MADRID – Banco Santander SA fell in Madrid trading after Spain’s biggest bank posted earnings showing that lending revenue remains under pressure at home.
Net interest income from Spanish loans, or revenue generated from the difference between what banks earn on loans and pay on deposits, dropped 5 percent in the second quarter from a year earlier to 1.13 billion euros ($1.24 billion). It was down 3 percent from the first quarter.
“I am not optimistic about this because there is fierce competition in the market,” CEO Jose Antonio Alvarez said in a conference call Thursday. “I would see this as a continuing trend for some time.”
Shares were down 2.3 percent to 6.3 euros at 2:55 p.m. in Madrid, after falling as much as 3 percent, taking losses for the year to 9 percent.
Spain is Santander’s third-biggest market, after the U.K. and Brazil. Chairman Ana Botin, who took over from her late father, Emilio Botin, less than a year ago, is relying on lending in his home market to bolster profit across the board.
For the company as a whole, net income rose to 2.54 billion euros ($2.7 billion) from 1.45 billion euros a year earlier after a favorable tax ruling in Brazil allowed the lender to free up provisions.
The group results are in line with the 2.6 billion-euro average estimate in a Bloomberg survey of 10 analysts. Excluding the gains from the court decision, net income would have been 1.71 billion euros.
Brazil Ruling
In Spain, Santander recorded a 58 percent increase in profit to 413 million euros. Provisions for bad loans fell by almost a half from the year earlier. Despite those improvements, the outlook for the home market remains uncertain.
“The guidance for net interest income was in Spain was pretty negative,” said Benjie Creelan-Sandford, an analyst at Macquarie Bank Ltd. in London. “They expect it to keep falling.”
After the ruling from Brazil’s highest court in May, the lender reversed a 4.8 billion-real ($1.4 billion) provision to comply with local tax litigation. That allows the bank to add 835 million euros to its second-quarter profit and 20 basis points to its common equity Tier 1 ratio.
The CET1 ratio, a measure of financial stability and ability to return cash to investors, rose to 9.8 percent from 9.7 percent the previous quarter.
In Brazil, net income rose to 505 million euros from 366 million euros in the second quarter of last year. The country, whose economy has contracted this year, contributes 20 percent to the lender’s profit.
“The Brazilian franchise continues to defy the macro pressures,” Bernstein analysts Johan De Mulder and Gaurav Jangale said in a note.
