Business Context and Reporting Period
This Form 6-K filing covers Banco Santander, S.A.'s financial results for the first half of 2024 (January 1 to June 30, 2024). The report was approved by the Board of Directors on July 23, 2024. The period was characterized by a gentle global economic slowdown, stable interest rates, and moderating inflation in most regions. The Group operates across five primary global segments: Retail & Commercial Banking, Digital Consumer Bank, Corporate & Investment Banking, Wealth Management & Insurance, and Payments.
Key Financial Metrics (H1 2024)
| Metric | Value (EUR million) | YoY Change |
|---|---|---|
| Profit Attributable to Parent | 6,059 | +15.6% |
| Total Income | 30,715 | +9.7% |
| Net Interest Income (NII) | 23,457 | +12.1% |
| Net Fee Income | 6,477 | +6.1% |
| Operating Expenses | (12,913) | +3.5% |
| Net Loan-Loss Provisions | (6,577) | +5.5% |
| Cost of Risk | 1.21% | +13 bps |
| Non-Performing Loan (NPL) Ratio | 3.02% | -5 bps |
| Efficiency Ratio | 41.6% | -2.6 pp |
| Return on Tangible Equity (RoTE) | 15.9% | +1.4 pp |
| Earnings Per Share (EPS) | 0.37 | +19.2% |
| Fully-Loaded CET1 Ratio | 12.5% | +30 bps |
| Liquidity Coverage Ratio (LCR) | 163% | +5 pp |
Material Changes vs. Prior Period
- Profit Growth: H1 2024 profit attributable to the parent reached a record EUR 6.059 billion, a 16% increase year-on-year. This growth was driven by solid revenue expansion across all businesses and regions, outpacing operating expense growth.
- Revenue Drivers: Net interest income grew 12% due to good price management in Europe and volume growth in South America. Net fee income rose 6%, supported by growth in Retail, Consumer, and Wealth segments.
- One-Time Charges: Q2 2024 results included charges of EUR 452 million (net of tax), comprising EUR 209 million for provisions on the CHF mortgage portfolio in Poland and EUR 243 million for write-downs related to discontinuing the merchant platform in Germany and Superdigital in Latin America.
- Cost of Risk: The cost of risk rose to 1.21% (from 1.08% in H1 2023), primarily due to the normalization of the cost of risk in the Consumer segment and higher provisions in Retail (Mexico and Brazil), partially offset by lower provisions in European Retail.
- Balance Sheet: Gross loans and advances to customers (excluding reverse repos) increased 2% year-on-year. Customer funds (deposits + mutual funds) rose 5% year-on-year.
Guidance, Outlook, and Risks
- Target Upgrades: Management upgraded its 2024 targets based on H1 performance:
- Revenue: Upgraded from mid-single digit growth to high-single digit growth.
- Efficiency Ratio: Upgraded from less than 43% to close to 42%.
- Profitability (RoTE): Upgraded from 16% to more than 16%.
- Shareholder Remuneration: The Group aims for a payout ratio of approximately 50% of reported profit, split equally between cash dividends and share buybacks. In H1 2024, the Group completed two buyback programs totaling EUR 2.769 billion and paid a cash dividend of EUR 9.50 cents per share.
- Risks and Contingencies:
- Operational Risk: The operational risk profile deteriorated slightly in Q2 due to an increase in execution and cyber risk. An unauthorized access to a database hosted by a third-party provider was reported in May 2024.
- Legal Proceedings: Significant ongoing litigation includes the CHF mortgage portfolio in Poland, the acquisition of Banco Popular (investor claims), and tax disputes in Brazil. Provisions are maintained based on best estimates.
- Geopolitical & Economic: Risks include geopolitical tensions, inflation volatility, and potential economic slowdowns in key markets like the US and Europe.
Key Facts for Investor Verification
- Record Profitability: Verify the sustainability of the record Q2 profit (EUR 3.2 billion) after adjusting for the EUR 452 million in specific charges (Poland CHF mortgages and platform write-downs).
- Argentina Exchange Rate: Confirm the impact of the new theoretical exchange rate applied to the Argentine peso from Q2 2024 onwards, which better reflects local inflation but may distort period-over-period comparisons.
- Cost of Risk Normalization: Monitor the Consumer segment's cost of risk (2.17%), which is normalizing towards pre-pandemic levels, and its impact on future profitability.
- Capital Generation: Verify the organic capital generation of 52 bps in Q2, which offset the 25 bps charge for shareholder remuneration and other deductions.
- Transformation Progress: Assess the efficiency gains from the "ONE Transformation" program, which contributed to a 2.6 percentage point improvement in the Group's efficiency ratio.