Spain's Santander said today that a release of €750m in pandemic-related provisions and a strong performance in the US and Britain drove an eight-fold rise in fourth-quarter net profit compared to a year earlier.
The coronavirus crisis forced banks in Europe to set aside costly provisions to protect their books from any potential fallout.
But banks, mainly in the US and Britain, are starting to reduce them due to improved economic conditions.
The bank, the euro zone's second-biggest lender, said the release of overlay provisions reflected a general improvement in the economies where Santander operates.
Net profit of 2.28 billion in the October to December period, representing a 4.6% rise against the previous quarter, was helped by a lack of restructuring charges seen in the same period last year.
In 2021, the lender swung back to a profit of €8.12 billion after a record annual loss of €8.77 billion in 2020. Both the quarterly and the full-year net profit were in line with analysts forecasts.
With an improved economic outlook, Santander forecast a return on equity ratio (ROTE), a measure of profitability, of over 13% in 2022, up from an underlying ROTE 12.73% by the end of December. The bank has an underlying mid-term ROTE target of between 13% to 15%.
Santander also improved its core tier-1 fully loaded capital ratio, the strictest measures of solvency, to 12.12% from 11.85% in September.
The bank has expanded in emerging economies where it hopes to register a faster growth than in Spain and Britain, its core European markets, where it has been focusing on cutting costs as it has struggled with an ultra low rates environment.
It said it aimed to reach a cost-income ratio, a measure of efficiency, of around 45% at group level in 2022 from 46.2% now.
Overall, net interest income, a measure of earnings on loans minus deposit costs, rose 8.7% in the fourth quarter against the same quarter in 2020 to €8.72 billion, above analysts' forecasts of €8.51 billion.