Contents
Key Facts 3
Letter from the Chairman 4
Letter from the Chief Executive Officer 8 The Santander Central Hispano Group 12
14 Our Group
28 Our Customers
31 Our Employees
Report on Corporate Governance 34
37 Report on the Board of Directors and its Committees
50 General Shareholders’ Meetings
62 The Share
67 Senior Management 67 Group Website Corporate Social Responsibility 68
72 Universities
73 Other Social Programmes
74 The Environment and Sustainable Development
75 Foundations
76 Social Responsibility Indicators
Financial Report 78
79 Group Consolidated Financial Report 98 Report by Business Areas
Financial and Risk Management 127
128 Financial Management 130 Risk Management
Legal Information 149
150 Auditor’s Report
152 Annual Consolidated Accounts 211 Management Report
216 Balance Sheet and Income Statement of Banco Santander Central Hispano, S.A.
Appendices 222
223 Compliance
224 Prevention of Money-Laundering
226 Chronology
228 Historical Data
2
“
at the end-year price.
”
“
We define ourselves as a «multi-local» group, meaning that we specialize in domestically focused commercial
banking and at the same time are well diversified geographically. We combine a common business model
with local management.
”
“
The Santander Group has no need for new acquisitions or investments to secure its future.
We have many options for value creation through efficient management of organic growth, far in excess of our
main international competitors
Net attributable income
2,258.1
2,486.3
2,247.2
Euro million 2000 2001 2002
Dividend per share
0.2735
0.2885
0.2885
Euros 2000 2001 2002
Equity
21,621
24,597*
23,417
Euro million 2000 2001 2002
2002
2001 VariationNet operating income (Euro million)
5,565.8
5,944.5 -6.37%Net attributable income (Euro million)
2,247.2
2,486.3 -9.62%Efficiency ratio (%)
52.28
53.98 -1.70 p.Net attributable per share (euros)
0.4753
0.5447 -12.74%Dividend per share (euros)
0.2885
0.2885 —Average yield (%)
3.64
2.81 0.83 p.BIS ratio (%)
12.64
12.04* 0.60 p.(*) Discounting the amortization of preferred stock effective in 2002.
Key Group Figures
Dear Shareholder,
The Santander Central Hispano Group achieved a net attributable income of EUR 2,247.2 million in 2002, a decline of 9.6% from the previous year, but our dividend was nonetheless maintained at EUR 0.2885 per share, equivalent to a yield of 4.4% based on the year-end price.
It is important to remember that these results were obtained in a difficult year for the sector, with international banks in general having seen both profits and share prices fall considerably.
We continue to set long-term creation of value for shareholders, who exceeded one million last year, as the Santander Group’s main priority. Accumulated total return for the Bank’s share has been 360% in the past 10 years, while dividend per share has risen at an average annual rate of 10.3%. We closed the year with a market capitalization of EUR 31,185.4 million, ranking second in the Euro zone and 16th worldwide.
Business model and management strategy
We define ourselves as a «multi-local» group, meaning that we specialize in domestically-focused commercial banking and at the same time are well diversified geographically. Santander is a group that combines a common business model with locally focused management, giving us a deep understanding of the markets where we operate. Despite the considerable size of the Group, our risk is local rather than global in nature. For this reason, and because of our experience in these markets, the risk is more diversified and easier to manage.
This «multi-local» approach is reinforced by a management style with two key characteristics: efficiency, based on revenue generation and cost control, and balance sheet strength, founded on strict risk management and our solid capital base. The fruits of this policy are strong performance in recurring business, which is our platform for future development. This is underlined by the fact that 86% of our net operating income comes from commerciall banking.
This is complemented by Treasury, International Private Banking, Wholesale Banking and Asset Management, all of which feature integrated and global management, enabling us to cover a full range of customer requirements across the countries where we operate.
Based on these principles, the Group has developed a strategy focused on the Iberian Peninsula and Latin America, complemented by its alliance with The Royal Bank of Scotland and our Consumer Banking activities in Europe. Also of major strategic importance was the recent agreement with Bank of America to develop the Mexican American business. Among other developments during the year were the business integration of Banco Santander Mexicano and Banca Serfin, the merger of Banco Santander Chile and Banco Santiago, the integration of AKB in CC-Bank and the public share offer of 11.64% of Banesto.
Looking at the Group’s capital base, the impact of Latin American currency depreciation was neutralized by strong generation of recurring income and the sale of industrial stakes (Dragados and Vallehermoso), as well as that of 3% of Royal Bank of Scotland. In all, we have made provisions and writedowns totalling EUR 4.3 billion, repeated the previous year’s dividend and maintained our improved our capital ratios, all without seeking new funds from our shareholders. As a result, the Group started 2003 with a solid capital base, placing it among the best capitalized banks in the Euro zone.
Commercial Banking
During the year we focused activity on countries with the highest profit and growth potential: Spain, Portugal, Brazil, Mexico and Chile. These countries comprise a sizeable market, with a population of 330 million, 30 million of whom are Santander customers.
In these countries Santander has a clear competitive advantage thanks to market shares in excess of 10%, to its broad experience in commercial banking and credit risk management, and to the wide range of additional services available in Investment and Global Corporate Banking.
During the year, we have strengthened our capability in these countries, improving cost-income and bad loan ratios, with a highly favourable impact on all other ratios. We are thus exceptionally well placed in a substantial target market, offering us an excellent platform for future profit growth.
The Santander Group has no need for new acquisitions or investments to secure its future. We have many options for value creation through efficient management of organic growth, far in excess of those of our main international competitors. In other countries where the Group operates, where the conditions necessary to develop a universal commercial banking model are lacking, we have adjusted our presence on a more selective basis.
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Brazil
The uncertainty linked to the country’s elections required sharp reflexes on the part of the Group. We have always been clear, nonetheless, that Brazil is and will continue to be a strategic priority for our Group. The strength and vitality of the Brazilian banking system is a guarantee of future stability for the country as a whole. It is a modern banking system with strong and well capitalized institutions.
I am happy to say that the Santander Group is meeting on schedule all the objectives set at the time of the Banespa acquisition, as borne out by the excellent results achieved last year.
Royal Bank of Scotland and Bank of America
Our strategic alliance with Royal Bank of Scotland has an important impact on all our activities. Over the years, the reciprocal financial support and exchange of ideas and experiences have comprised an invaluable joint contribution, and we expect a lot more from this in the future.
Shortly before the end of the year, we signed an important cooperation agreement with Bank of America, aimed at the Mexican American market. Under this agreement, Bank of America will acquire 24.9% of Santander Serfin, thereby giving a springboard for joint activities and services offered to the Mexican and North American markets. It is a great opportunity, both for Bank of America and also for Santander Group, renewing a relationship that began 37 years ago with the creation of Bankinter. This agreement clearly demonstrates the value of our investment in Latin America, providing significant added value through new business opportunities.
