LONDON â€" The Spanish bank Banco Santander on Thursday reported a 94 percent drop in its net profit in the third quarter, after setting aside funds to cover potential losses in its domestic real estate market.
The Madrid-based bank has faced growing headwinds in its home market as the Spanish economy continues to struggle as one of the worst hit by the European debt crisis. Santander's international units, including Brazil and Britain, also reported subdued performance reflecting concerns about the global economy.
As a buffer, Santander â€" one of Europe's largest banks â€" said it had earmarked 5 billion euros ($6.5 billion), including a further 1 billion euros in the third quarter, to offset potential losses connected to the Spanish real estate market. The bank said it now had provisions totaling 9.5 billion euros to cover bad loans.
Santander said that its net income in the three months through Sept. 30 totaled 100 million euros, compared to 1.8 billi on euros in the same period last year.
“The bank's capacity to generate profit enables us to set aside hefty real estate provisions in Spain in 2012 and significantly increase non-performing loan coverage,†Santander's chairman, Emilio BotÃn, said in a statement.
In early morning trading in Madrid, shares in the bank had risen less than 1 percent.
The bank's volume of bad real estate loans in Spain and abroad continued to rise. Santander reported that its percentage of so-called non-performing loans in Spain now stands at 6.38 percent, a 1.2 percentage point increase compared to the same period last year. For its global operations, the figure also increased to 4.33 percent.
Santander is reducing its lending in its troubled domestic real estate market. The bank said that its exposure to the sector in Spain fell to 26.5 billion euros at the end of September, a 16 billion euro reduction over the last four years.
Santander's global operations c ontinue to play an important role in offsetting its domestic troubles.
Latin American operations, which include units in Brazil, Mexico and Chile, represented 50 percent of the bank's profits in first nine months of the year, the company said. Yet even in these fast-growing markets, the bank reported a 6 percent decline, to 3.3 billion euros, in net income over the period after Santander sold several businesses across the region.
Last month, the company raised around $4.2 billion through the initial public offering of its Mexican unit, Grupo Financiero Santander México, in New York and Mexico. The dual listing was the third-largest initial public offering this year, after Facebook and Japan Airlines.
The bank's core Tier 1 ratio, a measure of a firm's ability to weather financial shocks, was 10.4 percent at the end of the third quarter, compared to 9.4 percent in the same period last year.
