MADRID: Banking giant Santander’s quarterly profit dived by 82 percent as it set aside €1.6 billion ($1.7 billion) to cover expected loan losses caused by the COVID-19 pandemic.
The Spanish bank, like its peers, has been taking steps to counter risk as the economy reels as a result of coronavirus. The loan-loss provisions rose 80 percent in the first quarter, though CEO Jose Antonio Alvarez said they had not been allocated to any specific markets.
The euro zone’s second-largest bank by market value, after BNP Paribas, reported a profit of €331 million for the first quarter.
Excluding extraordinary provisions, which also included €46 million of restructuring costs in Europe, Santander’s underlying quarterly profit rose 1 percent to €1.98 billion. That beat an average analyst estimate of €1.8 billion.
“Our underlying quarterly operating performance was strong, with a relatively limited impact from COVID-19. The pandemic is, however, causing a global health crisis and significant economic and social distress,” Santander Chairman Ana Botin said.
The lender said it was too early to know the full economic effects of the crisis, adding that the bank would revise its strategic targets once it had a more complete understanding of the full impact of COVID-19.
The bank boosted its lending capacity by scrapping its final 2019 dividend.
• Sets aside €1.6bn against potential impact of coronavirus.
• Bank says will revise targets once coronavirus impact is known.
As of the end of March, Santander had a core tier-1 capital ratio — the strictest measure of solvency — of 11.58 percent, compared with 11.65 percent at end of last year. Including the full implementation of new accounting standard IFRS-9, with an impact of 25 basis points, Santander’s capital ratio stood at 11.33 percent.
The bank’s diversification overseas, especially in Brazil and Mexico, has helped it cope with tough conditions for lenders in Europe in the years since the financial crisis.
A solid underlying performance in Latin America and North America, boosted by strong loans growth, offset sluggishness in Britain and Spain in the quarter.
In Brazil, where the lender makes close to a third of its earnings, underlying profit fell 3.7 percent in the quarter though was up 10 percent when stripping out the variation from the exchange rate.
In Mexico, where it makes 10 percent of its earnings, operating profit was up 22 percent, while profits rose 50 percent in the US.
Its net interest income, a measure of earnings on loans minus deposit costs, was €8.49 billion, down 2.2 percent from the same quarter last year due to pressure from low interest rates in Europe.
In Spain, its second-biggest market, net profit fell 1 percent though lending was supported by state credit lines.