Domestic property woes pull down Santander full year profits

Santander - Domestic Property Market Woes Continue

Santander – Domestic Property Market Woes Continue

Eurozone’s biggest bank by market capitalization – Spain’s Santander has booked a profit of €8.18 billion ($11.3 billion) for the year 2010, a fall of 8.5 percent over 2009’s €8.94 billion.

Although the banks performance improved in the UK and Latin American countries, the bank failed to meet the original target of maintaining profits since bad loans in the Spanish property market weighed down its overseas gains.

The bank said in a statement that its net profit margin would have fallen by only 3.2 percent if it did not have to make additional provisions of €472 millions in the third quarter – mandated by the Bank of Spain, to take care of real estate slump.

Net Interest Income (NII) rose by 11.1 percent to €29.22 billion for the year.

Like its domestic rival BBVA, Santander has gained from its overseas diversification in emerging markets. Latin America alone accounted for 43 percent of Santander’s profit in 2010, while Brazil contributed nearly 25 percent of group profit. Spanish Domestic market contributed just 15 percent while continental Europe was responsible for 35 percent of the group profit.

Amid increased regulatory pressure to hold more Tier one capital for absorbing unexpected losses, Santander said it plans to increase its core Tier-1 capital to Risk-Weighted-Assets (RWA) ratio to more than nine percent this year. The ratio was up by 0.2 percent (20 basis points) to 8.8 in 2010 over 2009.

Emilio Botín – Executive Chairman of the bank said in a statement: “We’ve achieved results that again place us among the leading global banks. Santander has had an excellent year”.

Although Santander’s exposure to Spanish real estate market compared to its total loan portfolio is far less than many of its peers, still the bank continues to lose heavily from the Spanish property slump.

Globally bad housing loans as part of banks total assets portfolio have gone up to 3.55 percent in 2010 from 3.24 percent in 2009. However, in Spain the percentage rose to 4.24 percent in 2010 from 3.41 in 2009. Santander has made provisions and write-offs (net of recoveries) of €10.26 billion in 2010, up from €9.48 billion a year earlier.

In an attempt to restructure Spanish banks and unlisted savings banks or cajas, the government has instructed them to provide details of their real estate exposure in the domestic market ahead of a new round of ‘stress test’ to be conducted across the EU.

Santander’s total exposure in the domestic market amounts to €27.33 billion and the bank has classified 17 percent or €4.64 billion as ‘doubtful’. Another €4.93 billion has been classified as ‘doubtful’ – while the bank has made provisions for 28 percent of these two categories.

Spanish banks are the country’s biggest property owners because of repossessions. Santander owns properties worth €7.51 billion of gross value – however, after adjusting for provisions, net value stands at €5.2 billion.

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