By Jesús Aguado
MADRID (Reuters) -Lending income at Spain's Santander (BME:SAN) came under pressure in the third quarter from lower euro zone interest rates though a drop in loan loss provisions and costs helped it book a record quarterly profit.
Santander, like other banks, had benefited from a period of higher interest rates, while growth in its Latin American markets gave it an edge over more European-focused rivals.
But recent declines in the benchmark Euribor rate used by banks to set the price of mortgage loans, are starting to feed into lending rates.
Santander's quarterly net interest income, a measure of earnings on loans minus deposit costs, remained flat year-on-year at 11.225 billion euros, below analysts' forecasts of 11.56 billion.
Against the previous quarter NII fell 2.2%. Lending income was also negatively impacted by a 38% fall in NII at its Argentinian unit.
Santander's shares, which have risen around 20% so far this year, were 3.2% lower by 1006 GMT.
Jefferies said that lending income represented a miss versus its forecasts but was offset by lower than expected costs.
Despite some currency depreciation in Latam markets, the bank posted a 12% year-on-year rise in net profit to a record 3.25 billion euros ($3.51 billion) in the third quarter, above analysts' forecasts, thanks to a decline of 9% in net loan-loss provisions and a 2% fall in operating expenses.
Santander said it remained on track to end 2024 with a profitability target above 16% in a set of results that were somewhat overshadowed by a British court ruling affecting motor finance brokers.
On Monday, Santander's UK unit said it had postponed the release of its earnings following a London court ruling last week that ordered motor finance brokers to fully inform customers about commissions when taking out car loans.
Santander UK said it would take time to consider the potential exposure it creates for the bank.
In an interview with Bloomberg TV on Tuesday morning, the bank's Chief Financial Officer Jose Garcia Cantera said he saw an impact of less than 600 million euros from the UK ruling.
Santander included the results of its British unit in group earnings. Net profit in Britain fell 19% year-on-year in the third quarter, while lending income was down 7% amid fierce competition in the mortgage market.
RETAIL UNIT DRIVES PROFIT
Profit generated by Santander's retail business, the main earnings contributor from the five global units recently rolled out, rose 17.5% in the quarter, while Corporate and Investment Banking profit fell 5%.
In Spain, net profit was up almost 50% year-on-year on lower impairments, while NII rose 3% from a year earlier but was 2% lower from the previous three months.
In Brazil, net profit rose 4.4% while lending was up 6% from a year earlier but down 5% on a quarterly basis.
Santander's core tier-1 capital ratio, the strictest measure of solvency, remained at 12.5%.
($1 = 0.9251 euros)