Rise in interest rates and upturn in business drive the entity’s profits to record highs in the first nine months of the year
Banco Santander closed the first nine months of the year with a profit of 7,316 million euros, 25% more than the year before. A record performance for the period driven by the environment of rising interest rates in Europe and the UK and the improvement in business, as well as the favorable exchange rate impact in some regions in which the bank operates under the leadership of Ana Swag.
Taking into account the 2021 exceptional charges for restructuring costs – of approximately EUR 530 million – ordinary profit would have increased by 15%.
With these numbers on the table, the entity is on track to close out a historic 2022 in terms of profits. In the third quarter alone, profits rose 2%, despite the assumption that a charge of 181 million had been paid as a result of the new moratorium rules in Poland.
However, everything will depend on the evolution of the current inflation crisis. In its statement to the CNMV, Banco Santander acknowledges that it has been forced to increase its provisions, including “costs for macroeconomic uncertainties.”
“The macroeconomic environment will remain challenging, with Europe and North America adjusting to levels of inflation not seen in decades, but our teams have extensive experience managing such situations successfully and we are confident that the increase in the revenue will offset the increase in profits “cost and risk,” Ana Botín said in the statement.
However, the bank is already benefiting from the rise in interest rates in the United Kingdom, the Eurozone and Poland, which, according to the entity, “preferred an 18% increase in the interest margin. A figure rising to 15% in current euros as a result of the revaluation of most currencies, with particularly high growth in the United Kingdom (+12%), Poland (+104%), Mexico (+12%) and Argentina ( +142%).
In addition, despite the uncertainty, commercial activity remained strong and customer funds reached their highest level (1.13 trillion euros, up 4%) thanks to the growth of deposits (+6%). On the other hand, credit grew 7% to 1.04 trillion, while mortgages and consumer credit grew 7%, while corporate lending grew 6%.
Given the potential risks of default in the future due to the difficult economic situation in households and businesses, Santander defends that the bank’s loan portfolio remains highly diversified, both by industry and by geographic area, “with 65% real-guaranteed credit.
Commission income increased by 7% (14% in current euros), thanks to higher volumes and improved activity. For example, billing based on card and dataphone activities increased by 16% and 29% respectively. The asset management and insurance activities (Wealth Management & Insurance) and Santander Corporate & Investment Banking (Santander CIB) also recorded remarkable growth.
As a result of all this, total revenues increased by 5% (+12% in current euros) to 38,629 million euros, with net interest income and commission income representing 97% of group income, «reflecting the quality of the results» .
The sharp rise in inflation led to an overall increase in costs (+6%), although the group’s efficiency ratio ended the period at 45.5%, 0.1 percentage point above the previous year.
The group’s balance sheet remained solid, with a non-performing loan ratio of 3.08%, 10 basis points lower than last year thanks to the good performance of Europe and Digital Consumer Bank, with a coverage ratio of 70%.
In the Old Continent, the entity’s ordinary profit grew 32% to EUR 2,837 million, thanks to an increase in the interest margin, continued efficiencies and optimization of the cost of risk. In Spain, it rose to 1,104 million, 99%, driven by a reduction in loan loss provisions (-27%) and charges (-2%).
In addition, the improvement in the risk profile has allowed the bank to maintain a stable NPL ratio (3.69%, after a decrease of 118 basis points compared to the same period in 2021), bringing the cost of risk to 0.71%.
Revenues were up 3% thanks to higher commissions (+6%) in both retail banking and Santander CIB.
Santander Spain posted monthly net customer growth, increasing its customer base by more than half a million in the first nine months of the year. Loans rose by 7%, mainly driven by growth in retail and private banking. Mortgage loans slowed due to the rise in interest rates, while deposits rose by 13%.
In the United Kingdom, on the other hand, ordinary profit remained stable at EUR 1,138 million during the first nine months of the year. Sales increased by 10% thanks to strong net interest income growth (12%), which benefited from a context of higher interest rates and a resilient mortgage market.
In its statement to the CNMV, the bank emphasizes that it is on track to meet its targets for the year in terms of revenue (growth of approximately 5%), profitability (RoTE above 13%) and capital (12%), while expects to improve its efficiency ratio for 2021 and close the year close to its target (45%), despite inflationary pressures.
On the other hand, the board of directors maintains its commitment to generate returns for shareholders, including nearly four million minority shareholders in Spain, the United Kingdom and other countries. It also maintains its dividend policy for 2022, where it plans to pay out approximately 40% of ordinary earnings, split roughly equally between cash dividends and share buybacks.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