Our long-standing alliance with Royal Bank of Scotland, the world’s 5th largest bank by market capitalization, and the new opportunities made possible through the agreement with Bank of America, the world number 3, are complementary relationships giving us a privileged position in Europe and in the international financial system in general.
Corporate values
All strategic initiatives must be founded on solid corporate values. At Santander, over its 145 years, these values have been professional ethics, business drive and customer service, prudent risk management, adaptability to changing market circumstances and a notable ability to anticipate new developments. These values have gone side by side with driving ambition in profit generation.
These same values are those that explain the pride of belonging to Santander, a hallmark of all our professionals.
The Board is determined to preserve and strengthen these values, ones that have enabled the Group to occupy its position of leadership today.
Corporate Governance
We have also made significant progress during 2002 in two aspects that I believe to be fundamental: good corporate governance and corporate social responsibility.
The new By-Laws of the Board of Directors were presented to the General Shareholders Meeting on June 24, 2002. They incorporate the most advanced practices in corporate governance with the aim of widening shareholder rights, avoiding conflicts of interest and improving transparency. In line with these actions, the Board will propose to the next General Shareholders Meeting the elimination of the anti-takeover clauses currently contained in the corporate by-laws.
7
Meanwhile, the Board of Directors, the Executive Committee, the Board Committees and the International Advisory Board are carrying out their duties with increasingly effective participation of their members. These steps form part of a permanent process of improving our Corporate Governance.
Joining the Board in 2002 were Mr Juan Abelló, Mr. Guillermo de la Dehesa and Mr. Abel Matutes. It is very important that a Board reflects an appropriate balance between external directors, of recognized prestige and professional achievement, and executive directors involved in the day-to-day business. Our Board reflects this balance, with committed directors who have a clear vision of what this Group is and what it aspires to be.
Corporate Social Responsibility
In line with our objective of creating consistent and lasting value for all stakeholders (shareholders, employees, customers and society in general), Santander Central Hispano has defined and announced its Corporate Social Responsibility Model, which I believe to be an international standard-bearer. The Universities Programme and the Universia portal are the tangible fruits of this commitment to cultural and educational priorities, and make Santander the financial institution that has the largest and most active presence in the Latin American academic world.
We already have 249 specific agreements with the same number of universities within the Universities Programme. The Universia portal brings together 635 Spanish, Portuguese and Latin American universities with 7 million students. Over the past four years, we have spent EUR 151 million on social and cultural activities in Spain, Portugal and Latin America. Investment in 2002 made up 2.7% of net attributable income, a sizeable sum that is creating social recognition and prestige for our Group and which is subject to the same requirements of transparency as with the rest of our activity.
Summing up, 2002 has put our management to the test. And the results prove that we are up to the task of managing in a difficult environment. Our organization is more efficient today than a year ago and can count on a strong balance sheet structure. We are therefore in a better position to take advantage of future opportunities, based on a highly skilled workforce, understanding of the business and its risks, and the competitive advantages we enjoy in our markets.
I would like to personally thank the 104,000 employees of Santander. Their professionalism continues to provide the best possible guarantee for continuing growth. Ensuring their motivation and commitment is a challenge and a permanent requirement for me and for the Board of Directors.
This year we must also make further progress towards improving customer service, quickly and efficiently correcting deficiencies when detected.
Management will continue to make maximum use of the impressive assets that make Santander unique, one with an enormous potential for growth.
In this regard, I am convinced that the current price of our share in no way reflects the true value of our Group, and that recovery in the markets will bring a significant improvement in this regard.
With this in mind, I thank you again for placing your trust in us.
Emilio Botín Chairman
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Dear Shareholders:
Our net attributable profit for the year 2002 was EUR 2,247 million, a fall of 9.6% from the year before.
We are not at all happy with this result, but at the same time it still compares favourably with our domestic and international competitors.
And more importantly, we have increased our principal recurring businesses, European Commercial Banking and Latin America, and have also strengthened our financial base.
In Spain, Portugal, Mexico, Brazil and Chile we have leadership positions in commercial banking, a business we manage in a decentralised way which allows us to adapt to the needs and characteristics of each market.
This «multi-local» business model, together with our experience and proven ability to manage in volatile environments, and our continued success in cutting costs, enabled us to achieve net operating income of EUR 5,566 million, an increase (excluding Argentina) of 1.5%.
Financially Solid
These results were obtained after substantial efforts to consolidate and strengthen our balance sheet. Some EUR 4.3 billion have been provisioned for ordinary and extraordinary write-downs, for covering non-performing loans, and for scheduled and accelerated amortisation of goodwill including amounts relating to Brazil and Colombia as well as AOL and BtoB Factory. Thus, goodwill carried on the Group’s books –excluding Argentina– was EUR 9,309 million, of which EUR 5.37 billion are related to Latin America; goodwill related to Banespa stood at EUR 1.77 billion, less than half its initial amount. Today, some 75% of our goodwill is linked to businesses or countries where our return on the initial investment (ROI) is higher than the cost of capital.
We also considerably improved our capital ratios in 2001. Tier I stands at 8% and the BIS ratio at 12.6%, levels we always said we aimed to attain. Transactions carried out – the sales of industrials holdings, of 3% of the Royal Bank of Scotland and the public offering of Banesto shares – more than offset the impact of depreciation of Latin American currencies on our reserves (some EUR 2.7 billion).
Operations already announced for 2003, the quality of our credit risk and the recurring generation of capital from our business activities will allow us to continue to improve these ratios.
The strength of the Group’s balance sheet is also underpinned by the excellent quality of our credit risk, another basic principal of our management. The local, predictable nature of this risk, which we manage with the utmost prudence, is reflected in our rate of non-performing loans (1.89%, 1,68% excluding Argentina) and loan-loss coverage (140%, 152% excluding Argentina), highly positive levels in view of the uncertain economic environment.
Lastly, unrealised capital gains in the Group’s portfolio came to some EUR 2.6 billion at the end of 2002. The figure reinforces an already solid balance sheet, creating a strong platform for growth and creation of shareholder value.
Productivity and Technology
To assure our medium-term growth in a competitive environment, we must be leaders in productivity, generating more profit for each unit of cost. To achieve this, we maintain strict cost controls, which have enabled us to improve our efficiency ratio by 2.5 points to 51.8%, excluding Argentina. Of particular note in this area is Chile, where the efficiency ratio was 41.6% at the end of 2002 and Santander Central Hispano Commercial Banking in Spain, where it was 50%.
