to customers excluding Public Administrations
(businesses in Spain)		 41,962,384
2. Total consolidated assets (all businesses) 58,165,890

Table 4: Breakdown of mortgage lending to households for the purchase of housing by loan to value (LTV) based on the latest available appraisal.

Figures as at 31-12-2013

</ltv≤100%<></ltv≤80%<></ltv≤60%<></ltv≤100%<></ltv≤80%<></ltv≤100%<>
LTV brackets (10)
LTV≤40% 40% <ltv≤60%< td="">60%<ltv≤80%< td="">80%<ltv≤100%< td="">LTV > 100%Total 60% <ltv≤80%< td="">80%<ltv≤100%< td="">LTV > 100%Total 80% <ltv≤100%< td="">LTV > 100%Total LTV > 100% Total
Gross amount 7,243,737 7,501,044 5,411,424 664,196 41,060 20,861,461
Of which doubtful 116,474 184,208 207,762 42,813 4,592 555,849

Information in €000s

Figures as at 31-12-2012

</ltv≤100%<></ltv≤80%<></ltv≤60%<></ltv≤100%<></ltv≤80%<></ltv≤100%<>
LTV brackets (10)
LTV≤40% 40% <ltv≤60%< td="">60%<ltv≤80%< td="">80%<ltv≤100%< td="">LTV > 100%Total 60% <ltv≤80%< td="">80%<ltv≤100%< td="">LTV > 100%Total 80% <ltv≤100%< td="">LTV > 100%Total LTV > 100% Total
Gross amount 7,036,857 7,424,121 6,562,849 1,605,509 111,846 22,741,182
Of which doubtful 94,613 145,570 188,608 55,780 6,687 491,258

Information in €000s

Table 5: Assets repossessed by consolidated group entities (businesses in Spain)

Figures as at 31-12-2013

Carrying Of which:
amount Coverage Initial cost Gross Debt
1. Real estate assets from financing transactions for property construction and development companies 147,114 72,787 219,901 300,429
1.1. Finished buildings 92,264 41,498 133,762 170,991
1.1.1. Housing 55,050 22,176 77,226 101,133
1.1.2. Other 37,214 19,322 56,536 69,858
1.2. Buildings under construction 5,193 264 5,457 9,682
1.2.1. Housing 5,193 264 5,457 9,682
1.2.2 Other - - - -
1.3. Land 49,657 31,025 80,682 119,756
1.3.1. Urban plots 49,657 31,025 80,682 119,756
1.3.2. Other land - - - -
2. Real estate assets from mortgage financing operations to households for the purchase of housing 100,988 14,888 115,876 140,773
3. Other real estate assets foreclosed 120,926 19,382 140,308 186,256
4. Other equity instruments, securities and financing to non-consolidated companies holding said assets 204 2,436 2,640 8,925

Information in €000s

Figures as at 31-12-2012

Carrying Of which:
amount Coverage Initial cost Gross Debt
1. Real estate assets from financing transactions for property construction and development companies 191,204 73,651 264,855 351,875
1.1. Finished buildings 143,679 36,911 180,590 227,687
1.1.1. Housing 92,614 19,497 112,111 143,745
1.1.2. Other 51,065 17,414 68,479 83,942
1.2. Buildings under construction 4,289 700 4,989 8,559
1.2.1. Housing 4,289 700 4,989 8,559
1.2.2 Other - - - -
1.3. Land 43,236 36,040 79,276 115,629
1.3.1. Urban plots 43,236 36,040 79,276 115,629
1.3.2. Other land - - - -
2. Real estate assets from mortgage financing operations to households for the purchase of housing 91,080 7,647 98,727 119,159
3. Other real estate assets foreclosed 98,760 8,677 107,437 140,375
4. Other equity instruments, securities and financing to non-consolidated companies holding said assets 204 2,436 2,640 8,925

Information in €000s

49. Additional Information on risks: Refinancing and restructuring transactions: Geographical and sector risk concentration

In compliance with the Banco de España's request per Circular 6/2012 for credit institutions to publish information on refinancing and restructuring transactions, as well as on sector and geographical risk concentration.

The policy on refinancing and restructuring established by the Bank is described in Note 42.

The following is a breakdown by counterparty, type of insolvency and type of security held, of balances of restructuring and refinancing transactions carried out by the Bank and outstanding as at 31 December 2013 and 2012.

Refinancing and restructuring transactions

Outstanding balances of refinancing and restructuring transactions as at 31 December 2013:

NORMAL (b) SUBSTANDARD
Fully secured by
property mortgage		 Other tangible
security (c)		 Without tangible
security		 Fully secured by
property mortgage		 Other tangible
security (c)		 Without tangible
security
No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 Specific
coverage
1. Public Administrations - - - - 1 9,203 - - - - - - -
2. Remaining companies and sole
proprietors		 712 318,547 85 25,991 738 119,780 409 162,323 20 15,761 138 126,513 33,146
Of which: Financing of property
construction and development.		 77 45,893 8 6,609 6 13,865 47 52,089 5 5,557 2 714 5,750
3. Other Private Individuals 834 162,813 46 11,650 324 4,963 515 107,192 14 2,258 104 1,405 2,909
4. Total 1,546 481,360 131 37,641 1,063 133,946 924 269,515 34 18,019 242 127,918 36,055

Outstanding balances of refinancing and restructuring transactions as at 31 December 2013:

DOUBTFUL
Fully secured by property
mortgage		 Other tangible security (c) Without tangible security TOTAL
No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 Specific
coverage		 No. of
transactions		 Gross
amount		 Specific
coverage
1. Public Administrations - - - - - - - 1 9,203 -
2. Remaining companies and sole
proprietors		 714 369,921 73 41,276 928 161,722 259,941 3,817 1,341,834 293,087
Of which: Financing of property
construction and development.		 166 156,492 23 15,191 32 4,176 80,940 366 300,586 86,690
3. Other Private Individuals 356 82,483 20 5,191 217 4,960 10,869 2,430 382,915 13,778
4. Total 1,070 452,404 93 46,467 1,145 166,682 270,810 6,248 1,733,952 306,865

Outstanding balances of refinancing and restructuring transactions as at 31 December 2012:

NORMAL (b) SUBSTANDARD
Fully secured by
Other tangible security
property mortgage
(c)		 Without tangible
security		 Fully secured by
property mortgage		 Other tangible security
(c)		 Without tangible
security
No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 Specific
coverage
1. Public
Administrations		 - - - - 3 606 - - - - - - -
2. Remaining
companies and
sole proprietors		 901 344,715 113 43,346 1,214 229,867 63 62,420 7 4,107 43 34,523 22,357
Of which: Financing
of property
construction and
development.		 115 81,239 10 7,699 19 15,349 26 35,962 - - - - 11,671
3. Other Private
Individuals		 791 160,042 61 17,829 419 7,019 5 2,400 4 1,139 11 209 623
4. Total 1,692 504,757 174 61,175 1,636 237,492 68 64,820 11 5,246 54 34,732 22,980

Outstanding balances of refinancing and restructuring transactions as at 31 December 2012:

DOUBTFUL
Fully secured by property
mortgage		 Other tangible security (c) Without tangible security TOTAL
No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 No. of
transactions		 Gross
amount		 Specific
coverage		 No. of
transactions		 Gross
amount		 Specific
coverage
1. Public Administrations - - - - - - - 3 606 -
2. Remaining companies and sole
proprietors		 383 289,357 51 28,065 532 115,621 169,916 3,307 1,152,021 192,273
Of which: Financing of property
construction and development.		 164 174,408 20 13,423 34 4,615 76,426 388 332,695 88,097
3. Other Private Individuals 62 21,740 12 2,920 119 3,376 3,754 1,484 216,674 4,377
4. Total 445 311,097 63 30,985 651 118,997 173,670 4,794 1,369,301 196,650

Breakdown of amount of transactions classed as doubtful subsequent to refinancing

or restructuring during the year.

Fully secured by property mortgage Other tangible security (c) Without tangible security
No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount
Companies and sole proprietors 364 132,250 32 12,009 485 61,120
Of which: Financing of
property construction and
development.		 41 33,364 6 1,709 4 44
Private individuals 262 54,572 12 2,205 112 1,899
Total 626 186,822 44 14,214 597 63,019

Breakdown of amount of transactions classed as doubtful subsequent to refinancing or restructuring during the previous year.

Fully secured by property mortgage Other tangible security (c) Without tangible security
No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount
Companies and sole proprietors 170 76,768 20 9,078 415 79,621
Of which: Financing of
property construction and
development. 116 122,307 9 5,445 26 3,575
Private individuals 59 21,079 11 2,876 120 3,029
Total 229 97,847 31 11,954 535 82,650

Breakdown of the average probability of default (PD) of refinanced and restructured transactions by segment.

2013:

NORMAL SUBSTANDARD
Fully secured by
property mortgage		 Other tangible
security		 Without tangible
security		 Fully secured by
property mortgage		 Other tangible
security		 Without tangible
security
No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD
1. Public Administrations - - - - - - - - - - - -
2. Remaining companies and sole proprietors 443 0.39 44 0.26 480 0.30 269 0.38 8 0.13 66 0.33
Of which: Financing of property construction and
development.		 45 0.36 3 0.00 1 1 24 0.40 2 0.04 1 0.18
3. Other Private Individuals 689 0.26 25 0.15 312 0.10 444 0.23 10 0.27 102 0.41
4. Total 1,132 0.32 69 0.22 792 0.26 713 0.31 18 0.21 168 0.35

2013:

TOTAL
Fully secured by property
mortgage		 Other tangible security Without tangible security
No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD
1. Public Administrations
2. Remaining companies and sole proprietors 359 0.99 22 0.97 460 1.00 2,151 0.66
Of which: Financing of property construction and
development.		 52 1.00 3 0.89 10 1.00 141 0.67
3. Other Private Individuals 286 0.97 11 1.00 206 0.80 2,085 0.41
4. Total 645 0.98 33 0.97 666 0.98 4,236 0.56

2012:

NORMAL SUBSTANDARD
Fully secured by
property mortgage		 Other tangible
security		 Without tangible
security		 Fully secured by
property mortgage		 Other tangible
security		 Without tangible
security
No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD
1. Public Administrations - - - - - - - - - - - -
2. Remaining companies and sole proprietors 580 0.36 59 0.27 763 0.26 25 0.10 1 0.18 6 0.16
Of which: Financing of property construction and development. 69 0.23 2 0.01 6 0.15 5 0.00 0 0.00 0 0.00
3. Other Private Individuals 671 0.46 34 0.24 408 0.16 3 0.30 2 1.00 10 0.17
4. Total 1,251 0.41 93 0.26 1,171 0.25 28 0.11 3 0.93 16 0.15

2012:

Fully secured by property
mortgage		 Other tangible security Without tangible security TOTAL
No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD No. of
transactions		 PD
1. Public Administrations
2. Remaining companies and sole proprietors 174 0.87 15 0.97 256 0.62 1,879 0.51
Of which: Financing of property construction and development. 58 0.96 4 0.96 9 0.84 153 0.56
3. Other Private Individuals 54 0.81 3 1.00 115 0.81 1,300 0.48
4. Total 228 0.86 18 0.97 371 0.65 3,179 0.50

Geographical and sector risk concentration

The following is a breakdown of the carrying amount of the Group's most significant financial assets as at 31 December 2013 and 2012 by geographical area of activity, business segment, counterparty and purpose for which the financing was granted.

Breakdown of customer lending by activity (carrying amount). 2013

Of which: Collateralised loans. Loan to value (f)
TOTAL Of which: Fully
secured (e)		 Other
tangible
security (e)		 Equal to or
less than
40%		 From 40% to
60% incl.		 From 60 % to
80 % incl.		 From 80% to
100 % incl.		 More than
100%
1 Government Bodies 2,340,651 6,804 - 290 - - 6,514 -
2 Other financial institutions 1,397,106 6,396 11,519 2,166 3,019 11,519 - 1,211
3 Non-financial corporations and sole proprietors 17,931,104 7,382,687 571,193 2,715,320 2,732,550 1,696,643 407,386 401,981
3.1 Property construction and development (b) 750,427 654,089 18,094 171,372 189,133 229,925 30,801 50,952
3.2 Construction of civil works 309,215 26,838 1,138 8,330 13,864 2,612 1,812 1,358
3.3 Other purposes 16,871,462 6,701,760 551,961 2,535,618 2,529,553 1,464,106 374,773 349,671
3.3.1 Large companies (c) 5,610,765 620,376 129,135 202,504 148,072 243,941 86,586 68,408
3.3.2 SMEs and sole proprietors (c) 11,260,697 6,081,384 422,826 2,333,114 2,381,481 1,220,165 288,188 281,263
4 Rest of households and non-profits 20,617,588 19,265,913 111,071 5,485,753 7,225,205 5,790,866 655,491 219,668
4.1 Housing (d) 14,829,459 14,712,559 6,383 3,823,806 5,448,756 4,789,359 526,530 130,491
4.2 Consumption (d) 580,598 19,161 890 8,459 7,214 3,930 297 151
4.3 Other purposes (d) 5,207,531 4,534,193 103,798 1,653,488 1,769,235 997,577 128,664 89,026
SUBTOTAL 42,286,449 26,661,800 693,783 8,203,529 9,960,774 7,499,028 1,069,392 622,860
5 Less: Value corrections for impairment of assets not allocated
to specific transactions		 -
6 TOTAL 42,286,449
MEMORANDUMACCOUNTS
Refinancing, refinanced and restructured transactions 1,432,661 1,129,907 29,181 305,823 310,958 374,192 109,629 58,486
Of which: Of which: Collateralised loans. Loan to value (f)
2012
Information in €000s		 TOTAL Fully secured
(e)		 Other
tangible
security (e)		 Equal to or
less than 40%		 From 40% to
60% incl.		 From 60 % to
80 % incl.		 From 80% to
100 % incl.		 More than
100%
1 Government Bodies 1,612,967 6,946 21,489 354 6,592 - - 21,489
2 Other financial institutions 1,642,862 - - - - - - -
3 Non-financial corporations and sole proprietors 18,746,150 8,083,957 459,710 2,477,752 3,021,540 1,979,215 572,550 492,610
3.1 Property construction and development 901,840 786,010 15,793 165,258 263,718 249,839 50,021 72,967
3.2 Construction of civil works 326,356 36,695 2,048 10,649 10,411 11,827 4,304 1,552
3.3 Other purposes 17,517,954 7,261,252 441,869 2,301,845 2,747,411 1,717,549 518,225 418,091
3.3.1 Large companies 11,544,337 3,124,806 237,125 900,776 1,165,802 804,001 273,162 218,190
3.3.2 SMEs and sole proprietors 5,973,617 4,136,446 204,744 1,401,069 1,581,609 913,548 245,063 199,901
4 Rest of households and non-profits 21,925,410 20,965,648 134,518 4,867,217 7,187,279 7,028,057 1,652,265 365,348
4.1 Housing 16,089,721 15,959,170 9,236 3,335,290 5,426,073 5,724,486 1,252,494 230,063
4.2 Consumption 235,890 20,830 1,097 7,670 7,895 5,412 778 172
4.3 Other purposes 5,599,799 4,985,648 124,185 1,524,257 1,753,311 1,298,159 398,993 135,113
SUBTOTAL 43,927,389 29,056,551 615,717 7,345,323 10,215,411 9,007,272 2,224,815 879,447
5 Less: Value corrections for impairment of assets not
allocated to specific transactions		 154,690
6 TOTAL 43,772,699
MEMORANDUMACCOUNTS
Refinancing, refinanced and restructured transactions 1,177,807 828,251 33,716 192,375 216,961 257,976 124,182 70,472

Concentration of risks by Activity and Geographical Area (Carrying amounts). Total activity.

2013
Information in €000s		 TOTAL Spain Rest of the
European Union		 The Americas Rest of the world
1. Credit institutions 3,308,621 2,113,930 1,058,048 132,789 3,854
2 Government Bodies 8,429,541 8,399,082 30,447 12 -
2.1 Central Administration 7,189,841 7,159,388 30,447 6 -
2.2 Other 1,239,700 1,239,694 - 6 -
3 Other financial institutions 2,085,633 2,028,171 42,468 10,237 4,757
4 Non-financial corporations and sole proprietors 20,559,406 20,054,811 317,175 173,940 13,480
4.1 Property construction and development (b) 787,293 787,292 - 1 -
4.2 Civil engineering construction 825,247 747,254 10,506 67,487 -
4.3 Other purposes 18,946,866 18,520,265 306,669 106,452 13,480
4.3.1 Large companies (c) 7,352,269 6,965,167 281,785 97,714 7,603
4.3.2 SMEs and sole proprietors (c) 11,594,597 11,555,098 24,884 8,738 5,877
5 Other home and ISFLSH (Private non-profit institutions serving households) 20,815,210 20,243,392 439,650 34,426 97,742
5.1 Housing (d) 15,026,966 14,552,060 356,709 27,846 90,351
5.2 Consumption (d) 580,602 579,129 637 380 456
5.3 Other purposes (d) 5,207,642 5,112,203 82,304 6,200 6,935
SUBTOTAL 55,198,411 52,839,386 1,887,789 351,405 119,831
6 Less: Value corrections due to asset impairment not attributable to specific
transactions		 -
7 TOTAL 55,198,411

Information in €000s TOTAL Andalusia Aragón Asturias Balearic Islands Canary Islands Cantabria Castilla - La Mancha Castilla y León Catalonia 1 Credit institutions 2,113,930 118,650 16,980 832 12,906 3 114,188 1 8 584,385 2 Government Bodies 8,399,082 185,709 27,466 40,633 36,283 44,151 5,732 72,748 76,014 129,721 2.1 Central Administration 7,159,388 2.2 Other 1,239,694 185,708 27,466 40,633 36,283 44,151 5,732 72,748 76,014 129,721 3 Other financial institutions 2,028,171 89 334 54 14 3 67 20 156 35,780 4 Non-financial corporations and sole proprietors 20,054,811 2,454,839 736,724 284,184 420,082 759,556 259,175 502,537 506,291 2,424,087 4.1 Property construction and development 787,292 134,312 51,291 10,847 24,435 16,763 22,850 5,508 33,217 42,502 4.2 Civil engineering construction 747,254 95,219 13,023 2,540 11,326 35,487 26,792 7,622 18,391 102,909 4.3 Other purposes 18,520,265 2,225,308 672,410 270,797 384,321 707,306 209,533 489,407 454,683 2,278,676 4.3.1 Major corporates 6,965,167 442,378 133,253 35,613 160,434 213,481 43,005 63,293 112,991 911,637 4.3.2 SMEs and sole proprietors 11,555,098 1,782,930 539,157 235,184 223,887 493,825 166,528 426,114 341,692 1,367,039 5 Other home and ISFLSH (Private non-profit institutions serving households) 20,243,392 2,393,940 464,962 300,787 535,776 802,018 284,163 688,318 865,107 3,045,600 5.1 Residential properties 14,552,060 1,701,319 319,372 202,039 400,331 585,520 222,312 490,190 700,859 2,210,826 5.2 Consumer 579,129 85,542 11,177 12,512 12,221 31,958 7,797 19,631 29,346 81,519 5.3 Other purposes 5,112,203 607,079 134,413 86,236 123,224 184,540 54,054 178,497 134,902 753,255 SUBTOTAL 52,839,386 5,153,227 1,246,466 626,490 1,005,061 1,605,731 663,325 1,263,624 1,447,576 6,219,573 6 Less: Value corrections due to asset impairment not attributable to specific transactions - 7 TOTAL 52,839,386

Concentration of risks by Activity and Geographical Area (Carrying amounts). Activity in Spain.

Information in €000s TOTAL Extremadura Galicia Madrid Murcia Navarra Valencia
Autonomous
Region		 Basque
Country		 La Rioja Ceuta and
Melilla
1 Credit institutions 2,113,930 1 45,804 879,955 3 12,049 194,477 133,687 1 -
2 Government Bodies 8,399,082 35,967 37,047 155,185 32,160 91,057 129,302 112,960 21,938 5,622
2.1 Central Administration 7,159,388
2.2 Other 1,239,694 35,967 37,047 155,185 32,160 91,057 129,302 112,960 21,938 5,622
3 Other financial institutions 2,028,171 - 41 1,944,460 506 105 30,040 16,470 32 -
4 Non-financial corporations and sole
proprietors		 20,054,811 156,247 477,306 6,913,321 579,977 349,479 1,714,572 1,311,455 199,439 5,540
4.1 Property construction and development 787,292 5,379 10,714 207,944 50,360 8,068 109,435 23,003 30,664 -
4.2 Civil engineering construction 747,254 28,725 22,084 258,987 13,509 13,197 35,829 58,986 2,628 -
4.3 Other purposes 18,520,265 122,143 444,508 6,446,390 516,108 328,214 1,569,308 1,229,466 166,147 5,540
4.3.1 Major corporates 6,965,167 33,726 197,257 3,410,266 199,313 112,148 355,977 517,522 22,873 -
4.3.2 SMEs and sole proprietors 11,555,098 88,417 247,251 3,036,124 316,795 216,066 1,213,331 711,944 143,274 5,540
5 Other home and ISFLSH (Private non-profit
institutions serving households)		 20,243,392 149,703 415,635 6,971,825 369,695 130,705 1,715,552 1,009,260 92,911 7,435
5.1 Residential properties 14,552,060 107,572 281,042 4,878,554 275,752 92,560 1,215,814 790,555 72,253 5,190
5.2 Consumer 579,129 7,990 21,814 163,555 12,576 3,687 57,793 16,430 1,953 1,628
5.3 Other purposes 5,112,203 34,141 112,779 1,929,716 81,367 34,458 441,945 202,275 18,705 617
SUBTOTAL 52,839,386 341,918 975,833 16,864,746 982,341 583,395 3,783,943 2,583,832 314,321 18,597
6 Less: Value corrections due to asset
impairment not attributable to specific
transactions		 -
7 TOTAL 52,839,386

Concentration of risks by Activity and Geographical Area (Carrying amounts). Total activity.

