Bankinter Annual Accounts 2013...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

5 BankinterAnnual Accounts 2013

(€000s)

ASSETS Note 31-12-2013 31-12-2012(*) 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 2,109,264Deposits with credit institutions 920,112 - FINANCIAL LIABILITIES HELD FOR TRADING 7 1,751,721 1,797,324Loans and advances 979,439 - Deposits 193,482 -Debt securities 1,736,671 1,391,681 Derivatives 252,537 434,592Equity instruments 66,662 61,072 Short positions 1,305,702 1,362,732Derivatives 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 FAIRVALUE 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 9,580,854AVAILABLE-FOR-SALE FINANCIAL ASSETS 8 2,483,171 6,132,471 Deposits from credit institutions 4,587,188 4,008,226Debt securities 2,321,671 5,971,654 Customer deposits 29,624,282 24,631,869Equity instruments 161,500 160,817 Marketable debt securities issued 9,516,372 12,499,194Memorandum items: Loaned or advanced as collateral 799,412 1,719,346 Subordinated financial liabilities 612,438 767,852 Other financial liabilities 1,328,657 591,076LOANS 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 FINANCIAL LIABILITIES - -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 20 607,794 618,286MACRO-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 1,899NON-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 17 217,766 221,565Associates 35,932 40,279 Current tax liabilities 68,119 73,636Entities 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 51,732,117 54,934,793TANGIBLE ASSETS 14 434,931 442,288 TOTAL EQUITY 3,403,545 3,231,097Property, 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 268,675 169,142Real estate investments 13,044 8,952 Share premium 1,172,645 1,118,186Memorandum 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 equity method 4,681 4,922

Goodwill 164,281 161,836 Other equity instruments 12,608 72,633Other intangible assets 136,422 155,702 Remaining equity instruments 12,608 72,633TAX 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 215,424 124,654Deferred 132,300 148,536 Less: interim dividends (52,602) (46,125) OTHER ASSETS 18 127,668 132,625 VALUE ADJUSTMENTS 23 43,172 3,052Other 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

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.

BankinterAnnual Accounts 2013

BANKINTER GROUP

(€000s)

(Debit) CreditNote 2013 2012 (*)

INTEREST AND SIMILAR INCOME 29 1,476,230 1,707,696INTEREST EXPENSES AND SIMILAR CHARGES 29 (840,326) (1,047,441)

INCOME FROM EQUITY INSTRUMENTS 8,946 11,791SHARE OF RESULTS OF ENTITIES ACCOUNTED FOR USING THE EQUITY METHOD 22 15,545 17,677FEE AND COMMISSION INCOME 28 313,082 274,455FEE AND COMMISSION EXPENSES 28 (64,063) (70,615)GAINS OR (-) LOSSES ON FINANCIAL ASSETS AND LIABILITIES (net) 30 188,664 104,853Held for trading 18,163 30,510

8,228 (1,952)162,907 76,902

Other (634) (607)FOREIGN CURRENCY TRANSLATION (net) 31 40,090 40,277OTHER OPERATING INCOME 33 676,019 698,173Income from insurance and reinsurance policies issued 652,217 667,712Other operating income 23,802 30,461OTHER OPERATING EXPENSES 33 (438,726) (482,825)Expenses on insurance and reinsurance policies (380,758) (404,997)Other operating expenses (57,968) (77,828)

1,254,041ADMINISTRATIVE 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)

8 (9,362) (8,672)391,153 170,123

IMPAIRMENT LOSSES ON OTHER ASSETS (net) (327) (536)Goodwill and other intangible assetsOther assets (327) (536)GAINS OR (-) LOSSES ON DERECOGNITION OF NON FINANCIAL ASSETS OTHER THAN HELD FOR SALE 34 (1,848) 39,301NEGATIVE 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 154,179INCOME TAX 42 (82,142) (29,525)

215,424PROFIT OR (-) LOSS FROM DISCONTINUED OPERATIONS (net) - -

215,424Profit or (-) loss attributable to owners of the parent 215,424 124,654Profit or (-) loss attributable to non-controlling interests EARNINGS PER SHAREBasic earnings (euros) 0.28 0.24Diluted 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.


