Santander underlines benefits of retail bias

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Santander reported a small year-on-year decline in first-quarter net profits, beating analysts’ forecasts and underlining the relative strength of Spain’s retail-focused banks.

The bank, which is the largest in the eurozone by market value, yesterday said profits for the three months to the end of March were €2.1bn ($2.8bn), down 5 per cent on the previous year. It said it would have almost matched that result but for the depreciation of sterling and of some Latin American currencies against the euro.

Santander’s solid position amid the global economic crisis reflects Spanish lenders’ geographical diversity and negligible presence in investment banking. BBVA, the country’s second biggest bank, had a 14 per cent decline in comparable first-quarter profits to €1.24bn.

Both, however, noted a surge in non-performing loans as a percentage of total lending as recession and rising unemployment – particularly in Spain – pushed up corporate defaults and squeezed mortgage holders.

First-quarter net loan loss provisions at Santander soared 73 per cent year on year to €2.23bn as credit quality deteriorated.

However, the bank said the growth of provisions was slowing, with a rise of only 2 per cent over the fourth quarter of 2008, excluding new acquisitions.

Overall, the bank’s bad loan rate rose 1.25 percentage points over the year to reach 2.49 per cent of risk-weighted assets.

José Antonio Alvarez, chief financial officer, said the bank had revised down slightly its full-year forecast for non-performing credits to less than 4.5 per cent.

The fall in the benchmark Euribor interest rate, to which all Spanish mortgages are linked, was a factor, he said. Spanish banks have also been helping companies stave off bankruptcy by agreeing debt-for-equity or asset swaps.

In spite of the bank’s relative health, Santander would not “take its eye of the ball”, he said. “If we talk about the global crisis, we talk about two initial rounds,” he told the Financial Times. “The first was related to liquidity problems; the second, when we saw a lot of financial entities get into trouble, was related to certain securities.

“Now it is the turn of the real economy and this is where, as a retail bank, we come in. In this context, the key task is to look after credit quality while managing credit spreads.”

Santander said its core capital ratio was 7.3 per cent and its tier one ratio, 8.9 per cent.

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