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	Dear Shareholder,
Higher than expected earnings	We surpassed our goals in 2005 thanks to the efforts of a magnificent team, the confidence placed in us by more and more customers and the support of our shareholders. These results enabled us to reach the goals set in our 2004-2006 Plan one year ahead of schedule.
Net attribute income up 24.4% at €570.4 million	The Group's net attributable income was 24.4% higher at €570.4 million. Business growth was well balanced between lending and funds, and their growth produced a further gain in market share of 0.28 points. This strong growth coupled with our leadership in costs resulted in an improvement in the efficiency ratio of three points to 40.0% in 2005. ROE also improved and reached 19%. We also reduced the ratio of non-performing loans (NPLs) to 0.49% and, at the same time, increased NPL coverage to 372%. Our portfolio of loans is better and of a higher quality than a year ago.
Banesto share rose 20.17%, outperforming the market	The Banesto share increased 20.17% in 2005 and again outperformed the Ibex- 35 (+18%) and also the average rise of the banks included in this index (+18.7%). As well as this return one has to add the payment of €0.32 per share as a result of the reduction in the nominal value, which we distributed in June.
Payment of €0.37 per share, 15.6% more	As regards the distribution for 2005, the Board proposed to the Annual General Meeting a payment of €0.37 gross per share, which represents a disbursement of €256.9 million and an increase of 15.6% over 2004. We want to be the best retail bank in Spain: the bank for companies, SMEs and shops, the benchmark bank for the targeted segment of individual customers.
The customer is the focal point of our activity	We have a customer-focused business model. This means innovation and creativity in what we do and how we do it. We operate differently in all segments and businesses, particularly in SMEs and Shops, and maintaining the concentration in Corporate Banking, Companies and Individual Customers.
"The bank for SMEs and shops"	We are going to step up our pace of growth, with a more streamlined and effective model which facilitates the day-to-day tasks of our managers and supports sales. We are going to strengthen our commercial capacity through a multi channel and segmented expansion.
Our Q10 model obtained the AENOR certification	In 2005 our Q10 model made us the first bank to obtain the certificate for permanent improvement in the quality of service to customers and employees from the Spanish Association of Standardisation and Certification (AENOR).
Our competitive advantages	Our proposal of value for customers is based on our competitive advantages: leadership in risk management, technology, innovation, talent and the commitment of our team.
Risks	The entry into force of the new rules for banks known as Basle II enables Banesto to enhance its competitive and management capacity. We have spent several years testing a model which combines risk, return and capital and enables us to substantially improve decision-taking. We have sought the Bank of Spain's approval to develop an internal model for calculating capital based on the advanced IRB system (Internal Rating Based). We established a model to measure environmental risk in the segment for large companies. The methodology used appraises the measures that our clients adopt in this sphere and which are aimed at reducing the impact on the environment.
Technology	Our technological architecture is the most advanced in Europe. Banesto is the first bank in Europe to have all its technology under an architecture of web-based portals. Nielsen acknowledges this and includes Banesto's Intranet among the world's top ten. This is enabling us to make Banesto the market leader in costs, innovation and service quality in order to improve customer and employee satisfaction. All this is maintaining a structure of flat costs, thanks to innovation in processes as a result of the new Alhambra architecture. This enables us to dedicate more resources to commercial tasks. The bank's back office, which accounted for 4% of total employees, now takes up 2.8% and the proportion employed in intermediate structures has fallen from 7.6% to 7%.
Innovation in processes	Our challenge is constant innovation in products, but above all in services and processes in order to add value for the customer. Our cards, the IT loan for SMEs at 0%, the GPRS point-of-sale terminals or e-billing services are just some of the examples. As regards processes, our objective is to attain excellence in customer service, optimise costs, use technology to develop new tools that support a more integrated and efficient management of processes, and which become the catalyst for enhancing our service to increasingly more sophisticated and demanding customers.
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Human Resources management is strategic in Banesto	The market has recognised our innovation. The Visa Real Madrid card received the EFMMA (European Financial Marketing and Management Association) prize for the most innovative loyalty card. Thanks to the e-billing service, the market identifies Banesto as the first bank to face the challenge of providing a universal e-billing solution. Technology in itself is only part of the equation, and clearly in a services company the differentiating factor lies in the quality of its employees. Management of talent will remain a priority for Banesto; we aspire for continuous improvement.
The Q10 model enables us to improve customer and employee satisfaction	The Q10 model enables us to measure the degree of customer satisfaction. Employees also used it to evaluate during 2005 the quality of the processes that affect them. Our efforts in this sphere were recognised in 2005 by a well-known Spanish economic magazine, which awarded Banesto its prize for the "best company to work for." One of the factors behind receiving this award was our pioneering agreement in Spain with trade unions to reconcile work and family life.
The most attractive company to work for in Spain	We are striving to make Banesto an increasingly attractive workplace, improving knowledge, rewarding those who contribute the most results and promoting the best, all with equality of opportunity. We are convinced that a country's prosperity is directly related to the entrepreneurial capacity of its citizens. For this reason, our Corporate Social Responsibility focuses on job creation, via various measures to support business people and SMEs.
Venture capital fund for SMEs	We created the Banesto SEPI Desarollo Venture Capital Fund in 2005, with an initial outlay of €20 million. Jointly shared with SEPI, we back SMEs who foster job creation, innovation in technology and internationalisation.
Banespyme School	This philosophy was also behind the creation of the Banespyme School whose mission is to foment job creation by Spain's SMEs, promote the entrepreneurial spirit, the adoption of new technologies and training.
Solidarity x2	The Solidarity x2 programme continued to promote activities of a humanitarian nature by employees. Yet again we enhanced our good governance practices, in order to ensure compliance with our commitments to shareholders.
We continue to be the first listed Spanish company to publish its results	We were the first listed company in Spain to enable its shareholders to attend Shareholders' Meetings via Internet, in line with the transparent information that we want to be a hallmark of our management. Our Board mainly comprises nonexecutive and non-proprietary directors, all of them business people of recognised prestige who contribute their profound knowledge of the financial and business sectors, in line with the best national and international good governance rules and recommendations.
One of the banks with the best track record	We have positioned Banesto as one of the banks with the best track record and best prospects. The Spanish economy will continue to grow in 2006 at a faster pace than its Euro zone partners, which will help to ease an environment that will, without a doubt, be even more competitive.
New and more ambitious challenges	We comfortably exceeded in 2005 the goals set in the 2004 Plan+2 and announced the 2008 Plan: • An annual gain in market share of 0.25 points • An efficiency ratio of 35% • ROE of 20% • And a ratio of non-performing loans below that of the banking industry.
	Banesto is striving to create value and profitable growth with controlled costs, backed by the talent of our team. We have a great path ahead in the Spanish financial sector and are going to position Banesto as a bank of international reference. 2006 will be a key year along this road.
	Ana P. Botin Executive Chairman