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 recorded 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 CET1 fully loaded 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,” said Grisi.

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 has been 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.

Aena registered a net profit of 607.7 million euros in the first half of 2023, which represents an increase of 119% compared to the 277.5 million of the previous year.

According to the information sent by the airport manager to the National Securities Market Commission (CNMV), said result was also higher than before the pandemic, since in the first half of 2019 profits of 559 million were recorded.

For its part, the gross operating result (Ebitda) reached 1,170.3 million euros, which represents a growth of 49.5% compared to the same period of 2022 (783 million), although it remains slightly lower than that of 2019. (1,189.3 million).

Along the same lines, total consolidated revenue for the first half of 2023 increased to 2,333.2 million euros, which represents an increase of 24.1% compared to the first half of the previous year.

Aeronautical revenues were 1,277.1 million euros, 19.4% more than in 2022. On the other hand, commercial income, supported by sales growth that exceeds 2019 levels, reached 715.3 million euros, an increase of 29%.

The investment amounted to 1,043.9 million euros, which represents an increase of 660.2 million euros compared to the first six months of 2022.

At the end of the semester, the consolidated accounting net financial debt stood at 7,071.8 million euros, which represented an increase of 13.3% compared to 6,242.9

The total number of passengers of the Aena Group (Spain, Luton and the airports in the Northeast of Brazil) grew to 144.1 million, 22.8% more than in the same period of 2022.

The Independent Authority for Fiscal Responsibility (AIReF) forecasts a growth of 0.7% in the number of employed in the second quarter of this year, which would be the worst period from April to June for employment in Spain since 2012. without counting the year of the pandemic, 2020, in which jobs were destroyed in those months.

According to its latest forecasts, published this Tuesday, employment in number of employed persons would have grown by only 143,000 people in the second quarter of the year, up to 20.59 million employed persons, which represents the smallest increase in employment for this period since the year 2012, in which the number of employed persons decreased by 0.04% compared to the first quarter of the year, the equivalent of 6,600 fewer workers.

Of the entire historical series, 2020 is the exception, since the pandemic and the declaration of the State of Alarm in March of that year caused an unprecedented destruction of jobs: the number of employed fell by 5.5% in the second quarter and more than a million jobs were lost.

However, in the rest of the years of the last decade, the average job creation registered in the second quarter of the year compared to the first has been around 2%, the equivalent of around 350,000 new jobs.

The growth in employment forecast by AIReF for the second quarter would show a slowdown in the creation of jobs in the country, of which the Social Security affiliation data published monthly have been giving signs. This possible slowdown will be confirmed this Thursday, when the INE publishes the Active Population Survey (EPA) for that period.

Even so, despite the fact that the affiliation data has shown a slowdown in recent months (compared to the job creation that has occurred in other years), the number of Social Security affiliates has grown on average in the second quarter in more than half a million jobs, an increase that would not be registered in the EPA, according to the AIReF forecast.

This survey is the most solid indicator to know the evolution of employment in the country and the one used internationally to make comparisons in an approved way.

The 20.59 million employed persons that could have been achieved in the second quarter, according to AIReF, would still be below the all-time record recorded in the third quarter of 2007, in the midst of the real estate bubble and before the 2008 financial crisis broke out. , when the country had 20.75 million workers.

If the data for the second quarters are compared (which are homogeneous with each other), the data for 2008 would still exceed that of 2023, since the country then had 20.64 million employed people.

The economy, stagnant

Together with the employment forecasts, AIReF also makes an estimate of the growth of the Spanish economy in the second quarter, which limits an advance of only one tenth, 0.1% compared to the first quarter of the year.

This data will be confirmed this Friday when the INE publishes the information from the Quarterly National Accounts.

AIReF forecasts a 2% decline in exports compared to the first quarter of the year, which would have been offset by domestic demand: household consumption would have grown by 1.1% in the quarter, according to its calculations; public spending, 1.9%, and investment (measured by gross fixed capital formation), 0.7%.

In year-on-year terms, comparing the second quarter of this year with the same period last year, GDP would have grown by 1.6%, compared to the rise of 4.2% registered in the first quarter.

State spending on public pensions will reach a historical record of 200,000 million euros next year, due to the increase in the number of pensioners receiving a public pension, it will be noted that contributors who register to collect a pension have the right to a higher amount -because his salary has been higher- and, above all, because all pensions in force will be revalued at least according to the CPI.

