Banco Santander believes that it will not be until mid-2024 when banks begin to offer attractive remuneration for their deposits. The entity plans to continue increasing the profitability of its loans (which closed in the first semester at 3.8%) while it does not yet see pressure to significantly increase deposits for the simple reason that the sector in Spain does not need go to the market in search of liquidity. At the end of June, Santander had close to 300,000 million euros of deposits from its clients, slightly more than 25% of what the loan portfolio represents.

During the conference with analysts held yesterday by Banco Santander after the presentation of its semi-annual results, its top managers assured that they are waiting to see “a significant revaluation of the loan portfolio in the first half of next year”, even considering a Euribor at current levels -due to the lag of between 12 and 24 months it takes to transfer the rise in interest rates to mortgage payments, which are reviewed in countries such as Spain, generally once a year-, at while acknowledging, once again, “we are not seeing any pressure to increase the remuneration of retail deposits (…) which means that, probably, the spike in interest margins [which is the difference between what the sector charges for the loans and what they have to pay clients for their deposits] will not happen until well into 2024,” in the words of CFO José García Cantera. It must be borne in mind that Santander, like other banks, does offer higher returns to both companies and private banking customers.

In figures, the cost of deposits for Santander Spain stands at levels of 0.72%, compared to a profitability that the bank manages to extract from its credit portfolio of 3.8%, and which continues to increase from 2.46 % end of 2022. In Spain, at the end of May, the weighted average rate on deposits was 1.65%, slightly more than double, and in the Eurozone it reached 2.44%, according to data published by the European Central Bank (ECB).. “We cannot say that we are not remunerating savings. There is a lot of competition in Spain (…) At Openbank [Santander's digital subsidiary in Spain] we are paying 3.07% [for this type of product]”, Grisi asserted to questions from journalists.

The entity justifies the low remuneration for savings because, on the other side of the scale, the prices it offers for its mortgages and consumer credit are also much more adjusted than in other European countries. “There are millions of people who benefit from better conditions in Spain in terms of the cost of credit. We are offering loans that represent a third of the cost of other countries such as Germany. It should not be seen only from one side,” said Héctor Grisi, CEO of the group this Wednesday. The example given by the entity is that while the bank lends money in Spain with a differential in its favor of about 30-40 basis points over the Spanish public debt, in the German country this differential reaches 160 points over the yield of the German Bund, in returns yesterday of 2.4%. This assumes loans on 4% interest.

The good performance of the Spanish economy, added to the evolution of interest rates, once again made Spain the group's leading market in terms of profit during the first half, ahead of Brazil, with 1,132 million euros, practically double that of the last year. Its interest margin shot up almost 57% to 3,161 million euros.

MORTGAGE AMORTIZATION

The Bank of Spain has verified how national banks continue to toughen the conditions for granting credit as a preventive measure against a possible rise in delinquency. The truth is that nobody escapes the drop in credit demand, given higher financing costs, and neither does Banco Santander, which has seen how the mortgage portfolio for individuals has decreased by around 1,700 million euros in recent years. twelve months, which represents about 3% of the total.

“In July 2022, Spanish household mortgages amounted to 59,500 million euros and in June 2023 they are 57,800 million, falling between 200 and 300 million per month and a large part of this drop is explained exclusively by amortization,” Cantera said. , which also “improves” the credit quality of the portfolio.

The bank ensures that mortgage repayments, total or partial, have multiplied by five at the start of the year compared to previous years, precisely because its clients are seeking to avoid the increase in installments due to the unprecedented rise in rates of interest in the euro zone. This Thursday everything indicates that the European Central Bank will undertake the tenth consecutive rise in rates in the Eurozone, until the refinancing rate reaches all-time highs of 4.25% and the deposit rate up to 3.75%.

During the first half of the year, Banco Sabadell managed to boost its profit to 564 million euros, setting a new record for the entity, with income that was close to 3,000 million euros and with TSB, its subsidiary in the United Kingdom, providing twice the profit than a year ago thanks to the dynamics of the British market. The rise in interest rates in the euro zone is once behind the substantial improvement in the bank's earnings, which could see how they increased by 43.6% from January to June.

Behind the improvement is the 19.4% growth in revenue from the banking business, which reached 2,967 million euros. The interest margin grew by 29.2%, up to 2,270 million compared to the fall in net commissions that was 4.4%.

