Santander profits lifted by Brazil and Spain

Banco Santander/s earnings jumped 32 per cent in the first quarter, after the Madrid-based lender recorded higher profits in nine out of the 10 markets in which it operates, including a marked improvement both in Brazil and Spain.

While the overall results were in line with market expectations, analysts said they were impressed with Santander's performance in Brazil, where the lender shrugged off a sharp economic slowdown to increase first quarter net earnings 41 per cent compared with the same period last year.

Carlos Peixoto, banking analyst at BPI, said: "Overall, this was a decent set of results. The main surprise was Brazil, which is holding up really well despite the slowdown."

Analysts at Citibank described Brazil as the bank's "star performer", noting that Santander's "strategy of rebalancing the loan book away from unsecured lending may be starting to pay off".

The biggest bank in the eurozone by market value reported net profits of €1.72bn, up from €1.3bn in the first three months of last year. Net interest income - the profits a bank makes on its core lending activities - rose 15 per cent over the same period, to €8.04bn.

Santander benefited once again from the accelerating economic recovery in its Spanish home market, where net earnings rose 42 per cent - more than in any other market where the bank does business. Analysts had expected an even better performance in Spain, however, and some voiced concern about a quarter-on-quarter decline in net interest income, and the continuing pressure on margins.

Spain's broader economic turnround came into focus once again this week, when the government raised its official growth forecast for this year to 2.9 per cent, significantly above the European average.

The improvement has helped lift Spanish bank results across the board this year, in part because lenders now have to set aside fewer provisions to cover for soured loans. Loan loss provisions at Santander fell 28 per cent compared with the first quarter of 2014, the bank said. Bad loans now account for 7.25 per cent of its Spanish loan portfolio, down from 7.38 per cent in December.

In the UK, another important base for Santander, net earnings rose 14 per cent year on year. The bank said it was continuing to attract customers switching accounts, but admitted that it was unlikely to meet its own target for business lending this year, amid rising competition. Corporate lending still accounts for only 13 per cent of the bank's total loan book, falling short of its 20 per cent target for 2015.

Santander has been through a period of drastic change since the death of Emilio Botin, its veteran chairman, last year. He was swiftly replaced by his daughter, Ana Botin, who has since appointed a new chief executive, reshuffled the board, overhauled dividend policy and raised €7.5bn in fresh capital.

Santander said its fully loaded core equity tier 1 ratio, a measure of capital strength, was unchanged compared with the previous quarter, at 9.7 per cent. The bank reiterated that it was on track to lift that number to 10 per cent by the end of this year.

"Ten per cent will still be slightly below the benchmark set by European peers, but Santander's capital is much less of a concern now after the increase earlier this year," said Mr Peixoto.

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