Santander Beats Estimates After Rates Boost Profit in Spain

Banco Santander SA’s earnings beat estimates as its domestic market became the Spanish lender’s top profit maker for the first time in more than a decade, boosted by rising interest rates.

(Bloomberg) — Banco Santander SA’s earnings beat estimates as its domestic market became the Spanish lender’s top profit maker for the first time in more than a decade, boosted by rising interest rates.

The Madrid-based retail-banking giant posted net income of €2.67 billion ($2.95 billion) in the second quarter, exceeding the consensus analyst forecast of €2.58 billion, according to a regulatory filing Wednesday.

For the first time since 2009, Spain became the largest contributor to Santander’s earnings, with its domestic unit making up 22% of the group’s profit. Brazil accounted for 12%.

Santander has been relying on factors such as rising interest rates in Europe, client growth in Mexico and higher fees in Spain to help meet Chairman Ana Botin’s target of increasing profitability and boosting payouts to investors. The lender is also trying to improve the quality of its assets in the US and Brazil, it’s second-largest market.

Banks in Spain and other Eurozone countries have been benefiting from the European Central Bank’s biggest and longest interest rate hiking cycle. Santander’s net interest income in its home market rose 16.5% during the quarter.

Santander and other Spanish lenders have come under government criticism for not increasing remuneration to clients for their deposits even as interest rates rise. Lenders have argued that clients aren’t requesting payments as they have other better options for remuneration, even though some smaller lenders are starting to pay.

In an interview with Bloomberg TV on Wednesday, Santander Chief Financial Officer Jose Garcia Cantera said savers “have different options to put their savings to work” when asked about payments for deposits.

“Spain has the lowest cost of borrowing among the five largest economies in Europe, so obviously the result of this is that many millions of borrowers are enjoying very low borrowing rates,” he said.

As part of an expansion drive, Santander has been doubling down on investment banking in the US, where it’s seeking to become a large Tier 2 player. It’s seeking to do this via primary broker services and financial advisory in specific sectors such as infrastructure and energy transition where it has a track record. Business at Santander’s corporate and investment banking unit grew 28% to €1.88 billion.

The bank has in recent months hired several executives from Credit Suisse and has been in talks to hire dozens more, people familiar with the matter have said. Investment banking currently represents about a third of group profit.