1

Foreign banks in Latin America

Manuel Galatas

Director, BBVA Asia

Financial Reforms in China and Latin America

Beijing, June 7th 2007

2

INDEX

1) Spanish banks lead foreign banking in Latin America

3) Foreign Banks Contributions to Latin America economy

2) Why to invest in Latin America? Bank’s point of view

4) Less hurdles in BBVA’s roadmap in Latin America

3

SPANISH BANKS ARE THE LEADERS IN FOREIGN BANKING IN LATIN AMERICA…

Source: BIS

Canada6%

France8%

Germany11%

UK8%

USA26%

Others19%

Netherlands3%

Japan16%

SPAIN3%

1990

2006UK

10%

USA

20%

France

2%

Spain

35%

Canada

6%

Others

12%Japan

2%

Nethe.

9%Germany

4%

CONSOLIDATED CLAIMS OF REPORTING BANKS ON LATIN AMERICAN COUNTRIES:

4

The Spanish banks are the main

creditors in the seven

main economies of

the region

... IN ALL BIG COUNTRIES

Source: BIS

Distribution of foreign banks consolidated assets

0

20

40

60

80

100

ARG BRA CHI COL MEX PER VEN

Others

ITA

NET

UK

FRA

GER

EEUU

Spain

DEC 2006

5

BBVA INTERNATIONALIZATION

BBVA in 1995: a domestic and retail bank....BBVA in 1995: a domestic and retail bank....

The Group presence was extended to more than 35 The Group presence was extended to more than 35 countriescountries

More than 15000 millions of Euros were invested in More than 15000 millions of Euros were invested in Latin AmericaLatin America

More than 42 millions of clientsMore than 42 millions of clients

World leader in Project Finance and Trade FinanceWorld leader in Project Finance and Trade Finance

100.000 100.000 employees of more than 50 different employees of more than 50 different nationalitiesnationalities

BBVA in 2007: a Universal and International bankBBVA in 2007: a Universal and International bank

6

WORLD PRESENCE OF BBVA

Spain

USA

Mexico

North America

Europe

Asia

South America

PortugalItaly

United Kingdom

France

Belgium

Switzerland

Russia

Argentina

Colombia

UruguayChile

Panama

Peru

Dominican Rep.

Beijing

Singapur

Shangai

Japan

Bolivia

Puerto Rico

Brazil

Ecuador

KoreaTaiwan

Paraguay

Venezuela

India

Australia

Caiman Islands

7

POSITION OF BBVA IN CHINA: A BREAKTHROUGH ALLIANCE

CNCB:

• Exclusive alliance• Cooperation agreements• Exclusive access to China

CIFH:

• Financial stake (15% capital)• Phase II – build-up a joint platform:- Shareholding increase- BBVA Asia business integration- Exclusive access to wholesale banking business

Initial Investment

FINANCIAL INVESTMENT STRATEGIC INVESTMENT+

BBVA CITIC Group

CNCB(China)*

CIFH(HK)**

4,83%15,17%

15%

80%

57%

Total Investment: 1000 Million €

*CNCB’s IPO on 29/04/2007

**CIFH listed in Hong Kong

Public listing

28%

8

Market share

Ranking

Argentina

Deposits

Colombia

Chile

Ecuador

Paraguay

Market share

1º

3º

4º

-

2º

Credits

Country Ranking

3º

3º

4º

-

1ºPeru

Uruguay

2º

5º

2º

5ºVenezuela 4º 4º

Market share

Pension

Funds

Ranking

2º

3º

1º

1º

-

3º

-

-

POSITION OF BBVA IN LATIN AMERICA

10,0%

11,4%

8,0%

-

15,1%

8,1%

10,8%

8,1%

-

20,0%

24,6%

9,1%

27,2%

9,9%

10,3% 11,7%

18,7%

16,4%

31,1%

87,6%

-

26,2%

-

-

As of March 2007

Mexico 1º 1º 1º28,2% 27,9% 19,6%

9

Spain31%

America67%

Other2%

Spain50%

America48%

Other2%

BBVA, A EUROPEAN BANK WITH LATIN AMERICAN ORIENTATION

Branch geographical distribution

(March 2007)

Employees geographical distribution

(March 2007)

Business in Spain represents only 37% of the employees and 48% of the offices

Source: BBVA

10

INDEX

1) Spanish banks lead foreign banking in Latin America

3) Foreign Banks Contributions to Latin America economy

2) Why to invest in Latin America? Bank’s point of view

4) Less hurdles in BBVA’s roadmap in Latin America

11

WHY INVESTING IN EMERGING MARKETS ?

