Loan provisions hammer profit for Santander

Marion Dakers
SANTANDER has blamed Spain’s new property loan rules for a 24 per cent slump in profit for the first quarter of the year.

Spain’s biggest bank posted a net profit of €1.6bn, after setting aside €3.13bn to cover non-performing loans, most of which was required under the Spanish government’s plan to get a handle on property debts.

Stripping out the provisions, net profit rose nine per cent to a record €6.3bn in the quarter – but the bank plans to write down a further €1bn to cover risky loans throughout 2012.

Outside recessionary Spain, Santander’s performance was mixed.

Santander’s Mexican arm, which the banking is considering floating, showed strong growth. But Brazil, which chipped in 27 per cent of group profit, saw its earnings drop 3.3 per cent in the wake of loan provisions.

In the UK, pre-tax profit slumped 40 per cent to £347m, which the bank pinned on higher regulatory and funding costs coupled with historically low interest rates.

Provisions rose 40 per cent, with the bulk of the damage being done by pre- credit crunch loans made by Abbey National and Alliance & Leicester, which Santander bought as it expanded its British footprint.

The level of non-performing loans in the UK rose slightly to 1.96 per cent.

Santander UK added 400,000 new accounts in the quarter, and reported a 21 per cent year-on-year rise in lending to small and medium sized enterprises to £11.1bn.

However, the bank warned that mortgage lending will contract this year because of its “more cautious risk stance”, and that the planned purchase of 318 RBS branches will not complete until at least late 2012.