Banco Santander net profit beats forecasts, thanks to revenue rise

Banco Santander SA third-quarter earnings beat expectations as an increase in revenue due to rapidly rising interest rates outweighed higher provisions and inflation-related costs.

The Spanish bank
SAN,
+2.24%

SAN,
+0.53%,
one of eurozone’s largest, posted a net profit of 2.42 billion euros ($2.41 billion) from July to September, up 11% from the same period a year earlier. The figure tops analysts’ expectations of a EUR2.15 billion profit for the period, according to a consensus provided by FactSet.

Santander posted a leap in revenue as the lender was boosted by the current interest-rate hiking cycle. Net interest income–the difference between what banks earn on loans and pay clients for deposits–increased 19% to EUR10.05 billion. Overall revenue was EUR13.51 billion.

Profit was weighed by higher net loan-loss provisions, which increased 24% on year to EUR2.76 billion. The lender set aside provisions due to a potential macroeconomic slowdown mainly in Spain, the U.K., and the U.S., and an increase of unsecured lending to individuals in Brazil.

The cost of risk–a measure of credit quality–increased by three basis points in the quarter to 0.86%, reflecting these higher provisions.

Operating expenses rose 14% on year amid broadening inflation pressures, particularly in South America. Profit was also hit by a net charge of EUR181 million due to the mortgage payment moratorium in Poland.

Santander said Wednesday that it is on track to meet its financial targets for the year, including an underlying return on tangible equity–a key measure of profitability–of more than 13%, a cost-to-income ratio of 45%, and revenue growth around the mid-single digits. In the first nine months of 2022, the bank’s underlying ROTE stood at 13.6%.

“We expect the macroeconomic environment to remain challenging as markets across Europe and North America adapt to levels of inflation not experienced in decades,” Executive Chairwoman Ana Botin said. “We are confident revenue growth will offset cost inflation pressures and any increase in cost of risk.”

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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