m-bkt'06 Grupo Ing - Zonebourse.com · The accompanying Notes 1 to 48 and Appendixes I to VI are an...

Bankinter Group

Statutory report prepared pursuant to the Corporations

Law and the Commercial Code. Consolidated financial

statements prepared by the Board of Directors of

Bankinter, S.A. on 14 March 2007.

LEGAL GRUPO ingles.qxd 13/6/07 08:44 Página 1

B


Bankinter Group


Consolidated balance sheets at 31 December 2006 and 2005

Consolidated income statements for the years ended 31 December 2006 and 2005

(1) Group description and activities

(2) Accounting standards and criteria applied

(3) Distribution of profit

(4) Deposit Guarantee Fund

(5) Accounting policies and measurement bases

(6) Cash and balances with central banks

(7) Financial assets and liabilities held for trading/Other financial assets at fair value through

profit or loss

(8) Available-for-sale financial assets

(9) Loans and receivables

(10) Held-to-maturity investments

(11) Hedging derivatives (assets and liabilities)

(12) Non-current assets held for sale

(13) Investments

(14) Tangible assets

(15) Intangible assets

(16) Tax assets and liabilities

(17) Prepayments and accrued income and Accrued expenses and deferred income

(18) Other assets and liabilities

(19) Financial liabilities at amortised cost

(20) Liabilities under insurance contracts

(21) Provisions

(22) Equity having the substance of a financial liability

(23) Own funds

(24) Valuation adjustments (equity)

(25) Contingent liabilities and commitments

(26) Transfers of financial assets

(27) Other memorandum items - Financial derivatives

(28) Personnel expenses

(29) Fee and commission income and expense

(30) Interest and similar income/Interest expense and similar charges

BBankinter Group 4

Contents


(31) Gains/losses on financial assets and liabilities

(32) Net exchange differences

(33) Other general administrative expenses

(34) Other operating income and expenses

(35) Other gains/Other losses

(36) Transactions and balances with related parties

(37) Remuneration of and balances with the members of the Board of Directors

(38) Information on the environment

(39) Customer Care Service

(40) Branches, centres and financial agents

(41) Trust and investment services

(42) Fees paid to auditors

(43) Tax matters

(44) Assets and liabilities measured at other than fair value

(45) Risk management policies

(46) Segment reporting

(47) Events after the balance sheet date

(48) Explanation added for translation to English

Directors' report

AppendixesI. Consolidated statements of changes in equity (Consolidated statements of recognised

income and expense)

II. Consolidated cash flow statements

III. Segment reporting

IV. Transactions and balances with related parties

V. Balance sheets for the distribution of 2006 dividends

VI. Balance sheets and income statements of Bankinter, S.A.

at 31 December 2006 and 2005

5Bankinter Group


B

Consolidated Balance Sheets at 31 December 2006 and 2005

Bankinter Group 6

Thousands of Euros 31/12/06 31/12/05 (*)

Assets

Cash and balances with central banks (Note 6) 539,178 435,916

Financial assets held for trading (Note 7)Debt instruments 2,503,479 4,327,317 Other equity instruments 108,664 39,811 Trading derivatives 148,059 267,274 Memorandum item: Loaned or advanced as collateral 1,981,715 4,002,508

2,760,202 4,634,402 Other financial assets at fair value through profit or loss (Note 7)Other equity instruments 24,596 23,884 Memorandum item: Loaned or advanced as collateral - -

24,596 23,884 Available-for-sale financial assets (Note 8)Debt instruments 4,251,163 3,473,735 Other equity instruments 240,399 307,846 Memorandum item: Loaned or advanced as collateral 3,804,929 3,210,431

4,491,562 3,781,581 Loans and receivables (Note 9)Loans and advances to credit institutions 5,387,117 4,205,236 Loans and advances to customers 31,653,807 26,139,388 Other financial assets 186,783 140,153 Memorandum item: Loaned or advanced as collateral - -

37,227,707 30,484,777 Held-to-maturity investments (Note 10) - 448,292 Memorandum item: Loaned or advanced as collateral - 448,292 Changes in the fair value of the hedged items in portfolio hedges of interest rate risk (10,217) (7,464) Hedging derivatives (Note 11) 90,065 86,028 Non-current assets held for sale (Note 12)Tangible assets 3,965 3,827 Other assets - -

3,965 3,827 Investments (Note 13)Associates 5,008 5,558 Jointly controlled entities 101,531 73,838

106,539 79,396 Tangible assets (Note 14)Property, plant and equipment for own use 319,970 320,666 Investment property 5,300 5,421 Other assets leased out under an operating lease 18,362 76 Memorandum item: Acquired under a finance lease - -

343,632 326,163 Intangible assets (Note 15)Other intangible assets 3,299 356

3,299 356 Tax assets (Note 16)Current 45,244 101,564 Deferred 181,086 181,116

226,330 282,680 Prepayments and accrued income (Note 17) 64,406 33,277 Other assets (Note 18)Other 204,505 172,895

204,505 172,895 Total assets 46,075,769 40,786,010

(*) The data at 31 December 2005 are presented for comparison purposes only.

The accompanying Notes 1 to 48 and Appendixes I to VI are an integral part of the consolidated balance sheet at 31 December 2006.

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7Bankinter Group


Liabilities

Financial liabilities held for trading (Note 7)Trading derivatives 101,503 250,115 Short positions 2,462,625 3,107,171

2,564,128 3,357,286 Financial liabilities at amortised cost (Note 19)Deposits from central banks 24 580,141 Deposits from credit institutions 6,972,252 5,712,746 Money market operations through counterparties 10,000 10,000Customer deposits 18,409,659 15,490,497 Marketable debt securities 14,273,921 11,986,462 Subordinated liabilities 594,162 382,021 Other financial liabilities 349,344 408,337

40,609,362 34,570,204 Hedging derivatives (Note 11) 907 47,892

Liabilities under insurance contracts (Note 20) 488,271 622,843

Provisions (Note 21)Provisions for pensions and similar obligations 1,390 10 Provisions for contingent liabilities and commitments 32,040 25,271 Other provisions 131,181 137,294

164,611 162,575

Tax liabilities (Note 16)Current 66,668 26,602 Deferred 71,831 101,730

138,499 128,332

Accrued expenses and deferred income (Note 17) 89,390 55,733

Other liabilities (Note 18)Other 88,488 45,708

Equity having the substance of a financial liability (Note 22) 347,511 347,606

Total liabilities 44,491,167 39,338,179




Bankinter Group B8


Equity

Minority interestsValuation adjustments (Note 24)Available-for-sale financial assets 22,677 62,130 Exchange differences 1,255 108

23,932 62,238

Own funds (Note 23)Capital or endowment fundIssued 117,878 116,875

117,878 116,875

Share premium 319,676 300,608 ReservesAccumulated reserves (losses) 943,407 855,004 Reserves (losses) of entities accounted for using the equity methodAssociates (1,371) 3,167 Jointly controlled entities 37,163 12,029

35,792 15,196979,199 870,200

Other equity instrumentsEquity component of compound financial instruments 11,695 12,384 Other - -

11,695 12,384

Less: Treasury shares (1,048) (33,763) Profit attributed to the Group 208,490 187,702 Less: Dividends and remuneration (75,220) (68,413)

1,560,670 1,385,5931,584,602 1,447,831

Total equity and liabilities 46,075,769 40,786,010

Memorandum items:Contingent liabilities (Note 25) Financial guarantees 2,482,586 2,078,119 Assets earmarked for third-party obligations - - Other contingent liabilities 50,180 55,121

2,532,766 2,133,240

Contingent commitments (Note 25)Drawable by third parties 7,383,823 5,830,097 Other commitments 336,132 240,058

7,719,955 6,070,155

10,252,721 8,203,395



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9Bankinter Group


Interest and similar income (Note 30) 1,455,871 1,076,615 Interest expense and similar charges (Note 30) (998,591) (655,656) Return on equity having the substance of a financial liability (11,139) (7,255)Other 987,452 648,401 Income from equity instruments 16,354 9,308 Net interest income 473,634 430,267 Share of results of entities accounted for using the equity method 29,623 24,645

Associates 436 124 Jointly controlled entities 29,187 24,521

Fee and commission income (Note 29) 286,965 249,677 Fee and commission expense (Note 29) (69,846) (59,978) Insurance activity income 1,694 (75)Insurance and reinsurance premium income 32,960 45,612 Reinsurance premiums paid (6,392) (1,119)Claims paid and other insurance-related expenses (184,271) (185,730)Reinsurance income 2,216 1,242 Net provisions for insurance contract liabilities (135,737) (107,381)Finance income 101,944 102,149 Finance expense (80,500) (69,610)Gains on financial assets and liabilities (net) (Note 31) 49,776 30,684 Held for trading 1,903 3,367 Other financial instruments at fair value through profit or loss 2,767 5,223 Available-for-sale financial assets (27,273) 42,647 Loans and receivables - - Other 72,379 (20,553)Exchange differences (net) (Note 32) 47,756 36,634 Gross income 819,602 711,854 Sales and income from the provision of non-financial services - - Cost of sales - - Other operating income (Note 34) 24,003 18,763 Personnel expenses (Note 28) (227,336) (192,398)Other general administrative expenses (Note 33) (174,940) (160,703) Depreciation and amortisation (24,151) (21,031) Tangible assets (Note 14) (24,034) (21,031) Intangible assets (Note 15) (117) - Other operating expenses (Note 34) (5,532) (4,902) Net operating income 411,646 351,583 Impairment losses (net) 96,898 80,143 Available-for-sale financial assets 1 187 Loans and receivables (Note 9) 97,295 80,340 Held-to-maturity investments - - Non-current assets held for sale (399) (384)Investments 1 - Tangible assets - - Goodwill - - Other intangible assets - - Other assets - - Provisions (net) 5,892 7,035 Finance income from non-financial activities - - Finance expenses of non-financial activities - - Other gains (Note 35) 15,231 7,214 Gains on disposal of tangible assets 886 642 Gains on disposal of investments 20 15 Other 14,325 6,557 Other losses (Note 35) (7,751) (6,174) Losses on disposal of tangible assets 344 35 Losses on disposal of investments 666 124 Other 6,741 6,015 Profit before tax 316,336 265,445 Income tax (Note 43) (107,846) (77,743) Profit from ordinary activities 208,490 187,702 Profit/Loss from discontinued operations - - Consolidated profit for the year 208,490 187,702 Profit/Loss attributed to minority interests - - Profit attributed to the Group (Note 23) 208,490 187,702 Earnings per share (euros) 2.68 2.44Diluted earnings per share (euros) 2.58 2.34


The accompanying Notes 1 to 48 and Appendixes I to VI are an integral part of the consolidated income statement for the year ended 31 December 2006.

Consolidated income statements of the Bankinter Group for the years ended31 December 2006 and 2005


B

Explanatory notes to the consolidated financial statementsfor the year ended 31 December 2006(Amounts in thousands of euros)

(1) Group description and activities

Bankinter, S.A. (“the Bank” or “the Entity”) engages in banking activities and is subject to the rules

and regulations applicable to banks operating in Spain.

In addition to the operations carried on directly by it, the Bank is the head of a group of

subsidiaries that engage in various business activities and which compose, together with it, the

Bankinter Group (“the Group” or “the Bankinter Group”). Therefore, the Bank is obliged to prepare,

in addition to its own individual financial statements, the Group's consolidated financial

statements, which also include the interests in joint ventures and investments in associates.

The Bank’s assets accounted for 99% of the Group’s total assets at 31 December 2006 and 2005.

The Group's consolidated financial statements for 2005 were approved by the shareholders at the

Annual General Meeting of the Bank on 20 April 2006. The 2006 consolidated financial statements

of the Group and the 2006 financial statements of the Bank and substantially all the Group entities

have not yet been approved by their shareholders at the respective Annual General Meetings.

However, the Bank's Board of Directors considers that the aforementioned financial statements will

be approved without any changes.

Bankinter, S.A. was incorporated by public deed executed in Madrid on 4 June 1965 under the

name of Banco Intercontinental Español, S.A. and adopted its present name on 4 May 2004.

The Bank is registered with number 30 at the Special Registry of Banks and Bankers. Its employer

identification number is A-28157360 and it is a member of the Deposit Guarantee Fund with code

number 0128.

Its registered office is located at Paseo de la Castellana 29, 28046 Madrid (Spain). The subsidiaries

composing the Bankinter Group are listed in Note 13, “Investments”. The Group's consolidated

financial statements were prepared in accordance with the accounting policies set forth in the

“Accounting Policies and Measurement Bases” section.

The balance sheets of Bankinter, S.A. at 31 December 2006 and 2005 and the income statements

for the years then ended are presented in Appendix VI.

The securitisation special purpose vehicles Bankinter 12 Fondo de Titulización Hipotecaria,

Bankinter 13 Fondo de Titulización de Hipotecaria and Bankinter 2 Pyme Fondo de Titulización de

Activos were fully consolidated in 2006 for the first time.

Bankinter Internacional, B.V. was dissolved and Bankinter Netherlands B.V. and Prota, S.A. were

sold in 2006.

Bankinter Group 10


(2) Accounting standards and criteria applied

a) Basis of presentation of the consolidated financial statements Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July

2002, all companies governed by the law of an EU Member State and whose securities are admitted

to trading on a regulated market of any Member State must prepare their consolidated financial

statements for the years beginning on or after 1 January 2005 in conformity with the International

Financial Reporting Standards (IFRSs) previously adopted by the European Union.

In order to adapt the accounting system of Spanish credit institutions to the new standards, the

Bank of Spain issued Circular 4/2004, of 22 December, on Public and Financial Reporting Rules and

Formats.

The Group's consolidated financial statements for 2006 were prepared by the Bank's directors

(at the Board meeting on 14 March 2007) in accordance with International Financial Reporting

Standards as adopted by the European Union and taking into account Bank of Spain Circular

4/2004, using the basis of consolidation, accounting policies and measurement bases set forth in

Note 5 and, accordingly, they present fairly the Group's equity and financial position at 31

December 2006, and the consolidated results of its operations, the changes in consolidated equity

(statement of recognised income and expense) and the consolidated cash flows in 2006. These

consolidated financial statements were prepared from the individual accounting records of the

Bank and of each of the companies composing the Group, and include certain adjustments and

reclassifications required to unify the accounting policies and measurement bases applied by the

Group.

At the date of preparation of these consolidated financial statements various Standards and

Interpretations had been adopted by the European Union but had not yet come into force. The

directors consider that the entry into force of these Standards and Interpretations will not have a

material effect on the Group’s consolidated financial statements.

The notes to the consolidated financial statements contain supplementary information to that

presented in the consolidated balance sheet, consolidated income statement, consolidated

statement of changes in equity (statement of recognised income and expense) and consolidated

cash flow statement. The notes provide, in a clear, relevant, reliable and comparable manner,

narrative descriptions and breakdowns of these financial statements.

All accounting policies and measurement bases with a material effect on the consolidated financial

statements were applied in their preparation.

11Bankinter Group

s


B

b) Accounting policies and measurement basesThe consolidated financial statements were prepared in accordance with the generally accepted

accounting policies and measurement bases described in Note 5, “Accounting Policies and

Measurement Bases”.

Unless stated otherwise, these consolidated financial statements are presented in thousands of

euros.

c) Use of judgment and estimatesThe information included in these consolidated financial statements is the responsibility of the

Bank’s directors. In this connection certain estimates were used, where appropriate, in order to

measure certain assets, liabilities, income, expenses and commitments. These estimates, which

were made by the Group's senior management and were ratified by its directors, relate basically

to the following:

• the impairment losses on certain assets

• the useful life of the tangible and intangible assets

• the fair value of certain unquoted assets

• the actuarial assumptions used in the calculation of the post-employment benefit liabilities and

obligations

• the calculation of the provisions made

Although these estimates were made on the basis of the best information available at 31 December

2006 about the items analysed, events that might take place in the future might make it necessary

to change these estimates (upwards or downwards) in coming years. Changes in accounting

estimates, if appropriate, will be applied prospectively, recognising the effects of the change in esti-

mates in the related consolidated income statement.

d) Basis of consolidation The Group was defined as provided for by current accounting standards and rules. Investees

include subsidiaries, jointly controlled entities and associates.

“Subsidiaries” are defined as entities which form a decision-making unit with the Parent, i.e.

entities over which the Parent has, directly or indirectly through other investee(s), the capacity to

exercise control. Control is, in general but not exclusively, presumed to exist when the Parent owns

directly or indirectly through other investees half or more of the voting power of the investee.

Control is the power to govern the financial and operating policies of an investee so as to obtain

benefits from its activities and may be exercised even if the aforementioned ownership interest is

not held.

Bankinter Group 12


Note 13 contains significant information on the investments in subsidiaries at 31 December 2006

and 2005.

The financial statements of the subsidiaries were fully consolidated with those of the Bank.

Accordingly, all material balances and transactions between consolidated entities were eliminated

on consolidation. Also, the share of third parties of the Group's equity is presented under Minority

Interests in the consolidated balance sheet and the share of the profit for the year attributed to

minority interests is presented under Profit Attributed to Minority Interests in the consolidated

income statement.

The results of subsidiaries acquired by the Group during the year are included in the consolidated

income statement from the date of acquisition to year-end. Similarly, the results of subsidiaries

disposed of during the year are included in the consolidated income statement from the beginning

of the year to the date of disposal.

Jointly controlled entities are investees that are not subsidiaries and are jointly controlled by the

Group and by one or more unrelated entities not related to the Group or the joint ventures. A joint

venture is a contractual arrangement whereby two or more entities (“venturers”) undertake

operations or hold assets so that strategic financial and operating decisions affecting the joint

venture require the unanimous consent of the venturers, provided that these operations or assets

are not integrated in financial structures other than those of the venturers.

The financial statements of jointly controlled entities are accounted for using the equity method

and the exceptions provided for by current accounting standards and rules were applied.

Note 13 contains significant information on the interests in jointly controlled entities at 31

December 2006 and 2005.

Associates are entities over which the Group exercises significant influence. Significant influence is

generally, although not exclusively, deemed to be exercised when the Group holds -directly or

indirectly through other investees- 20% or more of the voting power of the investee.

In the consolidated financial statements, investments in associates are accounted for using the

equity method, i.e. at the Group's share of net assets of the investee, after taking into account the

dividends received therefrom and other equity eliminations. The profits and losses arising from

transactions with an associate are eliminated to the extent of the Group's interest in the associate.

If as a result of losses incurred by an associate its equity were negative, the investment should be

presented in the Group's consolidated balance sheet with a zero value, unless the Group is obliged

to give it financial support.

13Bankinter Group

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B

Note 13 contains significant information on the investments in associates at 31 December 2006

and 2005.

Note 13 contains information on the most significant acquisitions and disposals of subsidiaries,

jointly controlled entities and associates in 2006.

A business combination is the bringing together of two or more separate entities or economic units

into one single entity or group of entities.

Business combinations performed on or after 1 January 2004 whereby the Group obtains control

over an entity are recognised for accounting purposes as follows:

• The Group measures the cost of the business combination, defined as the fair value of the assets

given, the liabilities incurred and the equity instruments issued, if any, by the acquirer.

• The net fair values of the assets, liabilities and contingent liabilities of the acquiree, including

any intangible assets which might not have been recognised by the acquiree, are measured and

recognised in the consolidated balance sheet.

• Any negative difference between the net fair value of the assets, liabilities and contingent

liabilities of the acquiree and the business combination cost is recognised as discussed in Note 2-m;

any positive difference is recognised in “Other Gains” in the consolidated income statement.

e) Comparative informationThe information relating to 2005 contained in these notes to the consolidated financial statements

is presented with the information relating to 2006 for comparison purposes only and, accordingly,

it does not constitute the Group's statutory consolidated financial statements for 2005.

f) EquityThe publication of Law 13/1992, of 1 June, and of Bank of Spain Circular 5/1993 and subsequent

amendments thereto brought into force the regulations governing the minimum capital

requirements for credit institutions both at entity level and at consolidated group level.

At 31 December 2006, the Group's eligible capital exceeded the minimum requirements by

EUR 511,958 thousand (31 December 2005: EUR 481,090 thousand).

Bankinter Group 14


(3) Distribution of profit for the year

The distribution of Bankinter, S.A.’s net profit for the year ended 31 December 2006 that the

directors will propose for approval by the shareholders at the Annual General Meeting is, and the

approved distribution of 2005 profit was, as follows:

The distribution of the net profit for the year ended 31 December 2006 of Bankinter, S.A.'s

subsidiaries that their respective directors will propose for approval by the shareholders at their

respective Annual General Meetings is as follows:

15Bankinter Group

;

Thousands of Euros 2006 2005

Distribution:

Voluntary reserves 64,482 66,809

Canary Islands investment reserve - 1,200

Interim dividend 102,056 92,728

Distributed profit 166,538 160,737

Profit for the year 166,538 160,737

Thousands of Euros Net Profit Provision for Dividend Reserves AllocationsIncome Tax

Bankinter Consultoría, Asesoramiento y Atención Telefónica, S.A. 466 165 301 - -

Bankinter Gestión de Seguros, S.A. de Correduría de Seguros 1,371 480 891 - -

Bankinter International B.V. (180) (6) - - -

Bankinter Gestión de Activos, S.A., S.G.I.I.C.(formerly Gesbankinter, S.A., S.G.I.I.C.) 33,847 11,002 6,000 16,845 -

Hispamarket, S.A. 32,794 7,199 25,595 - -

Intergestora, S.A. 306 124 - - 182

Intermobiliaria, S.A. 773 597 176 - -

Intergestora Nuevas Tecnologías, S.A. 261 - - - 261

Bankinter Capital Riesgo, S.G.E.C.R., S.A. (126) (46) - - -

Bankinter Seguros de Vida, S.A. de Seguros y Reaseguros 27,272 9,548 17,724 - -

Aircraft, S.A. (2,507) (770) - - -

Bankinter Netherlands BV (5) - - - -

Bankinter Sociedad de Financiación, S.A. 170 60 99 11 -

Bankinter Emisiones, S.A. 203 71 115 13 4

Bankinter Capital Riesgo I, Fondo Capital 634 461 - - 173

Helena Activos Líquidos, S.L. (58) - - - -

Arroyo Business Consulting Development, S.L. - - - - -


B

The distribution of the net profit for the year ended 31 December 2005 of Bankinter, S.A.'s subsidiaries

approved by the shareholders at their respective Annual General Meetings was as follows:

(4) Deposit Guarantee Fund

Bankinter, S.A. participates in the Deposit Guarantee Fund. The contributions made by the Bank to

this Fund amounted to EUR 5,532 thousand in 2006 and EUR 4,901 thousand in 2005, and the

related expense was recorded under “Other Operating Expenses” in the consolidated income

statement (Note 34).

(5) Accounting policies and measurement bases

Following is a summary of the accounting policies and measurement bases applied in the

preparation of these consolidated financial statements in accordance with current accounting

standards and rules.

Bankinter Group 16

Thousands of Euros Net Profit Provision for Dividend Reserves AllocationsIncome Tax

Bankinter Consultoría, Asesoramiento y Atención Telefónica, S.A. 404 137 267 - -

Bankinter Gestión de Seguros, S.A. de Correduría de Seguros 1,334 467 428 439 -

Bankinter International B.V. 712 223 489 -

Bankinter Gestión de Activos, S.A., S.G.I.I.C. 30,144 10,615 16,547 2,982 -

Hispamarket, S.A. 2,768 575 2,193 - -

Intergestora, S.A. (542) (199) - - -

Intermobiliaria, S.A. 712 243 469 - -

Intergestora Nuevas Tecnologías, S.A. 1,433 (1,884) - - 3,317

Bankinter Capital Riesgo, S.G.E.C.R., S.A. 663 230 - 359 74

Bankinter Seguros de Vida, S.A. de Seguros y Reaseguros 19,581 6,840 6,294 6,447 -

Aircraft, S.A. (384) (134) - - -

Bankinter Netherlands BV (18) - - - -

Bankinter Sociedad de Financiación, S.A. 1 - - - 1

Bankinter Emisiones, S.A. 28 10 - - 18

Bankinter Capital Riesgo I, Fondo Capital (665) (233) - - -

Helena Activos Líquidos, S.L. (6) - - - -

Arroyo Business Consulting Development, S.L. - - - - -


(a) Going concernThe consolidated financial statements were prepared under the assumption that the Group entities

will continue as a going concern for the foreseeable future and hence the accounting policies were

not applied to determine the consolidated net asset value for the purpose of total or partial transfer

or the amount that would result from liquidation.

(b) Accrual basis of accountingExcept for cash flow information, these consolidated financial statements were prepared on the

basis of the actual flow of goods and services, regardless of when the related payment or collection

is made.

Income and expenses are recognised using the accrual basis of accounting rather than the cash

basis, except for interest on loans and receivables and other non-investment loans to borrowers

classified as impaired, which is credited to the income statement when it is collected.

Interest on asset and liability transactions with settlement terms exceeding twelve months is

accrued by the interest method and that on shorter-term transactions is accrued by either the

interest or the straight-line method.

In accordance with general banking practice, transactions are recognised on the date they are

performed, which may differ from the related value date on the basis of which interest income and

expense are calculated.

(c) Foreign currency transactions and balancesForeign currency balances and transactions were translated to euros using the following methods:

- Monetary assets and liabilities: at the average spot exchange rate ruling on the foreign currency

market at the reporting date.

- Non-monetary items measured at historical cost: at the exchange rates prevailing on the date of

acquisition.

- Non-monetary items measured at fair value: at the exchange rates on the date when the fair

value was determined.

- Income and expense items: at the exchange rates at the transaction date (average exchange rates

for the year were used for all the transactions performed during the year). Depreciation and

amortisation were translated to euros at the exchange rates applied to the related asset.

Exchange differences were recognised in the consolidated income statement, except for those

differences arising in non-monetary items measured at fair value whose adjustment to fair value

is recognised in equity.

17Bankinter Group


B

(d) Recognition, measurement and classification of financial instrumentsFinancial assets and liabilities are recognised when the Group becomes a party to the contract in

accordance with the provisions thereof.

Financial assetsRegular way purchases or sales of financial assets, defined as those in which the parties' reciprocal

obligations must be discharged within a time frame established by regulation or convention in the

marketplace and that may not be settled net, such as stock market and spot currency purchase and

sale contracts, are recognised as an asset by the purchaser and derecognised by the seller on the

date from which the rewards, risks, rights and duties attaching to all owners are for the purchaser,

which, depending on the type of asset or type of market, may be the trade date or the settlement

or delivery date.

Debt instruments are recognised from the date on which a legal right to receive or a legal

obligation to pay cash arises. Derivatives are recognised from the trade date. The Group generally

derecognises financial instruments on the date from which the related rewards, risks, rights and

duties or control thereon are transferred to the purchaser.

Financial assets are classified in the consolidated balance sheet as follows:

i) Cash and balances with central banks: this category includes cash balances and balances with

the Bank of Spain and other central banks.

ii) Financial assets held for trading: this category includes financial assets acquired for the purpose

of selling them in the near term. They are part of a portfolio of identified financial instruments

that are managed together and for which there is evidence of a recent actual pattern of short-term

profit taking or they are derivative instruments that are not designated as hedging instruments.

The changes in the fair value of financial assets held for trading are recognised directly in the

income statement.

iii) Other financial assets at fair value through profit or loss: this category includes (1) hybrid

financial assets not held for trading that are measured entirely at fair value and (2) financial

assets not held for trading that are managed jointly with liabilities under insurance contracts

measured at fair value or with derivative financial instruments whose purpose and effect is to

significantly reduce exposure to variations in fair value, or that are managed jointly with financial

liabilities and derivatives for the purpose of significantly reducing overall exposure to interest rate

risk.

Bankinter Group 18


iv) Available-for-sale financial assets: this category includes debt instruments not classified as held-

to-maturity investments, as other financial assets at fair value through profit or loss, as loans and

receivables or as financial assets held for trading and equity instruments issued by entities other

than subsidiaries, associates and jointly controlled entities, provided that such instruments have

not been classified as financial assets held for trading or as other financial assets at fair value

through profit or loss. The changes in the fair value of available-for-sale financial assets are

recognised directly in equity until the financial asset is derecognised.

v) Loans and receivables: this category includes financial assets that are not quoted in an active

market, that do not have to be measured at fair value and that have fixed or determinable cash

flows in which the Group will recover all of its investment, other than losses because of credit

deterioration. This category includes the investment arising from ordinary lending activities, such

as the cash amounts of loans drawn down and not yet repaid by customers, the deposits placed

with other institutions, whatever the legal instrument, unquoted debt securities and the debt

incurred by the purchasers of goods, or the users of services, constituting part of the Group's

business.

vi) Held-to-maturity investments: this category includes debt securities with fixed maturity and

fixed cash flows which the Group has decided to hold to maturity, basically because it has the

financial ability to do so or because it has related financing. The entity shall not classify as held-to-

maturity, or hold any financial asset in this category if during the current year or the two

preceding years it has sold or reclassified assets in this portfolio for more than an insignificant

amount relative to the total amount of the assets in this category.

vii) Changes in the fair value of hedged items in portfolio hedges of interest rate risk: this item

is the balancing entry for the amounts credited to the consolidated income statement in respect of

the measurement of the portfolios of financial instruments which are efficiently hedged against

interest rate risk through fair value hedging derivatives.

viii) Hedging derivatives: this category includes the financial derivatives acquired or issued by the

Group which qualify for hedge accounting.

ix) Investments: this item includes the equity instruments of jointly controlled entities and

associates.

19Bankinter Group

d

e


B

In general, financial assets are initially recognised at acquisition cost and are subsequently

measured at each period-end as follows:

i) Financial assets are measured at fair value, except for loans and receivables, held-to-maturity

investments, equity instruments whose fair value cannot be determined in a sufficiently objective

manner, investments in subsidiaries, jointly controlled entities and associates and financial

derivatives that have such equity instruments as their underlying asset and are settled by delivery

of those instruments.

ii) The fair value of a financial asset on a given date is taken to be the amount for which it could

be exchanged by two knowledgeable, willing parties in an arm's length transaction. The best

evidence of fair value is the market price on an active, transparent and deep market.

If there is no market price for a given financial asset, its fair value is estimated on the basis of the

price established in recent transactions involving similar instruments and, in the absence thereof,

of sufficiently proven valuation techniques, taking into account the specific features of the financial

asset to be measured and, particularly, the various types of risk associated with it.

iii) The fair value of financial derivatives with a quoted price on an active market is deemed to be

their daily quoted price and if, for exceptional reasons, the quoted price at a given date cannot

be determined, these financial derivatives are measured using methods similar to those used to

measure derivatives not arranged in organised markets.

The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the

instrument, discounted to present value at the date of measurement using valuation techniques

commonly used by the financial markets.

iv) Loans and Receivables and Held-to-Maturity Investments are measured at amortised cost using

the effective interest method. Amortised cost is understood to be the acquisition cost of a financial

asset plus or minus, as appropriate, the principal repayments and the portion recognised in the

consolidated income statement by the effective interest method of the difference between the

initial cost and the maturity amount, less any impairment loss recognised directly as a reduction of

the amount of the asset or through an allowance account. In the case of loans and receivables

hedged in fair value hedges, the changes in the fair value of these assets related to the risk or

risks being hedged are recognised.

Bankinter Group 20


The effective interest rate is the discount rate that exactly matches the initial amount of a financial

instrument to its estimated cash flows during its expected life based on the related contractual

conditions, such as early redemption options, but disregarding future credit losses. For fixed rate

financial instruments, the effective interest rate coincides with the contractual interest rate

established on the acquisition date plus, where applicable, the fees that, because of their nature,

can be equated with a rate of interest. In the case of floating rate financial instruments, the

effective interest rate coincides with the rate of return prevailing in all connections until the next

benchmark interest reset date.

v) Equity instruments of other entities whose fair value cannot be determined in a sufficiently

objective manner and financial derivatives that have those instruments as their underlying asset

and are settled by delivery of those instruments are measured at acquisition cost adjusted, where

appropriate, by any related impairment loss.

As a general rule, changes in the carrying amount of financial assets are recognised in the

consolidated income statement, distinguishing between those arising from the accrual of interest

and similar items -which are recognised under “Interest and Similar Income”- and those arising for

other reasons, which are recognised at their net amount under “Gains/Losses on Financial Assets

and Liabilities” in the consolidated income statement.

However, changes in the carrying amount of instruments included under “Available-for-Sale

Financial Assets” are recognised temporarily in equity under “Valuation Adjustments”, unless they

relate to exchange differences. The amounts included in “Valuation Adjustments” remain in equity

until the related assets are derecognised, whereupon they are charged to the consolidated income

statement.

In fair value hedges, the gains and losses arising on the financial assets designated as hedging

instruments and hedged items attributable to the type of risk being hedged are recognised

directly in the consolidated income statement.

In fair value portfolio hedges of interest rate risk, the gains or losses that arise on measuring the

hedging instruments are recognised directly in the consolidated income statement, whereas the

gains or losses due to changes in the fair value of the hedged amount -attributable to the hedged

risk- are recognised in the consolidated income statement with a balancing entry under “Changes

in the Fair Value of Hedged Items in Portfolio Hedges of Interest Rate Risk”.

21Bankinter Group

l

f


B

Financial liabilitiesFinancial liabilities are classified in the consolidated balance sheet as follows:

i) Financial liabilities held for trading: this category includes the financial liabilities acquired for

the purpose of realising them in the near term. They form part of a portfolio of identified financial

instruments that are managed together and for which there is evidence of a recent pattern of

short-term profit taking, they are financial derivatives not designated as hedging instruments and

financial liabilities arising from the outright sale of financial assets purchased under reverse

repurchase agreements or borrowed.

ii) Financial liabilities at amortised cost: this category relates to financial liabilities not included in

any of the other balance sheet categories which arise from the ordinary deposit-taking activities

carried on by financial institutions, irrespective of their instrumentation and maturity.

iii) Hedging derivatives: this category includes the financial derivatives acquired or issued by the

Group which qualify for hedge accounting.

iv) Equity having the substance of a financial liability: amount of the financial instruments issued by

the Entity that, although equity for legal purposes, do not meet the requirements for classification as

equity. These instruments relate basically to issued shares that do not carry voting rights and whose

yield is established on the basis of a fixed or floating interest rate. These instruments are measured

as financial liabilities at amortised cost unless the Group has designated them as financial liabilities

at fair value provided that the required conditions are met.

Financial liabilities are measured at amortised cost, as defined for financial assets, except in the

following cases:

i) The financial liabilities included under “Financial Liabilities Held for Trading” are measured at

fair value, as defined for financial assets. Financial liabilities hedged in fair value hedges are

adjusted and changes in fair value with respect to the risk being hedged are recognised.

ii) Financial derivatives that have as their underlying asset equity instruments whose fair value

cannot be determined in a sufficiently objective manner and are settled by delivery of those

instruments, are measured at cost.