We will maintain these improvements in efficiency and productivity with the help of the best technology available. The Partenón Project, which will permit us to adopt the Banesto model in all our Spanish business, is critical to this effort, as is the installation of the Altair platform in Latin America, which will be completed with its implementation in Brazil in 2003 Our Business
In 2002, all our business areas considerably improved their profitability and efficiency, while keeping risk under control, thanks to our substantial capacity for generating recurring revenues, our high degree of financial solidity and our leadership in technology.
Our core business, commercial banking in Europe and Latin America, has performed particularly well.
10
European Commercial Banking, which contributed 49% to Group results and constitutes a stable and reliable income stream, posted attributable net profit of EUR 1,566 million, a rise of 12.5% from 2001. Of note in these results were the Santander Central Hispano network in Spain, with net attributable income of EUR 786 million, and increase of 6.3% reflecting strong activity in the launch of new initiatives, products and marketing campaigns.
Banesto, with its advanced, client-oriented business model, supported by its cutting edge technology, and our banks in Portugal, with their multi-brand strategy and focus on efficiency, have expanded their market shares and efficiency ratios. Lastly, our Consumer Finance unit consolidated its position en Germany with the integration of AKB and CC-Bank. Results from Commercial Banking Latin America also increased considerably, despite the volatility in some important markets. Our net attributable income in the region grew by 14.3%, at constant exchange rates, to EUR 1,383 million, thanks to the strong performance of our units in our key markets: Brazil, Mexico and Chile.
In Brazil, we surpassed targets set at the time we acquired Banespa, achieving net attributable income of EUR 802 million, up 20.5% from 2001. We also improved our risk profile and the efficiency of the bank. We expanded the already broad customer base, reinforcing Banespa’s position as the dominant private sector bank in the most dynamic region of the country. The Group’s result in Mexico grew by 16.4% to EUR 681 million, driven by an aggressive commercial drive and continued expansion of market share, which grew by 1% during the year and could reach 20% within three years. The merger of our two Mexican banks into Santander Serfin, completed in September, makes us the third largest bank in the country and sets the stage for improved efficiency. Our recent agreement with Bank of America will undoubtedly boost our business in Mexico even further.
In Chile, Banco Santander Chile is the largest in the country since the merger with Banco Santiago last August. Net attributable income at the bank, at EUR 229 million, was affected by extraordinary costs related to the merger, nearly all of which were absorbed in 2002 earnings. Nonetheless, the maturity and stability of the Chilean economy, the privileged position of our bank and the quality of management are guarantees for the growth of our business there.
In Venezuela, we obtained a net attributable income of EUR 166 million, underlining the Group’s well-tried ability to manage through periods of high volatility.
Before moving on from Latin America, I would like to briefly mention Argentina, where the macroeconomic outlook has improved and some steps toward normality in the financial sector have been taken, though there is still much ground to cover. Banco Río is carrying out a restructuring programme that will allow it to re-establish its economic and financial stability. Argentina’s contribution to the 2002 results has been nil, as the entire capital investment there has been provisioned. Global Businesses
The solid base created by our retail banking operations in Europe and Latin America offer many opportunities for developing our global businesses: Corporate Banking, Asset Management and Private Banking. Earnings in these areas were affected by the high volatility in financial markets in 2002.
In Asset Management, a strategic area for our Group, we manage EUR 85,653 million in mutual and pension funds, of which 75% is in Europe. Our market shares are improving in every market in which we are active, especially in Spain, where in mutual funds we have a 28% market share after growing by 2 points in 2002.
In Private Banking, we maintain our leadership in Spain through our specialised bank, Banif. Our share in this market exceeds 30%. International Private Banking primarily serves Latin American clients and continued to advance toward its medium-term goal of becoming the most important player in this market.
11
Wholesale Banking has focused its efforts on putting at our customers’ disposal the enormous range of products and services that our multi-local banking model provides, with our leading presence in five key markets.
Our Clients
Our goal in all our businesses is to give the best service to our customers, as we know that is the key to competitive advantage.
We have 35 million customers and operate in markets that have 500 million inhabitants, offering a great opportunity to increase our customer base. Nonetheless, we strive to serve each as a unique individual. This is why we work to give value to their relationship with us.
We are moving forward in our goal of being the best and biggest provider of financial services to our clients. To do this, we have accelerated in all our business areas initiatives aimed at improving the quality of service.
Our Staff
These goals and results have only been possible through the work of the 104,000 professionals who make up the Group, and the skills of their managers.
Our human capital is a guarantee of future growth. This is why we have implemented career development programmes to foster creativity and ambition among our professionals. The contribution of each person and each team will determine his remuneration and career development.
In this year, a difficult one for the Group as well as for the management team, our earnings have obliged us to reduce by 20% the pool earmarked for variable pay for our executives. This was a difficult decision but one made necessary by the decline of our attributable net profit.
Our Goal
In the last 15 years we have successfully combined organic growth with growth through acquisitions, which has made us the multi-local Group we are today. The success of this strategy has translated into annual accumulated growth of 19% in attributable net profit and of 13% in per share dividend.
We are proud to have achieved this, but also deeply dissatisfied. We are convinced that these results place us in a strong position to move decisively toward our goal. It is an ambitious goal: To be the best and most profitable financial Group, to be the benchmark for our sector, in our natural markets. We are well aware of the opportunity before us. We know where we want to go, and we know how to get there.
We embark on 2003 with this ambition and clarity of vision.
Alfredo Sáenz Second Vice-Chairman and Chief Executive Officer
with clarity and quality.
Our Business
The Group 14
Santander Central Hispano Commercial Banking 17
Banesto 19
Portugal 20
Consumer Finance in Europe 21
Latin America 22
Asset Management and Insurance 25
Private Banking 26
Global Wholesale Banking 27
Our Customers 28
T
he Santander Central Hispano Group is Spain’s largest financial group and second in the Euro zone, with a market capitalization at the end of 2002 of EUR 31,185 million. We have 104,000 employees, 65% of whom work outside Spain.We have a very clear strategy: to be an international pacesetter, specialized in commercial banking and with a strong presence in Europe and Latin America. We combine geographic diversity with a profound knowledge of the markets where we operate and which we manage locally. Our large market shares enable us to reap the maximum potential from our business model. This involvement in the markets where we are present makes us a multiple local presence/operations group.
Commercial banking activity generates 86% of the Group’s net operating income and is our main competitive advantage. This activity is complemented by global businesses: asset management, private banking, corporate banking, investment banking and treasury.
We focus on those countries with high business potential: Spain, Portugal, Brazil, Mexico and Chile.
In Europe, we are leaders in consumer banking in Spain, Portugal, Germany and Italy and we have a solid strategic alliance with Royal Bank of Scotland. All of this gives us a privileged position in the European financial system.
