Santander Profit Soars on Lower Loan-Loss Provisions

Spain's Santander recorded a 29% increase in group profit in the first-half of 2013 despite suffering setbacks in the key Latin American and home markets.

Attributable profit for the first-half rose to €2.26bn ($3bn, £1.95bn), from the same period 12 months ago, as loan loss provisions declined sharply from last year.

Last year, Spanish banks set aside billions of euros as provisions against toxic real estate assets, hurting their profitability. Santander's first-half profit was almost similar to what it had made for full-year 2012.

Profit from Continental Europe was €557m, reversing from a loss of €1.21bn last year, due to lower provisions and write-offs.

The bank, the largest in the eurozone by market value, said its net profit was €1.05bn in the second-quarter, compared with €123m last year. Santander's overall loan loss provisions declined to €3.07bn in the second-quarter, from €3.40bn a year earlier.

Santander Chairman Emilio Botín said the bank is now "preparing for a new period of profit growth" after years of write-offs, asset sales, rising bad debts and high provisioning requirements.

Earlier, Spanish banks such as Caixabank and Banco Sabadell indicated that the banking sector was poised for growth in the coming months in line with the economic recovery in the country.

Net Interest Income

Across the Santander group, net interest income, the difference between interest paid on deposits and interest charged on borrowings, declined in the first half due to low interest rates in Europe and Latin America.

However, it was up 1.1% in the second-quarter on the back of interest rate recovery in countries such as Portugal and Britain.

While the bank continued to cut lending in low-interest markets such as Spain, it increased lending in emerging markets. Overall lending fell 2% on the year, while deposits grew 7%.

Latin America

Earnings from the bank's flagship Latin American business declined 16% on the year in the first-half to €1.86bn due to lower lending income.

Particularly, its Brazilian operations were hurt by weak economic growth and lower currency valuations against the US dollar. In Brazil, the bank posted a 17.5% fall in net interest income to €5.5bn.

The lender still makes half its profit from Latin America.

Meanwhile, earnings from Spain slumped 57% to €86m from a year ago as net interest income slid 17%. At Santander's UK and US units, profit fell 9.2% and 6.7%, respectively, to €487m and €423m, according to the bank.

In the UK, the bank also intends to launch a cash tender offer of up to £800m in order to boost equity reserves as part of a plan designed to "optimise" the UK arm's capital position.