BANKINTER GROUP

(€000s)Financial year Financial year

2013 2012 (*) PROFIT FOR THE YEAR 215,424 124,654 OTHER COMPREHENSIVE INCOME 40,120 34,697

- -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 - -

- -40,120 34,69754,944

Valuation gains or (-) losses taken to equity 161,238 72,655Transferred 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) 2Translation gains or (-) losses taken to equity (11) 2Transferred 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 - -

- -Entities accounted for using the equity method 2,302Valuation gains or (-) losses taken to equity 1,667 2,302Transferred to profit or loss - -Other reclassifications - -Statement of comprehensive income - -Income tax (13,882)

255,544 159,351Attributable to owners of the parent 255,544 159,351Attributable 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.


BANKINTER GROUP

(€000s)

Non-controlling interests

Total net worth

Valuation adjust-ments Total Capital

Share premium

Accumulated reserves or (-)

losses Other equity

(-) Treasury Shares

Profit or (-) loss

to owners of the parent

(-) Interim dividends Total Equity

1,789,781 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 1,789,781 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 (285) - -

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

1,744,134 (511) 215,424 43,172 3,403,545 - 3,403,545


BANKINTER GROUP

(€000s)

Non-controlling interests

Total net worth

Valuation adjust-ments Total Capital

Share premium

Accumulated reserves or (-)

losses Other equity

(-) Treasury Shares

Profit or (-) loss

to owners of the parent

(-) Interim dividends Total Equity

737,079 1,711,705 404,812 (742) 181,227 -

Effects of changes in accounting policies - - - - - - - - - - -

Effects of corrections of errors - - - - - - - - - - -

Adjusted opening balance 737,079 1,711,705 404,812 (742) 181,227 -

Total comprehensive income for the year - - - - - 159,351 - 159,351

Other changes in equity 381,107 (332,179) (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 - - - - - - - - - -

1,789,781 3,228,045 3,052 3,231,097 - 3,231,097

(*) Shown solely for the purpose of comparisonNotes 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.


BANKINTER GROUP

(€000s) 2013 2012(*)

(132,587)Consolidated profit for the year 215,424

514,387Depreciation and Amortisation 63,088 65,865Other adjustments 408,557 448,522Net increase/decrease in operating assets 740,429Held for trading (2,237,308) 306,242Other 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 1,880,506Other operating assets 74,150 (119,089)

(3,351,199)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

515,325PaymentsTangible 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 179,712 540,101Tangible assets 1,035 1,602Intangible assets - -Investments - 35,713Non-current assets and disposal groups classified as held for sale 178,677 112,680Held-to-maturity investments - 390,106

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 38,378 152,092Subordinated liabilities - -Issue of own equity instruments - -Disposal of own equity instruments 38,378 77,099Other inflows linked to financing activities - 74,993

- -321,093

1,020,3191,341,412 1,020,319

1,341,412 1,020,319

Cash 118,909 120,843Balances equivalent to cash with central banks 767,209 544,531Other financial assets 455,294 354,945Total cash and cash equivalents at end of period 1,341,412 1,020,319

(*) Shown solely for the purpose of comparisonNotes 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

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.


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.

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

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


- 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 non-financial 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 inter-company 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.


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.

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.


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.

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-IFRS and 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 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).

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 2,991,426Other equity instruments 12,608 72,633Preference shares 60,844 60,844Treasury 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 - 94,308Subordinated financing 443,524 568,686Other deductions (164,467) (96,551)Tier 2 279,057 566,443Total Equity 3,219,398 3,304,422Risk-weighted assets 22,777,831 25,580,597Tier 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.


Amounts paid and pending payment as at year end

2013 2012Amount % Amount %

Paid within the maximum legal timeframe 692,140 100% 798,937 100%Other - - - -Total payments for the year 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:

€000s31-12-13 31-12-12

Appropriation: Voluntary reserves 156,661 86,708Statutory reserve 23,391 - Interim dividends 53,856 61,500Profit appropriated 233,908 148,208Profit 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:

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

delayed payments to suppliers in commercial transactions:


€000s

Result Dividend ReservesApplica-

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

€000s

Result Dividend ReservesApplica-

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:


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.

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 six-month EURIBOR for terms of between three months and one year, or more than 100 basis points higher than average one-year EURIBOR for 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


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.

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.


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 (-) losses on 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.

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 long-term 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.


- 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.

- 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.


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

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 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.

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


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.

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.


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.

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.


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

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.


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

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.

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.


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:

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.

Documents

Bankinter Annual Accounts 2013...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