Santander Lifts Revenue Goal as Botin Sees Efficiency Gains

Andrey Rudakov/Bloomberg

(Bloomberg) --Banco Santander SA raised its target for revenue growth this year and said it would continue to focus on controlling costs after posting a record profit in the second quarter.

The bank now expects high single-digit revenue growth, from the previous mid-single digits, it said in an earnings presentation Wednesday. Net income advanced 20% from a year earlier to €3.2 billion ($3.5 billion) in the period and slightly beat estimates.

The bank's key retail business was boosted in the quarter by Santander's two main markets, Spain and Brazil. In the South American nation, banks benefit from drops in interest rates, as they get passed on immediately to deposits. In Spain, banks have been impacted by the European Central Bank's decision to hold rates longer than was originally expected.

Santander also recorded "our best efficiency ratio in 15 years" at 40.6% in the quarter, Chairwoman Ana Botin said in the earnings statement. The bank is rolling out a new technology platform which it says is helping substantially lower costs across all units.

The bank rose 1.95% to €4.66 per share at 9:23 a.m. in Madrid. The shares are up 23% this year.

"We believe the positive momentum clearly will go into 2025, and that is why we have upgraded some of our targets" Santander Chief Financial Officer Jose Garcia Cantera said in an interview with Bloomberg TV.

The Santander, Spain-based lender briefly overtook BNP Paribas SA earlier this year to become the European Union's most valuable bank, on the back of record profits and increased plans to return capital to investors. The lender has recently put non-strategic business units up for sale while pushing further into consumer finance through a deal with Apple Inc.

Although the bank has been expanding its corporate banking aggressively in recent years and is also making big bets on its payments and consumer businesses, it continues to rely heavily on retail operations, which account for roughly around 50% of revenue.

Jefferies analyst Inigo Vega said in a note that revenue dynamics were "trending well, especially in fees," and that Spain and the US were particulary strong

One area where costs pushed profits down was the corporate and investment banking, where expansion has led to higher expenses. The business posted net income of €700 million, a 1% drop from a year earlier.

The second quarter gain helped the bank improve its full year efficiency ratio target to about 42% from below 43%. It nudged up the target for return on tangible equity, a profitability metric, to over 16% from 16%.

The capital ratio increased to 12.5% during second quarter, from previous 12.3%, thanks to organic generation. This level is above the group target to reach 12% of CET1 by end of the year, after implementation of the Basel III rules.

Cost of risk remained stable at 1.2% and the non-performing ratio declined to 3.02% from previous 3.1%, while provisions had an "expected increase" in the consumer business.