Santander doubles provisions for bad loans

Santander more than doubled its provisions for bad loans to €3bn in the final quarter of last year and expects to keep expanding its buffer against potential defaults in the face of economic uncertainty and rising interest rates.

The Spanish bank said on Thursday that its net loan loss reserves increased by 106 per cent from the same period of 2021 in a reflection of its “prudent approach” to risk management, even as forecasters including the IMF say the global economy has proved to be unexpectedly resilient.

Santander’s cost of risk, a ratio of provisions to its overall loan portfolio, stood at 0.99 per cent, and with central banks expected to continue lifting interest rates this year, the group forecast the figure could rise as high as 1.2 per cent in 2023.

But the bank said it also continued to benefit from higher interest rates as it reported a 1 per cent increase in underlying profit to €2.28bn in the fourth quarter, better than analysts’ consensus forecast.

Citing higher rates as well as a rise in customer activity, Santander pointed to “particularly strong” increases in net income of 13 per cent in both the UK and Mexico for 2022. “The effect of rates rises on net interest income has not yet been fully reflected in Spain, Portugal and the US,” it said.

Santander said it expected central banks and governments in 2023 to “continue to focus on bringing down inflation”. “Our team has proven experience in navigating these conditions successfully and we expect revenue growth will continue to offset cost inflation pressures and the anticipated increase in cost of risk,” it added.

The bank forecast an additional €2bn to €2.5bn in net interest income over the next 12 months.