Banco Popular see 27% drop in net profit

Banco Popular, Spain’s third-largest listed bank, on Tuesday announced a 27 per cent fall in net profit for 2009 to €766m compared with €1.05bn in 2008, but said it saw “a gradual return to normality” in the current year.

Along with other Spanish banks, Popular has been hit by the bursting of the domestic property market bubble and a deep economic recession. Banesto, the Santander subsidiary, has already announced a 28 per fall in profits for last year.

On Monday, the Spanish Mortgage Association said the country’s property developers owed €325bn and were unable to pay their structural debts, although bankers’ groups insisted the bad loans were sufficiently covered by provisions.

Banco Popular’s ratio of bad and doubtful loans as a proportion of assets rose to 4.81 per cent at the end of December from 2.80 per cent a year earlier, but the bank said its approach to provisioning, capital and liquidity remained highly conservative.

Its core capital ratio rose to 8.61 per cent from 7.17 per cent and it said it had the highest tangible capital ratio in Europe, excluding banks rescued by governments.

In a statement released to the market regulator, Popular said it had made record pre-provision income “in what was possibly the worst year of the economic cycle”. Net interest income for 2009 rose 11 per cent to €2.82bn and operating profit before provisions rose 18 per cent to €2.76bn, but pretax profit was down 27 per cent to €1.07bn.

The bottom line was dented by hefty loan loss provisions, including €480m in precautionary provisions without which attributable income would have been down just 7 per cent to €1.10bn.

However, the results were also flattered by one-time gains of €458m, mainly from the sale and leaseback of offices.

Along with other Spanish commercial banks, Popular closed branches and cut the number of employees during the year. It ended 2009 with a cost-to-income ratio of 29.31 per cent, an improvement on the previous year’s 33.25 per cent. Popular said its ratio was the best in Europe and nearly 30 percentage points leaner than the European average.