Strategy, Business model and the BS brand

Strategy

In 2014 Banco Sabadell launched a new business plan for the period 2014-2016, known as “Plan Triple”. The plan is designed to enable the Bank to leverage the strength of its balance sheet, its strong sales platform and its nationwide footprint to lead a recovery in lending in the medium and long term.

The first priority of the new business plan is to increase profitability by working towards a target return on adjusted equity (ROTE) of 12% for 2016.

Having made a huge leap in scale, Banco Sabadell’s focus is now on consolidating its domestic business and increasing the profitability of its newly acquired businesses. To do this, it has set out two strategies for different regions according to its market position in each one. In the Catalonia and Southeast (Valencia and Murcia) regions, the Bank has now reached a suitable scale and its business focus will therefore be on profitability, product other and closing the performance gap in its recently acquired businesses.

In the rest of the country the focus is on growing customer numbers and market share. The Bank also intends to continue improving customer relationships so as to become the customer’s banker of choice and to grow its market shares in mutual funds and insurance.

The second key action area for Banco Sabadell has to do with transformation: of the sales, the balance sheet and the production model. In the case of the balance sheet, transformation was based on reducing loan losses and divesting property. To reduce loan losses the Bank has put in hand management programmes combining pre-emptive actions (to anticipate new loan defaults) with recovery (faster debt recoveries).

G18 Main targets set by
"Triple" business plan

(*) Compound Annual Growth Rate (CAGR)

To reduce its holdings of real estate assets the Bank will continue to leverage the expertise of its asset transformation division and the market-leading position of its property sales business, Solvia, while benefiting from an improving real estate market.

The goal of transforming the production and sales system is to increase productivity, but without any loss in the quality of service for which the Bank has always been renowned. For example, a new "instant banking" system has been created which will initially be rolled out in key growth areas such as the Madrid region.

Along with these two action areas, the new business plan also focuses on internationalization, to prepare the ground for future expansion into new markets. The Triple Plan also addresses talent and human resources management.

Key milestones in 2014

In the area of profitability, the primary focus of the Plan, good performance was shown by all the main indicators (G19).

In the area of business development transformation, the Bank has launched major initiatives focused on the customer experience, including a new customer-oriented, centrally managed sales and marketing system and a customer relationship model to realize our aim of being our customers' main bank and building more lasting and profitable relationships.

Once again this year, the ratings obtained by the Bank in the STIGA organization's “Equos-RCB” independent survey of bank branch service quality confirmed Banco Sabadell's position as one of Spain’s market-leading banks, with a score of 7.16 compared with an industry average of 6.29.

With regard to balance sheet transformation, doubtful assets (other than those covered by the asset protection scheme) fell by €1,829 million in the course of 2014.

The next section on the operating and organization model provides more information about transforming the operational model and organization during the year.

As for the internationalization part of the plan, once the necessary permissions had been obtained from the Spanish supervisory authorities and Mexican regulators, Banco Sabadell started operations in Mexico via a new subsidiary, Sabadell Capital, a Mexican multi-purpose financial company ("SOFOM") which will provide specialized financing in Mexican pesos and US dollars for projects in energy, infrastructure and other areas such as tourism, foreign trade and public administration.

Business model

Banco Sabadell has a relationship-driven business model and a widely recognized business franchise.

It is a customer-based model that features a personalized, di≠erentiated management style based on value creation. Sales processes are based on the provision of advice and on high quality sales support systems. The relationship-driven approach is supplemented by product-specific customer-focused campaigns.

In line with our aim to be our customers' main bank, our relationship-driven model places particular emphasis on quality, commitment and the role of the account manager, which is to support customers through every stage of their financial lives, thus ensuring lasting and profitable relationships.

BS strengths

• Organization by business type
• Focus on companies and personal banking
• A leader in cross-border transactions
• Multi-brand, multichannel strategy
• State-of-the-art technology
• Disciplined capital and risk management
• Quality of service
• Clarity and transparency in corporate governance

Organization by business type and geography

Commercial Banking
The largest of the Group’s business lines, Commercial Banking focuses on providing financial products and services to large and medium-sized businesses, SMEs, retailers and sole proprietors, occupational Groupings, entrepreneurs and private individuals.

Corporate Banking and Global Businesses
Offers products and services to large companies and financial institutions, both domestic and foreign.

Markets and Private Banking
Provides savings and investment management services ranging from research into alternative investment products to securities market trading, and include active wealth management and custodian services.

Asset Transformation
The division's tasks are to take an integrated approach to the Group's real estate assets, develop and implement its asset transformation strategy and to carry on the business of a high-quality provider of real estate finance.

Real Estate Group (Solvia) Division
The division specializes in the integrated management of a full range of real estate services —property sales and servicing, land management, preparation and development— and is driving forward the process of leveraging Solvia's servicing capabilities.

As a result of the rapid inorganic growth undergone in the last few years, Banco Sabadell now has a footprint covering the whole of Spain and a 7.6% share of the market (G13).