As a general rule, changes in the carrying amount of financial liabilities are recognised in the

consolidated income statement. A distinction is made between the changes resulting from the accrual

of interest and similar items -which are recognised under “Interest Expense and Similar Charges”- and

those arising for other reasons -which are recorded at their net amount under “Gains or Losses on

Financial Assets and Liabilities” in the consolidated income statement.

Bankinter Group 22


The gains or losses arising on financial liabilities designated as hedged items or as hedging

instruments are recognised as stated for financial assets.

(e) Recognition of income and expensesAs a general rule, interest income, interest expenses and similar items are recognised on the basis

of their period of accrual using the effective interest method. Dividends received from other

companies are recognised as income when the right to receive them arises.

Fees and commissions paid or received for financial services, however denominated contractually,

are classified in the following categories, which determine their recognition in the consolidated

income statement:

i) Financial fees and commissions, which are those that are an integral part of the effective yield or

cost of a financial transaction and are recognised in the income statement over the expected life of

the financing as an adjustment to the effective yield or cost of the transaction. They include loan

origination and analysis fees, fees on credit overlimits and fees on deposit overdrafts.

ii) Non-financial fees and commissions, which are those arising from the provision of services and

may arise from the provision of a service over a period of time and from the rendering of a service

in a single act.

Fee and commission income and expenses are generally recognised in the consolidated income

statement as follows:

i) Those relating to financial assets and financial liabilities measured at fair value through profit or

loss are recognised when paid.

ii) Those arising from transactions or services that are provided over a period of time are

recognised over the life of these transactions or services.

iii) Those relating to a transaction or service performed in a single act are recognised when the

single act is carried out.

Non-finance income and expenses are recognised for accounting purposes on an accrual basis.

Deferred collections and payments (over periods longer than a year) are recognised for accounting

purposes at the amount resulting from discounting the expected cash flows at market rates.

23Bankinter Group

l

d


B

(f) Impairment of financial assetsThe carrying amount of a financial asset is generally adjusted with a charge to the income

statement when there is objective evidence of an impairment loss, which occurs when:

i) In the case of debt instruments, i.e. loans and debt securities, after their initial recognition a

single event or the combined effect of several events causes a negative impact on their future cash

flows

ii) In the case of equity instruments, after their initial recognition a single event or the combined

effect of several events means that their carrying amount cannot be fully recovered.

As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge

to the consolidated income statement for the period in which the impairment becomes evident,

and the reversal of previously recognised impairment losses, if any, is recognised in the

consolidated income statement for the period in which the impairment is reversed or reduced.

When the recovery of any recognised impairment is considered unlikely, the amount of the

impairment is derecognised, without prejudice to any actions that the Group may initiate to seek

collection of the amount receivable until their contractual rights are extinguished by expiry of the

statute-of-limitations period, forgiveness or any other cause.

The amount of an impairment loss incurred on a debt instrument measured at amortised cost is

equal to the difference between its carrying amount and the present value of its estimated future

cash flows. For quoted instruments, instead of the present value of future cash flows, market value

may be used provided that it is sufficiently reliable to consider it as representative of the amount

that might be recovered by the Group.

The estimated future cash flows of a debt instrument are all the principal and interest amounts

that the Group considers will flow to it over the life of the instrument. Its estimate takes into

account all relevant information available on the date when the financial statements are

authorised for issue about the likelihood of collecting the contractual cash flows in the future.

The future cash flows of a collateralised instrument are estimated by taking into account the flows

that would result from foreclosure less costs for obtaining and subsequently selling the collateral,

whether or not foreclosure is probable.

The discount rate used to calculate the present value of the estimated future cash flows is the

instrument's original effective interest rate, if its contractual rate is fixed, or the effective interest

rate at the reporting date determined under the contract, if it is floating.

Bankinter Group 24


Debt instrument portfolios, contingent liabilities and contingent commitments, irrespective of the

holder, instrumentation or guarantee, are reviewed so as to determine the credit risk to which the

Group is exposed and to consider whether an impairment allowance is required. In the preparation

of the consolidated financial statements, the Group classified its transactions on the basis of the

inherent credit risk and assessed separately the insolvency risk attributable to customers and the

country risk to which the transactions are exposed.

The objective evidence of impairment is determined individually for all debt instruments that are

individually significant, and individually or collectively for the groups of debt instruments which

are not individually significant. When a specific instrument cannot be included in any group of

assets with similar credit risk characteristics, it is analysed solely on an individual basis to

determine whether it is impaired and, if so, to estimate the impairment loss.

Collective assessment of a group of financial assets to estimate impairment losses is carried out as

follows:

i) Debt instruments are included in groups with similar credit risk characteristics that are indicative

of the debtors' ability to pay all amounts due, both principal and interest, according to the

contractual terms. The credit risk characteristics to be taken into account for grouping assets are,

among others: instrument type, debtor's industry, geographical location, type of guarantee or

collateral, age of past-due amounts and any other factor relevant to the estimation of future cash

flows.

ii) The future cash flows from each group of debt instruments are estimated for instruments with

similar credit risk characteristics to those in the respective group, after making the necessary

adjustments to adapt the historical data to current market conditions.

iii) The impairment loss of each group is the difference between the carrying amount of all the

debt instruments in the group and the present value of the estimated future cash flows.

Debt instruments not measured at fair value through profit or loss, and contingent liabilities and

contingent commitments are classified, on the basis of insolvency risk attributable to the customer

or to the transaction, in one of the following categories: standard, substandard, doubtful due to

customer arrears, doubtful for reasons other than customer arrears and write-off. The specific

impairment allowances are estimated for debt instruments not classified as standard risk, taking

into account the age of past-due amounts, the guarantees provided and the economic situation of

the customer and, where appropriate, of the guarantors. This estimate is generally performed on the

basis of the default schedules.

25Bankinter Group


B

In addition to the specific impairment allowances mentioned above, the Group recognised an

overall impairment allowance for inherent losses on debt instruments not measured at fair value

through profit or loss and on contingent liabilities classified as standard risk.

In this connection, the Bank of Spain determines the parameters, methods and amounts to be used

to cover the inherent impairment losses incurred in debt instruments and contingent liabilities

classified as standard risk.

The calculation method established in Annex IX of Bank of Spain Circular 4/2004 is divided into

two stages.

At the first stage, balances are classified into the six risk classes defined in the Circular, namely

negligible risk, low risk, medium-low risk, medium risk, medium-high risk and high risk.

The impaired charge is the sum of

a) the products of the change during the period in the balance of each risk class and the related

regulatory α parameter, plus

b) the sum of the products of the total balance of the transactions included in each risk class at the

end of the period and the related regulatory β parameter, less

c) the amount of the overall net impairment charges for the relevant specific allowances or

provisions made in the period.

The overall balance of this general allowance or provision must at all times be between 33% and

125% of the sum of the products obtained by multiplying the amount of each risk class by its

related α parameter. The balance at the Group at 31 December 2006 and 2005 related to the

maximum ratio.

Parameters α and β, for each risk class, are as follows:

Bankinter Group 26

α β

Negligible risk 0% 0%

Low risk 0.6% 0.11%

Medium-low risk 1.5% 0.44%

Medium risk 1.8% 0.65%

Medium-high risk 2.0% 1.10%

High risk 2.5% 1.64%


The recognition of interest accrual under the contractual terms in the consolidated income

statement is suspended for debt instruments individually classified as impaired and for the

instruments for which impairment losses have been assessed collectively because they have

payments more than three months past due.

The amount of the impairment losses on debt instruments and equity instruments included under

“Available-for-Sale Financial Assets” is the positive difference between their acquisition cost, net of

any principal repayment or amortisation, and their fair value less any impairment loss previously

recognised in the consolidated income statement.

When there is objective evidence that the decline in fair value is due to impairment, the unrealised

losses recognised directly in consolidated equity under “Valuation Adjustments” are recognised

immediately in the consolidated income statement. If all or part of the impairment losses are

subsequently reversed, the reversed amount is recognised in the consolidated income statement for

the year in which the reversal occurred, in the case of debt instruments, and under “Valuation

Adjustments” in consolidated equity in the case of equity instruments.

The impairment loss on equity instruments measured at cost is the difference between the carrying

amount and the present value of the expected future cash flows discounted at the market rate of

return for similar securities. Impairment losses are recognised in the consolidated income

statement for the period in which they arise as a direct reduction of the cost of the financial asset.

These losses can only be reversed subsequently in the case of the sale of the related asset.

The impairment losses on investments in jointly controlled entities and associates are estimated by

comparing their recoverable amount with their carrying amount. Impairment losses are recognised

in the income statement for the period in which they occur; subsequent reversals are recognised in

the income statement for the period in which the impairment losses are reversed.

(g) Financial derivativesFinancial derivatives are instruments which, in addition to providing a profit or loss, may permit

the offset, under certain conditions, of all or a portion of the credit and/or market risks associated

with balances and transactions, using interest rates, certain indices, equity prices, cross-currency

exchange rates or other similar benchmarks as underlyings. The Group uses financial derivatives

traded on organised markets or traded bilaterally with the counterparty outside organised markets

(OTC derivatives) both for proprietary transactions and for transactions with the wholesale or retail

customer segment.

27Bankinter Group

d


B

The Group takes positions in derivatives for the purpose of arranging hedges, actively managing

other financial assets and liabilities or benefiting from price changes. Financial derivatives that do

not qualify for hedge accounting are classified as trading derivatives.

Derivatives with an active market are measured at the quoted prices in such markets.

Derivatives with no market or with an inactive market are measured using the most consistent and

appropriate economic methods, maximising the use of observable data and other factors that

market participants would take into account, such as: a) recent transactions involving other

instruments that are substantially equal, b) discounting of cash flows and c) market option pricing

models. The valuation techniques are preferably those used by market participants and have been

demonstrated to provide the most realistic estimate of the instrument's price.

All financial derivatives are initially recognised at fair value. In the case of financial swaps the fair

value is assumed to be zero, unless the Group demonstrates otherwise using appropriate valuation

techniques. In this case, the initial recognition of fair value generates a profit or loss that must be

recognised in the income statement when all the variables of the model stem exclusively from

observable market data, giving rise to the so-called “day-one profits”. Based on a prudential

supervisory ruling issued by the Bank of Spain at the request of the Bank, the Board of Directors

decided to apply an alternative criteria consisting of the recognition of the aforementioned “day-

one profits” on a straight-line basis over the life of the swaps giving rise to them.

A derivative may be designated as a hedging instrument only if it meets the following criteria:

i) It qualifies in its entirety as a hedging instrument, even when only a percentage of its total

amount is such, except that in the case of options it is permitted to designate as the hedging

instrument the change in their intrinsic value, excluding changes in their time value, and in the

case of forward contracts it is permitted to designate as the hedging instrument the difference

between the spot and forward prices of the underlying asset.

ii) It is designated as a hedge for its total remaining term to maturity.

iii) If more than one risk is hedged, the different hedged risks can be clearly identified, each part

of the instrument can be designated as a hedge of specific hedged items and the effectiveness of

the various hedges can be demonstrated.

Bankinter Group 28


The hedge effectiveness of hedging derivatives is duly documented through effectiveness analysis,

which is the tool that evidences that the differences arising from changes in market prices between

the hedged item and the hedging instrument remain at reasonable parameters over the term of the

transactions, in line with the estimates made at the trade date.

If this is not the case at any time, the associated transactions in the hedging group would be

treated as trading derivatives and would be duly reclassified in the balance sheet.

The hedges entered into by the Group are classified as fair value hedges:

� Micro-hedges or individual hedges (in which hedged items and hedging instruments are

specifically identified) hedge the exposure to changes in the fair value of the hedged item.

The profit or loss arising in measuring the hedging instruments and the hedged items is

recognised immediately in the consolidated income statement.

� Portfolio hedges (hedges of interest rate risk in a portfolio of financial instruments) hedge

the exposure to changes in the fair value of the hedged amount in response to changes in the

hedged interest rate. The profit or loss arising from measuring hedging instruments is

recognised immediately in the consolidated income statement. In the case of the hedged

amount, the profit or loss arising on measurement is recognised directly in the income

statement with a charge or credit, as appropriate, to the asset or liability item “Changes in the

Fair Value of Hedged Items in Portfolio Hedges of Interest Rate Risk” depending on whether the

hedged amount relates to financial assets or financial liabilities, respectively.

(h) Transfers and derecognition of financial instrumentsThe accounting treatment of transfers of financial instruments depends on the extent to which the

risks and rewards associated with the transferred financial instruments are transferred:

i) If the Group transfers substantially all the risks and rewards to third parties -unconditional sale,

sale under an agreement to repurchase at fair value at the repurchase date, sale of financial assets

with a purchased call option or written put option that is deeply out of the money, securitisation of

assets in which the transferor does not retain a subordinated debt or grant any credit

enhancement to new holders, etc.-, the transferred financial instrument is derecognised and any

right or obligation retained or created in the transfer is recognised simultaneously.

29Bankinter Group

d


B

ii) If the Group retains substantially all the risks and rewards associated with the transferred

financial instrument -sale of financial assets under an agreement to repurchase them for a fixed

price or the sale price plus interest, a securities lending agreement in which the borrower

undertakes to return the same or similar assets, etc.-, the transferred financial instrument is not

derecognised and continues to be measured by the same criteria used before the transfer. However,

an associated financial liability is recognised for an amount equal to the consideration received.

This liability is subsequently measured at amortised cost. The income from the transferred

financial asset not derecognised and any expense incurred on the new financial liability are

recognised in the consolidated income statement.

iii) If the Group neither transfers nor retains substantially all the risks and rewards associated with

the transferred financial asset -sale of financial assets with a purchased call option or written put

option that is not deeply in or out of the money, securitisation of assets in which the transferor

retains a subordinated debt or other type of credit enhancement for a portion of the transferred

asset, etc.-, the following distinction must be made:

� If the Group does not retain control, the transferred financial instrument is derecognised and

any right or obligation retained or created in the transfer is recognised.

� If the Group retains control, it continues to recognise the transferred financial instrument in

the balance sheet for an amount equal to its exposure to changes in value and recognises a

financial liability associated with the transferred financial asset. The net carrying amount of

the transferred asset and of the associated liability is the amortised cost of the rights and

obligations retained, if the transferred asset is measured at amortised cost, or the fair value of

the rights and obligations retained, if the transferred asset is measured at fair value.

Accordingly, financial assets are only derecognised when the rights on the cash flows they

generate have expired or when substantially all the inherent risks and rewards have been

transferred to third parties. Similarly, financial liabilities are only derecognised when the

obligations they generate have expired or when they are acquired with the intention either to

cancel them or to re-place them.

(i) Tangible assetsTangible assets are presented at acquisition cost, revalued pursuant to certain legal provisions and

also as permitted in the transition to the new accounting standards, less the related accumulated

depreciation and any impairment losses.

The acquisition cost of foreclosed assets is the carrying amount of the financial assets settled

through foreclosure.

Bankinter Group 30


Depreciation is calculated by the straight-line or the sum-of-the-years'-digits method by applying

the years of estimated useful life of the various items to the acquisition cost of the assets less their

residual value. The land on which the buildings and other structures stand has an indefinite life

and, therefore, is not depreciated. The tangible asset depreciation charge is recognised in the

consolidated income statement and is calculated on the basis of the years of estimated useful life,

which are basically the same as the minimum legal periods:

Depreciation Method

Buildings Straight-line over 50 years

Furniture, fixtures and other Straight-line over 6 to 12 years

Computer hardware Sum-of-the-years'-digits or shifts

The Group reviews the depreciation period and method of each tangible asset at least at the end of

the reporting period.

Upkeep and maintenance expenses that do not enhance the utilisation or lengthen the useful life

of the respective assets are charged to the consolidated income statement when and as they are

incurred.

At the reporting date the Group assesses whether there is any internal or external indication that

an asset may be impaired (i.e. its carrying amount exceeds its recoverable amount). If this is the

case, the Group reduces the carrying amount of the asset to its recoverable amount and adjusts

future depreciation charges in proportion to the revised carrying amount and to the new remaining

useful life (if the useful life has to be re-estimated). Similarly, if there is an indication of a recovery

in the value of a tangible asset, the Group recognises the reversal of the impairment loss

recognised in prior periods and adjusts the future depreciation charges accordingly. In no

circumstances may the reversal of an impairment loss on an asset raise its carrying amount above

that which it would have if no impairment losses had been recognised in prior years.

(j) Intangible assetsIntangible assets are identifiable non-monetary assets without physical substance. Intangible

assets are deemed to be identifiable when they are separable from other assets because they can

be sold, rented or otherwise disposed of individually, or when they arise from contractual or other

legal rights. An intangible asset is recognised when, in addition to meeting the above definition,

the Group considers it probable that economic benefits will flow from the asset and the cost of the

asset can be measured reliably.

31Bankinter Group

,

h


B

Intangible assets are recognised initially at acquisition or production cost and are subsequently

measured at cost less any accumulated amortisation and any impairment losses.

The Group recognises any impairment loss on the carrying amount of these assets with a charge to

the consolidated income statement. The criteria used to recognise the impairment losses on these

assets and, where applicable, the reversal of impairment losses recognised in prior years are

similar to those used for tangible assets.

(k) LeasesLease contracts are presented in the consolidated financial statements on the basis of the economic

substance of the transaction regardless of its legal form and are classified from inception as

finance or operating leases.

i) A lease is classified as a finance lease when it transfers substantially all the risks and rewards

incidental to ownership of the asset forming the subject-matter of the contract.

When the Group acts as lessor of an asset, the sum of the present value of the lease payments

receivable from the lessee plus the guaranteed residual value -which is generally the exercise price

of the purchase option of the lessee at the end of the lease term- is recognised as lending to third

parties and is therefore included, based on the type of lessee, under “Loans and Receivables” in the

consolidated balance sheet.

When the Group acts as lessee, it presents the cost of the leased assets in the consolidated balance

sheet according to the nature of the asset forming the subject-matter of the contract and,

simultaneously, recognises a liability for the same amount (which is the lower of the fair value of

the leased asset and the sum of the present value of the lease payments to be made to the lessor

plus, if appropriate, the exercise price of the purchase option). The depreciation policy for these

assets is consistent with that for property, plant and equipment for own use.

The finance income and finance expense arising from these contracts is credited or debited,

respectively, to the consolidated income statement so as to achieve a constant rate of return over

the life of the lease contracts.

ii) Leases other than finance leases are classified as operating leases.

When the Group acts as lessor, it presents the acquisition cost of the leased assets under “Tangible

Assets”. The depreciation policy for these assets is consistent with that for similar tangible assets

for own use and income from operating leases is recognised on a straight-line basis in the

consolidated income statement.

Bankinter Group 32


When the Group acts as lessee, the lease expenses, including any incentives granted by the lessor,

are recognised on a straight-line basis in the consolidated income statement.

(l) Non-current assets held for saleNon-current assets held for sale are assets whose carrying amount is expected to be recovered

mainly through sale and that are available for immediate sale and their sale is considered to be

highly probable.

Non-current assets held for sale are measured at the lower of fair value less costs to sell and their

carrying amount. These assets are not depreciated.

Impairment losses are recognised under “Impairment Losses - Non-Current Assets Held for Sale” in

the consolidated income statement. The reversals of impairment losses are recognised in the

consolidated income statement up to an amount equal to the impairment losses previously

recognised.

Foreclosed assets are measured at the lower of their fair value less costs to sell and their carrying

amount. Impairment losses, which are calculated individually for assets that remain on the balance

sheet for a period longer than initially envisaged for their sale, are recognised under “Impairment

Losses - Non-Current Assets Held for Sale” in the consolidated income statement.

(m) OffsettingAsset and liability balances arising from transactions which, contractually or as a result of a legally

enforceable right, envisage the possibility of offsetting and the Group intends to settle them on a

net basis, or to realise the asset and pay the liability simultaneously, are recognised in the

consolidated balance sheet at their net amount.

(n) Securities lent or pledged as collateralSecurities lending is defined as a transaction in which the borrower receives full title to securities

without making any payment except fees and commissions, with the commitment to return to the

lender others of the same class as those received.

Securities lending agreements in which the borrower undertakes to return the same or

substantially the same assets or other similar ones having the same fair value are deemed to be

transactions in which the lender retains substantially all the risks and rewards incidental to

ownership.

(o) Financial guaranteesFinancial guarantees are defined as contracts whereby the Group undertakes to make specific

payments for a third party if the latter does not do so, irrespective of the various legal forms they may

have, such as guarantees, irrevocable documentary credits issued or confirmed by the Group, etc.

33Bankinter Group

c


B

Financial guarantees are recognised under “Accrued Expenses and Deferred Income” at their fair

value which, on initial recognition and in the absence of evidence to the contrary, is the present

value of the cash flows to be received, using an interest rate similar to that of the financial assets

granted by the entity with a similar term and risk. Simultaneously, the present value of the future

cash flows receivable using the aforementioned interest rate is recognised under “Other Financial

Assets”.

Subsequently, the value of contracts recognised under “Other Financial Assets” is discounted by

recording the differences in the consolidated income statement as interest income. The fair value

of guarantees recognised under “Accrued Expenses and Deferred Income” is allocated to the

consolidated income statement as income from commissions received, on a straight-line basis over

the expected life of the guarantee, or by another method provided that it more adequately

reflects the economic risks and rewards of the guarantee.

Financial guarantees are classified on the basis of the insolvency risk allocable to the customer or

to the transactions and, if appropriate, the need for provisions is assessed by application of criteria

similar to those indicated in Note 5-f) for debt instruments measured at amortised cost.

If a provision for financial guarantees is required, the unearned commissions recognised under

“Accrued Expenses and Deferred Income” on the liability side of the consolidated balance sheet are

reclassified to the appropriate provision.

(p) Personnel expenses

Post-employment benefitsPost-employment benefits are employee compensation that is payable after completion of

employment. All post-employment obligations, including those covered by internal or external

pension funds are classified as defined contribution plans or defined benefit plans based on the

terms and conditions of those obligations, taking into account all commitments made, whether

within or outside the terms formally agreed with employees.

The Group recognises the contribution to be made to insurance entities at the amount of the

insurance premiums paid under “Personnel Expenses” in the consolidated income statement.

Irrevocable post-employment commitments to senior management are recognised over the

estimated total period of service by senior management to the Entity.

Equity-instrument-based employee remunerationThe accrued portion of the market value of the implicit options at the grant date relating to

outstanding issues of convertible debentures for Group employees (Note 19-e) is recognised as a

personnel expense with a credit to “Other Equity Instruments” in consolidated equity until the

options expire or are cancelled early.

Bankinter Group 34


As the Group carries out capital increases to cater for the conversion of debentures into shares over

the term of the convertible debenture issues, the item “Other Equity Instruments” is converted into

“Share Premium”.

In the event of non-compliance with the internal conditions established by the Group for the

conversion of debentures into shares, the accumulated amount recognised in equity in this

connection is reversed with a credit to the consolidated income statement.

The personnel expenses referred to in this section do not entail the receipt of any remuneration

or right by employees, since convertible debenture issues are financial transactions in which

employees can participate voluntarily, bear the risks of the transaction and forfeit the conversion

right if they leave the Group for any reason.

Multi-year incentive plansThe amount of the payments under the multi-year executive incentive plans is recognised under

“Personnel Expenses” on an accrual basis.

(q) Other provisions and contingenciesThe Group recognises provisions for the estimated amount required to meet present obligations

arising from past events whose nature is clearly specified but whose amount or settlement date is

uncertain and that the Group expects to settle through an outflow of resources embodying

economic benefits. These obligations may arise from:

� A legal or contractual requirement.

� An implicit or tacit obligation arising from valid expectations created by the Group to third

parties regarding the assumption of certain types of responsibilities. Such expectations are

created when the Group publicly accepts responsibilities, or derive from past practice or from

publicly known business policies.

� Virtual certainty as to the future course of regulation in particular respects, especially

proposed new legislation that the Group cannot avoid.

Contingent liabilities are possible obligations of the Group that arise from past events and whose

existence is conditional on the occurrence or non-occurrence of one or more future events beyond

the control of the Group. They include the present obligations of the Group when it is not probable

that an outflow of resources embodying economic benefits will be required to settle them or when,

in extremely rare cases, their amount cannot be measured with sufficient reliability.

35Bankinter Group


B

Provisions and contingent liabilities are classified as probable when it is more likely than not that

they will occur; as possible when it is more likely than not that they will not occur; and as remote

when it is extremely rare that they should occur.

The Group's consolidated financial statements include all the material provisions with respect to

which it is considered that it is more likely than not that the obligation will have to be settled.

Contingent liabilities are not recognised in the consolidated financial statements, but rather

information thereon is disclosed unless the possibility of an outflow of resources embodying

economic benefits is remote.

Provisions are quantified on the basis of the best information available on the consequences of the

event giving rise to them and are estimated at each reporting date taking into account the

financial effect, if it is material. Provisions are used to cater for the specific obligations for which

they were originally recognised and are fully or partially reversed when such obligations cease to

exist.

At 31 December 2006 and 2005, certain litigation and claims were in process against the Group

arising from the ordinary course of its operations. The Group's legal advisers and the directors of

the Bank consider that the outcome of such litigation and claims will not have a material effect, in

addition to that included as a provision, on the consolidated financial statements.

(r) Insurance contractsIn accordance with standard accounting practice in the insurance sector, insurance entities credit to

the income statement the amounts of the premiums written and charge to income the cost of the

claims incurred on final settlement thereof. Also, insurance entities are required to accrue at year-

end the unearned premiums written credited to their income statements and the expected costs for

claims not charged to the income statement.

The most significant liabilities recorded by insurance entities in relation to direct insurance

contracts arranged by them relate to the following technical provisions: provisions for unearned

premiums, provisions for unexpired risks, provisions for claims outstanding, mathematical

provisions, provisions for life assurance policies where the investment risk is borne by the

policyholders and provisions for bonuses and rebates. The technical provisions to cater for claims

arising from direct insurance contracts are recognised in the accompanying consolidated balance

sheets under “Liabilities under Insurance Contracts”.

“Reinsurance Assets” includes the amounts that the entities are entitled to receive for reinsurance

contracts with third parties. They are calculated on the basis of the reinsurance contracts entered

into and by application of the same criteria as those used for direct insurance.

Bankinter Group 36


The results of the Group's insurers relating to their insurance activity are recognised under

“Insurance Activity Income” in the consolidated income statement.

(s) Income taxIncome tax is treated as an expense and recognised under “Income Tax” in the consolidated income

statement, except when it results from a transaction recognised directly in equity, in which case

the income tax is also recognised in equity, or from a business combination, in which case the

deferred tax is recognised as one of its assets or liabilities.

The income tax expense is determined by the tax payable on the taxable profit for the year, after

taking account of any changes in that year due to temporary differences, tax credits and tax losses.

The taxable profit for the year may differ from the net profit reported in the consolidated income

statement because it excludes revenue and expense items which are taxable or deductible in

different years and also excludes non-deductible items.

Deferred tax assets and liabilities relate to the amounts expected to be payable or recoverable on

differences between the carrying amounts of assets and liabilities and their related tax bases, are

recognised using the balance sheet liability method and are measured by applying to the related

temporary difference or tax carryforward the tax rates at which the asset is expected to be realised

or the liability settled.

A deferred tax asset, such as prepaid tax, a tax credit carryforward and a tax loss carryforward, is

recognised whenever it is probable that the Group will obtain sufficient future taxable profit

against which the deferred tax asset can be utilised. It is considered probable that the Group will

obtain sufficient taxable profit in the future in the following cases, among others:

i) There are deferred tax liabilities settleable in the same year that the deferred tax asset is

realised, or in a subsequent year in which the existing tax loss or that resulting from the amount

carried forward can be offset.

ii) The tax losses result from identifiable causes which are unlikely to recur.

Notwithstanding the foregoing, a deferred tax asset that arises in accounting for investments in

jointly controlled entities or associates is only recognised if it is probable that it will be realised

in the foreseeable future and it is expected that sufficient future taxable profits will be available

against which the deferred tax asset can be utilised. Furthermore, a deferred tax asset is not

recognised if it arises from the initial recognition of an asset or liability other than a business

combination that at the time of recognition affects neither accounting profit nor taxable profit.

37Bankinter Group

o

r


B

A deferred tax liability is always recognised except when goodwill is recognised or it arises in

accounting for investments in jointly controlled entities or associates where the Group is able to

control the timing of the reversal of the temporary difference and, in addition, it is probable that

the temporary difference will not reverse in the foreseeable future. Furthermore, a deferred tax

liability is not recognised if it arises from the initial recognition of an asset or liability other than a

business combination that at the time of recognition affects neither accounting profit nor taxable

profit.

The deferred tax assets and liabilities recognised are reassessed at year-end in order to ascertain

whether they still exist, and the appropriate adjustments are made.

(t) Off-balance-sheet customer fundsThe amount of funds entrusted by third parties for investment in investment companies,

investment funds, pension funds, insurance contracts and discretionary portfolio management

contracts is not recognised on the face of the Group's consolidated balance sheet. Note 41 contains

information on these funds at 31 December 2006.

The fees and commissions earned on this activity are recognised under “Fee and Commission

Income” in the consolidated income statement.

Bankinter Group 38


Disclosures on the main balance sheet items

(6) Cash and balances with central banks

The breakdown of “Cash and Balances with Central Banks”, which includes cash balances and

balances with the Bank of Spain and other central banks, at 31 December 2006 and 2005 is as

follows:

Thousands of Euros 31/12/06 31/12/05

Cash 99,059 74,243

Bank of Spain 424,008 343,231

Other central banks 15,903 18,109

Valuation adjustments 208 333

Total 539,178 435,916

In euros 537,826 434,771

In foreign currencies 1,352 1,145

Total 539,178 435,916

“Valuation Adjustments” includes EUR 208 thousand relating to accrued interest at 31 December

2006 (31 December 2005: EUR 333 thousand).

(7) Financial assets and liabilities held for trading and Otherfinancial assets at fair value through profit or loss

The breakdown of “Financial Assets and Liabilities Held for Trading” and “Other Financial Assets at

Fair Value through Profit or Loss” in the consolidated balance sheets at 31 December 2006 and

2005 is as follows:

Assets (Thousands of Euros) 31/12/06 31/12/05

Debt instruments 2,503,479 4,327,317

Other equity instruments 133,260 63,695

Trading derivatives 148,059 267,274

2,784,798 4,658,286

In euros 2,765,723 4,657,609

In foreign currencies 19,075 677

Total 2,784,798 4,658,286

39Bankinter Group


B

“Other Equity Instruments” relates to securities included in financial assets held for trading and

other financial assets at fair value through profit or loss. The balance of the latter at 31 December

2006 amounted to EUR 24,596 thousand (31 December 2005: EUR 23,884 thousand).

Liabilities (Thousands of Euros) 31/12/06 31/12/05

Short positions 2,462,625 3,107,171

Trading derivatives 101,503 250,115

Total 2,564,128 3,357,286

In euros 2,561,791 3,356,938


Total 2,564,128 3,357,286

The changes, by type of instrument, in “Financial Assets Held for Trading” and “Other Financial

Assets at Fair Value through Profit or Loss” in 2006 and 2005 were as follows:

The fair value of assets lent (repurchase agreements) included in these balance sheet items was

EUR 1,981,715 thousand at 31 December 2006 (31 December 2005: EUR 4,002,508 thousand).

Bankinter Group 40

Thousands of Euros Debt Instruments Other Equity Instruments Trading Derivatives Total

Balance at 31/12/04 1,932,751 8,247 70,414 2,011,412

Additions 19,028,379 1,002,648 13,949,140 33,980,167

Retirements 16,633,813 947,200 13,752,280 31,333,293

Balance at 31/12/05 4,327,317 63,695 267,274 4,658,286

Additions 14,170,847 1,875,218 34,089,936 50,136,001

Retirements 15,994,685 1,805,653 34,209,151 52,009,489

Balance at 31/12/06 2,503,479 133,260 148,059 2,784,798


The changes in “Financial Liabilities Held for Trading” in 2006 and 2005, by type of instrument,

were as follows:

Thousands of Euros Trading Derivatives Short Positions Total

Balance at 31/12/04 81,309 1,170,854 1,252,163

Additions 13,050,394 10,120,241 23,170,635

Retirements 12,881,588 8,183,924 21,065,512

Balance at 31/12/05 250,115 3,107,171 3,357,286

Additions 35,775,927 12,051,801 47,827,728

Retirements 35,924,539 12,696,347 48,620,886

Balance at 31/12/06 101,503 2,462,625 2,564,128

The detail of the effect on the consolidated income statements for 2006 and 2005 of the changes in

the fair value of the financial assets and liabilities held for trading and of the financial assets at

fair value through profit or loss is as follows:


Held for trading 1,903 3,367

- Organised market (541) 29,718

- Non-organised market 2,444 (26,351)

Other financial assets at fair value through profit or loss 2,767 5,223

Total 4,670 8,590

The detail, by type of instrument and counterparty, of “Financial Assets Held for Trading” and

“Other Financial Assets at Fair Value through Profit or Loss” in the consolidated balance sheets at

31 December 2006 and 2005 is as follows:

41Bankinter Group

At 31 December 2006

Thousands of Euros Other Other TotalCredit Resident Non-Resident Resident Non-Resident

Institutions Public Sector Public Sector Private Sectors Private Sectors

Debt instruments - 2,494,406 - 9,073 - 2,503,479

Other equity instruments 31,635 - - 54,936 46,689 133,260

Trading derivatives 106,480 19 - 40,865 695 148,059

Total 138,115 2,494,425 - 104,874 47,384 2,784,798


B

Financial assets held for trading are concentrated in Spain where the related exposure is located.

At 31 December 2006 and 2005 there were no financial assets held for trading classified as

doubtful, impaired or past-due assets.

