Santander's profits slide as €18bn of loans turn sour

Santander has found itself involved in a string of property developments that have subsequently turned bad

Santander results presentation near Madrid, Spain. Photograph: Sergio Perez/REUTERS

Spain's biggest bank, Banco Santander, made debt provisions of more than €18bn (£15.4bn) last year as the property downturn intensified and the number of toxic loans increased.
The bank saw its profits collapse by almost 60% on the previous year to €2.1bn as a result of the rise in bad loans.
Considered one of the leading survivors of the financial crash, Santander has suffered a sharp decline as Spain's economy has slumped.
It avoided lending to many low income mortgage buyers in the housing bonanza before 2008, but has found itself involved in a string of property developments that have subsequently turned sour. Revenues from divisions in Latin America, Brazil and the UK have shored up profits.
In the last three months of 2012 Spanish GDP contracted by 4% and is expected to slump again this year as government cuts and a combination of high unemployment and declining wages undermine consumer and business spending.
The bank said its non-performing loan ratio last year rose 0.65 percentage points to 4.5%. For Spain, it was up 1.25 percentage points to 6.7%.
The UK division revealed a 2% drop in pre-tax profits to £1.23bn in 2012. On an after-tax basis, profits at the UK arm rose 4% to £939m.
Head of UK banking Steve Pateman said Santander had also been forced to make larger provisions over possible problems with a complicated insurance product. He said the bank had uncovered numerous former Alliance & Leicester small business customers that were potentially mis-sold interest rate swaps, in the latest scandal to hit the sector.
Amid concerns that all the major banks mis-sold similar products, he said the bank was reviewing a number of cases where complex financial products were sold by Alliance & Leicester before the former building society's takeover by Santander at the height of the credit crunch in 2008.
It has identified less than 500 potential swap mis-selling cases and has set aside £232m to cover costs such as compensation for mis-selling of interest rate swaps, on top of £751m put by in 2011 for the payment protection insurance scandal.