2012 Rest of the
Information in €000s TOTAL Spain European Union The Americas Rest of the world
1 Credit institutions 3,057,483 2,426,885 626,121 3,261 1,216
2 Government Bodies 9,508,499 9,427,554 80,945 - -
2.1 Central Administration 8,803,046 8,722,101 80,945 - -
2.2 Other 705,453 705,453 - - -
3 Other financial institutions 10,731,996 10,697,829 31,200 391 2,576
4 Non-financial corporations and sole proprietors 21,551,061 20,975,587 422,650 131,891 20,933
4.1 Property construction and development 943,515 943,515 - - -
4.2 Civil engineering construction 855,220 814,511 11,878 28,831 -
4.3 Other purposes 19,752,326 19,217,561 410,772 103,060 20,933
4.3.1 Major corporates 13,754,039 13,220,866 410,692 102,048 20,433
4.3.2 SMEs and sole proprietors 5,998,287 5,996,695 80 1,012 500
5 Other home and ISFLSH (Private non-profit
institutions serving households)		 21,968,459 21,372,962 479,081 29,966 86,450
5.1 Residential properties 16,089,721 15,596,706 392,857 22,913 77,245
5.2 Consumer 235,894 234,587 597 243 467
5.3 Other purposes 5,642,844 5,541,669 85,627 6,810 8,738
SUBTOTAL 66,817,498 64,900,817 1,639,997 165,509 111,175
6. Less: value corrections for impairment of assets
not allocated to specific transactions		 154,690
7 TOTAL 66,662,808

Information in €000s TOTAL Andalusia Aragón Asturias Balearic Islands Canary Islands Cantabria Castilla - La Mancha Castilla y León Catalonia 1 Credit institutions 2,426,885 - - 1,026 81 - 119,504 - - 157,580 2 Government Bodies 9,427,554 99,314 16,603 25,702 12,139 47,880 6,524 40,465 68,073 62,068 2.1 Central Administration 8,722,101 2.2 Other 705,453 99,314 16,603 25,702 12,139 47,880 6,524 40,465 68,073 62,068 3 Other financial institutions 10,697,829 617,492 17,965 16,541 28 35 53 5,707 296 107,542 4 Non-financial corporations and sole proprietors 20,975,587 2,474,839 808,109 199,174 376,439 856,012 275,416 487,297 512,334 2,497,317 4.1 Property construction and development 943,515 172,939 57,117 11,128 21,453 18,933 28,800 10,004 37,431 55,214 4.2 Civil engineering construction 814,511 73,242 13,152 2,718 10,333 39,343 31,346 7,357 17,051 141,888 4.3 Other purposes 19,217,561 2,228,658 737,840 185,328 344,653 797,736 215,270 469,936 457,852 2,300,215 4.3.1 Major corporates 13,220,866 1,206,992 445,091 74,967 197,447 515,212 116,543 257,734 216,479 1,665,229 4.3.2 SMEs and sole proprietors 5,996,695 1,021,666 292,749 110,361 147,206 282,524 98,727 212,202 241,373 634,986 5 Other home and ISFLSH (Private nonprofit institutions serving households) 21,372,962 2,494,970 496,170 322,062 564,075 854,514 299,329 736,114 944,805 3,217,793 5.1 Residential properties 15,596,706 1,807,378 342,369 224,808 426,277 644,943 235,564 534,937 790,816 2,374,911 5.2 Consumer 234,587 29,840 5,474 4,304 4,282 12,164 4,222 7,954 9,797 30,042 5.3 Other purposes 5,541,669 657,752 148,327 92,950 133,516 197,407 59,543 193,223 144,192 812,840 SUBTOTAL 64,900,817 5,686,615 1,338,847 564,505 952,762 1,758,441 700,826 1,269,583 1,525,508 6,042,300 6 Less: Value corrections due to asset impairment not attributable to specific transactions 154,690 7 TOTAL 64,746,127

Concentration of risks by Activity and Geographical Area (Carrying amounts). Activity in Spain.

Concentration of risks by Activity and Geographical Area (Carrying amounts). Activity in Spain.

Information in €000s TOTAL Extremadura Galicia Madrid Murcia Navarra Valencia
Autonomous
Region		 Basque
Country		 La Rioja Ceuta and
Melilla
1 Credit institutions 2,426,885 2,218 31,079 2,010,862 912 - 30,881 72,742 - -
2 Government Bodies 9,427,554 24,886 43,026 125,016 3,002 28,609 6,312 72,175 23,659 -
2.1 Central Administration 8,722,101
2.2 Other 705,453 24,886 43,026 125,016 3,002 28,609 6,312 72,175 23,659 -
3 Other financial institutions 10,697,829 2 202,588 9,195,426 464 100 72,169 461,410 12 -
4 Non-financial corporations and sole
proprietors		 20,975,587 250,545 544,931 7,556,434 577,110 376,116 1,713,207 1,267,889 196,590 5,828
4.1 Property construction and development 943,515 5,730 10,750 246,872 70,903 8,694 130,111 27,980 29,456 -
4.2 Civil engineering construction 814,511 31,172 25,958 273,828 15,948 21,686 56,547 50,283 2,659 -
4.3 Other purposes 19,217,561 213,643 508,223 7,035,734 490,259 345,736 1,526,549 1,189,626 164,475 5,828
4.3.1 Major corporates 13,220,866 159,428 390,550 5,542,799 348,858 278,579 852,065 840,267 109,891 2,735
4.3.2 SMEs and sole proprietors 5,996,695 54,215 117,673 1,492,935 141,401 67,157 674,484 349,359 54,584 3,093
5 Other home and ISFLSH (Private non-profit
institutions serving households)		 21,372,962 156,326 438,839 7,339,974 383,308 138,283 1,796,603 1,087,630 95,290 6,877
5.1 Residential properties 15,596,706 116,738 305,721 5,178,762 290,786 100,247 1,287,788 851,492 76,948 6,221
5.2 Consumer 234,587 2,350 6,600 76,857 4,173 1,590 19,609 14,321 929 79
5.3 Other purposes 5,541,669 37,238 126,518 2,084,355 88,349 36,446 489,206 221,817 17,413 577
SUBTOTAL 64,900,817 433,977 1,260,463 26,227,712 964,796 543,108 3,619,172 2,961,846 315,551 12,705
6 Less: Value corrections due to asset
impairment not attributable to specific
transactions		 154,690
7 TOTAL 64,746,127

50.Offsetting of financial assets and liabilities

The amendment to IFRS 7 "Disclosures - offsetting of financial assets and liabilities" introduces additional disclosures for financial assets and liabilities that are set off in the balance sheet, as well as for other financial instruments subject to an enforceable netting arrangement.

€000s Net amounts by counterparty
Description Assets Liabilities Net
Derivatives 513,849 70,269 444
Reverse buyback and similar agreements 861,739 802,348 59

Net amount of financial liabilities by counterparty

Counterparty Collateral provided
BANESTO 2,000
CITIBANK 28,910
DEUTSCHE BANK 24,230
HSBC PLC 7,300
MORGAN STANLEY 700
NORDEA 5,070
ROYAL BANK OF SCOTLAND 4,370
NOMURA 166,806

Net amount of financial assets by counterparty

Counterparty Collateral received
BARCLAYS 40,090
BBVA 32,220
BNP PARIBAS 9,920
CAIXABANK 14,936
COMMERZBANK 2,160
Credit Agricole (Calyon) 30,751
CREDIT SUISSE INT 14,550
GOLDMAN 10,340
JP MORGAN 111,350
MERRIL LYNCH 13,650
NATIXIS 3,300
BANCO SABADELL 5,201
BANCO SANTANDER 19,900
SOCIETE 166,200
UBS AG 200
UBS LTD 4,900
Counterparty Code Resulting security
deposit day d
(month-end) sign
(+) = in favour =
collateral active		 Full month interest Valuation of the
portfolio d-1
(cob d-2) sign (-) =
against		 threshold, changes
depending on
whether collateral
active or not		 MTA, changes
depending on
whether last call
payment or receipt		 rounding
BARCLAYS BARCGB22 (40,090) (5) 40,085 - 250 10
BBVA BBVIESMM (37,470) (7) 37,377 - 250 10
BBVA BACK SWAP BBV2ESMM 5,250 - 5,326 - 100 -
BNP PARIBAS BNPAFRPP (9,920) (1) 10,010 100 100 10
CAIXABANK CAIXESBB (11,850) (1) 11,853 - 100 10
CECABANK CECAESMM - - 118 - 250 10
COMMERZBANK COBADEFF (2,160) (0) 2,187 - 250 10
CREDIT AGRICOLE
(CALYON)		 BSUIFRPP (31,530) (4) 31,520 - 250 10
CREDIT AGRICOLE
BACK SWAP		 BSU2FRPP - - 8,342 - 100 10
CREDIT SUISSE INT CSFPGB2L (14,550) (2) 14,524 - 250 50
GOLDMAN GSIFGB2X (10,340) (1) 10,331 - 500 10
JP MORGAN CHASGB2L (108,440) (14) 113,432 5,000 500 10
MERRIL LYNCH MLIBGB2L (13,650) (2) 13,643 - 250 10
NATIXIS CCBPFRPP (3,300) (0) 8,272 5,000 1,000 100
NOMURA NOMAGB2L (9,180) (1) 8,839 - 500 10
BANCO SABADELL BSABESBB (6,250) (1) 6,241 - 1,000 10
BANCO SANTANDER BDERESMM (19,900) (3) 20,582 - 2,000 100
SOCIETE SOGEFRPP (166,200) (23) 166,162 - 1,000 100
UBS AG UBSWCH80A (200) (0) 186 - 100 100
UBS LTD UBSWGB2L (4,900) (1) 4,818 - 100 100
Counterparty Special security deposit
EdT-Swap BK 7 -
EdT-Swap BK 9 -
EdT - BANKINTER 3 FTH 1,990
EdT - BANKINTER 4 FTH 2,200

51.Subsequent events

No events having a significant effect on these consolidated financial statements have occurred between the end of the reporting period and the date on which these statements were approved.

APPENDIX I - Related Party Transactions

€000s
2013
Related party income and expense Significant Shareholders Directors and Managers Persons, companies or
entities in the Group		 Other related parties Total
Expenses:
Financial expenses - 364 - 572 936
Management or collaboration contracts - - - - -
R&D transfers and licensing agreements - - - - -
Leases - - - - -
Receipt of services - - - - -
Purchase of assets
(finished or in progress)		 - - - - -
Value corrections for bad and doubtful debts - - - - -
Dividends paid - - - - -
Other expenses - - - - -
- 364 - 572 936
Revenues:
Financial revenues - - - - -
Management or collaboration contracts - - - - -
R&D transfers and licensing agreements - - - - -
Dividends received - - - 16,067 16,067
Leases - - - - -
Provision of services - - - - -
Sale of assets (finished or in progress) - - - - -
Gains on cancellation or disposal of assets - - - - -
Other income - - - - -
- - - 16,067 16,067
€000s
31-12-13
Other Transactions Significant Shareholders Directors and Managers Persons, companies or
entities in the Group		 Other related parties Total
Purchases of tangible, intangible or other
assets		 - - - - -
Financing agreements: credits and
contributions increases (lender)		 - 26,175 - 27,113 53,288
Financial lease contracts (lessor) - - - - -
Amortisation or cancellation of loans and
financial lease contracts (lessor)		 - - - - -
Sales of tangible, intangible or other assets - - - - -
Financing agreements: loans and
contributions increases (borrower)		 - - - 153,190 153,190
Finance leases (lessee) - - - - -
Amortisation or cancellation of loans and
financial lease contracts (lessee)		 - - - - -
Guarantees issued 19,270 390 - 390 20,050
Guarantees received - - - - -
Commitments acquired - - - - -
Commitments/guarantees cancelled - - - - -
Dividends and other distributed profits 3,257 16,119 - - 19,376
Other transactions - 3,374 - - 3,374
€000s
Related party income and expense 2012
Significant Shareholders Directors and Managers Persons, companies or
entities in the Group		 Other related parties Total
Expenses:
Financial expenses - 372 - 653 1,025
Management or collaboration contracts - - - - -
R&D transfers and licensing agreements - - - - -
Leases - - - - -
Receipt of services - - - - -
Purchase of assets
(finished or in progress)		 - - - - -
Value corrections for bad and doubtful debts - - - - -
Dividends paid 19,968 21,577 - - 41,545
Other expenses - - - - -
19,968 21,949 - 653 42,570
Revenues:
Financial revenues - - - - -
Management or collaboration contracts - - - - -
R&D transfers and licensing agreements - - - - -
Dividends received - - - 20,961 20,961
Leases - - - - -
Provision of services - - - - -
Sale of assets (finished or in progress) - - - - -
Gains on cancellation or disposal of assets - - - - -
Other income - - - - -
- - - 20,961 20,961
€000s
Otras Transacciones 31-12-12
Significant Shareholders Directors and Managers Persons, companies or
entities in the Group		 Other related parties Total
Purchases of tangible, intangible or other assets - - - - -
Financing agreements: credits and contributions
increases (lender)		 - 26,332 - - 26,332
Financial lease contracts (lessor) - - - - -
Amortisation or cancellation of loans and financial
lease contracts (lessor)		 - - - - -
Sales of tangible, intangible or other assets - - - - -
Financing agreements: loans and contributions
increases (borrower)		 - - - 8,607 8,607
Finance leases (lessee) - - - - -
Amortisation or cancellation of loans and financial
lease contracts (lessee)		 - - - - -
-
Guarantees issued 19,270 390 - 390 20,050
Guarantees received - - - - -
Commitments acquired - - - - -
Commitments/guarantees cancelled - - - - -
Dividends and other distributed profits - - - - -
Other transactions - 6,734 - - 6,734

APPENDIX II - SegmentedInformation

2013 Commercial Banking Corporate Banking LDA Other Businesses Total
NET INTEREST INCOME 68,981 319,652 44,043 203,227 635,904
Return on other equity instruments 1,912 7,034 8,946
Equity accounting - 15,545 15,545
Fees and Commissions 158,074 129,190 284 -38,528 249,020
Trading income 10,571 16,933 2,937 198,314 228,755
Other operating products/expenses -25,255 -10,965 275,084 -1,572 237,291
GROSS INCOME 212,370 454,809 324,260 384,021 1,375,461
Transformation costs 167,022 96,755 193,594 222,476 679,846
Losses from asset impairment 65,277 248,495 - -23,805 289,968
Provisions 14,259 14,259
PROFIT FROM OPERATIONS -19,928 109,559 130,666 171,092 391,388
Other gains (net) 46,555 45,114 2,153 - 93,822
GROSS RESULT -66,483 64,445 128,513 171,092 297,566
Average assets for the segment 25,401,941 17,792,652 1,289,113 44,483,706
Average liabilities for the segment 15,736,248 10,815,023 778,830 27,330,101
Average off-balance sheet resources 9,338,226 892,563 10,230,789
Costs incurred in acquiring assets 4,884 2,771 7,660
Segment-to-segment net turnover -98,955 -48,184 147,139 -
Services provided 18,617 10,429 -29,046 -
Services received 117,572 58,614 -176,185 -
2013 Commercial Banking Corporate Banking LDA Other Businesses Total
NET INTEREST INCOME 271,403 400,914 40,825 (52,887) 660,255
Return on other equity instruments - - 2,190 9,601 11,791
Equity accounting - - - 17,677 17,677
Fees and Commissions 128,472 108,877 (144) (33,365) 203,840
Trading income 20,948 17,347 727 106,108 145,130
Other operating products/expenses (33,865) (2,405) 266,043 (14,425) 215,348
GROSS INCOME 386,958 524,733 309,641 32,709 1,254,041
Transformation costs 171,629 103,056 187,296 202,888 664,869
Losses from asset impairment 98,547 217,376 - 103,105 419,028
Provisions - - - (21) (21)
PROFIT FROM OPERATIONS 116,782 204,301 122,345 (273,305) 170,123
Other gains (net) 28,164 28,932 848 (42,000) 15,944
GROSS RESULT 88,618 175,369 121,497 (231,305) 154,179
Average assets for the segment 27,614,931 17,064,133 1,118,097 - 45,797,161
Average liabilities for the segment 15,788,701 8,740,387 732,626 - 25,261,714
Average off-balance sheet resources 6,444,609 638,942 - - 7,083,551
- -
Costs incurred in acquiring assets 4,986 3,009 - - 7,995
- -
Segment-to-segment net turnover (94,749) (47,099) - 141,848 -
Services provided 21,024 10,339 - (31,363) -
Services received 115,772 57,439 - (173,211) -
€000s
2013 Ordinary
income		 Profit or (-)
lossbefore tax		 Average total
assets
Andalusia 68,990 1,882 5,277,764
Balearic Islands 14,706 1,127 1,069,003
Castilla La Mancha-Extremadura 18,740 (3,268) 1,344,475
Catalonia 64,549 23,091 5,302,052
Canary Islands 21,158 (2,530) 1,583,823
Levante (Eastern Spain) 66,575 (23,108) 4,891,500
Madrid Corporate Banking 127,405 123,189 4,554,504
Madrid - East 33,416 (3,135) 3,677,984
Madrid - West 63,078 19,102 5,907,736
Navarre - Aragon - Rioja 45,414 7,535 2,369,465
North-Western Spain 43,604 (14,054) 2,996,397
Northern Spain 49,641 20,658 3,061,474
Remote networks 3,514 3,476 883,689
Consumer financing 54,156 29,782 346,582
Other business (39,041) 113,821
Total 635,904 297,566 43,266,450
€000s
2012 Ordinary
income		 Profit or (-)
lossbefore tax		 Average total
assets
Andalusia 63,070 (13,913) 5,349,851
Balearic Islands 13,036 660 1,108,369
Castilla La Mancha-Extremadura 18,026 3,593 1,406,792
Catalonia 58,065 (3,048) 5,527,076
Canary Islands 23,299 (5,730) 1,775,695
Levante (Eastern Spain) 61,433 (95,395) 5,132,689
Madrid Corporate Banking 96,965 101,333 3,938,827
Madrid - East 33,944 (288) 4,048,957
Madrid - West 61,297 9,407 6,485,860
Navarra - Aragon - Rioja 39,546 (4,126) 2,383,660
North-Western Spain 45,907 (11,247) 3,328,657
Northern Spain 47,215 18,818 3,230,225
Remote networks 3,632 2,369 956,599
Consumer financing 49,211 28,135 323,272
Other business 45,609 123,611
Total 660,255 154,179 44,996,529

APPENDIX III

Financial Statements of Bankinter, S.A. as at 31 December 2013 and 2012

BALANCE SHEETS AS AT 31 DECEMBER 2013 AND 2012 (€000s)

