Spanish bank Santander (BME:SAINTIt plans to return half of its profits to shareholders over the next three years in the form of cash payments and share buybacks, it announced on Tuesday, while raising its medium-term financial targets.
In the presentation of its new three-year strategy, Santander assured investors that the increase in revenues, driven by customer growth and rising interest rates in some of its main markets in Europe and South America, would be enough to meet the objectives.
Santander has relied in the past on Latin America to cope with tough conditions for banks in Europe since the financial crisis, but financial institutions across Europe are starting to benefit from rising borrowing costs despite economic uncertainty and recession fears.
The euro zone’s second-largest bank in terms of market value said it aimed to achieve a recurring return on tangible equity (ROTE) of 15-17% over the period, up from 13.4% in 2022.
The new dividend distribution policy of 50% of consolidated attributable profit for the period 2023-2025 – excluding non-cash items and without impact on capital ratios – contrasts with the current 40%.
“The profitability guidance will be a positive surprise for the market (…) however the company had already given guidance with a ROTE above 15% in 2023,” Jefferies said, adding that the new dividend policy had also been anticipated.
As part of this plan, the European region of Santander will see this metric increase from 9.28% at the end of 2022 to 15%.
The bank said it also intended to keep its fully loaded Tier 1 core capital ratio, the strictest solvency measure in the sector, above 12 percent over the three years.
At 0856 GMT, Santander shares were up 1.5 percent, while Spain’s main stock index was up 0.3 percent.
The bank expects to increase its global customer base by €40 million to around €200 million, which will help it increase revenue by around 7-8% on average per year in constant euros in the period.
Santander also said it expects to improve its efficiency ratio (a metric that improves the lower the ratio, since it is the result of the ratio between operating expenses and gross margin) to 42%, compared to 45.8% currently.
Its total cash dividend per share for 2022 will rise to 0.1178 euros, it said, and it also announced an additional share buyback program of 921 million euros ($974.8 million) after obtaining regulatory clearance.
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