Provisioning sees Santander’s 2012 profits fall 59 percent on previous year

Spanish banking group Santander made profits of 2.205 billion euros in 2012, a fall of 59 percent compared to the previous year, after it had to set aside 18.8 billion euros to cover losses in the real estate market in Spain and toxic loans.

In its latest results, which were submitted to the CNMV market watchdog on Thursday, the bank explained that of the 18.8 billion euros for provisions, 12.7 billion euros will cover bad loans while 6.1 billion are for potential property losses. Spain’s property downturn continues to intensify, after a decade-long boom turned to bust in 2008.

The president of Banco Santander, Emilio Botín, said in a press release that “in 2012, profits reached a turning point. In 2013, once we have finished with this special provisioning, we will see a strong increase in results.”

The bank’s pre-tax profits for last year stood at 23.559 billion euros, putting it among the best of its international competitors.

The group says that its 2012 results reflect its strength, “given that despite a number of fiscal years in a difficult economic context, [the business] continues to show growth in income and profits before provisioning of around two percent.”

Last year operating income in its UK and US businesses was down, falling 26 percent in the former and 18 percent in the latter. But across the whole group, operating profit was up 1.6 percent, reaching 23.6 billion euros. That was thanks to strong showings at its Latin American subsidiaries in Chile, Mexico and Brazil.

Net loans for the group have risen to 720 billion euros and represent 113 percent of deposits (647.5 billion). Before the crisis, in December 2008, that percentage was at 150 percent. Loans have fallen four percent and deposits have risen four percent. The group said the “development of the business in Spain is particularly notable, where there are now more deposits than loans for the first time in decades.”

For every 100 euros in deposits it has 96 in loans, when four years ago for every 100 in deposits it was lending 178. This, the bank explained, is the result of two factors: the deleveraging process of the Spanish economy and the growth of deposits at Santander, despite the opposite trend in the market as a whole.

The bad loan ratio for the group in 2012 was at 4.54 percent, a 0.65-point rise on 2011. In Spain, the bad loan rate stands at 6.74 percent, with a rise of 1.25 points from 2011 to last year.

According to its results, Santander reduced its exposure to the real estate market by 26 percent in 2012, from 31.9 billion euros to 23.7 billion euros. These cuts were carried out by reducing its loan portfolio, as well as the properties it had repossessed due to defaults.

The bank’s net exposure to the real estate sector is at 12.5 billion euros. That figure is, however, practically half its level at the close of 2011, when it was as high as 24.892 billion.