By Jesús Aguado
MADRID (Reuters) -Spain's biggest international bank Santander (BME:SAN) signalled higher profitability this year as growth in lending income, particularly in its home market, helped drive first-quarter earnings higher.
The bank's revenue rose 10% to a record high 15.38 billion euros ($16.46 billion), above the 15.06 billion analysts had expected.
The euro zone's second-biggest bank by market value relied in the past on Latin America for revenue growth, but has recently also benefited from higher European interest rates.
"It has been a very strong start to the year... supported by good growth in net interest income in Europe and the Americas," Executive Chair Ana Botin said in a statement.
The bank is "well on track" to meet its targets for the year, including a return on tangible equity (ROTE) of 16%, she added.
Chief Financial Officer Jose Garcia Cantera told analysts on call that would imply ending 2024 with a net profit above 12 billion euros.
Including the 335 million euro impact of the Spanish banking levy in Spain, ROTE already stood at 16.2%, compared with 14.9% reported in the quarter.
Net profit jumped to 2.85 billion euros in January to March, just short of the 2.87 billion expect by analysts.
At 0929 GMT, shares in Santander shares were down 3%, having risen more than 25% this year. European banking shares this month hit their highest since 2015, as higher interest rates drove better-than-expected earnings.
Broker RBC Capital Markets said Santander's results were driven by lending income and fees but were partially offset by higher provisions and the impact of a hyperinflation adjustment in Argentina, where net profit fell 27%.
Asked about a potential exit from Argentina, the bank's CEO Hector Grisi told an analyst call that the bank "needed to leave its options open" in the country, adding nothing was planned for now.
Overall net loan provisions rose 9% while the cost of risk, which measures potential losses, rose 2 basis points to 120 bps.
On Tuesday, the bank started reporting earnings with its five global units as primary segments. Countries' earnings are included in a new reporting line.
Profit at its retail business and its wealth and payments units rose more than 20%. Profit at its Digital Consumer Bank fell 5%, while Corporate and Investment Banking also declined 5% despite record high revenue of 2.1 billion euros.
LENDING BOOST IN SPAIN
At a group level, net interest income (NII) - earnings on loans minus deposit costs - rose 17.7% to 11.98 billion euros, above the 11.5 billion that analysts expected.
Against the previous quarter, NII rose 7.7% as euro zone interest rates remained higher for longer than expected, helping its Spanish business, which has been charging more on loans while keeping a lid on rates paid to savers.
Net profit in Spain rose 66%, while NII was up 24%.
In Brazil, net profit rose almost 20% despite higher provisions as net interest income increased by 25%.
The U.S. and the UK were weak spots, with net profit in the U.S. falling 6.8% due to higher investment costs and NII down 4.7% due to higher funding costs. In the UK net profit fell 22.8%.
Santander's Tier-1 fully loaded capital ratio, the strictest measure of solvency, rose to 12.28% from 12.26% in the previous quarter.
($1 = 0.9341 euros)