Within the domestic market the Bank uses a number of brands, all of them under the Banco Sabadell umbrella (G14).

Banco Sabadell is, in addition, a leading provider of foreign trade services. With a specialized product o≠ering and a powerful value proposition, Banco Sabadell is present in strategic business and financial centres and partners with trade promotion bodies to provide support to customers in developing and growing their business in foreign markets.

Quality management

For Banco Sabadell, quality is not just a strategic option; rather, it is a whole approach to doing business, whether in the delivery of value to stakeholders or in the execution of each and every process forming part of that business. This natural affinity with excellence helps to enhance the Bank’s capabilities in all areas, transforming threats into strengths and challenges into opportunities for the future.

Consequently, the Bank makes use of existing standards and benchmarks to judge its own actions and satisfy itself that its way of doing business is the right one, and sets itself new goals based on continual self-criticism.

A key benchmark against which to measure and improve management practices is the European Foundation for Quality Management (EFQM) excellence model, against which the Bank is independently assessed every two years. The November 2014 assessment resulted in the Bank’s EFQM Gold Seal (+500 points) being renewed and a score of over 700 points being awarded according to EFQM’s very demanding standard. This was 100 points higher than the number awarded in 2012, a truly extraordinary result that few organizations would be capable of achieving.

Banco Sabadell remains the only Spanish credit institution with 100% of its financial operations certified to the ISO 9001 standard, providing further proof of its customer-centred approach and diligent process management. In 2014 Banco Sabadell renewed its ISO 9001 certification for another three years.

The Bank had its “Madrid Excelente” quality mark renewed in 2012. Keeping this accreditation current requires an annual assessment, which Banco Sabadell came through satisfactorily.

The various initiatives carried out as part of the sales and promotion plan have borne fruit and customer ratings reflect the improvements in the quality of our service, both in relation to the industry average and in absolute terms. Quality surveys show Banco Sabadell to be the bank most highly rated by customers (G15).

Note: figures for individual quarters.

Operational and organization model

Operational model
The Bank's operational model consists mainly of transferring the entire administrative workload of branches and central service departments to operational factories. Releasing branches from administrative tasks in this way increases the time available for sales-related work, improves customer service and boosts business generation. Concentrating the workload in factories allows average operating times (AOT) to be reduced as more tasks are industrialized; this leads to more efficient processes and/ or automation, speeds up response times and provides greater transaction traceability.

These improvements help to bring greater operating efficiency along with a better customer experience, simpler, more responsive processes and a branch network that is more committed to and focused on giving advice and assistance to customers.

In 2014 the work of transforming the production model was directed mainly at making improvements to the centralized handling of banking transactions at factories. Work also continued on transferring tasks from branches and central services divisions to central processing units, increasing centralized processing rates and bringing them ever closer to the target set by the transformation plan. The task of integrating the IT and business systems at Banco Gallego and Lloyds Bank was also completed.

Expenditure management and cost control
The Bank's new optimized control system allows in-depth monitoring of costs and expenses, a vital requirement if cost reduction targets and capacity increases needed for business growth are to be kept in alignment.

In 2014 average transaction costs (ATCs) were down by 3% for asset products and remained unchanged for service products.

The BS brand

Brand perception indicators

In 2014 the Bank successfully continued its policy of raising awareness of its brand, as it was obliged to do in order to increase its capacity for growth in the Spanish retail market and reach a level of brand recognition that was on a par with its key competitors.

In the course of the last five years "top of mind" awareness of the Sabadell brand has increased from 1% to 4.7%, and total brand awareness from 4.7% to 17.3%, putting the brand in fifth place among Spanish financial institutions according to data from the FRS Inmark annual survey, a key industry benchmarking tool (G20 & G21).

Advertising and promotional campaigns in 2014

In 2014 the Bank's advertising and promotional campaigns continued to show a strong personal stamp that set them apart from those of other banking sector advertisers and sought to highlight its professionalism, reliability, innovative customer service and entrepreneurial flair.

The first quarter of the year saw the launch of the "Believing in business" campaign, whose aim was to boost lending to small and midsize firms under the slogan "Believing in businesses means giving them credit", with the added promotional "hook" of a promise to respond to loan applications within a maximum of seven days. The level of awareness generated by the campaign in its target market was very high, with a recognition rate of over 70% of respondents being achieved.

The main communication breakthrough, however, came in the third quarter with the appearance, for the first time in the Bank's advertising history, of Rafael Nadal in a campaign under the slogan "Closeness: a private conversation between Rafa Nadal and John Carlin". The agreement with the tennis star to act as a global ambassador for the Sabadell brand was reached in 2014 and can be seen as another big step forward in the Bank's drive to raise awareness of its brand, supported by one of the world's most admired sports personalities, who not only has enormous appeal in Spain but is associated with values that are very close to those that the Bank is seeking to communicate.