* 2012 net profit 2.21 bln euros vs forecast 2.48 bln
* Completes government provisions on Spanish property
* Spanish bad loan ratio rises to 6.74 pct vs 6.38 pct
* Pays back 24 billion euros of ECB loans
(Adds chairman quotes, details on UK IPO, acquisitions)
By Sarah White
MADRID, Jan 31 Spain's Santander
increased provisions for bad loans in its home patch and Latin
American main market last year and wrote down rotten Spanish
real estate assets, cutting profit by more than half.
Santander, the largest lender in the euro zone, on Thursday
said it has now taken the worst of the pain from Spain's
property crash five years ago. But recovery in Europe's ailing
economy would take some time.
"I believe we are now entering a new phase and the recovery
will be more visible in 2014," Chairman Emilio Botin told a news
He said Spain, which is in its second recession in five
years, was close to a "cycle of change" after government
austerity and banking reforms have put the country on a better
Botin expects Santander to post stronger results this year,
helped by lower writedowns. It has booked all of its
government-enforced provisions on property assets, which
totalled 6.1 billion euros ($8.28 billion) last year.
The bank added that it had halved its net Spanish real
estate exposure to 12.5 billion euros, after a push to sell a
record 33,500 properties in the country.
Its Spanish bad loan ratio - based on loans in arrears for
90 days or more - rose to 6.74 percent of its portfolio from
6.38 percent at the end of September.
Although lower than the bad loan ratio of 11.4 percent of
outstanding debt overall for Spanish banks, it still points to
pain ahead in Santander's domestic market where one in four
workers are unemployed. Spain accounts for 15 percent of
Santander said it wanted to gain market share in Spain,
after increasing deposits last year. Botin said the bank was
very interested in nationalised lender Catalunya Banc, which is
up for auction.
TRUST IN BRAZIL
Bad loans also rose in Brazil, Santander's biggest market
where the economy is slowing, and in Mexico and Chile. The three
countries contribute nearly 50 percent of group profits.
Botin disagreed with doubts about Brazil's potential and
competitiveness, saying he was confident the government there
would carry out necessary reforms.
"I completely trust in Brazil," Botin said.
Some analysts prefer Spanish peer BBVA to
Santander because it makes more profit from Mexico, where bad
loans are lower and the economy grew 4 percent in 2012,
according to government forecasts. Brazil grew at an estimated 1
percent last year.
Fourth-quarter results from Brazil improved, partly due to
reduced provisions, leading some analysts to question whether
the bank is well-enough equipped to cope with future defaults
Underlying revenue from the country and others in Latin
America disappointed some analysts, as net interest income - the
difference between what a bank earns on loans and what it pays
out on deposits - also shrank in Brazil at the end of the year.
"Negative revenue trends in Santander's key markets could be
an area of concern for investors," Daragh Quinn, an analyst at
Nomura said a note.
Santander shares closed 3.5 percent lower at 6.18 euros.
Net profit dropped 59 percent to 2.21 billion euros in 2012,
missing analysts' forecasts in a Reuters poll.
Total provisions, which include the writedowns on
real-estate, rose to 18.8 billion euros, with a 28 percent
increase in money set aside to cover credit losses.
LISTINGS ON THE HORIZON
Provisions in Latin America rose 35 percent, while profit
from the region dropped 8 percent in 2012, which Santander
attributed to the sale of its Colombian operation - one of
several steps it took last year to bulk up its capital.
Santander said its core capital ratio stood at 10.33 percent
at the end of 2012 compared with 9 percent required by Spanish
banking authorities, and it ruled out tapping shareholders for a
The bank said it could list its U.S. consumer finance
business on the stock market in the second or third quarter of
this year. A delayed listing of its British unit looks further
The bank also said it had repaid more than two-thirds of the
35 billion euros in emergency loans it took from the European
Central Bank, adding that liquidity conditions had eased.
The 24 billion euros it paid back corresponded to everything
it took from a first ECB auction in December 2011, and the bank
said the remaining 11 billion euros was "liquidity insurance"
which it would leave on deposit at the ECB.
($1 = 0.7370 euros)
(Additional reporting by Jesus Aguado and Tracy Rucinski;
Editing by Erica Billingham)