Social Security spends 12,017 million euros monthly in the payment of contributory pensions -retirement, permanent disability, widowhood, orphanhood and in favor of relatives-, as reported yesterday by the Ministry with data from July, to which is added the disbursement in passive class pensions (for public officials who are included in this specific protection regime) and in non-contributory pensions (those that are paid to those who have not contributed enough to the system).

For this year, the Government had budgeted in the 2023 accounts a total amount of 190,600 million euros for pensions: 167,000 million for contributory pensions, 20,400 million for passive class pensions and 3,000 million for non-contributory pensions.

This expense will increase next year and is expected to reach 200,000 million euros.. The aging of the population and the fact that the baby boom generation is already retiring, will cause an increase in the number of pensioners: the more people receive the pension, the greater the total state spending on pensions.

In addition, it is necessary to take into account the impact that the replacement rate generates in the Budget, that is, the percentage that the pension represents over the last salary and that, by remaining constant, and given that salaries are increasingly higher, generates an increase in the benefit received. Right now, while the average retirement pension stands at 1,375 euros, pensioners who are registering in the system and beginning their retirement receive an average of 1,487 euros, 112 euros more.

Finally, the revaluation of pensions with the CPI will make the bill more expensive. The reform of the pensions of the minister José Luis Escrivá left protected by law that all pensions would rise at least in Spain the equivalent of the average of the interannual inflation registered in the twelve months prior to December of the previous year. For 2024, the increase will be calculated by taking the inflation average from December 2022 to November 2023 (both included).

According to Funcas forecasts, interannual inflation, which in June reached the minimum of 1.9%, will rise again in the second half of the year, with records of 2.2% in July, 2.5% in August; 3.5% in September; 4.1% in October and 4.7% in November. With the evolution of the first half of the year and this forecast, the average year-on-year inflation from December 2022 (when it stood at 5.7%) to November 2023 shows an expected increase in pensions for 2024 of around at 3.9%.

Contributory pensions and those of passive classes will rise by that amount, with which the 167,000 million that are allocated to the former will become 173,500 million and the 20,400 of the latter will become 21,200 million. The minimum and non-contributory taxes have risen in recent years twice as much as the rest (in 2023 they have increased by 15%, for example), hence it could be expected that the 3,000 million allocated to this item will exceed the 3,200 million.

In total, the sum of pension spending would be around 198,000 million euros, without taking into account the substitution effect or the increase in the number of pensioners, which will leave the final account around 200,000 million euros, as confirmed to EL WORLD Ángel de la Fuente, associate professor at the Autonomous University of Barcelona and director of Fedea, and Enrique Devesa, tenured professor of Financial and Actuarial Economics at the University of Valencia and associate researcher at the Valencian Institute of Economic Research (IVIE).

This last expert calculates that, in addition to the revaluation, pension spending will grow by 2.3% due to the increase in the number of paid pensions, with which he estimates that the total budget could reach 202.7 billion euros.

In order to face this level of spending, the pension reform has activated different levers (increase in social contributions, the introduction of an extraordinary quota for all workers called the Intergenerational Equity Mechanism, the reform of the self-employed regime and different incentives to extend working life and delay retirement). Even so, in 2025, the country will have to assess whether these measures have been sufficient or whether, on the contrary, additional measures are necessary to balance the system's accounts.

Spain will be the industrialized country whose GDP will grow the most in 2024. That is the prediction of the International Monetary Fund (IMF), which in just three months has raised its growth estimate for Spain by one percentage point, which is also the largest increase in advanced economies, with an expansion of 2. 5% of GDP. The country that follows closest is the United States, with 1.8%.

The key to the rise is, once again, the great engine of the Spanish economy: tourism, to which on this occasion the services sector is added. That is the reason why the Fund raises growth by four tenths for Italy and one point for Spain. Both countries are the face of the eurozone coin; the cross is Germany, the economic leader of the EU, whose fall worsens this year.

As the Fund's chief economist, Pierre-Olivier Gourinchas, highlighted in the presentation of the report, “global demand has rotated” since the end of the confinements of the Covid-19 pandemic.. “Initially the economies reopened and there was strong demand for goods and now in a second phase we are seeing increased demand for services as people start to get out and travel,” he added.. The corollary is that “this demand for services has, logically, a strong impact in countries that are tourist destinations, such as Italy and Spain.”

Gourinchas stressed that the revision of Spain “is important, because it is not very common for there to be an improvement in growth and, at the same time, a reduction in inflation”, since he foresees an average CPI of 3.2% this year, 1.1 points below their previous estimate. Of course: Spain is not spared from the slowdown expected for 2024, as the world economy normalizes, so, for next year, the IMF does not change its growth forecast, which remains at 2%.

