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April 28, 2021updated 29 Apr 2021 10:38am

Santander Q1 2021: record earnings in the US, strong growth in the UK

By Douglas Blakey

Santander Q1 2021 attributable profit of €1.61bn compares with €331m in the year ago quarter. In the first quarter last year the bank recognised an overlay provision of €1.6bn due to the pandemic.

In the first quarter this year, Santander records €530m in net charges for restructuring, mainly in the UK and Portugal.

Excluding net charges, underlying attributable profit in the first quarter is €2.14bn. This represents the bank’s highest quarterly underlying profit since the second quarter of 2010.

Santander Q1 2021 highlights

The bank reports strong volume growth. Specifically, loans are up by 2% with deposits ahead by 8%.

Notably, the bank’s three regions – Europe, North America and South America – make roughly equal contributions to underlying profit. Moreover, Santander’s US division posts record earnings.

This is driven in part by a 13% increase in net operating income (+19% excluding Puerto Rico and Bluestem portfolio disposals). In addition, the bank reports strong growth in the UK. At the same time, Santander Corporate & Investment Banking increases underlying profit by 64% to €704m.

UK unit posts strong net interest income growth

Of particular note is success in growing net interest income, as new lending returns to pre-pandemic levels in Europe and South America. For example, NII is ahead by 10% in Spain and 6% in Brazil. And in the UK, net interest income is up by 24%.

Moreover, the bank’s cost controls merit a mention. Expenses are flat, helping to reduced the cost-income ratio y-o-y by 230 basis points to a competitive 44.9%.

Santander Q1 2021 digital banking metrics

The bank reports digital customers up by 15% y-o-y to 44 million. And digital sales now account for 50% of all sales, up from 41% a year ago. What the bank terms as loyal customers rise by 9% to exceed 23 million.

By region, digital customers in Europe rise by 9% to 15.6%. In North America, there is a 13% rise to 6.3 million customers. And in South America, digital customers soar by 21% to 21.6 million.

The bank also reports a more upbeat note on credit quality.

The non-performing loan ratio falls five basis points in the year to 3.20% and coverage ratio is 74%. Cost of credit (the ratio of provisions to expected loan losses) improves by 20 bps to 1.08% from December 2020, owing to lower loan-loss provisions in the quarter. Quarterly provisions total €1.99bn (down 43% year-on-year). The Santander CET1 capital ratio rises 72 bps in the last 12 months to 12.30%, above its target range of 11-12%.

Santander Q1 2021 UK, US performance

Underlying profit is €294m, from €52m in the prior quarter. This is due to lower loan-loss provisions and higher revenues (+12%) stemming from deposit repricing and rising customer balances. Against the previous quarter, underlying profit increases 68%. Costs decrease 4% year-on-year owing to continued savings from the transformation programme. This helps to raises the efficiency ratio by nearly 10 percentage points.

But it is the bank’s previously challenged US unit that represents a standout. Underlying profit in North America, including Mexico, rises to €773m from €282m in the year ago quarter. The bank is successfully leveraging synergies between both countries. In the US, Santander reports a record underlying profit of €616m from €60m last year. Total income grows by 4%, while the efficiency ratio improves to 41.5% as expenses rose at a slower pace than income.

On target to hit 2021 goals: Botin

Ana Botín, Santander chair, says: “Our first quarter results highlight our relentless customer focus and the strength of Santander’s diversification. We saw good performance across all our regions. There is particularly strong growth in the US, the UK and Santander Corporate and Investment Banking.

“Credit quality is robust, and capital remains above our target. This allows us to accrue 40% of the underlying profit throughout the year for shareholder remuneration once regulatory conditions allow. “We are confident we will achieve 2021 goals of improving our efficiency ratio, reducing cost of credit and increasing profitability.

The Santander share price is ahead by 14% for the year to date, for a market cap of €53.1bn.

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