Santander posts record profit as Spain imposes windfall tax

Banco Santander has reported a record first-half profit driven by a strong performance in Latin America, just as Spain unveiled a €1.5bn annual windfall tax on lenders.

Spain’s largest bank said underlying profit rose 16 per cent compared with the same period last year to €4.89bn, boosted by rising interest rates in the UK, Poland and Latin America.

The results came just as Madrid announced the details of a windfall tax on bank profits, as governments across Europe attempt to raise funds to reduce the impact of price rises.

The Spanish government said it is aiming to raise €1.5bn a year from the windfall tax on banks in 2023 and 2024.

A 4.8 per cent tax will be levied on the net interest income – a measure of the difference between deposit and lending rates – of banks with annual revenues of more than €800mn from net fees and interest, according to a government bill.

Santander’s net interest income increased 7 per cent in the first half to hit €18.4bn. Shares in the bank fell 3 per cent to €2.40 on Thursday.

Prime minister Pedro Sánchez, who leads a coalition with radical leftwing partners, also plans to raise €4bn over the next two years from a windfall tax on energy utilities. 

Santander, which has a market value of more than €40bn, operates in more than 10 countries spanning Europe and the Americas.

“Our diversification continues to provide a strong and resilient foundation for growth,” said executive chair Ana Botín. “In South America, our business continues to grow profitably,” she said, noting that the region generated a third of its profits.

Botin added that “despite the uncertainty and economic headwinds”, the bank remained “confident in our ability to meet the group’s performance targets for 2022”.

These include delivering a cost-to-income ratio of 45 per cent, a capital buffer of 12 per cent, and mid-single-figure profit growth. It is also targeting a return on tangible equity — a key measure of profitability — of above 13 per cent.

“The results strengthen the likelihood of Santander achieving its target of mid-single-figure profit growth this year,” said Leopoldo Torralba, an economist at Arcano Partners.

José Ramón Iturriaga, fund manager at Abante Asesores, said Santander’s confirmation of its profit guidance was “a positive message”.

However, the bank said costs and provisions for bad debts increased. Inflationary pressures, particularly in Latin America, led to a 5 per cent jump in costs in the first half, excluding the impact of exchange rates.

The bank also set aside €2.6bn in the second quarter to cover loan losses, a 50 per cent increase from last year.

Santander said it remained committed to paying out approximately 40 per cent of underlying profit to shareholders this year, split evenly between dividends and share buybacks.

Benjie Creelan-Sandford, an analyst at Jefferies, said the bank had indicated that it would increase the payout ratio towards 50 per cent over time, although ultimately this would be a decision for the board at the end of the year.

Customer funds reached a new high of €1.1tn, up 4 per cent on the first half of 2021, largely as a result of deposit growth.