The detail, by remaining maturity, of the instruments included in “Financial Assets Held for

Trading” and “Other Financial Assets at Fair Value through Profit or Loss” at 31 December 2006 and

2005 is as follows:


Within one month 17,040 48,882

More than 1 month but not more than 3 months 172,808 41,398

More than 3 months but not more than 6 months 404,016 946,944

More than 6 months but not more than 1 year 375,009 1,390,891

More than 1 year but not more than 5 years 1,472,118 991,337

More than 5 years 206,968 1,125,432

Undetermined maturity 136,839 113,402

Total 2,784,798 4,658,286

The detail, by type of instrument, of the net gains/losses on financial assets included in “Financial

Assets/Liabilities Held for Trading” and “Other Financial Assets at Fair Value through Profit or Loss”

in 2006 and 2005 is as follows:

Thousands of Euros Gains/Losses on Financial Assets and Liabilities (net)

31/12/06 31/12/05

Fixed-income securities held for trading 18,324 12,917


- Financial assets/liabilities held for trading 50,552 (1,232)

- Other financial assets at fair value through profit or loss 2,767 5,223

Trading derivatives (66,973) (8,318)

Total 4,670 8,590

Bankinter Group 42

At 31 December 2005

Thousands of Euros Other Other TotalCredit Resident Non-Resident Resident Non-Resident

Institutions Public Sector Public Sector Private Sectors Private Sectors

Debt instruments 52 4,256,113 71,101 51 - 4,327,317

Other equity instruments 17,398 - - 25,099 21,198 63,695

Trading derivatives 86,822 - - 179,529 923 267,274

Total 104,272 4,256,113 71,101 204,679 22,121 4,658,286


a) Debt instrumentsThe breakdown of “Financial Assets Held for Trading - Debt Instruments” in the consolidated

balance sheets at 31 December 2006 and 2005 is as follows:


Public sector 2,494,406 4,327,214

Other private sectors 9,073 103

Total 2,503,479 4,327,317

The detail of “Debt Instruments”, by type of instrument, at 31 December 2006 and 2005, is as

follows:


Treasury bills 811,791 2,361,323

Bonds 1,036,219 873,740

Debentures 640,857 1,076,920

Strips 5,605 15,283

Other 9,007 52

Total 2,503,479 4,327,317

All the amounts composing this item are denominated in euros.

The detail of “Financial Assets Held for Trading - Debt Instruments” and of the changes therein in

2006 and 2005 is as follows:

Thousands of Euros Public Other Private Sectors/Sector Credit Institutions Total

Balance at 31/12/04 1,821,934 110,817 1,932,751

Additions 18,791,891 236,391 19,028,282

Retirements 16,286,611 347,105 16,633,716

Balance at 31/12/05 4,327,214 103 4,327,317

Additions 12,175,660 1,942,290 14,117,950

Retirements 14,008,468 1,933,320 15,941,788

Balance at 31/12/06 2,494,406 9,073 2,503,479

At 31 December 2006 and 2005 this item consisted of securities listed on organised markets.

43Bankinter Group

d


B

b) Other equity instrumentsThe detail of “Financial Assets Held for Trading - Other Equity Instruments” and “Other Financial

Assets at Fair Value through Profit or Loss - Other Equity Instruments” and of the changes therein

in 2006 and 2005 is as follows:

Thousands of Euros Of Credit Of Other Of Other TotalInstitutions Resident Sectors Non-Resident Sectors

Balance at 31/12/04 1,820 4,366 2,061 8,247

Additions 475,003 58,771 468,874 1,002,648

Retirements 459,425 41,939 445,836 947,200

Balance at 31/12/05 17,398 21,198 25,099 63,695

Additions 469,355 1,283,131 115,631 1,868,117

Retirements 455,118 1,249,393 94,041 1,798,552

Balance at 31/12/06 31,365 54,936 46,689 133,260

The detail, by currency, of other equity instruments at 31 December 2006 and 2005 is as follows:


Other equity instruments

In euros 114,253 63,017


of which:

- US dollar 2,785 200

- Pound sterling 15,610 191

- Swiss franc 306 -

- Swedish krona 306 287

Total 133,260 63,695

The breakdown, by listing status, of “Other Equity Instruments” at 31 December 2006 and 2005 is

as follows:


Listed 131,455 62,092

Unlisted 1,805 1,603

Total 133,260 63,695

Bankinter Group 44


c) Trading derivativesThe breakdown of “Financial Assets Held for Trading - Trading Derivatives” and “Financial

Liabilities Held for Trading - Trading Derivatives” at 31 December 2006 and 2005 is as follows:

d) Short positions “Short Positions” in the consolidated balance sheet includes the deficit on short sales amounting to

EUR 2,462,625 thousand at 31 December 2006 (31 December 2005: EUR 3,107,171 thousand). The

balances are denominated in euros. The short positions arise from the outright sale of financial

assets purchased under reverse repurchase agreements.

45Bankinter Group

Thousands of Euros 2006 2005Debit Balances Credit Balances Debit Balances Credit Balances

Fair Value Fair Value

Unmatured foreign currency purchases and sales: 16,251 6,012 10,738 8,182

Purchases of foreign currencies against euros 11,227 473 6,070 7,058

Purchases of foreign currencies against foreign currencies 967 130 567 920

Sales of foreign currencies against euros 4,057 5,409 4,101 204

Securities and interest rate futures: 585 242 - -

Bought 585 242 - -

Sold - - - -

Securities options: 36,243 21,587 169,860 161,466

Bought 35,674 21,522 169,574 159,366

Written 569 65 286 2,101

Interest rate options: 4,844 1,333 1,522 8,396

Bought 4,815 3 1,522 6,521

Written 29 1,330 - 1,875

Foreign currency options: 43 3,112 - -

Bought - 3,108 - -

Written 43 4 - -

Other interest rate transactions: 90,093 69,217 85,154 68,424

Interest rate swaps 90,093 69,217 85,154 68,424

Total 148,059 101,503 267,274 250,115


BBankinter Group 46

(8) Available-for-sale financial assets

The breakdown of “Available-for-Sale Financial Assets” in the consolidated balance sheets at 31

December 2006 and 2005 is as follows:


Debt instruments 4,251,163 3,473,735


Total 4,491,562 3,781,581

In euros 4,491,562 3,772,786

In foreign currencies - 8,795

Total 4,491,562 3,781,581

The financial assets included in “Available-for-Sale Financial Assets” measured and accounted for at

fair value, based on active market prices, accounted for 87.48% of the total balance at 31 December

2006, whereas the remaining 10.52% is measured at the supplier's price of certain products (31

December 2005: 99.79% and 0.21%, respectively).

The fair value of the assets loaned or advanced as collateral included in “Available-for-Sale

Financial Assets” in the consolidated balance sheet at 31 December 2006 amounted to

EUR 3,804,929 thousand (31 December 2005: EUR 3,210,413 thousand).

The effect on “Equity - Valuation Adjustments” was EUR 22,677 thousand at 31 December 2006 (31

December 2005: EUR 62,130 thousand).

The detail, by type of instrument and counterparty, of “Available-for-Sale Financial Assets” in the

consolidated balance sheets at 31 December 2006 and 2005, irrespective of the fair value of any

guarantee provided to secure performance, is as follows:

At 31 December 2006

Thousands of Euros Other Other TotalResident Non-Resident Resident Non-Resident

Public Sector Public Sector Private Sectors Private Sectors

Debt instruments 4,200,451 - 50,712 - 4,251,163

Other equity instruments - - 199,382 41,017 240,399

Total 4,200,451 - 250,094 41,017 4,491,562


At 31 December 2006 and 2005 there were no doubtful or significantly impaired assets in the

available-for-sale financial assets portfolio.

Substantially all the assets included in this portfolio were concentrated, by geographical areas, in

Spain at 31 December 2006 and 2005.

The detail, by remaining maturity, of the debt instruments included in this portfolio at 31



Within one month - 6

More than 1 month but not more than 3 months 290 -

More than 3 months but not more than 6 months - 679

More than 6 months but not more than 1 year 3,315 1,773

More than 1 year but not more than 5 years 1,605,286 197,160

More than 5 years 2,642,272 3,274,117

Total 4,251,163 3,473,735

The detail, by type of instrument, of the gains/losses on financial assets (Note 31) included in

“Available-for-Sale Financial Assets” recognised in the consolidated income statements for 2006 and

2005 is as follows:

Thousands of Euros Gains/Losses on Financial Assets

31/12/06 31/12/05

Debt instruments (49,855) 34,632


Total (27,273) 42,647

47Bankinter Group

At 31 December 2005

Thousands of Euros Other Other TotalResident Non-Resident Resident Non-Resident

Public Sector Public Sector Private Sectors Private Sectors

Debt instruments 3,467,015 - 6,720 - 3,473,735

Other equity instruments - - 285,090 22,756 307,846

Total 3,467,015 - 291,810 22,756 3,781,581

t

r


B

The detail of “Available-for-Sale Financial Assets” and of the changes therein in 2006 and 2005 is as

follows:

Thousands of Euros Debt Instruments Other Equity Instruments Total

Balance at 31/12/04 5,098,678 306,638 5,405,316

Additions 7,534,372 684,850 8,219,222

Retirements 9,159,315 683,642 9,842,957

Balance at 31/12/05 3,473,735 307,846 3,781,581

Additions 7,046,314 35,019,841 42,066,155

Retirements 6,268,886 35,087,288 41,356,174

Balance at 31/12/06 4,251,163 240,399 4,491,562

(9) Loans and receivables

The breakdown of “Loans and Receivables” in the consolidated balance sheets at 31 December 2006

and 2005 is as follows:


Loans and advances to credit institutions 5,387,117 4,134,462

Valuation adjustments - 70,774

Total loans and advances to credit institutions 5,387,117 4,205,236

Loans and advances to customers 32,095,107 26,539,764

Valuation adjustments (441,300) (400,376)

Total loans and advances to customers 31,653,807 26,139,388

Other financial assets 186,783 140,153

Total 37,227,707 30,484,777

In euros 36,067,313 29,614,870

In foreign currencies 1,160,394 869,907

Total 37,227,707 30,484,777

Bankinter Group 48


The detail of the valuation adjustments to “Loans and Receivables” at 31 December 2006 and 2005

is as follows:


Impairment losses (499,363) (412,075)

Accrued interest 101,437 52,525

Fee and commission expense (43,374) (40,826)

Total (441,300) (400,376)

The changes in “Loans and Receivables”, by type of instrument, in 2006 and 2005 were as follows:

The changes in doubtful assets in 2006 and 2005 were as follows:

Thousands of Euros Doubtful Assets

Balance at 31/12/05 70,572

Additions 28,583

Retirements 7,573

Balance at 31/12/06 91,582

49Bankinter Group

s

6

Thousands of Euros Loans and Advances to Credit Institutions Loans and Advances to Customers Other Assets Total

Balance at 31/12/04 1,897,148 20,181,633 229,543 22,308,324

Additions 219,070,244 345,365,766 272,855,526 837,291,536

Retirements 216,762,156 339,408,011 272,944,916 829,115,083

Balance at 31/12/05 4,205,236 26,139,388 140,153 30,484,777

Additions 309,568,083 314,496,893 107,890,828 731,955,804

Retirements 308,386,202 308,982,474 107,844,198 725,212,874

Balance at 31/12/06 5,387,117 31,653,807 186,783 37,227,707


B

The detail, by type of instrument and counterparty, of “Available-for-Sale Financial Assets” in the

consolidated balance sheets at 31 December 2006 and 2005, irrespective of the fair value of any

guarantee provided to secure performance, is as follows:

The amount of assets classified as doubtful at 31 December 2006 was EUR 91,582 thousand (31

December 2005: EUR 70,572 thousand).

The distribution of “Loans and Receivables” by geographical location of risk at 31 December 2006

and 2005 was as follows:

Bankinter Group 50


Loans and Loans and Other Total Loans and Loans and Other Total

Advances to Advances to Financial Advances to Advances to Financial

Credit Institutions Customers Assets Credit Institutions Customers Assets

Central banks - - 1,520 1,520 - - 1,259 1,259

Credit institutions 5,387,117 - 548 5,387,665 4,205,236 - - 4,205,236

Resident public sector - 42,949 - 42,949 - 31,430 - 31,430

Other resident private sectors - 30,897,217 163,863 31,061,080 - 25,426,107 115,532 25,541,639

Other non-resident private sectors - 713,641 20,852 734,493 - 681,851 23,362 705,213

Total 5,387,117 31,653,807 186,783 37,227,707 4,205,236 26,139,388 140,153 30,484,777

Thousands of Euros 2006 2005Of which: Of which:

Total Balance Doubtful Assets Past-Due Total Balance Activos dudosos Past-Due

Andalusia 3,967,010 4,956 2,952 2,993,322 3,548 5,188

Balearic Islands 827,584 3,305 2,174 587,845 3,070 1,108

Eastern Spain 4,844,130 15,968 21,421 3,440,859 14,830 10,912

Tenerife 671,518 1,215 3,438 549,539 1,452 3,000

Las Palmas 941,491 2,524 3,129 770,472 3,015 3,297

Castilla 1,127,114 1,176 3,640 1,002,378 988 220

Castilla-La Mancha-Extremadura 1,037,912 2,568 2,465 810,488 2,586 1,794

Catalonia 4,838,454 10,572 4,593 3,833,962 8,885 7,374

Madrid 10,950,759 32,835 30,383 10,313,818 22,569 19,045

Navarra-Aragón-Rioja 1,790,085 4,783 3,355 1,413,302 1,998 1,901

Northern Region 2,807,952 6,201 4,755 2,924,692 3,347 5,062

North-Western Region 1,889,336 4,219 1,814 1,473,668 3,443 1,270

Remote banking 1,445,807 1,260 218 298,989 841 14

Other EMU countries 88,555 - - 71,443 - -

Total 37,227,707 91,582 84,337 30,484,777 70,572 60,187


51Bankinter Group

The detail, by remaining maturity, of the instruments composing “Loans and Receivables”,

including impaired past-due assets and the related guarantees and past-due but not impaired

assets, at 31 December 2006 and 2005, is as follows:


Within 3 months 3,637,553 3,849,064

More than 3 months but not more than 1 year 6,063,455 692,713

More than 1 year but not more than 3 years 1,453,440 3,062,753

More than 3 years 26,073,259 20,416,429

Total 37,227,707 30,484,777

The changes in the impairment allowances recognised to cover the credit risk of loans and

advances to customers at 31 December 2006 and 2005, distinguishing between individual

assessment (specific allowance) and collective assessment (general allowance), were as follows:

Thousands of Euros Specific Coverage General Coverage Total

Balance at 31/12/04 25,120 315,062 340,182

Charge for the year 32,932 71,619 104,551

Amounts used 11,339 - 11,339

Reversals 21,384 - 21,384

Other changes (376) 441 65

Balance at 31/12/05 24,953 387,122 412,075

Charge for the year 79,674 80,910 160,584

Reversals 59,158 - 59,158

Amounts used 13,665 - 13,665

Other changes (769) 296 (473)

Balance at 31/12/06 31,035 468,328 499,363

The income recognised in connection with the recovery of assets previously written off amounted

to EUR 4,130 thousand at 31 December 2006 (31 December 2005: EUR 2,827 thousand).


B

The detail, by type of instrument, of the interest and income on “Loans and Receivables”

recognised in the consolidated income statements for 2006 and 2005 is as follows:

Thousands of Euros Interest and Income

31/12/06 31/12/05

Deposits from credit institutions (Note 30) 133,975 57,626

Loans and advances to customers (Note 30) 1,075,464 741,373

Total 1,209,439 798,999

a) Loans and advances to credit institutionsThe breakdown of “Loans and Receivables - Loans and Advances to Credit Institutions” in the

consolidated balance sheets at 31 December 2006 and 2005, is as follows:


Time deposits 59,181 40,080

Reverse repurchase agreements 5,009,028 3,570,066

Other accounts 318,908 524,316

Valuation adjustments (accrued interest) - 70,774

Total 5,387,117 4,205,236

In euros 5,283,624 4,019,244


Total 5,387,117 4,205,236

Bankinter Group 52


b) Loans and advances to customersThe breakdown of “Loans and Receivables - Loans and Advances to Customers” in the consolidated



Public sector 42,949 31,430

Performing loans 42,949 31,430

Other private sectors 31,610,858 26,107,958

Commercial credit 1,711,736 1,469,572

Secured loans 22,612,025 18,857,969

Reverse repurchase agreements 79,168 132,328

Other term loans 5,093,344 4,017,297

Finance leases 1,160,431 888,433

Receivable on demand and other 1,303,872 1,072,163

Doubtful assets 91,582 70,572

Valuation adjustments (441,300) (400,376)

Impairment losses (499,363) (412,075)


Other (43,374) (40,826)

Total 31,653,807 26,139,388

In euros 30,607,145 25,466,683


Total 31,653,807 26,139,388

The breakdown, by remaining maturity, of the balances of “Loans and Advances to Customers” at

31 December 2006 and 2005 is as follows:

53Bankinter Group

At 31 December 2006

Thousands of Euros On Within 1 More than 1 More than 3 More than 6 More than 1 More Undetermined

Demand Month Month but not Month but not Month but not Year but not than and Unclassified

More than 3 Months More than 6 Months More than 1 Year More than 5 Years 5 Years Maturity Total

Spanish public sector - 13,348 14,284 6,695 - 6,950 - 1,672 42,949

Other resident sectors 85,767 2,345,465 1,440,437 492,264 643,831 8,032,090 16,883,789 973,574 30,897,217

Commercial credit 84,681 706,569 671,033 119,104 17,011 29,973 81,937 - 1,710,308

Secured loans - 1,282,837 542,076 153,754 459,065 7,213,755 12,419,561 - 22,071,048

Other term loans - 337,351 177,774 149,757 28,270 192,548 4,120,597 - 5,006,297

Other 1,086 18,708 49,554 69,649 139,485 595,814 261,694 973,574 2,109,564

Non-residents 3,668 33,362 52,186 11,489 6,937 75,078 527,925 2,996 713,641

Total 89,435 2,392,175 1,506,907 510,448 650,768 8,114,118 17,411,714 978,242 31,653,807


B

The features of the finance leases for 2006 and 2005 were as follows:

2006 2005

Average lease term 3.6 years 3.5 years

differential Maximum 5.00% 5.00%

The distribution of finance leases included in “Loans and Advances to Customers” at 31 December

2006 and 2005 was as follows:

31/12/06 31/12/05

Cars 19.01% 37.90%

Machinery 54.22% 33.40%

Transport equipment 24.64% 22.04%

Other 2.13% 6.66%

Total 100.00% 100.00%

Bankinter Group 54

At 31 December 2005


Demand Month Month but not Month but not Month but not Year but not than and Unclassified

More than 3 Months More than 6 Months More than 1 Year More than 5 Years 5 Years Maturity Total

Spanish public sector - 8,090 11,889 6,420 4,562 299 170 - 31,430

Other resident sectors 1,995 859,287 838,628 278,933 305,659 3,034,795 19,370,517 736,293 25,426,107

Commercial credit - 593,795 603,303 117,693 22,501 21,238 109,584 - 1,468,114

Secured loans - 24,523 35,771 16,593 34,950 310,637 17,925,820 - 18,348,294

Other term loans - 221,617 159,268 88,024 138,606 2,222,887 1,152,577 - 3,982,979

Other 1,995 19,352 40,286 56,623 109,602 480,033 182,536 736,293 1,626,720

Non-residents - 85,596 37,413 77,648 3,203 27,638 450,353 - 681,851

Total 1,995 952,973 887,930 363,001 313,424 3,062,732 19,821,040 736,293 26,139,388


c) Other financial assetsThe breakdown of “Loans and Receivables - Other Financial Assets” in the consolidated balance

sheets at 31 December 2006 and 2005 is as follows:


Cheques drawn on credit institutions 5,555 3,928

Unsettled financial transactions 84,505 45,226

Cash collateral 70,192 82,523

Other 26,531 8,476

Total 186,783 140,153

In euros 176,544 128,943


Total 186,783 140,153

(10) Held-to-maturity investments

The breakdown of “Investments” in the consolidated balance sheets at 31 December 2006 and 2005

is as follows:


Debt instruments - -

Public sector - 448,292

Total - 448,292

In euros - 448,292

At 31 December 2006, the balance of “Held-to-Maturity Investments” in the balance sheet was zero,

since in 2006 the securities composing this portfolio were transferred to “Available-for-Sale

Financial Assets”.

At 31 December 2005, held-to-maturity investments included exclusively Spanish government debt

securities, all of which had been assigned under repurchase agreements at this date.

The interest and income on “Held-to-Maturity Investments” recognised in the consolidated income

statements for 2005 amounted to EUR 22,417 thousand.

Note 45, “Risk Management Policies”, contains a detail of the interest rate adjustment periods

relating to the held-to-maturity investments at 31 December 2006 and 2005.

55Bankinter Group


B

(11) Hedging derivatives (assets and liabilities)

At 31 December 2006 the Group had entered into hedging derivatives contracts amounting to

EUR 90,065 thousand recognised on the asset side of the balance sheet, and EUR 907 thousand

recognised on the liability side (31 December 2005: EUR 86,028 thousand and EUR 47,892

thousand). The net balance amounted to EUR 89,158 thousand and EUR 38,136 thousand at 31

December 2006 and 2005, respectively.

The detail of hedging derivatives and of the related hedged items, by type of hedge, is as follows:

The Group uses interest rate swaps as hedging instruments. These swaps give rise to an exchange

of interest payments with no exchange of principal.

Following is a detail of the main characteristics of the hedges arranged by the Group at 31

December 2006.

Bankinter Group 56

Hedged Type of Hedging Nominal Type of Fair Value of Fair Item Hedge Instrument Amount Risk Hedged Item Value of

Hedged Hedged Attributed to HedgingRisk Hedged Instrument

31/12/06 31/12/05 31/12/06 31/12/05

Financial assets

Government debt Individual Interest rate 1,500,000 Interest rate (31,553) 44,573 24,861 (40,879)

securities or micro swaps

hedges

Financial liabilities:

Subordinated debt Individual Interest rate 197,767 Interest rate (18,044) (31,638) 20,727 34,676

or micro swaps

hedges

Customer deposits (1) Individual Interest rate 19,670 Interest rate (36,468) (19,113) 35,802 39,246

or micro swaps

hedges

Mortgage loans Portfolio Interest rate 6,080,000 Interest rate (10,217) (7,464) 7,768 5,093

hedge swaps

Total hedges (23,346) (13,642) 89,158 38,136

(1) The hedge effectiveness should be assessed taking into account the accrued interest disclosed in Note 19 amounting to EUR 14,455 thousand at 31 December 2006 (31December 2005: EUR 19,117 thousand).


1.- Hedge of government debt securities classified under “Available-for-SaleFinancial Assets” The hedged items are 3.15%, 4%, 4.75%, 5% and 5.4% Spanish government debt securities

amounting to EUR 1,500,000 thousand reported under “Available-for-Sale Financial Assets” on the

asset side of the consolidated balance sheet (Note 8). The risk hedged is the risk of changes in

the fair value of these securities as a result of changes in the risk-free interest rate. This hedge

converts a fixed-rate exposure into a floating-rate exposure. The amount hedged represents 100%

of the issue in each case.

2.- Hedge of subordinated debenturesThe hedged items are fixed 6.95%, 5.70%, 6% and 5% subordinated debentures issued by Bankinter

amounting to EUR 197,767 thousand reported under “Financial Liabilities at Amortised Cost” on the

liability side of the consolidated balance sheet (Note 19). The risk hedged is the change in the fair

value of these securities as a result of changes in the risk-free interest rate. This hedge converts a

fixed-rate exposure into a floating-rate exposure. The amount hedged represents 100% of the issue

in each case.

3.- Hedge of customer deposits The hedged items are fixed-rate deposits taken from customers amounting to EUR 19,670 thousand

reported under “Financial Liabilities at Amortised Cost” on the liability side of the consolidated

balance sheet (Note 19). The risk hedged is the change in the fair value of these deposits as a

result of changes in the risk-free interest rate. This hedge converts a fixed-rate exposure into

a floating-rate exposure. The amount hedged represents 98.90% of the deposits.

4.- Portfolio hedgeThe hedged item is the amount of the mortgage loans that the Group decides to hedge each month

on the basis of the scheduled maturities and repricing of the benchmark floating rates.

The risk hedged is the interest rate exposure of the aforementioned mortgage loans for each of the

repricing periods to be hedged to changes in the risk-free interest rate.

The risk-free interest rate of this hedge is deemed to be the benchmark floating rates of call money

swaps (CMS).

The instruments used to hedge the various mortgage loan amounts are CMS arranged monthly on

the basis of the decisions adopted in the interest rate risk management process.

The aforementioned micro-hedges and portfolio hedges of interest rate risk are highly effective.

The Group performs and documents the appropriate analyses in order to ascertain whether, at

57Bankinter Group


B

inception of the hedge and during its life, the Group can expect, prospectively, that the changes in

fair value of the hedged item that are attributable to the risk hedged are nearly completely offset

by changes in the fair value of the hedging instrument and, retrospectively, that the actual results

of the hedge are within a range of 80% to 125% of the results of the hedged item.

With respect to portfolio hedges of interest rate risk, the Group also ascertains compliance with the

alternative treatment provided for by current accounting standards, consisting of assessing the

hedge effectiveness by comparing the amount of the net asset position in each of the time periods

with the hedged amount designated for each period. Based on this alternative, the hedge would

only be ineffective when, after review, the amount of the net asset position is lower than the

hedged amount.

(12) Non-current assets held for sale

“Non-Current Assets Held for Sale” consist of foreclosed assets. These assets are tangible assets

denominated in euros amounting to EUR 3,965 thousand at 31 December 2006 (31 December 2005:

EUR 3,827 thousand).

The detail of “Non-Current Assets Held for Sale” and of the changes therein is as follows:

Balance at 31/12/04 3,351

Additions 8,277

Valuation adjustments (491)

Retirements 7,310

Balance at 31/12/05 3,827

Additions 2,724

Valuation adjustments 454

Retirements 3,040

Balance at 31/12/06 3,965

The net proceeds on disposal of non-current assets held for sale recognised in 2006 (Note 35)

amounted to EUR 562 thousand (2005: EUR 300 thousand).

Bankinter Group 58


59Bankinter Group

:

Foreclosed assets not earmarked for own use or as investment property must be disposed of in a

maximum period of one year from when they are available for immediate sale. Accordingly, a

foreclosed asset can remain on the balance sheet for a period longer than a year.

(13) Investments

The breakdown of “Investments” in the consolidated balance sheets at 31 December 2006 and 2005

is as follows:

The classification, by category and average retention period, of foreclosed assets included in non-

current assets held for sale is as follows:


Associates 5,008 5,558

Jointly controlled entities 101,531 73,838

Total 106,539 79,396

In euros 106,539 79,396

Thousands of Euros Residential Assets Manufacturing Assets Agricultural Assets Total

31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05

Within one month 54 696 - - - 27 54 723

More than 1 month butnot more than 3 months 133 93 - - - 7 133 100

More than 3 months but not more than 6 months 1,129 179 64 - - - 1,193 179

More than 6 monthsbut not more than 1 year 688 53 - - - - 688 53

More than 1 year 744 1,906 783 818 370 48 1,897 2,772

Total 2,748 2,927 847 818 370 82 3,965 3,827


B

The breakdown of this item and the changes therein in the consolidated balance sheets at 31


Thousands of Euros Associates Jointly Controlled Entities Total

Balance at 31/12/04 6,377 47,576 53,953

Additions 975 26,262 27,237

Retirements 1,250 - 1,250

Transfers (544) - (544)

Balance at 31/12/05 5,558 73,838 79,396

Additions 1,485 27,850 29,335

Retirements 2,035 157 2,192

Transfers - - -

Balance at 31/12/06 5,008 101,531 106,539

In 2006 the Group dissolved Bankinter Internacional B.V. and sold Bankinter Netherlands B.V and

Prota, S.A.

None of the investments included in the permanent investments portfolio at 31 December 2006

were listed.

The detail of the fully consolidated Group companies at 31 December 2006 is as follows:

Bankinter Group 60


61Bankinter Group

% of Ownership Thousands of Euros Thousands of Euros

Registered Office Direct Indirect Total Number Par Share Reserves Profit/Loss Net Asset Net Carryingof Shares Value Capital Net of Value Amount

InterimDividend

Bankinter

Consultoría,

Asesoramiento

y Atención

Telefónica, S.A. Castellana, 29. Madrid 99.99 0.01 100 1,999 60 60 305 301 666 60

Bankinter

Gestión

de Seguros, S.A.

de Correduría

de Seguros Castellana, 29. Madrid 99.99 0.01 100 1,999 60 60 469 891 1,420 60

Bankinter

Gestión de

Activos, S.A.,

S.G.I.I.C. (antes

Gesbankinter,S.A, Marqués de Riscal, 11.

S.G.I.I.C.) Madrid 99.99 0.01 100 144,599 4,345 4,345 10,137 22,845 37,327 4,509

Hispamarket, S.A. Castellana, 29. Madrid 99.99 0.01 100 4,516,451 27,144 27,144 6,743 25,595 59,482 26,962

Intergestora, S.A. Castellana, 29. Madrid 99.99 0.01 100 599,999 18,030 18,030 (1,344) 182 16,868 18,030

Intermobiliaria, S.A. Castellana, 29. Madrid 99.99 0.01 100 222,999 6,701 6,701 13,565 176 20,442 18,241

Intergestora Avda Bruselas 12

Nuevas Arroyo de la Vega

Tecnologias, S.A. (Alcobendas) Madrid 99.99 0.01 100 599,999 18,030 18,030 (4,107) 261 14,184 18,030

Bankinter Avda Bruselas 12

Capital Riesgo, Arroyo de la Vega

SGECR, S.A. (Alcobendas) Madrid 99.99 0.01 100 3,000 300 310 359 (80) 589 239

Bankinter

Seguros de Vida,

S.A. de Seguros

y Reaseguros Castellana, 29 Madrid 99.99 0.01 100 380,099 11,121 11,122 58,542 17,724 87,388 4,865

Aircraft, S.A. Marqués Riscal, 13 Madrid 99.99 0.01 100 1,199,999 7,212 7,212 (2,618) (1,737) 2,857 7,176

Bankinter

Sociedad de

Financiación, S.A. Castellana, 29 Madrid 100 - 100 602 60 60 - 110 170 60

Bankinter

Emisiones, S.A. Castellana, 29 Madrid 100 - 100 602 60 343,225 (4) 132 343,353 60

Bankinter Capital

Riesgo I Fondo

Capital Castellana, 29 Madrid 100 - 100 10,122 10,122 10,000 (457) 173 9,716 10,000

Arroyo Business Avda Bruselas 12

Consulting Arroyo de la Vega

Development, S.L. (Alcobendas) Madrid 100 - 100 1,000 3 3 - - 3 3

TOTAL 108,296

TOTAL Direct 108,296

TOTAL Indirect -


B

The detail of the fully consolidated Group companies at 31 December 2005 is as follows:

Bankinter Group 62

% of Ownership Thousands of Euros Thousands of Euros

Registered Office Direct Indirect Total Number Par Share Reserves Profit/Loss Net Asset Net Carryingof Shares Value Capital Net of Value Amount

InterimDividend

Bankinter

Consultoría,

Asesoramiento,

y Atención

Telefónica, S.A. Castellana, 29. Madrid 99.99 0.01 100 1,999 60 60 305 267 632 60

Bankinter

Gestión

de Seguros, S.A.

de Correduría

de Seguros Castellana, 29. Madrid 99.99 0.01 100 1,999 60 60 30 867 957 60

Bankinter Naritaweg 165, 1043 BW

International B.V. Amsterdam, Holanda 100 - 100 1,390 18 18 4,641 489 5,148 63

Bankinter

Gestión de

Activos, S.A.,

S.G.I.I.C. (antes

Gesbankinter,S.A Marqués de Riscal, 11

S.G.I.I.C.) Madrid 99.99 0.01 100 144,599 4,345 4,345 7,154 13,519 25,018 4,509

Hispamarket, S.A. Castellana, 29. Madrid 99.99 0.01 100 4,516,451 27,144 27,144 6,743 2,193 36,080 26,962

Intergestora, S.A. Castellana, 29. Madrid 99.99 0.01 100 599,999 18,030 18,030 (1,027) (343) 16,660 16,628

Intermobiliaria, S.A. Castellana, 29. Madrid 99.99 0.01 100 222,999 6,701 6,701 13,565 469 20,735 18,241

Intergestora Avda Bruselas 12

Nuevas Arroyo de la Vega

Tecnologias, S.A. (Alcobendas) Madrid 99.99 0.01 100 599,999 18,030 18,030 (7,424) 3,317 13,923 13,891

Bankinter Avda Bruselas 12

Capital Riesgo, Arroyo de la Vega

SGECR, S.A. (Alcobendas) Madrid 99.99 0.01 100 3,000 300 310 74 432 816 239

Bankinter

Seguros de

Vida, S.A. de

Seguros y

Reaseguros Castellana, 29 Madrid 99.99 0.01 100 380,099 11,122 11,122 63,415 10,570 85,107 4,865

Aircraft, S.A. Marqués Riscal, 13 Madrid 99.99 0.01 100 1,199,999 7,212 7,212 (2,476) (250) 4,486 4,159

Bankinter Naritaweg 165, 1043 BW

Netherlands BV Amsterdam, Holanda - 100 100 1,390 18 18 (27) (18) (27) 18

Bankinter

Sociedad de

Financiación, S.A. Castellana, 29 Madrid 100 - 100 602 60 60 (1) 1 60 60

Bankinter

Emisiones, S.A. Castellana, 29 Madrid 100 - 100 602 60 60 (22) 18 343,222 50

Bankinter Capital

Riesgo I Fondo

Capital Castellana, 29 Madrid 100 - 100 10,000 10,000 10,000 - (432) 9,568 9,336

Arroyo

Business Avda Bruselas 12

Consulting Arroyo de la Vega

Development, S.L. (Alcobendas) Madrid 100 - 100 1,000 3 3 - - 3 3

TOTAL 99,144

TOTAL Direct 99,126

TOTAL Indirect 18


63Bankinter Group

Grupo Industrial Catensa, S.A. was reclassified to “Financial Assets Held for Sale” in 2005 (Note 8).

The detail of the Group companies accounted for using the equity method at 31 December 2006 is

as follows:

Except for the financial statements of Techrules Escuela de Finanzas, S.A., Mercavalor S.V. S.A.,

Helena Activos Líquidos, S.L and Eurobits Technologies, S.L., which are at 30 November 2006, the

other financial statements used on consolidation are at 31 December 2006. The impact on the

consolidated financial statements of using financial statements at dates prior to 31 December 2006

for these companies was not material.

Línea Directa Aseguradora, S.A., Techrules Escuela de Finanzas, S.A. and Eurobits Technologies,

S.A. are accounted for using the equity method rather than being consolidated proportionately,

as required by current accounting standards and rules, since as they are not managed jointly with

other shareholders, this method presents more appropriately the economic substance of the

relationship between the companies. The detail of the effects of using the proportionate

consolidation method on the consolidated balance sheet and consolidated income statement at 31

December 2006 would be as follows:

% of Ownership Thousands of Euros

Registered Office Direct Indirect Total Capital Reserves Profit/Loss Net Asset Net CarryingValue Amount

Línea Directa Aseguradora, S.A. Isaac Newton, 7 50 - 50 37,512 90,455 51,133 179,100 100,959

(Tres Cantos) Madrid

Techrules Escuela de Finanzas, S.A. Ronda de la Buganvilla 50 - 50 180 43 58 281 53

del Rey, 131 Madrid

Mercavalor, S.V., S.A. Avda. Brasil, 7 Madrid 20.01 - 20.01 3,220 1,245 13,657 18,122 5,009

Helena Activos Líquidos, S.L. Avda Bruselas 12.

