By Jeannette Neumann
MADRID-- Banco Santander SA said first-quarter net profit rose
32% from a year earlier on higher fees and stronger lending in the
bank's European consumer finance and Latin American units.
The Spanish lender, the eurozone's largest by market value,
posted net profit of EUR1.72 billion ($1.87 billion), up from
EUR1.3 billion a year earlier.
It reported net interest income of EUR8.04 billion, up 15% from
a year ago.
Net interest income, a key driver of profit for retail banks
such as Santander, is the difference between what lenders pay
clients for deposits and charge for loans.
The figures beat analysts' estimates, lifting Santander's shares
0.9% in late morning trading in Madrid.
Net loans to customers were up 14% in the first quarter from the
year before, bolstered by particularly strong lending in
Santander's Latin American units, its European consumer finance
unit as well as in the U.K. and the U.S. Among Santander's main
units, only Portugal posted a decrease in lending, where net loans
fell 4.9% year-over-year.
The growth in Santander's loan volume comes amid a push by
Executive Chairman Ana Botín to turn billions of euros in capital
the bank raised in January into new loans for individuals and
businesses.
"When we raised capital in January, we said our goal was to
target organic growth in our core markets forecast to achieve
strong economic recovery," Ms. Botín said Tuesday.
Ms. Botín, who took the helm of the mammoth bank in September
after the sudden death of her father, said earlier this year that
Santander will forgo major acquisitions to grow its balance sheet,
targeting new loan issuance instead.
Her strategy is a shift from the modus operandi under her
father, Emilio Botín, who voraciously snatched up lenders across
the globe during his three decades as chairman, expanding Santander
from a small, regional Spanish lender into the eurozone's largest
bank.
"Santander's strong increase in lending reflects our commitment
to helping our customers grow," Ms. Botín said Tuesday.
Portugal was also a weak spot in terms of credit quality. The
bank's unit there reported a year-over-year increase in the ratio
of bad loans to total lending. The unit's non-performing loan ratio
increased to 8.96% in the first quarter from 8.26% a year earlier.
In neighboring Spain, in the midst of a steady recovery from a
building frenzy that began to flounder in 2008, the bad-loan ratio
fell to 7.25% in the first quarter from 7.61% a year earlier.
Still, the Portuguese unit is gaining market share, Chief
Financial Officer José García Cantera told analysts, and Santander
remains interested in making a bid for small lender Novo Banco
SA.
Santander's overall ratio of soured loans dropped to 4.85%.
The economies of the U.S., Mexico and Poland are expected to
grow by more than 3% in 2015, while Spain, the U.K. and Chile
should grow more than 2.5%, Santander said Tuesday. In Brazil, on
the other hand, Santander expects the economy to contract by around
1%.
Santander touts its geographical diversity as a competitive
advantage that allows strong growth in some countries to
counterbalance weakness in others where the bank has major
units.
In Santander's main banking units, only Chile posted lower
first-quarter net profit, which dropped 11% to EUR109 million,
driven by inflation, executives said. In Spain, in contrast, net
profit jumped 42% to EUR357 million on better lending income and
fewer provisions against losses on bad loans.
A strengthening Spanish economic recovery has helped to buoy
revenue growth in Santander's home market in recent quarters. The
Spanish Prime Minister Mariano Rajoy on Monday said the government
expects the country's economy to expand by 2.9% this year, up from
a previous target of 2.4%.
Despite that, many individuals and businesses in Spain remain
focused on paying down existing loans, eschewing new ones. The
deleveraging process is an uphill battle for Ms. Botín as she seeks
to grow Santander's loan book in Spain to further boost
profitability.
Santander said net loans in Spain were up 0.2% year-over-year.
Loans also increased slightly from the fourth quarter of last year
to this quarter.
Deleveraging in the first quarter was particularly acute in
mortgage loans, Santander said, meaning more customers were paying
off their home loans than taking out new ones. New businesses and
consumer loans in the first quarter, in contrast, outpaced the rate
at which old loans were being paid off, increasing the total loan
volume to such borrowers.
"One basically balances out the other," Mr. Cantera said. "New
production of loans is clearly positive in the quarter."
Executives, however, cautioned about lending profitability in
coming quarters, as strong competition pushes down the rates
Santander and other banks can charge borrowers for new loans.
"Going forward, the pressure in terms of margins is going to
mount," he said.
Santander said Tuesday that its capital ratio under Basel III
"fully loaded" criteria was 9.7% at the end of the first quarter,
in line with what the bank had said following its capital
increase.
Institutional investors in January welcomed Santander's sale of
EUR7.5 billion in new shares, a move meant to quiet perennial
concerns that the lender's balance sheet was weaker than its
peers.
The bank should strengthen its capital cushion even more,
Barclays PLC analysts wrote in a research report last month.
"Although Santander's capital position is now much improved, we
don't think it is yet in quite the right place," the analysts
said.
Write to Jeannette Neumann at jeannette.neumann@wsj.com
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