Brazil’s engine makes Santander the only bank to improve profits in 2025

Brazil’s engine makes Santander the only bank to improve profits in 2025
Brazil’s engine makes Santander the only bank to improve profits in 2025

In a horizon in which higher rates than those currently in Europe are not contemplated, but quite the opposite, the margins of the banking sector should be narrowed from now on. Consequently, and as expected in this context, the profits expected from banking entities for next year are lower than those of 2024 (a year in which a first cut has already been made, but the sector is still drinking from the highest rates of the last 20 years). However, the forecasts are not the same for everyone, and Banco Santander is the only one, among the six entities of the Ibex 35, that sees an increase of almost 1% in the profit forecast for 2025, thanks to the geographical diversity of its business and, in particular, the weight of Brazil in it (with 22% of the total).

The bank chaired by Ana Botín will earn 11.841 billion euros in 2025, compared to the 11.736 billion expected for this year, according to forecasts from the expert consensus compiled by FactSet. This lukewarm 1% increase becomes even more striking when compared to the forecasts of its peers, with falls of up to 13% is the forecast for profits for next yearin the case of Unicaja; 12% for Sabadell; 9% for CaixaBank; 7% for Bankinter and 2.5% for BBVA.

That the banking sector’s profit outlook is stabilising, or even tending to decline, is the normal movement in this scenario. This is recalled by Joaquín Robles, from XTB, who explains that this sector has been boosted by the rate hikes, as they have produced a large increase in the interest margin. “Also noteworthy is the growth in commission income and how the demand for credit and the default rate have remained stable despite the uncertainty about the economic outlook. However, The start of interest rate cuts will begin to put pressure on banks’ profitabilitywhich translates into lower profits.”

This exceptional situation in the forecasts that Santander is experiencing is due, according to the expert, that the bank enjoys very evenly distributed income. “Santander’s revenues are highly diversifiedwith Brazil being the largest market (22% in the first quarter)followed by Spain (15%), both regions saw margin growth (…). On the positive side, Santander’s asset quality has remained stable in recent quarters, high inflation has not caused a deterioration, although the bank’s cost of credit has started to rise.” After these two countries, the United States is the third region with the greatest weight in Santander’s accounts, with 12%, followed by the United Kingdom, with 11%.

And although Santander is moving towards a new operating model to capture greater efficiencies, where the focus is on businesses rather than on the different countries in which it is present, they recognize that, as already happened in the first quarter of the year, in the second quarter “Brazil is going to pull a lot.” The trend, a priori, will continue to be that of the first quarter of the year, where Santander’s interest margin grew by 15.3% year-on-year, reaching 11,983 million. Within this, the retail business stood out, which thanks to the boost in interest rates in Europe and the lower cost of deposits in South America, especially in Brazil, it recorded a 17% increase in interest margin.

Furthermore, Robles explains that Santander’s consumer credit portfolio (208 billion euros) is solid, “although its high risk profile could translate into higher risk provisions, It is accompanied by better margins and profitability, which differentiates it from many of its competitors.“.

Sergio Ávila, an analyst at IG, also highlights Santander’s geographic diversification as one of its levers. “The entity’s geographic diversification, With a strong presence in Latin America, it can isolate itself from European economic weakness. Its efficient cost management and focus on improving customer experience and innovative digital products are pillars of its growth. In addition, the expected increase in credit demand and the high ECB interest rate environment make its interest margins important.”

As anticipated, the results presented so far by the entity support these optimistic forecasts. In the first quarter of the year, Banco Santander earned 2,852 million euros, 11% more than in the same period of the previous year. This figure was slightly below the forecasts of the Bloomberg analysts’ consensus, which estimated profits of 2,887 million, but still represented a record income.

As for its performance on the stock market, Santander has earned less than the rest of its Spanish peers, with an increase of almost 16% in the year, in a year in which the Ibex Banks (which groups the six entities) recorded gains of 22%. This entity also sneaks in among the cheapest banks by PER (times that the profit is reflected in the share price) in Europe, with a multiplier of 5.9 times.

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