In other Latin American countries we have a more selective presence, both geographically – with fewer branches – as well as by businesses – corporate and institutional, private banking and asset management.
Also in Latin America, we reached a strategic alliance in 2002 with Bank of America, which will enable us to take advantage of all the business potential of the Mexican population in the US and of the more than 5,000 US companies in Mexico.
We are a Group with clear mission to grow, although we do not believe acquisitions or mergers are necessary to achieve this. We trust fully in our ability to exploit the competitive advantages of our business model and create value by maximizing the return on our current business structure.
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We are the largest Spanish bank
and second in the Euro zone, with
a marked focus on commercial
banking
We define ourselves as a multi-local
group, a model based on the
integration of locally-run banks
focused on local customers
For this strategy to be successful we need clearly defined management principles based on two requirements: efficiency and strength.
Improved efficiency supports the generation of revenues and control of costs. In order to achieve the first, we have redefined the strategy of the business areas in order to boost activity and gain market share by launching new products and through customer fidelity programs.
We not only want to be the bank with the best products but also the one that provides the best service. In this way we can ensure that we can keep our customers loyal at a time of increasing competition in all markets where we operate. To achieve this, we have the best technology among Spanish banks. This strategy has enabled us to gain market share in deposits and investment funds in Spain and 70 basis points in the Latin American countries where we focus our strategy.
We made a special effort in 2002 to generate revenues, and in cost control we continued the policy of austerity which we have been implementing for several years.
The main elements supporting the cost control policy are reducing the head count and the number of branches, exploiting the possibilities offered by technology and streamlining procedures. As a result, we reduced costs by 12.8%.
Thanks to these measures we continue to be one of the most cost efficient financial groups. We are the third most efficient entity among the largest European financial groups, with a ratio of 51.8%, 2.5 points better than in 2001, excluding Argentina. The strength of our balance sheet comes from prudent risk management and the quality of our capital base.
The Group’s position in risk matters is a privileged one, especially among entities that are international players. Our risk is more predictable and of a higher quality than that of our international competitors for two reasons.
This is because our risk management policy has traditionally been very prudent. We are very clear about not allowing growth to produce a deterioration of credit quality. Because of this, we have been able over the last three years to combine business activity with a stable non-performing loans (NPL) ratio of around 2%, and despite the slowdown in the international economy.
15
2002 results underline strong
performance in recurring businesses
Our net attributable income was
EUR 2,247 million in 2002
Also, our structure is very different from that of other multinational groups,enabling us to benefit from its advantages, but to avoid the disadvantages. We are the product of the integration of local banks, with local customer bases. We are a multi-local group, which makes our exposure to global risks minimal. The result is that although 2002 saw some of the largest corporate collapses, our NPL ratio remained at 1.89% and our NPL coverage stood at 140%.
Our excellent results in risk control is in large part due to diversification based on two complementary strategies: expansion into new markets and new businesses. The effect of this strategy has been to increase the degree of stability and recurrence of our earnings.
As regards our capital base, we ended 2002 with ratios that were above our targets after a series of operations that countered the effect of the depreciation of Latin American currencies.
These measures lifted the BIS ratio at the end of 2002 to 12.64% which, together with our capacity to generate capital via earnings and the prudent policy for provisions, create a solid balance sheet structure.
Lastly, our business model incorporates transparency with all its consequences. We owe this to our shareholders, customers, employees and society as a whole. It is something which, in the long term, creates value on the basis of confidence and the strengthening of the links of companies with the groups with whom they do business.
Implementation of these policies during 2002 led to a strong performance of the most recurring business activities and a worse performance of those most directly related to the currency and securities markets. The joint impact was a drop in net operating income of 6.4% (+1.5% excluding Argentina).
However, on the basis of the most recurring element in our activities (i.e. excluding dividends and trading gains), net operating income ex-Argentina grew 14.3%. The level of provisions and writedowns led to the decline in net attributable income (9.6%) being somewhat deeper than that in net operating income. In any event the amount recorded – EUR 2,247 million – was the highest of the sector in Spain. Summing up, the earnings underscored the Group’s capacity to manage difficult situations.
In 2002 we focused on boosting the
generation of revenues and gaining
market share.
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All business areas of
Santander Central Hispano
Commercial Banking share a
common idea: quality service
aimed at the customer
Santander Central Hispano Commercial Banking
S
antander Central Hispano Commercial Banking serves 8.5 million customers in Spain via a network of 2,506 branches. It manages EUR 80,513 million in customer funds.The Santander Central Hispano network uses a unique business model with two strategies that complement one another: focus on the customer and development of innovative products.
The customer is at the center of our strategy with these objectives: attracting new funds, while securing customer loyalty and affinity.
The best way to capture new customers us to treat existing ones well. All the business areas of Santander Central Hispano Commercial Banking share a common idea: service quality focused on the customer.
In order to optimize the service we give to our customers, we have developed the Da Vinci model using the most up-to-date systems for segmentation and customer profiling to significantly enhance our commercial drive and quality of service. These systems are helping us to develop a revenue growth plan based on efficient business management across the Bank’s three segments: individuals, high net worth clients and companies and institutions.
Individual Customer Banking aims at a wide social spectrum, based on a powerful branch network and salesforce and on the best products and services available in the market, making full use of cross-selling, quality service and top-flight management systems.
The goal of the Private Banking area is to be a benchmark for high income clients, relying on personalised financial advice and the ability to produce specific value proposals with constant improvements.
The area serving Companies and Institutions bonds the client through a highly qualified professional service, available through a broad network of specialized offices.
Along with customer service, innovation is the second key element of our business management, through the design and launch of products that combine customers’ needs with the Bank’s profitability requirements.
Specifically, several innovative products were launched in 2002, and were well received by our customers with more than EUR 6 billion attracted during the year. They included: «Depósito Supersatisfacción», «Fondo Supersatisfacción» and «Depósito Super Rendimiento».
As a result we increased our market share in key products such as time deposits and mutual funds. In lending, we achieved strong growth in mortgages to individual customers (14.2%) and in credit lines to finance companies’ working capital.
The strong commercial impetus developed by Santander Central Hispano Commercial Banking, coupled with maintenance of customer spreads, income from commissions and cost savings, contributed to a rise of 7.8% in net operating income and 6.3% in net attributable income.
We have four objectives in 2003: maintain net interest margin, increase commissions, expand market share and improve service. To achieve these, we can count on the Da Vinci model, our professional skills and the muscle of our branch network.
18
Net attributable income
increased 6% in 2002.
Banesto remains at the forefront of
the sector, with a business model
focused on commercial banking
activity in the domestic market.