ASSETS 31-12-13 31-12-12 LIABILITIES AND EQUITY 31-12-13 31-12-12
CASH AND BALANCES WITH CENTRAL BANKS 885,964 665,364 LIABILITIES:
FINANCIAL ASSETS HELD FOR TRADING: 4,346,573 2,109,264 FINANCIALASSETSHELDFORTRADING: 1,747,482 1,791,953
Deposits with credit institutions 920,112 - Customer deposits 193,482 -
Loans and advances to customers 979,439 - Trading derivatives 248,297 429,221
Debt instruments 1,736,671 1,391,681 Short positions in securities 1,305,703 1,362,732
Equity instruments 66,662 61,072 Other financial liabilities - -
Trading derivatives 643,689 656,511
Memorandum items: Loaned or advanced as collateral 961,805 1,391,681 OTHER FINANCIAL LIABILITIES AT FAIR VALUE
WITH CHANGES IN PROFIT AND LOSS: - -
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS 18,158 39,860 Customer deposits - -
Equity instruments 18,158 39,860
Memorandum items: Loaned or advanced as collateral - - FINANCIAL LIABILITIES AT AMORTISED COST 54,175,870 56,458,746
- - Deposits from central banks 3,243,794 9,580,854
Deposits from credit institutions 4,617,009 4,012,079
FINANCIAL ASSETS AVAILABLE FOR SALE: 6,668,719 9,477,068 Customer deposits 37,485,413 31,819,731
Debt instruments 6,593,802 9,390,319 Marketable debt securities 6,960,905 9,714,894
Equity instruments 74,917 86,749 Subordinated liabilities 612,011 767,851
Memorandum items: Loaned or advanced as collateral 3,003,957 4,321,260 Other financial liabilities 1,256,738 563,337
LOANS AND RECEIVABLES: 42,811,055 44,975,315 MACRO-HEDGING ADJUSTMENTS TO FINANCIAL LIABILITIES - -
Deposits with credit institutions 1,095,060 1,119,745
Loans and advances to customers 41,580,673 43,772,699 HEDGING DERIVATIVES 25,608 43,100
Debt instruments 135,322 82,871
Memorandum items: Loaned or advanced as collateral 365,847 - LIABILITIES LINKED TO NON-CURRENT ASSETS HELD FOR SALE - -
HELD-TO-MATURITY INVESTMENTS 3,220,721 2,755,355 LIABILITIES UNDER INSURANCE CONTRACTS - -
Memorandum items: Loaned or advanced as collateral 2,886,655 - PROVISIONS: 45,353 47,587
Pension funds and similar obligations 1,391 2,811
ADJUSTMENTS TO FINANCIAL ASSETS BY MACRO-HEDGING - 3,018 Allowances for taxes and other legal contingencies 33,206 38,024
Provisions for contingent risks and commitments 8,643 5,139
HEDGING DERIVATIVES 84,481 152,201 Other provisions 2,113 1,613
NON-CURRENT ASSETS HELD FOR SALE 35,158 33,216 TAX LIABILITIES 138,435 129,070
Current 65,316 60,319
INVESTMENTS 582,393 573,159 Deferred 73,119 68,751
Associates 7,777 8,422
Entities with joint control 162 162 OTHER LIABILITIES 129,074 107,555
Group Companies 574,454 564,575
TOTAL LIABILITIES 56,261,822 58,578,011
PENSION-LINKED INSURANCE AGREEMENTS 1,327 2,750
EQUITY:
REINSURANCE ASSETS - -
EQUITY: 2,991,438 2,841,229
TANGIBLE ASSETS: 353,785 366,400 Capital- 268,675 169,142
Property, plant and equipment 353,785 366,400 Registered 268,675 169,142
For internal use 326,831 337,151 Less- uncalled capital - -
Assigned on lease 26,954 29,249 Share premium 1,172,645 1,118,186
Real estate investments - - Reserves 1,356,638 1,379,410
Memorandum item: acquired under finance lease - - Other equity instruments 12,608 72,633
Of compound financial instruments
INTANGIBLE ASSETS: - - Other equity instruments 12,608 72,633
Goodwill - - Less - Treasury shares (432) (225)
Other intangible assets - - Profit or (-) loss for the year 233,906 148,208
Less - Dividends and remunerations (52,602) (46,125)
TAX ASSETS: 258,118 260,047
Current 114,564 108,845 VALUATION ADJUSTMENTS: 27,033 20,586
Deferred 143,554 151,202 Financial assets available for sale 26,832 20,377
Foreign currency translation 201 209
OTHER ASSETS 13,841 26,809
TOTAL ASSETS 59,280,293 61,439,826 TOTAL LIABILITIES AND EQUITY 59,280,293 61,439,826
MEMORANDUM ITEMS:
CONTINGENT RISKS 7,596,154 6,580,585
CONTINGENT COMMITMENTS 12,466,008 10,188,675
31-12-13 31-12-12 LIABILITIES AND EQUITY 31-12-13 31-12-12
4,346,573 2,109,264 FINANCIALASSETSHELDFORTRADING: 1,747,482 1,791,953
920,112 - Customer deposits 193,482 -
979,439 - Trading derivatives 248,297 429,221
1,736,671 1,391,681 Short positions in securities 1,305,703 1,362,732
66,662 61,072 Other financial liabilities - -
WITH CHANGES IN PROFIT AND LOSS: - -
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS 18,158 39,860 Customer deposits - -
Memorandum items: Loaned or advanced as collateral - - FINANCIAL LIABILITIES AT AMORTISED COST 54,175,870 56,458,746
- - Deposits from central banks 3,243,794 9,580,854
Deposits from credit institutions 4,617,009 4,012,079
FINANCIAL ASSETS AVAILABLE FOR SALE: 6,668,719 9,477,068 Customer deposits 37,485,413 31,819,731
6,593,802 9,390,319 Marketable debt securities 6,960,905 9,714,894
74,917 86,749 Subordinated liabilities 612,011 767,851
Memorandum items: Loaned or advanced as collateral 3,003,957 4,321,260 Other financial liabilities 1,256,738 563,337
42,811,055 44,975,315 MACRO-HEDGING ADJUSTMENTS TO FINANCIAL LIABILITIES - -
41,580,673 43,772,699 HEDGING DERIVATIVES 25,608 43,100
Memorandum items: Loaned or advanced as collateral 365,847 - LIABILITIES LINKED TO NON-CURRENT ASSETS HELD FOR SALE - -
3,220,721 2,755,355 LIABILITIES UNDER INSURANCE CONTRACTS - -
Memorandum items: Loaned or advanced as collateral 2,886,655 - PROVISIONS: 45,353 47,587
Pension funds and similar obligations 1,391 2,811
ADJUSTMENTS TO FINANCIAL ASSETS BY MACRO-HEDGING - 3,018 Allowances for taxes and other legal contingencies 33,206 38,024
Provisions for contingent risks and commitments 8,643 5,139
84,481 152,201 Other provisions 2,113 1,613
35,158 33,216 TAX LIABILITIES 138,435 129,070
Current 65,316 60,319
582,393 573,159 Deferred 73,119 68,751
162 162 OTHER LIABILITIES 129,074 107,555
TOTAL LIABILITIES 56,261,822 58,578,011
EQUITY:
EQUITY: 2,991,438 2,841,229
353,785 366,400 Capital- 268,675 169,142
353,785 366,400 Registered 268,675 169,142
326,831 337,151 Less- uncalled capital - -
26,954 29,249 Share premium 1,172,645 1,118,186
- - Reserves 1,356,638 1,379,410
Memorandum item: acquired under finance lease - - Other equity instruments 12,608 72,633
Of compound financial instruments
- - Other equity instruments 12,608 72,633
- - Less - Treasury shares (432) (225)
- - Profit or (-) loss for the year 233,906 148,208
Less - Dividends and remunerations (52,602) (46,125)
114,564 108,845 VALUATION ADJUSTMENTS: 27,033 20,586
143,554 151,202 Financial assets available for sale 26,832 20,377
Foreign currency translation 201 209
TOTAL ASSETS 59,280,293 61,439,826 TOTAL LIABILITIES AND EQUITY 59,280,293 61,439,826

INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 (€000s)

(Debit) Credit
2013 2012
INTEREST AND SIMILAR INCOME 1,418,716 1,667,728
INTEREST EXPENSE AND SIMILAR CHARGES (910,835) (1,179,590)
NET INTEREST INCOME 507,881 488,138
INCOME FROM EQUITY INSTRUMENTS 133,535 38,485
FEES AND COMMISSIONS INCOME 279,259 246,994
FEES AND COMMISSIONS EXPENSE (66,816) (71,709)
GAINS OR (-) LOSSES ON FINANCIAL ASSETS AND LIABILITIES: 199,551 155,457
Held for trading 44,788 86,567
Other financial assets at fair value through profit and loss account 8,228 (1,952)
Financial instruments not designated at fair value through profit or loss 147,169 71,449
Other (634) (607)
FOREIGN CURRENCY TRANSLATION (net) 42,014 40,312
OTHER OPERATING INCOME: 24,256 30,862
Other operating income 24,256 30,862
OTHER OPERATING EXPENSES: (56,653) (77,228)
Other operating expenses (56,653) (77,228)
GROSS INCOME 1,063,027 851,311
ADMINISTRATIVE COSTS: (431,946) (428,610)
Personnel expenses (230,774) (219,140)
Other general administrative expenses (201,172) (209,470)
DEPRECIATION AND AMORTISATION (26,949) (28,004)
PROVISIONS (NET) (14,308) 15,078
IMPAIRMENT LOSSES ON FINANCIAL ASSETS (NET): (296,977) (253,714)
Loans and receivables (293,883) (251,646)
Other financial instruments not designated at fair value through profit or loss (3,094) (2,068)
PROFIT FROM OPERATIONS 292,847 156,061
IMPAIRMENT LOSSES ON OTHER ASSETS (net): (1,920) -
Goodwill and other intangible assets - -
Other assets (1,920) -
GAINS OR (-) LOSSES ON DERECOGNITION OF ASSETS NOT CLASSIFIED AS NON-CURRENT ASSETS HELD FOR SALE 6,855 38,130
GAINS OR (-) LOSSES ON NON-CURRENT ASSETS HELD FOR SALE NOT CLASSIFIED AS DISCONTINUED OPERATIONS (5,790) (6,233)
PROFIT BEFORE TAX 291,992 187,958
INCOME TAX (58,086) (39,750)
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 233,906 148,208
PROFIT OR (-) LOSS FROM DISCONTINUED OPERATIONS (net) - -
RESULT FOR THE FINANCIAL YEAR 233,906 148,208
EARNINGS PER SHARE:
Basic earnings (euros) 0.30 0.28
Diluted earnings (euros) 0.30 0.28

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 (€000s)

Financial year Financial year
2013 2012
RESULT FOR THE FINANCIAL YEAR 233,906 148,208
OTHER COMPREHENSIVE INCOME 6,447 37,236
Items that will not be reclassified to profit or loss; -
Actuarial gains and losses on defined pension schemes - -
Non-current assets held for sale - -
Entities accounted for using the equity method - -
Tax on gains relating to items that will not be reclassified to profit or loss - -
Items potentially reclassifiable to profit or loss; 6,447 37,236
Financial assets available for sale 9,221 53,190
Gains or (-) losses on valuation 112,596 78,655
Transferred to profit or loss (103,375) (25,465)
Other reclassifications - -
Cash flow hedging - -
Gains or (-) losses on valuation - -
Transferred to profit or loss - -
Amounts transferred to the initial value of hedged items - -
Other reclassifications - -
Hedging of net investments in foreign operations - -
Gains or (-) losses on valuation - -
Transferred to profit or loss - -
Other reclassifications - -
Foreign currency translation (11) 4
Gains or (-) losses on valuation (11) 4
Transferred to profit or loss - -
Other reclassifications - -
Non-current assets for sale - -
Gains or (-) losses on valuation - -
Transferred to profit or loss - -
Other reclassifications - -
Actuarial Gains or (-) losses on pension plans - -
Statement of comprehensive income - -
Income tax (2,763) (15,958)
TOTAL COMPREHENSIVE INCOME 240,353 185,444

COMPREHENSIVESTATEMENTSOFCHANGESINEQUITY FORTHEYEARS ENDED31 DECEMBER 2013 AND2012(€000s)

(€000s)

Equity
Capital Share premium Reserves Other equity
instruments		 Less - Treasury
shares		 Profit or (-)
loss for the year		 Less -
Dividends and
remunerations		 Total Equity Valuation
adjustments		 Total
CLOSING BALANCE AT 31 December 2012 169,142 1,118,186 1,379,410 72,633 (225) 148,208 (46,125) 2,841,229 20,586 2,861,815
Adjustments due to changes in accounting criteria
Adjustments due to errors
ADJUSTED OPENING BALANCE 169,142 1,118,186 1,379,410 72,633 (225) 148,208 (46,125) 2,841,229 20,586 2,861,815
Total comprehensive income - - 1,212 - - 233,906 - 235,118 6,447 241,565
Other changes in equity: 99,533 54,459 (22,772) (60,025) (207) (148,208) (6,476) (84,909) - (84,909)
Capital increases 99,533 54,459 (93,967) (60,025) - - - - - -
Capital reductions - - - - - - - - - -
Conversion of financial liabilities into capital - - - - - - - - - -
Increases in other equity instruments - - - - - - - - - -
Reclassification of financial liabilities to other equity instruments - - - - - - - - - -
Reclassification of other equity instruments to financial liabilities - - - - - - - - - -
Dividends - - - - - - (67,977) (67,977) - (67,977)
Transactions with own equity instruments (net) - - - (207) - - -
Transfer between net worth entries - - 86,708 - - (148,208) 61,500 - - -
Increases or (-) decreases due to business combinations - - - - - - - - - -
Payments with equity instruments - - (16,970) - - - - (16,970) - (16,970)
Other increases or (-) decreases in equity - - - - - - - - - -
CLOSING BALANCE AT 31 December 2013 268,675 1,172,645 1,356,638 12,608 (432) 233,906 (52,602) 2,991,438 27,033 3,018,471
Equity
Capital Share premium Reserves Other equity
instruments		 Less - Treasury
shares		 Profit or (-)
loss for the year		 Less -
Dividends and
remunerations		 Total Equity Valuation
adjustments		 Total
CLOSING BALANCE AT 31 December 2011 143,076 737,079 1,330,449 404,812 (308) 153,416 (58,516) 2,710,008 (16,650) 2,693,358
Adjustments due to changes in accounting criteria
Adjustments due to errors
ADJUSTED OPENING BALANCE 143,076 737,079 1,330,449 404,812 (308) 153,416 (58,516) 2,710,008 (16,650) 2,693,358
Total comprehensive income - - - - - 148,208 - 148,208 37,236 185,444
Other changes in equity: 26,066 381,107 48,961 (332,179) 83 (153,416) 12,391 (16,987) - (16,987)
Capital increases 26,066 381,107 - (332,179) - - - 74,994 - 74,994
Capital reductions - - - - - - - - - -
Conversion of financial liabilities into capital - - - - - - - - - -
Increases in other equity instruments - - - - - - - - - -
Reclassification of financial liabilities to other equity instruments - - - - - - - - - -
Reclassification of other equity instruments to financial liabilities - - - - - - - - - -
Dividends - - - - - - (64,496) (64,496) - (64,496)
Transactions with own equity instruments (net) - - (185) - 83 - - (102) - (102)
Transfer between net worth entries - - 76,529 - - (153,416) 76,887 - - -
Increases or (-) decreases due to business combinations - - - - - - - - - -
Payments with equity instruments - - (27,383) - - - - (27,383) - (27,383)
Other increases or (-) decreases in equity - - - - - - - - - -
CLOSING BALANCE AT 31 December 2012 169,142 1,118,186 1,379,410 72,633 (225) 148,208 (46,125) 2,841,229 20,586 2,861,815

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2013 AND 2012 (€000s)

Financial year Financial year
2013 2012 (*)
NET CASH FLOWS FROM OPERATIONS 715,870 (144,197)
Profit or (-) loss for the year 233,906 148,208
Adjustments to obtain cash flow from operating activities 422,435 283,909
Other adjustments 395,486 255,905
Depreciation and Amortisation 26,949 28,004
Net increase/decrease in operating assets (2,463,394) (1,480,458)
Held for trading
Other financial assets at fair value through profit or loss		 2,237,308
(21,703)		 306,242
(8,483)
Financial assets available for sale (2,814,477) (3,817,819)
Loans and receivables (1,786,982) 2,078,572
Other operating assets (77,541) (38,970)
Net increase/decrease in operating liabilities (2,453,372) 839,602
Held for trading (44,472) (561,951)
Other financial assets at fair value through profit or loss - -
Financial liabilities at amortised cost (2,398,236) 1,412,980
Other operating liabilities (10,663) (11,427)
Corporation tax collections/payments 49,507 64,542
NET CASH FLOWS FROM INVESTING ACTIVITIES: (500,818) 405,926
Payments (529,364) (41,433)
Tangible assets (14,676) (11,794)
Intangible assets (8,062) (8,062)
Investments (39,222) (21,577)
Non-current assets held for sale and associated liabilities - -
Held-to-maturity investments (467,405) -
Collections 28,546 447,359
Tangible assets 342 1,531
Intangible assets - -
Investments 12,000 36,232
Subsidiaries and other business units
Non-current assets held for sale 16,204 19,488
Held-to-maturity investments - 390,108
NET CASH FLOWS FROM FINANCING ACTIVITIES (63,461) 2,794
Payments (65,628) (73,921)
Dividends (63,441 (72,160)
Subordinated liabilities - -
Amortisation of equity instruments - -
Acquisition of own shares (capital contributions) (other than savings banks) (2,186) (1,761)
Other payments linked to financing activities - -
Collections 2,166 76,715
Subordinated liabilities - -
Issuance of equity instruments - 74,993
Disposal of own shares/capital contributions (other than savings banks) 2,166 1,722
Other inflows linked to financing activities
EFFECT OF EXCHANGE-RATE VARIATIONS - -
EFFECT OF CHANGES INCASH AND CASH EQUIVALENTS 151,591 264,523
CASH AND CASHEQUIVALENTS AT START OF PERIOD 889,430 624,907
CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,041,021 889,430
MEMORANDUM ACCOUNTS
BREAKDOWN OF CASH AND CASH EQUIVALENTS
Cash 118,902 120,833
Balances equivalent to cash at central banks 767,062 544,531
Other financial assets 155,057 224,066
Total cash and cash equivalents at end of period 1,041,021 889,430
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN A3/A ES0413679244 Mortgage bond Issue 21-01-2013 200,000 200,000 3.25% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679269 Mortgage bond Issue 23-01-2013 500,000 500,000 2.75% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679251 Mortgage bond Issue 04-02-2013 200,000 200,000 Euribor
3m+3.25%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679277 Mortgage bond Issue 05-02-2013 500,000 500,000 3.125% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679277 Mortgage bond Issue 05-02-2013 90,000 90,000 3.125% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679285 Mortgage bond Issue 08-05-2013 1,300,000 1,300,000 Euribor
3m+2.5%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679269 Mortgage bond Issue 13-05-2013 500,000 500,000 2.75% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790J9 Structured bonds Issue 16-01-2013 2,600 2,600 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790K7 Structured bonds Issue 06-02-2013 9,750 9,750 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679246 Structured bonds Issue 22-02-2013 10,250 10,250 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679253 Structured bonds Issue 22-02-2013 2,900 2,900 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790L5 Structured bonds Issue 01-03-2013 7,000 7,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)

APPENDIX IV.- Individualised information on certain issues, buybacks or redemptions of debt securities

Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit rating
of Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on
which traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679261 Mortgage bond Issue 08-03-2013 8,400 8,400 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790M3 Mortgage bond Issue 08-03-2013 4,600 4,600 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790N1 Mortgage bond Issue 14-03-2013 1,350 1,350 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790O9 Mortgage bond Issue 22-03-2013 8,750 8,750 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679279 Mortgage bond Issue 02-04-2013 9,800 9,800 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679287 Mortgage bond Issue 05-04-2013 2,700 2,700 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790P6 Mortgage bond Issue 12-04-2013 2,850 2,850 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679295 Mortgage bond Issue 19-04-2013 9,150 9,150 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790Q4 Mortgage bond Issue 12-04-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679303 Mortgage bond Issue 12-04-2013 1,450 1,450 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790R2 Mortgage bond Issue 19-04-2013 5,700 5,700 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790S0 Mortgage bond Issue 22-04-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit rating
of Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on
which traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679311 Mortgage bond Issue 30-04-2013 5,050 5,050 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790T8 Mortgage bond Issue 10-05-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679329 Mortgage bond Issue 13-05-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790U6 Mortgage bond Issue 14-05-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679337 Mortgage bond Issue 31-05-2013 16,321 16,321 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679345 Mortgage bond Issue 24-05-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679352 Mortgage bond Issue 27-05-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790V4 Mortgage bond Issue 14-05-2013 1,500 1,500 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790W2 Mortgage bond Issue 28-05-2013 1,100 1,100 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679360 Mortgage bond Issue 13-06-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790X0 Mortgage bond Issue 14-06-2013 5,645 5,645 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790Y8 Mortgage bond Issue 14-06-2013 3,450 3,450 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on
which traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679378 Mortgage bond Issue 21-06-2013 16,504 16,504 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679386 Mortgage bond Issue 19-06-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679394 Mortgage bond Issue 10-07-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790Z5 Mortgage bond Issue 01-07-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791A6 Mortgage bond Issue 01-07-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679402 Mortgage bond Issue 12-07-2013 12,525 12,525 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679410 Mortgage bond Issue 15-07-2013 16,450 16,450 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679428 Mortgage bond Issue 03-07-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679436 Mortgage bond Issue 12-07-2013 4,350 4,350 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791B4 Mortgage bond Issue 12-07-2013 2,000 2,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679444 Mortgage bond Issue 26-07-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679451 Mortgage bond Issue 19-07-2013 2,000 2,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on
which traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679469 Mortgage bond Issue 12-07-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679477 Mortgage bond Issue 29-07-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679485 Mortgage bond Issue 19-07-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791C2 Mortgage bond Issue 16-07-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679493 Mortgage bond Issue 02-08-2013 4,350 4,350 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679501 Mortgage bond Issue 25-07-2013 2,000 2,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791D0 Mortgage bond Issue 12-08-2013 25,000 25,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679519 Mortgage bond Issue 02-08-2013 1,900 1,900 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679527 Mortgage bond Issue 29-07-2013 1,900 1,900 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791E8 Mortgage bond Issue 14-08-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679535 Mortgage bond Issue 09-08-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679543 Mortgage bond Issue 05-08-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679550 Mortgage bond Issue 23-08-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679568 Mortgage bond Issue 30-08-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791F5 Mortgage bond Issue 06-09-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679592 Mortgage bond Issue 27-09-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679576 Mortgage bond Issue 13-09-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679584 Mortgage bond Issue 06-09-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679600 Mortgage bond Issue 04-10-2013 20,000 20,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES03136791G3 Mortgage bond Issue 20-09-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679618 Mortgage bond Issue 27-09-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679626 Mortgage bond Issue 04-10-2013 10,450 10,450 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791I9 Mortgage bond Issue 04-10-2013 2,000 2,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791H1 Mortgage bond Issue 04-10-2013 1,800 1,800 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679634 Mortgage bond Issue 16-10-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679642 Mortgage bond Issue 04-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679675 Mortgage bond Issue 18-10-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679659 Mortgage bond Issue 11-10-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679667 Mortgage bond Issue 30-10-2013 40,675 40,675 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679683 Mortgage bond Issue 25-10-2013 14,500 14,500 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791J7 Mortgage bond Issue 18-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679671 Mortgage bond Issue 18-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679709 Mortgage bond Issue 17-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679717 Mortgage bond Issue 25-10-2013 1,200 1,200 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679741 Mortgage bond Issue 08-11-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679725 Mortgage bond Issue 25-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679733 Mortgage bond Issue 30-10-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679758 Mortgage bond Issue 30-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit rating
of Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on
which traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES0213679766 Mortgage bond Issue 30-10-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791K5 Mortgage bond Issue 22-10-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791L3 Mortgage bond Issue 31-10-2013 3,000 3,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791M1 Mortgage bond Issue 31-10-2013 1,000 1,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791N9 Mortgage bond Issue 15-11-2013 3,150 3,150 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0313679774 Mortgage bond Issue 22-11-2013 8,775 8,775 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791O7 Mortgage bond Issue 15-11-2013 1,100 1,100 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791P4 Mortgage bond Issue 08-11-2013 1,150 1,150 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679782 Mortgage bond Issue 03-12-2013 16,625 16,625 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679808 Mortgage bond Issue 22-11-2013 12,600 12,600 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679790 Mortgage bond Issue 22-11-2013 5,000 5,000 (*) AIAF
secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES03136791Q2 Mortgage bond Issue 12-11-2013 1,500 1,500 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679816 Mortgage bond Issue 27-11-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791R0 Mortgage bond Issue 22-11-2013 1,700 1,700 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679824 Mortgage bond Issue 22-11-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791T6 Mortgage bond Issue 29-11-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES031336791U4 Mortgage bond Issue 29-11-2013 3,000 3,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679832 Mortgage bond Issue 29-11-2013 1,500 1,500 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679840 Mortgage bond Issue 13-12-2013 9,675 9,675 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791S8 Mortgage bond Issue 17-12-2013 3,150 3,150 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679857 Mortgage bond Issue 13-12-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679865 Mortgage bond Issue 13-12-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit rating
of Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of the
Issue, Buy-back
or Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market
on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to the
guarantee
Bankinter SA Parent company SPAIN - ES03136791V2 Mortgage bond Issue 20-12-2013 1,200 1,200 (*) AIAF
secondary
fixed
income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791W0 Mortgage bond Issue 20-12-2013 1,350 1,350 (*) AIAF
secondary
fixed
income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679873 Mortgage bond Issue 20-12-2013 5,000 5,000 (*) AIAF
secondary
fixed
income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679907 Mortgage bond Issue 27-12-2013 5,000 5,000 (*) AIAF
secondary
fixed
income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679899 Mortgage bond Issue 23-12-2013 5,000 5,000 (*) AIAF
secondary
fixed
income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679915 Mortgage bond Issue 27-12-2013 5,000 5,000 (*) AIAF
secondary
fixed
income
market		 - Credit
Enhancement
(0%)
Bankinter 12 FTH Subsidiary SPAIN Aaa/AAA ES0313715007 Mortgage
securitisation bonds		 Depreciation
and
Amortisation		 15-03-2013 0 0 Euribor
3m+0.04%		 AIAF
secondary
fixed
income
market		 Mortgage
portfolio		 Credit
Enhancement
(7.79%)
Bankinter 12 FTH Subsidiary SPAIN Baa1/AA- ES0313715015 Mortgage
securitisation bonds		 Depreciation
and
Amortisation		 15-03-2013 572,267 572,267 Euribor
3m+0.12%		 AIAF
secondary
fixed
income
market		 Mortgage
portfolio		 Credit
Enhancement
(7.79%)
Bankinter 12 FTH Subsidiary SPAIN Baa1/A- ES0313715023 Mortgage
securitisation bonds		 Depreciation
and
Amortisation		 15-03-2013 13,100 13,100 Euribor
3m+0.25%		 AIAF
secondary
fixed
income
market		 Mortgage
portfolio		 Credit
Enhancement
(5.63%)
Bankinter 12 FTH Subsidiary SPAIN Baa2/A- ES0313715031 Mortgage
securitisation bonds		 Depreciation
and
Amortisation		 15-03-2013 11,900 11,900 Euribor
3m+0.35%		 AIAF
secondary
fixed
income
market		 Mortgage
portfolio		 Credit
Enhancement
(3.68%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter 12 FTH Subsidiary SPAIN Ba2/BBB- ES0313715049 Mortgage
securitisation
bonds		 Depreciation
and
Amortisation		 15-03-2013 11,300 11,300 Euribor 3m+2.25% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(1.82%)
Bankinter 12 FTH Subsidiary SPAIN Ca/CCC ES0313715056 Mortgage
securitisation
bonds		 Depreciation
and
Amortisation		 15-03-2013 11,300 11,300 Euribor 3m+3.90% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba1/BB ES0313679484 Senior Depreciation
and
Amortisation		 15-01-2013 498,050 498,050 Euribor 3m+0.95% AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba1/BB ES0313679492 Senior Depreciation
and
Amortisation		 21-01-2013 78,800 78,800 3% AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679111 Interest rate swaps Depreciation
and
Amortisation		 21-01-2013 550,000 550,000 4.875% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679004 Interest rate swaps Depreciation
and
Amortisation		 04-03-2013 50,000 50,000 Euribor3m+0.27% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679079 Interest rate swaps Depreciation
and
Amortisation		 09-04-2013 1,400,000 1,400,000 2.625% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A Nominative Interest rate swaps Depreciation
and
Amortisation		 15-06-2013 90,000\$ 90,000\$ Libor3m-0.04% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba1/BB ES0213679121 Senior Depreciation
and
Amortisation		 17-06-2013 75,000 75,000 Euribor3m flat
(min 3%-max 5%)		 AIAF secondary
fixed-income
market		 - Mejora Credit
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679095 Interest rate swaps Depreciation
and
Amortisation		 23-09-2013 650,000 650,000 3.75% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Mejora Credit
(0%)
Bankinter SA Parent company SPAIN Ba2/BB- ES0213679188 Subordinated Depreciation
and
Amortisation		 10-10-2013 50,000 50,000 Euribor3m+3% AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790K7 Mortgage bond Depreciation
and
Amortisation		 08-11-2013 9,750 9,750 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the
Bank		 Country Credit rating of
Issuer or Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES03136790L5 Mortgage bond Depreciation
and
Amortisation		 02-12-2013 7,000 7,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790M3 Mortgage bond Depreciation
and
Amortisation		 09-12-2013 4,600 4,600 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790N1 Mortgage bond Depreciation
and
Amortisation		 16-12-2013 1,350 1,350 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter 12
FTH		 Subsidiary SPAIN - ES03136790O9 Mortgage bond Depreciation
and
Amortisation		 24-06-2013 8,750 8,750 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(7.79%)
Bankinter 12
FTH		 Subsidiary SPAIN - ES03136790P6 Mortgage bond Depreciation
and
Amortisation		 12-07-2013 2,850 2,850 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(7.79%)
Bankinter 12
FTH		 Subsidiary SPAIN - ES03136790Q4 Mortgage bond Depreciation
and
Amortisation		 14-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(5.63%)
Bankinter 12
FTH		 Subsidiary SPAIN - ES03136790R2 Mortgage bond Depreciation
and
Amortisation		 21-10-2013 5,700 5,700 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(3.68%)
Bankinter 12
FTH		 Subsidiary SPAIN - ES03136790T8 Mortgage bond Depreciation
and
Amortisation		 11-11-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(1.82%)
Bankinter 12
FTH		 Subsidiary SPAIN - ES03136790U6 Mortgage bond Depreciation
and
Amortisation		 14-08-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679352 Mortgage bond Depreciation
and
Amortisation		 27-08-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the
Bank		 Country Credit rating
of Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as
at 31-12-
2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to the
guarantee
Bankinter SA Parent company SPAIN - ES03136790X0 Mortgage bond Depreciation
and
Amortisation		 16-09-2013 5,645 5,645 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790Y8 Mortgage bond Depreciation
and
Amortisation		 16-09-2013 3,450 3,450 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679386 Mortgage bond Depreciation
and
Amortisation		 19-09-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136790Z5 Mortgage bond Depreciation
and
Amortisation		 08-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791A6 Mortgage bond Depreciation
and
Amortisation		 08-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679402 Mortgage bond Depreciation
and
Amortisation		 14-10-2013 12,525 12,525 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679428 Mortgage bond Depreciation
and
Amortisation		 10-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679436 Mortgage bond Depreciation
and
Amortisation		 21-10-2013 4,350 4,350 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679485 Mortgage bond Depreciation
and
Amortisation		 28-10-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679493 Mortgage bond Depreciation
and
Amortisation		 11-11-2013 4,350 4,350 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2013 (a)
Name Relation to the
Bank		 Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2013
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the
Group would
assume in
addition to
the guarantee
Bankinter SA Parent company SPAIN - ES03136791E8 Mortgage bond Depreciation
and
Amortisation		 14-11-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679543 Mortgage bond Depreciation
and
Amortisation		 05-11-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES0213679568 Mortgage bond Depreciation
and
Amortisation		 09-12-2013 5,000 5,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN - ES03136791G3 Mortgage bond Depreciation
and
Amortisation		 27-12-2013 1,000 1,000 (*) AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba2/BB- ES0213679030 Subordinated Depreciation
and
Amortisation
parcial		 22-01-2013 2,240 2,240 6% AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba2/BB- ES0213679139 Subordinated Depreciation
and
Amortisation
parcial		 22-01-2013 14,000 14,000 Euribor
3m+0.76%		 AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba2/BB- ES0213679147 Subordinated Depreciation
and
Amortisation
parcial		 22-01-2013 30,000 30,000 Euribor
3m+0.80%		 AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba2/BB- ES0213679162 Subordinated Depreciation
and
Amortisation
parcial		 22-01-2013 10,400 10,400 Euribor
3m+0.84%		 AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba2/BB- ES0213679170 Subordinated Depreciation
and
Amortisation
parcial		 22-01-2013 4,700 4,700 Euribor
3m+0.82%		 AIAF secondary
fixed-income
market		 - Credit
Enhancement
(0%)

APPENDIX IV Individualised information on certain issues, buybacks or redemptions of debt securities

Details of the Issuing Institution Details of Issues carried out in 2012 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance
as at
31-12-2012
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the Group
would assume in
addition to the
guarantee
Bankinter Empresas
1 FTA		 Subsidiary SPAIN A3 ES0313402010 Securitisation
bonds		 Depreciation
and
Amortisation		 18-06-2012 30,600 - Euribor 3m +
0.50%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(57.52%)
Bankinter Empresas
1 FTA		 Subsidiary SPAIN Baa3 ES0313402028 Securitisation
bonds		 Depreciation
and
Amortisation		 18-06-2012 71,000 - Euribor 3m +
0.70%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(39.43%)
Bankinter SA Parent company SPAIN Aaa/AA+ ES0313679450 Backed senior Depreciation
and
Amortisation		 24-02-2012 744,700 - 3.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A1/A ES0313679484 Backed senior Depreciation
and
Amortisation
parcial		 29-03-2012 138,000 762,000 Euribor 3m +
0.95%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A1/A ES0313679484 Backed senior Depreciation
and
Amortisation
parcial		 26-06-2012 263,950 498,500 Euribor 3m +
0.95%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Aa3/A ES0313679443 Backed senior Depreciation
and
Amortisation		 21-06-2012 856,000 - Euribor 3m +
0.14%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN NA ES0313679575 Convertible
Subordinated
Bonds		 Issue 29-03-2012 162,000 12,831 7.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN NA ES0313679575 Convertible
Subordinated
Bonds		 Issue 29-03-2012 169,856 59,800 7.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter Emisiones
SA Unipersonal		 Subsidiary SPAIN B2/CCC+ ES0113549002 Series 1
Preferred
Shares		 Issue 30-08-2012 168,164 60,844 Eur 3M +3.75%
min 4%- max 7%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba1/BB ES0313679625 Backed senior Depreciation
and
Amortisation		 13-07-2012 100,000 100,000 Euribor3m+1.80% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba2/ ES0213679022 Subordinated
Debt		 Depreciation
and
Amortisation		 18-12-2012 20,370 - 5.70% AIA - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0313679079 Mortgage bond Depreciation
and
Amortisation
Parcial		 06-11-2012 600,000 1,400,000 2.625% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0313679111 Mortgage bond Depreciation
and
Amortisation
Parcial		 06-11-2012 550,000 550,000 4.875% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679095 Mortgage bond Depreciation
and
Amortisation
Parcial		 06-11-2012 100,000 650,000 3.75% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679145 Mortgage bond Depreciation
and
Amortisation		 06-11-2012 1,500,000 - 4.25% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2012 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of
Security		 Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance as at
31-12-2012
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the Group
would assume in
addition to the
guarantee
Bankinter SA Parent company SPAIN A3/A ES0413679194 Mortgage bond Issue 08-08-2012 100,000 100,000 Euribor3m+4.90% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679202 Mortgage bond Issue 30-10-2012 500,000 500,000 3.875% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679210 Mortgage bond Issue 06-11-2012 1,250,000 1,250,000 Euribor3m+4.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679228 Mortgage bond Issue 16-11-2012 600,000 600,000 Euribor3m+4.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/A ES0413679236 Mortgage bond Issue 16-11-2012 700,000 700,000 Euribor3m+4.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A2/BBB+ ES0313679807 Backed senior Depreciation
and
Amortisation		 10-11-2012 40,000 - Average Euribor
3m + 1.8%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter 14FTA Subsidiary SPAIN Aaa/AAA ES0313271001 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 - - Euribor
3M+0.070%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(10.10%)
Bankinter 14FTA Subsidiary SPAIN A3/A+ ES0313271019 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 430,783 - Euribor
3M+0.150%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(10.10%)
Bankinter 14FTA Subsidiary SPAIN A3/ A+ ES0313271027 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 172,700 - Euribor
3M+0.230%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(10.10%)
Bankinter 14FTA Subsidiary SPAIN A3/ A+ ES0313271035 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 14,100 - Euribor
3M+0.300%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(7.95%)
Bankinter 14FTA Subsidiary SPAIN A3/A- ES0313271043 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 14,200 - Euribor
3M+0.400%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(5.78%)
Bankinter 14FTA Subsidiary SPAIN Ba2/BB- ES0313271050 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 9,500 - Euribor
3M+2.500%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(4.33%)
Bankinter 14FTA Subsidiary SPAIN C/D ES0313271068 Securitisation
bonds activos		 Depreciation
and
Amortisation		 17-09-2012 14,200 - Euribor
3M+3.900%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(2.17%)
Bankinter SA Parent company SPAIN Ba1/BB ES0313679765 Backed senior Depreciation
and
Amortisation		 26-10-2012 900,000 - 4.625% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Ba1/BB ES0313679765 Backed senior Depreciation
and
Amortisation		 27-12-2012 500,000 - 4.625% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Details of the Issuing Institution Details of Issues carried out in 2012 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance
as at
31-12-2012
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the Group
would assume in
addition to the
guarantee
Bankinter SA Parent company SPAIN Aaa ES0413679160 Mortgage bond Issue 24-01-2012 1,200,000 1,200,000 4.675% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Aaa ES0413679152 Mortgage bond Issue 26-01-2012 200,000 200,000 Euribor 3m +
3.50%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter SA Parent company (*) SPAIN Aa2 ES0413679178 Mortgage bond Issue 22-03-2012 1,000,000 1,000,000 4.125% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter SA Parent company (*) SPAIN A1 ES0413679186 Mortgage bond Issue 11-06-2012 500,000 500,000 Euribor 3m +
3.00%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/BBB+ ES0213679139 Backed senior Issue 14-06-2012 280,000 280,000 Euribor 3m +
4.25%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A3/BBB+ ES0313679948 Backed senior Issue 14-06-2012 320,000 320,000 Euribor 3m +
4.25%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A2/A ES0313679815 Backed senior Issue 24-02-2012 800,000 800,000 Euribor 3m +
2.80%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN A2/BBB+ ES0313679807 Backed senior Issue 10-02-2012 40,000 40,000 Average Euribor
3m + 1.8%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
TDA 19 Parent company SPAIN Aaa/AAA Nominative Mortgage bond Depreciation
and
Amortisation		 05-03-2012 300,000 - 2.25% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Aaa/AA+ ES0313679476 Backed senior Depreciation
and
Amortisation		 15-06-2012 36,500,000 - Libor yen 3m +
0,62%		 AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Aaa/AA+ ES0313679468 Backed senior Depreciation
and
Amortisation		 15-06-2012 35,400,000 - 1.22% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Aaa/AA+ ES0313679450 Backed senior Depreciation
and
Amortisation		 15-06-2012 744,700 - 3.00% AIAF secondary
fixed-income
market		 - Credit Enhancement
(0%)
Bankinter SA Parent company SPAIN Aaa/AAA ES0413679053 Mortgage bond Depreciation
and
Amortisation		 15-06-2012 323,200 - 3.50% AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter 17FTA Subsidiary SPAIN A+/Aa1 ES0313582001 Securitisation
bonds activos		 Depreciation
and
Amortisation		 18-01-2012 720,497 - Euribor 3m +
0.30%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(8.68%)
Bankinter 17FTA Subsidiary SPAIN A/Ba1 ES0313582019 Securitisation
bonds activos		 Depreciation
and
Amortisation		 18-01-2012 34,000 - Euribor 3m +
0.50%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(4.43%)
Details of the Issuing Institution Details of Issues carried out in 2012 (a)
Name Relation to the Bank Country Credit
rating of
Issuer or
Issue		 ISIN code Type of Security Rate
Transaction		 Date of
Transaction		 Amount of
the Issue,
Buy-back or
Redemption
(€000s)		 Outstanding
balance
as at
31-12-2012
(€000s)		 Type of Rate Market on which
traded		 Type of
Guarantee
Granted		 Risks that the Group
would assume in
addition to the
guarantee
Bankinter 17FTA Subsidiary SPAIN BBB/Caa2 ES0313582027 Securitisation
bonds activos		 Depreciation
and
Amortisation		 18-01-2012 13,500 - Euribor 3m +
0.70%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(2.49%)
Bankinter 15FTH Subsidiary SPAIN Aaa/A+ ES0313272017 Securitisation
bonds activos		 Depreciation
and
Amortisation		 21-01-2012 691,626 - Euribor 3m +
0.18%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(6.16%)
Bankinter 15FTH Subsidiary SPAIN AAA/A+ ES0313272025 Securitisation
bonds activos		 Depreciation
and
Amortisation		 21-01-2012 345,000 - Euribor 3m +
0.27%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(6.16%)
Bankinter 15FTH Subsidiary SPAIN Aa3/A+ ES0313272033 Securitisation
bonds activos		 Depreciation
and
Amortisation		 21-01-2012 15,800 - Euribor 3m +
0.35%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(4.70%)
Bankinter 15FTH Subsidiary SPAIN Baa2/A- ES0313272041 Securitisation
bonds activos		 Depreciation
and
Amortisation		 21-01-2012 15,800 - Euribor 3m +
0.45%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(3.24%)
Bankinter 15FTH Subsidiary SPAIN Ba3/BB ES0313272058 Securitisation
bonds activos		 Depreciation
and
Amortisation		 21-01-2012 15,000 - Euribor 3m +
2.65%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(1.86%)
Bankinter 15FTH Subsidiary SPAIN C/D ES0313272066 Securitisation
bonds activos		 Depreciation
and
Amortisation		 21-01-2012 25,500 - Euribor 3m +
3.90%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(0%)
Bankinter 18FTA Subsidiary SPAIN Aaa/AAA ES0313401004 Securitisation
bonds activos		 Depreciation
and
Amortisation		 23-01-2012 1,159,675 - Euribor 3m +
0.30%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(11.03%)
Bankinter 18FTA Subsidiary SPAIN Aa3/A ES0313401012 Securitisation
bonds activos		 Depreciation
and
Amortisation		 23-01-2012 65,300 - Euribor 3m +
0.50%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(5.83%)
Bankinter 18FTA Subsidiary SPAIN A2/BBB ES0313401020 Securitisation
bonds activos		 Depreciation
and
Amortisation		 23-01-2012 30,000 - Euribor 3m +
0.70%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(3.44%)
Bankinter Leasing Subsidiary SPAIN A1 ES0314787005 Securitisation
bonds activos		 Depreciation
and
Amortisation		 16-04-2012 70,914 - Euribor 3m +
0.30%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(38.74%)
Bankinter Leasing Subsidiary SPAIN Ba1 ES0314787013 Securitisation
bonds activos		 Depreciation
and
Amortisation		 16-04-2012 21,400 - Euribor 3m +
0.50%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(18.23%)
Bankinter Leasing Subsidiary SPAIN Caa1 ES0314787021 Securitisation
bonds activos		 Depreciation
and
Amortisation		 16-04-2012 12,000 - Euribor 3m +
0.80%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(6.73%)
Bankinter Empresas
1 FTA		 Subsidiary SPAIN Aa/AAA ES0313402002 Securitisation
bonds		 Depreciation
and
Amortisation		 18-06-2012 290,949 - Euribor 3m +
0.30%		 AIAF secondary
fixed-income
market		 Mortgage
portfolio		 Credit Enhancement
(65.32%)

(a) Amounts in foreign currency have been converted into euros at the closing exchange rate for the financial year.

Bankinter Group, S.A.

Consolidated Management Report for the year ended 31 December 2013

1. Company's Performance for the year

Company Activity

During 2013 the Group added the following companies to its perimeter of consolidation:

Society % of control Activity
Mercavalor, S.V, S.A. 100% Securities Broker
Bankinter Luxembourg, S.A. 100% Private Banking
Naviera Goya, S.L. 100% Special purpose vehicle
Naviera Sorolla, S.L. 100% Special purpose vehicle
Castellana Finance Limited 100% Special purpose vehicle

With the purpose of complementing its private banking strategy, Bankinter, S.A. reached agreement in December 2012 with Dutch bank Van Lanschot Bankiers N.V. to acquire its Luxembourg subsidiary Van Lanschot Bankiers (Luxembourg) S.A. for an amount of €21.55 million, leading to goodwill of €2.45 million being recognised. The agreement was executed and the company accordingly incorporated into the Group in the first half of 2013.

Naviera Goya, S.L. and Naviera Sorolla, S.L. are special purpose vehicles established to support the financing of shipbuilding by Spanish shipyards.

Castellana Finance Limited is a special purpose vehicle established in 2007. This vehicle was initially outside the perimeter of consolidation, basically because the Group had no material risks or benefits win regard to it. However, during the first half of 2013 its situation of control was reviewed, and it was concluded that it should be integrated into the Group as at 30 June 2013. This review was undertaken after successive purchases by Bankinter, S.A. of bonds issued by the vehicle, which had also restructured its balance sheet.

During the fourth quarter of 2013 the Group, which held 25.01% of the shares in Mercavalor, S.V, S.A., acquired all the remaining shares in the company, which was accordingly then fully consolidated.

During the fourth quarter of 2012 the Group sold 40.10% of the share capital of Bankinter Seguros Generales (BKSG) S.A. de Seguros y Reaseguros for €12 million, retaining a 49.9% equity stake in the company.

There was a capital increase during 2013 by way of a bonus issue charged to the asset revaluation reserve, as approved by the General Meeting of Shareholders of 21 March 2013. The definitive number of ordinary shares issued, each with a nominal value of €0.30, was 313,223,298 and the nominal amount of the capital increase was €93.97 million. Following this new share issue Bankinter's share capital amounted to €263.1 million, divided into 877,029,439 ordinary shares, each with a nominal value of €0.30.

During 2013 the following voluntary conversions of mandatorily convertible subordinated bonds into new Series I and II Bankinter shares took place:

  • a) On the ordinary voluntary conversion date, 11 May 2013, requests were made for the conversion of 6,130 Series I bonds with a nominal value of €306,000 and 4,469 Series II bonds with a nominal value of €223,000. To meet these conversion requests a total of 146,175 new shares were issued.
  • b) On the ordinary voluntary conversion date, 25 October 2013, requests were made for the conversion of 40,896 Series I bonds with a nominal value of €2,045,000 and 1,148 Series II bonds with a nominal value of €57,450,000. To meet these conversion requests a total of 18,408,186 new shares were issued.

Results

The Bankinter Group posted net income of €215.4 million for 2013, 72.8% more than in 2012. This is the Bank's best net figure for the past four years. Pre-tax profit for 2013 came to €297.6 million, 93% more than in the previous year.

