MADRID, Sept 27 (Reuters) - Spanish bank Santander SA said on Friday a one-off dividend paid to shareholders in its Brazilian unit would improve profitability at the Latin American division but would not have any impact on the parent company.
Santander Brasil, owned 75 percent by Santander, plans to pay a special dividend of 6 billion Brazilian reais ($2.7 billion) to shareholders and use the 4.5 billion reais funds from the deal to buy dollar-denominated debt.
The move shrinks Santander Brasil’s equity and increases its debt, therefore improving the lender’s return on equity, a measure of profitability, without affecting capital levels either at the unit or the parent company.
“The operation has no impact on the Santander group either in terms of capital or liquidity,” a Santander spokeswoman said on Friday, adding Santander Brasil’s regulatory capital would remain unchanged at 68 billion reais.
Spanish banks in general are under pressure to increase their capital ahead of stricter international regulatory requirements as they struggle to emerge from an economic downturn which has pushed up loan defaults.
The sector is still grappling with the impact of a property crash that forced them to take big losses on rotten real estate deals. Spain last year asked Europe for 41 billion euros ($55.3 billion) to help the weakest lenders.
Although highly diversified Santander weathered the storm better than most and did not need state aid, some analysts believe it could still need to strengthen its solvency ahead of the stricter global requirements.
Santander could face a capital shortfall of nearly 2 billion euros in capital arising from a forthcoming European-wide asset quality review (AQR) alone, according to Deutsche Bank.
The lender increased its core capital ratio, a measure of its capital strength, to 11.11 percent at the end of June as it cut lending and sold assets.
Santander said in July its Basel III capital ratio would be more than 9 percent at all times on a “fully-loaded” basis, which takes into account changes that have to be made by 2019.
“Santander has done a lot already on the capital front,” said one investment banker who has worked with Santander. “(Chairman Emilio) Botin is adamant that the bank will not even contemplate a capital increase and does not need one.” ($1 = 0.7418 euros) (Additional reporting by Jesus Aguado and Sarah White; Editing by David Holmes)