LONDON â€" Banco Santander reported an increase in its fourth quarter net profit on Thursday, as the largest bank in the euro zone continued to set aside billions of euros to cover loan losses in its domestic Spanish market.
Santander, based in Madrid, said its net income rose to 401 million euros, or $544 million, in the three months through Dec. 31. The bank posted a net income of 47 million euros in the same period in 2011, when it set aside 1.8 billion euros to offset exposure to Spain’s troubled real estate market.
Net profit for 2012, however, plunged 59 percent, to 2.2 billion billion, compared to previous year, as Santander was forced to make provisions of billions of euros because of an increase in faulty loans in the anemic Spanish property market.
In total, Santander set aside 18.8 billion euros in 2012 year to cover delinquent mortgages in Spain and an increase in other troubled loans across its businesses, particularly in struggling European markets.
While the bank nw generates half of its earnings in Latin America’s emerging economies, a slowdown in Brazil and Mexico, combined with ongoing financial troubles in Europe, weighed on Santander’s earnings last year.
The bank’s management hopes the worst of the financial crisis is now behind it.
“In 2013, with the exceptional write-offs behind us, we should see a marked recovery in results,†Santander’s chairman, Emilio BotÃn, said in a statement.
Shares in Santander fell 2.5 percent in early morning trading in Madrid on Thursday after the bank’s fourth quarter earnings fell below analysts’ expectations.
The bank’s stock price has rallied more than 50 percent since late July after European policy makers gave renewed support to the struggling euro zone.
Since the beginning of the financial crisis, the Spanish bank has been shifting its focus away from its domestic market in search of growth. Yet as Europe’s debt crisis has continued to affect global markets, some of S! antander’s new markets, particularly in Latin America, also have suffered.
In Spain, Santander said it had reduce its exposure to domestic real estate by more than a quarter, to 23.7 billion euros, last year in an effort to boost profitability. The turnaround is likely to take some time. The bank’s ratio of delinquent loans in Spain rose 1.25 percentage points, to 6.74 percent, compared to 2011.
Santander also said deposits in its domestic market now exceeded loans, as the bank reduced lending to cash-strapped Spaniards.
The cutback comes despite a huge influx of cheap funds from the European Central Bank at the end of 2011 aimed at easing institutions’ ability to raise money in the financial markets.
European policy makers had hoped that firms would inject the cash into domestic economies to stimulate growth. Many banks have instead hoarded the funds in case Europe’s debt crisis further hurts their operations.
As fears over Europe’s future have waned, many of Europeâ™s largest banks again have been able to tap wholesale markets for new financing. The European Central Bank said on Jan. 25 that 278 banks would now return a combined 137 billion euros of short-term loans to the E.C.B.
On Thursday, Santander confirmed that it had returned 24 billion euros to the European Central Bank. The Spanish bank added it still had a further 11 billion euros of outstanding loans from the E.C.B.
By the end of last year, Santander said its core Tier 1 capital ratio, a measure of a bank’s ability to weather financial shocks, had increased to 10.3 percent, which remains ahead of targets set by regulators.
