MADRID – Spain’s Santander (NYSE: SAN) hiked its profitability goals after strong growth in its main retail business, especially in Spain and Brazil, offsetting some weakness in Britain and a hit from hyperinflation in Argentina.
The euro zone’s second-biggest bank by market value has relied in the past on Latin America for revenue growth but has recently benefited from higher European interest rates.
Despite some depreciation of currencies in Latam markets, the bank posted a 20% year-on-year rise in net profit to reach a record 3.2 billion euros ($3.47 billion) in the second quarter, in line with analysts’ forecasts.
Revenue grew 9.6% year-on-year in the second quarter to 15.67 billion euros, above the 15.5 billion euros expected by analysts. The target for 2024 was raised to high-single-digit from mid-single-digit growth.
Santander’s shares (NYSE: SAN) were up 1% as of 0836 GMT, with the stock having risen around 20% so far this year.
Broker Jefferies said: “Revenue dynamics trending well, especially in fees, and Spain and the US particularly strong.”
Profit generated by the retail business, the main contributor to earnings of its recently rolled out five global units, rose 49%, while its digital consumer bank was up 12% and wealth and insurance unit rose 6%.
Corporate and Investment Banking declined 5% due to higher costs, while the payments unit booked a loss of 89 million euros following a writedown of 170 million euros after the closure of merchants’ payments Wirecard in Germany.
Higher profits helped lift Santander’s return-on-tangible equity ratio (RoTE), a measure of profitability, to 15.9% in the first half from 14.5% in the first half of 2023 and the target for 2024 was raised to above 16%.
The bank’s efforts to improve efficiency paid off, with its efficiency ratio improving to 41.6% in the first half from 44.2% in the same period in 2023 driven by the bank’s transformation towards a more digital model. It set a new target of around 42% for 2024.
LENDING INCOME IMPACTED BY ARGENTINA
The bank’s net interest income, a measure of earnings on loans minus deposit costs, rose 6.9% year-on-year in the quarter to 11.47 billion euros, below the 11.96 billion euros expected by analysts due to the negative impact of hyperinflation adjustment in Argentina.
In Argentina, the lender decided to take a more conservative approach towards the currency depreciation, which led to a negative impact of 761 million euros in comparable NII figures at the group level, it said.
Against the previous quarter, NII at the group level fell 4.3%. In Argentina, NII fell 35% year-on-year in the second quarter.
In other markets, net profit in Spain rose 48% in the quarter, while NII was up 8.2%. In Brazil, net profit rose 63% and NII grew 19.5%.
In the UK, net profit fell 28% and NII was down 9% in a competitive mortgage environment.
In the United States and Mexico net profit also rose in the April to June period.
Santander’s (NYSE: SAN) Tier-1 fully loaded capital ratio, the strictest measure of solvency, rose to 12.48% from 12.28% in March.
($1 = 0.9230 euros)
(Source: Reuters)
Mary Lee is a freelance writer and journalist based in Toronto, Canada. She holds an M.S. degree in business and economic journalism from Columbia University’s Graduate School of Journalism in New York and a certificate in digital marketing from the University of Toronto.