B
anesto, which celebrated its 100th anniversary in 2002, is Spain’s third largest bank in terms of managed customer funds and lending. It is one of the Group’s main companies because of the growth in its business and the continuous improvement in its earnings.The Bank focuses on retail banking in the domestic market. It has a network of 1,679 branches and more than 10,000 employees serving 3.5 million customers. In 2002 a new customer-focused business model was drawn up on the basis of business segmentation by companies and individuals. This moves decision-taking closer to the customer and accelerates the pace at which decisions are taken with a common objective: to provide the best service.
Banesto has three strengths with which to achieve this: technology, risk management and its professionals. Banesto’s technology is a comparative advantage that is being exploited to move ahead of the competition. Its prudent risk management is reflected in one of the lowest non-performing loan (NPL) ratios in the Spanish banking system (0.78%) and NPL coverage of 275%.
Our staff is increasingly young, better trained and more focused on selling products and services (90% of employees).
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One hundred years after it was founded, Banesto today is again one of the leading Spanish banks. It has a clear mission to be the benchmark entity for important entities such as SMEs, professionals and family-run firms.
There were clear examples during 2002 of its ambition to lead Spanish commercial banking and its capacity to do so. The awarding of the contract for Spanish courts – EUR 2 billion average managed balance – was one of them. The keys to this success were the competitiveness of the offer and its leadership in banking technology, specifically the capacity of its applications to manage customers and the security of our processes.
Banesto has its own distinctive model, and autonomy of management, features that were reinforced by the public offering that increased the free float to around 12%, making the Banesto share more liquid.
The strong business drive is reflected in gains of market share against all banks of 0.27 percentage points. The goal is to keep gaining market share in 2003. Net operating income was EUR 609.1 million, 7.7% more than in 2001. Income before taxes was EUR 562 million, up 9.4%.
Note: The data correspond to the contribution of Banesto to Group results, after applying the criteria stated on page 98. This explains the discrepancy with figures published by Banesto.
Net operating income rose 7.7%
and income before taxes
increased 9.4%.
20
The Group’s net attributable income in
Portugal rose 16.8%.
T
he Totta Group, with 659 branches around the country and 2 million customers, is Portugal’s third largest private sector financial group. It has a market share above 10%. Totta conducts its business through three brands in commercial banking – Totta, Crédito Predial Português and Santander Portugal and, in Investment Banking, through Banco Santander de Negocios Portugal. We have the optimal segmentation of customers in this market, as a result of the complementary nature of its three Commercial Banking brands. While Totta is a leader in Universal Banking, Crédito Predial specializes in capturing customers through mortgages and Santander Portugal focuses on urban and high income customers.The business strategy pursued in Portugal has increased the public’s awareness and attractiveness of the brands, thanks to the improved segmentation of customers, a clearer focus on strategic products and the launch of the best products in strategic segments of the market, such as mortgages and mutual funds.
Of note in the product innovation policy is the «Crédito Vivienda Súper Oferta Hogar», which produced a sharp rise in the volume of mortgages contracted and the boost given to products that generate commissions, such as mutual funds and credit and debit cards.
The success of this strategy is reflected in a significant gain in market share in mortgages, which reached 11.7%, and in mutual funds, which reached 17.4%. In insurance, the Totta Group is the fourth largest in life assurance business, with a market share in 2002 in new business of 14.7%, double that of 2001.
The Group’s presence in Portugal is completed with Investment Banking, where its broker-dealer is second in the Euronext/Lisbon ranking (market share of 15.9%). Despite a difficult year for the Portuguese economy, the Group’s net attributable income rose 16.8%.
The quality of the Group’s activity in Portugal and its prestige were recognized on many occasions. The Totta Group received in 2002 the «best bank in Portugal» prize from The Banker, Euromoney and the Portuguese Exame and obtained the ISO 9001:2000 global certification, the first Portuguese financial group to do so under the new regulations.
We are the third largest financial
group in Portugal, with a market
share of 10%.
Consumer Finance in Europe is a
strategic option because of its high
customer spreads and growth
potential.
21
Consumer Finance in Europe
T
he Santander Central Hispano Group provides consumer finance services to more than 7 million customers in eight European countries, and has a leadership position in Spain, Germany, Italy and Portugal.This activity is a strategic opportunity for the Group because of its high spreads and growth potential. It is basically concentrated in two segments: auto financing and personal loans and cards, which accounted for more than 80% of new business in 2002.
Activity is focused on four countries: Spain, Germany, Italy and Portugal, which account for 41% of the European consumer financing market and where we have a combined market share of 15% in auto financing. We are also present in the main markets of Central Europe (Austria, Hungary, the Czech Republic and Poland), where our goal is to become a leading player.
In Spain, Hispamer is the leader in vehicle financing with a market share of 25% and a leader in issuance of bank cards (6.8 million issued) and in mortgages. Net attributable income was 22.2% higher in 2002 at EUR 90 million.
In Germany, we operate as CC-Bank, the country’s second largest auto financing group with a market share of 15.4% and more than two million customers, following the acquisition of AKB.
In Italy, we have close to 500,000 customers and a market share of 4.4%, thanks to our stake in Finconsumo since 1997. The Group owns 50% of Finconsumo and the rest is owrred by Sanpaolo IMI.
Hispamer, CC-Bank and Finconsumo have full management autonomy, although they take advantage of belonging to the same Group to draw up common lines of action and optimization of resources. This combination of local character and exploiting the benefits of belonging to a large Group comprise a comparative advantage that makes us a leader in consumer banking throughout Europe. Net attributable income from consumer finance was EUR 209 million, 89.4% more than in 2001.
Net attributable income in 2002 was
89.4% higher at EUR 209 million.
22
We are the leading financial group
in Latin America by net attributable
income (EUR 1,383 million).
We have differentiated our strategy
by countries, focusing on the largest
and fastest-growing economies,
Brazil, Mexico and Chile
T
he Group has 4,183 branches, 57,358 employees and 13.6 million customers, and manages EUR 108,537 million of funds in Latin America. Santander Central Hispano is the largest banking Group in Latin America in terms of deposits plus mutual funds and on the basis of lending. We also generate the largest net attributable income of any financial group in the region.In 2002 we proved our ability to manage flexibly in a rapidly changing environment. Net attributable income was EUR 1,383 million, underscoring the Group’s capacity and experience to generate income and to manage itself well in a very volatile context.
We understand the markets where we operate and we do what we know best, commercial banking. This enables us to achieve a solid return on our investments, which in the case of Chile, Mexico and Venezuela was an ROI in dollar terms of 13%, 24% and 21%, respectively. We are extremely satisfied with our strong presence in Brazil, which will be a key market in Latin America, a region with high growth potential.
