Spain’s Santander, the euro zone’s second-biggest bank, booked a record annual loss of €8.77bn in 2020, as Q4 net profit nosedived a staggering 90%.

The lender said it expected its underlying return on tangible equity (ROTE), a key measure of profitability, to recover to 9-10% this year from 7.44% at the end of 2020.

A recent improvement in loan payments by customers also led it to estimate a lower cost of insuring loans for 2021.

Bad loan provisions, as customers struggled to make repayments in the COVID-19 pandemic, were a factor in the 2020 loss, although it was mainly due to hefty write-downs on previous acquisitions.

For the fourth quarter of 2020, however, Santander’s net profit slumped 90% to 277m euros as it racked up hundreds of millions of euros in costs to pay for job cuts and branch closures as part of its restructuring plan, mainly in Spain.

Analysts polled by Reuters had expected a profit of 411m.

Sector struggling with record low rate amid downturn

Banks across Europe are struggling to cope with record low interest rates, and the economic downturn sparked by the pandemic is forcing them to cut costs.

For the whole of 2020, Santander booked a loss of 8.77bn euros after 12.6bn in one-off charges in the second quarter. Analysts had expected a loss of 8.64bn.

Santander’s core markets, spanning Brazil to Spain, have been some of the hardest hit by the pandemic, with weaker emerging market currencies exacerbating the pain.

However, fourth quarter net interest income (NII), a measure of earnings on loans minus deposit costs, rose 3.2% from the previous quarter to 8.02bn euros, above analysts’ forecasts of 7.79bn euros.

Santander’s shares climb

Shares in Santander rose around 1.6% after gaining almost 5% on Tuesday, outperforming Spain’s benchmark index.

Citi welcomed the better news on lending income and fees that supported fourth-quarter results, excluding the restructuring costs, and highlighted the bullish 2021 guidance.

JPMorgan said Santander’s 2021 cost income ratio target of less than 47%, as well as its profitability and credit risk targets, should translate into net income of €6.2bn.