• Population growth

• Economic growth and changesPotential market growth

• Low banking penetration

Margin to improve

efficiency

• Export of know-how, technology, new products…

Diversification • Low cyclical synchronization, less volatility of benefits

12

A DECLINING POPULATION IN EUROPE, BUT A GROWING TREND IN EMERGING COUNTRIES

The European population will not

increase in the next decades whereas

population will grow in the emerging

countries.

The greater proportion of

prepared young population and

more will increase the

proportion of non-banked population. Source: WB & UN

Projections of population

2010 2050 % var

Africa 1.032 1.937 2,5%

Asia 4166 5.217 0,7%

Europe 730 653 -0,2%

Latinamerica 593 783 0,9%

North-America 348 438 0,7%

World 6.906 9.076 0,9%

Demographic structure 2005

East Asia

& Pacific

Europe

& Central

Asia

EMULatin

America

South

AsiaWorld

0-14 24 20 16 30 33 28

15-64 69 69 67 64 62 64

65 & more 7 12 18 6 5 7

13

IMPROVEMENT IN MACROECONOMIC BALANCES

Nominal stability and reduction of external disorders have caused a favorable macroeconomic environment

with more possibilities of economic growth

-7

-6

-5

-4

-3

-2

-1

0

1

2

Fiscal Balance (% GDP) Current Account Balance (% GDP)

1981-1990 1991-2002 2003-2006

Annual Average Fiscal and Current Account Balance

Source: BBVA

14

POTENTIAL GROWTH REMAINS HIGH

Macroeconomic achievements are impressive: orthodox monetary policy dominates the region.

Business cycles aside, potential growth in Latin

America is above the level

estimated for developed countries

Source: BBVA

Potential economic growth

2,3

2,83,2

4,0

0,0

1,5

3,0

4,5

EU Spain USA LatAm

15

LATIN AMERICA IS UNDER-BANCARIZED …

Banking assets / GDP(March 2007)

261,5%

96,8%

65,2%48,9% 43,4%

29,7% 27,5% 27,3%

SPAIN CHI BRA ARG COL VEN MX PER

Domestic credit to private sector (% GDP)

0

20

40

60

80100

120

140

160

180

200

UnitedStates

EuropeanMonetary

Union

East Asia &Pacific

MiddleEast &NorthAfrica

Europe &CentralAsia

LatinAmerica &Caribbean

World

Source: World Bank & BBVA

16

…THE BANCARIZATION IS ALREADY INCREASING

Credit has displayed a remarkable recovery since 2004, sustained by the favourable economic environment and

the soundness of banking systems in the region.

Source: BBVA

-15

-10

-5

0

5

10

15

20

25

jan-

01

apr-

01

jul-01

oct-

01

jan-

02

apr-

02

jul-02

oct-

02

jan-

03

apr-

03

jul-03

oct-

03

jan-

04

apr-

04

jul-04

oct-

04

jan-

05

apr-

05

jul-05

oct-

05

jan-

06

apr-

06

jul-06

Source: FMI ; *Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela

Private sector credit in Latin America* (nominal yoy growth)

-15

-10

-5

0

5

10

15

20

25

jan-

01

apr-

01

jul-01

oct-

01

jan-

02

apr-

02

jul-02

oct-

02

jan-

03

apr-

03

jul-03

oct-

03

jan-

04

apr-

04

jul-04

oct-

04

jan-

05

apr-

05

jul-05

oct-

05

jan-

06

apr-

06

jul-06

Source: FMI ; *Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela

Private sector credit in Latin America* (nominal yoy growth)

Credit Growth (YOY %)

-20

0

20

40

60

80

100

Arge

ntin

a

Braz

il

Chile

Colo

mbi

a

Mex

ico Peru

Vene

zuel

a

Lata

m

2004 2005 2006Q3

Source: BBVA from IMF data

17

“ASSET-SEEKING” & “ASSET EXPLOITING”: REASONS TO STAY IN LATIN AMERICA

The Latin American banking systems present higher

revenues than the developed countries

Latin American banking systems have a wide margin to improve their efficiency

Expansion in Latin America is an opportunity

to increase profitability

Source: BBVA based in Moody's

Argentina 4,15 5,55

Brazil 5,44 8,58

Chile 2,75 4,85

Colombia 6,94 9,01

Mexico* 4,98 7,18

Peru 5,11 8,30

Venezuela 9,08 14,37

Spain 1,60 2,70

Average 1997-2006 (% assets)

