Net profit at Banesto, the Spanish bank majority controlled by Santander, fell 17.8 per cent from €560m the previous year to €460m (£388m) in 2010 after more than €1bn of provisions to cover rising bad loans, the bank announced.
Although it is one of Spain’s smaller banks, Banesto is closely watched by the markets because it is the first Spanish bank to report results each quarter.
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Unlike parent company Santander, the largest bank in the eurozone by market capitalisation, Banesto operates almost entirely in the Spanish domestic market.
The profits fall comes as Spain seeks to bolster confidence in its economy and financial system, and avoid contagion from the eurozone’s troubled peripheral economies.
In a statement on Thursday, Banesto said that conditions were unfavourable “with strong pressures in the markets and persistent economic weakness”.
“We don’t expect any significant increase in demand for credit in 2011, but at the same time, we think that the increase in the level of savings for households should result in an increase of deposits for the [financial] system, which obviously should help in terms of liquidity,” José García Cantera, chief executive, told the Financial Times.
Mr García Cantera has replaced Ana Patricia Botín, daughter of Santander chairman Emilio Botín, as Banesto’s senior executive following her departure to run Santander’s UK banking operations.
Banesto said that its management of margins and the balance sheet had “largely compensated for the effects of the slowdown in business and the increased costs of financing”, limiting the fall in net interest income to 4.1 per cent over the year to €1.66bn.
In the fourth quarter, however, it was down 11 per cent from the previous quarter to €375m.
Provisions for insolvencies rose 4.7 per cent to €400m, leaving ordinary net profit 2.8 per cent down at €801m.
Banesto also made extraordinary generic provisions and set-asides worth €616m, only partly offset by extraordinary income from the sale of offices and other assets, which accounted for the sharper dip in attributable net income. T
he bank’s overall bad-loan ratio, which was 1.62 per cent of assets at the end of 2008, rose to 2.94 per cent in 2009 and reached 4.08 per cent by the end of 2010.
Much of the damage arises from exposure to property developers, for which the bad-loan ratio went from 6.4 per cent in 2008 to 14.5 per cent in 2009 and 24 per cent now.
Banesto said that its core capital rose from 7.7 per cent of assets last year to 8.3 per cent in December 2010, and that the aim was to raise it to 9 per cent in the next two years.
Copyright The Financial Times Limited 2011.
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