Arroyo de la Vega

(Alcobendas) Madrid 32.02 - 32.02 16 1091 (178) 929 291

Eurobits Technologies, S.L. Avda Bruselas 12

Arroyo de la Vega

(Alcobendas) Madrid 40 - 40 8 945 (375) 578 228

Total 106,539


B

Thousands of Euros Total Assets Total Net Interest Gross Net Operating Liabilities Income Income Income

Línea Directa Aseguradora, S.A. (363,319) (363,319) (537) (41,451) (12,843)

Techrules Escuela de Finanzas, S.A. (73) (73) - (156) (81)

Eurobits Technologies S.L. (162) (162) 2 2 38

The detail of the Group companies accounted for using the equity method at 31 December 2005 is

as follows:

The relationship with Línea Directa Aseguradora, S.A. relates to jointly controlled operations and

assets.

The aggregate assets, liabilities, losses and profits of companies accounted for using the equity

method in 2006 and 2005 are summarised as follows:

Bankinter Group 64

% of Ownership Thousands of Euros

Registered Office Direct Indirect Total Share Reserves Profit/ Net Asset Net CarryingCapital Loss Value Amount

Línea Directa Aseguradora, S.A. Isaac Newton, 7 50.00 - 50.00 37,512 50,981 39,475 127,967 73,507

(Tres Cantos) Madrid

Prota, S.A. Ausias March, 20 32.80 - 32.80 601 7,124 (1,519) 6,206 2,035

Barcelona

Techrules Escuela de Finanzas, S.A. Ronda de la Buganvilla 50.00 - 50.00 180 (12) 125 293 153

del Rey, 131 Madrid

Mercavalor, S.V., S.A. Avda. Brasil, 7 Madrid 20.01 - 20.01 3,220 1,405 3,108 7,733 3,176

Helena Activos Líquidos, S.L. Avda Bruselas 12

Arroyo de la Vega 32.02 32.02 16 1,089 (19) 1,086 347

(Alcobendas) Madrid

Eurobits Technologies, S.L. Avda Bruselas 12

Arroyo de la Vega 40.00 - 40.00 7 519 (191) 335 178

(Alcobendas) Madrid

Total 79,396


At 31 December 2006

Thousands of Euros Balance Sheet Income Statement

Assets Liabilities Expenses Income

Línea Directa Aseguradora, S.A. 927,922 742,595 504,569 558,300

Techrules Escuela de Finanzas, S.A. 251 4 254 312

Eurobits Technologies S.L. 973 535 845 475

Mercavalor, S.V., S.A. 23,520 5,398 14,593 28,250

Helena Activos Líquidos, S.L. 1,020 95 385 207

At 31 December 2005

Thousands of Euros Balance Sheet Income Statement

Assets Liabilities Expenses Income

Línea Directa Aseguradora, S.A. 810,206 678,610 420,728 461,741

Techrules Escuela de Finanzas, S.A. 328 36 416 292

Prota S.A. 22,972 16,766 28,232 26,713

Eurobits Technologies S.L. 734 400 241 50

Mercavalor, S.V., S.A. 10,440 2,707 11,406 14,514

Helena Activos Líquidos, S.L. 1,169 83 242 223

(14) Tangible assets

The detail of “Tangible Assets” in the consolidated balance sheets at 31 December 2006 and 2005 is

as follows:


Property, plant and equipment for own use 319,970 320,666

Investment property 5,300 5,421

Other assets leased out under an operating lease 18,362 76

Total 343,632 326,163

65Bankinter Group


B

Following is a summary of the tangible assets for own use and of the changes therein in 2006 and

2005:

The cost of fully depreciated tangible assets for own use still in use at 31 December 2006 amounted

to EUR 142,948 thousand (31 December 2005: EUR 141,825 thousand).

The detail, by type of asset, of the profits and losses recognised in 2006 and 2005 on the sale of

investment property is as follows (Note 35):

Bankinter Group 66

2006

31/12/05 Additions Retirements Transfers and Other Depreciation Charge 31/12/06

Property, plant and equipment for own use 320,666 42,499 17,254 (3,040) 22,901 319,970

Computer hardware and related fixtures 9,546 5,026 200 - 5,732 8,640

Furniture, vehicles and other fixtures 46,936 17,680 762 22,255 13,370 72,739

Buildings 238,458 2,703 2,442 - 3,798 234,921

Construction in progress 4,641 17,090 13,850 - - 7,881

Other 21,085 - - (25,295) - (4,210)

Investment property 5,421 - 121 - - 5,300

Other assets leased out under an operating lease 76 16,379 - 3,040 1,133 18,362

Total 326,163 58,878 17,375 - 24,034 343,632

2005

31/12/04 Additions Retirements Transfers and Other Depreciation Charge 31/12/05

Property, plant and equipment for own use 312,601 52,553 23,464 - 21,024 320,666

Computer hardware and related fixtures 7,709 6,889 71 - 4,981 9,546

Furniture, vehicles and other fixtures 56,324 13,455 851 (15,551) 6,441 46,936

Buildings 238,728 2,533 1,391 3,546 4,958 238,458

Construction in progress 6,091 15,666 - (17,116) - 4,641

Other 3,749 14,010 21,151 29,121 4,644 21,085

Investment property - 5,421 - - - 5,421

Other assets leased out under an operating lease 2,329 65 2,311 - 7 76

Total 314,930 58,039 25,775 - 21,031 326,163



Profits Losses Profits Losses

Buildings 155 283 251 7

Rural land, land lots and buildable land 121 13 63 -

Total 276 296 314 7

The fair values of the main tangible asset items and the method used to estimate them are

disclosed in Note 44, “Assets and Liabilities Measured at Other than Fair Value”.

At 31 December 2006 and 2005 the Group had no tangible assets for own use or under construction

with restrictions to their ownership or which had been provided as security for the performance of

debt obligations. At those dates there were no commitments to third parties for the acquisition

of tangible assets and no amounts had been received from third parties in respect of compensation

or indemnities for impairment or decline in value of tangible assets for own use.

All the Group's tangible assets for own use at 31 December 2006 and 2005 were denominated in

euros.

The balance of “Assets Leased out under an Operating Lease” in the consolidated balance sheet at

31 December 2006 was EUR 18,362 thousand (31 December 2005: EUR 76 thousand).

(15) Intangible assets

The detail of “Intangible Assets” in the consolidated balance sheets and of the changes therein in


67Bankinter Group

d Thousands of Euros 31/12/04 Additions Retirements Amortisation 31/12/05 Additions Retirements Amortisation 31/12/06

Other intangible assets 322 34 - - 356 3,060 - 117 3,299


BBankinter Group 68

The cost of development of computer applications and programmes included in “Intangible Assets”

was capitalised because the requirements for recognition were met.

No impairment losses on intangible assets were recognised or reversed in 2006 and 2005.

All the Group's intangible assets at 31 December 2006 and 2005 were denominated in euros.

(16) Tax assets and liabilities

The breakdown of “Tax Assets” and “Tax Liabilities” in the consolidated balance sheet is as follows:

Thousands of Euros Current Deferred

31/12/06 31/12/05 31/12/06 31/12/05

Tax assets 45,224 101,564 181,086 181,116

Corporation tax withholdings and prepayments 10,312 70,149 - -

Income tax 7,882 13,571 181,086 181,116

VAT 27,050 17,844 - -

Tax liabilities 66,668 26,602 71,831 101,730

Personal income tax withholdings 9,669 3,021 - -

Income tax 51,036 17,675 71,831 101,730

VAT 5,443 5,428 - -

Other 520 478 - -

The changes in deferred tax assets and liabilities in 2006 and 2005 were as follows:

Deferred Taxes

Assets Liabilities

Balance at 31/12/04 228,079 154,649

Additions 9,088 73

Retirements 56,051 52,992

Balance at 31/12/05 181,116 101,730

Additions 22,098 3,501

Retirements 22,128 33,400

Balance at 31/12/06 181,086 71,831


The changes in deferred taxes in 2006 were as follows:

The detail of “Deferred Tax Assets” and “Deferred Tax Liabilities” is as follows:

Thousands of Euros

Deferred tax assets arising from: 2006 2005

General allowance 117,533 112,112

Provisions to pension funds 12,347 16,561

Other provisions 34,382 34,817

Other:

Early retirement fund 6,844 9,593

Software 2,613 6,651

Renting 453 499

Loan fees and commissions 6,914 -

Treasury shares - 883

181,086 181,116

Thousands of Euros

Deferred tax liabilities: 2006 2005

Revaluations 54,962 65,369

Other:

Available-for-sale financial assets 8,231 30,098

Other 8,638 6,263

71,831 101,730

69Bankinter Group

Thousands of Euros Balance at 31 Charge/Credit Foreign Currency Charge/Credit Adquisiciones Enajenaciones Saldo al 31 deDecember to Income Balance Translation to Asset and del ejercicio del ejercicio diciembre

2005 Differences and Liability Revaluation de 2006Other Items

Deferred tax assets 181,116 (6,374) (6,404) - - - 181,086

Deferred tax liabilities 101,730 25,528 (1,372) - - - 71,831


B

The additions to deferred tax assets relate mainly to deferred taxes in connection with larger

provisions not deductible for tax purposes. The retirements relate to both the release of provisions

that were not tax deductible and the effect of the revaluation of these deferred tax assets arising

from the reduction in income tax rates as from 2007 (Note 43).

The retirements from deferred tax liabilities relate to both the changes in the results of the

available-for-sale portfolio and the effect of the revaluation of these deferred tax liabilities arising

from the reduction in income tax rates as from 2007 (Note 43).

(17) Prepayments and accrued income and Accrued expensesand deferred income

The breakdown of “Prepayments and Accrued Income” and “Accrued Expenses and Deferred

Income” in the consolidated balance sheets at 31 December 2006 and 2005 is as follows:


Prepayments and accrued income

Prepayments 7,365 6,772

Other accruals 57,041 26,505

Total 64,406 33,277

In euros 62,954 32,081


Total 64,406 33,277


Accrued expenses and deferred income

Accrued expenses 39,231 32,455

Other accruals 50,159 23,278

Total 89,390 55,733

In euros 89,390 55,733

Bankinter Group 70


(18) Other assets and other liabilities

The breakdown of “Other Assets” and “Other Liabilities” in the consolidated balance sheets at 31


Thousands of Euros Assets Liabilities

31/12/06 31/12/05 31/12/06 31/12/05

Transactions in transit 182,367 162,337 38,798 23,700

Net pension plan assets 85 88 - -

Other 22,053 10,470 49,690 22,008

Total 204,505 172,895 88,488 45,708

In euros 204,459 172,873 88,486 45,708

In foreign currencies 46 22 2 -

Total 204,505 172,895 88,488 45,708

“Other Assets – Transactions in Transit” at 31 December 2006 includes mainly EUR 180,949

thousand (31 December 2005: EUR 131,888 thousand) relating to unsettled transactions with the

Bank of Spain.

(19) Financial liabilities at amortised cost

The breakdown of “Financial Liabilities at Amortised Cost” in the consolidated balance sheets at 31



Deposits from central banks 24 580,141

Deposits from credit institutions 6,972,252 5,712,746

Money market operations through counterparties 10,000 10,000

Customer deposits 18,409,659 15,490,497

Marketable debt securities 14,273,921 11,986,462

Subordinated liabilities 594,162 382,021

Other financial liabilities 349,344 408,337

Total 40,609,362 34,570,204

In euros 39,494,989 33,741,574


Total 40,609,362 34,570,204

71Bankinter Group


B

The changes, by type of instrument, in “Financial Liabilities at Amortised Cost” in 2006 and 2005

were as follows:

The breakdown of “Valuation Adjustments - Financial Liabilities at Amortised Cost” at 31 December




Deposits from central banks 24 141

Deposits from credit institutions 44,891 94,119

Customer deposits 47,679 40,862

Marketable debt securities 69,831 44,954

Subordinated liabilities 3,421 2,616

Micro-hedge transactions 32,499 50,751

Other 13,830 8,053

Total 212,175 241,496

Note 45, “Risk Management Policies”, contains details of the maturities and interest rate

adjustment periods of the items composing “Financial Liabilities at Amortised Cost”.

Note 44, “Assets and Liabilities Measured at Other than Fair Value”, furnishes a detail, by

instrument, of the fair value of the financial liabilities at amortised cost and describes the method

used to calculate it.

Bankinter Group 72

Thousands of Euros Deposits Deposits Money Market Customer Marketable Subordinated Other Totalfrom Central from Credit Operations Deposits Debt Liabilities Financial

Banks Institutions Securities Liabilities

Balance at 31/12/04 350,001 5,534,739 - 13,583,667 6,862,782 377,251 466,445 27,174,885

Additions 36,312,695 943,659,359 38,331,332 1,564,092,050 34,084,943 37,122 115,827,159 2,732,344,660

Retirements 36,082,555 943,481,352 38,321,332 1,562,185,220 28,961,263 32,352 115,885,267 2,724,949,341

Balance at 31/12/05 580,141 5,712,746 10,000 15,490,497 11,986,462 382,021 408,337 34,570,204

Additions 7,192,776 581,904,118 30,452,921 1,839,330,461 33,209,751 254,556 93,811,765 2,586,156,348

Retirements 7,772,893 580,644,612 30,452,921 1,836,411,299 30,922,292 42,415 93,870,758 2,580,117,190

Balance at 31/12/06 24 6,972,252 10,000 18,409,659 14,273,921 594,162 349,344 40,609,362


a) Deposits from central banksThe detail of “Financial Liabilities at Amortised Cost – Deposits from Central Banks” in the

consolidated balance sheets at 31 December 2006 and 2005 is as follows:


Bank of Spain - 580,000

Valuation adjustments (accrued interest) 24 141

Total 24 580,141

In euros 24 580,141

b) Deposits from credit institutionsThe detail of “Financial Liabilities at Amortised Cost – Deposits from Credit Institutions” in the



Time deposits 2,558,027 2,382,778

Repurchase agreements 4,027,740 2,976,978

Other accounts 341,594 258,871

Valuation adjustments (accrued interest) 44,891 94,119

Total 6,972,252 5,712,746

En euros 6,302,592 5,187,057

En moneda extranjera 669,660 525,689

Total 6,972,252 5,712,746

c) Money market operations through counterpartiesThe balance of “Money Market Operations through Counterparties” at 31 December 2006 related in

full to repurchase agreements.

73Bankinter Group


B

d) Customer depositsThe detail of “Financial Liabilities at Amortised Cost – Customer Deposits” in the consolidated



Public sector 395,875 283,923

Deposits received 394,997 283,771

Valuation adjustments 878 152

Other private sectors 18,013,784 15,206,574

Demand deposits 8,745,163 7,584,499

Time deposits 3,644,065 2,334,899

Repurchase agreements 5,549,125 5,220,045

Valuation adjustments 75,431 67,131



Other 14,175 7,308

Total 18,409,659 15,490,497

In euros 17,975,686 15,194,680


Total 18,409,659 15,490,497

The breakdown, by remaining maturity, of customer deposits at 31 December 2006 and 2005 is as

follows:

Bankinter Group 74

At 31 December 2006


Demand Month Month but not Month but not Month but not Year but not than Unclassified

More than 3 Months More than 6 Months More than 1 Year More than 5 Years 5 Years and Maturity Total

Spanish public sector 356,806 38,191 - - - - - 878 395,875

Other private sectors 8,633,977 5,197,062 1,293,779 1,756,944 557,882 483,986 14,722 75,431 18,013,784

Demand deposits 8,633,977 114,244 - - - - - - 8,748,221

Time deposits - 2,062,973 667,209 194,232 225,018 483,986 14,722 75,431 3,723,571

Repurchase agreements - 3,019,845 626,570 1,562,712 332,864 - - - 5,541,991

Total 8,990,783 5,235,253 1,293,779 1,756,944 557,882 483,986 14,722 76,309 18,409,659


e) Marketable debt securitiesThe detail of “Financial Liabilities at Amortised Cost – Marketable Debt Securities” in the



Promissory notes and bills 3,430,692 3,615,602

Other securities associated with transferred financial assets 6,496,018 4,171,155

Convertible securities 62,830 79,006

Hybrid securities 75,000 75,000

Other non-convertible securities 4,139,895 4,000,000



Other (345) 745

Total 14,273,921 11,986,462

In euros 14,273,759 11,986,311

In foreign currencies 162 151

Total 14,273,921 11,986,462

Promissory notes and billsSince the Group's liquidity and capital management requires planning, Bankinter, S.A. has in place

various financing programmes and instruments -in both the Spanish domestic market and the

international markets- to obtain funding or issue all manner of securities at short term (promissory

notes, Euro commercial paper) and at long term (bonds, debentures and notes, mortgage bonds) in

any debt category (guaranteed, senior, subordinated, etc.).

75Bankinter Group

At 31 December 2005


Demand Month Month but not Month but not Month but not Year but not than Unclassified

More than 3 Months More than 6 Months More than 1 Year More than 5 Years 5 Years and Maturity Total

Spanish public sector 279,928 3,843 - - - - - 152 283,923

Other private sectors 7,421,688 4,590,227 959,659 1,187,368 198,951 524,375 202,804 121,502 15,206,574

Demand deposits 7,421,688 108,440 - - - - - - 7,530,128

Time deposits - 1,095,952 320,138 97,765 93,865 524,375 202,804 54,371 2,389,270

Repurchase agreements - 3,385,835 639,521 1,089,603 105,086 - - - 5,220,045

Valuation adjustments - - - - - - - 67,131 67,131

Total 7,701,616 4,594,070 959,659 1,187,368 198,951 524,375 202,804 121,654 15,490,497


B

At 31 December 2006, the outstanding balance of promissory note and Euro commercial paper

issues amounted to EUR 2,678,310 thousand and EUR 752,382 thousand, respectively (promissory

note issues outstanding amounted to EUR 3,615,602 thousand at 31 December 2005).

The detail of the note issues outstanding at 31 December 2006 and 2005 is as follows:


CNMV Registration Date Outstanding Balance Outstanding Balance

21/03/03 - 161

18/03/04 - 1,742

21/12/04 732 2,644,687

01/12/05 1,326,828 969,012

21/11/06 1,350,750 -

Total 2,678,310 3,615,602

These issues are denominated in euros.

EUR 97,961 thousand of interest were paid on these promissory note issues in 2006 (Note 30)

(2005: EUR 67,548 thousand).

� Other securities associated with transferred financial assetsThe balance of this item relates to asset securitisation bonds and mortgage securitisation bonds

issued by the securitisation funds included in the Group's consolidated balance sheet.

Convertible securitiesOn 25 June 1998 the Annual General Meeting authorised the Board of Directors to issue, for the

Bank's employees, up to EUR 300,506 thousand (issued or outstanding) of bonds or debentures

convertible into shares of Bankinter, S.A., to be financed by Bankinter, S.A. at an interest rate of

12-month Mibor less a spread of 2.5%, with minimum total annual interest of 0.10%. By virtue

of this authorisation, five convertible debenture issues have been launched since that date.

The dates for conversion of Convertible Debenture Issue I for Group employees are 2 January 2001,

2002, 2003, 2004, 2005, 2006, 2007, 2008 and 2009. As mentioned in Note 23 “Own Funds”, in

January 2006 and 2005 certain of these debentures were converted into shares and, as a result,

share capital increased by EUR 513 thousand and EUR 794 thousand, respectively (341,681 and

529,363 shares, respectively), with a share premium of EUR 9,838 thousand and EUR 14,628

thousand, respectively. The exchange ratio was one share per debenture. The face value of each

debenture issued is EUR 24.77. At 31 December 2006 the outstanding balance of the convertible

Bankinter Group 76


77Bankinter Group

debentures was EUR 31,854 thousand (31 December 2005: EUR 40,317 thousand). In 2000, 2001

and 2002 Convertible Debenture Issues II and III (both of which were redeemed early in those

years) and Convertible Debenture Issue IV were launched.

On 14 November 2002 the Board of Directors resolved to redeem early Convertible Debenture Issue

IV for employees, and to launch Convertible Debenture Issue V for employees at a conversion price

of EUR 25.04 per share. The subscribers to the Issue V debentures, the subscription period for

which commenced on 20 January 2003, were the holders of Issue IV convertible debentures at the

date of early redemption who continued to be Group employees at the issue date, with the

exceptions specified in the issue resolution. The exchange ratio of the convertible debentures is one

share per debenture. The debenture conversion dates are 5 April 2001, 2002, 2003, 2004, 2005,

2006, 2007, 2008, 2009 and 2010. In April 2006 and 2005 certain of these debentures were

converted into shares and, as a result, share capital increased by EUR 490 thousand and EUR 805

thousand, respectively (326,577 and 536,971 shares, respectively), with a share premium of EUR

9,231 thousand and EUR 14,761 thousand, respectively. At 31 December 2006, the outstanding

balance of Issue V was EUR 30,976 thousand (31 December 2005: EUR 40,917 thousand).

The Group reserves the right to redeem the issues early in full, in part or by repurchase. The detail

of the voluntary and mandatory conversions outstanding at 31 December 2006 and 2005 is as

follows:

Conversions Outstanding

Issue Date Year (%) Exchange Exchange Ratio Face Value of Debenture (Euros)

First

Voluntary 02/01 2006 and 2008 10% 1-1 24.77

Mandatory 02/01 2007 and 2009 20% 1-1 24.77

Fifth

Mandatory 05/04 2006 to 2010 12.50% 1-1 25.04


The detail of the mandatory and voluntary conversions in 2006 and 2005 is as follows:

Euros Date Maximum Number of Market Price of Bankinter Exchange (%) Shares/Debentures Share (Euros)

2006

Mandatory

Issue I 02/01/06 20.00% 341,681 47.56

Issue V 05/04/06 12.50% 326,577 56.65

Voluntary

2005

Mandatory

Issue I 02/01/05 20.00% 529,363 39.20

Issue V 05/04/05 12.50% 536,971 39.43

Voluntary

The detail of the debentures convertible into shares of Bankinter, S.A. outstanding at 31 December


Thousands of Euros Outstanding Balance Interest Commencement Maturity

Issue Currency Face Value 31/12/06 31/12/05 Rate Date Date Listed

First Euro 98,542 31,854 38,995 Mibor – 2.5% 01/12/98 02/01/09 Yes

Fifth Euro 64,301 30,976 40,011 Euribor – 2.5% 04/02/03 05/04/10 Yes

Total 62,830 79,006

Other non-convertible securities and hybrid liabilitiesAt 31 December 2006 and 2005 other non-convertible securities and hybrid liabilities included the

outstanding balance of bond, debenture and promissory note issues launched by the Group.

BBankinter Group 78


The detail of the bond and debenture issues outstanding at 31 December 2006 and 2005 is as

follows:

31/12/06

Thousands of Euros Outstanding Last

Issue Face Value Balance Interest Rate Listed Maturity Date

17/12/04 1,000,000 1,000,000 Euribor +0.080% Yes 17/12/07

16/03/05 75,000 75,000 Euribor flat (3% - 5%) Yes 16/03/15

10/10/05 1,000,000 1,000,000 Euribor +0.040% Yes 10/10/08

18/11/05 1,000,000 1,000,000 Euribor +0.110% Yes 18/11/10

01/06/06 1,000,000 1,000,000 Euribor +0.12% Yes 01/06/11

16/06/06 150,000 150,000 Euribor +0.70% Yes 16/06/16

4,225,000 4,225,000

31/12/05

30/07/04 500,000 500,000 Euribor +0.025% Yes 30/07/06

19/10/04 500,000 500,000 Euribor +0.020% Yes 19/10/06

17/12/04 1,000,000 1,000,000 Euribor +0.080% Yes 17/12/07

16/03/05 75,000 75,000 Euribor (min. 3%; max. 5%) Yes 16/03/15

10/10/05 1,000,000 1,000,000 Euribor +0.040% Yes 10/10/08

18/11/05 1,000,000 1,000,000 Euribor +0.110% Yes 18/11/10

4,075,000 4,075,000

All the issues outstanding are denominated in euros.

f) Subordinated liabilitiesThe detail of “Financial Liabilities at Amortised Cost – Subordinated Liabilities” in the consolidated

balance sheet is as follows:


Subordinated marketable debt securities (non-convertible) 572,697 347,767




Total 594,162 382,021

In euros 594,162 382,021

79Bankinter Group


B

At 31 December 2006, the Group had EUR 572,697 thousand of subordinated debentures

outstanding (31 December 2005: EUR 347,767 thousand). These securities are treated as

subordinated liabilities in accordance with Article 7 of Law 13/1992, of 1 June, on equity and

consolidated supervision of financial institutions and Rule Eight of Bank of Spain Circular 5/1993,

of 26 March, as amended by Bank of Spain Circular 3/2005, of 30 June.

These liabilities meet the requirements of Rule Eight of Bank of Spain Circular 5/1993, of 26 March,

to qualify as Tier-2 capital and for this purpose a certificate was obtained from the Bank of Spain

classifying them as computable capital.

The detail of the issues outstanding at 31 December 2006 and 2005 is as follows:

Thousands of Euros Face Outstanding Issue Maturity

Issue Value Balance Interest Rate Date

Subordinated debentures 1997 16/06/97 60,101 60,101 6.95 16/06/07

I Subordinated debentures 1998 29/05/98 17,464 17,464 5.00 29/05/08

II Subordinated debentures 1998 14/05/98 36,061 36,061 5.70 18/12/12

III Subordinated debentures 1998 14/05/98 84,141 84,141 6.00 18/12/28

I Subordinated debentures 2003 27/06/03 50,000 50,000 3-m Eur + 0.55 27/06/13

II Subordinated debentures 2003 30/09/03 50,000 50,000 3-m Eur + 0.50 30/09/13

III Subordinated debentures 2004 29/09/04 50,000 50,000 3-m Eur + 0.33 29/09/14

I Subordinated debentures March 2006 21/03/06 75,000 75,000 3-m Eur + 0.26 21/03/16

II Subordinated debentures June 2006 23/06/06 100,000 99,953 3-m Eur + 0.30 23/06/16

III Subordinated debentures December 2006 18/12/06 50,000 49,977 3-m Eur + 0.34 18/12/16

Balance at 31/12/06 572,767 572,697

EUR 21,350 thousand of interest were paid on these debenture issues in 2006 (2005: EUR 16,150

thousand).

Bankinter Group 80


g) Other financial liabilitiesThe detail of “Financial Liabilities at Amortised Cost – Other Financial Liabilities” in the



Payment obligations 70,289 94,267

Factoring payables 2,529 2,744

Other 67,760 91,523

Guarantees received 50,036 37,688

Clearing houses 100 65

Tax collection accounts 153,488 148,186

Unsettled stock market transactions 13,929 21,097

Other 61,502 107,034

Total 349,344 408,337

In euros 338,766 401,364


Total 349,344 408,337

At 31 December 2006 “Payment Obligations” included EUR 46,590 thousand relating to payables to

lease suppliers (31 December 2005: EUR 68,363 thousand).

(20) Liabilities under insurance contracts

The breakdown of “Liabilities under Insurance Contracts” in the consolidated balance sheets at 31


Thousands of Euros Direct Insurance

31/12/06 31/12/05

Unearned premiums and unexpired risks 4,638 5,115

Mathematical provisions 322,652 396,920

Claims outstanding 5,835 4,795

Bonuses (profit-sharing) and rebates 783 579

Life insurance policies where the investment risk is borne by the policyholders 151,293 215,434

Other 3,070 -

Total 488,271 622,843

81Bankinter Group

,


B

Bankinter Seguros de Vida, S.A. has in place an active reinsurance policy under which it analyses

each year the profits and risks of each party and, on the basis thereof, decides whether or not to

increase the risk to be assumed.

Bankinter currently has dealings with prestigious reinsurers with high ratings.

(21) Provisions

The breakdown of this item in the consolidated balance sheets at 31 December 2006 and 2005 is as

follows:


Provisions for pensions and similar obligations 1,390 10

Provisions for contingent liabilities and commitments 32,040 25,271

Other provisions 131,181 137,294

Total 164,611 162,575

“Provisions for Contingent Liabilities and Commitments” includes the general-purpose and specific

provisions for contingent liabilities at 31 December 2006 and 2005. The net period provision

charged to income in this connection in 2006 amounted to EUR 6,769 thousand.

The changes in “Other Provisions” in the years ended 31 December 2006 and 2005 were as follows:

Thousands of Euros Other Provisions

Balance at 31/12/04 135,729

Period provisions charged to income 3,740

Provisions released 437

Other changes (1,738)

Balance at 31/12/05 137,294

Period provisions charged to income 11,759

Provisions released 8,265

Other changes (9,606)

Balance at 31/12/06 131,181

“Other Provisions” includes the liabilities which the Bank considers are likely to give rise to future

outflows for past events.

Bankinter Group 82


Thousands of Euros Reserves (Losses)Share Profit for Interim of Entities Other Equity Treasury

Capital Reserves the Year Dividend Accounted for Instruments Shares TotalUsing the

Equity Method

Balances at 31 December 2004 115,276 1,049,528 173,378 (60,163) (4,441) 13,178 (31,633) 1,255,123

Dividends - (21,460) - (68,413) - - - (89,873)

Issues (retirements)of equity instruments 1,599 29,389 - - - (4,430) - 26,558

Purchase and saleof own equity instruments - 3,644 - - - - (2,130) 1,514

Appropriation of profit for the year - 93,404 (173,378) 60,163 19,811 - - -

Other changes - 1,107 - - (174) 3,636 - 4,569

Consolidated profit for the year - - 187,702 - - - - 187,702

Balances at 31 December 2005 116,875 1,155,612 187,702 (68,413) 15,196 12,384 (33,763) 1,385,593

Dividends - (24,315) - (75,220) - - (99,535)

Issues (retirements)of equity instruments 1,003 19,068 - - (3,430) - 16,641

Purchase and saleof own equity instruments - 13,405 - - 32,715 46,120

Appropriation of profit for the year - 98,693 (187,702) 68,413 20,596 - - -

Other changes - 620 - - 2,741 - 3,361

Consolidated profit for the year - 208,490 - - - 208,490

Balances at 31 December 2006 117,878 1,263,083 208,490 (75,220) 35,792 11,695 (1,048) 1,560,670

(22) Equity having the substance of a financial liability

At 31 December 2006 and 2005 the Group company Bankinter Emisiones, S.A. had issued perpetual

preferred shares or securities amounting to EUR 347,511 thousand and EUR 347,606 thousand,

respectively, which are included under this heading in the consolidated balance sheet. At 31

December 2006 and 2005 these shares, which are listed on the AIAF fixed-income market, bore

interest at a rate of Euribor + 0.30%, with a floor of 4% and a ceiling of 7%, conditional on the

existence of distributable profit at the Group and on the limitations imposed by Spanish

regulations on the equity of credit institutions. These shares, which do not carry any voting rights,

do not entitle their holders to pre-emptive subscription rights in future share issues to be launched

by the issuer.

Note 44, “Assets and Liabilities Measured at Other than Fair Value”, discloses the fair value of this

item in the consolidated balance sheet and describes the method used to calculate it.

(23) Own funds

The detail of the changes in the Group's own funds in 2006 and 2005 is as follows:

83Bankinter Group

s


B

(a) Share capital At 31 December 2006 the share capital of Bankinter, S.A. consisted of 78,585,044 fully subscribed

and paid registered shares of EUR 1.5 par value each (31 December 2005: 77,916,786 fully

subscribed and paid registered shares of EUR 1.5 par value each). All these shares carry identical

voting and dividend rights.

All the shares are represented by book entries, are listed on the Madrid and Barcelona Stock

Exchanges and are traded on the Spanish computerised trading system.

The Group issues debentures convertible into share capital (Note 19). At the conversion date of

each debenture issue, the Group issues fully transferable ordinary shares carrying the same voting

and dividend rights as the ordinary shares outstanding.

The detail of the debenture conversions performed by the Group through 31 December 2006 is as

follows:

Thousands of Euros Debenture Shares Issued Year Issue Issued Capital

2002 Issue I 342,487 514

2002 Issue IV 186,088 279

2003 Issue V 173,742 260

2004 Issue I 683,108 1,025

2004 Issue V 223,177 335

Balance at 31/12/04 1,608,602 2,413

2005 Issue I 529,363 794

2005 Issue V 536,971 805

Balance at 31/12/05 2,674,936 4,012

2006 Issue I 341,681 513

2006 Issue V 326,577 490

Balance at 31/12/06 3,343,194 5,015

Based on the scheduled voluntary and mandatory conversions of the convertible debenture issues

outstanding at 31 December 2006, the Group expects to increase its share capital in 2007 and

subsequent years (Note 19). Since these capital increases will be carried out for the sole purpose

of catering for conversion requests from convertible debenture-holders, they will not give rise to

any pre-emptive subscription rights under Article 159.4 of the Spanish Companies Law.

Bankinter Group 84


The changes in 2006 and 2005 in the number of shares outstanding were as follows:

Number of Shares Par Value (Thousands of Euros)

Balance at 31/12/04 76,850,452 115,276

Additions 1,066,334 1,599

Retirements - -

Balance at 31/12/05 77,916,786 116,875

Additions 668,259 1,003

Retirements - -

Balance at 31/12/06 78,585,044 117,878

The detail of the shareholders with an ownership interest of 10% or more in the share capital at 31


Number of Directly Held Shares Number of Indirectly Held Shares % of Share Capital

Shareholder 31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05

Cartival, S.A. 12,815,628 11,299,757 - - 16.31 14.50

Casa Kishoo, S.A. 9,724,063 7,340,212 316,690 403,950 12.78 10.01

(b) Share premiumOn each conversion, share premium is increased by the sum of the difference between the

nominal value of convertible debentures converted and the nominal value of the shares issued plus

the value of the options that is included, with a charge to personnel expenses, under “Other Equity

Instruments”. In 2006 the share premium was increased by EUR 19,068 thousand (2005: EUR

29,389 thousand).

85Bankinter Group


B

(c) ReservesThe detail of “Reserves” in the consolidated balance sheet is as follows:


Legal reserve 44,503 34,077

Unrestricted reserve 468,678 399,120

Reserve for first-time application of IFRSs 135,741 135,741

Revaluation reserve 126,374 133,423

Reserve for treasury shares 121,718 121,836

Shares acquired 33,645 33,763

Shares accepted as security 88,073 88,073

Canary Islands investment reserve 28,363 27,163

Net gains on treasury shares 18,029 3,644

Reserves (losses) of entities accounted for using the equity method 35,792 15,196

Associates (1,371) 3,167

Jointly controlled entities 37,163 12,029

Total 979,199 870,200

Legal reserve10% of net profit for each year must be transferred to the legal reserve until the balance of this

reserve reaches at least 20% of share capital. The legal reserve cannot be distributed to

shareholders and can only be used to offset losses, provided that other reserves are not available

for this purpose. Also, under certain circumstances the legal reserve can be used to increase share

capital, provided that the remaining reserve balance does not fall below 10% of the increased

share capital amount.

