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Last updated: July 31, 2014 3:07 pm
Banco Santander capped an upbeat earnings season for the Spanish banking sector on Thursday by revealing a better than expected 38 per cent rise in second-quarter profits and a further fall in its bad loan ratio.
Spain’s biggest lender by market value said the latest improvements were driven by the broader recovery in its home market, but also by a strong showing from Santander’s UK operations, which were the biggest source of group profits in the three months to June.
Santander’s net earnings in the three months to June were €1.45bn, up from €1.05bn in the same period last year. Net interest income, a key measure that shows how much a bank earns on its core lending activities, rose slightly, from €7.34bn to €7.37bn this year.
In recent years, Santander has relied heavily on its operations in Brazil and other Latin American countries to weather the impact of the crisis in its Spanish base. Along with rivals such as BBVA and Caixabank, it is now enjoying a boost from the strengthening economic recovery in Spain, where earnings in the first six months of 2014 were up almost 80 per cent compared with last year.
“Spanish banks are in a sweet spot right now. Funding costs are falling but they are still managing to maintain asset yields,” said Daragh Quinn, a Madrid-based banking analyst for Nomura. Banks such as Santander, he added, were now under less pressure than before to set aside provisions for loan losses linked to the bursting of Spain’s real estate bubble.
Santander’s bad loan ratio fell for the second consecutive quarter, from 5.52 per cent at the end of March to 5.45 per cent at the end of June. The second quarter also marked the first decline in the bank’s Spanish non-performing loan ratio, which fell two basis points to 7.59 per cent.
Javier Marín, the Santander chief executive, on Thursday sought to assuage concerns that the bank’s Argentine division could be hit by that country’s growing economic turmoil. A default by Buenos Aires, Mr Marín told analysts in a conference call, “would not affect us”.
Santander’s UK business had a strong second quarter, with net earnings in the three months to June rising 60 per cent to €775m. Britain now accounts for 20 per cent of group earnings, slightly more than Brazil, which until recently was seen as the crown jewel of Santander’s overseas operations. Half-year earnings from Brazil declined 18 per cent to €758m, in part because of adverse currency moves but also because loan spreads were coming under pressure.
Shares in Santander fell 1.7 per cent in afternoon trading, slightly less than Spain’s Ibex 35 index.
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