Banco Santander SA’s earnings beat estimates as tailwinds from central bank rate hikes offset the impact of higher costs including a Spanish levy on bank revenues.
(Bloomberg) — Banco Santander SA’s earnings beat estimates as tailwinds from central bank rate hikes offset the impact of higher costs including a Spanish levy on bank revenues.
The retail-banking giant posted net income of €2.57 billion ($2.84 billion) in the first quarter, exceeding analyst consensus of €2.4 billion, according to a filing to regulators. Earnings from the lender’s European businesses and corporate and investment banking division helped to offset a year-on-year drop in profit in Brazil and the US.
The bank booked a €224 million charge for the full-year impact of the levy, imposed by the Spanish government to help fund measures to alleviate the cost of living crisis.
Santander continues to post robust returns from its loan book of more than €1 trillion as interest rates rise while pressure to pay more for deposits in its key domestic market remains subdued. In late February Chairman Ana Botin unveiled a higher profitability goal and a pledge to dole out a bigger share of earnings to investors in what she termed “a new phase of value creation for shareholders.”
“Despite recent volatility, we are on track to meet our 2023 targets,” Botin said in a statement.
Auto Provisions
Net interest income climbed 17% from a year earlier, boosted by the performance of its Spanish business where revenue climbed. Earnings from Santander’s corporate and investment bank also gained, helping to offset declines in profit from Brazil and the US, where higher funding costs hit its auto business loan loss provisions surged.
The lender, burdened with higher costs linked to inflation, said operating expenses climbed 11% in the quarter from a year earlier. Even so, its cost-to-income ratio, a metric that gages the efficiency of its operations, fell to 44.1% from 46.6% in the fourth quarter as revenues grew faster than expenses.
Cost-of-risk, a metric that tracks the ratio of provisions to expected loan losses, ticked up to 1.05% from 0.99% in the previous quarter.
Santander shares are up 26% this year, outpacing the average of peers on the STOXX Europe 600 Banks Index.
Botin reaffirmed targets for this year including double-digit income growth, RoTE above 15%; cost-to-income ratio of 44-45%; fully-loaded CET1 above 12%, and cost of risk below 1.2%.
Key Numbers
- ROTE: 14.38% vs 12.76% in 4q
- CET1 fully-loaded capital ratio 12.2% vs 12% in December
- Net interest income rose to €10.4b from €10.16b in 4q
- NPL ratio 3.05% vs 3.08% in 4q
- Efficiency ratio 44.1% vs 46.6% in 4q
(Updates with further details from sixth paragraph)
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