Revaluation reservesThis item in the consolidated balance sheet is the result of the tangible asset revaluations made

pursuant to Royal Decree Law 7/1996 and the property revaluation performed on 1 January 2004,

as permitted by the accounting standards and rules then in force.

Voluntary reservesThe balance of the voluntary reserves is unrestricted.

Reserve for first-time application of IFRSsThis reserve includes the adjustments made in the opening consolidated balance sheet at 1

January 2004 due to the application of the new accounting standards in 2005.

Bankinter Group 86


Reserves (losses) of entities accounted for using the equity methodThe detail of the reserves and losses at companies accounted for using the equity method is as

follows:

Thousands of Euros 31/12/06 31/12/05 Reserves Losses Reserves Losses

Línea Directa Aseguradora, S.A. 36,495 - 11,505 -

Grupo Industrial Catensa, S.A. - - - -

Techrules Escuela de Finanzas, S.A. 15 - - 13

Mercavalor, S.V., S.A. - 1,371 272 -

Prota, S.A. - - 2,895 -

Helena Activos Líquidos, S.L. 344 - 348 -

Eurobits Technologies, S.L. 309 - 189 -

Total 37,163 1,371 15,209 13

(d) Other equity instrumentsAt 31 December 2006 “Other Equity Instruments” included EUR 11,695 thousand (31 December

2005: EUR 12,384 thousand) relating to the accrued portion of the value of the implicit options in

outstanding issues of convertible debentures for employees, the balancing entry for which is under

“Personnel Expenses”.

(e) Treasury sharesAt 31 December 2006, the Group held 17,789 treasury shares of EUR 1.5 par value each (31

December 2005: 909,320 treasury shares).

In 2006 the Bankinter Group purchased 1,107,121 shares (2005: 603,375) and sold 1,998,652

shares (2005: 701,432) in the stock market. The net gains on these transactions are included under

“Reserves” in the consolidated balance sheet.

The changes in 2006 and 2005 in the number of treasury shares held by the Group were as follows:

Number of Shares

Balance at 31/12/04 1,007,377

Additions 603,375

Disposals 701,432

Balance at 31/12/05 909,320

Additions 1,107,121

Disposals 1,998,652

Balance at 31/12/06 17,789

87Bankinter Group


B

The detail of treasury shares at 31 December 2006 and 2005 is as follows:

At 31 December 2006, 384,746 treasury shares with a total par value of EUR 577 thousand had

been accepted from customers as security for transactions (31 December 2005: 399,393 treasury

shares; EUR 599 thousand).

(f) Profit attributed to the GroupThe detail of the individual profit or loss of each of the Group companies in 2006 and 2005 is as

follows:

2006 2005

Bankinter, S.A. 166,538 160,737

Bankinter Consultoría, Asesoramiento y Atención Telefónica, S.A. 301 267

Bankinter Gestión de Seguros, S.A. de Correduría de Seguros 891 867

Bankinter International B.V. (174) 489

Bankinter Gestión de Activos, S.A., S.G.I.I.C. 22,845 19,529

Hispamarket, S.A. 25,595 2,193

Intergestora, Sociedad de Capital Riesgo, S.A., S.C.R. 182 (343)

Intermobiliaria, S.A. 176 469

Intergestora Nuevas Tecnologías, SCR., S.A. 261 3,317

Bankinter Capital Riesgo S.G.E.C.R., S.A. (80) 432

Bankinter Seguros de Vida, S.A. de Seguros y Reaseguros 17,085 12,741

Aircraft, S.A. (1,737) (250)

Bankinter Netherlands BV (5) (18)

Bankinter Sociedad de Financiación, S.A. 110 1

Bankinter Emisiones, S.A. 132 18

Bankinter Capital Riesgo I, Fondo Capital 173 (432)

Total 232,293 197,846

Bankinter Group 88

Thousands of Euros Euros Thousands of Euros

Number Par Average Acquisition Reserve for Percentage ofof Shares Value Acquisition Price Cost Treasury Shares Share capital

31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05 31/12/06 31/12/05

Bankinter S.A. 17,789 909,320 27 1,364 58,92 37,13 1,048 33,763 1,048 33,763 0.02 1.17

Total 17,789 909,320 27 1,364 1,048 33,763 1,048 33,763


(g) Earnings per shareEarnings per share are calculated by dividing the profit or loss attributable to the Group by the

weighted average number of ordinary shares outstanding during the year, excluding, where

appropriate, the treasury shares acquired by the Group. In 2006 and 2005, earnings per share were

as follows:

2006 2005

Profit for the year (thousands of euros) 208,490 187,702

Average number of shares (thousands of shares) 77,928 76,778

Earnings per share (euros) 2.68 2.44

For the purpose of calculating diluted earnings per share, the weighted average number of

ordinary shares outstanding is adjusted to reflect the conversion of all the dilutive

potential ordinary shares. The Group's dilutive potential ordinary shares are the convertible

debentures. It is assumed that the convertible debentures will be converted into ordinary shares.

The Group's diluted earnings per share were calculated as follows:

2006 2005

Profit for the year (thousands of euros) 208,490 187,702

Average number of diluted shares (thousands of shares) 80,712 80,260

Diluted earnings per share (euros) 2.58 2.34

(h) Dividends and remunerationThe Group has a system of quarterly dividend payments in January, April, July and October of

each year.

The detail of the dividends paid out of profit for 2006 and 2005 is as follows:

89Bankinter Group

Date Dividend Per Share (euros) Number of Shares Amount (Thousands of Euros) Date Declared by the Board Profit for the Year

July 2005 0.2872 76,997,718 22,111 June 2005 2005

October 2005 0.296 76,998,417 22,793 September 2005 2005

January 2006 0.3053 77,000,008 23,509 December 2005 2005

April 2006 0.3144 77,341,689 24,315 January 2006 2005

Total 1.2029 92,728

July 2006 0.3102 77,996,491 24,193 June 2006 2006

October 2006 0.3197 78,585,044 25,122 September 2006 2006

January 2007 0.3297 78,567,255 25,905 December 2006 2006

April 2007 0.3396 79,031,756 26,835 January 2007 2006

Total 1.2991 102,055


B

The provisional accounting statements prepared by the Bank pursuant to legal requirements

evidencing the existence of sufficient funds for the distribution of the interim dividends were as

follows:

Appendix V contains the balances supporting the distribution of these dividends.

(24) Valuation adjustments (equity)

The breakdown of “Equity – Valuation Adjustments” is as follows:


Available-for-sale financial assets 22,677 62,130

Exchange differences 1,255 108

Total 23,932 62,238

Bankinter Group 90

Thousands of Euros 14 June 2006 13 September 2006 13 December 2006

First Second Third Fourth

Profit after tax 102,366 150,671 216,250 241,758

Dividends paid - (24,193) (49,315) (75,220)

102,366 126,478 166,935 166,538

Interim dividend 24,193 25,122 25,905 26,835

Accumulated interim dividends 24,193 49,315 75,220 102,055

Gross dividend per share (euros) 0.3102 0.3197 0.3297 0.3396

Date of payment July 2006 October 2006 January 2007 April 2007


(25) Contingent liabilities and commitments

The detail of “Contingent Liabilities” and “Contingent Commitments” is as follows:


Contingent liabilities

Financial guarantees 2,482,586 2,078,119

Bank guarantees and other indemnities provided 2,344,238 1,976,549

Irrevocable documentary credits 138,348 101,570

Other financial guarantees - -

Other contingent liabilities 50,180 55,121

Total 2,532,766 2,133,240

Contingent commitments

Drawable by third parties 7,383,823 5,830,097

Other commitments 336,132 240,058

Financial asset forward purchase commitments 9,341 -

Regular way financial asset purchase contracts 295,238 204,014

Securities subscribed but not paid 4,153 4,153

Other contingent commitments 27,400 31,891

Total 7,719,955 6,070,155

“Contingent Commitments - Drawable by Third Parties” includes the full amount of immediately

drawable committed credit facilities.

(26) Transfers of financial assets

The breakdown of the Group's financial asset transfers at 31 December 2006 and 2005 is as follows:


Derecognised before 1 January 2004 2,762,205 3,269,150

Retained in full on the balance sheet 7,378,769 4,612,513

Total 10,140,974 7,881,663

91Bankinter Group


B

The derecognised assets relate to loans securitised prior to 1 January 2004; the detail of these

loans and of the related special-purpose vehicles (SPVs) is as follows:

� In 2003 mortgage loans totalling EUR 1,350,000 thousand were transferred to “Bankinter 6,

Fondo de Titulización de Activos” and SME loans totalling EUR 250,000 thousand were transferred

to “Bankinter I FTPYME, Fondo de Titulización de Activos”. � In 2002 mortgage loans totalling EUR 1,025,000 thousand and EUR 710,000 thousand were

transferred to “Bankinter 4, Fondo de Titulización Hipotecaria” and “Bankinter 5, Fondo de

Titulización Hipotecaria”, respectively.� In 2001 mortgage loans totalling EUR 1,332,500 thousand were transferred to “Bankinter 3,

Fondo de Titulización Hipotecaria”.� In 1999 mortgage loans totalling EUR 600,000 thousand and EUR 320,000 thousand were

transferred to “Bankinter 1, Fondo de Titulización Hipotecaria” and “Bankinter 2, Fondo de

Titulización Hipotecaria”, respectively.

The assets retained in full on the Bank's balance sheet relate to loans securitised after 1 January

2004, as detailed below.

Three transactions were performed in 2006. The first securitisation involved the transfer of

mortgage loans totalling EUR 1,200,000 thousand to “Bankinter 12, Fondo de Titulización

Hipotecaria”. The securities issued by this SPV, of which EUR 13,100 thousand relate to series B,

EUR 11,900 thousand to series C, EUR 11,300 thousand to series D and EUR 11,300 thousand to

series E subordinated bonds, were placed in full on the institutional market.

The second securitisation involved the transfer of mortgage loans totalling EUR 1,570,000

thousand to “Bankinter 13, Fondo de Titulización de Activos”. The securities issued by this SPV,

of which EUR 22,400 thousand relate to series B, EUR 24,100 thousand to series C, EUR 20,500

thousand to series D and EUR 20,600 thousand to series E subordinated bonds, were placed in full

on the institutional market.

The third securitisation involved the transfer of loans granted to SMEs totalling EUR 800,000

thousand to “Bankinter 2 Pyme, Fondo de Titulización Activos”. The securities issued by this SPV,

of which EUR 16,200 thousand relate to class B, EUR 27,500 thousand to class C, EUR 10,700

thousand to class D and EUR 14,600 thousand to class E subordinated bonds, were placed in full on

the institutional market.

Three transactions were performed in 2005. The first of these securitisations involved the transfer

of loans totalling EUR 1,035,000 thousand to “Bankinter 9, Fondo de Titulización de Activos”. The

securities issued by this SPV, of which EUR 32,500 thousand are series B subordinated bonds and

EUR 14,100 thousand are series C subordinated bonds, were placed in full on the institutional

market.

Bankinter Group 92


The second securitisation involved the transfer of loans totalling EUR 1,740,000 thousand to

“Bankinter 10, Fondo de Titulización de Activos”. The securities issued by this SPV, of which

EUR 20,700 thousand relate to series B, EUR 22,400 thousand to series C, EUR 19,100 thousand to

series D and EUR 22,400 thousand to series E subordinated bonds, were placed in full on the

institutional market.

The third securitisation involved the transfer of mortgage loans totalling EUR 900,000 thousand to

“Bankinter 11, Fondo de Titulización Hipotecaria”. The securities issued by this SPV, of which

EUR 15,600 thousand relate to class B, EUR 15,300 thousand to class C, EUR 9,800 thousand to

class D and EUR 12,500 thousand to class E subordinated bonds, were placed in full on the

institutional market.

The main features of the securitisations performed after 1 January 2004 are as follows:

93Bankinter Group

SPV Series Amount Interest Legal Maturity

Bankinter 7 Fondo de Titulización Hipotecaria Series A 471,800 3-m Eur + 0.21% 16/09/40

Series B 13,000 3-m Eur + 0.55%

Series C 5,200 3-m Eur + 1.20%

Total 490,000

Bankinter 8 Fondo de Titulización de Activos Series A 1,029,300 3-m Eur + 0.17% 15/12/40

Series B 21,400 3-m Eur + 0.48%

Series C 19,300 3-m Eur + 1.00%

Total 1,070,000

Bankinter 9 Fondo de Titulización de Activos Series A1 (P) 66,600 3-m Eur + 0.07% 16/07/42

Series A2 (P) 656,000 3-m Eur + 0.11%

Series B (P) 15,300 3-m Eur + 0.50%

Series C (P) 7,100 3-m Eur + 0.95%

Total (1) 745,000

Series A1 (T) 21,600 3-m Eur + 0.07% 16/07/42

Series A2 (T) 244,200 3-m Eur + 0.11%

Series B (T) 17,200 3-m Eur + 0.50%

Series C (T) 7,000 3-m Eur + 0.95%

Total (2) 290,000

Total (1+2) 1,035,000


Bankinter Group B94

SPV Series Amount Interest Legal Maturity

Bankinter 10 Fondo de Titulización de Activos Series A1 80,000 3-m Eur + 0.08% 21/06/43

Series A2 1,575,400 3-m Eur + 0.16%

Series B 20,700 3-m Eur + 0.29%

Series C 22,400 3-m Eur + 0.70%

Series D 19,100 3-m Eur + 2.00%

Series E 22,400 3-m Eur + 3.90%

Total 1,740,000

Bankinter 11 Fondo de Titulización Hipotecaria Series A1 30,000 3-m Eur + 0.05% 21/08/48

Series A2 816,800 3-m Eur + 0.14%

Series B 15,600 3-m Eur + 0.30%

Series C 15,300 3-m Eur + 0.55%

Series D 9,800 3-m Eur + 2.25%

Series E 12,500 3-m Eur + 3.90%

Total 900,000

Bankinter 12 Fondo de Titulización Hipotecaria Series A1 50,000 3-m Eur + 0.04% 15/12/43

Series A2 1,102,400 3-m Eur + 0.12%

Series B 13,100 3-m Eur + 0.25%

Series C 11,900 3-m Eur + 0.35%

Series D 11,300 3-m Eur + 2.25%

Series E 11,300 3-m Eur + 3.90%

Total 1,200,000

Bankinter 13 Fondo de Titulización de Activos Series A1 85,000 3-m Eur + 0.06% 17/07/49

Series A2 1,397,400 3-m Eur + 0.15%

Series B 22,400 3-m Eur + 0.27%

Series C 24,100 3-m Eur + 0.48%

Series D 20,500 3-m Eur + 2.25%

Series E 20,600 3-m Eur + 3.90%

Total 1,570,000

Bankinter 2 PYME Fondo de Titulización de Activos Series A1 49,000 3-m Eur + 0.06% 16/05/46

Series A2 682,000 3-m Eur + 0.12%

Series B 16,200 3-m Eur + 0.22%

Series C 27,500 3-m Eur + 0.52%

Series D 10,700 3-m Eur + 2.10%

Series E 14,600 3-m Eur + 3.90%

Total 800,000


The outstanding balances of the securitisations at 31 December 2006 and 2005 were as follows:


Derecognised before 1 January 2004

Bankinter 1 Fondo de Titulización Hipotecaria 140,617 177,645





Bankinter 6 Fondo de Titulización Hipotecaria 882,080 1,017,722

Bankinter 1 FTPYME 76,600 111,979

Total 2,762,205 3,269,150

Retained in full on the balance sheet


Bankinter 8 Fondo de Titulización de Activos 705,536 823,440

Bankinter 9 Fondo de Titulización de Activos 830,968 942,909

Bankinter 10 Fondo de Titulización de Activos 1,428,880 1,616,815


Bankinter 12 Fondo de Titulización Hipotecaria 1,081,664 -

Bankinter 2 PYME Fondo de Titulización de Activos 703,892 -

Bankinter 13 Fondo de Titulización de Activos 1,526,464 -

Total 7,378,769 4,612,513

(27) Other memorandum items – Financial derivatives

The breakdown of other memorandum items at 31 December 2006 and 2005 is as follows:


Financial derivatives (Notes 7 and 11)

Currency risk 2,555,355 1,625,517

Interest rate risk 40,978,569 38,039,948

Equity price risk 1,818,805 1,424,733

Other risks - 90

Total 45,352,729 41,090,288

95Bankinter Group


B

(28) Personnel expenses

The detail of the amounts recognised under “Personnel Expenses” in the consolidated income

statements for 2006 and 2005 is as follows:


Wages and bonuses paid to current employees 159,192 137,680

Social security contributions 35,916 31,301

Contributions to defined contribution pension plans 6,412 2,166

Termination benefits 18,062 1,134

Equity instrument-based remuneration 2,741 3,692

Other personnel expenses 5,014 16,425

Total 227,336 192,398

The detail of the Group's employees based on its pension commitments to them at 31 December


31/12/06 31/12/05

Current employees whose recognised service began prior to 8 March 1980 541 466

Former employees with vested pension rights 48 44

Early retirees 101 86

Other current employees 3,291 3,116

Total 3,981 3,712

Post-employment benefitsWith regard to pension obligations, under the current collective labour agreement the Bank has

undertaken to supplement the social security benefits accruing to employees hired prior to 8 March

1980 and, under agreements entered into on an individual basis, to certain other employee groups,

for retirement (defined benefit plans), and in other certain cases the Bank has undertaken to pay

an amount (defined contribution plans) the equivalent value of which at the date of retirement will

be the benefit payable to the employee at that date. Also, under the current collective labour

agreement the Bank has undertaken to supplement, if required, certain social security benefits for

permanent disability, death of spouse or death of parent.

Bankinter Group 96


In order to cover the aforementioned pension obligations, the Bank arranged an insurance contract

with Winterthur Seguros y Reaseguros, S.A. which, with the unconditional guarantee of its parent,

Winterthur AG, guarantees the future coverage of all the supplementary pension payments until

2003. Also, the aforementioned benefits to former employees as from 2003 and to current

employees are covered through a coinsurance policy, under which the benefits are guaranteed 40%

by Winterthur Seguros y Reaseguros, acting as the lead coinsurer, and 30% each by Caser

Ahorrovida S.A de Seguros y Reaseguros and Allianz, Compañía de Seguros y Reaseguros S.A.

In 2006 the annual premiums recognised to cover retirement obligations amounted to EUR 6,430

thousand (2005: EUR 2,464 thousand).

In 2006 the net recovery of the provisions recognised for retirement amounted to EUR 5,642

thousand, affecting current employees substantially in full.

The premium paid to cover death and disability amounted to EUR 28 thousand in 2006 (2005:

EUR 45 thousand).

Current employeesThe basic actuarial assumptions used to calculate the commitments to current employees at 31

December 2006 and 2005 were as follows:

97Bankinter Group

h

,

l

31/12/06 31/12/05

Mortality: Probabilities established in GKM/-95 tables, 80%. Probabilities established in GKM/-95 tables, 80%.

Life expectancy

Male: Probability associated with the PERM-2000 P table. Probability associated with the PERM-2000 P table.

Female: Probability associated with the PERF- 2000 P table. Probability associated with the PERF- 2000 P table.

Disability: Probabilities established in Ministerial Order dated Probabilities established in Ministerial Order dated 24/01/197724/01/1977 on bank insurance, net of expenses. on bank insurance, net of expenses.

Discount rate: Euribor zero-coupon curve at 20/12/06. Zero-coupon curve of Spanish government debt (30/12/05).

CPI growth: 2% 2%

Salary increase rate: 3.50% for remuneration stipulated by the collective 3.50% for remuneration stipulated by the collective labour labour agreement and the average increase in the agreement and 5.25% for annual emoluments for employees period from 2003 to 2005 for employees not covered not covered by the agreement.by the agreement (giving a weighted averageincrease per salary of 4.77%).

Social security cost variations

Growth of contribution bases

Maximum contribution base: 2% 2%

Increase in maximum pension: 2% 2%


B

The most significant data of the actuarial studies performed at 31 December 2006 and 2005 are as

follows:


Value of the obligations 85,696 111,607

Fair value of the plan assets:

Allianz 25,642 34,109

Caser 25,642 34,109

Winthertur 34,189 45,478

With respect to defined contribution pension obligations, the value of the accrued liability for non-

vested pension benefits and of the liability for non-vested pension benefits and the amount

relating to insurance contracts that qualify for treatment as external funds is the same, i.e.

EUR 7,489 thousand.

The most noteworthy difference between the actuarial valuations at 31 December 2005 and 2006

was the reduction in the provisions relating to the retirement obligations due to the performance of

the financial markets in 2006. 30-year returns –the average financial term of the obligations

assumed– were 3.65% at 31 December 2005 and 4.10% at 31 December 2006; consequently, the

amounts assigned to cover pension obligations were reduced by EUR 12,211 thousand.

The future salary increase assumption was modified to determine pension obligations not included

in the collective labour agreement. This modification consisted of establishing the assumptions on

the basis of the average salary increases for 2003 to 2005, compared to the assumptions used

previously which ranged from 5.25% to 9%, depending on the employee’s individual situation.

This gave rise to a reduction in the coverage of pension obligations of EUR 6,677 thousand.

Bankinter Group 98


Vested employee pension benefitsThe most significant data of the actuarial studies performed at 31 December 2006 and 2005 are as

follows:





amounts relating to the coverage of pension obligations were reduced by EUR 511 thousand.

Early retirees. Post-employment and other long-term remunerationIn 2002 and 2003 the Bank implemented two early retirement programmes. The commitments to

the early retirees until the date of statutory retirement were covered through insurance policies

taken out with the insurance company Nationale-Nederlanden Vida. The obligations to early

retirees from the retirement date are covered through a single coinsurance policy arranged with

Winterthur (40%), Allianz (30%) and Caser (30%) to cover current personnel receiving vested

pensions as from 2003.

99Bankinter Group

f

31/12/06 31/12/05

Value of obligations 7,110 7,466

Fair value of plan assets 6,022 7,466

Actuarial assumptions

Tables used

Pensions deriving from initial premium GRM/F-80 GRM/F-80

Pensions deriving from subsequent contributions GRM/F-95 and PERMF/2000 GRM/F-95 and PERMF/2000

Discount rate Euribor zero-coupon curve at 20/12/06 Zero-coupon curve of Spanish government debt (30/12/05).

Salary increase rate Not applicable Not applicable

Pension revaluation rate 2% for benefits subject to revaluation 2% for benefits subject to revaluation


Thousands of Euros 31.12.06 31.12.05

Early Statutory Early StatutoryRetirement Phase Retirement Phase Retirement Phase Retirement Phase

Other long-term employee benefits:

2002 early retirees 8,943 - 11,820 -

2003 early retirees 15,171 - 17,514 -

Post-employment benefits

2002 early retirees - 9,059 - 11,990

2003 early retirees - 6,254 - 6,038

Insurance contracts linked to pensions

Nationale Nederlanden Vida 24,014 - 29,334 -

Allianz, Compañía de Seguros y Reaseguros , S.A. - 4,603 - 5,409

Caser, S.A., de Seguros y Reaseguros sobre la Vida - 4,603 - 5,439

Winthertur Vida, S.A., de Seguros y Reaseguros sobre la Vida - 6,137 - 7,257

B

The basic actuarial assumptions used to calculate the commitments to early retirees at 31

December 2006 and 2005 were as follows:

For the statutory retirement phase of the early retirees, the accrued and unaccrued portions of the

obligations at 31 December 2006 and 2005 were calculated considering the same rates of return as

those mentioned above for obligations to current employees.

The most significant data of the actuarial studies performed at 31 December 2006 and 2005 are as

follows:

Bankinter Group 100

31/12/06 31/12/05

Life expectancy:

Male Probability associated with the PERM-2000 P table Probability associated with the PERM-2000 P table

Mujeres Probability associated with the PERF-2000 P table Probability associated with the PERF-2000 P table

Discount rate: Euribor zero-coupon curve at 20/12/06 Zero-coupon curve of Spanish government debt (30/12/05)

CPI growth:

Early retirement phase 2% for benefits subject to revaluation 2% for benefits subject to revaluation

Statutory retirement phase 2% 2%

Salary increase rate:

Statutory retirement phase 0% 0%

Social security cost variations

Early retirement phase:

Increase in maximum contribution base 2% 2%

Increase in maximum pension: 2% 2%


101Bankinter Group





amounts assigned to cover pension obligations were reduced by EUR 736 thousand.

Changes in pension obligations at 31/12/06 (as compared with 31/12/05) and the coverage thereof:

Valuation at 31/12/05: 166,435

Current employees 111,607

Early retirees (early retirement phase) 29,334

Early retirees (statutory retirement phase) 18,028

Former employees with vested pension rights 7,466

Changes in obligations in 2006: (34,203)

Accruals for 2006: 2,830

Interest on pension funds: 6,223

Reduction due to settlement of benefits or because obligations cease to exist: (17,521)

Actuarial gains and losses (variance and modification of assumptions) (25,735)

Valuation at 31/12/06: 132,232

Current employees 85,696

Early retirees (early retirement phase) 24,113

Early retirees (statutory retirement phase) 15,313

Former employees with vested pension rights 7,110

Coverage of obligations: 132,232

Insurance contracts linked to pensions 130,852

Other allowances 1,380

The detail of the average number of employees at the Group in 2006 and 2005 is as follows:

2006 2005

Senior managers 449 448

Executives 1,264 1,252

Other staff 2,140 2,012

Total 3,853 3,712


B

(29) Fee and commission income and expense

The detail of “Fee and Commission Income” and “Fee and Commission Expense” in the consolidated

income statements is as follows:


Fee and commission income

Guarantees and documentary credits 16,796 15,258

Foreign currency exchange and foreign bank notes 7,341 7,539

Collections and payments 69,352 68,415

Trade bills 16,737 14,548

Demand accounts 9,464 9,231

Credit and debit cards 33,546 36,999

Cheques 1,922 1,942

Payment orders 7,683 5,695

Securities services 51,228 31,414

Underwriting and placement 13,498 183

Trading 16,974 13,104

Administration and custody 20,071 18,127

Asset management 685 -

Marketing of non-banking financial products 97,576 85,152

Investment funds 78,377 69,074

Pension funds 12,547 10,340

Insurance 6,652 5,738

Other fees and commissions 44,672 41,899

Total fee and commission income 286,965 249,677

Fee and commission expense

Fees and commissions assigned to other entities and correspondents 17,672 16,120

Fees and commissions assigned to agents, virtual banking 52,174 43,858

Total fee and commission expense 69,846 59,978

Total net fee and commission income 217,119 189,699

Bankinter Group 102


(30) Interest and similar income/Interest expense and similarcharges

The breakdown, by type of transaction, of “Interest and Similar Income” and “Interest Expense

and Similar Charges” in the consolidated income statements for the years ended 31 December 2006

and 2005 is as follows:


Interest and similar income

Balances with the Bank of Spain 7,801 4,975

Loans and advances to credit institutions (Note 9) 133,975 57,626

Loans and advances to customers (Note 9) 1,075,464 741,373

Debt instruments 240,197 252,386

Doubtful assets 1,499 1,649

Rectifications of income as a result of hedging transactions (3,723) 18,550

Other interest 658 56

Total 1,455,871 1,076,615

“Loans and Advances to Customers” includes EUR 687,866 thousand in 2006 relating to secured

loans (2005: EUR 474,471 thousand). “Debt Instruments” includes EUR 235,535 thousand in 2006

relating to book-entry government debt securities (2005: EUR 248,536 thousand).


Interest expense and similar charges

Deposits from the Bank of Spain (Note 19) 3,896 14,560

Deposits from credit institutions (Note 19) 256,117 196,893

Money market operations through counterparties (Note 19) 3,191 1,759

Customer deposits (Note 19) 312,014 199,773

Marketable debt securities (Note 19) 393,832 181,196

Subordinated liabilities (Note 19) 21,349 16,273

Rectifications of expense as a result of hedging transactions (8,279) 32,063

Return on equity having the substance of a financial liability 11,139 7,255

Other interest 5,332 5,884

Total 998,591 655,656

103Bankinter Group


BBankinter Group 104

“Deposits from Credit Institutions” and “Customer Deposits” include EUR 82,331 thousand and EUR

102,195 thousand, respectively, in 2006 relating to interest and charges on time deposit

transactions (2005: EUR 57,466 thousand and EUR 65,477 thousand, respectively).

“Marketable Debt Securities” (Note 19) includes EUR 97,961 thousand in 2006 relating to interest

and charges on promissory note and bill transactions (2005: EUR 67,548 thousand).

The detail, by item, of the average annual interest rates in 2006 and 2005 is as follows:

31/12/06 31/12/05

Average Interest Rate Average Interest Rate

Balances with central banks 2.03% 1.45%

Loans and advances to credit institutions 2.80% 1.83%

Loans and advances to customers (a) 3.75% 3.25%

Debt instruments 3.50% 3.07%

Deposits from central banks 2.75% 2.10%

Deposits from credit institutions 2.99% 2.28%

Customer funds (c) 2.40% 1.70%

Customer deposits 1.90% 1.39%

Marketable debt securities 3.05% 2.26%

Subordinated liabilities 4.36% 4.13%

(31) Gains/losses on financial assets and liabilities

The breakdown of “Gains/Losses on Financial Assets and Liabilities” in the consolidated income

statements for the years ended 31 December 2006 and 2005 is as follows:


Held for trading (Note 7) 1,903 3,367

Debt instruments 18,324 12,917

Other equity instruments 50,553 (1,238)

Trading derivatives (66,974) (8,312)

Other financial instruments at fair valuethrough profit or loss (Note 7) 2,767 5,223


Available-for-sale financial assets (Note 8) (27,273) 42,647

Debt instruments (49,855) 34,632


Other 72,379 (20,553)

Total 49,776 30,684


105Bankinter Group

(32) Net exchange differences

The net exchange differences recognised in the 2006 consolidated income statement, excluding

those relating to financial assets and liabilities at fair value through profit or loss, amounted to

EUR 47,756 thousand (2005: EUR 36,634 thousand).

The detail, by currency, of the assets and liabilities denominated in foreign currency in the Group's


Thousands of Euros 31/12/06 31/12/05Assets Liabilities Assets Liabilities

US dollar 188,503 962,105 208,140 694,051

Pound sterling 46,320 48,776 43,190 35,954

Japanese yen 309 22 211,397 56,595

Swiss franc 643,546 78,523 410,372 34,404

Norwegian krone 3,657 1,271 2,584 899

Swedish krona 7,985 382 2,842 3,549

Danish krone 1,038 208 2,119 11

Other 309,440 25,426 1,098 3,515

Total 1,200,798 1,116,712 881,742 828,978

The detail, by portfolio, of the assets and liabilities denominated in foreign currency at 31


31/12/06 31/12/05Assets Liabilities Assets Liabilities

Cash and balances with central banks 1,352 - 1,145 -

Held for trading 21,280 2,337 677 348

Loans and receivables 1,160,394 - 869,907 -

Available-for-sale financial assets 16,275 - 8,795 -

Prepayments and accrued income 1,451 - 1,196 -

Financial liabilities at amortised cost - 1,114,373 - 828,630

Other 46 2 22 -

Total 1,200,798 1,116,712 881,742 828,978


B

(33) Other general administrative expenses

The breakdown of “Other General Administrative Expenses” in the consolidated income statements

for the years ended 31 December 2006 and 2005 is as follows:


Taxes other than income tax 3,420 3,126

Properties and utilities 26,366 22,166

Entertainment and travel expenses 10,122 7,367

Supplies and sundry expenses 20,147 12,257

Outside services 39,109 43,782

IT and communication 55,957 54,981

Advertising 16,596 14,952

Other expenses 3,223 2,072

Total 174,940 160,703

(34) Other operating income and expenses

The breakdown of “Other Operating Income” and “Other Operating Expenses” in the consolidated

income statements for the years ended 31 December 2006 and 2005 is as follows:


Income Expenses Income Expenses

Income from exploitation of investment property 1,189 - 1,123 -

Contribution to Deposit Guarantee Fund - 5,532 - 4,901

Financial fees and commissions offsetting direct costs 17,396 - 14,984 -

Other 5,418 - 2,656 1

Total 24,003 5,532 18,763 4,902

The amount recognised under “Contribution to the Deposit Guarantee Fund” is the result of the

calculation performed in accordance with the rules stipulated by Royal Decree 2606/1996, of 20

December, on deposit guarantee funds of credit institutions. On 3 August 2001 Royal Decree

948/2001 was published to implement Article 77 (on Deposit Guarantee Funds) of the Securities

Market Law (Note 4).

“Financial Fees and Commissions Offsetting Direct Costs” includes the portion of fees and

commissions that offsets direct costs related to investment products.

Bankinter Group 106


(35) Other gains / Other losses

The breakdown of “Other Gains” and “Other Losses” in the consolidated income statements for the

years ended 31 December 2006 and 2005 is as follows:


Other gains

Gains on the disposal of tangible assets and non-currentassets held for sale (Notes 12 and 14) 886 642

Gains on the disposal of investments 20 15

Other 14,325 6,557

Total 15,231 7,214

Other losses

Losses on the disposal of tangible assets and non-currentassets held for sale (Notes 12 and 14) 344 35

Losses on the disposal of investments 666 124

Other 6,741 6,015

Total 7,751 6,174

“Other Gains – Other” includes EUR 2,280 thousand of income obtained from atypical services in

2006 (2005: EUR 3,277 thousand).

(36) Transactions and balances with related parties

Appendix IV includes a detail of the transactions and balances with Group companies and other

related entities and individuals at 31 December 2006 and 2005.

(37) Remuneration of and balances with the members of theBoard of Directors

1. Directors’ remunerationThe meeting of the Board of Directors on 14 December 2005 approved the directors' remuneration

for 2006 proposed by the Appointments and Remuneration Committee on 12 December 2005.

This remuneration system was ratified by the shareholders at the Annual General Meeting on 20

April 2006.

107Bankinter Group


B

The detail, by director, of the remuneration received by the members of the Bank's Board of

Directors in 2006 and 2005 is as follows:

Pursuant to Article 32 of the bylaws, the amounts detailed above include the following: a fixed

amount for the duties of director, an amount paid for attending Board and Board Committee

meetings, and the delivery of shares and options.

Following is the breakdown of the amounts relating to each director for each item detailed in the

bylaws.

