Spanish bank Santander swung back into profit in the third quarter and upgraded its full-year forecasts after its customers recovered faster than expected from the initial disruption of the pandemic.

The group reported a net profit of €1.75bn for the three months to September, more than triple the same quarter last year when it took a large writedown on its UK business.

Ana Botín, Santander’s executive chairman, said “the recovery of our business is progressing well, and the third quarter was significantly stronger than the second”. The bank reported the first loss in its 163-year history in the second quarter of the year.

Santander set aside €2.5bn against expected loan losses in the third quarter. That was 22 per cent more than for the same period last year, after accounting for currency movements, but much less than was earmarked for the first half of 2020.

The bank said that customers who took loan repayment holidays earlier in the year had restarted payments at a faster rate than expected. It provided €114bn of payment holidays when the pandemic hit, but said only 2 per cent of the loans had been classed as impaired.

The bank said that it now had “a clearer understanding of the pandemic’s impact on customers” and lowered its full-year forecast for loan loss provisions as a proportion of its loan book to 1.3 per cent, from a previous estimate of 1.4 to 1.5 per cent.

It also said it was on track to reach a previously-announced cost-cutting target for its European businesses ahead of schedule, and would now aim to cut a further €1bn of costs over the next two years. 

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The bulk of profits continued to come from South America, particularly Brazil, but group performance was also helped by an easing of pressures on its long-suffering UK business. 

A price war in the mortgage market has squeezed profits at Santander UK for several years, but a surge in demand since the start of the summer has begun driving up prices and profit margins for lenders. Margins were also helped by cutting interest rates on its popular 123 current account.

Ms Botín has been critical of the European Central Bank’s decision to stop banks from paying dividends during the pandemic. Santander has proposed resuming cash payouts as soon as restrictions are lifted.

Shareholders will vote on Tuesday to approve a share-based dividend worth the equivalent of 10 cents per share to be paid this year, and a further 10 cents per share cash dividend to be paid next year subject to regulatory approval.

The bank’s common equity tier one ratio, a key measure of capital strength, was 11.98 per cent at the end of the end of September, up from 11.84 per cent at the end of the second quarter and at the top of its target range.

Via Financial Times