October 29, 2020

Banco Santander’s consumer credit subsidiary reduces its profit by 99% due to COVID-19 and announces a cost cut



The consumer credit business is one of the worst hit in the banking sector by the COVID-19 crisis, due to the drop in consumption, especially during the state of alarm. Good proof of this are the results of Santander Consumer Finance, the subsidiary of this business of Banco Santander, which have been registered this Thursday at the CNMV. Specifically, this subsidiary of the entity chaired by Ana Botín cut its profit by 99% in the first half compared to the same period of the previous year, to 5.5 million euros.

The bank attributes this cut to the accounts registered with the supervisor to the effects of the coronavirus crisis, in addition to some accounting adjustments in some of its subsidiaries. “The current COVID-19 pandemic has affected our business in the semester, and the continuity of this pandemic or any future outbreak could have a material and adverse impact on our business, on our financial condition, on liquidity and on results “, indicates the entity in the document presented in the CNMV.

In this sense, the bank recognizes that the number of loan applications has decreased “to levels close to zero” in certain businesses and countries due to the closure of activity in physical stores, such as car dealerships. However, they point out that a subsequent recovery has begun to show. The entity adds that it currently has almost 5% of its entire loan portfolio in Spain linked to moratorium plans for the repayment of loans. Specifically, they are 5,472 million euros.

Santander Consumer Finance explains in its accounts for the first half that COVID-19 is affecting all lines of the balance sheet. For example, he points out that in the case of interest or commissions, “they have been impacted by lower levels of activity” due to limitations for economic activity.

Given the risks that there may be for the entity regarding an increase in insolvency, the group explains that the provisions in the first semester have been 514.9 million, with a strong increase compared to the previous year to “face the possible consequences of the pandemic “. The bank notes that there are “initial signs of deterioration in the portfolios as a consequence of the impact of COVID-19, although it has not materialized in a relevant way so far, due to the mitigating effect of the support measures put in place.”

The bank’s bad debt fund as of June 30 is 2,179 million euros, with a coverage of bad debts of 101.40%, calculated with accounting provisions on total doubtful assets, “either in simple, pre-contentious, contentious or doubtful non-pre-contentious default situation “. The coverage ratio for this type of problem loans has increased by 1.80 points compared to 2019.

The Banco Santander subsidiary defends that it trusts its “strengths and business model” to mitigate the impact of COVID-19: “we have the necessary scale, a broad customer base and good geographic and business diversification.” However, it acknowledges that “cost management actions” are being activated. These measures include adjusting variable compensation for staff, postponing investment and reducing spending on consulting, reducing spending on travel, or cutting investment in marketing. All in all, it foresees a saving of 100 million euros. “It is still too early to be able to conclude the macro and financial effects of the current health crisis and therefore the impact they may have on the group’s medium-term objectives, although the group plans to review them once the situation stabilizes and announce them to the market, “says the document.

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