Bankinter Group 108

Director 2006 (In Euros) 2005 (In Euros) % Change

Juan Arena de la Mora 191,741 191,737 0.0020

Pedro Guerrero Guerrero 179,068 175,490 2.0387

Jaime Echegoyen Enríquez de la Orden(1) 143,418 142,490 0.6511

Cartival, S.A. 105,120.5 98,403 6.8264

Marcelino Botín-Sanz de Sautuola y Naveda(2) 89,420.5 65,209 37.1281

Fernando Masaveu Herrero(3) 88,795.5 29,331 202.7342

Ramchand Bhavnani Wadhumal(4) 93,545.5 58,662 59.4643

José Ramón Arce Gómez 112,920.5 118,744 (4.9039)

John de Zulueta Greenebaum 125,370.5 117,994 6.2520

Fabiola Arredondo de Vara 95,820.5 82,428 16.2477

Former directors(5)(6) - 40,762.54 -

Total 1,225,220 1,121,250 9.27 %

(In Euros)

(1) Additionally, the Board of Directors approved a special share option plan for 2006 for the CEO, with an investment of EUR 100,000.(2) Appointed as a director in March 2005.(3) Appointed as a director in September 2005.(4) Appointed as a director in May 2005.(5) Elías Masaveu Alonso del Campo ceased to discharge his duties as director due to his death in May 2005, having earned EUR 14,345.08 up to that date.(6) Alfonso Botín-Sanz de Sautuola was appointed as representative of Cartival, S.A. in April 2005. Prior to this appointment hewas director of Bankinter, S.A. and he earned EUR 26,417.46 in this capacity.


The detail, by director, of the fixed remuneration received by the members of the Board of

Directors for attending Board and Board Committee meetings in 2006 and 2005 is as follows:

109Bankinter Group

Director 2006 (In Euros) 2005 (In Euros) % Change

Fixed Attendance Fixed Acciones Remuneration Fees Remuneration Fees

Juan Arena de la Mora 43,149.80 52,150.00 41,310.00 67,799.00 (12.6567)

Pedro Guerrero Guerrero 32,362.3 74,375.00 30,985.38 82,533.62 (5.9745)

Jaime EchegoyenEnriquez de la Orden 32,362.3 38,725.00 30,985.38 49,533.62 (11.7142)

Cartival, S.A. 21,574.9 35,325.00 20,656.89 36,432.11 (0.3316)

Marcelino Botín-Sanz deSautuola y Naveda (1) 21,574.9 19,625.00 13,771.26 15,270.74 41.8646

Fernando Masaveu Herrero (2) 21,574.9 19,000.00 6,885.5 8,674.5 160.7664

Ramchand Bhavnani Wadhumal (3) 21,574.9 23,750.00 13,771.26 17,348.74 45.6468

José Ramón Arce Gomez 21,574.9 43,125.00 20,656.89 56,773.11 (16.4404)

John de Zulueta Greenebaum 21,574.9 55,575.00 20,656.89 56,023.11 0.6133

Fabiola Arredondo de Vara 21,574.9 26,025.00 20,656.89 20,457.11 15.7755

Former directors(4) (5) - - 16,066.34 14,385.66 -

Subtotal 258,898.5 387,675 236,402.68 425,231.32 (2.2760)

Total 646,573.5 661.634

(1) Appointed as a director in March 2005.

(2) Appointed as a director in September 2005.

(3) Appointed as a director in May 2005.

(4) Elías Masaveu Alonso del Campo ceased to discharge his duties as director due to his death in May 2005, having receivedfixed remuneration of EUR 9,181 up to that date.

(5) Alfonso Botín-Sanz de Sautuola was appointed as representative of Cartival, S.A. in April 2005. Prior to this appointment hewas director of Bankinter, S.A. and he received fixed remuneration of EUR 6,885.63 and attendance fees of EUR 14,385.63.


B

The detail, by director, of the shares issued to directors for no consideration is as follows:

Bankinter Group 110

Director 2006 2005

Amounts Number of Amounts Number ofInvested Shares Issued Invested Shares Issued

Juan Arena de la Mora 48,220.6 872 41,313.93 951

Pedro Guerrero Guerrero 36,165.4 654 30,985.44 713

Jaime Echegoyen Enríquez de la Orden 36,165.4 654 30,985.44 713

Cartival, S.A. 24,110.3 436 20,656.96 475

Marcelino Botín-Sanz de Sautuola y Naveda(1) 24,110.3 436 18,083.87 340

Fernando Masaveu Herrero(2) 24,110.3 436 6,885.65 148

Ramchand Bhavnani Wadhumal(3) 24,110.3 436 13,771.31 301

José Ramón Arce Gómez 24,110.3 436 20,656.96 475

John de Zulueta Greenebaum 24,110.3 436 20,656.96 475

Fabiola Arredondo de Vara 24,110.3 436 20,656.96 475

Former directors(4)(5) - - 5,155.52 270

Total 289,323 5,232 229,809 5,336




(4) Elías Masaveu Alonso del Campo ceased to discharge his duties as director due to his death in May 2005, having receivedEUR 2,582.12 in shares up to that date.

(5) Alfonso Botín-Sanz de Sautuola was appointed as representative of Cartival, S.A. in April 2005. Prior to this appointment hewas director of Bankinter, S.A. and he received EUR 2,582.12 in shares in this capacity.


At 31 December 2006 there were four option plans on Bankinter, S.A. shares in force for the Bank's

directors.

The options granted under the first plan, “Plan 2003”, can only be exercised by the directors from

2 January 2006 to 2 January 2008. At 31 December 2006 the cumulative return on this plan was

135.67% (31 December 2005: 88.06%).

The options granted under the second plan, “Plan 2004”, can only be exercised by the directors

from 2 January 2007 to 2 January 2009. At 31 December 2006 the cumulative return on this plan

was 85.73% (31 December 2005: 48.21%).

The options granted under the third plan, “Plan 2005”, can only be exercised by the directors from


57.59% (31 December 2005: 25.75%).

111Bankinter Group

The detail, by director, of the share options granted to directors is as follows:

Director 2006 (euros) 2005 (euros)

Amounts Invested (*) Amounts Invested (*)

Juan Arena de la Mora 48,220.6 41,313.93

Pedro Guerrero Guerrero 36,165.4 30,985.44

Jaime Echegoyen Enríquez de la Orden(1) 36,165.4 30,985.44

Cartival, S.A. 24,110.3 20,657.96

Marcelino Botín-Sanz de Sautula y Naveda(2) 24,110.3 18,083.87

Fernando Masaveu Herrero(3) 24,110.3 6,885.65

Ramchand Bhavnani Wadhumal(4) 24,110.3 13,771.31

José Ramón Arce Gómez 24,110.3 20,656.96

John de Zulueta Greenebaum 24,110.3 20,656.96

Fabiola Arredondo de Vara 24,110.3 20,656.96

Former directors - 5,155.52

Total 289,323 229,808

(1) The CEO was also granted share options as part of the aforementioned 2006 special share options plan.

(2) Appointed as a director in March 2005

(3) Appointed as a director in September 2005


(*) The related number of shares is determined by the market prices of the share options.


B

The options granted under the fourth plan, “Plan 2006”, can only be exercised by the directors from


28.64%.

2. Loans and guaranteesAt 31 December 2006 the loans and credit facilities granted to directors totalled EUR 11,115

thousand (31 December 2005: EUR 5,629 thousand) and the guarantees provided for them by the

Bank amounted to EUR 69 thousand (31 December 2005: EUR 263 thousand). Additionally, the

executive directors were granted loans for the acquisition of convertible debentures relating to

Bankinter’s 1998 Convertible Debenture Issue I and to Bankinter’s January 2003 Convertible

Debenture Issue V, with a cumulative amount of EUR 11,566 thousand.

The average term of the loans and credit facilities was 12 years in 2006 (2005: approximately 11

years). The interest rates ranged from 3.41 % to 5.60% in 2006 (2005: 2.35% to 4.10%), excluding

the financing of convertible debentures, the interest rate on which is the same as that on the

debentures, and imputing the related compensation in kind).

The guarantees provided for the Bank's directors have an undefined average term and the

commissions thereon ranged from 0.50 % to 4.00% in 2006 (2005: 0.40% to 4.00%).

3. Summary of remuneration, loans and other directors’ benefits

3.1 Remuneration (thousands of euros)

Fixed remuneration 2,213(1)

Variable remuneration 651(2)

Attendance fees 388(3)

Bylaw-stipulated directors' emoluments 548(4)

Share options and/or other financial instruments 389(5)

Other 332

Total 4,521

(1) Fixed remuneration relating to executive directors in their capacity as executives.

(2) Variable remuneration relating to executive directors in their capacity as executives.

(3) Attendance fees at Board and Committee meetings (all directors).

(4) Consists of fixed remuneration plus shares issued for no consideration (all directors).

(5) Share option plans for directors (all directors; includes the special plan for the CEO).

Bankinter Group 112


3.2. Total remuneration, by type of director (thousands of euros)

Type of Director By Company By Group

Executive directors 3,631 -

Non-executive nominee directors 377 -

Non-executive independent directors 513 -

Other non-executive directors 0 -

Total 4,521 -

3.3. Other benefits (in thousands of euros)

Advances -

Loans granted 11,115*

Pension funds and pension plans: contributions 962

Pension funds and pension plans: obligations assumed -

Life insurance premiums 2

Guarantees granted by the Company to directors 69

* Excluding the loans for the acquisition of convertible debentures detailed in Note 37.2.

4. Aggregate remuneration – executive directors and senior managementThe remuneration paid in 2006 to senior managers (a total of ten professionals, including

executive directors) totalled EUR 5,912 thousand, of which EUR 4,254 thousand related to fixed

remuneration and EUR 1,388 thousand related to variable remuneration (2005: EUR 5,815

thousand; eight professionals, including executive directors).

Also, the Group made contributions amounting to EUR 635.7 thousand to pension funds for senior

management, excluding those relating to executive directors, the contributions to which are

detailed in the table in Note 37.3.3.

5. Transactions with members of the Board of DirectorsPursuant to Law 26/2003, of 17 July, which amended Securities Market Law 24/1988, of 28 July,

and the Consolidated Companies Law, enacted by Legislative Royal Decree 1564/1989, of 22

December, the Bank is required to disclose the ownership interests held by the directors of

Bankinter, S.A. in its share capital.

Also, Article 127.ter of the Consolidated Companies Law stipulates that the directors must declare

any ownership interest held by them in the share capital of a company engaging in an activity that

is identical, similar or complementary to the activity carried on by the Bank and any positions

held, duties discharged or activities performed thereat.

113Bankinter Group

m


B

Following is the detail at 31 December 2006 of the ownership interests declared by Bankinter’s

directors as required by Article 127.ter:

Director Entity % Capital

Jaime Echegoyen Enríquez de la Orden Banco Popular 0.00037%

BBVA 0.00003%

BSCH 0.00004%

Cartival, S.A. BSCH 0.0859%

Ramchand Bhavnani Wadhumal BSCH 0.00005%

For the purposes of Article 114.2 of the Securities Market Law, the Bank hereby states that it does

not have any information regarding transactions with directors (or with significant shareholders,

executives or related parties) that are unrelated to Bankinter, S.A.'s ordinary business or which

were not performed under normal market conditions.

6. Directors’ ownership interests in the share capitalThe breakdown of the ownership interests held by the members of the Board of Directors at 31


Bankinter Group 114

31/12/06(*) 31/12/05

Name Total Number Ownership Direct Indirect Total Number Ownership Direct Indirectof Shares Interest (%) of Shares Interest (%)

Juan Arena de la Mora 869,506 1.106 242,074 627,432 834,541 1.07 207,109 627,432

Pedro Guerrero Guerrero 449,809 0.572 119,808 330,001 452,139 0.58 111,138 341,001

Jaime Echegoyen Enríquez de la Orden 76,260 0.097 75,266 994 67,953 0.09 66,959 994

Cartival, S.A. 12,815,628 16.308 12,815,628 0 11,299,757 14.50 11,299,757 -

Marcelino Botín-Sanz de Sautuola y Naveda(1) 19,376 0.025 19,376 0 18,929 0.02 18,929 -

Fernando Masaveu Herrero(2) 4,340,312 5.523 43,324 4,296,988 4,263,062 5.47 32,074 4,230,988

Ramchad Bhavnani Wadhumal(3) 10,040,753 12.777 10,010 10,030,743 9,131,077 11.72 9,576 9,121,501

José Ramón Arce Gómez 311,922 0.397 303,647 8,275 297,665 0.38 296,840 825

John de Zulueta Greenebaum 14,097 0.018 14,097 0 11,650 0.02 11,650 -

Fabiola Arredondo de Vara 8,096 0.010 8,096 0 7,649 0.01 7,649 -

Total directors 28,945,759 36.833 13,651,326 15,294,433 26,384,422 33.86 12,061,681 14,322,741

* The percentage of ownership was calculated taking into account the share capital at 31 December 2006, which amounted to EUR 117,877,566, represented by 78,585,044

shares.





7. Directors’ options on shares of the Bank (1)Following is the detail of the cumulative share options of the Company’s directors at the date of

preparation of these financial statements:

Director Number of Direct Number of % of Total Share Options Equivalent Shares Share Capital (1)

Juan Arena de la Mora(2) 108,992.27 108,992 0.1378%

Pedro Guerrero Guerrero 14,821.45 14,821 0.0187%

Jaime Echegoyen Enríquez de la Orden(2) 87,223.92 87,223 0.1103%

Cartival, S.A. 12,050.61 12,050 0.0152%

Marcelino Botín-Sanz de Sautuola y Navega 12,050.61 12,050 0.0152%

Fernando Masaveu Herrero 3,449.47 3,449 0.004%

Ramchand Bhavnani Wadhumal 4,668.62 4,668 0.0059%

José Ramón Arce Gómez 13,391.53 13,391 0.0169%

John de Zulueta Greenebaum 12,050.61 12,050 0.0152%

Fabiola Arredondo de Vara 12,050.61 12,050 0.0152%

(1) The share capital of Bankinter, S.A. was increased in January 2007 and currently amounts to EUR 118,573,567.50,

represented by 79,049,045 shares. The data presented in the foregoing table were calculated taking into account the share

capital data.

(2) Including the convertible debentures held by the executive directors at the date of preparation of these financial statements.

(38) Information on the environment

The Group's overall operations are governed by the laws on environmental protection

(“environmental laws”) and workers' safety and health (“occupational safety laws”). The Group

considers that it substantially complies with these laws and it has procedures in place to foster and

guarantee compliance therewith.

The Group has adopted the appropriate measures in relation to environmental protection and

improvement and the minimisation, where appropriate, of environmental impact, and complies

with current regulations in this respect. It was not considered necessary to record any provisions

for environmental contingencies and charges in 2006, since the Group did not have any

contingencies relating to environmental protection and improvement.

115Bankinter Group


B

In accordance with the Environmental Policy published by it in 2004, in 2006 Bankinter continued

to develop an Environmental Management System to identify measure and control the

environmental impact of banking activities. An internal audit on this system was performed by the

firm SGS Tecnos. Encouragement was given to measures designed to improve the environment

including the integral management of waste and the rational use of resources; the eco-efficient

design of facilities; and the replacement of white paper by recycled paper for internal use.

As regards personnel training and awareness-raising, an on-line environmental training course

commenced in November for all Group personnel, 9% of whom had successfully completed the

course at 2006 year-end.

The Group's directors consider the environmental contingencies that might arise from its business

activities to be minimal and, in any case, adequately covered. They do not expect any additional

liabilities to arise in relation to these contingencies.

The Group did not incur any expenses or receive any grants in this connection.

(39) Customer Care Service

Article 17 of Ministry of Economy Order 734/2004 on Customer Care Departments and Services and

Customer Ombudsmen of Financial Institutions stipulates, inter alia, that financial institutions are

required to prepare a report on the activities performed by these services in the preceding year

and, also, to include a summary of this report in the notes to their financial statements.

The 2006 Activity Report prepared by the Customer Care Service shows that in 2006 the ratio of

complaints and claims per 10,000 transactions fell to 0.866 (from 0.94 in 2005). Also, the

percentage of complaints and claims responded to in less than 48 hours was 81.81% (2005:

83.95%).

There were 96,192 complaints and claims in 2006 (2005: 86,943), 85,371 of which were economic

claims (2005: 79,354). Of these, 87.74% were resolved in favour of the customer (2005: 87.51%).

Of the aforementioned complaints and claims, 120 were filed through the Bank of Spain (2005:

120), of which 78 were resolved (2005: 105), 42 of them in favour of the Bank (2005: 51).

The Group's External Consumer Ombudsman processed 509 complaints, of which 350 were resolved

in favour of the Group and 158 in favour of the customer, and one was declared to fall outside its

scope of competence.

Bankinter Group 116


(40) Branches, centres and financial agents

The detail of Bankinter, S.A.'s branches, centres and financial agents at 31 December 2006 and

2005 is as follows:

31/12/06 31/12/05

Branches and centres

Branches 332 318

Commercial management centres

Corporate 50 45

SMEs 124 105

Private Banking 41 37

Virtual branches 527 498

Financial agents 1,003 1,007

Telephone and Internet bankingt branches 3 3

At 31 December 2006 Bankinter operated through a network of 1,003 agents (2005: 1,007 agents).

The Bank has granted these agents -either individuals or legal entities- powers of attorney to

habitually negotiate and formalise typical credit institution transactions with its customers, in the

name and on behalf of Bankinter. The average funds managed by this network totalled EUR 2,017

thousand at 31 December 2006 (31 December 2005: EUR 1,739 thousand) and the average loans

and credit facilities granted amounted to EUR 1,655 thousand (31 December 2005: EUR 1,406

thousand). The list of these agents has been filed with the Bank of Spain's Financial Institutions

Office.

(41) Trust and investment services

The detail of the fees and commissions recognised in 2006 and 2005 for the investment services

and supplementary activities performed by the Group is as follows:


Asset management 685 363

Management agreements 4,769 7,069

Safe deposit box rental 546 478

Securities trading (Note 29) 16,974 13,104

of which:

On-line brokerage 9,786 7,711

Total 22,974 21,014

117Bankinter Group


B

The amounts relating to the investment funds, investment companies, pension funds and customer

portfolios managed by the Group are summarised as follows:


Investment funds and investment companies 8,920,220 8,692,687

Pension funds 1,068,630 880,331

Managed customer portfolios 1,400,841 1,298,447

Total 11,389,691 10,871,465

The securities of third parties deposited at the Group measured at market value totalled

EUR 28,526,524 thousand at 31 December 2006 (31 December 2005: EUR 27,057,138 thousand).

(42) Fees paid to auditors

Following is the detail of the professional service fees incurred by the auditors of the Bank’s

individual financial statements and the Group’s consolidated financial statements in 2006

and 2005:

Thousands of Euros Bankinter, S.A. Bankinter Group

31/12/06 31/12/05 31/12/06 31/12/05

Audit services 211 164 283 326

Other audit, consulting and advisory services 311 287 311 287

522 451 594 613

The figures shown for audit services in the foregoing table constitute the full amount of the fees for

the 2006 and 2005 audits, irrespective of the date on which they were invoiced.

(43) Tax matters

Taxable profit, determined in accordance with tax legislation, is subject to tax at a rate of 35%.

Certain tax credits can be deducted from the resulting tax charge.

The Group files consolidated income tax returns; however, this does not signify that the income tax

incurred by each of the consolidated entities is substantially different from that which would arise

if they filed individual tax returns.

Bankinter Group 118


On 27 December 2000 the Group notified the Spanish Tax Agency's National Inspection Office that

it had opted to apply the consolidated tax system from the year 2001. The tax group number

assigned by this Office was 13/2001.

At 31 December 2006 the Bank’s subsidiaries composing the tax group were as follows:

� Aircraft, S.A.� Bankinter Consultoría, Asesoramiento y Atención Telefónica, S.A.� Bankinter Gestión de Activos, S.A., S.G.I.I.C. (formerly Gesbankinter, S.A., S.G.I.I.C.)� Hispamarket, S.A.� Intermobiliaria, S.A.� Bankinter Gestión de Seguros y Reaseguros, S.A.� Bankinter Seguros de Vida, S.A.� Intergestora, S.A. � Intergestora Nuevas Tecnologías, S.A. � Bankinter Capital Riesgo, S.G.E.C.R, S.A. � Bankinter Emisiones, S.A.� Bankinter Sociedad de Financiación, S.A.� Arroyo Business Consulting Development, S.L.

The reconciliation of the accounting profit to the consolidated taxable profit for 2006 and 2005 is

as follows:


Accounting profit for the year before taxes 316,336 265,445

Permanent differences (30,569) (27,571)

Tax base for accounting purposes 285,767 237,874

Net temporary differences 16,785 27,329

Taxable profit 302,552 265,203

The positive temporary differences in 2006 amounted to EUR 87,869 thousand and included

mainly adjustments for non-tax deductible provisions.

The negative temporary differences amounted to EUR 71,084 thousand and included mainly the

reversals of adjustments for provisions and other non-tax deductible items in prior years.

119Bankinter Group

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B

The income tax expense for 2006 and 2005 was calculated as follows:


Current tax expense 100,009 83,373

Tax relief and tax credits (6,713) (3,151)

Tax adjustments 86 (2,479)

Adjustment for first-time conversion (Appendix III) 14,464 -

Total 107,846 77,743

“Prior Years’ Tax Adjustments” in 2006 includes the income tax expense relating to tax adjustments

made to the Bank’s income tax calculation for 2005 that had not been envisaged at 31 December

2005.

“Adjustments for Revaluation of Deferred Taxes” includes the income tax expense incurred as a

result of the revaluation of the deferred tax assets and liabilities recognised by the Bank at the tax

rates that are expected to apply in the period when the asset is realised or the liability is settled

due to the reduction in the income tax rate from 35% to 32.5% in 2007 and 30% in 2008 and

subsequent years.

The breakdown of the income tax expense for the year by current and deferred income tax expense

is as follows:


Current income tax expense 99,016 100,881

Deferred income tax expense 8,830 (23,138)

Income tax expense for the year 107,846 77,743

Bankinter Group 120


The reconciliation of profit before tax to the income tax expense for the year is as follows:


Profit before tax 316,336 265,445

Income tax expense at 35% 110,718 92,906

Detail of the reconciliation of the income tax expense at 35% and the income tax expense for the year including, inter alia: (2,872) (15,163)

Non-deductible expenses 1,756 1,859

Non-computable income (12,454) (11,088)

Tax credits

Other: (6,713) (3,151)

-Tax benefit relating to the reserve for investmentsin the Canary Islands (RIC) - (420)

-Prior years’ income tax adjustments 86 (1,453)

-Income tax payment – Dublin branch 108 119

-Adjustments for revaluation of deferred taxes 14,464 0

Other (119) (1,029)

Income tax expense for the year 107,846 77,743

Effective tax rate for the year 34.09% 29.29%

The income tax expense represents the sum of the current tax expense and the effect of the

changes in deferred tax assets and liabilities and tax credits.

The current income tax expense is calculated by aggregating the current tax arising from the

application of the tax rate to the taxable profit (or tax loss) for the period, after deducting the tax

credits allowable for tax purposes, and the change in deferred tax assets and liabilities and tax loss

and tax credit carryforwards.

Deferred tax assets and liabilities include temporary differences measured at the amount expected

to be payable or recoverable on differences between the carrying amounts of assets and liabilities

and their tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the

tax rates that are expected to apply in the period when the asset is realised or the liability is

settled.

121Bankinter Group

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B

Deferred tax liabilities are recognised for all taxable temporary differences, except, in general,

when the temporary difference arises from the initial recognition of goodwill. Deferred tax assets

are recognised for temporary differences to the extent that it is considered probable that the

consolidated entities will have sufficient future taxable profits against which they can be utilised.

Other deferred tax assets (tax loss and tax credit carryforwards) are only recognised if it is

considered probable that the consolidated entities will have sufficient future taxable profits against

which they can be utilised.

The deferred tax assets and liabilities recognised are reassessed at each balance sheet date in

order to ascertain whether they still exist, and the appropriate adjustments are made on the basis

of the findings of the analyses performed.

Law 35/2006, of 28 November, on Personal Income Tax and partially amending the Corporation

Tax, Non-Resident Income Tax and Wealth Tax Laws, establishes, inter alia, a reduction over two

years in the standard tax rate for corporation tax, which until 31 December 2006 was 35%, the

detail being as follows:

Tax Periods Beginning On or After Tax Rate

1 January 2007 32.5%

1 January 2008 30%

Accordingly, in 2006 the Group re-estimated the deferred tax assets and liabilities and the tax

carryforwards recognised in the consolidated balance sheet on the basis of the year in which the

related reversal will foreseeably take place. The effect of this re-estimate was to reduce deferred

tax assets by EUR 23,550 thousand, which amount was recognised with a charge to the

consolidated income statement, and to reduce deferred tax liabilities by EUR 10,947 thousand, of

which EUR 9,086 thousand relating to the revaluation of deferred tax liabilities arising from the

revaluation of non-current assets were recognised with a credit to the consolidated income

statement, and EUR 1,861 thousand were taken to reserves.

As a result of the last general tax audit performed at the Bank for the main taxes applicable to it

for the years 1997 to 2000, tax assessments were signed on 13 February 2003.

The tax assessments issued to the Bank in connection with income tax (1997 to 2000) were signed

on a preliminary basis since, among other reasons, the settlement contested as a result of prior tax

audits at Bankinter Gestión de Activos, S.A., S.G.I.I.C. is not yet final. These assessments, which

were signed under protest, gave rise to the refund of EUR 38,172 thousand of income tax charge

relating to the difference between the EUR 46,893 thousand received (as described in the following

paragraph) and the other items adjusted.

Bankinter Group 122


The tax charge refund of EUR 46,893 thousand received from the tax authorities related to the tax

paid by the Bank in prior years on the profit of Bankinter Gestión de Activos, S.A., S.G.I.I.C. under

the fiscal transparency system. The related late-payment interest was also received in this

connection.

As a precaution against the possibility of this refund not being final, the Bank recorded EUR 95,959

thousand under “Provisions - Other Provisions” on the liability side of the consolidated balance

sheet at 31 December 2006 for the amount of the refund plus the related interest. The amount

recorded also includes the penalty imposed upon Bankinter Gestión de Activos (EUR 23,447

thousand), against which an appeal has been filed, and the related late-payment interest.

A provision for these amounts was recognised by Bankinter, S.A., which has undertaken to pay

Bankinter Gestión de Activos, S.A., S.G.I.I.C. in the event that the latter is required to pay these

amounts.

In any case, the other tax liabilities which might arise from the claims filed against the

assessments signed under protest were adequately provided for at the end of 2006 and prior years.

On 17 October 2006, the Bank was notified that the tax authorities would initiate a general tax

audit of the following taxes and periods:

Periods

Income tax 2001 to 2003

VAT 09/02 to 12/03

Personal income tax withholdings and prepayments 09/02 to 12/03

Tax on income from movable capital – withholdings and prepayments 09/02 to 12/03

Tax on income from property leases – withholdings and prepayments 09/02 to 12/03

Withholdings of non-residents’ taxation 09/02 to 12/03

Annual return of transactions 2002 to 2003

Annual recapitulative statement of intra-community supplies and acquisitions of goods 2002 to 2003

Also on 17 October 2006, the Bankinter Tax Group (13/01), as tax payer, was notified that the tax

authorities would initiate a general tax audit for income tax for the years 2001 to 2003.

The possible interpretations which can be made of the tax regulations applicable to banking

transactions might give rise to certain contingent tax liabilities. The Bank considers that the

possibility of such contingent liabilities becoming actual liabilities is remote, and that in any event

the tax charge which might arise therefrom would not materially affect the financial statements.

123Bankinter Group

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B

The detail of the deferred tax assets and liabilities which the Group's directors expect will reverse

in future years is as follows:

Thousands of Euros

Deferred tax assets (Note 16) 181,086

Within ten years:

- Provisions: 33,026

- Early retirement fund 6,844

- Other: 11,337

More than ten years:

- Pension fund: 12,347

- General allowance: 117,532

Deferred tax liabilities (Note 16) 71,831

Within ten years: 16,869

More than ten years:

- Revaluation of property: 54,962

The tax benefits applied in calculating the Group's income tax charge for 2006 and 2005 were as

follows:


Tax deductions

Reserve for investments in the Canary Islands - 1,200

Monetary depreciation 1 1

Exemption from international double taxation 51 -

245 1,201

Tax credits

For double taxation 7,592 2,143

For training expenses 169 196

For R&D&IT 722 430

For reinvestment of extraordinary gains 281 58

For donations 434 324

9,198 3,151

Bankinter Group 124


The income on which the tax credit for the reinvestment of extraordinary gains was taken

amounted to EUR 1,404 thousand in 2006 (2005: EUR 292 thousand). In 2006 the Bank made

sufficient non-current asset and securities purchases to meet the reinvestment requirements

established in Article 42 of Legislative Royal Decree 4/2002, of 5 March, approving the Consolidated

Income Tax Law.

In 2005 the Group opted to apply the tax regime for foreign-securities holding companies regulated

in Chapter XIV of Title VII of Legislative Royal Decree 4/2002, of 5 March, approving the

Consolidated Income Tax Law, and on 21 April 2005 notified the Spanish State Tax Agency of its

decision to do so.

As required by Article 118.3 of the Consolidated Income Tax Law, it is hereby stated that in 2006

the Bank obtained tax-exempt income relating to gains of EUR 732 thousand and tax-exempt

income relating to dividends of EUR 271 thousand and it paid EUR 57 thousand of taxes abroad in

relation to these dividends.

(44) Assets and liabilities measured at other than fair value

Following is a comparison, for the salient items on the asset and liability sides of the consolidated

balance sheet, between the carrying amounts of the Group's assets and liabilities measured at other

than fair value and their related fair values estimated at each year-end:


Assets Carrying Fair Carrying FairAmount Value Amount Value

Loans and advances to customers (Note 9) 31,653,807 31,728,860 26,139,388 26,397,720

Held-to-maturity investments (Note 10) - 448,292 511,080

Tangible assets (Note 14) 343,632 352,910 326,163 339,284


Liabilities Carrying Fair Carrying FairAmount Value Amount Value

Deposits from central banks (Note 19) 24 24 580,141 585,924

Deposits from credit institutions (Note 19) 6,972,252 7,028,721 5,712,746 5,769,122

Customer deposits (Note 19) 18,409,659 18,438,487 15,490,497 15,642,958

Marketable debt securities and subordinated liabilities (Note 19) 14,868,083 14,621,800 12,368,483 12,488,749

125Bankinter Group


B

The fair values presented in this Note were calculated by discounting the related estimated flows

of principal and interest, except in the cases of held-to-maturity investments and property

investments for which observable market prices are available.

The fair value of properties was calculated on the basis of the values certified by appraisal

companies, adjusted by the related price variation index in the case of appraisal reports that are

more than three years old.

(45) Risk management policies

Risk managementIn 2006 the following Risk Divisions of the Group were brought together to form the Risk

Directorate, which reports directly to the CEO:

� Credit risk� Market risk� Operational risk� Global risk management

Risk management is one of the Bankinter Group’s competitive advantages. Particular emphasis is

placed on identifying, measuring, managing, controlling and monitoring the main risks to which it

is exposed in carrying on its business activities: credit risk, market risk (both structural interest

rate risk and the risk inherent to Treasury and Capital Markets activities), liquidity risk and

operational risk, as well as other types of risk present in the business activities of financial

institutions, such as reputational risk, strategic risk, etc.

The Board of Directors, acting through the Audit and Regulatory Compliance Committee, the Audit

Division and the Risk Divisions, guides and supervises the accounting policies and internal control

systems and procedures in relation to all the risks involved in the Group’s activity and the

prevention of money laundering, as required by current legislation.

For this purpose, the Board of Directors approves and periodically reviews the main credit risks and

sets and updates the operating limits for market and liquidity risk.

At executive level there is a segregation of functions between the business units in which risk

arises and the units responsible for monitoring and controlling risk.

The Group continues to implement methodologies, systems and policies to enable it to measure

and manage risk and equity in accordance with the principles established in the New Capital

Accord (Basel II).

Bankinter Group 126


Structural and market risk management policiesThe basic principles of risk management at the Bankinter Group are as follows:

� The ultimate objective is to contribute to the maximisation of return on capital and sustained

value creation.� Independence of the risk function.� Integral risk management. The Group identifies, measures, manages and controls all its

significant risks.� Importance of automatic acceptance systems, new risk scoring methodologies and use of

technology in its risk management systems.� Diversification of exposure to customers, industries, counterparties and markets.� Identification, assessment and control of risk in the launch of new products.� Significance of service quality in the risk function.

Set forth below is a description of the Group's policies and methods for the management,

measurement and control of structural risks (interest rate risk and liquidity risk) and the market

risk to which the Group's Treasury and Capital Markets and other operations are subject, followed

by a description of credit risk.

Structural and market risk management policiesThe purpose of the Bankinter Group’s structural and market risk management policy is to

neutralise the impact on the income statement of changes in interest rates, the main market

variables and the Entity’s balance sheet structure by adopting the most appropriate investment or

hedging strategies. It should be noted in this connection that the exchange risk exposure is not

material, since the foreign currency positions held by it are not significant.

The Board of Directors delegates to the Asset-Liability Committee (ALCO) the tasks of monitoring,

on an ongoing basis, the decisions concerning structural balance sheet risks (interest rate and

liquidity risk) and the stock market and exchange risk exposure of the Group's institutional

positions, and of establishing the Bank's financing policies. In addition, each year the Board

reviews, approves, and delegates to the ALCO the limits to be applied in managing the

aforementioned risks. The Treasury and Capital Markets Division implements the decisions

adopted by the ALCO relating to the Group's institutional positions.

Also, on a yearly basis the Board of Directors sets the operating limits applicable to the Treasury

and Capital Markets Division in the own-account transactions performed by it in the financial

markets to take advantage of any business opportunities that arise. In turn, the related delegated

limits are established in this Division and the information thereon is made available to the control

bodies on the internal databases kept for this purpose.

127Bankinter Group

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B

In order to carry out these functions, at any given time the Group uses the most appropriate

financial instruments, which include interest rate, exchange rate and equity derivatives. As a

general rule, the financial instruments traded must be sufficiently liquid and hedgeable.

The Market Risk Division, which forms part of the Risk Directorate, has the separate function of

measuring, monitoring and controlling the Group’s structural and market risks.

Structural risksFollowing is a description of the models used throughout the Group to manage, measure and

control structural interest rate and liquidity risks.

Structural interest rate riskStructural interest rate risk is defined as the Group's exposure –resulting from the varying maturity

and repricing dates of its balance sheet items– to fluctuations in market interest rates.

The Group actively manages this risk in order to safeguard its interest margin and its economic

value in the event of interest rate fluctuations.

In order to control its structural interest rate exposure, the Group has in place a limit structure that

is reviewed and approved each year by the Board of Directors, in keeping with the Group's policies

and strategies in this respect.

The Group employs a series of tools to control and monitor structural interest rate risk. The main

factors measured by the Group with a view to managing and controlling the interest rate risk

profile approved by the Board of Directors are as follows:

a) Interest rate gap (or map)The interest rate gap reflects the Group's interest rate risk exposure based on the maturity and/or

repricing structure of its on- and off-balance-sheet items. The map, which is obtained automatically

at least once a week, is the basic tool that affords the Bank a static view of the concentration of its

interest rate risk over the various time horizons, and it also serves as a basis for the analysis of the

potential impacts of interest rate fluctuations on the Group’s interest margin and equity.