We have differentiated our strategy by countries, focusing on the largest and fastest-growing economies, Brazil, Mexico and Chile. In all three countries we have a very broad customer base and the human and technical resources needed to offer the same wide range of banking services as in Spain.
Brazil
Santander Banespa is Brazil’s fourth largest private-sector financial group, with a significant presence in the south/southeast of the country – where almost 60% of the population live and which generates 76% of GDP – and 4.6 million customers. Its market shares are around 4-5% for the whole of the country and 8-10% in the south/southeast.
The Group’s net attributable income grew 20.5% to EUR 802 million, meeting the goals that we set when we bought Banespa. Moreover, the bank is becoming more efficient with the development of activities that generate commissions and with cost control. Mexico
In September 2002, the Group created a new commercial brand, Santander Serfin, following the integration of Banco Santander Mexicano and Banca Serfin. The integration gives us cost savings and synergies, as well as greater business strength and effectiveness.
The single network of 1,000 branches and 1,800 ATMs will serve 4 million customers. Santander Serfin is Mexico’s third largest bank by business volume and the first in terms of profitability and balance sheet strength.
In 2002 we notably increased our market shares in Mexico to around 13-14%. Net attributable income was EUR 681 million and the ROI in dollar terms reached 24%. Of
23
Our strategic alliance with Bank of
America puts us in an unbeatable
position to take advantage of the
business potential between the US
and Mexico
particular note was the success of innovative products such as the Serfin Light and Serfin Uni-k cards, which increased the Group’s market share in this segment to 12.9%. Our strategic agreement with Bank of America, under which the US bank acquired 24.9% of Santander Serfin, underscores the depth of our commitment to Latin America and the value of our investment in the region.
It is an excellent operation, which opens up business opportunities in corporate banking, with the subsidiaries of 5,000 US companies that operate in Mexico and around 8 million Mexicans working in the US.
Chile
The merger of Banco Santander Chile and Banco Santiago took effect on August 1, 2002. These banks were respectively the largest and third largest in Chile. The new Banco Santander Chile is the leader by business volume, profitability and efficiency. It has 350 branches and 2 million customers.
Banco Santander Chile has a market share of 22.8% in deposits and 25.5% in loans and is also very active in pension and mutual funds (market share of 11.1% and 21.2% respectively).
The Group earned net attributable income of EUR 229 million in Chile.
Other countries
In Puerto Rico, the Group is one of the three leading financial institutions, with a network of more than 60 offices and a weighted market share in banking business of 13.8%. In a year focused on commercial restructuring, the Group has obtained a net attributable income of EUR 12 million.
In Venezuela, where we have a weighted business market share of 12.2%, the Group has amended its policies on growth and risk in line with changing circumstances. In any event, a net attributable income of EUR 166 million was achieved. In Colombia, the restructuring of activities over the past few years towards more selective and specialized business was completed.
In Argentina we have made large provisions to cover our entire capital investment, and all the cross-border, intragroup and the regulatory requirements of the country-risk allocations with third parties. Management focused on credit quality and on maintaining liquidity during the year.
Argentina’s results were neutralized in the consolidation process, and its contribution to earnings is zero. Meanwhile, the Argentine balance sheet declined by 39% in 2002, the result of the peso’s devaluation and lower business volumes.
24
In the remaining countries where the Group operates, (Bolivia, Paraguay, Peru and Uruguay), and where neither the size of the financial system or the Group’s market shares are sufficient to develop a universal banking model, we have reduced our presence to a more selective banking model, both geographically, with a smaller number of branches, as well as by segments, focusing on corporate and institutional business and on private banking, and exiting from large scale retail banking.
In recognition of the achievements of the Santander Central Hispano Group in Latin America, the magazines Euromoney and The Banker named us «Best bank in Latin America» in 2002. We also won the prize for «Best bank in Chile» and «Best bank in Venezuela» from Euromoney and «Best bank in Mexico» from The Banker. Lastly, Banefe, Santander Chile’s consumer credit division, won the Latin American Quality prize for 2002. This was the second year running that Santander Central Hispano won this prize as in 2001 it went to AFP Summa Bansander, also in Chile.
We know the markets where we
operate and do what we know best:
commercial banking.
We are leaders in asset
management in Spain, with a
market share that continues to
increase, and we have grown in
Latin America.
25
Insurance business registered strong
expansion in volume, both in Spain
and Latin America
Asset Management and Insurance
T
he Asset Management and Insurance division consists of all the Group’s companies whose activity is the management of mutual and pension funds (above EUR 85 billion) and bancassurance.In Asset Management, Santander Central Hispano Gestión consolidated its leadership in Spain with a market share of 28.2% in mutual funds and 19.3% in individual pension funds. This growth stemmed from investment management appropriate to market trends and the launch of innovative products, which enabled us to attain market shares in Spain of more than 60% in especially active sectors such as real estate funds and in alternative funds.
In 2002, Citibank España and Santander Central Hispano reached an agreement under which our Group acquired Citigroup’s mutual and pension fund management entities in Spain, with total assets of EUR 987 million. This agreement is the result of a selection by Citigroup among the best Spanish fund managers and ratifies both the quality of our investment processes as well as the strength of our operational resources and administrative systems.
The pace of our growth in mutual funds in Latin America continued to be brisk, particularly in Chile and Puerto Rico where growth was more than 20% and 99% in local currency terms, respectively, and in pension funds with increases of around 20% in local currency terms in Mexico, Colombia and Peru.
The insurance unit in Spain registered 90% growth in life-risk premium income and 94% in home insurance, significantly improving their contribution to Group earnings (+83.5% in net operating revenue plus commissions paid). The number of policies in force in 2002 rose by 22% (more than 1 million contracts).
Santander Group strategy continues to focus on networks in both Spain and Latin America. The level of penetration of insurance products among banking customers in Latin America is 22%. The global contribution of bancassurance was more than EUR 155 million.
Santander Central Hispano’s goal in 2003 in Spain is to respond to the advisory needs that customers will seek within the new regulatory framework, under which movement between funds and between fund managers will become easier, and to take advantage of the opportunities this new situations offers.
Banif is the leading specialized
private bank in Spain, with EUR 18.1
billion under management.
26
International Private Banking
increased its net attributable
income by 9%
O
ur Group is the leader in private banking in Spain through its subsidiary Banif and the specialized units of commercial networks. It is also a major player in other markets, mainly Latin American, through our International Private Banking division.Banif’s speciality is high net worth individuals. It has the largest team of experts in private banking in Spain and a strong presence in the country’s main cities. It is the leading private bank in Spain with 63,000 customers, managed funds of EUR 18.1 billion and a market share estimated at above 30%.