TSB closed the first semester with an individual profit of 105 million pounds (122 million euros), 71.5% more year-on-year, and a contribution to the group accounts of 106 million euros. The British entity increased its recurring margin by 36% and the interest margin totaled 528 million pounds (613 million euros) at the end of June, 13.9% year-on-year more. Net commissions were 51 million pounds (59.3 million euros), and costs 386 million pounds (448.8 million euros).

In line with the sector, the outstanding credit portfolio contracted 2.7% during the first half, to 153,834 million euros, which the entity justifies given “lower volumes in mortgages, both in Spain and in the United Kingdom , due to lower balances of SMEs and companies and due to maturities of Treasury loans in Public Administrations”, according to the financial report presented to the National Securities Market Commission (CNMV) this Thursday. However, Sabadell continued to grow in new credit production in Spain, specifically 7% compared to June 2022 and 44% over the first quarter, up to 3,801 million euros.

Specifically, new mortgages plummeted 27% during the first half, to 1,095 million euros, and, on the contrary, new consumer loans stood at 532 million, 23% more than a year ago.. Card billing reached 5,803 million, up 5% year-on-year, and POS billing [taking into account the entity's high penetration of SMEs] was 13,247 million, an increase of 9% compared to the same quarter from the previous year.

For its part, delinquency remains controlled and fell in its balance for the year compared to the data for March, since it fell to 3.5% compared to 3.52% in the first three months of the year.

In this context, the Catalan entity manages to increase its profitability ratio to the highest in recent years. It should be remembered that Banco Sabadell was listed for months with the highest discount on the Stock Market on the value of its own funds precisely because it was unable to increase the return on capital until the new financial team arrived, led by Leopoldo Alvear (former director of Bankia). , and the British subsidiary became profitable again. In this way, its ROTE (Return on tangible capital, according to its acronym in English) stood at 10.8%, compared to 7% that it was just a year ago; while the ROE scales up to 8.86%. The last target set by the objective, which it has been reviewing quite quickly in recent times, establishes a ROTE target of 9% in 2023 and 2024, so it is already above its forecasts.

The ratio that measures the strength of the entity's capital, CET 1 fully-loaded, stood at 12.87% at the end of June, which means an increase of nine basis points in the quarter, while the capital ratio total was 18.10%, above the Brussels requirements.

Companies in the distribution sector have been at the center of the target for months. Even from the coalition government itself, they have been accused of benefiting excessively at the cost of raising prices to improve their margins.. But businessmen defend that commerce does not win out of the spiral of prices, but that they are victims of the situation, since their margins are being reduced as a consequence of a higher increase in costs than in the prices at which they sell. They also assure that they are acting as a containment dam.

In a document of proposals for the sector sent by the CEOE to the political parties in the days prior to the elections, the businessmen warn that the initiatives to cap prices would have a “devastating effect, reducing the availability of goods, promoting the black market and increasing the price of these, as well as economic losses of the businesses and all the links of the production chain, which would translate into a negative alteration of the competitive structure of the market in its different formats, in job losses and in the closure of companies.

However, they consider it appropriate to support other types of initiatives such as purchasing alliances, which are agreements between distribution chains to negotiate jointly with suppliers and obtain better prices and conditions.. In his opinion, “they have shown to play a key role in the fight against inflation, allowing wholesalers and retailers to negotiate better prices that are passed on to the final consumer”.

They defend this model as “a means to improve the welfare of consumers due to its favorable effect on competition”. They insist that this type of alliance allows numerous small and medium-sized companies to compete both in assortment and in price and to bring essential consumer goods to all corners of the geography thanks to their support for regional chains.

Brussels endorsement

In addition, the CEOE Commission on Competitiveness, Trade and Consumption highlights that the Joint Research Center of the European Commission positively assessed its work as “a balancing factor that promotes business competition for the benefit of the consumer”.

Although the model has been under the magnifying glass of the EC, which opened two investigations into the AgeCore and Coopernic distributor alliances at a European level, it has recently concluded that no indications of anti-competitive practices have been observed.. Furthermore, both reports note that maintaining the ability of retailers to lower prices to consumers is a key goal of competition policy.

With the endorsement of Brussels, the employers are committed to promoting these alliances and, in parallel, are calling on the next Government to evaluate the regulations that “distort the negotiating capacity of the distribution in relation to its suppliers, so that consumers can obtain the products in the best conditions.”

