Santander returns to profits after faster customer recovery

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Spanish bank Santander returned to profit in the third quarter and revised its guidance for the full year after its customers recovered faster than expected from the initial disruption of the pandemic.

The group made a net profit of 1.75 billion euros for the three months ending in September, more than triple the same quarter last year when it took a large write-down on its UK operations .

Ana Botín, Executive President of Santander, said: “Our business recovery is progressing well and the third quarter was significantly stronger than the second”, when the bank reported the first loss in its 163-year history.

The company said it expected to make underlying profit of € 5 billion for the full year, although it would still report a statutory loss due to substantial non-monetary write-downs taken in the second quarter. Santander shares rose more than 5 percent on Tuesday morning.

Jose Garcia Cantera, chief financial officer, said he was confident that the performance improvement would continue next year despite growing fears of a second wave of coronavirus infections across much of Europe.

“We have several countries that are doing better than everyone expected a few months ago,” he said. This “more than offsets” the potential impact of increased cases in markets such as Spain and the UK.

Earlier this month, the IMF revised upward its gross domestic product forecast for several countries this year, including a significant improvement in Brazil, Santander’s largest market.

Santander has set aside 2.5 billion euros against expected loan losses in the third quarter. This was 22% more than for the same period last year, after factoring in currency movements, but far less than expected for the first half of 2020.

The bank said customers who took repayment vacations earlier in the year had resumed their payments at a faster pace than expected. It provided € 114 billion in payment holidays when the pandemic hit, but said only 2% of loans were classified as impaired.

The bank said it now had “a better understanding of the impact of the pandemic on customers” and lowered its forecast for the full year of loan loss provisions as a proportion of its loan portfolio to 1, 3%, against a previous estimate of 1.4 to 1.5%.

He also said he was on track to meet a previously announced cost reduction target for his ahead of schedule European companies, and will now aim to cut a further € 1 billion in costs over the next two years. years.

The bulk of profits continued to come from South America, particularly Brazil, but the group’s performance was also helped by easing pressure on its long-suffering UK business.

A price war in the mortgage market has weighed on Santander UK earnings for several years, but surging demand since the start of the summer has started to push up prices and lender profit margins. The full impact of the mortgage trend is expected to be felt over the next few quarters, but the bank has also benefited in the short term from the interest rate cut on its popular 123 current account.

Ms Botín criticized the European Central Bank’s decision to block lenders from paying dividends during the pandemic, and Santander has offered to resume cash payments as soon as restrictions are lifted.

Shareholders voted on Tuesday to approve a stock dividend equivalent to 10 cents per share payable this year, with an additional 10 cents per share cash dividend payable next year subject to regulatory approval .

Cantera said he was convinced that the ECB would allow some banks to resume payments soon. “It’s their decision, but I think they realized that the dividend ban was clearly having a negative impact on the banking system in Europe. . . clearly, compared to ten years ago, the balance sheets are much stronger. ”

Santander’s level one common stock ratio, a key measure of capital strength, was 11.98% at the end of September, up from 11.84% at the end of the second quarter and at the top of its target range. .

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