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12-05-2009

BBVA strengthens its strategic alliance with the CITIC Group in two segments with high growth potential in the Chinese market

BBVA and CITIC sign financing agreements on car loans and in private banking

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  • BBVA will own 35% of a joint venture set up to finance the acquisition of cars in China, a market growing at an annual pace of over 10%, with 2.67 million car sales in 1Q09 alone
  • The Bank will own 20% of a private banking joint venture with CNCB in the fast-growing Chinese private banking segment, sized at over �1 billion, with over 320,000 �millionaire� households

BBVA and CITIC have just signed two separate agreements for the joint development of businesses in two of the markets with the highest growth potential in China: car financing and private banking. Underpinned by its financial strength, BBVA can afford to extend its investments in China, in stark contrast to decisions being announced by other international banking groups which have been forced to wind down their investments. The two agreements will be fleshed out over the coming months and will represent a new milestone in the collaboration between BBVA and China Citic Bank (CNCB).

Under the cooperation agreement between BBVA and CITIC, the two collaboration agreements recently signed focus on auto loans and private banking, the business areas identified in the Framework Agreement on Further Strengthening Strategic Cooperation in Core Business Areas executed by CITIC and BBVA in Madrid last January, which set the shape to be taken by retail banking joint ventures.

Both agreements are subject to pertinent authorization by the CBRC (China Banking Regulatory Commission). They were witnessed by Manuel Galatas, head of BBVA Asia, and Cao Tong, Vice President of Retail Banking at CNCB.

These agreements should be viewed against the prevailing backdrop in which certain foreign banks are being forced to sell down their shareholdings in Chinese banks due primarily to the need to bolster their parent companies� capital ratios in the wake of the global financial crisis. Unlike certain competitors, BBVA�s financial strength allows it to maintain its investments in China and to set up new cooperation structures with its Chinese partner to render its investments more efficient, thanks to the contribution of the BBVA Group�s know-how in the businesses to be pursued jointly. The collaboration with CITIC comes just as retail banking in China is really taking off.

Agreements on car financing and private banking

In the car loan segment, the agreement calls for the incorporation of a joint venture (JV) with an upfront investment of RMB 500 million, equivalent to �54 million. BBVA will hold a 35% stake in the joint venture. BBVA�s will contribute primarily to the areas of risk management, IT systems and distribution channel management, areas where BBVA has successfully implemented its car financing model in several countries, including Spain, Portugal, Italy, Mexico and Chile, among others.

In private banking, BBVA will participate in the management of CITIC�s existing private banking unit. Thus unit will serve as the starting point for the creation of a future private banking JV in which BBVA will hold a 20% interest. BBVA�s extensive track record in private banking in several countries will allow it to contribute its broad experience in investment policies, risk management and technological innovation to this JV. The CITIC-BBVA private banking unit will pioneer the provision of private banking services to an emerging yet very high potential Chinese market.

The market share targets for both JVs during the initial development and implementation phase, estimated at 5 years, is 5% in both business segments. These projections are based on CITIC�s current positioning in the Chinese financial markets and its broad customer base and distribution network. In both businesses, CITIC, as a prominent financial group in the Chinese market, will contribute its local market knowledge, broad customer base and extensive distribution network in continental China.

Two high potential segments

Both the Chinese car financing and private banking businesses have been posting spectacular growth in recent years, in line with the broader boom in the Chinese economy, which recently leapfrogged to third spot worldwide in terms of GDP, behind only the US and Japan.

In 2009 the Chinese car market will surpass what has traditionally been the number one global market in the world, namely the US. The business model is predicated on the provision of direct financing to the buyer at the dealer. Today there are some 30,000 dealers in China, of which 2,000 already have a direct relationship with CITIC. Forecasts point to 10 million car sales in China in 2009; in 1Q09 alone, car sales totalled 2,670,000, making it over ten times the size of the Spanish market. In recent years, car sales have been growing at over 10% by volume.

A 2008 report on the Chinese private banking market meanwhile reveals spectacular volume growth and points to a tremendously promising outlook. The number of households with over �1 million in wealth sums 320,000, and total estimated private wealth is close to �1 billion. In recent years, the Chinese private banking market has been expanding rapidly. Projections point to ongoing annual growth of 7% in terms of total wealth and the number of millionaire households, against a backdrop of a globally shrinking private banking market.

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