They emphasize that the effective way to alleviate inflation is to extend the VAT reduction to meat and fish, tax rationalization, and the elimination of administrative costs and “disproportionate and discriminatory” tax charges.

Banco Santander obtained during the first half of the year a net profit of 5,241 million euros, which represents an increase of 7% compared to the first part of 2022, when it earned 4,894 million euros. It is the highest result in the history of the bank, which already exceeds the record set before the financial crisis of Lehman Brothers, and which brings the entity chaired by Ana Botín closer to a milestone that has been delayed for years in the calendar and is to be achieved in the annual computation a net profit of more than 10,000 million euros. At the moment, slightly more than half of this amount has already been achieved, although analysts believe that it will not reach the target, taking into account that the second part of the year is going to be more complicated for the Spanish economy.

In a disaggregated manner, during the second quarter of 2023 the bank registered profits amounting to 2,670 million euros, which represents 3.9% more than those achieved from January to March, of 2,571 million euros after discounting the payment of the tax on the banking sector, which the entity paid in full from the result of the first quarter for a value of 224 million euros. Otherwise, this amount would amount to 2,795 million.

In the best start to the year for Banco Santander in its history, the entity's income continued to grow thanks, mainly, to the new context of interest rates that affect its business in Spain and reached 28,010 million euros (12% further). Thus, at the group level, the interest margin reached 20,920 million euros, which represents an increase of 14% over the 18,409 million euros of last year, while net commissions increased to 6,103 million, compared to 5,852 million. from the same period of 2022 (5% more). The group's net margin grew by 13.5% to 13,685 million euros.

On the other hand, the operating costs also increase. They grew by 9.1% in the first half of the year, reaching 12,479 million euros.

Regarding the profitability achieved by the entity, the return on tangible capital (ROTE, according to its acronym in English) stood at 14.49%, still somewhat below the target set for the next three years (between 15 % and 17%). The return on equity (ROE), for its part, remained at 11.47%.

The fully loaded CET1 capital ratio, which measures the strength of a bank's capital, remained stable at the end of June at around 12.2%, somewhat above the bank's target (which stands at 12%).

delinquency

One of the main issues at present for entities is the evolution of delinquency. In the case of Banco Santander, the NPL ratio of its credit portfolio rose timidly during the first six months of the year to 3.07%, compared to 3.05% in June last year and also last March. The coverage rate stands at 68%. However, non-performing loans in Spain fell in the second quarter to 3.11% compared to 3.19% in March.

Asked about the forecasts for the second part of the year, Grisi is confident in the strength of the Spanish economy and, for now, they rule out “an increase in the cost of risk, with delinquency contained”. In fact, it anticipates “a good second half of the year” that will last through 2024, he acknowledged during the press conference held this Wednesday at its headquarters in Boadilla del Monte.

The entity decided to increase the provisions again, up to 1,330 million euros, which represents a growth of 42% compared to those it had in the same period of 2022 and more than double those at the end of the first quarter (at 642 million).. The entity justifies this increase “mainly by the United Kingdom, Poland and Brazil.”

NEW GOVERNMENT

Banco Santander prefers to stay out of the controversy and considers it “premature” to comment on which will be the Government that comes out of the General Elections held last Sunday. “We are going to continue helping the economic growth of the country,” stressed Héctor Grisi, CEO of the bank, who wanted to influence the idea that it is “very important” to be able as a country to maintain “economic growth, private investment” and play by “clear rules”.

In any case, the most controversial issue regarding banking approved by the Executive of Pedro Sánchez continues to be the income tax of the sector, which the entity paid in full from the first quarter. The issue is that the electoral result leaves its future up in the air, and even if the PSOE manages to form a government, the market contemplates the possibility of it becoming a permanent rate, beyond the two years to which it is limited in the current (in 2022 and 2023). Grisi once again insisted on what has already been said, that it is “a discriminatory tax” since it does not affect the rest of the sectors of the economy. “We need profitable banks so that they can support the economy,” stressed the bank's CEO.

Deposits

With a customer margin in Spain that continues to climb and now stands at 3.1 percentage points (which is the difference between practically not remunerating liabilities and charging more interest on loans), the deposit situation in Spain has no signs of changing in the short term. “We cannot say that we are not remunerating savings. There is a lot of competition in Spain (…) At Openbank [Santander's digital subsidiary in Spain] we are paying 3.07% [for this type of product]”, Grisi asserted to questions from journalists. In figures, the cost of deposits in Spain stands at levels of 0.72% below the European average, which slightly exceeds 1% for the entity, compared to a profitability that Santander manages to extract from the credit granted of 3.8 %, which continues to rise compared to 2.46% at the end of 2022.

