LONDON - Banco Santander reported a 26 percent decline in its net profit during the first three months of the year on Thursday, as it suffered from continuing troubles in Spain, its home market, and a slowdown in developing economies.
Santander, Spain’s largest bank, said its net income in the first quarter fell to 1.2 billion euros ($1.6 billion), compared to 1.6 billion euros in the same period last year, missing analysts’ estimates.
As the Spanish economy continues to buckle under double-digit unemployment and major declines in its real estate market, Santander has not been immune from the domestic troubles. The bank said its first quarter earnings were hit by anemic growth and a drop in revenues in its major markets, as well as by low interest rates worldwide, which had hurt profitability.
The bank’s top management, however, remained optimistic that future results would outpace those from last year, which were hamstrung by 18.8 billion euros of provisions to cover delinquent mortgages in Spain and an increase in other troubled loans across its businesses. Santander also set aside a further 12 billion euros in 2011 to protect against souring loans.
“Profit in 2013 will be significantly higher than the 2.29 billion euros registered in 2012,†the bank’s chairman, Emilio BotÃn, said in a statement.
Santander said it had made extra provisions of almost 3 billion euros in the first quarter, a 6 percent decline compared to the same period in 2012.
Santander’s shares fell three percent in early morning trading in Madrid on Thursday.
The Spanish bank suffered from declines across its global operations. In Latin America, which now represents more than half of its quarterly earnings, net profit fell 18 percent, to 988 million euros, despite a slight increase in lending and customer deposits.
The results for Continental Europe, including the bank’s weak Spanish business, fared even worse. Net income plunged 27 percent, to 307 million euros, as Santander tried to cut back its exposure by reducing lending to local consumers.
Over the past several years, the bank has attempted to shrink its real estate business in Spain as mortgage delinquency rates have skyrocketed. In the first quarter of the year, Santander said its exposure to troubled domestic real estate, when adjusted for provisions, totaled 11.9 billion euros.
The bank’s ratio of delinquent loans in Spain increased slightly, to 4.1 percent, though the figure for real estate exposure remains far higher: 56.3 percent. For the entire bank’s global operations, the ratio rose marginally compared to the end of 2012, to 4.8 percent.
The bank’s British division also reported a 23 percent decline in first quarter net income, to 224 million euros, while profit from the bank’s unit in the United States fell slightly, to 233 million euros.
Like its competitors across Europe, Santander is increasing its funding reserves to meet more stringent capital requirements outlined by regulators to protect against future crises.
While the Spanish bank said it had now returned 31 billion euros of short-term funding offered by the European Central Bank, its core Tier 1 equity ratio, a measure of a bank’s ability to weather financial shocks, had risen steadily to 10.7 percent.
