Banco Santander’s net income for the first quarter of 2022 increased by 58% compared to the same period of the previous year (when the organization recorded restructuring costs of 530 million, especially in the UK and Portugal), thanks to increased revenue in Europe, which offset the increase in expenses in South America, the organization chaired by Ana Botin said on Tuesday.
The second largest bank in the eurozone earned 2.54 billion euros ($2.72 billion) between January and March, beating analysts’ forecast of a net profit of 2.26 billion. Earnings are also higher than in the first quarter of 2019, before the covid-19 pandemic (earned 1.840 million).
On a periodic basis, Santander’s global net income increased by approximately 19%, while in Europe it increased by 30% due to strong growth in loan income.
Efficiency measures implemented in Europe, together with higher interest rates in the UK and Poland, boosted quarterly earnings and helped the bank close the period with an efficiency ratio of 45% compared to 47.9% in the previous quarter. This ratio measures the performance of an enterprise and shows greater efficiency when it is lower.
Santander’s diversification, especially in Latin America, helped the bank weather tight banking conditions in Europe after the 2008 financial crisis by cutting spending to cope with ultra-low interest rates.
The effect of inflation, especially in South America, resulted in an 8% increase in euro costs at a constant exchange rate for the group as a whole.
Net interest income (the difference between finance income and finance costs) increased by 11.3% to €8,860 million in the first quarter, driven by strong commercial activity and rising official interest rates in some of the markets where the group operates. Gross margin increased by 8% to EUR 12,305 million (with a 6% increase in fee and commission income to EUR 2,800 million) and net margin was EUR 6,770 million, up 8% compared to the first quarter of 2021.
For fiscal year 2022, the bank maintains the financial targets for 2022 it announced in February, despite a new scenario marked by war and rising inflation and energy prices: revenue growth of approximately 5%, conventional RoTE (underlying return on equity) above 13 %, efficiency ratio 45% and capital adequacy ratio CET1 at full load 12%.
Banco Santander CEO José Antonio Alvarez during the presentation of the results for the first quarter of 2022 at the Ciudad Grupo Santander in Boadilla del Monte. — Javier Lizon / EFE
“The first quarter was very good, with an increase in the number of customers and an 8% increase in revenue, improved efficiency and good credit quality. Our return on tangible capital was 14.2% in the quarter, helped by strong connectivity. in our business and sound risk management. All regions performed well, including Europe, where profitability improved,” Banco Santander President Ana Botin said in a statement.
“Our geographic and business diversification is the key to growth and allows us to remain one of the most efficient and sustainable banks among our competitors, with profitability clearly exceeding the cost of capital. Although the impact of inflation will affect global economic growth. each region and business, we reaffirm our targets for 2022, demonstrating the benefits of our model,” he added.
Geographically, regular profit over the period rose 30% in Europe to €1,018m, up 8% in South America to €900m, and remained flat in North America at €806m. Digital Consumer Bank, for its part, also increased its regular profit significantly (+11%) to $282 million.
In Spain, ordinary income was 365 million euros, up 21% on the same period last year. This result, according to the bank, was supported by higher fee and commission income (+9%), lower costs (-4%) and lower provisions due to improved non-performing loans and a good coverage ratio.
Banco Santander Steps Up Cost Management to Beat Inflation
When presenting the results, Banco Santander CEO José Antonio Alvarez acknowledged that the impact of inflation will require the bank to manage costs more intensively, although he assured that such pressure on spending does not exist in Spain and he expressed his confidence. that inflation will return to “reasonably normal” figures in a relatively short period of time.
“Inflation will affect costs and we will need to look at how we can manage costs to stay below inflation in the worst case scenario,” explained Alvarez, who insisted that Santander’s goal would be to “clearly outperform inflation.” “.
After being asked about the possibility of a new staff and office adjustment as a measure to combat soaring inflation, the CEO recalled that spending in Spain was cut in the quarter.
“When I mentioned inflation, I didn’t mean Spain where spending is down 7% or 8%. It is true that future inflation may put some pressure on us and that our electricity bills will rise, as they will for everyone. but at present, as a result of the actions taken, we have no price pressure in Spain,” he said.
Maintains its dividend policy
The Bank announced its intention to maintain its policy of distributing 40% of ordinary earnings to shareholders, divided equally between cash dividends and share buybacks.
Santander’s CEO also highlighted the bank’s intention to increase payouts to 50% in the future, a decision that will be discussed by Santander’s board of directors this year.
Banco Santander office in Guernica, Biscay. — Vincent West / REUTERS
Earlier this month, the general meeting of the bank’s shareholders approved the second payment of cash dividends as part of the shareholder remuneration accrued based on the results of 2021.
Thus, as of May 2, 2022, a cash dividend of 5.15 euro cents per share will be paid. Together with the payment made in November 2021, the total amount of cash dividends accrued based on the results of the previous financial year will be 10 euro cents per share.
If the share buyback is included, total shareholder compensation for 2021 will reach 3.4 billion euros, which is equivalent to a return of 6%.
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