Santander sees higher profitability this year after Q4 beat

By Jesús Aguado

MADRID (Reuters) -Spain's Santander is targeting higher profitability this year after record fourth-quarter net earnings beat forecasts on increased lending income in Europe and Brazil.

The euro zone's second-biggest bank by market value has relied in the past on Latin America for revenue growth but has recently also benefited from higher European interest rates.

Net profit for the quarter jumped 28% year-on-year to 2.93 billion euros ($3.17 billion), above analysts' average estimate of 2.64 billion euros, thanks to a 34% increase in Europe.

Provisions rose 13% year-on-year to 3.4 billion euros, in line with forecasts, while cost of risk, which measures potential losses for the bank, rose 5 basis points (bps) to 118 bps at the end of December, below guidance for 120 bps.

For the whole of 2023, net profit rose 15% to a record 11.08 billion euros as revenues climbed 10.5%.

The higher profit helped lift Santander's return-on-tangible equity ratio (RoTE), a measure of profitability, to 15.06% by the end of 2023 from 13.37% in 2022, meeting its year-end target of more than 15%.

Santander executive chair Ana Botin said in a statement that the bank's diversified business model would allow it to target RoTE of 16% for 2024. It also expects a mid-single-digit percentage increase in revenues.

JP Morgan said in a note that the results "were broadly in line with expectations, although the guidance is better".

Santander's shares were up 1.7% at 0928 GMT, against a 0.5% rise for Spain's leading Ibex-35 index.

NII GROWTH IN BRAZIL, ARGENTINA BOOKS LOSS

Santander's quarterly net interest income (NII), or earnings on loans minus deposit costs, rose 9.5% year-on-year to 11.12 billion euros, more than the 10.93 billion expected by analysts, but NII fell 0.9% from the previous quarter.

In Brazil, NII rose 12.3% from the same quarter of 2022 and 7.6% from the third quarter.

In Spain, NII climbed 24% year-on-year but fell 0.2% against the previous quarter. Investors are watching closely to see if the boost from higher interest rates has peaked as markets anticipate cuts in 2024.

In the United States, net profit fell 77% year-on-year due to an increase of around 30% in provisions and higher costs to scale up business there, while in the UK profit rose 17% year-on-year but NII fell 6% due to higher deposits costs.

Like peer BBVA, Santander's results in South America were hit by a hyperinflation adjustment and a peso devaluation in Argentina. Santander booked a loss of 20 million euros in Argentina.

The lender's core tier-1 fully loaded ratio - a key measure of financial strength - was unchanged from the previous quarter at 12.3%.

It also said it expected the total cash dividend per share for 2023 earnings to rise around 50% from the previous year.

($1 = 0.9244 euros)

(Reporting by Jesús AguadoAdditional reporting by Emma PinedoEditing by Miral Fahmy and Mark Potter)