Santander profits slip as bad debts rise

Spanish banking group Santander has posted a small fall in first-quarter net profit as its overseas businesses, particularly in Brazil, struggled to offset a sluggish Spanish home market.

Group net profit dropped 4.8 per cent to €2.11bn (£1.9bn) in the first quarter from a year ago, slightly below forecasts for €2.17bn.

Net interest income – broadly what a bank earns on loans, less what it pays for deposits – rose 5.5 per cent to €7.51bn, just ahead of expectations for €7.42bn.

Its UK operation also saw profits fall slightly, to £419m from £428m in the first quarter of 2010, which it said was caused by regulatory charges of about £100m before tax.

"The decrease has been driven by increased market funding costs and the costs of holding higher levels of liquid assets as a result of new regulatory requirements," it said in a UK trading statement.

UK profit rose almost 12 per cent on the previous quarter, though, it said.

Spain, which accounts for less profit than Brazil or the UK at the eurozone’s biggest bank bank, is contending with a collapsed property market and the highest unemployment rate in the European Union.

Bad loans as a percentage of total loans in Spain rose to 4.57 per cent at end-March versus 4.24 per cent at December, while the group as a whole booked a bad loans ratio of 3.61 per cent versus 3.55 per cent at end-December.

But Chairman Emilio Botin was characteristically upbeat and saw a change in trend in its Spanish business.

"These results highlight the enormous benefits of geographic diversification. Revenues are growing at a good pace throughout the group and in Spain reversed the downward trend of recent quarters.

"I am convinced that this change will continue in the coming months," he said in a statement.