By Jesús Aguado
MADRID (Reuters) -Spain's Santander released 750 million euros ($846 million) in pandemic-related provisions in the fourth quarter, betting on an economic recovery in its main markets and helping boost net profit eight-fold compared to a year earlier.
The coronavirus crisis forced banks in Europe to set aside costly provisions to protect their books from any potential fallout. But banks, mainly in the United States and Britain, are starting to reduce them due to improved economic conditions.
Santander's release in provisions came in at the lower end of its previously guided write-back of 700 million to 1 billion euros for the last quarter of 2021.
Net profit of 2.28 billion in the October to December period, a 4.6% rise over the third quarter, while the bank reported a profit of 8.12 billion euros for full-year 2021 after a record annual loss of 8.77 billion euros in 2020.
Quarterly and full-year profit matched analysts' forecasts.
With an improved economic outlook, Santander forecast a return on equity ratio (ROTE), a measure of profitability, of over 13% in 2022, up from 12.73% by the end of 2021.
Santander's tier-1 fully loaded capital ratio, the strictest measures of solvency, rose to 12.12% from 11.85% in September. The ratio would be 11.96% when already announced corporate transactions are factored in. It kept a target of 12%.
Shares, up 7% this year, fell 0.8% on Wednesday compared with a 0.4% rise in the European banking index.
EMERGING MARKETS FOCUS
"The lack of a more visible capital build up remains the main drag for the share," UBS said, while Deutsche Bank said the results were robust with "positive developments seen in the Spain, with Brazil and the U.S. relatively solid."
Santander has expanded in emerging economies in search of faster growth than core markets in Europe, where it is cutting costs to cope with ultra low interest rates.
The bank said it aimed for a cost-income ratio, a measure of efficiency, of about 45% at group level in 2022 from 46.2% now.
In Britain, which accounted for almost a fifth of quarterly earnings, underlying net profit more than doubled from a year ago thanks partly to 245 million euros in provision write-backs.
In the United States, which also made up more than a fifth of earnings, profit in underlying terms doubled against the same quarter of 2020 amid a strong U.S. economic recovery.
Net interest income, a measure of earnings on loans minus deposit costs, rose 8.7% to 8.72 billion euros in the fourth quarter, beating forecasts for 8.51 billion euros.
In Brazil, accounting for almost a quarter of underlying profit, net interest income rose 17.2% year on year in the quarter. In Mexico lending income increased by 4.1%, while it fell 7.7% in Spain compared to the same quarter a year ago.
($1 = 0.8874 euros)
(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; Editing by Inti Landauro and Edmund Blair)