1. 1 Foreign banks in Latin America Manuel Galatas Director, BBVA Asia Financial Reforms in China and Latin America Beijing, June 7th 2007

2. 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. 3 SPANISH BANKS ARE THE LEADERS IN FOREIGN BANKING IN LATIN AMERICA… Source: BIS 1990 2006 UK 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. 4 The Spanish banks are the main creditors in the seven main economies of the region... IN ALL BIG COUNTRIES Source: BIS

5. 5 BBVA INTERNATIONALIZATION BBVA in 1995: a domestic and retail bank.... The Group presence was extended to more than 35 countries More than 15000 millions of Euros were invested in Latin America More than 42 millions of clients World leader in Project Finance and Trade Finance 100.000 employees of more than 50 different nationalities BBVA in 2007: a Universal and International bank

6. 6 WORLD PRESENCE OF BBVA Spain USA Mexico North America Europe Asia South America Portugal Italy United Kingdom France Belgium Switzerland Russia Argentina Colombia Uruguay Chile Panama Peru Dominican Rep. Beijing Singapur Shangai Japan Bolivia Puerto Rico Brazil Ecuador Korea Taiwan Paraguay Venezuela India Australia Caiman Islands

7. 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 CITICGroup 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. 8 Market share Ranking Argentina Deposits Colombia Chile Ecuador Paraguay Market share 1º 3º 4º - 2º Credits Country Ranking 3º 4º - 1º Peru Uruguay 2º 5º 2º 5º Venezuela 4º Market share Pension Funds Ranking 2º 3º 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 28,2%27,9%19,6%

9. 9 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. 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. 11 WHY INVESTING IN EMERGING MARKETS ? Population growth Economic growth and changes Potential 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. 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 20102050% var Africa 1.0321.9372,5% Asia 41665.2170,7% Europe 730653-0,2% Latinamerica 5937830,9% North-America 3484380,7% World 6.9069.0760,9% Demographic structure 2005 East Asia & Pacific Europe & Central Asia EMU Latin America South Asia World 0-14 2420163033 28 15-64 69 676462 64 65 & more 7121865 7

13. 13 IMPROVEMENT IN MACROECONOMIC BALANCES Nominal stability and reduction of external disorders have caused a favorable macroeconomic environment with more possibilities of economic growth

14. 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 2,8 3,2 4,0 0,0 1,5 3,0 4,5 EUSpainUSALatAm

15. 15 LATIN AMERICA IS UNDER-BANCARIZED … Banking assets / GDP (March 2007) Source: World Bank & BBVA

16. 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

17. 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 4,155,55 Brazil 5,448,58 Chile 2,754,85 Colombia 6,949,01 Mexico* 4,987,18 Peru 5,118,30 Venezuela 9,0814,37 Spain 1,602,70 Average 1997-2006 (% assets) Operating expenses Net revenues * 1997-2004

18. 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 small Source: BBVA Business cycles in Latin America and Spain are not correlated. On the contrary, the correlation with Europe has increased.

19. 19 OTHER MICROECONOMIC FACTORS Experience Competition Non-economic factors 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. 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. 21 FOREIGN BANK CONTRIBUTIONS EFFICIENCY Increasing in bank competition Lower cost of credit New financial products Improvement in banking system efficiency ECONOMIC VULNERABILITY Increase in the financing in local currency Less probability of credit crunch Import of risk management s ystems Improvement in bank soundness

22. 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 PeruColombiaMéxicoVenezuelaChileArgentina 20002005 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. 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

24. 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 GDPInflation Current account Spain 87-96LATAM 97-06

25. 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.

26. 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

27. 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 Interest rate Maturity

28. 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. 29 BBVA has faced periods of high macroeconomic and political instability in the past,...

30. 30 BBVA has faced periods of high macroeconomic and political instability in the past,...

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

32. 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. 33 Foreign banks in Latin America Manuel Galatas Director, BBVA Asia Financial Reforms in China and Latin America Beijing, June 7th 2007