Operating expenses

Netrevenues

* 1997-2004

18

LATIN AMERICA: A BETTER OPTION TO DIVERSIFY THE RISK

The region a good option to diversify,

because the synchronization

between European and Latin American stocks exchanges is

smallSource: BBVA

Correlation between Eurostoxx and Latin American stock exchange

-0,8

-0,6

-0,4

-0,2

-

0,2

0,4

0,6

0,8

1,0

ene-9

8

jul-

98

ene-9

9

jul-

99

ene-0

0

jul-

00

ene-0

1

jul-

01

ene-0

2

jul-

02

ene-0

3

jul-

03

ene-0

4

jul-

04

ene-0

5

jul-

05

ene-0

6

jul-

06

ene-0

7

México Chile Brasil

-4

-2

0

2

4

6

8

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

(f)

2008

(f)

Spain Latin America

Real GDP Growth (in %)

Source: BBVA; (f) forecast

Correlation=-0,037

Business cycles in Latin America and Spain are not correlated. On the

contrary, the correlation with Europe has

increased.

19

OTHER MICROECONOMIC FACTORS

Experience

Competition

Non-economicfactors

Why the Spanish Banks?

Solvency

Sharing the same culture and language helps the know-how to be transferred easier and allows the implementation of technological common platforms.

In the Spanish financial system there is a strong competition. Pressure on

margins enhances the seeking of more profitable businesses.

Spanish banks have changed their exposition towards Latin America

20

INDEX

1) Spanish banks lead foreign banking in Latin America

3) Foreign Banks Contributions to Latin America economy

2) Why to invest in Latin America? Bank’s point of view

4) Less hurdles in BBVA’s roadmap in Latin America

21

FOREIGN BANK CONTRIBUTIONS

EFFICIENCY

Increasing in bank

competition

Lower cost of credit

New financial products

Improvement in banking system

efficiency

ECONOMIC VULNERABILIT

Y

Increase in the financing in

local currency

Less probability of credit crunch

Import of risk management

systems

Improvement in bank soundness

22

1. EFFECTS IN EFFICIENCY: MORE BANK COMPETITION AND LOWER COST OF CREDIT

The lower interest rates and greater banking competition are causing a reduction of banking spreads that have

been particularly intense in countries like Mexico where the presence of foreign banks is very important.

Banking Spreads

0

2

4

6

8

10

12

14

16

Peru Colombia México Venezuela Chile Argentina

2000 2005

BANKING SPREAD: Interest rate spread is the interest rate charged by banks on loans to prime customers minus the interest rate paid by commercial or similar banks for demand, time, or savings deposits.

23

1. EFFECTS IN EFFICIENCY: EFFICIENCY HAS IMPROVED IN ALL SYSTEMS

Except in Argentina, the ratio of Operating expenses/Net revenues has shown a tendency to be reduced.

Source: Moody`s & BBVA

Efficiency ratio

40

50

60

70

80

90

Arg

enti

na

Bra

sil

Chile

Colo

mbia

Méxic

o*

Perú

Venezu

ela

(Operating expenses / Net revenues)

dic-99 jun-06

* 2004

24

2. EFFECTS IN ECONOMY VULNERABILITY: THE EXPERIENCE OF SPANISH BANKS IN CONTROLLING MACROECONOMIC RISKS

The Spanish banks are used to operate

in volatile environments because the

performance of the Spanish economy twenty years ago

was not so different from other emerging

markets.

Source: BBVA based in FMI

Macroeconomic evolution

2.9

5.4

-1.6

2.8

7.7

-1.6

-4

-2

0

2

4

6

8

10

GDP Inflation

Current account

Spain 87-96 LATAM 97-06

25

2. EFFECTS IN VULNERABILITY: LESS VULNERABLE BANKING SYSTEMS

Financial companies present a risk profile more diversified, and they have better access to international financing, which

remarkably elevates the solvency of the local financial sector.

BIS RATIO: Bank regulatory capital to risk-weighted assets

Default rates in Latin America have fallen since 2002, and are currently lower than in emerging Asia.

BI S Ratio 2006

0

5

10

15

20

25

30

35

Uru

guay

Bra

zil

Peru

Chi

le

Col

omb

ia

Mex

ico

Arg

enti

na

Indo

nesi

a

Fili

pina

s

Sin

gapo

re

Tha

iland

Kor

ea

Mal

aysi

a

Indi

a

LATAM = 16,2 ASIA = 15

26

2. EFFECTS IN ECONOMIC VULNERABILITY: MORE BANK FINANCING IN LOCAL CURRENCY

Financing by local subsidiaries has displaced the financing in USD,

reducing currency

mismatching.

