Santander profits fall, hit by bad loan provisions

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Spanish banking giant Santander said Thursday its third quarter net profit plunged 26.4 percent to 1.64 billion euros as provisions for bad loans hit the results.

The bank booked a one-off provision, or a precautionary reserve for loans turning sour, during the quarter of 472 million euros (652 million dollars) as a result of changes in Bank of Spain regulations, it said.

Without this provision, profit for the third quarter was 2.11 billion euros, down 5.1 percent from the previous year.

Net interest income -- the difference between interest paid out on deposits and interest earned on lending -- rose 8.4 percent to 7.40 billion euros.

Bad loans as a proportion of total lending edged up to 3.42 percent from 3.37 percent three months earlier.

"The group once again showed its capacity to generate recurring profits in a difficult environment," the bank said.

The Madrid stock market welcomed the results, with Santander shares rising 1.62 percent in a market that was down 0.12 percent.

BBVA, Spain's second-biggest bank after Santander, on Wednesday reported a 17.4-percent drop in quarterly net profit, also weighed down by new bad loan provisions.

Spanish banks are struggling with an economic downturn in Spain brought about by a collapse of the once booming property market in 2008 which has left many developers and homeowners struggling to meet their loan repayments.

Banks are also under pressure since the announcement last month of tougher international capital requirements intended to protect against financial crises that will be presented for approval to the Group of 20 (G20) developed and developing nations in November.

The changes, known as Basel III, require banks to build stronger buffers of high-quality assets to protect against future losses.

Santander chairman Emilio Botin last month hailed the rules as "possibly the most significant for the international financial system in many decades."

Over the first nine months of the year, Santander gained 37 percent of its profits in Europe, 42 percent in Latin America, 18 percent in Britain and 3.0 percent in the United States.

But these regions reported diverse fortunes, with profits in European operations slumping 20 percent to 3.18 billion euros, while Latin America climbed 24 percent to 3.48 billion euros, Britain was up 17 percent to 1.53 billion euros and activities in the United States led to a profit there of 293 million euros compared to a loss of 29 million euros a year earlier.

Santander, the eurozone's largest bank by market capitalisation, expanded further into the British marketplace during the quarter when it snapped up 318 retail branches from state-controlled lender Royal Bank of Scotland in August.

The transaction, worth about 1.65 billion pounds (1.88 billion euros, 2.60 billion dollars), will see Santander add to network after takeovers of Abbey in 2004 and Bradford & Bingley and Alliance & Leicester in late 2008 at the height of the financial crisis.

© 2010 AFP

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