31-12-13 31-12-12 Difference
PROFIT AND LOSS ACCOUNT Amount Amount Amount %
Interest and similar income 1,476,230 1,707,696 (231,466) (13.55)
Interest expense and similar charges (840,326) (1,047,441) 207,115 (19.77)
Interest margin 635,904 660,255 (24,351) (3.69)
Income from equity instruments 8,946 11,791 (2,845) (24.13)
Share in results of entities accounted
for using the equity method		 15,545 17,677 (2,132) (12.06)
Net fees and commissions 249,019 203,840 45,179 22.16
Income from financial transactions
and exchange differences		 228,754 145,130 83,624 57.62
Other operating revenue / charges 237,293 215,347 21,946 10.19
Gross Margin 1,375,461 1,254,041 121,420 9.68
Personnel expenses (356,833) (342,498) (14,335) 4.19
Administrative expenses /
Amortisation		 (323,014) (322,371) (643) 0.20
Operating profit (loss)before
impairment provisions		 695,614 589,172 106,442 18.07
Provisions (14,259) (21) (14,238) n.s.
Losses from asset impairment (289,967) (419,028) 129,061 (30.80)
Operating profit (loss)after
impairment provisions		 391,388 170,123 221,265 130.06
Gains/losses on derecognition of
assets		 (93,822) (15,943) (77,879) 488.48
Profit before tax 297,566 154,179 143,387 93.00
Income tax (82,142) (29,525) (52,617) 178.21
Consolidated result 215,424 124,654 90,770 72.82

These results are based on sustained growth in the strategic private and corporate banking business lines and the solidity and profitability of the insurance activity. The containment of costs also consolidated the improvement in the cost/income ratio for the banking activity, which came to 40.5%, compared with 42.9% for the previous year.

In some respects the results for 2013 are not comparable with those of 2012, since 2012 saw the application of Royal Decree-Laws 2/2012 and 18/2012 on the 'cleanup' of the financial system, which involved the non-recurring recognition of extra provisions in the Group for more than €275.2 million and the compensating release of generic provisions for more than €97.6 million.

During 2013 Bankinter notably strengthened its solvency, its financing structure and the quality of its assets.

As regards solvency, Bankinter continues to strengthen its capital ratios, reaching an EBA capital ratio of 12.4% at the end of the year, compared with 10.2% a year earlier, thanks mainly to the generation of recurring profits, a capital increase charged entirely to the asset revaluation reserve and a reduction in capital requirements to cover lending to SMEs.

The Bank has continued to improve its financing structure, strengthening the ratio of deposits to loans, which stood at 76.5% at year-end, as against 66.9% at the end of 2012 and 56.6% for 2010. In 2013 the Bank also reduced its liquidity gap by €4.2 billion compared with the year before.

Bankinter has no wholesale debt issues maturing until the fourth quarter of 2014 (€1.2 billion), with a further €1.2 billion due in 2015. The Bank has €6.9 billion of liquid assets with which to meet these maturities. Furthermore, it has considerably reduced its reliance on the European Central Bank, having repaid more than €6.3 billion during the year, equivalent to 66% of the lines it had one year ago.

As regards the quality of its assets, it is noteworthy that the Bank has kept its NPL ratio well below the market average: 4.98% as against the November sector average of over 13%, and with net new NPLs being well contained throughout the year. Similarly, the Bank's portfolio of problem assets is small and enjoys a high degree of coverage: 42% of NPLs and 41.2% of repossessed assets.

Bankinter's portfolio of refinanced loans at year-end stood at €1,734 million, representing 3.8% of the total computable risk. Of this refinanced portfolio, 38% is in 'regular' status', 24% in 'sub-standard' and 38% is in arrears.

Bankinter's portfolio of repossessed assets is very small and is concentrated particularly in residential properties. The gross value of the portfolio is €627.5 million, which is even less than in the previous quarter. Moreover the cover for these assets has increased from 37.7% at year-end 2012 to 41.2% at the close of 2013. The Bank raised the pace at which it sold these assets, compared with previous years, with gross sales of these assets representing 93.8% of gross new additions during the year.

Margins and business lines

As regards the various margins in the income statement, the Group's interest margin for the year came to €635.9 million, representing a 3.7% decrease relative to 2012, due essentially to the sharp fall in one-year EURIBOR, which is still at alltime record lows. A quarter-by quarter analysis of changes in this margin, however, reveals that, after bottoming out in the first quarter, it showed a constantly improving trend over the next three quarters. Thus, the interest margin for the fourth quarter of 2013 was €174 million, 18.6% more than in the fourth quarter of 2012. All this is thanks to the substantial improvement in the customer margin, and in spite of the reduction in the bond portfolio. Also, the Gross Margin and operating results before impairment charges have shown constant growth since the fourth quarter of 2012. These positive trends are reflected in the continued growth in both pre-tax profit and net profit in the past few quarters.

QUARTERLY PROFIT AND
LOSS ACCOUNT		 2013 2012
4Q13 3Q13 2Q13 1Q13 4Q12
Interest and similar income 362,527 370,103 367,436 376,164 399,265
Interest expense and similar
charges		 (188,548) (196,626) (211,614) (243,539) (252,567)
Interest margin 173,979 173,477 155,822 132,625 146,697
Income from equity
instruments		 1,002 1,949 3,796 2,199 3,392
Share in results of entities
accounted for using the
equity method		 4,532 4,046 3,415 3,553 4,887
Net fees and commissions 71,255 61,477 60,345 55,943 53,798
Income from financial
transactions and exchange
differences		 74,045 36,060 52,014 66,636 38,570
Other operating revenue /
charges		 57,229 58,973 61,451 59,639 53,301
Gross Margin 382,042 335,981 336,844 320,594 300,646
Personnel expenses (97,193) (85,484) (87,299) (86,857) (80,817)
Administrative expenses /
Amortisation		 (8,183) (80,166) (80,948) (80,047) (80,989)
Operating profit
(loss)before impairment
provisions		 202,997 170,331 168,597 153,690 138,840
Provisions (6,382) (4,940) (3,050) 113 (472)
Losses from asset
impairment		 (56,470) (81,925) (76,911) (74,662) (76,447)
Operating profit (loss)after
impairment provisions		 140,145 83,465 88,637 79,142 61,921
Gains/losses on derecognition
of assets		 (53,667) (11,517) (17,289) (11,348) 6,468
Profit before tax 86,477 71,948 71,347 67,794 68,389
Income tax (26,858) (18,440) (19,422) (17,423) (16,031)
Consolidated result 59,619 53,509 51,926 50,371 52,358

The customer margin showed constant quarterly growth in 2013, based mainly on the reduced cost of customer resources and the containment of the fall in returns on lending, despite record low interest rates.

QUARTERLY RETURNS AND COSTS
[figures in %] 4Q13 3Q13 2Q13 1Q13 4Q12
Weighting Rate Weighting Rate Weighting Rate Weighting Rate Weighting Rate
Deposits with central banks 0.77% 0.22% 0.71% 0.29% 0.55% 0.57% 0.71% 0.42% 0.67% 0.46%
Deposits with credit institutions 4.46% 0.49% 3.49% 0.52% 3.28% 0.44% 3.59% 0.43% 2.99% 0.61%
Loans and advances to customers (a) 72.29% 2.66% 70.10% 2.65% 69.71% 2.70% 70.76% 2.80% 75.14% 2.86%
Debt instruments 16.91% 3.46% 20.18% 3.16% 20.79% 3.10% 19.55% 3.26% 16.72% 3.71%
Equities 0.57% 1.24% 0.58% 2.33% 0.57% 4.62% 0.55% 2.80% 0.49% 4.87%
Average earning assets (b) 95.01% 2.71% 95.05% 2.69% 94.91% 2.73% 95.17% 2.79% 96.01% 2.94%
Other assets 4.99% 4.95% 5.09% 4.83% 3.99%
AVERAGE TOTAL ASSETS 100.00% 2.57% 100.00% 2.56% 100.00% 2.59% 100.00% 2.66% 100.00% 2.82%
Deposits from central banks 9.61% 0.40% 12.27% 0.50% 12.32% 0.61% 15.16% 0.75% 16.86% 0.76%
Deposits from credit institutions 11.97% 1.89% 14.01% 1.61% 13.85% 1.67% 10.64% 2.09% 9.50% 2.27%
Customer resources (c) 66.16% 1.51% 62.26% 1.61% 62.39% 1.77% 63.31% 2.05% 62.07% 2.14%
Customer deposits 49.33% 1.38% 44.63% 1.50% 44.14% 1.67% 42.91% 2.04% 39.97% 2.12%
Negotiable debt instruments 16.83% 1.91% 17.62% 1.89% 18.25% 2.02% 20.41% 2.07% 22.10% 2.18%
Subordinated liabilities 1.12% 5.02% 1.21% 4.75% 1.31% 4.48% 1.33% 4.30% 1.48% 3.80%
Average interest-bearing funds (d) 88.86% 1.50% 89.75% 1.50% 89.87% 1.64% 90.44% 1.87% 89.92% 1.93%
Other liabilities 11.14% 10.25% 10.13% 9.56% 10.08%
AVERAGE TOTAL FUNDS 100.00% 1.33% 100.00% 1.35% 100.00% 1.47% 100.00% 1.70% 100.00% 1.73%
Customer margin (a-c) 1.15% 1.04% 0.93% 0.75% 0.72%
Net interest income (b-d) 1.21% 1.19% 1.09% 0.92% 1.01%
Average total assets for the quarter (€000s) 56,117,481 57,768,717 57,439,351 57,770,293 56,774,164

As for the gross margin and the margin before provisions, they continued to grow throughout the year, which is particularly noteworthy in the current difficult environment. The gross margin for the year was €1.38 billion, up 9.7% on last year, thanks to the good performance of net commissions, which increased by 22.2% for the period due largely to the activities of private banking and transactional business.

FEES AND COMMISSIONS 31-12-13 31-12-12 Difference %
FEES AND COMMISSIONS EXPENSE 64,063 70,615 (6,552) (9.28)
FEES AND COMMISSIONS INCOME
For guarantees and documentary credits 29,500 27,853 1,647 5.91
For exchange of foreign currencies and
foreign banknotes		 7,678 7,499 179 2.39
For contingent commitments 15,819 14,139 1,680 11.88
For collections and payments 70,335 66,605 3,730 5.60
For securities services 49,419 40,753 8,666 21.26
Underwriting and placement of
securities		 1,248 1,458 (210) (14.40)
Sale and purchase of securities 22,883 19,792 3,091 15.62
Administration and custody of
securities		 19,438 18,480 958 5.18
Wealth management 5,850 1,023 4,827 471.85
For the marketing of non-banking
financial products-		 103,008 88,634 14,374 16.22
Asset management 57,678 43,346 14,332 33.06
Insurance and pension funds 45,330 45,287 43 0.09
Other fees 37,323 28,972 8,351 28.82
Total fee income 313,082 274,455 38,627 14.07
TOTAL NET FEES & COMMISSIONS: 249,019 203,840 45,179 22.16

The margin before provisions for the year was €695.6 million, 18.1% up on 2012, enabling provisions for loans and repossessed assets to be further strengthened.

The year 2013 also demonstrated the solidity and good progress of customer business for the Bank, which continues to pursue a strategy focused primarily on the corporate and private banking segments. In respect of this latter segment, we should point out that Bankinter grew by 18.9% over the course of the year in terms of the number of active clients and by 28.4% in total assets under management. With the emphasis on services with the greatest added value, such as SICAVs, the number of companies managed grew by 15.4% to reach 293.

CONTRIBUTION BY BUSINESS
AREA		 31-12-13 31-12-12 €000s %
(€000s)
Customer segments 1,068,521 975,931 92,590 9.49
Commercial and Private Banking 461,407 436,868 24,539 5.62
Corporate Banking 607,114 539,063 68,051 12.62
Capital Markets 421,635 359,729 61,906 17.21
Línea Directa 324,260 309,641 14,619 4.72
Corporate Centre (438,955) (391,260) (47,695) 12.19
Gross Margin 1,375,461 1,254,041 121,420 9.68

A similar trend was shown by the insurance distribution and sale business, especially as regards Línea Directa, posting growth of 6.1% in the total number of policies, which reached 2.1 million. By branches, the growth of home policies was particularly notable this past year - up by 27.6%, while Motor policies increased by 3%.

Lastly, we should point out the good performance of Bankinter's stock during this period. Bankinter's stock ended the year with a gain of almost 150%, adjusted for the bonus issue, making it the second best performing stock in the Ibex 35 and the most profitable bank in the Euro Stoxx 600, Europe's most representative stock market index, which includes its 47 biggest banks.

Changes in Resources and Lending

Customer retail resources grew by €3.21 billion in the year, or 12.83%. At the same time, reliance on wholesale resources was reduced by €1.81 billion, or 16.9%. These changes reflect the success of the Bank's funding strategy, based on reducing dependence on wholesale markets and boosting the capture of customers' retail resources. Total growth in resources was 7.07%.

Off-balance sheet resources for their part also grew strongly, by 52.43%, with particularly high growth in assets managed in the Bank's own investment funds, wealth management and SICAVs (open-ended collective investment companies

CUSTOMER RESOURCES 31-12-13 31-12-12 €000s %
(€000s)
Retail funds 28,268,745 25,054,191 3,214,554 12.83
Government deposits 1,428,986 410,813 1,018,173 247.84
Private sector deposits 23,500,642 20,000,079 3,500,563 17.50
Current accounts 12,098,651 9,269,136 2,829,515 30.53
Term deposits 11,245,992 10,592,220 653,773 6.17
Valuation adjustments 155,999 138,723 17,276 12.45
Other liabilities at sight 319,820 254,024 65,796 25.90
Online marketable securities 3,019,298 4,389,275 -1,369,977 -31.21
Temporary assignment of assets 1,876,950 702,826 1,174,124 167.06
Negotiable securities, wholesalers 8,905,516 10,715,325 -1,809,809 -16.89
Promissory notes and bills of
exchange 808,902 -164,617 -20.35
Securitised notes 2,867,439 -273,752 -9.55
Mortgage-backed bonds 5,393,335 6,130,278 -736,943 -12.02
Senior notes 678,161 -498,321 -73.48
Valuation adjustments 94,370 230,546 -136,176 -59.07
Total 36,472,343 2,578,869 7.07
Off-balance sheet resources 11,974,867 7,855,801 4,119,066 52.43
Own investment funds 5,998,747 3,585,302 2,413,445 67.31
External investment funds sold 1,966,424 1,444,421 522,003 36.14
Pension funds 1,650,496 1,392,575 257,921 18.52
Management of SICAVs (open-ended
collective investment companies)		 2,359,200 1,433,502 925,698 64.58

Lending declined slightly, by 2.05%, mainly due to the reduction in the mortgage lending portfolio by €2.15 billion in the year. We would highlight the 4.5% growth in corporate lending, to a total of €17.7 billion, whereas the system as whole showed a drop of 8.8% in lending to businesses based on November figures. As regards residential mortgages, the last quarter of the year showed a shift in trend in step with the launch of the Bank's mortgage campaign, which enabled it to increase new mortgage lending by 2.3 times in Q4 compared with Q3.

LENDING 31-12-13 31-12-12 €000s %
(€000s)
Loans to government bodies 2,340,652 1,612,967 727,685 45.11
Other sectors 38,855,799 40,446,749 -1,590,950 -3.93
Commercial lending 2,052,599 2,177,584 -124,985 -5.74
Receivables secured by collateral 25,269,668 27,421,466 -2,151,798 -7.85
Assets held temporarily 0 49 -49 n.r
Other non-current receivables 8,449,436 7,963,701 485,735 6.10
Personal loans 4,468,648 3,877,441 591,207 15.25
Overdraft facilities 3,721,439 3,803,084 -81,645 -2.15
Other non-current receivables 259,350 283,176 -23,826 -8.41
Finance leases 796,605 807,586 -10,981 -1.36
Doubtful debts 2,234,395 1,955,871 278,524 14.24
Valuation adjustments -968,822 -969,401 579 -0.06
Other lending 1,021,918 1,089,894 -67,976 -6.24
Total customer lending 41,196,451 42,059,716 -863,265 -2.05
Off-balance sheet risks 10,639,160 9,167,605 1,471,555 16.05
Contingent risks 2,401,895 2,482,865 -80,970 -3.26
Available to third parties 8,237,265 6,684,740 1,552,525 23.22

CORPORATE BANKING

Small and Medium Enterprise Segment

During 2013 Bankinter maintained its commitment to the Small and Medium Enterprises (SME) segment, increasing customer transactions thanks to new financial products and services designed specifically to offer solutions to their financial needs and to improve their banking operations. Leveraging its high technological potential, the Bank has efficient applications available to help SMEs with their payment and collection processes.

This strategy was reflected in the profit and loss account in the form of a 4.8%increase in gross revenues in this segment relative to 2012.

As for the balance sheet, the capture of customer deposits increased, bringing the total to 6.1% more than in 2012, and we continued with our commitment to financing customers in this segment. However, the current environment of contraction and the decline, for yet another year, of business investment in Spain, led to a slight decrease in Bankinter's loan outstandings on this segment, which were down by 3.4% on the previous year.

The balance sheet for the SME business is still based on very solid credit risk assessment, with high-quality and diversified investments. This balance sheet has a high percentage of financing granted against tangible security. At the same time the Bank's strategy of maintaining a low concentration in the sectors most affected by the recession continues.

€ millions 2013 2012 Dif. %
Average controlled resources 4,283.79 3,899.30 9.94%
Average regular customer
deposits		 3,818.35 3,600.56 6.05%
Average loans and receivables 6,522.20 6,783.21 (3.40%)
Gross Margin 222.83 212.60 4.81%
NSI (points) 75.27 74.36 1.22%

Corporate Banking Segment

This past year, and particularly the latter part of it, was characterised by a slight improvement in the economic situation compared with previous years, although the absence of positive news or indicators during the first half and the general uncertainty caused by this situation led to lacklustre business investment and another year of falling business borrowing.

Against this backdrop, the Corporate Banking segment continued as in previous years with its clear strategy of growth in financing its customers by granting credit facilities, whether for their daily working capital requirements, long-term capital expenditure projects or, in particular, to support companies in their process of internationalisation.

This strategy led to a growth in the balance sheet, with lending up by 9.8% on 2012, reaching €10.34 billion, and customer deposits up by 18.3%. This increase in resources, which was the result of a major drive for deposits during the year, meant that the increase in lending referred to could be financed from within.

All this was clearly reflected in the income statement, with a gross margin of €384 million, 17.7% higher than in 2012. This growth came both from the good balance sheet figures mentioned above and from commissions received, which were up by 8.4% for this activity as a result of increased relational activity with companies.

Bankinter's value proposition in this segment continues to be based on the multi-channel approach and on quality of service, with constant improvement in customer satisfaction levels, which reached a cumulative 81.5 points on the NSI in December. This ratio represents an improvement on the previous year, and increases Bankinter's lead over the competition in this respect. As a complement to this strategy, Bankinter made a considerable effort to offer improvements in products and services that could allow customers to find solutions for their daily operating requirements.

These improved results were accompanied by improvements in the main business management ratios in Corporate Banking, both in terms of gross return on assets (ROA), which reached 3.7%, and with regard to operating efficiency, as shown by the cost/income ratio of 12.6%. At the same time of course Bankinter held fast to its long-standing principles of prudent lending, thanks to which it is the Bank with the lowest percentage of NPLs in the sector.

We must highlight the efforts made during the year to adapt all the Bank's systems and processes to the new SEPA standards for payments and collections. In parallel with this, Bankinter carried out a concerted information and advice drive to explain to its customers, and to the business world in general, everything relating to the application of these new rules which will come into force in 2014. The Bank devoted teams and resources to carrying out this programme, holding more than 80 educational events throughout Spain, which were attended by more than 4,000 businesses.

€ millions 2013 2012 Dif. %
Average controlled resources 6,047.21 5,251.70 15.15%
Average regular customer
deposits		 5,699.20 4,817.29 18.31%
Average loans and receivables 10,341.15 9,422.55 9.75%
Gross Margin 384.28 326.46 17.71%
NSI (points) 81.52 80.85 0.83%

COMMERCIAL BANKING

Private Individuals Segment

At the end of 2013, the number of active customers in Retail Banking was 312,968. In terms of the balance sheet, the year ended with average controlled resources of €3.75 billion. We should also point out that regular customer deposits grew by 13.4%in the year. Loans and advances stood at €15.33 billion at year end, representing a reduction of 8.6% relative to 2012. As for the mortgage portfolio, it stands at €14.04 billion and continues to be of excellent risk quality, with a nonperforming ratio of 2.27%, which is still one of the lowest in the sector.

Sales activity in 2013 focused on deepening the Bank's relationships with both existing and newly-won customers. The number of new customers captured was down by 20%, although customer relationships were considerably extended compared to 2012, as reflected in the 26% increase in the number of new payroll accounts, which reached nearly 39,000.

Another product with similar tie-in effects is pure life insurance, more than 7,000 policies having been subscribed to by customers in this segment, for €413 million of capital sums insured.

Lastly, in terms of quality, this customer segment closed the year with a cumulative NSI of 71.7.

€ millions 2013 2012 Dif. %
Average resources 3,018.61 2,661.55 13.42%
Average loans and receivables 15,324.59 16,773.44 (8.64%)
Gross Margin 139.35 140.18 0.59%
NSI 71.70 71.90 (0.28%)

Foreign Customers Segment

The Foreign Customers segment covers non-Spanish customers mainly living in coastal areas of Spain and requiring specialised financing and services.

This business at the end of 2013 reached a figure of 22,839 active clients. Average total assets in 2013 were €659 million, representing a decrease of 8.1%.

In Balance Sheet terms, the year ended with average customer resources of €195 million, of which 90% were conventional accounts and deposits and 10% were intermediation.

Loans and advances at the end of 2013 stood at €656 million, with a total of 236 mortgage loans having been signed during the year for a total volume of €23 million.

The quality of service to customers continues to be one of the strategic pillars of the area, resulting its obtaining a cumulative NSI score of 81.9 at year-end.

€ millions 31-12-2013 31-12-2012 difference
Average funds 175.94 185.33 (5.06%)
Average loans and receivables 655.95 713.49 (8.06%)
Gross Margin 12.19 11.95 1.96%
NSI 81.86 81.63 0.28%

Private Banking Sector

Bankinter considers that the Private Banking business is an activity based essentially on offering specialised solutions for clients' financial and tax needs. With this in mind, in 2013 Bankinter continued to strengthen both the sales teams, bringing in new bankers with experience in this segment, and the range of products and services, continually adjusting them to clients' requirements at any given time.