Source: BIS

Foreign financing locally granted in local currency (%rest foreign financing)

0

10

20

30

40

50

60

70

80

ARG BRA CHI COL MEX PER VEN LAC

20061995

27

2. EFFECTS IN ECONOMIC VULNERABILITY: LONGER TERMS IN LOCAL CURRENCY MARKETS

A higher economic stability, is causing an enlargement of the terms. That allows to construct a curve of

interest rates to lend in the long term

Peru: Sovereign Bonds Yield Curve

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1 da

y

0.5

year

1 ye

ar

2 ye

ars

3 ye

ars

4 ye

ars

5 ye

ars

9 ye

ars

10 y

ears

11 y

ears

15 y

ears

20 y

ears

Dec 2005 Dec 2006 May 28, 2007

Inte

rest

rate

Maturity

28

INDEX

1) Spanish banks lead foreign banking in Latin America

3) Foreign Banks Contributions to Latin America economy

2) Why to invest in Latin America? Bank’s point of view

4) Less hurdles in BBVA’s roadmap in Latin America

29

BBVA has faced periods of high macroeconomic and political instability in the past,...

2002 132003 82004 62005 52006 11

Number ofelections

1989 171990 141991 31992 01993 101994 181995 61996 81997 71998 151999 122000 112001 42002 132003 82004 62005 52006 11

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

2.000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Sovereign spreads in Latin America (EMBI+)Basis points

Source: JPMorgan

30

BBVA has faced periods of high macroeconomic and political instability in the past,...

Frieden, Ghezzi& Stein, 2001

0.94

0.96

0.981.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Source: Frieden, Ghezzi

0.94

0.96

0.981.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Months

Exchangeratedepreciation andGovernment changes in Latin America (1970-2000)

Frieden, Ghezzi& Stein, 2001

0.94

0.96

0.981.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Source: Frieden, Ghezzi

0.94

0.96

0.981.00

1.02

1.04

1.06

1.08

1.10

1.12

1.14

1.16

-9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9

Months

Exchangeratedepreciation andGovernment changes in Latin America (1970-2000)

31

...but now there are better economic and political fundamentals

150

170

190

210

230

250

270

290

310

330oc

t-05

nov-

05

dec-

05

jan-

06

feb-

06

mar

-06

apr-

06

may

-06

jun-

06

jul-0

6

aug-

06

sep-

06

oct-06

nov-

06

dec-

06

jan-

07

feb-

07

mar

-07

apr-

07

Argentina(Pa)

EMBI+ (b.p.) and elections in Latin America

Source: BBVA and J PMorgan

Venezuela(Pa)

Chile(1st round Pr

and Pa)

Bolivia (Pr)

Chile(2nd round Pr)

Colombia (Pa)

Peru(1st round Pr

and Pa)

Colombia(Pr)

Peru(2nd round Pr)

Mexico(Pr)

Brazil(1st round Pr

and Pa)

(Pr) Presidential(Pa) Parliamentary

Brazil(2nd round Pr)

150

170

190

210

230

250

270

290

310

330oc

t-05

nov-

05

dec-

05

jan-

06

feb-

06

mar

-06

apr-

06

may

-06

jun-

06

jul-0

6

aug-

06

sep-

06

oct-06

nov-

06

dec-

06

jan-

07

feb-

07

mar

-07

apr-

07

Argentina(Pa)

EMBI+ (b.p.) and elections in Latin America

Source: BBVA and J PMorgan

Venezuela(Pa)

Chile(1st round Pr

and Pa)

Bolivia (Pr)

Chile(2nd round Pr)

Colombia (Pa)

Peru(1st round Pr

and Pa)

Colombia(Pr)

Peru(2nd round Pr)

Mexico(Pr)

Brazil(1st round Pr

and Pa)

(Pr) Presidential(Pa) Parliamentary

Brazil(2nd round Pr)

32

CONCLUSIONS

Latin America is a highly appealing destination for Spanish banks due to its growth potential

Spanish banks have properly managed risks in the region by focusing on the most stable countries

The Latin American bet has resulted in profits for the Spanish banks, the improvement of efficiency in the

banking systems of the region and sounder fundamentals to face negative macroeconomic shocks

The BBVA Group has taken advantage of its record in managing banking networks and now plays a leader role

in the region

The way to ensure the success of BBVA in the future is adding value to the countries where we currently do business, building a mutual beneficial relationship.

33

Foreign banks in Latin America

Manuel Galatas

Director, BBVA Asia

Financial Reforms in China and Latin America

Beijing, June 7th 2007