Its focus is attracting customers with more than EUR 150,000 in funds for investment through a range of global products – domestic or international, financial or fiscal – and specialized advisory services, which are its chief competitive advantages. Banif created Allfunds Bank in 2001, the first Spanish bank dedicated to providing tailor-made advice to institutional clients so that they can select the products of the best international fund managers. Allfunds Bank has agreements with virtually all the international fund managers present in Spain and distribution contracts with 18 Spanish and international entities.
All these factors have enabled Banif to remain at the top of private banks. Its operating income was 30% more than its next competitor.
International Private Banking focuses on advising high net worth international customers, principally in Latin America, through its direct presence in the region’s main countries. The volume of funds under management at the end of 2002 was US$15.2 billion.
In Latin America, we are one of the main private banking entities, thanks to the combination of excellent professional service and innovation in products. Our objective is to double our market share over the next five years and be a benchmark in customer service.
In order to achieve this, we have made progress in a more efficient segmentation of customers and in improving the recurrent return on our products, as well as completing the implementation of a joint operational platform in the international centers.
These management improvements helped International Private Banking to increase its net attributable income by 9% in 2002, with significant improvements in volumes under management and in efficiency ratios
T
The Global Wholesale Banking division covers Corporate Banking, Investment Banking and Treasury activities, and has a workforce of 2,559 with EUR 70 billion in assets.Its business is focused on creating value for the Group’s customers through many products, services and distribution channels. All of this with a customer relationship banking model that offers the personalized attention of qualified teams and management based on global experience and the capacity to adjust to the particular features of each market and customer segment.
A priority objective in 2002 was to strengthen the growth of recurring revenues, with particular emphasis on cross-selling as it improves the valuation in terms of product/service quality made by customers of our Group.
This was made possible by reinforcing the Group’s presence and leadership in Spain, Portugal and Latin America with a clear global relationship focus and a strengthening of products.
The Corporate Finance unit continued to top the M&A Thomson Financial ranking of operations among Spanish companies and improved its position in the same ranking in Latin America from 7th in 2001 to 4th in 2002.
In Spain the Group consolidated its leadership position in equities brokerage, with a market share of 15.2%, and in the primary market it led the year’s main operations. At the global level, we were second in the ranking of brokerage of Latin American equities, with a market share of 18.3%.
Custody and Depository business increased with new customers. We provided services to a large number of fund managers not linked to banks, who represent more than 40% of the market for depository funds. We also maintained our leadership in custody and depository services and services to issuers.
In Global Treasury we are the leader in those markets where we are present – Spain, Portugal, Brazil, Mexico and Chile – and we implemented a strategy that is oriented towards providing our customers with local and global products and services, based on our unique competitive position.
Optimization of the balance sheet enabled us to maintain the level of investment in corporate banking in Spain, with 8.2% growth in net operating income. Overall, however, the Global Wholesale Banking division ended the year with a fall of 53% in net attributable income, due to the uncertainty in markets.
Global Wholesale Banking boosted
growth of recurrent revenues
through a clear focus on the global
relationship with customers.
27
We reinforced the Group’s presence
and leadership in Spain, Portugal
and Latin America.
28
T
The foundation of our Group’s activities is 35 million customers we serve around the globe. We strive each day to give them maximum satisfaction and strengthen their bond with us, all with the legitimate goal of increasing value for our shareholders. Our commitment is thus not only to attracting new customers but also to securing the loyalty of existing ones. This can only be achieved by personal attention and deepening the relationship in line with customers’ developing financial requirements. Our «multilocal» nature allows us to work with a unique management model adapted at all times to specific needs of our customers and of the marketplace, capable of exploiting business opportunities everywhere.Our customers have a highly varied profile. We serve individuals, small businesses, SMEs, institutional clients and large accounts. We can count on powerful distribution networks (not only branches but also alternative channels such as ATMs, telephone and internet banking), backed up by global activities that complete the range of services on offer to our customers.
Santander Central Hispano is committed to constant improvement of service. It is presently dedicating a major effort to segmenting the customer base and to data collection and analysis, making use of Customer Relationship Management (CRM) and Data Mining techniques. Our goal is to know our customers better, anticipate their needs and meet their expectations.
Another feature of our Group is its ability to innovate and adapt products to customer needs at any time. Since the mass launch of the Supercuentas in Spain at the end of the 1980s, our Group has consistently launched innovative products in its markets. In the home market these have included the Depósito Supersatisfacción and elsewhere the Oferta Lar in Portugal and the Tarjeta Serfin Light in Mexico.
Our efforts to improve service have been recognized with the global ISO certificates, both for Santander Central Hispano and Banco Totta in Portugal.
Structural capital indicators (1)
Structural capital comprises organizational structures, systems and processes, technology and products • Customer support: Processes for providing efficient service to domestic and international customers.
2002 2001
Number of branches* 9,281 9,951
Number of portals (Internet) aimed at customers 108 89
Monthly average of IT transactions (million) 628.41 602.96
Number of telephone calls a day attended for internal users 35,175 21,905
Number of Intranet forums of debate 47 33
• Technology and quality of processes: Key processes and technology for improving customer service.
2002 2001
Number of PCs per employee/branch 1.07/7.65 1.17/6.89
Processing capacity (Mips in central host) 20,773.75 17,988.70
Total storage capacity (Terabytes) 2,549.21 2,590.85
Monthly number of pages accessed in Intranet 21,798,777 9,593,199
Monthly number of pages accessed in Internet 56,880,675 38,440,187
Number of ISO-9000 certifications 109 113
(1) Indicators for structural capital, business capital (p. 29), human capital (p. 33) and social capital (p. 76) make up Santander Group’s intellectual capital.
Group data excluding Santander Serfin (Mexico) –involved in a merger process– and Banesto, except those items marked with an asterix (*) which do include this information.
29 • Product technology: Catalogue of products and services available to customers and the level of documentation and
explanation, with the objective of sharing this information for reuse by all Group employees.
2002 2001
Number of products and services (catalogue) 4,199 4,345
Number of new products and services developed 325 276
Number of «intranetized» processes 10,347 4,397
Number of «internetized» processes 556 445
Business Capital Indicators
These reflect the value that Santander Central Hispano places on all aspects of its relationship with its customers and with other persons and entities linked to its business.
• Loyalty and affinity: These indicators reflect systems designed by the Bank to create solid relations with customers, improve service, meet client needs and obtain feedback through customer satisfaction indices.