For providing personalised solutions for these needs, Bankinter Private Banking has Specialised Services and Legal and Tax Advice departments and a Wealth Management unit. Since December 2012 the Bank has also had a subsidiary in Luxembourg, which has enabled Bankinter to make progress in its international knowledge of this business and to offer its clients a global financial proposition.

2013 was another year of growth for Private Banking, in both revenues (up by 15.3%) and assets under management, whether from existing clients, with their growing trust in and close relationships with the Bank, or from new ones acquired over the course of the year. The opinion expressed by all of them regarding the service received is highly satisfactory.

In a year as difficult as 2013 was, Bankinter increased its market share in SICAVs, reaching a total of 293 SICAVs managed and consolidating its position at third place in the Inverco ranking by number of companies as of December.

Highlights of the Private Banking business

€ millions 31-12-2013 31-12-2012 % diferencia
Average funds 5,250.77 5,067.74 3.61%
Average loans and receivables 2,205.22 2,370.92 -6.99%
Gross Margin 116.33 100.94 15.25%
NSI 79.38 79.80 -0.05%

Personal Banking Segment

The key commercial features of 2013 in Personal Banking were both the capture of new customers and improvements in the handling of existing ones. Both activities aimed at growth in financial results in terms of gross margin, and enabled us to end the year with an improvement of 3.4% in this margin compared with the year before.

As regards the former activity, we would highlight the 23,542 new clients acquired by the branch network. The main products with which new customers were attracted were the Payroll Account, term deposits and investment funds. Also, in the last four months of the year we pushed new customer acquisition through mortgage loans, thanks to the launch of the '1.95% Mortgage' campaign designed for customers acquiring their primary residence and conforming to a given income profile. This campaign enabled us to relaunch the mortgage lending business and to win over new customers via financing.

These good figures for new customers are reflected in a net growth in the number of active customers in the segment. We ended the year with 150,237 active customers, representing an increase of 5% on the previous year-end.

The focus of customer management was on improving ties through increased cross-selling and advisory services. This improvement in the advisory function was reflected for example in the noteworthy results of the investment fund sales activity, with assets of these funds increasing by €717 million (discounting the market effect). We should also point out that the Personal Banking customers each have an average of 6.2 products contracted with the Bank, which gives some idea of the depth of the relationships.

Care and management of this customer group is handled through the branch managers and by a team of 321 specialised account executives. They are all trained specifically to attend to the financial needs of customers in this segment. Their sales activity is mainly carried out through the CRM system, which enables us to maintain frequent customer contact and to adapt the products offered to each customer's needs, preferences and risk profile.

Personal Banking customers' high level of satisfaction with the service received is reflected in the periodic quality surveys. At year-end, Personal Banking customers' Overall Satisfaction stood at 75.9 points on the NSI, which was higher than a year before.

€ millions 31-12-2013 31-12-2012 Dif. %
Average resources 6,810.63 6,635.96 2.63%
Average loans and receivables 7,283.55 7,918.23 (8.03%)
Gross margin 125.59 121.42 3.43%
NSI 75.92 75.09 1.11%

Obsidiana

Bankinter Consumer Finance is consolidating its position in the consumer finance sector, its main play being on the distribution of revolving cards through its strategic alliances, prominent among which is that entered into in 2013 with BP. Its main mission is to meet customers' financing requirements by providing them with flexible means of payment for managing their day-to-day finances.

During 2013 we continued to invest in marketing in order to drive the growth of the business, pursuing a risk management policy focused on the risk/return tradeoff and adjusting the price of each offer in line with the customer profile so as to ensure its profitability.

As a result, this past year Bankinter Consumer Finance saw its customer base grow by 4% compared with 2012, reaching a total of 471,106 cards issued at year-end.

Average customer lending in 2013 was €347 million, representing an increase of 7% on 2012, which had been 1% down on 2011. In line with this, the gross margin also grew by 7%, reaching €63 million. The cost of NPLs was held well under control.

In short, 2013 was very positive, with Bankinter Consumer Finance contributing solid profits to the Group.

LDA

Línea Directa Aseguradora, a wholly-owned subsidiary of Bankinter, is the leading company in direct sales of insurance in Spain, with a market share of close to 60% among companies without intermediation. Moreover, it holds fifth place in the national ranking of motor insurers by volume of premiums written, with turnover reaching €642.5 million in 2013. As such it is the company that has maintained the highest growth rate in the sector, consolidating its position as a benchmark for quality, profitability and job creation, with a workforce of 1955 professionals and a portfolio of policies that reached 2,095,000 at year-end. Furthermore, in 2013 it scored 80.13 points on the NSI, one of the highest scores in the sector.

Línea Directa operates in the Motor and Home branches, using the telephone and the Internet as the only distribution channels for its products, which enables it to offer its customers high-end services at very competitive prices. In this respect its business model, direct and without intermediaries, is based on direct contact with customers, prudence in selecting risks and sales strength, giving it great operating flexibility in these difficult economic times.

For the second year in a row, Línea Directa was included in the MERCO ('Corporate Reputation Monitor') ranking as one of the 100 Spanish companies with the best reputations, placing fifth among insurers, thanks among other things to its excellent financial results, its responsible practices and its well-aimed strategy of communication and relations with its stakeholder groups.

Also, in recognition of its work/life balance measures and its equal opportunities, integration and training programmes, Línea Directa is considered by MERCO as one of the best companies to work for in Spain, coming 48th in the overall MERCO Personas 2013 ranking and tenth among companies in its category.

During this past year we also pushed ahead with a brand repositioning policy based on an advertising campaign starring Matías Prats, a well-known news presenter, which as well as focusing on the prices on offer also stressed the quality of the company's services. The initiative, which was well received in the market, was rounded off with 'The Search', a simple, direct campaign offering significant discounts to drivers with a clean driving licence, the first time the value of road safety has been linked to a specific commercial offer.

The company also had an in-depth field research project carried out by Reputation Institute which, using the RepTrak® model, examined brand perception among different stakeholder groups.

In 2013 Línea Directa comfortably surpassed the two million mark in the number of customers, with a net increase of more than 120,000 policies in the portfolio, a remarkable figure in view of the current economic situation. There were essentially two reasons for this growth: the multi-brand policy pursued by the company, which enabled it to develop highly flexible products designed for each type of customer, such as Nuez (low-cost online) and Penélope Seguros (specially for and by women), and the performance of the Home business line, which consolidated its position as a strategic value for the Group, bringing with it diversification, profitability and new business opportunities. In fact, after just six years, and despite the general stagnation of the property market, Línea Directa's Home business line has become one of the 20 biggest in the branch, with nearly 280,000 policies.

One of Línea Directa Aseguradora's strengths is its solvency, which in 2013 increased by 8.5% to €420 million, making it one of Spain's best capitalised insurers, with a solvency margin that is 385.5% more than the minimum legal requirement.

This puts the company in a favourable position to face Solvency II, the grand European project for legislative harmonisation in the field of insurance, the main purpose of which is to improve control, measurement and supervision of the risks to which insurance companies are exposed.

2013 was the last year of validity of Línea Directa's Master CSR Plan 2011-2013, approved by the company's Corporate Responsibility Committee. The plan is now being thoroughly updated by Forética, Spain's leading CSR association, for use as the basis of the 2014-2016 CSR Plan. It is based on values such as road safety, equal opportunities, transparency, integrity, personal development and respect for the environment, which form the foundations of Línea Directa's corporate culture.

The plan is structured in four distinct spheres of action: Home, Highway, Climate and Corporate. In the 'Highway' sphere, Línea Directa held the tenth anniversary edition of its Road Safety Awards for Journalists, which seeks to encourage the publication of news about road safety. The ceremony, held in Madrid's Teatro Real, was presided over by María Seguí, Director General for Traffic, with Spanish racing driver María de Villota as guest of honour.

The company also produced three important reports, which received wide coverage in the media: 'Car Theft in Spain', 'Myths and misconceptions about the breathalyser' and the 'Second Línea Directa Report on fraud in motor insurance'.

In the 'Home' sphere of action, Línea Directa conducted two more important studies on accident rates in second residences and burglaries in Spanish homes. In the 'Climate' sphere of action, for the first time in its history Línea Directa calculated its carbon footprint, laying the groundwork for a subsequent phase of reduction and offsetting of emissions.

Lastly, in the 'Corporate' sphere of action, we continued to develop numerous initiatives, all of which had people as their common denominator, and which included various actions relating to volunteer work, equal opportunities, training and work/life balance, a field in which this past year the company received the important National Award of the Alares Foundation in the Large Company category.

SOLVENCY

Banco de España Circular 3/2008 of 22 May for credit institutions, on determining and controlling minimum equity, regulates the minimum equity to be maintained by Spanish credit institutions - both individually and as a consolidated group - and the way in which this equity is to be determined, as well as the various processes for capital self-assessment to be carried out by the institutions and the public information they need to forward to the market.

During 2013 the Group applied this Circular as updated by successive provisions. With Banco de España approval, the Group uses the internal ratings based (IRB) method to calculate capital requirements for the credit risk on certain credit exposures, and the standard method for all other exposures. In subsequent financial years, in accordance with the progressive implementation plan described in Rule 24 of Circular 3/2008 and subject to authorisation from the Banco de España, new portfolios will be incorporated into the IRB Approach.

The goal set by the Group's Management in relation to equity management consists in complying at all times with the applicable regulations, in accordance with the risks inherent in its activity and the context in which it operates, while at the same time seeking to make the process as efficient as possible. Capital consumption, together with other risk and return variables, is considered a fundamental variable in the analyses associated with the Group's investment decisions.

In order to meet this goal, the Group has a series of policies and processes for managing equity, the main guidelines in which are:

The Equity Directorate, which is under the Capital Markets Division, performs monitoring and control of solvency ratios, and has warning systems that ensure that the applicable rules are being fulfilled at all times and that the decisions made by the various departments and units in the entity are consistent with the targets set for compliance with minimum capital requirements. Accordingly, there are contingency plans to ensure that the limits laid down in the applicable regulations are met.

  • Both in the planning and analysis and monitoring of the Group's transactions it is considered that the impact of any decision-making may be a key factor on the Group's shareholder equity and on the consumption-profitability-risk ratio.

Thus, the Group considers equity and the capital requirements established by the abovementioned regulations to be a key factor in its management, affecting the entity's investment decisions, the analysis of the viability of any transaction, strategy for the distribution of results by subsidiaries and issues by the entity and the Group, etc.

Banco de España Circular 3/2008 of 22 May and complementary provisions (information available - in Spanish - on the Banco de España's website, at: http:// www.bde.es/bde/es/secciones/normativas/Regulacion_de_En/Estatal/Solvencia_y_ recursos_propios.html) establishes which items are to be counted as capital for the purpose of complying with the minimum requirements established. For the purposes of the above rule, equity is classified as basic and second category equity and it differs from equity as calculated in accordance with EU-IFRS as it includes certain items that are not included under EU-IFRSand excludes others that are. In addition, the methods to be implemented for the consolidation and appraisal of holdings for the purposes of calculating the Group's minimum equity requirements differ, in accordance with standing regulations, from those implemented in drawing up these annual consolidated accounts, which also leads to the existence of differences for the purposes of calculating equity under one regulation or the other.

As regards the conceptual definitions, the Group's management of its shareholders' equity is in compliance with the terms of Banco de España Circular 3/2008. Accordingly, the Group deems computable equity to be as indicated in rule 8 of Banco de España Circular 3/2008.

The minimum equity requirements laid down in this Circular are calculated according to the Group's exposure to credit risk and dilution (depending on the assets, commitments and other memorandum accounts these risks present, in accordance with their amounts, characteristics, counterparties, guarantees, etc.), the counterparty, position and settlement risks on the trading portfolio, the exchange and gold position risk (depending on the net global position in foreign currency and the net gold position) and operational risk. In addition, the Group is also subject to compliance with the risk concentration limits laid down in the aforementioned Circular and the Group is subject to compliance with the internal Corporate Governance obligations, capital self-assessment and measurement of the interest-rate risk and the public information obligations to be forwarded to the market, which are also laid down in the aforementioned Circular. With a view to guaranteeing compliance with the aforementioned targets, the Group performs integrated management of these risks, in accordance with the aforementioned policies.

Banco de España Circular 7/2012 of 30 November, on minimum core capital requirements, changed the requirements and the definition of core capital with which credit institutions have had to comply since 2013. The definition is adjusted to bring it into line with the Core Tier 1 capital criteria of the European Banking Authority (EBA), and the minimum level of core capital is set at 9% with effect from 1 January 2013.

As at 31 December 2013 and 2012 and throughout the years then ended, the computable equity of the Group and of the Group entities subject to this obligation, considered on an individual basis, exceeded the requirements laid down under the rules referred to.

Consolidated equity as at 31 December 2013 and 2012 and the corresponding capital ratios are shown in the following table:

€000s 31-12-13 (*) 31-12-12(*)
Capital and Reserves 3,300,372 2,991,426
Other equity instruments 12,608 72,633
Preference shares 60,844 60,844
Treasury shares (511) (226)
Intangible and other assets (267,772) (283,117)
Other deductions (165,200) (103,581)
Tier 1 2,940,341 2,737,979
Revaluation reserve - 94,308
Subordinated financing 443,524 568,686
Other deductions (164,467) (96,551)
Tier 2 279,057 566,443
Total Equity 3,219,398 3,304,422
Risk-weighted assets 22,777,831 25,580,597
Tier 1 (%) 12.91% 10.77%
Tier 2 (%) 1.23% 2.23%
Capital ratio (%) 14.13% 13.00%

(*) Figures based on Banco de España Circular on Determination and Control of Minimum Capital. The lower limit of shareholders' equity requirements provided for in Transitional Provision Eight of the aforementioned Circular is not applied. Internal models are applied to the following portfolios: Home mortgages for private individuals, Small companies, Medium-sized companies, Project Finance and Unsecured loans.

Bankinter complied throughout 2013 with the regulatory requirements, and in order to strengthen its capital ratios undertook the financial transaction described hereunder.

In April 2013 the Bank's Board of Directors resolved to put into effect a capital increase in the form of a bonus issue charged entirely to the asset revaluation reserve, which had been approved by the General Meeting of Shareholders on 21 March 2013. This bonus issue led to an increase of €94 million in Core Tier 1 Capital.

With regard to the 2011 issue of Mandatorily Convertible Subordinated Bonds, in both May and November of 2013 voluntary conversion periods were established. As a result of these two conversion windows, Core Tier 1 Capital increased by €60 million.

Thanks to these transactions the Bank's capital ratios increased during the year. As at 31 December 2013 the Core Capital ratio in accordance with the aforementioned Banco de España Circular was 12.35% (10.18% at year-end 2012).

2. Principal business risks

Economic Environment and International Markets

2013 was a very intense year in which, despite the arduous processes of adjustment that economies had to implement, the major developed countries succeeded in improving their macroeconomic variables. Even so, the pace of advance continues to be very uneven, with the US leading the way in world recovery, Japan moving ahead at a good speed and as for the euro zone, although it continued to show signs of weakness, we are starting to see the first green shoots of recovery and an improvement in external perception. Lastly, the emerging markets bring up the rear in world economic recovery.

Central banks played an essential role in the development of the various economies over the course of the year, providing constant support and maintaining accommodative monetary policies.

1- In Europe we saw a proactive stance adopted by the European Central Bank (ECB), which became increasingly aggressive in its monetary policy, even reducing the key interest rate on two occasions to the all-time record low of 0.25%. Moreover, they have repeated that they will continue to support economic recovery for as long as necessary. Europe is showing incipient signs of improvement, and gradually correcting its imbalances. It has posted two consecutive quarters of growth, although the road to recovery is a long one and both the process of deleveraging and the public spending cuts continue to affect the economy. Apart from this, we are seeing progress towards financial and fiscal union. Progress is being made towards Banking Union as the best way to reduce fragmentation in the financial markets.

  • 2- In the United States the Federal Reserve is supporting the economy which, largely thanks to this support, is looking quite healthy. The ultra-expansive monetary policy supports job creation, consumer spending and the real estate sector. The country's good progress has even led the Federal Reserve to decide to start cutting back on its monetary expansion programme (QE), although for the moment there is no change in key rates.
  • 3- Japan was the positive surprise of the year. The Bank of Japan applied an extremely loose monetary policy, which led to a sharp fall in the value of the yen and to increased prices, thus shaking off deflation, which has been one of the country's main problems over the past fifteen years.

Apart from this, the improvement seen in the major developed countries intensified in the last quarter. It was a year in which the upturn in confidence and the start of the tapering of stimulus on the part of the Federal Reserve led to major inflows of capital, which went largely into risk assets, at the expense of safe-haven assets. The improvement in macro indicators has now spread beyond the borders of the US, where the partial shut-down of the Administration for lack of agreement on the debt ceiling did not have a major impact on the economy. Meanwhile, in Europe we see incipient economic revival, supported by the ECB and due also to reduced contraction in the peripheral countries, essentially Italy and Spain. Lastly, the emerging markets continue to lag behind in economic revival, although some of them are beginning to show signs of stabilising. Such is the case of China. The Chinese government presented a Plan of Reforms announced after the Third Plenary Session of the 18th Central Committee of the Communist Party. This plan contains thirty measures affecting various areas, mainly economic and social.

In short, 2013 was characterised by great complexity, although admittedly signs of stabilisation are beginning to consolidate in the world's main geographical regions.

Interest and currency rates

Low key interest rates were the common denominator in the world's main geographical regions. As for currencies, the euro strengthened, while emerging markets' currencies depreciated, a trend that intensified particularly on the back of rumours about the Federal Reserve's cutting back on its monetary expansion programme (QE).

Although the monetary policy applied by the central banks is highly accommodative, there is no pressure from prices in the major developed countries, and indeed there are even starting to be some fears of possible deflation. In contrast, some emerging countries have started to increase rates precisely to combat it, as in the case of Brazil.

The euro remains strong against the dollar in spite of the accommodative policy and the fact that the euro zone is at a lower level of economic revival than the US. The ECB's unconditional support for the economy and the improvement in certain macro indicators were among the main reasons behind this appreciation, as well as a perceived lowering of risk.

The yen depreciated heavily over the course of the year due to the ultra-expansive policy applied by the Bank of Japan and the huge volumes of liquidity it injected into the economy with the aim of reaching a level of inflation of 2% in 2015. The Swiss franc remained pegged by the Swiss National Bank (SNB) at 1.2 to the euro and held fairly steady, but in any case would not have strengthened, since reduced risk aversion reduces investors' interest in safe haven assets. The pound for its part tended to appreciate on the back of an encouraging economic recovery that is starting to consolidate.

As for interest rates, the strength of the US economy has led the Federal Reserve to reduce its monetary expansion programme (QE), although it repeats that there will be no change in its monetary policy for the time being. This has led to an increase in long-term interest rates in the major developed economies.

International stock markets

2013 was an excellent year for the stock markets of the major developed countries. This was due to the improvement in the economic environment, the growth in corporate earnings and the flow of capital out of bonds and into equities.

The main upturn among developed countries was that of Japan's Nikkei, but those of the US and European indices were also considerable. Spain's Ibex performed second best in Europe, beaten only by Germany's DAX. Emerging stock markets evolved unevenly: while indices in Venezuela and Argentina posted substantial gains, Peru, Brazil, Turkey and Chile ended the year with sharp falls.

Apart from this, we are seeing a gradual increase in the flow of funds, mainly coming out of the bond market and going into higher risk assets such as equities. The improved environment, the support of the central banks and, not least, the increase in confidence, have been the decisive variables.

The following table shows the changes in the major stock markets in 2012 and 2013, all in local currency:

Geographical area Contents Change % 2013 Change % 2012
Japan Nikkei - 225 56.7 22.9
United States NASDAQ 100 35.0 16.8
United States S&P 500 29.6 13.4
Germany DAX 25.5 29.1
Spain Ibex - 35 21.4 -4.7
France CAC - 40 18.0 15.2
Euro zone EuroStoxx - 50 17.9 13.8
UK FTSE 100 14.4 5.8
India Sensex 9.0 25.7
China Shanghai (B) 3.6 13.8
Brazil Bovespa -15.5 7.4

3. Risk policies and management

The Framework Agreement on Risk Policy established by the Board of Directors sets out the Bank's risk strategy and profile for each year.

The Board of Directors, through the Executive Committee and the Audit and Compliance Committee, takes care of and supervises the policies, systems and internal control procedures relating to all the Bank's risks, as well as the prevention of money laundering in accordance with applicable current legislation.

The organisational structure of the entire risks function reports hierarchically to the CEO, thus establishing independence between the risks and business functions.

The identification, measurement, monitoring, control and management of all the risks inherent in banking operations constitute a fundamental aim within the framework of overall management of all risks.

Bankinter has received approval from the Banco de España for its internal rating models, methodologies, systems and policies for measuring most of its risks, applying them to the calculation of capital requirements as established by the regulatory solvency framework.

The basic principles governing general risk management are:

  • Contribute towards maximising return on capital, safeguarding the Bank's solvency.
  • Independence of the risk function.
  • Alignment with the strategic objectives.
  • Risk determination, approval and monitoring of new products.
  • Comprehensive risk management.
  • Importance of automated approval systems.
  • Risk diversification.
  • Relevance of service quality in the risks function.
  • Policy of Sustainable Investment.
  • Policy of Responsible Lending.

The principles for managing risk in each business segment are determined in the Framework Agreement. There is a specific section relating to the Responsible Lending Policy, pursuant to the provisions of the Transparency Act, which contains the principles that the Bank has always applied in this field.

Management policies for structural and market risks

The management of Structural Risks (interest, liquidity) and Market Risk in Bankinter is based on principles that constitute the basis of the general risks policy. These basic principles are of a permanent nature; they have been applied in recent years and continue to apply. In general, these policies are as follows:

The purpose of Bankinter's policy on the management and control of Structural Risks and Market Risk is to neutralise the impact of variations in interest rates, in the main market variables and in the balance sheet structure itself, on the Bank's profit and loss account, by adopting the most appropriate investment or hedging strategies.

The Board of Directors decides the strategy and policy for the Bank's Structural Risks and Market Risk and delegates management, monitoring and control to various Bodies of the Bank. It also decides on the risk profile that the Institution is willing to assume, establishing the maximum limits that it delegates to said bodies, which are reviewed on an annual basis.