The entity justifies the low remuneration for savings with much more adjusted prices in its mortgages. “Clearly the cost of deposits is going up, but we are focusing only on liabilities and we forget that on the active side there are millions of people who benefit from better conditions in Spain in terms of the cost of credit. We are offering credit that represents a third of the cost of other countries such as Germany. It should not be seen only from one side,” Grisi said..

In this sense, the CEO of the group underlined the fact that Spanish banks grant “cheaper credit than other European countries. Historically, Spaniards have paid much less for mortgages” in comparison with Europe.

LOSS OF LOAN

The bank recognizes the impact that the rise in interest rates is having on the granting of credit. The loan portfolio reached 1,022 million euros, with a quarterly drop of 0.5% and highlights how “individual demand” has been able to sustain year-on-year growth, since these increased by 2%, compared to ” the lower demand of the companies”, for whom it was reduced by 2%. Demand from Santander Corporate and Investment Banking also fell by 4%.

Spain was the country where the portfolio of loans and advances to customers fell the most, up to 6% compared to the European average, which contracted 5%, with 564 million euros in the four countries as a whole, compared to the 4% drop in the United Kingdom and Portugal.

In group terms, mortgages to homes fell by 2%, to a total of 350 million euros in the semester. At the level of Spain, the financial director of the entity, José García Cantera, justifies the drop in the mortgage portfolio, mainly because the total or partial amortizations of these loans by households have multiplied by five compared to the years previous. “In July 2022, private mortgages amounted to 59,500 million euros and in June 2023 they are 57,800 million, falling between 200 and 300 million per month and a large part of this drop is explained exclusively by amortization,” Cantera said.. This situation also improves the credit quality of the portfolio, as he acknowledged.

SPAIN LEADS AGAIN

By markets, the growth of Spain stands out, once again being the first country in terms of benefit for the group, ahead of Brazil. Banco Santander reached an ordinary result of 1,132 million euros during the first half of the year, which represents a growth of 73.6% compared to last year (at 652 million euros).. The reason behind it is, once again, the amplitude of the interest margin in a context of interest rates that is clearly benefiting the national banks, which have widened their spreads thanks to more expensive loans and deposits whose profitability is still frozen.

Specifically, the interest margin of Banco Santander shot up 56.9% during the first half of the year, up to 3,161 million euros compared to 2,000 million in the first part of 2022. Commissions fell, however, and they did so with a decrease of 4.3% to 1,413 million euros (last year the figure was 1,475 million euros).

The entity highlights the increase in the number of customers by more than 738,000 up to the month of June in our country (there are 362,000 more this year alone). In the group as a whole, customers grew by 6.1% to exceed the figure of 163,750 at the end of the first half, which is practically nine million people more than twelve months ago. The entity accumulates 22 consecutive months of growth in the number of clients.

In regional terms, all the markets in Europe grew during the start of the year (up to a joint profit of 2,536 million euros, 43% of the total) compared to the fall in the United States, Brazil and Chile. This implies that the United Kingdom is one step away from also beating the net profit obtained by the bank in Brazil, since its result on British soil increased by 16% in constant euros, up to 818 million euros.

On this scale it is followed by the Brazilian market, whose net result fell by 40%, to 823 million euros.. The interest margin fell by 4%, a situation that the entity justifies by “focusing on clients with a better risk profile” and who, therefore, pay lower spreads for their loans. Likewise, the bank's income has been impacted by “negative sensitivity to interest rates” where the Central Bank is one step ahead of the ECB and is already in the phase of reducing the official rates of the price of money. Likewise, the bank assumed a 12% increase in costs impacted by inflation and salary agreements.

In these semi-annual accounts, however, Mexico's growth of 23% stands out, which achieved profits of 760 million euros and ranks as the fourth region for the group, ahead of the United States, where profits fell by 39% ( up to 667 million euros). The bank insists that its goal is to achieve “profitable growth” there while trying to “simplify the business.”

“A gradual slowdown in activity at the global level is expected during the second half of 2023 and the first half of 2024 as a result of restrictive fiscal and monetary policies, while inflation moves towards levels compatible with official objectives,” it states. the entity in its Financial Report for the first semester.