Non-executive directors in Santander and BBVA lead the way in risk management

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Every Wednesday morning at 9.30am, five BBVA board members gather at the Spanish bank’s head office in Madrid. For the following three hours, they review new loans and discuss broader risks that might affect the bank’s operations. In 2007, they met a total of 74 times.

Managers believe that this intense board-level focus on risk is one reason why Spain’s large banks have so far weathered the credit crunch in better shape than many of their European rivals.

The approach of using non-executive directors is now winning admirers elsewhere. Lord Turner, chairman of Britain’s Financial Services Authority, recently argued that banks might benefit from non-executive board members who devoted most of their time to one institution.

Banco Bilbao Vizcaya Argentaria said net profit for the first quarter of 2009 fell to 1.24 billion euros ($1.63 billion), 36.6 percent less than for the same period a year ago as the crisis hit its markets in Spain, Mexico and the United States. "Recurrent earnings, prudent risk management and the sustainability of its business model are the key factors behind BBVA's results in the first quarter of 2009," the bank said in a statement. BBVA said that "despite the slowdown in banking activity, which especially affects Spain, the United States and Mexico," it was able to increase the volume of its business with gross lending to customers was up 5.5 percent year-on-year to 340 billion euros ($446.25 billion). However, bad loans as a proportion of lending soared to 2.8 percent from 1.1 percent a year earlier with dubious assets almost tripling to 10.5 billion ($13.78 billion).

Demonstrating its broad based franchise strength, Santander generated profits attributable to the Group of EUR 2.1 billion for Q1 2009, maintaining a relatively stable pace when compared to EUR 1.9 billion in the prior quarter and EUR 2.2 billion in Q1 2008. For revenues, the Group reported solid growth in gross income largely driven by net interest income, which jumped 15% quarter-over-quarter and 22% versus the prior year’s quarter; this increase benefited from the consolidation of acquired entities, loan growth and the effective management of customer spreads. Santander’s capitalization is solid, with a Tier 1 capital ratio under Basel II of 8.9% and a core capital ratio of 7.3%.

Read Financial Times, DBRS and finance.yahoo.com for more!


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