Business Context and Reporting Period
This Form 6-K filing covers Banco Santander, S.A.'s financial results for the first half (H1) of 2024, ending 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. Santander continued its "ONE Transformation" strategy to build a digital bank with branches, focusing on operational leverage and efficiency.
Key Financial Metrics
| Metric | H1 2024 | H1 2023 | Change (YoY) |
|---|---|---|---|
| Profit Attributable to Parent | EUR 6,059 million | EUR 5,241 million | +15.6% |
| Total Income | EUR 30,715 million | EUR 28,010 million | +9.7% |
| Net Interest Income (NII) | EUR 23,457 million | EUR 20,920 million | +12.1% |
| Net Operating Income | EUR 17,802 million | EUR 15,531 million | +14.6% |
| Cost of Risk | 1.21% | 1.08% | +13 bps |
| Non-Performing Loan (NPL) Ratio | 3.02% | 3.07% | -5 bps |
| Efficiency Ratio | 41.6% | 44.2% | -2.6 pp |
| Return on Tangible Equity (RoTE) | 15.9% | 14.5% | +1.4 pp |
| Fully-Loaded CET1 Ratio | 12.5% | 12.2% | +30 bps |
| Liquidity Coverage Ratio (LCR) | 163% | 158% | +5 pp |
Balance Sheet Highlights: Total assets stood at EUR 1,786,261 million. Loans and advances to customers increased 2.0% year-over-year to EUR 1,065,596 million. Customer deposits grew 2.4% to EUR 1,037,646 million.
Material Changes vs. Prior Period
- Profit Growth: H1 2024 profit reached a record EUR 6,059 million, driven by solid revenue growth across all global businesses and regions. This growth occurred despite charges of EUR 452 million in Q2 related to provisions for the CHF mortgage portfolio in Poland and write-downs for discontinuing merchant platforms in Germany and Superdigital in Latin America.
- Revenue Drivers: Net interest income rose 12% due to good price management in Europe and volume growth in South America. Net fee income increased 6%, supported by growth in Retail, Consumer, and Wealth segments.
- Efficiency Gains: The efficiency ratio improved by 2.6 percentage points to 41.6%, driven by the "ONE Transformation" program, which reduced costs in real terms despite inflationary pressures.
- Segment Performance:
- Retail & Commercial Banking: Profit increased 37% to EUR 3,326 million, driven by revenue growth and lower provisions in Europe.
- Consumer: Profit rose 4% to EUR 1,070 million, despite cost of risk normalization.
- Corporate & Investment Banking (CIB): Profit declined 5% to EUR 1,405 million due to higher investment costs and lower gains on financial transactions, despite record revenue.
- Wealth Management: Profit grew 14% to EUR 818 million, boosted by Private Banking activity.
- Payments: Profit was EUR 49 million, significantly impacted by write-downs; excluding these, profit would have been 30% higher than H1 2023.
Guidance, Outlook, and Risks
- Updated Targets: Management upgraded its 2024 targets based on H1 performance:
- Revenue: Increased from mid-single digit growth to high-single digit growth.
- Efficiency: Improved from less than 43% to close to 42%.
- Profitability: RoTE target raised 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 bank paid a cash dividend of EUR 9.50 cents per share and completed a buyback program of EUR 1,459 million.
- Risks and Contingencies:
- Operational Risk: The operational risk profile deteriorated slightly in Q2 due to an increase in execution and cyber risk, including an unauthorized access incident to a third-party hosted database in May 2024.
- Geopolitical & Economic: Ongoing geopolitical tensions and electoral processes in Europe and Latin America create market volatility. Inflation remains a key variable affecting central bank policies.
- Argentina: The Group began using a theoretical exchange rate for the Argentine peso in Q2 2024 to better reflect inflation, which impacts reported results compared to prior periods.
Key Facts for Investor Verification
- Record Profitability: Verify the sustainability of the record Q2 profit (EUR 3,207 million) and H1 profit (EUR 6,059 million) in the context of one-off charges (CHF mortgages, platform write-downs) and the temporary levy on revenue in Spain.
- Cost of Risk Normalization: Monitor the Cost of Risk, which rose to 1.21% in H1 2024, driven by normalization in the Consumer segment and specific provisions in Poland. Verify if this trend stabilizes in H2.
- Argentina Exchange Rate Impact: Confirm the impact of the new theoretical exchange rate for the Argentine peso on future earnings and balance sheet valuations, as this differs from the official rate used in prior periods.
- Capital Generation: Validate the organic capital generation of 52 basis points in Q2 and the fully-loaded CET1 ratio of 12.5% against regulatory requirements and the Maximum Distributable Amount (MDA).
- Operational Resilience: Review the details of the May 2024 cyber incident and the bank's mitigation measures to assess potential future operational losses or reputational impact.