2002 2001
Number of telephone banking clients 8,568,798 8,674,294
Number of Internet banking clients 2,018,510 1,565,254
Number of credit cards 10,804,170 10,148,453
Nº of debit cards** 10,909,224 9,217,524
Savings books (magnetic band) 5,702,147 5,187,404
Average length of years of clients 5.97 5.71
Global satisfaction index of individual clients 7.86 6.91
Global satisfaction index of corporate clientss 6.86 6.11
Nº of complaints received by Customer Attention Units of the parent bank 18,064 7,224
Number of publications for clients 89 86
Number of publications for shareholders 34 24
Number of publications for employees 55 51
(**) This includes the number of cards under the Universities Programme for the first time.
• Frequency, collaboration and connectivity: This is a series of indicators on the level of penetration achieved by distribution channels with clients and the degree of frequency.
2002 2001
Number of new clients 3,202,000 2,806,865
Number of telephone calls attended 112,360,725 105,202,521
Number of transactions carried out by telephone 42,279,098 46,541,278
Accessibility of telephone banking (1-100) 85.11 67.13
Clients satisfied with telephone banking (1-100) 62.11 55.56
Number of Internet clients 2,174,102 1,676,582
Number of Internet transactions carried out 83,891,801 46,305,276
Number of direct-server electronic banking clients 198,004 157,433
Number of electronic banking transactions carried out 205,432,582 239,070,213
Average number of employees per branch 7.65 7.53
Customer Service Unit
Customer satisfaction is key to Group results. It is a foundation for generating stable long-term profit and a basic objective in all our activities.
Jointly with this internal commitment that guides the commercial activity of the Bank, we have actively developed consumer protection norms, especially in the financial sphere.
30
Articles 22-31 of the new Finance Law (44/2002 of November 23) establishes additional protection norms, reinforcing previous procedures in resolving complaints. Specific procedures are also envisaged for bank customer service units to follow, as well as a requirement to include a summary of key aspects of customer attention in the annual report.
The Group can already count on customer service mechanisms that are equivalent to those required by the new regulations, both in the Customer Service Unit and in the Customer Ombudsman.
The guiding principles of the Customer Service Unit in terms of managing complaints, received either directly through the regulatory bodies, the Customer Ombudsman or consumer organizations are as follows:
• Understand the Group’s commitment to its customers, which involves knowing, respecting and defending their rights as consumers of financial services
• Employ good practices laid down by the regulatory bodies as the basic tool in resolving complaints
• Never lose sight that a complaint satisfactorily resolved can reverse the initially negative impact, thus becoming a business opportunity.
In dealing with complaints, it is therefore not just a question of resolving the immediate problem of the customer, but also one of using the information generated by the complaint as a permanent tool for improvement, identifying concrete aspects in processes, products or services that are defective. In this way, the “Voice of the Customer” can be heard throughout the Bank as a means of correcting errors.
A review of complaints received by the parent company during the year highlights a sizeable increase resulting from the suspension of activities of certain unregulated teaching establishments. This led to a 150% increase in complaints to 18,064 from 7,224 the previous year. Eliminating complaints related to these schools, the total increases 42% to 10,277. There were 499 complaints received by the regulatory bodies (Bank of Spain and the National Securities Market Commission) while the Consumer Ombudsman received 1,149, representing variations of –9% and +28%, respectively.
The trend in different types of complaints, excluding these schools, was: TYPE
2002 2001
OPERATIONAL (Errors, orders not fulfilled or delayed, contracts) 48% 48%
PRICE (Commissions, interest rates etc) 21% 22%
ATTENTION (advice, queues, rapid turnover) 19% 15%
CARDS (Dissatisfaction with charges, cancellations) 6% 7%
BRANCHES (Closures and transfers security etc) 4% 4%
IMAGE/PUBLICITY (Lotteries, gifts, publicity, language) 1% 2%
OTHERS 1% 2%
In summary, excluding the specific problem of the holders of loans from unregulated schools, the trend in complaints is notable for the increase in those related to customer attention and for the increase in those related to branches, in particular for closures and relocation of company clients. Some 35% of customer complaints have been resolved in favor of the customer, while 29% of those presented to regulatory bodies were thus resolved.
The data include customer complaints from other Group entities that have been directed to the parent company. Methodology and guiding principles followed by the Bank are being extended and applied to other Group units in Spain and abroad.
31
O
ur permanent objective is for human capital to be one of the the focal points around which we create value for is created in the Group. To attain this, we must have a trained and motivated workforce, fully committed to our goals and our business model.In 2002 the Human Resources division, in collaboration with the rest of the functional areas and business units, closed an important period of adjustment and restructuring. They did this in in complex circumstances because of the economic situation and the completion of significant mergers and acquisitions. As well as in Spain, merger processes were successfully completed in Latin America, and particularly important were those in Mexico, Brazil and Chile, and in Europe, notably Germany.
In this situation, where the focus has been on developing activities to generate business, with significant efforts made to cut costs and streamline organizational structures, the policies and programs of Human Resources helped to achieve the necessary alignment between the needs and expectations of employees, those of business and those stemming from shared social responsibility. The principal goal of our human resources policy must be the alignment of the interests of our workforce and those of our business. This is the best way to guarantee the creation of value in the long term.
Recruitment
To attain this, special attention must be paid to the procedures for recruitment and hiring. Our criteria for recruitment placed particular emphasis on identifying customer-oriented professionals, able to work in a team and committed to the Group’s vision and to attaining results. Over the past three years, applying these criteria, a total of 1,555 people have been recruited, of which 85% were university graduates.
Professional development
Professional development continued to be a strategic element of the Group’s policy in human resources. There was a significant increase in training activities, achieving an average of 39 reading hours per employee (5.5% higher than the previous year). As part of the program to identify and develop high potential professionals, the eighth Program of Young Executives with Potential in Latin America and the third edition of the Apollo Project in Spain were begun.
More than 16,000 employees make up the Group integrated in development systems of Professional Careers, with a remuneration scheme linked to a standard scale, a training program and a plan of continuous monitoring. Of note are the programs implemented in Corporate Banking, Investment Banking, Treasury and Risk.
Multi-channel training strategy
This year was characterized by the beginning of a multichannel strategy for the development of training. Particularly noteworthy is Formavia, the Group’s on-line training system, which was installed in 18 Group companies.
Also of note are the different training programs of a global nature, such as Business Risks and the launch of the Global Training Plan on Corporate Social Responsibility, in its phase of general awareness, and, specifically, on Analysis and Management of Environmental Risks.
Remuneration policies
Remuneration policies are aimed at linking and making the obtaining of results consistent with the creation of value, leadership, transparency and the ethical behavior of our employees. Particular emphasis was placed during 2002 on making the bonus system more rigorous and transparent and unification of the remuneration systems in Spain was completed, defining and presenting the new structure.
The Variable Remuneration System in the Group’s three networks in Portugal was also unified, and the policy of permanent international transfers for the whole Group was also defined and approved.