The interest rate map is obtained by allocating the on- and off-balance-sheet positions and

balances, duly classified by nature, to the related time horizons. For this purpose, interest-rate-

sensitive items with known maturity or rate adjustment dates are classified in the map on the

basis of those dates, broken down into items tied to fixed and floating rates, respectively. Items

with no fixed maturity, irrespective of whether they are interest-rate-sensitive, are allocated using

certain historical-behaviour-based assumptions.

Bankinter Group 128

(


Data at 31/12/06 in millions of euros Within 1 to 3 3 Months 1 to 2 2to 3 3 to 4 4 to 5 More than Total1 Month Months to 1 Year Years Years Years Years 5 Years

ASSETS

Loans and receivables 12,229 7,026 16,745 436 116 88 36 591 37,268

Loans and advances to credit institutions 2,148 2,216 995 28 - - - - 5,386

Loans and advances to customers 10,005 4,810 15,749 408 116 88 36 481 31,695

Other 77 - - - - - - 110 187

Fixed-income portfolio - 25 753 997 25 1,181 820 3,745 7,545

Financial assets held for trading - 25 751 11 24 853 427 411 2,503

Available-for-sale financial assets - - 2 985 1 328 392 3,334 5,042

Held-to-maturity investments - - - - - - - - 0-

Other assets 860 - - - - - - 1,044 1,904

Total assets 13,089 7,051 17,498 1,433 141 1,269 856 5,381 46,717

LIABILITIES AND EQUITY

Fixed-income portfolio - - 18 339 531 495 - 1,081 2,463

Financial liabilities held for trading - - 18 339 531 495 - 1,081 2,463

Financial liabilities at amortised cost 14,225 15,178 8,630 1,118 117 70 21 2,991 42,349

Deposits from credit institutions 2,967 1,451 1,607 944 - - - - 6,969

Customer deposits 8,673 8,665 5,969 130 116 70 21 2,659 26,301

Marketable debt securitiesand subordinated liabilities 2,438 5,062 1,055 44 - - - 120 8,719

Other 147 - - - - - - 212 360

Other liabilities 22 18 78 104 - - - 307 529

Equity 134 - - - - - - 1,242 1,376

Total liabilities and equity 14,381 15,196 8,726 1,561 648 565 21 5,620 46,717

Off-balance-sheet transactions 5,726 836 (5,706) 1,295 215 (409) (652) (1,305) -

TOTAL INTEREST RATE GAP 4,434 (7,310) 3,065 1,166 (292) 296 184 (1,544) -

Data at 31/12/05 in millions of euros

Total assets 12,315 4,941 16,169 1,318 101 515 645 4,811 40,815

Total liabilities and equity 15,505 10,834 6,905 1,200 516 258 462 5,135 40,815

Off-balance-sheet transactions 5,307 (57) (5,044) 1,394 183 19 (248) (1,553) -

TOTAL INTEREST RATE GAP 2,116 (5,950) 4,220 1,512 (232) 275 (65) (1,877) -

The applicable operating limits are defined as the maximum gap or difference that can be

maintained, for each time horizon in the interest rate map, between the total amount of asset and

liability positions.

At 2006 and 2005 year-end the interest risk maps were as follows:

129Bankinter Group

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y

e

(*) The Group's foreign currency positions are not significant and, therefore, they are not included in the accompanying gap analyses.


B

The items included in the interest rate map can be classified, based on their interest rate risk

exposure, into the following categories:

� With interest rate risk exposure: these items, which represent most of the Group's balance sheet,

relate to financial instruments that are sensitive to interest rate fluctuations. In turn, these items

can be subdivided into:

– Items subject to fair value risk: fixed-interest financial instruments. Asset items in this

category include substantially all the fixed-income portfolio, loans and advances to credit

institutions and a scantly material portion of loans and advances to customers. Liability

items in this category include most customer deposits, deposits from credit institutions and

the fixed-income portfolio.

– Items subject to cash flow risk: floating-interest financial instruments. Asset items in this

category basically include most loans and advances to customers, whereas the liability items

include most marketable debt securities and own issues.

� Without interest rate risk exposure: these items, which represent a scantly material portion of

the Group's balance sheet, are recognised under “Other Assets” and “Other Liabilities”.

b) Interest margin sensitivity Each month dynamic simulation tools are used to measure the exposure of the interest margin, for

time horizons of 12 and 18 months, to various interest rate fluctuation scenarios. Interest margin

sensitivity is calculated as the difference between the margin projected using market curves at

each analysis date and that projected using interest rate curves modified under various scenarios

(of both parallel interest rate shifts and changes in the slope of the curve).

The dynamic margin projections are calculated using an interest rate risk map obtained from the

average monthly balances of the interest-rate sensitive items; these balances are assumed to

remain constant over the time horizon of the simulation or, alternatively, certain variation

assumptions are applied to them, and it is also assumed that the balances of these items will be

reinvested on maturity in either the same or different accounts. The items that mature or are

adjusted are repriced taking into account the forward interest rate curves quoted in the market and

the estimated commercial spread for each item.

Each year the Board of Directors sets a benchmark value for the sensitivity of the interest margin

to parallel shifts of 100 basis points in the interest rate curves over a time horizon of 12 months.

Sensitivity to this scenario is calculated and controlled on a monthly basis and is reported to each

ALCO meeting.

Bankinter Group 130


The graph below illustrates the sensitivity of the interest margin (calculated as described above),

at 2006 year-end, to parallel shifts of ±100 basis points in the euro interest rate curve over a time

horizon of 18 months.

The graph below illustrates the sensitivity, at 2006 year-end, of the interest margin to changes in

the slope of the curve over a time horizon of 18 months. This scenario is constructed by

maintaining the 6-month interest rate constant and varying the short-term interest rate (up to 3

months) and the 12-month rate by the same amount and in the opposite direction in order to

introduce a ±25 basis-point variation in the slope of the curve over the period in question.

131Bankinter Group

d

10.00

5.00

0.00

-5.00

-10.00

Jan.07

Feb.07

Mar.07

Apr.07

May07

Jun.07

Jul.07

Aug.07

Sep.07

Oct.07

Nov.07

Dec.07

Jan.08

Feb.08

Mar.08

Apr.08

May08

Jun.08

100 b.p. fall 100 b.p. rise

Sensitivity of the interest margin (basis points)

10.00

5.00

0.00

-5.00

-10.00

Jan.07

Feb.07

Mar.07

Apr.07

May07

Jun.07

Jul.07

Aug.07

Sep.07

Oct.07

Nov.07

Dec.07

Jan.08

Feb.08

Mar.08

Apr.08

May08

Jun.08

25 b.p. rise in slope 25 b.p. fall in slope

Sensitivity of the interest margin (basis points)


B

c) Economic value sensitivityEconomic value sensitivity, which supplements the two above-mentioned factors, is calculated on a

monthly basis and enables the exposure of the Bank’s economic value to interest rate risk to be

quantified. Economic value sensitivity is obtained as the difference between the net present value

of the interest-rate-sensitive items calculated using the rate curves under various scenarios and

that calculated using the curve quoted in the market at each analysis date.

Each year the Board of Directors sets a benchmark value for the sensitivity of the economic value

to parallel shifts of 200 basis points in the market interest rates of 12% of equity. Sensitivity to this

scenario is measured and controlled on a monthly basis and is reported to each ALCO meeting.

At 2005 and 2006 year-end, the sensitivity, determined as described above, of the economic value

to parallel shifts of 200 basis points was EUR 60.2 million and EUR 16.5 million, respectively.

Structural liquidity riskStructural liquidity risk is associated with the Bank’s capability to meet its payment obligations and

fund its lending activity. In order to mitigate this risk, the Bank periodically monitors its liquidity

status and assesses any action that may be required. Furthermore, the Group has planned

measures to enable it to restore the Bank’s overall financial equilibrium in the event of a possible

shortfall in liquidity.

The main tools used to control liquidity risk are the liquidity gap (or map) and the data and

analyses on the specific status of the Group's interbank assets and liabilities. Each year the Board

of Directors delegates to the Asset-Liability Committee the ceiling for the Bank’s net debit position

in the interbank deposit market and its maximum dependence on the overnight interbank deposit

market.

The liquidity gap analysis enables the balances and cash flows of the balance-sheet asset and

liability positions to be allocated to various time horizons, based on their expected realisation or

settlement dates. This information is obtained automatically, as in the case of the interest rate

map, from the computer software used by the Group to measure, manage and control structural

risks.

The principal and interest flows of the items with known maturity or settlement dates are

classified, based on the aforementioned criteria, into the various time horizons. Items having no

set maturity or settlement dates are allocated on the basis of certain historical-behaviour

assumptions.

At 2006 and 2005 year-end the liquidity maps were as follows:

Bankinter Group 132

(


133Bankinter Group

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(*) The Group's foreign currency positions are not significant and, therefore, they are not included in the accompanying gap analyses.

Data at 31/12/06 in millions of euros Within 1 to 3 3 Months 1 to 5 More than Total1 Month Months to 1 Year Years 5 Years

ASSETS

Loans and receivables 4,333 4,092 7,109 8,479 20,864 44,877

Loans and advances to credit institutions 2,158 2,249 1,016 29 - 5,452

Loans and advances to customers 2,067 1,842 6,073 8,450 20,806 39,238

Other 108 - 21 - 59 187

Fixed-income portfolio 4 152 834 3,680 4,253 8,924

Financial assets held for trading 4 36 817 1,519 421 2,798

Available-for-sale financial assets - 115 17 2,161 3,832 6,126

Held-to-maturity investments - - - - - -

Other assets 1,159 - 203 - 542 1,904

Total assets 5,496 4,243 8,146 12,160 25,660 55,704

LIABILITIES AND EQUITY

Fixed-income portfolio - 62 69 1571 1212 2,915

Financial liabilities held for trading - 62 69 1571 1212 2,915

Financial liabilities at amortised cost 13,597 4,996 6,609 8,089 12,066 45,356

Deposits from credit institutions 2,979 1,239 1,665 1,175 - 7,057

Customer deposits 9,098 2,399 2,889 3,430 11,145 28,961

Marketable debt securities and subordinated liabilities 1,313 1,359 2,015 3,484 808 8,978

Other 207 - 40 - 113 360

Other liabilities 392 - 45 - 91 529

Equity - - - - 1,376 1,376

Total liabilities and equity 13,989 5,058 6,723 9,660 14,745 50,176

TOTAL LIQUIDITY GAP (8,493) (815) 1,423 2,500 10,914 5,529

Data at 31/12/05 in millions of euros Within 1 to 3 3 Months 1 to 5 More than Total1 Month Months to 1 Year Years 5 Years

Total assets 5,697 1,548 7,085 9,723 23,292 47,345

Total liabilities and equity 13,216 2,811 5,721 7,734 12,755 42,238

TOTAL LIQUIDITY GAP (7,519) (1,263) 1,363 1,990 10,537 5,107


B

Market Risk“Value-at-Risk” (VaR) methodology is the main tool used to measure the market risk exposure of

the positions inherent to the Treasury and Capital Markets activity and that of the Group's Asset

and Liability Committee positions, together with the related limits. VaR is considered both in global

terms and separately for each significant risk factor. The VaR limits set are supplemented by other

measures such as stress-test, sensitivity, equivalent position and concentration analyses.

The methodology used to measure the principal market risk indicators is as follows.

Value-at-Risk (VaR)VaR is defined as the maximum expected loss on a specific portfolio of financial instruments -under

normal market conditions, with a given confidence level and for a specific time horizon- resulting

from changes in market prices and variables.

VaR is the main indicator used on a daily basis by the Bankinter to measure, in a global,

integrated manner, its exposure to interest rate, equity and exchange risk.

At present, VaR is calculated by the parametric model, which is based on statistical assumptions

of normality in the distribution of market price changes. The calculation is performed with a

confidence level of 95% and a one-day time horizon; the volatility and correlation matrixes used

are obtained from historical series of the market data considered in the model, which are

representative of the risk factors of the positions being measured.

The estimated VaR exposure for the main risk factors in 2006, in both equity and the income

statement, was less than 1% in all cases. The VaR exposure in the income statement was estimated

considering the Group's trading operations as a whole, whereas the VaR exposure in equity was

projected taking into account the fixed-income and equity portfolios classified as available for sale

and the related hedges.

Stress TestingStress testing is an analysis performed to supplement the VaR values obtained. Stress tests quantify

the maximum potential loss in the value of a portfolio by simulating various extreme scenarios for the

risk factors to which the portfolio is exposed.

Each year the Board of Directors approves an extreme scenario based on significant fluctuations in

interest rates, stock market prices, exchange rates and volatility; it also sets a series of limits for each

type of risk in the event that these changes occur.

In addition to the aforementioned extreme scenario, estimates are performed using other scenarios

that replicate historical market crisis situations.

Bankinter Group 134


Credit Risk

Organisation of the credit risk functionAs the highest ranking body in credit risk matters, the Board of Directors establishes the Bankinter

Group’s risk policy set forth in the Risk Policy Framework Agreement. It is also the body

responsible for approving transactions that exceed the scope of the powers delegated to

subordinate bodies and for establishing the extent of the powers granted to the Loan Committee,

which is second in the functional hierarchy regarding risk. The Board is periodically informed of

changes in loans and receivables and in the detail thereof, by sector, large exposures and

guarantees and terms, and of any other matters affecting credit risk quality, as well as all matters

for which it is responsible under current legislation.

The Loan Committee, which is presided over by the CEO, assigns powers to the Credit Risk

Committee and to the various regional loan committees, and approves the risks that fall within the

scope of its powers.

The Loan Committee is informed by the Credit Risk Division of the changes in loans and

receivables, higher risk sectors, the exposure to the main risk groups, and of any changes in credit

quality, the non-performing loans ratio and substandard risk.

The Credit Risk Division forms part of the Risk Directorate, which reports directly to the CEO,

thereby guaranteeing the Division’s independence and, in turn, facilitating its adherence to the

Bank’s strategy.

The Credit Risk Division comprises five areas: Individual and Developer Risk, Corporate Banking

Risk, SME Risk, Control and Recoveries and Risk Approval Systems.

The principal function of these Areas, which correspond to the Bank’s customer segments, is to

design their respective risk policies and transmit them to the various networks and channels. Each

area is responsible for defining the treatment of the risk relating to new products and for the

various processes relating to the approval and handling of transactions.

The function of the Control and Recoveries Area is to steer and manage the loan control,

monitoring and collection processes; this is achieved by introducing and promoting automatic

systems which render loan management more efficient and by ensuring that sufficient controls are

in place to guarantee the quality of the loan portfolio. This Area’s responsibilities include

controlling the quality of the data entered into the automatic approval systems and the

arrangement of credit transactions.

135Bankinter Group

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The Risk Approval Systems Area is responsible for promoting and implementing appropriate

methods and systems for the processing and management of customer risk in order to pursue the

risk strategy defined by the Entity. Its main functions are the maintenance and development of

the current risk management and approval systems; basically, the definition and coordination with

Information Systems of the new Unified Risk System, which will encompass all the current risk

systems.

Delegation of powersThe Board of Directors sets the limits of the powers granted to the Loan Committee.

The Loan Committee sets the limits of the powers delegated to the Credit Risk Committee and the

various regional loan committees, which are ultimately limited by type of loan and maturity.

The regional loan committees can, within the limits defined in the Responsibilities Circular,

delegate powers to the various centres that report to it.

Decisions relating to risk are taken collectively and in a decentralised way through the various

Loan Committees.

Basic principles of the credit risk policyFrom the risk management standpoint, the principal lines of action were as follows:

1. Maintaining credit quality.

2. Maximising the use of the automatic approval system (SIGRID).

3. Using ratings as a determining variable in risk approval.

4. The training provided.

CreditworthinessBased on the strategy established for the year, which is intended to increase the weight of the

credit risk to legal entities in the balance sheet, SME is the segment with the highest growth,

followed by Corporate Banking.

The excellent credit quality and the volume of the related provisions continue to represent a

competitive advantage for Bankinter. The rigor of risk management, based on personnel and

information technology, enables Bankinter to maintain high levels of risk growth, especially in the

SME segment, in which the automatic approval systems are a basic tool in the risk process. The

Bank continues to maintain excellent credit quality, as reflected in the non-performing loan ratio,

which continues to be significantly better than that of its competitors.

Bankinter Group 136


The Group's credit risk exposure to customers amounted to EUR 37,448 million at 31 December

2006, representing a year-on-year increase of 17.2%. 93% of credit risk relates to direct lending to

customers and 7% to off-balance sheet exposures. The business segment that reported the highest

relative growth was SMEs (up 34.8%), followed by Corporate Banking (up 17.2%) and Individuals

(up 13.5%). As a result, the relative weight of lending to companies (SMEs and Corporate Banking)

with respect to the loan portfolio as a whole rose by 2 percentage points to 34.7%.

Bankinter’s non-performing loan ratio increased slightly from 0.23% in December 2005 to 0.25% at

2006 year-end due to the strong growth in lending to the SME and Consumer Banking segments in

the last two years. At the same time, the ratio of the recorded allowance to non-performing loans

at the Bank was very comfortable (570%, as compared with 607% in 2005).

IndividualsIn 2006 the Group maintained and reinforced its mortgage loan policy, focussing on customers with

the best socioeconomic profiles. The Bank has an internal statistical model which enables it to

estimate the expected returns from customers on the cross-selling of other products. Individual

mortgage risk as a percentage of the Bank’s credit risk fell by more than two percentage points in

2006 to 56.3% (2005 year end: 58.9%).

Also, the Group maintained a policy of prudence with respect to the coverage of the appraisal value

of homes. Consequently, the coverage of new mortgage loans was maintained, and the ratio of the

amount of the loan to the appraisal value of the property averaged 63.8% in 2006. The number of

mortgage loans where the amount of the loan exceeded 80% of the appraisal value of the property

fell significantly over the last three years, from 22% in August 2003 to a stable 8% at present.

The proportion of income allocated to new mortgages in 2006 was 35.4% (2005: 31.6%) due to the

rises in interest rates and house prices.

Corporate BankingThe growth strategy was maintained, and the risk exposure to customers increased by 17.2% in

2006 (2005: 18.7%).

Despite the significant increase in credit risk, the balance of non-performing loans continued to be

contained, and the ratio of non-performing loans fell from 0.22% in 2005 to 0.20% at 2006 year-

end.

137Bankinter Group

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The matrix by terms and amounts shows that almost 75% of non-performing loans are on loans at

less than one year and that the risk on loans at more than three years, which increased from 18%

to 21%, is very diversified in terms of amounts, since no more than 6.72% is held in loans

exceeding EUR 6 million.

SMEs2006 was a year of consolidation in the SME segment. The business expansion commenced in 2004

and 2005 has produced results, and growth rates in credit risk reached 34.83% in 2006.

16 centres specialising in SMEs were opened in 2006 bringing the total number of centres to 122;

consequently, the number of active customers increased by 20% and the volume of proposals

increased by 16% with respect to 2005.

Credit risk exposure to mortgage loans continues to represent a very significant proportion of total

SME risk (45%), of which 37% are secured by homes and 3% are pledged.

Internal risk scoring modelsIn 2006 Bankinter continued to develop the internal credit risk scoring models in accordance with

the Basel II framework. The effort made in previous years to build the required infrastructure

(systems, processes and databases) allowed it to be included in the advanced model validation

process initiated by the Bank of Spain.

With respect to individuals, loan, credit overdraft and minor financing models were constructed

which, together with the housing mortgages model and the four legal entity models, account for

90% of the total credit risk exposure to customers.

Bankinter Group 138

Credit Risk exposure by internal category (%)

Home mortgages forprivate individuals

Unsecured creditsand loans

Credit cards

Other legal entities

Project finance

Big companies

Medium-sizedcompanies

Small companies

Large transactions

Other transactions

Exposure at 31 December 2006 calculated on the basis of the credit conversion factors (CCF) existing at 30 June.


The internal rating models provide, for each category, a score of the risk assumed by the Bank vis-

à-vis each customer or transaction. Each of these ratings is associated with a certain probability of

default (past due by more than 90 days) and, accordingly, the higher the rating, the lower the

probability of default. The probabilities of default (PDs) showed in the figures were obtained by

applying statistical techniques to historical data for 16 years. Accordingly, the results obtained

include all the data of the economic cycle, including the worst situations arising between 1990 and

2005. Consequently, the expected loss and capital requirements were calculated by applying the

principle of utmost prudence.

Bankinter has historical default databases which enable it to calculate the severity (average

recovery rate of past-due positions) and the exposure at default for each category.

Probability of default, severity and exposure are the three factors required to calculate the expected

loss or probable loss of each transaction. The loss associated with a transaction is calculated by the

probability of each transaction defaulting within one year (probability of default) multiplied by

the exposure at default of the transaction (exposure) and by the percentage loss in case of default

(severity).

The expected loss is a key factor in the estimate of the risk premium that should be passed on to

the transaction price as an additional cost of the activity.

As in the case of the probabilities of default, the data used to calculate exposure and severity were

obtained by applying statistical techniques to historical data from 1990. In this case, the volatility

ratios were also applied, thereby ensuring the principle of utmost prudence in the preparation of

expected loss data.

Bankinter’s estimates of probability of default, severity and exposure and, therefore, of expected

loss, illustrate the excellent quality of its portfolios; for example, 80.9% of the mortgage portfolio

has a rating of 5 or more, and the expected loss on this portfolio as a whole is 0.04% of risk

exposure.

139Bankinter Group

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Bankinter Group B140

15

10

5

0

5.00

4.00

3.00

2.00

1.00

0.00

30

25

20

15

10

5

0

0.25

0.20

0.15

0.10

0.05

0.00

1 2 3 4 5 6 7 8 9

Distribution of home mortgages by rating (%)

Rating

Risk

Risk ExpectedLoss

Risk ExpectedLoss

Expected loss A rating of 9 indicates maximum credit quality and 1 indicates the worst

A rating of 9 indicates maximum credit quality and 1 indicates the worst


Risk Expected loss

1 2 3 4 5 6 7 8 9

Distribution of the portfolio of unsecured credits and loans to privateindividuals by rating (%)

Rating

25

20

15

10

5

0

0.80

0.60

0.40

0.20

0.00

1 2 3 4 5 6 7 8 9

Distribution of the portfolio of other transactions with private individuals byrating (%)

Rating

Risk Expected loss

Risk ExpectedLoss


141Bankinter Group

t

t

t

30

25

20

15

10

5

0

25

20

15

10

5

0

5.00

4.00

3.00

2.00

1.00

0.00

1 2 3 4 5 6 7 8 9

Distribution of the small companies portfolio by rating (%)

Rating

10,00

8,00

6,00

4,00

2,00

0,00

40

30

20

10

5

0

0.25

0.20

0.15

0.10

0.05

0.00

1 2 3 4 5 6 7 8 9

Distribution of the medium-sized companies portfolio by rating (%)

Rating

1 2 3 4 5 6 7 8 9

Distribution of the big companies portfolio by rating (%)

Rating

Risk Expected loss

Risk Expected loss

Risk Expected loss

Risk ExpectedLoss

Risk ExpectedLoss

Risk ExpectedLoss





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(46) Segment reporting

The business segments reflect the Bank's structure, taking into account the nature of the products

and services offered and the customer groups targeted. These business segments can be described

as follows:

� Individual Banking relates to the products and services offered to household economies.� SME Banking provides a specialist service for small and medium-sized enterprises.� Private Banking is a business line specialising in integral asset and investment advisory and

management services.� Corporate Banking offers the specialist service required by large enterprises and the public

sector.� Personal Finance is the business division that caters for the segment of customers with financial

assets in excess of EUR 1.8 million.� Foreign Customers aims to provide specialist services for the growing number of European

nationals who acquire a house in Spain as their temporary or permanent residence.

The reporting structure (Appendix III) is designed as if each business segment were an

autonomous business and had its own separate equity. The net interest income and ordinary

income of the segments are calculated by applying transfer prices (in line with current market

rates) to their respective assets and liabilities. The income from equity instruments is allocated

among the business lines on the basis of their share therein.

Administrative expenses, which include both direct and indirect costs, are distributed among the

segments on the basis of the internal use of the related services.

The average assets distributed among the various business segments include financial assets held

for trading, the securities portfolio and loans and advances to credit institutions and customers.

The average liabilities and equity distributed among the various business segments include

marketable debt securities, deposits from credit institutions and customer deposits.

Ordinary income (financial income) includes interest income, fees and commissions received for

the various products and services provided, and gains on financial assets and liabilities.

Conversely, financial expense includes interest expense, fees and commissions paid, losses on

financial assets and liabilities and general administrative expenses.

Bankinter Group 142


Costs incurred in the acquisition of assets include the total cost incurred in the year to acquire

segment assets that are expected to be used for more than one year.

The segment information is detailed in Appendix III hereto, which is an integral part of this Note to

the consolidated financial statements.

(47) Events after the balance sheet dateAs a result of the obligatory exchange in January 2006 of Convertible Debenture Issue I (launched

in December 1998), share capital increased by 464,001 shares, representing an increase of EUR 696

thousand. Share premium increased by EUR 10,797 thousand relating to the difference between

the face amount of the debentures exchanged and the par value of the shares issued.

(48) Explanation added for translation to EnglishThese consolidated financial statements are presented on the basis of IFRSs as adopted by the

European Union. Certain accounting practices applied by the Group that conform with IFRSs may

not conform with other generally accepted accounting principles.

143Bankinter Group


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Directors' Report

Introduction

The Bankinter Group maintained a positive quarter-by-quarter earnings trend throughout 2006,

with pre-tax profit amounting to EUR 316.34 million, up 19.17% on 2005.

Net profit amounted to EUR 208.49 million, which represents an increase of 11.08% with respect to

2005 year-end. If the extraordinary impact of the income tax reform is disregarded, net profit

would have reached EUR 222.57 million, up 18.6% on 2005.

The tax reform, which consists of a reduction of income tax to 32.5% in 2007 and 30.0% in 2008,

required a downward accounting adjustment in December of the tax assets recognised in the

balance sheet arising mainly from general allowances. This industry-wide accounting effect will be

offset by lower taxation in future years and, therefore, by higher profit after tax in the coming

years. The impact of this revaluation was to reduce profit by EUR 14.08 million in the income

statement. The effect of the revaluation of deferred taxes was to reduce the Group’s equity by EUR

5.86 million.

Balance sheet and earnings

The Bankinter Group’s balance sheet at 31 December 2006 showed growth in all its aggregates.

Accordingly, total assets grew by 12.97% to EUR 46,076 million at 2006 year-end; on- and off-

balance-sheet customer funds amounted to EUR 44,183 million, up 14.63%; and pension funds

grew even more substantially (21.39%). The Bank’s loans and receivables increased by 21.10% to

EUR 31,654 million.

The income statement reflects solid growth in the main business margins: net interest income rose

by 10.08% with respect to 2005, gross income by 15.14% and net operating income by 17.08%.

With respect to the Group’s business ratios, ROE was similar to 2005 (14.94%), ROA stood at 0.48%

and the efficiency ratio fell from 49.60% at December 2005 to 49.08% in 2006, mainly because the

rate of growth started to slow.

Bankinter Group 144


Business strategy

Within the customer business, all segments reported significant growth, especially the segments

on which the Bank has been focusing recently and in which the largest investments have been

made, which illustrates the soundness of these investments and the good management thereof.

Accordingly, profit after tax in the SME segment increased by 49.49% with respect to 2005, a

particularly significant figure if we take into account the investments made to open new branches

specialising in this type of customer (124 branches at 2006 year-end, up from 105 in 2005).

Significant growth in profit after tax was also reported in the higher net worth customer segments,

such as Personal Finance and Private Banking, with increases in net profit of 28.40% and 29.62%,

respectively.

Also, the strong pace of customer attraction witnessed in recent years continued in 2006: 172,000

customers were attracted at December 2006, an increase of 16.6% on the year-ago period. At 2006

year-end, the Bank had 674,000 active customers, 13.6% more than in 2005.

Similarly, there was a notable increase in the number of the Bank’s employees, which totalled

3,981 at year-end, up 7.25% on the year-ago period.

Following what has become a trend at the Entity, the aforementioned growth is supported by its

fundamental values, on the basis of which the Bank has created its new corporate image focusing

on differentiation, which was presented in December. The purpose of this change and improvement

initiative is to strengthen Bankinter’s position as a significant and attractive brand, in line with its

business strategy, and to reflect the Bank’s true identity, thus adapting perception to reality. These

fundamental values include most notably intelligence, integrity, agility, originality and, especially,

permanent innovation.

Additionally, service quality continued to represent Bankinter’s most important competitive

advantage. At December 2006 the Bank’s Net Satisfaction Index (ISN) was 6.35 points above the

market average and the abandonment rate was 6.9, the lowest in the Spanish banking industry.

2006 year-end witnessed the good performance of fees and commissions, with net growth of 14.5%,

most notably the fees and commissions relating to securities services (up 63.1%), and the strength

of net gains on financial assets and liabilities, which increased by 44.9% to EUR 97.53 million.

145Bankinter Group


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Particular mention should also be made of the contribution to the Bankinter Group’s accounts by

the insurance business. Bankinter Seguros de Vida and Bankinter Gestión de Seguros contributed

EUR 27.66 million and EUR 29.39 million, respectively, to profit before tax.

Doubtful risk amounted to EUR 93.24 million, equivalent to 0.25% of the computable risk assets of

the Bank, which is a benchmark in the Spanish banking industry. Similarly, the non-performing

loans ratio reached 569.91%. Total loan loss allowances increased by 21.51% on 2005. In short,

Bankinter continues to maintain excellent solvency levels due to in-house risk analysis, automatic

acceptance and management systems, portfolio diversification, conservative loan loss provisions

and scant exposure to country-risk.

Earnings per share stood at EUR 2.68, up 9.84% on the year-ago period. Also, the Bankinter share

price rose from EUR 46.87 at 31 December 2005 to EUR 59.60 at 2006 year-end, which represents

an increase of 27.16%.

Minimum capital

Article 25 of Royal Decree 1343/1992, of 6 November, implementing Law 13/1992, of 1 June,

stipulates that the capital of consolidated groups of credit institutions must not be less than 8% of

their total risk assets, positions and memorandum items, weighted using the coefficients

established by Bank of Spain Circular 5/1993, of 26 March, as amended by Bank of Spain Circular

3/2005, of 30 July.

At 31 December 2006 and 2005, the Group's capital met the requirements laid down by current

legislation.

As established by the Basel Committee on Banking Supervision, the capital of financial institutions

to be taken into account when determining whether minimum capital requirements are being met

(“computable capital”) is classified into three main categories:

� Core capital (Tier I), which relates to share capital/endowment fund, equity reserves, minority

interests and other similar items.� Supplementary capital (Tier II), which relates basically to the effect of measuring available-for-

sale assets and to non-current subordinated debt.� Other capital (Tier III), which relates basically to the subordinated liabilities not included in Tier II.

Bankinter Group 146


At 31 December 2006 and 2005, the Group’s “computable capital”, as defined by the Basel

Committee on Banking Supervision, was as follows:

Thousands of Euros 31/12/06 31/12/05 Change %

Capital and reserves 1,534,882 1,395,041 139,841 10.02%

Minority interests 343,165 343,165 - -

Revaluation reserve (104,147) (130,143) 25,996 (19.97)%

Treasury shares (1,048) (33,763) 32,715 (96.90)%

Intangible assets (48,829) (43,600) (5,229) 11.99%

Tier I 1,724,023 1,530,700 193,323 12.63%

Revaluation reserve 104,147 130,143 (25,996) (19.97)%

Subordinated debt 498,597 289,187 209,410 72.41%

General allowances 313,952 261,561 52,392 20.03%

Other deductions (119,467) (68,361) (51,106) 74.76%

Tier II 797,229 612,530 184,699 30.15%

Total capital 2,521,252 2,143,230 378,022 17.64%

Risk-weighted assets 25,116,180 20,924,856 4,191,324 20.03%

Tier I (%) 6.86 7.32 (0.46) (6.28)%

Tier II (%) 3.17 2.93 0.24 8.19%

Capital ratio (%) 10.03 10.25 (0.22) (2.15)%

Capital cushion 511,958 469,241 42,716 9.10%

Core 5.50 5.68 (0.18) (3.13)%

Other matters of interest

a) New capital regulations (BIS II)One of Bankinter's targets continues to be the specifications and developments required for the

implementation of the new capital regulations laid down by the Basel-based Bank for International

Settlements (BIS II). The Bank is focusing its work on the application of in-house credit risk models

that enable the use of capital to be adapted to the credit risk actually incurred by the Bank, thus

ensuring enhanced risk management. Also, the operational risk management parameters that will

enable Bankinter to comply with the requirements regarding policies, management processes and

quantification of losses are being defined and developed.

b) New Bankinter brandIn December, Bankinter presented its new corporate image focusing on differentiation.

147Bankinter Group

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B

The purpose of this change and improvement initiative is to strengthen Bankinter’s position as a

significant and attractive brand, in line with its business strategy, and to reflect the Entity’s true

identity, thus adapting perception to reality.

The brand values should be: intelligence, a bank that thinks and makes its customers think, and

understands their needs; integrity (honesty and transparency in the way of saying and doing

things); agility, the extent of Bankinter’s ability to resolve problems before they arise in a quick

and efficient way; originality; and, especially, permanent innovation, the distinguishing feature

that forms the focus for all Bankinter’s projects and has led the Bank to stay one step ahead of the

game and opt for solutions which have improved the financial services product offering in Spain

and, in short, its customers’ quality of life.

The new Bankinter brand –which retains orange as the corporate colour, the colour that has

identified the Bank throughout its 40-plus years of life– not only defines a new visual identity but

also a new way of saying and doing things. In this connection, the new brand will affect all facets

of the visual identification of the Entity, and will bring together the names and sub-brands of the

Bank’s various business lines and networks under a single conceptual umbrella.

c) Awards and recognitionThe “Actualidad Económica” magazine –in its traditional annual ranking of the best annual

reports– rated the quality of Bankinter’s latest annual report as “Outstanding” and gave it a

commendable third place in a long list of 124 Spanish companies. The magazine, which based its

analysis on the cooperation of PwC experts, gave Bankinter’s annual report 93 points out of 100.

Points were given to major subject areas, and Bankinter received the maximum score for

“Corporate Social Responsibility” and “Market Information”.

Bankinter was awarded the second prize for the Best Social Project through the Employees’ Portal

in the 4th Annual Awards for Best Employees’ Portal organised by the Observatory for Internal

Communication and Corporate Identity in which Instituto Empresa, Capital Humano and Infopress

take part. The jury considered the global nature of Bankinter’s Project and its availability to all

employees through the Intranet, and mentioned such aspects as: the AA accessibility certification

of our websites, the training courses on accessibility, the internal volunteers’ websites and the

various areas devoted to social integration programmes.