It should be noted that the exchange rate risk is not significant at the Bank.

STRUCTURAL RISKS

The Board of Directors delegates the on-going monitoring of decisions regarding structural balance sheet risks (interest rate risk and liquidity risk), stock market risk and exchange rate risk of the Bank's corporate positions, as well as the establishment of the financing policies, to the Assets and Liabilities Committee (ALCO). Moreover, each year it reviews, approves and delegates to the ALCO the limits applicable for managing the aforementioned risks. The Treasury and Capital Markets area implements the decisions taken by the ALCO with regard to the Bank's corporate positions.

To exercise these functions, the most appropriate financial instruments at any given time are used, which include interest rate, exchange rate and variable income derivatives. The financial instruments with which trading is undertaken must, in general, be sufficiently liquid and must be associated with hedging instruments.

The Balance Sheet Management unit, which is part of the Capital Markets Directorate, has the function of measuring and managing the institution's structural risks.

Market Risk, reporting to the Risks Directorate has the independent function of controlling them:

Interest rate structural risk

Structural interest rate risk is the Bank's exposure to changes in market interest rates arising from timing differences between maturities and repricings of the various items in the overall Balance Sheet.

Bankinter performs active management of this risk in order to protect the interest margin and to preserve the economic value of the Bank against interest rate fluctuations.

In order to control exposure to the interest rate structural risk, the Bank has established a structure of limits that is reviewed and approved on an annual basis by the Board of Management, in accordance with Bankinter's strategies and policies in this regard.

Bankinter has tools to monitor and control the structural interest rate risk. We will now go on to specify the main measurements used by the Bank that enable to manage and control the interest rate risk profile approved by the Board of Directors:

a. Sensitivity of the Financial Margin:

Dynamic simulation measures are used to measure on a monthly basis financial margin exposure in different scenarios of variation in interest rates and for a 12-month time horizon. Financial margin sensitivity is obtained as the difference between the financial margin projected with the market curves at each analysis date and the one that is projected with the interest rate curves altered in different scenarios, both of parallel movement of rates and changes in the slope of the curve.

Every year, the Board of Directors sets a reference for the financial margin in terms of sensitivity for 100 basis point parallel movements in the interest rate curves for a term of up to 12 months. The sensitivity in this scenario is followed by the ALCO.

The exposure of Bankinter's financial margin to interest rate risk in the event of +/- 100 bp parallel movements in market interest rates is approximately 5.5% for a 12-month horizon.

The sensitivity of the Bank's financial margin to changes in the slope of the curve for a 12-month horizon is 6.1%. This scenario is built by holding the 6-month rate constant and changing the short-term (up to 3 months) and 12-month rates by the same amounts but in opposite directions so as to alter the slope of the curve by 25 basis points in the period under consideration.

Financial Margin Sensitivity
2013 2012
100 bp parallel movements 5.5% 2.2%
25 bp slope variations 6.1% 4.5%

b. Sensitivity of Economic Value:

This is a measurement that complements the previous two and which is calculated on a monthly basis. It allows the exposure of the Bank's economic value to interestrate risk to be quantified, and is obtained as the difference between the net present value of the items that are sensitive to interest rates calculated using the curves for rates in different scenarios and the rates curve listed in the market at each analysis date.

Every year, the Board of Directors sets a reference in terms of the economic value sensitivity for 200 bp parallel movements in market interest rates. Sensitivity to this scenario is measured, controlled and submitted to the ALCO.

The sensitivity of the Bank's Economic Value to 200 bp parallel movements, obtained by means of the criterion described above, was, at year-end 2013 and 2012, 2.7%and 7.5% of the Bank's equity, respectively.

Structural liquidity risk

The structural liquidity Risk is related to the Institution's capacity to fulfil its payment obligations and finance its investments. The Bank actively monitors the liquidity situation and its projection as well as actions to be taken both in normal market conditions and in exceptional situations arising from internal causes or market trends.

Management of this risk is the responsibility of the ALCO committee, delegated by the Board of Directors.

Liquidity requirements were covered by turning to the international medium- and long-term debt markets. The Bank issued 3,290 million mortgage-backed bonds under the fixed income programme registered with the CNMV, a portion of which was retained on the balance sheet.

To meet its requirements, the Group used short-term issue programmes, mainly in the domestic market with its commercial paper programme. The balance of promissory notes placed in the wholesale market was €593 million as at 31 December (€897 million at 31 December 2012).

The Bank has various tools for analysing and monitoring the short- and long-term liquidity situation. These tools are static and dynamic. Back-testing is also carried out on projections made.

One of the analyses used for controlling and monitoring liquidity is the liquidity gap.

Liquidity plan or gap

This shows information on the distribution of the balances and cash flows of the asset and liability positions of the balance sheet between various timeframes depending on the expected date of completion or liquidation and in accordance with a series of assumptions based on the historical performance of these products. These assumptions are reviewed on a regular basis and, in such cases as where they are necessary, supported by models based on historical series.

The following table shows the liquidity gap at the end of 2013. The information provided by the liquidity plan is static, and does not show the expected financing needs as it does not include behavioural models of the asset items, that is, the prepayment of mortgage loans and the renewal of lines of credit or of liability items such as the renewal of fixed term deposits, among others.

1 day to 1 12 months to more than 5
Figures as of December 2013 in € millions Sight month 1-3 months 3-12 months 5 years years TOTAL
ASSETS
Loans and receivables 2,054 2,775 6,725 12,656 26,635 50,845
Deposits with credit institutions 0 0 0 1,234 1,234
Loans and advances to customers 2,054 2,775 6,669 12,606 25,359 49,463
Other 0 0 56 50 42 148
525 14 401 3,318 5,374 9,632
Fixed Income Portfolio 43 1 237 1,095 725 2,101
Trading portfolio 60 12 78 924 2,186 3,260
Available-for-Sale Portfolio 422 1 86 1,298 2,463 4,271
Held-to-Maturity Portfolio
Other Assets 886 0 0 0 4,202 5,088
Total Assets 3,466 2,789 7,127 15,973 36,211 65,565
LIABILITIES
Fixed income portfolio 120 0 0 979 698 1,798
Trading portfolio 120 0 0 979 698 1,798
Financial liabilities at Amortised Cost 15,009 4,112 1,340 8,470 9,406 13,331 51,668
Deposits from credit institutions 165 55 403 924 6,547 8,094
Customer deposits 15,009 3,913 1,277 7,450 2,872 3,056 33,577
Marketable debt securities 34 8 618 5,610 2,393 8,662
Other 0 0 0 0 1,335 1,335
Other liabilities 780 0 0 0 228 1,008
Equity 0 0 0 0 3,360 3,360
Total Liabilities and Equity 15,009 5,012 1,340 8,470 10,385 17,617 57,833
TOTAL LIQUIDITY GAP -15,009 -1,546 1,449 -1,344 5,588 18,594 7,732

Note 1: Foreign-currency positions are not material and so have not been included in the breakdowns of the attached Gaps.

Note 2: (*) The Bank has no non-listed positions

In addition to those previously mentioned, the means used by Market Risks to control the liquidity risk include checking to ensure compliance with the limits established by the Board and delegated to the department heads and the ALCO (Assets and Liabilities Committee). The calculation of limits is carried out by Market Risks based on the information prepared for the various regulators.

There are three broad types of limit:

1) Determining the liquidity buffer

The Bank uses both the definition of regulatory LCR (liquidity coverage ratio) and a similar ratio extended to ninety days and with a definition of liquid assets in accordance with those accepted by the European Central Bank as collateral for liquidity. Another reference for calculating the liquidity buffer is the schedule of upcoming maturities of wholesale issues over the next few months.

2) Wholesale financing concentration ratios

With the aim of avoiding Bankinter being subjected to stress as a result of a possible sudden shutdown of wholesale markets, limits are established on the amount of short-term wholesale financing that can be taken, as well as on the concentration of issue maturities.

3) Ratio of stable deposits to total lending.

With a view to limiting reliance on wholesale financing, a minimum ratio of stable deposits to loans is established. In establishing the stability of deposits, use is made both of the regulatory definition of the NSFR (Net Stable Funding Ratio)and of experience of the Spanish finance sector.

As well as the limits established by the Board, monitoring also covers the evolution in the gap or 'liquidity plan' and information and analysis on the specific situation of the balances resulting from trade operations, wholesale maturities, interbank assets and liabilities and other sources of funding. These analyses are carried out both under normal market conditions and simulating different liquidity scenarios that could come about as a result of different trading conditions or changes in market conditions.

MARKET RISK

The Board of Directors delegates proprietary trading in the financial markets to Treasury and Capital Markets, which acts through its Trading Area with a view to taking advantage of trading opportunities that arise, using the most appropriate financial instruments at any given time, including interest and exchange rate derivatives and equity derivatives. The financial instruments with which trading is undertaken must, in general, be sufficiently liquid and be associated with hedging instruments. The risk that may derive from the management of the institution's own accounts is associated with movements in interest rates, stock market prices, exchange rates, volatility and credit spreads.

The Board of Directors delegates to the ALCO the continuous monitoring of the Treasury Trading area's proprietary trading activities and establishes maximum limits for the authorisation of the possible excesses that may arise in this activity.

Market Risk, which reports to the Risks Directorate, has the independent function of measuring, tracking and controlling the Bank's market risk and the limits delegated by the Board.

Market risk is measured mostly using the "Value-at-Risk" (VaR) methodology, considered both globally and segregated for each significant risk factor. The limits in VaR terms are supplemented by other measures such as stress testing, sensitivities, stop loss and concentration.

We will now go on to describe the methodology for measuring the main market risk indicators.

Value-at-Risk (VaR)

"Value-at-Risk" (VaR) is defined as the maximum loss that is anticipated from a particular portfolio of financial instruments, under normal market conditions, for a certain confidence level and time horizon, as a consequence of movements in prices and market variables.

The VaR is the main indicator used daily by Bankinter to measure and control on an integrated and global basis exposure to market risks arising from interest rates, equities, exchange rates, volatility and credit.

The method used to measure VaR is a "Historical Simulation" based on the analysis of possible changes in the value of the position, using historical movements in the individual assets forming it. VaR is calculated with a level of confidence of 95% and a time horizon of one day, although additional monitoring is carried out with other levels of confidence.

The following are the comparative VaR data by risk factor for the Bank's positions in 2013 and 2012, both for the total and differentiated by portfolio:

Total VaR 2013
€ millions Último
Interest Rate VaR 7.16
Equities VaR 0.31
Exchange Rate VaR 0.07
Volatility Rate VaR 0.07
Credit VaR 0.00
7.28
VaR Negociación 2013
€ millions Último
Interest Rate VaR 0.39
Equities VaR 0.10
Exchange Rate VaR 0.07
Volatility Rate VaR 0.07
Credit VaR 0.00
0.38
Total VaR 2012
€ millions Último
Interest Rate VaR 18.71
Equities VaR 0.32
Exchange Rate VaR 0.07
Volatility Rate VaR 0.05
Credit VaR 0.00
18.80
VaR Negociación 2012
€ millions Último
Interest Rate VaR 0.86
Equities VaR 0.15
Exchange Rate VaR 0.07
Volatility Rate VaR 0.05
Credit VaR 0.00
0.91
VaR Disponible venta 2013
€ millions Último
Interest Rate VaR 6.84
Equities VaR 0.23
Exchange Rate VaR 0.00
Credit VaR 0.00
6.96
VaR Disponible venta 2012
€ millions Último
Interest Rate VaR 18.35
Equities VaR 0.23
Exchange Rate VaR 0.00
Credit VaR 0.00
18.33

Confidence level 95%, time horizon of 1 day

2013 saw a reduction in spreads on public debt of the so-called peripheral countries relative to Germany. This shift took place mainly in the last few months of the year, and was accompanied by a sharp upturn in the stock markets in which Bankinter habitually operates and by a fall in volatility compared with 2012.

In view of the instability seen in the past few years, Bankinter maintained its VaR limits of the previous year.

Apart from this, the VaR calculation was reinforced by extending the stress testing analysis by adding specific assumptions based on expectations of their occurring in the financial markets, as well as endeavouring to simulate the most adverse circumstances for the positions taken in trading operations.

Stress Testing

Stress testing, or the analysis of extreme scenarios, is a supplementary test to VaR. The estimates from the stress tests quantify the maximum potential loss in portfolio value under extreme scenarios of change in the risk factors to which the portfolio is exposed.

Every year, the Board of Directors approves an extreme scenario based on significant movements in interest rates, securities exchanges, exchange rates and volatility, and certain upper references regarding these variations for each type of risk. Additionally, estimates are made using other scenarios which replicate different historical crisis situations and other relevant current market situations.

In 2013, the stress scenarios for Interest Rate and Volatility were updated to adapt them to each product type and to the evolution of events observed in the market for this type of risk factors.

The following is information on the results of one of the most extreme stress scenarios in 2013 and 2012:

Stress Testing 2013
€ millions Último
Interest Rate Stress 52.86
Equities Stress 4.79
Exchange Rate Stress 0.13
Volatility Stress 3.48
Credit Stress 0.00
Total Stress 61.27
Stress Testing 2012
€ millions Último
Interest Rate Stress 74.85
Equities Stress 5.14
Exchange Rate Stress 0.43
Volatility Stress 3.33
Credit Stress 0.00
Total Stress 83.75

*The information on stress testing refers to the Trading Portfolio and the Availablefor Sale Portfolio.

At year-end 2013 the total level of interest rate stress testing had decreased relative to 2012, as a consequence of a decrease in the Available-for-Sale portfolio in public debt.

Credit Risk

Organisation and functions

The Board of Directors establishes the Risks Policy and delegates its implementation to the Risks Committee, which is chaired by the Executive Vice-Chairman. Its delegated powers include approving operations and defining the powers of the committees at the next levels below it.

The Risks, Incidents & Arrears Control and repossessed assets divisions each report directly and separately to the CEO, thus ensuring maximum attention to all the processes relating to risk management.

The Risks Division, which covers the main risks (credit risk, market risk, structural interest rate and exchange risks and operational risks) is responsible for drawing up and publishing policies for the approval, control and management of risks. Its targets include the development of automated authorisation systems and all risk approval processes, while always seeking maximum efficiency and quality.

The Credit Risk division performs its functions through the following organisational units:

  • Risk approval and policies are carried out by:
  • • the Private Individual Risks Unit,
  • • the Corporate and Developer Risks Unit
  • • the Corporate Risks Unit.
  • The Risk Processes Unit is in charge of defining and enhancing the various risk processes and IT systems.
  • The construction and maintenance of risk models and their components is carried out by the Global Risk Management Unit.

In addition to their own functions the various units take part in the process of defining new products and determining the risk parameters and the approval process.

In accordance with the Bank's strategy and policies, the hierarchy and structure of the powers delegated to each of the risk Committees are established, and the approval systems automatically check that they are complied with.

The risk approval process is supported by an electronic proposal that enables integration and unification of all of the Bank's networks and channels. The use of statistical models enables retail risk approval to be automated and assists decisionmaking on risks requiring non-automated approval.

The Incident Control department is responsible for managing and handling the processes for the control, monitoring and collection of early arrears, developing automated systems to make the processes more efficient and establishing controls on data quality and transaction formalities.

The Arrears and Repossessed Assets department is responsible for managing and handling processes for the control, monitoring and non-amicable recovery of loans, establishing processes and systems to make this activity more efficient and improve recovery rates on non-performing loans.

It is also responsible for all matters relating to the policy on, and the study, approval and monitoring of refinancing transactions. Refinancing or restructuring transactions are carried out only when they can be shown to be viable, and incorporating additional guarantees whenever possible.

Apart from this, it is also responsible for setting prices for repossessed assets, establishing sales policies and taking care of the assets until they are sold, with a view to maximising the value for the Bank, taking account of market conditions at any given time.

Forming part of the Arrears and Repossessed Assets Division is the Internal Validation Unit, which is responsible for validating the advanced risk models and their results, independently of its risk modelling functions.

Every year the Risks Division produces a Risk Map, to identify, quantify and uniformly summarise the various risks to which the Bank is exposed, as well as the situation of the management systems used to control them, with the aim of reducing potential losses as far as possible by means of mitigation measures.

Risk diversification is a fundamental management principle that has demonstrated its effectiveness in this crisis. The Bank periodically monitors risk diversification by sector, geographical location, product, security held, customers and counterparties, and has maximum permitted risk concentration policies.

Policy on refinancing and restructuring:

The Refinancing Policy follows the best practices as contained in Banco de España Circular 6/2012 of 28 September and letters from Banco de España dated 30 April 2013, and in this sense the main objective is to recover all amounts due, which implies the necessity of immediately recognising any amounts considered nonrecoverable.

Our policy for the refinancing of transactions includes:

  • Individualised, updated analysis of the economic and financial situation of the borrowers and guarantors and of their capacity to repay.
  • Situation and effectiveness of the security offered.
  • Experience with the borrower: sufficiently long track record of compliance or, failing that, equivalent record of principal repayment.
  • Half-yearly rating review.
  • No end to NPL status. The refinancing or restructuring of a transaction that is in arrears (non-performing loan) does not bring an end to such NPL status, nor will it lead to its being reclassified, unless there is reasonable certainty that the customer can repay, or new effective security is provided, and in either case at the very least the normal accrued interest must be paid.

The refinancing of a transaction involves its being classified in one of the following categories:

  • - Normal refinancing. Those for which objective evidence is held, making it highly probable that all amounts owed will be recovered. In this respect the following factors are taken into account:
  • • Grace period maximum 12 months.
  • • Existence of an appropriate repayment plan.
  • • Incorporation of guarantors of undoubted solvency, or of new effective collateral.
  • - Doubtful refinancing. This classification will apply to transactions where there is evidence of weakness in the borrower's ability to repay. In this respect the following factors are taken into account:
  • • Failure to provide new effective security, or failure to pay all interest due.
  • • The granting of grace (interest only) periods in excess of 30 months.
  • • The source of previous refinancings or restructurings

Except, in all cases, if there is evidence of the borrower's having sufficient capacity to meet his commitments in the time and form contractually provided.

- Sub-standard refinancing. All cases not covered by the two foregoing classifications.

Reclassifications

Reclassification between the categories of Refinancing or as a normal risk requires an exhaustive review of the asset and cash situation to conclude that the borrower is very unlikely to have financial difficulties. In this regard, the following factors are assessed:

  • Capacity to repay the debt of all transactions
  • Payment of instalments from the refinancing on:
  • • Residential mortgage with monthly instalments: minimum 6 months
  • • Rest: minimum 12 months
  • • Payment of 10% of the amount refinanced.
    • Residential mortgage:
  • • Effort (less than 50%)
  • • Grace period (less than 30 months)
  • • Number of refinancing.
  • • Financing of instalments.
  • • Positive experience subsequent to refinancing.
    • Companies:
  • • Grace period (less than 30 months)
  • • Incorporation of sufficient effective security.
  • • Payment of interest.
  • • Number of refinancing.
  • • Financing of instalments.
  • • Positive experience subsequent to refinancing.

In accordance with the Circular referred to, we differentiate among:

  • Refinancing transaction
  • Refinanced transaction
  • Restructured transaction
  • Renewal transaction
  • Renegotiated transaction
  • Refinancing transaction: transaction which, irrespective of the borrower or security held, is granted or used for economic or legal reasons relating to financial difficulties —current or foreseeable— of the borrower(s) in order to cancel one or more transactions granted by the Bank or by other Group entities to the borrower(s) or to one or more other companies of the borrower's economic group, or whereby such transactions are brought totally or partially up to date with payments, in order to help the borrower(s) under the cancelled or refinanced transactions to pay their debts (principal and interest) because they cannot, or it is thought that they will not be able to comply in time and form with its conditions.
  • Refinanced transaction: transaction that is brought totally or partially up to date with payments as consequence of a refinancing transaction carried out by the Bank or another entity in its Group.

  • Restructured transaction: transaction in which, for economic or legal reasons relating to current or foreseeable financial difficulties of the borrower(s), the financial conditions are amended in order to help the borrower(s) under the cancelled or refinanced transactions to pay their debts (principal and interest) because they cannot, or it is thought that they will not be able to comply in time and form with its conditions, even if such amendment is envisaged in the contract. In any case, the following transactions shall be considered to have been restructured: transactions involving a 'haircut' or debt forgiveness or where assets are accepted in part-payment of the debt, or where the conditions are amended to extend the maturity, changing the repayment schedule to reduce the amount of the instalments in the short term or reduce their frequency, or establish or extend a grace period for principal, interest or both, except when it can be shown that the conditions are being amended for reasons other than the borrower's financial difficulties and are analogous to those applied in the market at the date of the amendment to transactions granted to customers with a similar risk profile.

  • Renewal transaction: transaction entered into to replace another previously granted by the Bank, without the borrower having or being seen as likely to have financial difficulties in the future; i.e. when the conditions are amended for reasons other than refinancing.

  • Renegotiated transaction: transaction where the financial conditions are amended without the borrower having or being seen as likely to have financial difficulties in the future; i.e. when the conditions are amended for reasons other than restructuring.

In any case, for a transaction to be classified as a renewal or as renegotiated, the borrower must have the capability to obtain, in the market, as at the date of the renewal or renegotiation, transactions for a similar amount and on analogous financial conditions to those applied by the Bank, and these is turn must be in line with those granted at that date to other customers with a similar risk profile.

The Group currently has 6,248 live refinanced transactions totalling €1.34 billion. This figure includes both regular status loans and substandard and delinquent balances. This figure represents 3.79% of total Credit Risk. Of the total amount refinanced, €301 million relates to risk on property developers.

For private individuals, the Group has refinanced 2,430 loans for a total of €383 million.

Maximum exposure to credit risk

The following table shows the maximum level of exposure to credit risk undertaken by the Bank as at 31 December 2013 and 2012 for each class of financial instrument, without deducting from same tangible securities or other credit enhancements received to ensure borrowers' compliance.