In the international context, the Fund draws a pessimistic scenario for the world economy, although less than in April. The growth of global GDP is revised upwards by two tenths, up to 3% this year, and it does not touch it in 2024, when it expects that same figure to be repeated. But they are low magnitudes. Core inflation – which excludes the most volatile components, which are the prices of fresh food and energy – remains at high levels and, in fact, the IMF raises its forecast for 2024, which portends higher rates, less income available, perhaps, more financial instability. Geoeconomic tensions – the buzzword in the jargon of International Relations in 2023 – will continue, according to the institution, which seems to suggest that the Fund does not see an end to the Russian invasion of Ukraine or to the bad relations between the US and China. .

All this means that the post-Covid reactivation is being weaker than expected although, in return, the financial crisis that caused the collapse of several medium-sized US banks and the Swiss giant Crédit Suisse seems to have ended. However, inflation persists, and as interest rates rise, the fragility of the financial system could once again be exposed.. China continues to show signs of weakness, with the problems of its real estate sector unresolved. In fact, the new forecasts do not include the bad Chinese GDP data for the second quarter of the year, which will have an impact on the world economy.

There are more risk factors. Debt restructuring for least-developed countries remains a problem, in part because China, which financed those economies, refuses to accept debt relief.. In general, emerging and developing countries suffer reductions in their forecast growth. This is the case of the Middle East and Latin America – partly due to the fall in the prices of raw materials – Central Asia and Sub-Saharan Africa, although there are exceptions to this trend, such as Brazil and Mexico.

All of those factors – inflation, the slowdown in China, and banking and debt crises – persist.. So despite the slight recovery in growth, the global economy still faces the risk of slowing further.

The Bank of Spain confirms the trend that began a little over a year ago, as a result of the new monetary policy focused on an unprecedented rise in financing costs. During the second quarter of 2023, Spanish banks continued to restrict the supply of credit, both for households and companies, and the drop in demand for loans also continued, albeit more calmly, considering the current context.

The point is that the body led by Pablo Hernández de Cos believes that the situation will continue during the second half of this year and that, therefore, it will be more difficult for families to access a mortgage since the banks will continue to increase the requirements. The fundamental reason given by the Bank of Spain? Quite simply, the rise in delinquency that has already begun to be seen in the system, although in a very timid way. Bank arrears, not only for households but also for companies, have accumulated two months on the rise, reaching levels of 3.59%, which are still very low, but the curve has turned.

According to the Bank Loan Survey published this Tuesday by the regulator “both the granting criteria and the conditions applied to new loans would have continued to tighten, in a general way, for the fifth consecutive quarter”, although in a “more moderate way than the first trimester”. This situation responds, says the Bank of Spain, to “an increase in the risks perceived by financial institutions, a lower tolerance for them, and the increase in financing costs for entities and a lower availability of funds”. In other words, the banks are already covering themselves against what may be to come and, therefore, they prefer to avoid taking on more risk when, in addition, it is also more difficult for them to finance themselves in the markets after the ECB has shut down to the free liquidity bar that the sector had through the so-called TLTROs that had to be partially returned at the end of June.

LESS CREDIT

Looking ahead to the second half of 2023, the agency believes that it will be even more difficult for households to access a mortgage, something that they justify by the rise in delinquency that “could favor, once again, a slight general tightening of credit conditions” , according to the Survey. Likewise, the banks believe that the fall in the demand for loans will also continue given interest rates that are much higher than a year ago, specifically some 400 basis points more..

However, and although the conditions have been tightened, the entities could somewhat lower the requirements that they ask of households in terms of consumer loans, with much higher margins or spreads for the banking sector than what they offer in Mortgages, a much more competitive terrain. With data for the month of May (the latest available), the weighted average rate for granting consumer credit to households stood at 7.96% compared to 3.71% for mortgages, slightly more than double.

The Survey also includes other outstanding aspects regarding loans to companies. Construction companies (not including real estate) are the ones that have suffered a greater tightening of the requirements to access bank financing from January to June. In percentage, the Bank of Spain calculates it at 25%. Brick is followed by the real estate sector, both for homes and for other uses such as offices or warehouses; the manufacturing industry and already behind the industry and commerce.

The forecast for the second semester is that banks continue to tighten the approval criteria for the first companies mentioned, those linked to construction and non-residential real estate, but not for merchants and firms linked to industry, services or energy..