Banesto profit hit by rise in bad loans

 

Banesto's net profit fell by 18 % last year as the country's economic woes drove bad loans higher and a price war for deposits among Spanish retail banks bit into its income.

Rising levels of unpaid loans, increased provisioning against exposure to the country's ailing property market and a deposit price war have eaten into margins at Spanish banks.

Analysts said on Thursday that Banesto's earnings pointed to a steady worsening of conditions rather than a sudden change in Spain's troubled economic situation. Banesto shares slipped by 1 percent following the results to 6.07 euros.

"The main negative would be the 11 percent fall in net interest income, quarter on quarter, which is what the market is worried about now," Patrick Lee, analyst at Societie Generale said on Thursday following Banesto's 2010 results.

"We are just seeing confirmation of continued deterioration rather than any inflection point of improvement," he added.

Banesto's net interest income, broadly what a bank earns on loans minus what it pays for deposits, fell by 4 % from 2009, hurt by the higher cost of wholesale debt and a pricing war on interest paying savings accounts.

Net interest income fell by 11 percent quarter-on-quarter to 375 million euros in the fourth quarter from 422 million euros in the third quarter of 2010.

A rise in bad loan provisions to just over 4 %, from 3.8 % at the end of September, was also a worry.

"They'd given their real estate exposure before, I am focusing more on the margin decline and the additional provisions they've made," Daragh Quinn, banking analyst at Nomura said.

Banesto, which is 88 % owned by Santander, said it had put aside 1 billion euros in provisions against bad loans during the year.

"Spanish banks continue to remain under margin pressure and asset quality is still deteriorating. Provisions are going to remain high in 2011," Quinn added.

Banesto enters 2011 without Ana-Patricia Botin, who has moved on to run Santander's British business. The eldest of Santander Chairman Emilio Botin's six children has been credited with running Banesto well since 2002.