Bankinter Group 148


d) Social action and Fundación de la InnovaciónOn 3 December 2006, the International Day of Disabled Persons, Bankinter presented a new audio

financial information service specially conceived for partially sighted customers as a further

example of Bankinter’s activities in building a “bank for all” as a part of its “Accessible Bankinter”

project.

This innovative project known as “Audio Bank Statement” provides customers who request it with a

CD with comprehensive audio information on all their accounts with the Bank. The information is

produced on a monthly basis and consists of a voice transcription of the balances of the customer’s

accounts at month-end, together with a breakdown of the movements during that period.

The 7th Future Trends Forum (FTF), the main project of Bankinter’s Fundación de la Innovación,

took place in the fourth quarter of 2006. The objective of this forum is to analyse the most

innovative trends and to influence companies’ attitudes towards technological innovation, thus

stimulating new business opportunities. This year’s subject, “Innovation and Competitiveness”, was

useful in making a diagnosis of Spain’s current position in those fields and obtaining initial

recommendations for the country. In addition, the Foundation published the conclusions of the 6th

Forum, which was devoted to Energy.

After the balance sheet date, no events occurred with an impact on the accompanying consolidated

financial statements that were not included therein; at 31 December 2006, the Group had not

carried out any significant research and development activities. The treasury shares held by

Bankinter are disclosed in Note 22 to the consolidated financial statements.

149Bankinter Group




151Bankinter Group

Appendixes


B

Appendix IConsolidated statements of changes in equity(Consolidated statements of recognised income and expensefor the Years Ended 31 December 2006 and 2005)(Thousands of Euros)

Bankinter Group 152

31/12/06 31/12/05(*)

1. Net income recognised directly in equity (38,306) 1,171

1.1. Available-for-sale financial assets (39,453) 1,063

1.1.1. Translation gains/losses (90,259) 44,282

1.1.2. Amounts transferred to income statement 17,664 (27,720)

1.1.3. Income tax 33,142 (15,499)

1.1.4. Reclassifications - -

1.2. Other financial liabilities at fair value - -

1.2.1 Revaluation gains/losses - -

1.2.2. Amounts transferred to income statement - -

1.2.3. Income tax - -


1.3. Cash flow hedges - -

1.3.1. Translation gains/losses - -


1.3.3. Amounts transferred to the initial carrying amount of hedged items - -



1.4. Hedges of net investments in foreign operations - -

1.4.1. Translation gains/losses - -




1.5. Exchange differences 1,147 108

1.5.1. Translation gains/losses 1,628 204

1.5.2. Amounts transferred to income statement (1) (38)

1.5.3. Income tax (480) (58)


1.6. Non-current assets held for sale - -

1.6.1. Revaluation gains - -




2. Consolidated profit for the year 208,490 187,702

2.1. Published consolidated profit for the year 208,490 187,702

2.2. Adjustments due to changes in accounting policy (*) - -

2.3. Adjustments made to correct errors (*) - -

3. Total income and expenses for the period 170,184 188,873

3.1. Parent 170,184 188,873

3.2. Minority interests - -

Memorandum items: equity adjustments allocable to prior periods - -

Due to changes in accounting policies - -

· Shareholders' equity - -

· Valuation adjustments - -

· Minority interests - -

Due to errors - -

· Shareholders' equity - -

· Valuation adjustments - -

· Minority interests - -

(*) The data at 31 December 2005 are included for comparison purposes only.

The accompanying Notes 1 to 48 and Appendixes I to VI are an integral part of the consolidated statement of recognised income and expense.

ACf(


153Bankinter Group

Appendix IIConsolidated cash flow statementsfor the Years Ended 31 December 2006 and 2005(Thousands of Euros)

Cash flows from operating activities 31/12/06 31/12/05(*)

Consolidated profit/loss for the year 208,490 187,702

Adjustments to profit/loss:

Depreciation of tangible assets 24,034 21,031

Amortisation of intangible assets 117 -

Impairment losses (net) 96,897 80,143

Net provisions for insurance contract liabilities (135,737) (107,381)

Provisions (net) 5,892 7,035

(Gains)/losses on disposal of tangible assets (542) (607)

(Gains)/losses on disposal of investments 646 109

Share of results of entities accounted for using the equity method (net of dividends) (27,367) (24,645)

Taxes 20,773 (14,781)

Other non-monetary items (465) 9,790

Adjusted profit/loss 192,738 158,396

Net (increase)/decrease in operating assets:

Financial liabilities held for trading: 1,874,200 (2,622,990)

Loans and advances to credit institutions - -

Money market operations through counterparties - -

Loans and advances to customers - -

Debt securities 1,823,838 (2,394,566)

Other equity instruments (68,853) (31,564)

Trading derivatives 119,215 (196,860)

Other financial assets at fair value through profit or loss (712) (23,884)

Loans and advances to credit institutions - (23,884)


Loans and advances to customers - -

Debt securities - -

Other equity instruments (712) -

Available-for-sale financial assets (301,595) 1,625,155

Debt securities (367,377) 1,626,006

Other equity instruments 65,782 (851)

Loans and receivables (6,844,6355) (8,259,712)

Loans and advances to credit institutions (1,181,881) (2,308,088)


Loans and advances to customers (5,615,844) (6,041,014)

Debt securities - -

Other financial assets (46,630) 89,390

Other operating assets (16,767) (12,810)



Net increase/(decrease) in operating liabilities:

Financial liabilities held for trading: (793,158) 2,105,123

Deposits from credit institutions - -


Customer deposits - -

Marketable debt securities - -

Trading derivatives (148,612) 168,806

Short positions (644,546) 1,936,317

Other financial liabilities at fair value through profit or loss: - -




Financial liabilities at fair value through equity - -




Financial liabilities at amortised cost: 5,821,129 7,429,000

Deposits from central banks (580,117) 230,140

Deposits from credit institutions 1,259,506 178,007

Money market operations through counterparties - 10,000

Customer deposits 2,917,405 1,903,943

Marketable debt securities 2,304,101 5,150,238

Other financial liabilities (79,766) (43,327)

Other operating liabilities 42,931 (14,652)

Total net cash flows from operating activities (25,589) 383,626

Cash flows from investing activities

Investments:

Subsidiaries, joint ventures and associates - (298)

Tangible assets (58,539) (50,004)

Intangible assets (3,060) (34)

Held-to-maturity investments - -

Other financial assets - -

Other assets - -

Divestments:

Subsidiaries, joint ventures and associates 167 -

Tangible assets 17,578 18,778

Intangible assets - -

Held-to-maturity investments - -

Other financial assets - -

Other assets 261 -

Total net cash flows from investing activities (43,593) (31,558)


155Bankinter Group

Cash flows from financing activities

Issuance/redemption of capital or endowment fund (1) -

Acquisition of own equity instruments (58,158) (2,130)

Disposal of own equity instruments 102,798 4,142

Issuance/redemption of non-voting equity units - -

Issuance/redemption of other equity instruments - -

Issuance/redemption of capital having the nature of a financial liability - -

Issuance/redemption of subordinated liabilities 224,930 -

Issuance/redemption of other long-term liabilities - -

Increase/decrease in minority interests - -

Dividends/interest paid (97,139) (87,038)

Other items related to financing activities 14 (1,888)

Total net cash flows from financing activities 172,444 (86,914)

Effect of exchange rate changes on cash and cash equivalents - -

Net increase/decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year 435,916 170,761

Cash and cash equivalents at end of year 539,178 435,916


The accompanying Notes 1 to 48 and Appendixes I to VI are an integral part of the consolidated cash flow statements.



Appendix IIISegment reporting(Thousands of Euros)

2006 Primary Segment: Business Lines

Individuals SMEs Private Corporate Personal Foreign Other TotalBanking Banking Banking Finance Customers

Financial income 651,338 200,145 173,118 173,118 55,728 24,959 396,275 1,674,679

Financial expense 461,384 109,797 96,576 96,576 40,954 13,199 253,711 1,072,196

Financial margin 189,954 90,348 76,542 76,542 14,773 11,761 142,564 602,483

Fee and commission expense 108,502 53,539 49,735 44,562 30,641 7,139 (76,998) 217,119

Fee and commission income 167,854 82,315 63,233 81,869 38,053 11,061 (157,418) 286,965

Fees and commissions ceded 59,352 28,776 13,498 37,307 7,412 3,922 (80,421) 69,846

Gross income 298,455 143,886 126,277 121,104 45,414 18,900 65,566 819,602

Operating costs 175,463 79,061 35,968 35,968 8,804 8,593 39,948 383,805

Personnel expenses 51,881 42,547 16,345 16,345 3,121 3,196 93,901 227,336

Other operating costs 123,583 36,514 19,623 19,623 5,683 5,398 (53,954) 156,469

Net operating income 122,992 64,825 90,309 85,136 36,610 10,306 25,619 435,797

Other gains or losses 1,643 (61) 199 199 (60) (50) (91,287) (89,418)

Writedowns 5,087 7,503 2,174 2,273 197 58 (11,400) 5,892

Depreciation and amortisation 5,141 3,115 1,331 1,233 265 485 12,581 24,151

Profit before tax 114,406 54,145 87,003 81,830 36,088 9,713 (66,848) 316,336

Average segment assets 18,627,900 4,891,550 2,440,791 4,304,058 897,325 647,704 - 31,809,328

Average segment liabilities 3,803,521 2,115,171 2,208,472 3,848,454 1,690,855 256,649 - 13,923,122

Average off-balance-sheet funds 2,838,722 547,095 4,191,189 319,864 1,946,504 46,107 - 9,889,482

Costs incurred in the acquisition of assets 2,578 1,270 649 444 133 148 - 5,221

Net inter-segment billings: (78,020) (23,157) (13,467) (13,677) (4,121) (3,590) 136,032 -

Services provided 27,091 8,497 3,238 3,497 610 1,580 (44,512) -

Services received 105,110 31,654 16,705 17,174 4,731 5,170 (180,545) -


157Bankinter Group

2005 Primary Segment: Business Lines

Individuals SMEs Private Corporate Personal Foreign Other TotalBanking Banking Banking Finance Customers

Financial income 506,986 130,918 124,223 124,223 36,708 18,036 266,873 1,207,967

Financial expense 329,217 56,252 58,338 58,338 24,675 7,647 151,345 685,812

Financial margin 177,769 74,666 65,885 65,885 12,033 10,389 115,528 522,155

Fee and commission expense 100,503 41,596 48,667 41,443 23,999 6,581 (73,090) 189,699

Fee and commission income 132,706 49,292 59,547 56,144 29,208 8,988 (86,208) 249,677

Fees and commissions ceded 32,203 7,696 10,880 14,701 5,209 2,407 (13,118) 59,978

Gross income 278,272 116,262 114,552 107,328 36,032 16,970 42,438 711,854

Operating costs 165,919 64,065 34,426 34,426 7,275 8,337 24,792 339,240

Personnel expenses 48,677 34,100 15,409 15,409 2,287 2,779 73,737 192,398

Other operating costs 117,242 29,965 19,017 19,017 4,988 5,558 (48,945) 146,842

Net operating income 112,353 52,197 80,126 72,902 28,757 8,633 17,646 372,614

Other gains or losses 1,187 57 (107) (107) (105) 10 (80,038) (79,103)

Writedowns 4,951 3,667 1,905 2,171 20 227 (6,436) 6,505

Depreciation and amortisation 4,714 2,481 1,124 859 212 465 11,706 21,561

Profit before tax 103,875 46,106 76,990 69,765 28,420 7,951 (67,662) 265,445

Average segment assets 16,461,704 3,438,196 1,797,911 3,621,796 646,240 510,149 - 26,475,996

Average segment liabilities 3,415,114 1,762,409 1,831,705 4,124,115 1,383,697 258,567 - 12,775,607

Average off-balance-sheet funds 2,645,986 490,028 3,609,002 316,200 1,719,042 39,143 - 8,819,401

Costs incurred in the acquisition of assets 2,376 1,086 561 400 103 147 - 4,673

Net inter-segment billings: (76,871) (18,167) (11,504) (13,703) (3,604) (3,663) 127,512 -

Services provided 24,218 8,130 2,933 3,365 555 1,535 (40,736) -

Services received 101,089 26,296 14,438 17,069 4,159 5,197 (168,248) -



2006 Ordinary Income Net Operating Income Profit/Loss Before Tax Average Total Assets

Andalusia 40,934 34,899 33,003 3,462,334

Balearic Islands 6,879 5,977 5,983 743,399

Castilla 13,123 12,527 12,012 1,091,392

Castilla La Mancha-Extremadura 10,507 8,031 6,860 928,973

Catalonia 46,933 39,333 34,561 4,226,657

Las Palmas 11,856 9,850 9,077 881,852

Eastern Spain 57,087 56,597 53,091 4,208,622

Madrid - Corporate Banking 20,013 24,851 25,056 1,297,208

Madrid - East 47,206 40,848 39,967 3,945,566

Madrid - West 54,497 56,241 52,455 4,332,536

Navarra-Aragón-Rioja 19,628 19,378 17,884 1,580,154

Northwestern Spain 20,803 21,228 20,543 1,633,893

Northern Spain 40,589 40,835 38,669 3,302,785

Tenerife 8,541 8,195 8,036 596,170

Remote network 203,885 57,007 (40,860) 950,760

Total 602,483 435,797 316,336 33,182,300

2005 Ordinary Income Net Operating Income Profit/Loss Before Tax Average Total Assets

Andalusia 33,752 27,097 25,728 2,742,242

Balearic Islands 5,852 5,416 5,391 582,049

Castilla 10,961 9,562 8,981 960,791

Castilla La Mancha-Extremadura 8,602 5,923 4,980 719,465

Catalonia 39,878 32,148 29,295 3,597,002

Las Palmas 10,303 7,566 6,924 783,297

Eastern Spain 47,372 44,431 41,637 3,378,743

Madrid - Corporate Banking 15,193 18,642 17,957 1,511,140

Madrid - East 38,093 31,888 30,659 3,366,314

Madrid - West 43,220 43,245 42,094 3,601,807

Navarra-Aragón-Rioja 16,060 15,661 14,661 1,378,608

Northwestern Spain 17,634 17,622 17,175 1,455,411

Northern Spain 34,391 32,635 31,112 2,967,134

Tenerife 7,147 6,997 6,792 516,222

Remote network 193,697 73,782 (17,942) 1,150,122

Total 522,155 372,614 265,445 28,710,346

Geographical distribution A

L

E

I

AT(


159Bankinter Group

Loans Debt Other Trading Other Hedging Investments Insurance Doubtful ImpairmentInstruments Equity Derivatives Financial Derivatives Contracts Assets Losses

Instruments Assets Linked to Pensions

Group entities 56,416 935,292 - 1,722 - - - - - -

Jointly controlled entities - - - - - - - - - -

Associates - - - - - - - - - -

Other related entities 35,283 - - 11,280 - - - - - -

Related individuals 35,497 - - 48 - - - - - -

Assets 2006

Deposits Marketable Trading Short Subordinated Other Hedging Provisions Equity Having ShareDebt Derivatives Positions Liabilities Financial Derivatives the Substance Capital

Securities Liabilities Derivatives of a Financial (e)Liability

Group entities 2,251,753 30,369 - - 343,165 - - - - -

Jointly controlled entities 33,448 23,901 - - - - - - - -

Associates - - - - - - - - - -

Other related entities - - - - - - - - - -

Related individuals - - - - - - - - - -

Liabilities 2006

Interest Expense Fee and Insurance Losses on Cost of Personnel Other Other Finance Other and Similar Commission Activity Financial Sales expenses General Operating Expenses of Losses

Charges Expense Expenses Assets and Administrativ Expenses Non-FinancialLiabilities e Expenses Activities

Group entities 202,236 - - - - - 1,853 - - -

Jointly controlled entities 3,436 - - - - - - - - -

Associates - - - - - - - - - -



Expenses 2006

Interest and Fee and Income Share of Insurance Losses on Sales and Other Finance OtherSimilar Commission from Results of Activity Financial Income from Operating Income from GainsIncome Income Equity Entities Income Assets and the Provision Income Non-Financial

Instruments Accounted for Liabilities of Non-Financial ActivitiesEquity Method Services

Group entities 174,515 33,403 48,592 - - 20,955 - - - 6,373


Associates - - - - - - - - - -



Income 2006

Appendix IVTransactions and Balances with Related Parties - 2006(Thousands of Euros)



Loans Debt Other Trading Other Hedging Investments Insurance Doubtful ImpairmentInstruments Equity Derivatives Financial Derivatives Contracts Assets Losses

Instruments Assets Linked to Pensions

Group entities 56,186 702,931 - 1,148 - - - - - -

Jointly controlled entities - - - - - - - - - -

Associates - - - - - - - - - -

Other related entities 20,140 - - 7,100 - - - - - -

Related individuals 35,944 - - 48 - - - - - -

Assets 2005

Deposits Marketable Trading Short Subordinate Other Hedging Provisions Equity Having ShareDebt Derivatives Positions Liabilities Financial Derivatives the Substance Capital

Securities Liabilities of a Financial (e)Liability

Group entities 746,392 22,186 - - 347,606 - - - - -

Jointly controlled entities 146,528 24,003 - - - - - - - -

Associates - - - - - - - - - -



Liabilities 2005

Interest Fee and Insurance Losses on Cost of Personnel Other Other Finance OtherExpense Commission Activity Financial Sales Expenses General Operating Expenses of Losses

and Similar Expense Expenses Assets and Administrativ Expenses Non-Financial Charges Liabilities e Expenses Activities

Group entities 118,938 - - - - - - 1,549 - -


Entidades asociadas - - - - - - - - - -



Expenses 2005

Interest Fee and Income Share of Results Insurance Losses on Sales and Other Finance Other and Commission from of Entities Activity Financial Income from Operating Income from Gains

Similar Income Equity Accounted for Income Assets and the Prov. of Income Non-Financial Income Ins. Using the Liabilities Non-Financial Activities

Equity Method Services

Group entities 125,206 29,532 25,663 - - 2,616 - - - 5,850


Associates - - - - - - - - - -



Income 2005

AB(


161Bankinter Group

Appendix VBalance sheets for the distribution of 2006 dividends(Thousands of Euros)

Thousands of Euros 31/05/06 31/08/06 30/11/06ASSETS1. CASH AND BALANCES WITH CENTRAL BANKS 212,981 380,289 508,2912. FINANCIAL LIABILITIES HELD FOR TRADING 3,520,855 3,384,066 3,583,6632.1. Loans and advances to credit institutions - - -2.2. Money market operations through counterparties - - -2.3. Loans and advances to customers - - -2.4. Debt instruments 3,065,320 3,119,936 3,191,6112.5. Other equity instruments 334,641 154,281 267,3232.6. Trading derivatives 120,894 109,849 124,729Memorandum item: Loaned or advanced as collateral 2,694,629 2,772,449 2,850,5823. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 20,446 15,619 17,1803.1. Loans and advances to credit institutions - - -3.2. Money market operations through counterparties - - -3.3. Loans and advances to customers - - -3.4. Debt instruments - - -3.5. Other equity instruments 20,446 15,619 17,180Memorandum item: Loaned or advanced as collateral - - -4. AVAILABLE-FOR-SALE FINANCIAL ASSETS 4,811,698 3,792,169 5,203,3314.1. Debt instruments 4,755,958 3,743,568 5,136,5164.2. Other equity instruments 55,740 48,601 66,815Memorandum item: Loaned or advanced as collateral 3,734,234 3,734,566 4,997,7505. LOANS AND RECEIVABLES 32,777,367 34,658,310 36,755,7725.1. Loans and advances to credit institutions 3,973,589 4,584,984 5,424,0095.2. Money market operations through counterparties - - -5.3. Loans and advances to customers 28,556,631 29,754,359 31,044,7125.4. Debt instruments - - -5.5. Other financial assets 247,147 318,967 287,051Memorandum item: Loaned or advanced as collateral - - -6. HELD-TO-MATURITY INVESTMENTS - - -Memorandum item: Loaned or advanced as collateral - - -9. CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK (5,334) (7,330) (7,377)10. HEDGING DERIVATIVES 75,453 78,096 80,77311. NON-CURRENT ASSETS HELD FOR SALE 4,288 4,731 4,34511.1. Loans and advances to credit institutions - - -11.2. Loans and advances to customers - - -11.3. Debt instruments - - -11.4. Equity instruments - - -11.5. Tangible assets 4,288 4,731 4,34511.6. Other assets - - -12. INVESTMENTS 137,065 136,361 135,55912.1. Associates 656 656 65612.2. Jointly controlled entities 36,225 36,225 36,22512.3. Group entities 100,184 99,480 98,67813. INSURANCE CONTRACTS LINKED TO PENSIONS - - -15. TANGIBLE ASSETS 312,882 326,168 328,45515.1. For own use 310,050 309,728 309,99015.2. Investment property - - -15.3. Other assets leased out under an operating lease 2,832 16,440 18,46515.4 Assigned to welfare projects - - -Memorandum item: Acquired under a finance lease - - -16. INTANGIBLE ASSETS 178 1,136 2,38616.1. Goodwill - - -16.2. Other intangible assets 178 1,136 2,38617. TAX ASSETS 229,949 234,307 235,47917.1. Current 55,947 51,463 47,26417.2. Deferred 174,002 182,844 188,21518. PREPAYMENTS AND ACCRUED INCOME 39,696 44,448 57,99819. OTHER ASSETS 6,338 13,460 6,869

TOTAL ASSETS 42,143,862 43,061,830 46,912,724



Thousands of Euros 31/05/06 31/08/06 30/11/06LIABILITIES AND EQUITYLIABILITIES1. FINANCIAL LIABILITIES HELD FOR TRADING 2,769,370 2,877,797 2,845,5411.1. Deposits from credit institutions - - -1.2. Money market operations through counterparties - - -1.3. Customer deposits - - -1.4. Marketable debt securities - - -1.5. Trading derivatives 117,544 109,434 129,0481.6. Short positions 2,651,826 2,768,363 2,716,4932. OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS - - -2.1. Deposits from credit institutions - - -2.2. Customer deposits - - -2.3. Marketable debt securities - - -3. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH EQUITY - - -3.1. Deposits from credit institutions - - -3.2. Customer deposits - - -3.3. Marketable debt securities - - -4. FINANCIAL LIABILITIES AT AMORTISED COST 37,670,358 38,378,683 42,162,3014.1. Deposits from central banks 200,024 24 244.2. Deposits from credit institutions 5,958,087 5,548,464 7,365,9884.3. Money market operations through counterparties 234,999 10,000 10,0004.4. Customer deposits 22,518,484 22,950,167 26,004,8304.5. Marketable debt securities 7,543,677 8,543,998 7,392,2304.6. Subordinated liabilities 792,315 894,242 899,1344.7. Other financial liabilities 422,772 431,788 490,09510. CHANGES IN THE FAIR VALUE OF HEDGED ITEMS IN PORTFOLIOHEDGES OF INTEREST RATE RISK - - -11. HEDGING DERIVATIVES 4,532 4,849 8,69912. LIABILITIES ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE - - -12.1. Customer deposits - - -12.2. Other liabilities - - -14. PROVISIONS 154,714 157,733 159,85314.1. Provisions for pensions and similar obligations - - -14.2. Provisions for taxes - - -14.3. Provisions for contingent liabilities and commitments 25,174 29,171 30,58414.4. Other provisions 129,540 128,562 129,26915. TAX LIABILITIES 108,778 124,833 119,64215.1. Current 34,319 34,396 26,17515.2. Deferred 74,459 90,437 93,46716. ACCRUED EXPENSES AND DEFERRED INCOME 67,738 85,821 102,48717. OTHER LIABILITIES 135,472 163,897 251,83017.1. Welfare fund - - -17.2. Other 135,472 163,897 251,83018. EQUITY HAVING THE SUBSTANCE OF A FINANCIAL LIABILITY - - -18.CAPITAL CON NATURALEZA DE PASIVO FINANCIERO - - -

TOTAL TOTAL LIABILITIES 40,910,962 41,793,613 45,650,353


163Bankinter Group

Thousands of Euros 31/05/06 31/08/06 30/11/06EQUITY2. VALUATION ADJUSTMENTS 17,385 47,676 51,3572.1. Available-for-sale financial assets: 16,980 47,201 50,3372.2. Financial liabilities at fair value through equity - - -2.3. Cash flow hedges - - -2.4. Hedges of net investments in foreign operations - - -2.5. Exchange differences 405 475 1,0202.6. Non-current assets held for sale - - -3. OWN FUNDS 1,215,515 1,220,541 1,211,0143.1. Capital or endowment fund 117,878 117,878 117,8783.1.1. Issued 117,878 117,878 117,8783.1.2. Unpaid and uncalled (-) - - -3.2. Share premium 319,676 319,676 319,6763.3. Reserves 808,301 810,848 812,3523.3.1. Accumulated reserves (losses) 808,301 810,848 812,3523.3.2. Retained earnings - - -3.4. Other equity instruments 10,096 10,782 11,4673.4.1. Equity component of compound financial instruments 10,096 10,782 11,4673.4.2. Other - - -3.5. Less: Treasury shares (40,436) (14,450) (1,044)3.6. Non-voting equity units and associated funds (savings banks) - - -3.6.1. Non-voting equity units - - -3.6.2 Reserves of non-voting equity unit holders - - -3.6.3. Stabilisation fund - - -3.7. Profit/loss for the year - - -3.8. Less: dividends and remuneration - (24,193) (49,315)

TOTAL EQUITY 1,232,900 1,268,217 1,262,371TOTAL EQUITY AND LIABILITIES 42,143,862 43,061,830 46,912,724

MEMORANDUM ITEMS1. CONTINGENT LIABILITIES 2,588,832 2,699,919 2,867,9511.1. Financial guarantees 2,525,682 2,631,246 2,824,2131.2. Assets earmarked for third-party obligations - - -1.3. Other contingent liabilities 63,150 68,673 43,7382. CONTINGENT COMMITMENTS 7,126,238 7,548,265 7,929,3252.1. Drawable by third parties 6,530,185 6,959,222 7,231,6382.2. Other commitments 596,053 589,043 697,687



Appendix VIBalance sheets and income statements of Bankinter, S.A.at 31 December 2006 and 2005(Thousands of Euros)

Assets 31/12/06 31/12/05Cash and balances with central banks (Note 6) 539,178 435,916Financial assets held for trading (Note 7)Loans and advances to credit institutions - - Money market operations through counterparties - - Loans and advances to customers - - Debt instruments 2,503,479 4,327,317Other equity instruments 108,664 39,811Trading derivatives 138,139 264,249 Memorandum item: Loaned or advanced as collateral 1,981,715 4,002,508

2.750.282 4.631.377 Other financial assets at fair value through profit or loss (Note 7)Loans and advances to credit institutions - - Money market operations through counterparties - - Loans and advances to customers - - Debt instruments - - Other equity instruments 24,596 23,884 Memorandum item: Loaned or advanced as collateral - -

24,596 23,884 Available-for-sale financial assets (Note 8)Debt instruments 5,041,823 4,027,322 Other equity instruments 70,190 34,088 Memorandum item: Loaned or advanced as collateral 5,136,809 3,910,342

5,112,013 4,061,410 Loans and receivables (Note 9)Loans and advances to credit institutions 5,386,892 3,896,304 Money market operations through counterparties - - Loans and advances to customers 31,694,029 26,198,502 Debt instruments - - Other financial assets 186,783 140,153 Memorandum item: Loaned or advanced as collateral - -

37,267,704 30,234,959 Held-to-maturity investments (Note 10) - 448,292 Memorandum item: Loaned or advanced as collateral 448,292 448,292

- 448,292 Changes in the fair value of hedged items in portfolio hedges of interest rate risk (Note 11) (10,217) (7,464)Hedging derivatives (Note 11) 90,065 86,028 Non-current assets held for sale (Note 12)Loans and advances to credit institutions - - Loans and advances to customers - - Debt instruments - - Equity instruments - - Tangible assets 3,965 3,827 Other assets - -

3,965 3,827 Investments (Note 13)Associates 653 656 Jointly controlled entities 36,225 36,225 Group entities 98,450 99,126

135,328 136,007 Insurance contracts linked to pensions - - Tangible assets (Note 14)For own use 310,283 309,258 Investment property - - Other assets leased out under an operating lease 18,362 76 Memorandum item: Acquired under a finance lease - -

328,645 309,334 Intangible assets (Note 15)Goodwill - - Other intangible assets 3,167 225

3,167 225 Tax assets (Note 16)Current 49,850 96,011 Deferred 169,907 177,768

219,757 273,779 Prepayments and accrued income (Note 17) 50,112 19,473Other assets (Note 18) 200,940 167,682 TOTAL ASSETS 46,715,535 40,824,729


165Bankinter Group

Liabilities 31/12/06 31/12/05Financial assets held for trading (Note 7)Deposits from credit institutions - - Money market operations through counterparties - - Customer deposits - - Marketable debt securities - - Trading derivatives 103,223 246,469 Short positions 2,462,625 3,107,171

2,565,848 3,353,640 Other financial liabilities at fair value through profit or loss:Deposits from credit institutions - - Customer deposits - - Marketable debt securities - -

- - Financial liabilities at fair value through equityDeposits from credit institutions - - Customer deposits - - Marketable debt securities - -

- - Financial liabilities at amortised cost (Note 19)Deposits from central banks 24 580,141 Deposits from credit institutions 6,969,068 5,715,502 Money market operations through counterparties 10,000 10,000 Customer deposits 26,301,310 20,508,201 Marketable debt securities 7,782,034 7,825,858 Subordinated liabilities 937,327 725,186 Other financial liabilities 349,042 408,337

42,348,805 35,773,225 Changes in the fair value of hedged items in portfolio hedges of interest rate risk - - Hedging derivatives (Note 11) 907 47,892 Liabilities associated with non-current assets held for saleCustomer deposits - - Other liabilities - -

- - Provisions (Note 20)Provisions for pensions and similar obligations - - Provisions for taxes - - Provisions for contingent liabilities and commitments 32,655 25,271 Other provisions 130,452 133,025

163,107 158,296 Tax liabilities (Note 16)Current 37,397 6,390 Deferred 63,193 95,467

100,590 101,857 Accrued expenses and deferred income (Note 17) 89,847 68,302 Other liabilities (Note 18)Other 71,067 43,885 Equity having the substance of a financial liability - -

TOTAL LIABILITIES 45,340,171 39,547,097



Equity 31/12/2006 31/12/2005Valuation adjustments (Note 21)Available-for-sale financial assets: 15,834 52,999 Financial liabilities at fair value through equity - - Cash flow hedges - - Hedges of net investments in foreign operations - - Exchange differences 1,255 108 Non-current assets held for sale - -

Own funds (Note 22) 17,089 53,107 Capital or endowment fundIssued 117,878 116,875Unpaid and uncalled (-) - -

117,878 116,875 Share premium 319,676 300,608 ReservesAccumulated reserves (losses) 818,756 736,097 Retained earnings - -

818,756 736,097 Other equity instrumentsEquity component of compound financial instruments 11,695 12,384 Other - -

11,695 12,384 Less: Treasury shares (1,048) (33,763) Profit for the year 166,538 160,737 Less: Dividends and remuneration (75,220) (68,413)

1,375,364 1,277,632 TOTAL EQUITY AND LIABILITIES 46,715,535 40,824,729

Memorandum items:Contingent liabilities (Note 23)Financial guarantees 3,880,674 2,476,207 Assets earmarked for third-party obligations - - Other contingent liabilities 50,180 55,121

3,930,854 2,531,328 Compromisos contingentes (Nota 23)Drawable by third parties 7,385,309 5,830,097 Other commitments 326,791 240,058

7,712,100 6,070,155 11.642.954 8,601,483


167Bankinter Group

Profit and loss accounts 31/12/06 31/12/05Interest and similar income (Note 28) 1,467,992 1,105,616 Interest expense and similar charges (Note 28) 1,022,433 713,935 Return on equity having the substance of a financial liability - - Other 1,022,433 713,935 Income from equity instruments 64,550 33,801 Investments in associates 2,265 397 Investments in jointly controlled entities - - Investments in Group entities 46,337 25,645 Other equity instruments 15,948 7,759

Net interest income 510,109 425,482

Fee and commission income (Note 27) 232,260 201,183 Fee and commission expense (Note 27) 69,168 59,119 Gains/Losses on financial assets and liabilities (net) (Note 29) 6,721 45,747 Held for trading (26,666) 15,490 Other financial instruments at fair value through profit or loss 2,767 5,223 Available-for-sale financial assets (41,761) 46,548 Loans and receivables - - Other 72,381 (21,514)Exchange differences (net) (Note 30) 47,846 36,435

Gross income 727,768 649,728

Other operating income (Note 32) 32,070 18,761 Personnel expenses (Note 26) 218,115 184,117 Other general administrative expenses (Note 31) 176,655 162,823 Depreciation and amortisation 22,790 19,797 Tangible assets 22,673 19,669 Intangible assets 117 128 Other operating expenses (Note 32) 5,532 4,901

Net operating income 336,746 296,851

Impairment losses (net) 97,509 77,438 Available-for-sale financial assets - - Loans and receivables 97,295 79,778 Held-to-maturity investments - - Non-current assets held for sale (399) (384)Investments 613 (1,956)Tangible assets - - Goodwill - - Other intangible assets - - Other assets - - Provisions (net) 9,614 6,505 Other gains (Note 33) 20,637 18,742 Gains on disposal of tangible assets 886 565 Gains on disposal of investments 5,122 4,371 Other items 14,629 13,806 Other losses (Note 33) 5,706 5,227 Losses on disposal of tangible assets 83 35 Losses on disposal of investments - 36 Other items 5,623 5,156

Profit before tax (Note 41) 244,554 226,423

Income tax (Note 41) (78,016) (65,686)

Profit from ordinary activities 166,538 160,737

Profit/Loss from discontinued operations - -

Profit for the year 166,538 160,737


Bankinter Group 168



This document is a translation of a duly approved Spanish-language

document, and is provided for informational purposes only. In the event of

any discrepancy between the text of this translation and the text of the

original Spanish-language document which this traslation is intended to

reflect, the text of the original Spanish-language document shall pevail.

The 2006 Bankinter Annual Report is available on CD-Rom; to obtain a copy please contact

Bankinter’s External Communications Department or request it by e-mail at: [email protected].

The list of Bankinter’s Branches and Agents is provided in a separate leaflet accompanying this Annual Report.

Published by:Bankinter’s External Communication Department

Front cover and graphic design by: Saffron

Development, execution and graphic production by: Gosban

902 431 766

www.gosban.com



Bankinter S.A.Paseo de la Castellana, 2928046 MadridT. +34 913 397 500F. +34 913 398 323Telex. 42760 BANKI ESwift: BKBK ES MM

www.bankinter.com


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