14 January 2008

MADRID - Spanish bank Banesto on Friday announced a 26.1-percent increase in its recurring net profit for 2007 and gave an upbeat message about its prospects for this year despite the recent turmoil in financial markets.

Banesto's net earnings in 2007 amounted to EUR 764.6 million, slightly below analyst forecasts. The figure excludes capital gains. Banesto booked a pretax gain in 2006 of EUR 1.18 billion from the sale of a 50-percent stake in real-estate firm Urbis. If that item is included, net profit last year would be down 47 percent from 2006 when the bank earned EUR 1.451 billion.

Banesto is the first of the Spanish banks to report earnings. Analysts were looking to gauge the impact on Banesto's earnings from the liquidity crunch sparked by the meltdown of the US subprime mortgage market in the summer of last year and a slowdown in the Spanish property sector.

Banesto's total lending for 2007 rose 20.4 percent, compared with growth of 24.5 percent in the first three quarters. The number of mortgages granted since the summer fell by 20 percent, while home loan defaults for last year increased to 0.5 percent of the total from 0.29 percent a year earlier.

"Default rates will get worse, but not too bad, and we can cope with it," Banesto Chairwoman Ana Botín said. "We're still at very, very low levels."

Botín expects mortgage lending in Spain to drop to single-digit levels this year, with total lending dropping to 10-12 percent from rates of over 20 percent at the height of the property boom. She also said the financial markets are starting to improve. "We hope (rates) will normalise in the next few months," she said.

[Copyright EL PAÍS / Adrián Soto 2008]

Subject: Spanish news