Banco Santander, Spain's largest bank by assets, recorded a surge in third-quarter profits, helped by a sharp drop in bad loan provisions that highlights signs of a gradual stabilisation in the country's banking market.
Net profits in the three months to September rose from €122m last year to €1.06bn this year. The rise came despite a 16 per cent drop in net interest income, the profits the bank made on its core lending activities, to €6.29bn.
Santander released its results in a week that has been marked by a further positive shift in market sentiment towards Spain, which is seeing a flurry of new investor interest in previously shunned areas such as the construction sector and non-performing property loans.
According to preliminary data from the Bank of Spain released on Wednesday, the Spanish economy returned to growth in the third quarter – after nine consecutive quarters of declining output.
For Spain's banks, the nascent economic recovery has meant above all a welcome decline in the write-offs and loan loss provisions that have scarred results in recent years. In the case of Santander, net loan loss provisions fell more than 20 per cent in the third quarter, from €2.99bn in 2012 to €2.36bn this year.
The core capital ratio under Basel II rose 1.23 per cent year-on-year, and now stands at 11.56 per cent, Santander said.
The bank's bad loan ratio, however, rose further – from 5.18 per cent in the second quarter to 5.43 per cent at the end of September. That is still less than half the average across the Spanish banking sector.
"After several years of high levels of write-offs and reinforcement of capital, Banco Santander is preparing for a new period of increased profitability," Emilio Botín, Santander's executive chairman, said in a statement.
The sharp rise in net profits came despite a sharp fall in net interest income in many of the bank's core markets. In Brazil, long seen as the jewel of Santander's overseas operations, net interest income declined 31 per cent compared with the third quarter last year. In Spain, net interest income dropped 16 per cent. Santander's UK arm, in contrast, rose 14 per cent.
