Banesto dip sets tone for other banks

Madrid: Spanish retail bank Banesto's net profit tumbled nearly 20 per cent last year, missing forecasts, as the country's economic woes drove bad loans higher and a price war for deposits bit into its income.

While relatively small, Banesto is closely watched as the first European bank to report earnings. Its results yesterday showed a worsening climate for banks in Spain that analysts expected to be a factor across the sector.

"We are just seeing confirmation of continued deterioration rather than any inflection point of improvement," Patrick Lee, analyst at Societe Generale said.

Price war

Rising levels of unpaid loans, increased provisioning against exposure to the country's ailing property market and a deposit price war have eaten into margins at Spanish banks.

Banesto, which is 88 per cent owned by Santander, said it had put aside €1 billion (Dh4.84 billion) in provisions during the year. The bank said total provisions would be significantly higher in 2011.

Bad loans as a proportion of total lending rose to just over 4 per cent at the end of 2010, from 3.8 per cent at the end of September.

Banesto enters 2011 without long-standing chairman Ana-Patricia Botin, who has moved on to run Santander's British business. Her departure led to speculation that Banesto could become the Spanish retail unit of Santander.

However, her successor, Antonio Basagiotti, said during a conference call that Banesto would remain independent and its strategy was unchanged. "There is absolutely no change in management ... everything continues exactly as before, an independent bank," he said.

The eldest of Santander Chairman Emilio Botin's six children, Ana-Patricia is credited with having done a good job of running Banesto since 2002.

Banesto's total loans to the real estate and construction sector stood at €10.35 billion in 2010, around 13 per cent of its loan book. Of this, ¤1.67 billion was non-performing and ¤1.08 billion was potentially non-performing, the bank said.

Margin pressure

"Spanish banks continue to remain under margin pressure and asset quality is still deteriorating. Provisions are going to remain high in 2011," Daragh Quinn, banking analyst at Nomura said.

Banesto shares recouped early losses on the below-expectation results to trade flat by 10.22am GMT.

Troubled times