Spanish titan Banco Santander yesterday reported an 8.5 per cent dip in 2010 net profits, hammered by a troubled economy and new rules forcing it to make hefty provisions for bad loans.
The biggest bank in the eurozone in terms of market value, Banco Santander said net profit dropped 8.5 per cent to €8.181 billion in 2010.
New Bank of Spain rules had obliged the 154-year-old institution to put aside a €487 million precautionary reserve in the third quarter for loans that might not be recovered, it said.
Without these new rules, net profit would have slipped by only three per cent.
Spain’s government is fighting to dispel market fears over the bad debts that piled up in its banking industry, which lent heavily in the now-collapsed housing boom.
Regional savings banks responsible for about half of all loans in the country are the biggest concern. But the government has tightened up the balance sheet rules across the industry.
Banco Santander said its net profits had now exceeded €8 billion for four years running. “This consistency was achieved in the worst economic context in several decades and is due in large part to the geographical and business diversification of the group,” it said in a statement.
While suffering a 23 per cent drop in net profit in continental Europe, the bank enjoyed a 25 per cent profit surge in Latin America, a 31 per cent leap in Brazil and an 11 per cent gain in Britain.
Santander’s US subsidiary, Sovereign, emerged from the red, turning a loss of $35 million in 2009 into a net profit of $561 million (€424 million) in 2010.
And worldwide, net banking income rose 11.1 per cent to €29.224 billion, said the bank, which boasts 90 million clients and 13,660 offices.
“We achieved results that again place us among the leaders of world banking,” Santander executive chairman Emilio Botin said in a statement.
“Banco Santander has had another excellent year.”
Banco Santander said it had strengthened its balance sheet in the year by making total pro-visions for possible insolvencies of €10.258 billion, despite the number of delinquencies declining.
The ratio of non-performing loan to total assets rose from 3.24 per cent to 3.55 per cent, it said, but 73 per cent of these loans were covered by money set aside in provisions.
The level of core capital – equity capital and retained earnings – rose to 8.8 per cent of total assets from 8.6 per cent in 2009, the bank said.
Spain now requires listed banks to have a core capital level equal to eight per cent of total assets. This means it is even stricter than the seven per cent required under tough new, international “Basel III” rules agreed last year.
For the fourth quarter of 2010 alone, Banco Santander outperformed market expectations.
Net profits dipped 4.6 per cent from a year earlier to €2.101 billion in the final quarter, it said. Among 11 analysts polled by Dow Jones Newswires, the consensus forecast had been for a profit of €1.96 billion.