By Jesús Aguado
MADRID (Reuters) -Spain's Santander (BME:SAN) reported robust second quarter results on Wednesday as a strong performance in Spain and other European countries, such as the UK, offset weakness in Brazil and higher overall costs.
Its overall net profit rose 14% compared to the same quarter of 2022 to 2.67 billion euros ($2.95 billion), helped by higher lending income in Europe.
Net profit topped the 2.54 billion euros expected by analysts, despite a rise 10% in provisions to 2.898 billion euros, slightly lower than expected by the market.
The bank reiterated its return-on-equity ratio target (ROTE) of more than 15% by the end of 2023 after finishing the second quarter with ratio of 14.61%.
JP Morgan welcomed a "solid set of number" but saw limited scope for earnings upgrades after a strong share price performance into the results.
At 0915 GMT, shares in Santander rose 0.5% adding to gains of 15% in the last month.
Broker RBC said strong beats in Spain, the UK, Mexico and the U.S. "were partially offset by misses in Brazil."
Santander has relied on Latin America in the past to cope with tough conditions but European banks are now reaping benefits from higher interest rates.
The bank's overall underlying net interest income, earnings on loans minus deposit costs, rose 12.4% to 10.74 billion euros, above analysts' estimates of 10.45 billion euros.
The bank's chief financial officer, Jose Antonio Garcia Cantera, said the bank was on track to meet its guidance of double-digit growth in NII in 2023.
At the group level, costs rose 7.3% year-on-year in the second quarter.
SPAIN BIGGEST CONTRIBUTOR
In Spain, net profit more than doubled from the same quarter in 2022 to 666 million euros on higher lending income and lower provisions, while NII jumped 67% year-on-year in the second quarter and was up 16.5% from the previous quarter.
Results at home were backed by higher returns on loans, driven by predominantly floating rates credit books, while deposit costs grew at a slower pace.
In Brazil, net profit fell 52% year-on-year in the quarter due to a rise in costs driven by inflation, negative impact from a tax reversal and a fall of 4.3% in NII, though the bank's CEO Hector Grisi forecast a "substantial improvement" in 2024.
Net profit in the United States fell 28% on higher funding costs while provisions rose 30% year-on-year though the trend improved as profits were up 22.4% against the previous quarter.
In the UK, net profit rose 17.2% year-on-year in the quarter to 423 million euros, backed by higher lending income.
Overall deposits rose 5% in current euros year on year in the first half of the year, while the liquidity coverage ratio rose to 158% in June from 152% in March. A higher ratio shows a bank has better coverage of outstanding debts.
Santander's Tier-1 fully loaded capital ratio, the strictest measure of solvency, remained stable at 12.2% in June compared to March.
($1 = 0.9054 euros)