Banco Santander closed the first quarter of the year with a profit of 2,543 million euros, 58.1% more than in the same period of the previous year, as reported on Tuesday to the National Securities Market Commission (CNMV). Until March 2021, the group recorded 530 million for restructuring costs. Thus, if this impact is included, the increase in earnings remains at 18.9%. With this result, the entity is at cruising speed and far exceeds its profits prior to the pandemic – in the first three months of 2019 it earned 1,840 million – thanks to the rebound in the margins of its banking activity and the drop in costs.
“The first quarter has been very good, with growth in the number of customers and an 8% increase in income, improvement in efficiency and good credit quality,” said Ana Botín, president of the group, in a statement from the company. company. Specifically, Santander captured 7 million customers in the first three months of the year (there are already 154.8 million), most of them in the Brazilian market, and raised revenues to 12,305 million (+8%). José Antonio Álvarez, CEO of the entity, emphasized at a press conference the good performance of the business: “Despite the new context, I continue to see good dynamics for the coming quarters.”
This new context to which the CEO refers has winds in favor and others against. Among the adverse effects, inflation, triggered by the energy crisis, and lower economic growth due to the war in Ukraine stand out. There are also other positives: for example, the reaction of the central banks: they are expected to step on the accelerator with the rate hike, something that benefits the banking business. Hence, Santander maintains its objectives for the year intact.
The interest margin rose to double digits, 11.3%, to 8,855 million, as well as net commissions, which rose 10.4%, to 2,812 million euros. Regarding profitability, the return on tangible capital (ROTE) stood at 14.2%, above the cost of capital. The quality of the results, as detailed by the bank, is also reflected in another piece of information: “The interest margin and commission income provided 95% of the group’s income.” Despite these gains, the stock fell 6.8% on the stock market during the day.
The balance, in addition, remained solid in the first three months of the year “thanks to a normalization of credit quality after releasing provisions in the fourth quarter of 2021”, explains Santander in a statement. The non-performing loan ratio was 3.26%, six basis points more than in the first quarter of 2021, after the application of a new definition of default, while the coverage ratio remained at 69%. Provisions were 2,101 million, somewhat higher but in line with those of last March.
In this case, the impact that the war in Ukraine may have on the accounts in the coming months remains to be seen: the exposure of the entity and the Spanish bank is minimal, but if it affects the economy as a whole it can cause turbulence in the sector. The CET1 capital ratio fully loaded in March it stood at 12.05%, in line with the bank’s target. On this issue, Álvarez praised the group’s geographical diversification, which protects it from the ups and downs of the war: “It will affect Europe a little more than North or South America, where the impact will be neutral or even positive.” In fact, the currency effect, which in recent years has penalized it due to the depreciation of the Brazilian real, among others, may now be favorable to the group due to its appreciation and the loss of value of the euro.
He knows in depth all the sides of the coin.
What is already being felt in the accounts are inflationary pressures, especially in South America. Not so much in Europe or North America, although we will have to see the effect that the rise in prices has also in these areas. Moreover, Álvarez has assured that it is one of the tasks for the coming months: to control expenses so that they compensate for the rise in inflation. In South America, costs have already risen 4% in constant euros. However, if the increases in the CPI are discounted, in real terms these expenses fell by 3%. “The group’s efficiency ratio closed at 45% (after a drop of 1.2 percentage points compared to 2021), which places Santander among the most efficient entities in the world,” highlights the group in the note.
For this year, despite the uncertainties that exist, the bank does not change its roadmap and maintains its objectives: revenue growth of around 5%, a ROTE of over 13%, an efficiency ratio of 45% and a CET1 capital ratio fully loaded of 12%. In addition, regarding the dividend policy, the board’s intention is to maintain a distribution of 40% of the profit, divided equally between cash and share buybacks. “Although the effects of inflation will affect world economic growth with different impacts in each region and business, we reaffirm our objectives for 2022, which demonstrates the advantages of our model,” says Botín.
The benefit before taxes was 4,171 million, 3% more than until March of last year. For its part, the income tax amounted to 1,302 million euros, which represents an effective tax rate of 31%, as specified by the entity in the statement.
Brazil and the United States: engines of business
Geographic diversification draws an almost symmetrical picture in the contribution of its three large areas: Europe (34%), which has rebounded strongly this quarter, South America (30%) and North America (27%). The remaining 9% was generated by Digital Consumer Bank. By markets, Brazil and the United States remain the engines of the group’s business. Banco Santander obtained 627 million ordinary profit in Brazil, 1% less despite the rise in income (+6%). This is explained by an increase in costs and provisions made. Credits increased 8% in the country and deposits 3%.
The United States was the second largest contributor to earnings. In his case, 583 million euros, which represents a drop of 9%, “due to the normalization of provisions after the exceptional behavior registered in 2021”, explains the group in the note. Loans increased 8%, with steady growth in auto finance and investment banking. And deposits also rose 8%.
On the other hand, Mexico contributed 249 million to profit, which in this case represents an increase of 32%, spurred on by the rise in income (+7%) and the 25% reduction in the bank’s provisions. In addition, loans in this market rose 9%.
In the Old Continent, the United Kingdom was the one that contributed the most to profit: 375 million (+26%). And in Spain the group obtained profits of 365 million, 21% above those of the same quarter of the previous year. “This result was supported by higher fee income (+9%), lower costs (-4%) and lower provisions, thanks to an improvement in non-performing loans and a good coverage ratio”, the entity underlines in its note. It should be noted that last year Santander carried out an ERE in which 3,572 employees left and closed some 1,000 offices, which largely explains the drop in expenses. On the income side, the bank recorded a significant uptick in new mortgage and consumer loans, exceeding pre-pandemic levels.
In the group’s global business, customer funds reached their highest figure: 1.1 billion euros, with a rise of 5%. And deposits grew another 5%, to 906,000 million. In addition, the strong activity, as well as the rise in official interest rates in some markets where Santander operates, boosted the net interest income by 6%, with particularly strong growth in the United Kingdom (15%), Poland (78%) , Brazil, Mexico (7%) and Argentina (69%).