SAN Banco Santander SA

By Jeannette Neumann

MADRID--Banco Santander SA (SAN) downgraded two important financial targets on Friday, as major European banks feel the strain of a prolonged period of low interest rates and sluggish demand for loans.

Santander executives told investors at a presentation in London that the bank would step up cost-cutting efforts as well as focus on increasing fees to counterbalance a tougher macroeconomic outlook in Europe.

Santander lowered the target for its return on tangible equity, a measure of profitability, to "more than 11%" by 2018 from a previous target, set a year ago, of around 13% over the same period.

The bank also raised the target range for its cost-to-income ratio--a key measure of efficiency--to 45%-47% by 2018. The bank said last year it aimed for a cost-to-income ratio of below 45%. The lower the figure the better.

Citigroup analyst Stefan Nedialkov noted that the market consensus for Santander's 2018 return on tangible equity is 10%--already below the bank's new target.

"We believe today's rebasing of targets is the right thing to do," Mr. Nedialkov said in a research report. "The ROTE downgrade seems to be driven by a higher cost-to-income ratio, and potentially by slightly lower implied net interest income," which measures lending profitability.

Santander reiterated its target of reaching a capital ratio by the end of 2018 of more than 11% under international regulations known as "fully loaded" Basel III criteria. That ratio was 10.36% at the end of June.

Santander shares were down 3.9% around 11 a.m. local time in Madrid.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

(END) Dow Jones Newswires

September 30, 2016 05:44 ET (09:44 GMT)

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