Santander profit rises 14% but costs and provisions rise

A sign hangs at a branch of Banco Santander in London, UK, Wednesday February 3, 2010.

Simon Dawson | Bloomberg via Getty Images

Santander said Thursday that its second-quarter net profit rose 14% from the same period a year ago, boosted by rising revenues in Europe and the Americas.

But the results also showed a continued deterioration in the quality of its assets, higher costs and higher provisions, particularly in Brazil, its main market.

The second-largest bank in the euro zone by market value recorded a net profit of 2.35 billion euros against 2.07 billion euros in the same quarter a year ago.

Analysts polled by Reuters had expected a net profit of 2.38 billion euros.

Overall, net provisions for loan losses increased by 49.5% in the second quarter compared to the same quarter a year earlier, while the cost of risk, which measures the cost of managing credit risk and potential losses for the bank, rose to 83 basis points from a previous 77 points in March.

“Looking ahead, the economic backdrop will likely be challenging for governments, central banks, businesses and individuals,” Santander President Ana Botin said in a statement.

Santander’s diversification, particularly in Latin America, has helped the bank weather tough conditions for lenders in Europe since the financial crisis, where it cut costs to cope with rock-bottom interest rates.

Efficiency measures in Europe, coupled with continued interest rate hikes in its markets in the UK and Poland, also supported second quarter earnings.

The bank also benefited from higher interest rates in some areas mainly outside the Eurozone and local currency movements in Latin America, but results in this region were also affected by higher inflation. in emerging markets, particularly in Brazil.

Inflationary effects, particularly in South America, led to a 5% year-on-year increase in constant euro costs in the first half at group level.

Net interest income (NII) in Brazil, which accounts for nearly a third of the bank’s overall underlying earnings, rose 18.9% from the same quarter a year ago. But at constant euros, the NII fell by around 4.9% compared to the previous quarter.

The cost of risk increased by 32 basis points in Brazil to 426 basis points, while provisions increased by more than 70% year-on-year in the quarter.

In the United States, net profit fell 22.6% to 507 million euros from a record 655 million euros recorded in the second quarter of last year.

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