As at 31 December 2013

€000s
Asset balances
Financial assets designated at fair
value through profit or loss
Types of instrument Held for trading Other assets Financial assets
available for sale		 Loans and
receivables		 Held-to-maturity
investments		 Hedging
derivatives		 Memorandum
accounts		 Total
Deposits with credit
institutions
Negotiable securities 920,112 - - 1,095,060 - - - 2,015,172
Loans and advances to
customers		 1,803,333 18,158 6,668,719 135,322 3,220,721 - - 11,846,253
Total debt instruments 979,439 - - 41,580,673 - - - 42,560,112
Contingent risks - 3,702,884 18,158 6,668,719 42,811,055 3,220,721 56,421,537
Financial guarantees
Other contingent risks - - - - - - 5,856,139 5,856,139
Total contingent risks - - - - - - 1,740,016 1,740,016
Other exposure - 7,596,155 7,596,155
Derivatives
Contingent commitments 643,689 - - - - - - 643,689
Other exposure - - - - - - 12,466,007 12,466,007
Total other exposure - - - - - 84,481 - 84,481
MAXIMUM LEVEL OF
EXPOSURE TO CREDIT
RISK		 643,689 84,481 12,466,007 13,194,177
NIVEL MÁXIMO DE
EXPOSICIÓN AL RIESGO
DE CRÉDITO		 4,346,573 18,158 6,668,719 42,811,055 3,220,721 84,481 20,062,162 77,211,869

As at 31 December 2012

€000s
Asset balances
Financial assets designated at fair value
through profit or loss
Types of instrument Held for trading Other assets Financial assets
available for sale		 Loans and
receivables		 Held-to-maturity
investments		 Hedging
derivatives		 Memorandum
accounts		 Total
Debt instruments
Deposits with credit
institutions		 - - - 1,119,745 - - - 1,119,745
Negotiable securities 1,452,753 39,860 9,477,068 82,871 2,755,355 - - 13,807,907
Loans and advances to
customers		 - - - 43,772,699 - - - 43,772,699
Total debt instruments 1,452,753 39,860 9,477,068 44,975,315 2,755,355 58,700,351
Contingent risks -
Financial guarantees - - - - - - 4,729,644 4,729,644
Other contingent risks - - - - - - 1,850,941 1,850,941
Total contingent risks 6,580,585 6,580,585
Other exposure -
Derivatives 656,511 - - - - - - 656,511
Contingent commitments - - - - - - 10,188,675 10,188,675
Other exposure - - - - - 152,201 - 152,201
Total other exposure 656,511 152,201 10,188,675 10,997,387
MAXIMUM LEVEL OF
EXPOSURE TO CREDIT
RISK		 2,109,264 39,860 9,477,068 44,975,315 2,755,355 152,201 16,769,260 76,278,323

Trends in customer risk

The adverse effects of the economic and financial crisis that started in 2007 continued to be felt through 2013, although over the course of the second half signs of economic stabilisation and indications of a timid recovery appeared.

Thus, once we had come through the financial turmoil of 2012 that tormented the euro zone, and Spain in particular, 2013 was characterised by a gradual return of confidence and of international capital inflows to Spain, thanks to the very significant progress made in restructuring the financial sector and the labour market and the substantial improvement in the Spanish economy's external financial position, with the balance of payments performing very well indeed. This performance was due to a very good year for tourism, and to the excellent way in which our export sector has adapted; it was also due to the weakness of domestic demand, as businesses and families continued the long and unavoidable process of adjustment and debt reduction (deleveraging).

Yet again in 2013 there was a sharp reduction in credit to the resident private sector, which was down by 12.9% at the end of the third quarter according to Banco de España data which show falls of 19.5% in lending to manufacturers and 5.7% in lending to private individuals. This fall in lending, which slowed considerably in the second half of the year, was caused by several factors:

On the supply side, the crisis that continues to impact banks' earnings, the restructuring, the 'clean-up' and new capital requirements have inevitably reduced banks' lending capacity.

On the demand side, businesses and families have continued their efforts to deleverage so as to adapt to the new economic situation; furthermore, the years of crisis we have come through are also leading to a reduction in solvency on the part of would-be borrowers, while demand from solvent borrowers has remained very low, with so many investment projects suspended in the light of economic uncertainty.

All these factors combined to reduce the supply of and solvent demand for credit. Bankinter, while maintaining its high standards of credit quality, is committed to the recovery of credit for families and businesses. In this context, the solvency and quality of its balance sheet have allowed it to continue to perform much better than the sector as a whole. It is remarkable that Bankinter's lending to companies increased by 4.6% in a context in which, as already commented upon, lending to manufacturers by the sector as a whole fell by 19.5%.

Non-performing loans and problem assets continued to deteriorate in 2013 as a result of the prolonged crisis. Additionally, the recognition and clean-up of refinanced loans was tackled in accordance with criteria laid down by the regulator. All this is commented on in detail in the section 'Control, recoveries and real estate assets'. In spite of the deterioration, in 2013 the difference in credit quality between Bankinter's portfolio and that of the sector as a whole increased once again.

The asset portfolio is of high quality, due to the prudent credit approval policy and the minimal exposure to the property sector.

€000s
QUALITY OF ASSETS 31-12-2013 31-12-2012 Amount %
Computable risk 51,380,285 50,845,023 535,262 1.05
Doubtful debt (including
contingent liabilities)		 2,235,699 1,947,443 288,256 14.80
Provisions for credit risk 1,196,799 1,119,903 76,896 6.87
NPL ratio (%) 4.35 3.83 0.52 13.61
Non-performing loans
coverage ratio (%)		 53.53 57.51 -3.97 -6.91
Repossessed assets 49,802 46,119 3,683 7.99
Provision for impairment of
repossessed assets		 14,644 12,903 1,741 13.49
Coverage of repossessed
assets (%)		 29.40 27.98 1.43 5.10

Thanks to the Bank's level of solvency and the quality of its assets, computable credit risk of Bankinter, S.A. (which includes lending and contingent liabilities) increased by 1.05% during the year, as against the decrease in the sector as a whole, as explained above. These levels of asset quality and solvency will allow Bankinter to contribute to the reactivation of credit with an advantage over its competitors.

The Bank has a solid risk culture, a team of highly qualified people and the support of advanced information systems that constitute basic pillars of the Bank's management.

In terms of arrears, we ended the year with a ratio of 4.35% compared with 3.83% the year before. This figure is less than half that of the sector as a whole, which was 13.08% at the end of November 2013 according to data from Banco de España.

The volume of problematic and repossessed assets continues to be well below those of the Bank's main competitors in comparative terms.

The prudent credit approval policy applied both in times of economic growth and in times of contraction such as the present, and the proportion of risk secured by mortgages have allowed us to keep losses on the lending portfolio down throughout the crisis. The LTV (loan to value) ratio, which measures the ratio of the amount of the loan to the value of the house, has always been moderate (59% at year-end) and continues to provide an important safety margin in case of falling real estate prices. Also notable is the fact that 82% of the mortgage lending portfolio is secured by mortgages on residential properties, and this has been a great source of strength for the portfolio during the long recession.

Another example of the Bank's judicious risk policy was the decision to keep exposure to risk on property developers to a minimum. The highly restrictive policy followed in approving risk on property developers, with hardly any financing of land, continues to give the Bank a competitive advantage.

Private individuals

The portfolio of individual lending maintains its high credit quality. The policy for approving residential mortgage loans, the product with the biggest exposure, has always followed very conservative principles, with the maximum LTV having been set in 2003 at 80% in anticipation of a change of cycle, and this has proved decisive for the quality of the portfolio and its favourable difference from that of the sector as a whole.

The average effort (measured as the proportion of income that the customer allocates to paying mortgage loan instalments) in the mortgage portfolio remained at a very low level:

Source for sector data: AHE (Spanish Mortgage Association)

Corporate Banking

Since the onset of the crisis, Bankinter has seen lending to this segment as strategic: it has many years of experience in the segment, which compared with other segments is more internationalised and less exposed to the Spanish economic cycle, with a lower non-performing loan ratio. In 2013 it was once again the lending segment with the best performance.

The principles of lending have not changed, and increased lending continues to conform to them. These principles include notably:

  • Monitoring of current risks.
  • Systematic use of rating models based on statistical rating, together with subjective assessment by the Risks Committee.
  • Conservative customer portfolio management.

  • Optimisation of the risk-return trade-off.

  • Long-term investment, with the aim of a long-term relationship with the customer.

  • Diversification of sectors and terms.

Small and medium-sized enterprises

The Bank makes use of automated decision-making models in managing this segment, together with teams of highly experienced risk analysts. The performance of this portfolio in 2013 was affected by the flatness of demand for and supply of credit commented on above.

Control, Monitoring, and Recoveries

In the first quarter of 2013 we separated the Credit Risk Control (prevention) and Incidents (early arrears) functions from Recoveries (NPLs) and Real Estate Assets, creating two independent units, each reporting directly to the CEO.

The Incidents Control unit is responsible for managing and handling the processes of control, monitoring and collection of early arrears by means of:

  • Preventive control from risk approval, detecting and interpreting warning signs by means of technological support.
  • Collection of unpaids from the moment they arise and up to 90 days, minimising their transition to NPL.
  • Review of correct formalisation of credit transactions and the correctness of the data input into the Bank's credit approval systems.
  • Efficient handling of early arrears.

NPLs and Repossessed Assets

The NPLs and Repossessed department manages and handles the processes of control, monitoring and non-amicable recovery of loans in accordance with Banco de España rules. Additionally, it is responsible for setting prices and sales policies for repossessed assets, taking care of them and selling them, with a view to maximising the value for the Bank. It is also responsible for all matters relating to the policy on, and the study, approval and monitoring of refinancing transactions.

To do so, it performs its functions through the following organisational units:

  • Recoveries unit: manages and handles the processes of refinancing and non-amicable debt recovery, promoting systems and processes to improve the effectiveness of recovery.
  • NPL Analysis unit: analyses and reports on information relating to bad and doubtful debts for management and regulatory purposes.
  • Real Estate Assets Unit: Performs all functions relating to the handling of these assets.
  • Internal Validation unit: carries out internal validation of risk models.

Trend in NPLs

In 2013 the team's wide experience and the excellent functioning of the processes and tools enabled us to optimise the level of recoveries.

Bankinter has had automatic systems in place for years for controlling and monitoring credit risk on a permanent basis.

The increase in non-performing loans was less in 2013 than in the previous year, thanks to intensive work in the area and an improvement in the processes, as a result of which the recovery rate increased, averaging over 80% monthly.

Our limited exposure to property developers, which have been most penalised by the crisis, has enabled us to widen our lead over the sector as a whole and over our closest rivals in terms of the arrears ratio.

The recovery process involves:

  • Support from technology (CRM).
  • Traceability.
  • Integration of all information from all parties involved, external and internal.
  • Behavioural models.

The Bank has various applications for monitoring loans and advances.

  • Statistical customer alert.
  • Risk rating: "special watch" and "risk to be eliminated".
  • Centre alert
  • Back-testing

The portfolio of credit risk refinancing and restructuring transactions at the end of 2013 stood at €1.73 billion, with any amendment to credit risk conditions being considered as refinancing. The majority of refinancing operations have additional guarantees.

Movements in NPLs during the year resulted in a net increase of €288 million, and the balance of doubtful debts went from €1,948 million at year-end 2012 to €2.24 billion at the end of 2013.

Provisions

Solvency levels and asset coverage allow the Bank to face the current situation in good condition. At the end of the year the provision coverage rate for NPLs stood at 54%, compared with 58% at year-end 2012.

The doubtful mortgage portfolio with mortgage guarantees presents an LTV ratio of 47%, the same as the year before, and given this fact, plus the excellent default ratio with mortgage guarantees, losses on the mortgage portfolio are insignificant.

Reputational Risk

Reputational Risk is the risk of interactions with customers leading to negative publicity regarding business practices and relations, which may cause a loss of trust in the institution's moral integrity.

The responsibility is to detect, analyse and evaluate the potential impact (severity) of all practices and factors inherent in the activity carried out and which may induce reputational risk, as well as the task of establishing processes for monitoring and controlling such mitigating practices and measures or, if applicable and possible, eliminating the risk inherent in them.

The Operational, Reputational and New Products Risk Committee meets on a regular basis, with the following functions as regards reputational risks:

  • To promote the implementation of reputational risk policies.
  • To monitor actions taken to mitigate the most significant risks.
  • To decide on the proposals put to the Committee on possible reputational risk events.

Validating compliance with procedures and protocols for identifying and assessing reputational risks. This function is particularly relevant where launches of new products or business lines are concerned.

4. Use of financial instruments to hedge risks.

As at 31 December 2013, the Group held hedge derivatives in the amount of €84.48 million recorded on the asset side of the balance sheet and €25.61 million recorded on the liabilities side (€152.20 million and €43.10 respectively as at 31 December 2012). Net derivatives amounted to €58.87 million and €109.10 million as at 31 December 2013 and 2012 respectively.

The breakdown of the hedging derivatives and the corresponding hedged elements, differentiating according to the type of hedging, is as follows:

€000s
Nominal
Hedged		 Nature of Fair value changes of the
hedged item attributable
to the hedged risk		 Fair value of the hedging
instrument (ex-coupon)
Hedged Instrument Type of Hedging Hedging Instrument (€
million)		 Hedged Risk 31-12-13 31-12-12 31-12-13 31-12-12
Individual hedges or Micro-hedges:
Financial assets
Public Debt Individual hedges or
Micro-hedges:		 Interest-rate swaps 150 Interest Rate 21,998 29,611 (21,865) (29,345)
Loans Individual hedges or
Micro-hedges:		 Interest-rate swaps 17 Interest Rate (74) - 70 -
Financial liabilities
Subordinated financial liabilities Individual hedges or
Micro-hedges:		 Interest-rate swaps 290 Interest Rate (44,317) (59,848) 45,677 61,572
Senior Debt Individual Hedges or
Micro-hedges:		 Interest-rate swaps 79 Interest Rate - (131) - 64
Customer Deposits Individual hedges or
Micro-hedges:		 Interest-rate swaps 5 Interest Rate (1,412) (1,871) 1,412 1,872
Mortgage Bond Issues Individual hedges or
Micro-hedges:		 Interest-rate swaps 3,090 Interest Rate (20,244) (47,853) 20,393 48,124
Macro-hedging-
Mortgage Loans Macro-hedging Interest-rate swaps 1,875 Interest Rate - 3,018 - (2,990)
(44,049) (77,074) 45,687 79,297

The following is a comparison of cum-interest and ex-interest hedging instruments as at 31 December 2013 and 2012:

€000s
31-12-13 31-12-12
With
interest		 Ex-interest With
interest		 Ex-interest
Public Debt (24,765) (21,865) (32,011) (29,345)
Loans 63 96 - -
Subordinated Debt 47,898 45,677 63,661 61,572
Customer Deposits (514) 1,412 1,462 64
Senior debt - - 562 1,872
Backed issue - - - -
FAAF bonds - - - -
Mortgage Bond Issue 36,191 20,393 86,523 48,124
Macro-hedging - Mortgage loans - - (11,095) (2,990)
Other
58,873 45,713 109,102 79,297

The Bank uses interest-rate swaps as hedging instruments. These swaps give rise to an economic interest rate exchange with no principal being exchanged.

The following is a description of the main characteristics of the bank's hedges as at 31 December 2013.

1.- Public Debt Hedging classified in the portfolio of available-for-sale assets

In this type of hedging, the hedged elements are Spanish State Public Debt securities at 5.50% for a total nominal value at closure of €150 million recognised under the heading "Available-for-sale financial assets" in the assets included in Note 8. The risk hedged is the change in the fair value of these securities as a result of changes in the risk-free interest rate. The accounting hedge is used to exchange exposure to fixed interest for exposure to variable interest. In each case, the amount hedged represents 100% of the issue.

In this case the items hedged are subordinated bonds issued by Bankinter at fixed interest rates of 6.00% and 6.375% for a total amount of €290 million, shown under the heading 'Financial liabilities at amortised cost' included in Note 18. The risk hedged is the change in the fair value of these securities as a result of changes in the risk-free interest rate. This accounting hedge is used to transform exposure to a fixed interest rate into exposure to a variable interest rate. In each case, the amount hedged represents 100% of the issue.

3.- Hedging of Customer Deposits

The elements hedged are various fixed-rate deposits taken from customers in the amount of €4 million and shown under the heading "Financial liabilities at amortised cost" included in Note 18. The risk hedged is the change in the fair value of these deposits as a result of changes in the risk-free interest rate. This accounting hedge is used to transform exposure to a fixed interest rate into exposure to a variable interest rate. The amount hedged is 100% of the issue.

4.- Hedging of mortgage-backed bond issues

The instruments hedged are issues ES0413679178 (€1 billion), ES0413679202 (€500 million), ES0413679269 (€1 billion) and ES0413679277 (€590 million) of mortgage bonds for a total nominal value of €3.09 billion.

The risk hedged is the six-month interest rate risk at the start of each interest period to which the above fixed-income instrument is exposed as a consequence of changes in the risk-free interest rate, excluding changes due to possible credit risk premiums, market liquidity or any other than the aforementioned interest-rate risk.

5.-Hedging of loan

The object of the hedge is a loan in dollars with pre-established quarterly repayments, for a nominal amount of €17 million.

The risk hedged is the change in the fair value of this loan as a result of changes in the risk-free interest rate. This accounting hedge is used to transform exposure to a fixed interest rate into exposure to a variable interest rate. The amount hedged is 100% for the deposit.

2.- Hedging of issues of subordinated bonds

Effectiveness of the hedging:

The micro-hedges described earlier are highly effective. The Bank performs and documents the necessary analyses to verify that at the start and during the lifetime of same, it is possible to expect, on a prospective basis, that the changes in the fair value of the hedged item that are attributable to the hedged risk will be almost fully compensated for by the changes in the fair value of the hedging instrument and, on a retrospective basis, that the results of the hedging will have fluctuated within a range of variation of between eighty and one hundred and twenty-five per cent from the result of the hedged item.

As regards portfolio hedges, as well as the foregoing, the Bank verifies compliance with the alternative, described in current applicable accounting regulations, of appraising their effectiveness by comparing the amount of the net asset position in each of the time periods with the hedged amount designated for each one. According to this alternative, the hedge would be ineffective only if upon review the amount of the net asset position were lower than the hedged amount.

5. New products

2013 involved a change of scene as regards products in the Spanish financial sector. The clouds have gradually been clearing, and two trends became increasingly marked over the course of the year:

  • The gradual reduction in remuneration of deposits.
  • Customers becoming interested in savings products the basic aims of which include higher returns than those available on deposits.

The Bank maintained its position as an institution of reference in the search for solvency for conservative savers, and it also worked on creating new products suited to customers' preferences. In this regard we should highlight the new business in Structured Deposits, with a contracted volume of €325.20 million in 16 products, 13 of which guarantee total recovery of the investment.

As regards current accounts, we continued with the Payroll Account campaign. There was a sharp increase in the number of new accounts opened, reflecting the fact that its terms are possibly the best in the market.

During 2013 a new way of saving made its mark - saving against targets or objectives set by customers themselves. We refer to the Coinc savings portal, an innovative idea that now has €573 million in customer balances.

The Group has made all its analytical power available to customers, with new product lines allowing customers to delegate part of the management of their assets to Bankinter. In 2013 the Bank consolidated its product called "Delegated Wealth Management" which meets this need and which has been extremely well received by customers.

The Group offers a wide range of products and services for stock market investors, including spot trading on the national market and the main international markets, as well as transactions involving derivatives, warrants and futures. Also worthy of note is the possibility of operating on credit, making the most of opportunities in both bull and bear markets, or the hiring of a broad range of ETFs, listed funds that allow investors to combine the agility of a stock market investment with the possibility of diversification offered by investment funds. Lastly, customers have access to various tools to help them manage risk. For example they can select the type of order to be sent to the stock market: stop, dynamic, referenced and linked orders, with conditions and restrictions, etc.

As for channels for customer relations, we launched an innovative app for tablets called "Mercados" (markets) which allows customers to check prices on various markets both in Spain and abroad and obtain immediate real-time trading service.

We added a new fixed income section to our 'Broker' equities tool, with facilities for checking and operating in debt issues, both public and private, domestic and foreign.

At the close of 2012, one in every five customers had at least one securities account with Bankinter.

As regards lending, the Group continued to pursue its objective of increasing financing to customers following its habitual rigorous and diversifying approach.

The decline in the mortgage lending market was offset by the increase in business financing in all its various forms. The role of the Group in the mediation lines of the ICO (the official Spanish state credit agency) in which we appreciably increased our share. We also actively promoted the European Investment Bank lines, and made good use of the agreement in order to make the European Investment Fund's facilities for financing innovative projects available in Spain, being the only bank in Spain approved to do so.

In 2013 we saw companies looking to exports as a way out of the ups and downs of domestic business. The Group is committed to providing further support for this initiative, and to this end we will continue with the project that we launched in 2011, further developing its two main thrusts:

  • Creating a range of new foreign trade services for our customers, not limited to banking but extending to the essence of their international activity or expansion - searches for aid, grants, international tender opportunities, consortia, etc.
  • And developing our own banking products and services, adapting them to suit actual current needs, and with a clear view focused on the customer's day-to-day operations. Increasing available self-service operability through remote channels so as to bring customers closer to their handling of international business with the Group.

6. Foreseeable evolution

Looking towards the future, the Group will continue to develop its business model based on creating value through differentiation, focusing on service quality and supported by multi-channelling and on-going innovation, as well as strict monitoring of asset quality and solvency. With this model, it expects to maintain the positive trend in results and value creation.

7. Subsequent events

No events having a significant effect on these consolidated financial statements have occurred between the end of the reporting period and the date on which these statements were approved.

8. Research and development activities

At the close of financial year 2013, the bank was not engaged in any significant research and development activities.

9. Dependence on patents and licences

At the close of financial year 2013, the Bankinter Group is not affected by any relevant degree of dependency as regards the issuers of patents, licences, industrial, commercial or financial contracts or new manufacturing processes.

10. Transactions with treasury shares

These transactions are described in Note 22 of the Consolidated Report and in Note 21 of the Individual Report.

11. Corporate Governance Report

This is attached as a separate document.

More from Bankinter S.A.

Director's Dealing 2026
May 22
Director's Dealing 2026
May 22
Director's Dealing 2026
May 22
Director's Dealing 2026
May 14
Director's Dealing 2026
Apr 24
Earnings Release 2026
Apr 23
Investor Presentation 2026
Apr 23
Director's Dealing 2026
Apr 23
Director's Dealing 2026
Apr 23
Director's Dealing 2026
Apr 23
View all filings →