# Santander to release some pandemic provisions as profits jump
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-10-27
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: Santander to Release Cash Reserves as Third-Quarter Profit Surges
Meta Description: Santander is set to release cash reserves post-pandemic, reflecting optimism with a 24% profit rise and more lending capacity. Analysts praise the bank's
URL: https://financedigest.com/santander-to-release-some-pandemic-provisions-as-profits-jumphtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2021-10-27t065600z3lynxmpeh9q04lrtroptp4britain-santander-1736837514885-compressed.jpg)

By Jesús Aguado

MADRID (Reuters) -Santander is to release some of the cash it set aside at the height of the pandemic in a sign the Spanish bank is more upbeat on the economic outlook after its third-quarter net profit rose 24%, boosted by its UK business.

The bank, the euro zone’s second-biggest in terms of market value, made a net profit of 2.174 billion euros ($2.53 billion) in the quarter, also thanks to lower provisions.

The result topped the 1.97 billion [euros forecast by analysts polled by Reuters and also the 2.14 billion euros underlying profit](https://www.financedigest.com/hellofresh-sees-2023-core-profit-of-460-540-million-euros.html "HelloFresh sees 2023 core profit of 460-540 million euros") in the third quarter of 2019 before the pandemic.

The coronavirus [crisis forced banks in Europe](https://www.financedigest.com/europe-burns-cash-to-help-businesses-in-deepening-energy-crisis.html "Europe burns cash to help businesses in deepening energy crisis") to set aside costly provisions to protect their books from any potential fallout. But [banks are starting to reduce them due to improved](https://www.financedigest.com/what-banks-need-to-do-right-now-to-improve-their-digital-services-without-sacrificing-security.html "What Banks Need to Do Right Now to Improve Their Digital Services Without Sacrificing Security ") economic conditions after progress in vaccinations, making more cash available for lending.

We expect to make some releases in the fourth quarter on the back of the new macroeconomic scenario which will enable us to [reach a cost of risk of around 80 basis points by year end,” CEO](https://www.financedigest.com/deutsche-telekom-reaches-majority-stake-in-t-mobile-u-s-ceo.html "Deutsche Telekom reaches majority stake in T-Mobile U.S. – CEO") Jose Antonio Alvarez told analysts.

He later clarified that write-backs could reach between 700 [million and 1 billion euros](https://www.financedigest.com/iag-agrees-to-buy-80-stake-in-air-europa-for-400-million-euros.html "IAG agrees to buy 80% stake in Air Europa for 400 million euros"), after around 2.5 billion euros of overlay provisions – which relate to the pandemic’s potential economic impact – still remain on the bank’s books.

At the end of September, the [bank’s cost](https://www.financedigest.com/factbox-global-banks-take-axe-to-jobs-as-cost-pressures-mount.html "Factbox-Global banks take axe to jobs as cost pressures mount") of risk, which acts as an indicator for potential future losses, fell to 90 basis points from 94 bps.

Chairman Ana Botin also said that she was “confident” of reaching the bank’s 13-15% medium-term [profitability target thanks also to an improved outlook](https://www.financedigest.com/ford-posts-lower-profit-issues-downbeat-outlook-shares-drop.html "Ford posts lower profit, issues downbeat outlook; shares drop").

Its [profitability gauge – return](https://www.financedigest.com/uks-j-d-wetherspoon-returns-to-profit-as-supply-issues-ease.html "UK’s J D Wetherspoon returns to profit as supply issues ease") on tangible equity ratio – rose to 12.56% at end September from 12.29% in June.

Santander [shares fell 3.5% compared with a 1.3% drop](https://www.financedigest.com/saipem-shares-drop-group-says-cannot-explain-why.html "Saipem shares drop, group says cannot explain why") in the European banking index and after having risen more than 30% this year.

Analysts, including Keefe, Bruyette, Woods, broadly welcomed a “decent outperformance” across all key metrics and divisions, though JP Morgan and Jefferies [highlighted higher cost growth](https://www.financedigest.com/n-butylene-oxide-12-market-expectations-growth-trends-highlighted-until-2028.html "N-Butylene Oxide 1,2 Market Expectations & Growth Trends Highlighted Until 2028") in some divisions, such as Brazil and Mexico.

Santander also improved its core tier-1 fully loaded capital ratio, the strictest measures of solvency, to 11.85% from 11.7% in June, [boosted by a cut in the dividend](https://www.financedigest.com/lockmaker-assa-abloy-boosts-dividend-but-wary-on-outlook.html "Lockmaker Assa Abloy boosts dividend, but wary on outlook") pay-out accrual to 40% from 50%.

UK AND U.S. BOOST RESULTS

In Britain, which accounted for 21% of Santander’s earnings, underlying net [profit more than trebled from a year ago and was up 13% compared to the previous quarter thanks to an increase](https://www.financedigest.com/4-tips-for-landlords-to-increase-rental-property-profits.html "4 Tips for Landlords to Increase Rental Property Profits") in mortgage lending.

Results in the UK were also driven by [higher lending income and revenue and an acceleration in cost](https://www.financedigest.com/boohoo-warns-on-outlook-blaming-higher-returns-and-pandemic-costs.html "Boohoo warns on outlook, blaming higher returns and pandemic costs") reduction.

In the United States, which also makes up more than a fifth of Santander’s underlying earnings, [profit on underlying terms almost doubled against the same quarter last year](https://www.financedigest.com/crop-merchant-louis-dreyfus-gets-profit-boost-in-volatile-year.html "Crop merchant Louis Dreyfus gets profit boost in volatile year") as the bank continued to benefit from a strong U.S. [economic recovery](https://www.financedigest.com/sme-productivity-programme-re-purposed-to-help-businesses-prepare-for-covid-19-economic-recovery.html "SME productivity programme re-purposed to help businesses prepare for Covid-19 economic recovery").

But it fell 26% after a previous [strong quarter](https://www.financedigest.com/italys-mps-sees-safe-habour-ahead-after-strong-quarter.html "Italy’s MPS sees ‘safe habour’ ahead after strong quarter") and higher provisions in the July to September period.

Overall, net interest income, a measure of earnings on loans minus deposit costs, rose 8.8% against the same [quarter in 2020 to 8.46 billion euros](https://www.financedigest.com/euro-having-a-laugh-a-quarter-of-brits-take-the-wrong-currency-on-holiday.html "Euro having a laugh: a quarter of Brits take the wrong currency on holiday"), above the 8.33 billion euros forecast by analysts.

In Brazil, which accounts for more than quarter of underlying profit, net [interest income](https://www.financedigest.com/abn-amros-q3-profit-jumps-as-interest-income-recovers.html "ABN Amro’s Q3 profit jumps as interest income recovers") rose 18.6% year on year in the quarter, while in Spain NII was down 5.7%.

($1 = 0.8593 euros)

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Jane Merriman and Jason Neely)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---