NET PROFIT at Santander, the euro zone’s biggest bank by market capitalisation and one of the top 10 by assets, fell 35 per cent last year to €5.35 billion after it set aside €3.18 billion of net extraordinary provisions for bad loans in Spain and writedowns elsewhere.

Santander has remained profitable in more than three years of financial and economic crisis in Europe, thanks in part to its investments in emerging markets such as Brazil.

The bank said yesterday that its net interest income rose 5.5 per cent last year to €30.82 billion and that Latin America, for the first time, accounted for more than half of group profits.

Santander however barely scraped a profit in the final quarter of last year – net profit was €47 million, compared with €2.1 billion a year earlier – after taking a €1.81 billion fourth-quarter gross charge to clean up bad property loans in Spain.

It also wrote down goodwill on Santander Totta, its Portuguese subsidiary, by €600 million, and made other writedowns that it offset against capital gains.

In Spain, where the bank’s profits have fallen to a third of their levels in 2008, Santander decided to anticipate enhanced provisioning requirements for repossessed properties that the new centre-right government is expected to unveil on Friday.

“We have gotten ahead of the new requirements,” Emilio Botín, executive chairman, told a news conference at the bank’s headquarters west of Madrid. Santander said it had already raised coverage for repossessed property from 31 per cent to 50 per cent.

Analysts at Espirito Santo Investment Bank called the results “positive” after a better-than-expected operating income.

“On the negative side, Spain continues to be the main concern with a weak operating performance and continuing asset quality deterioration.”

Santander, which has 102 million customers around the world focused on 10 key national markets, is reluctant to increase its exposure to Spain.

Mr Botín declined to be drawn on the Spanish government’s efforts to find a buyer for Bankia, a merged group of seven savings banks floated last year and led by Caja Madrid. – Copyright The Financial Times Limited 2012