3 Numbers That Don’t Lie About Banco Santander SA

SantanderAny analysis of Banco Santander SA (LSE: BNC) (NYSE: .US) usually focuses on its massive dividend yield and its attractive exposure to Latin America. I’m a big fan of both, but they don’t tell the whole story, especially for UK investors.

In this article, I’ve taken a look at three Santander numbers you may not be familiar with — including one that has the potential to put a serious dent in your investment returns.

1.  5.45%

Santander’s non-performing loan rate — typically defined as loans more than 90 days in arrears — is 5.45%, compared to 5.0% at Lloyds Banking Group, 2.6% at Barclays and 8.3% at Royal Bank of Scotland Group.

Although each bank’s business mix and definition of non-performing is slightly different, it’s clear that Santander does still have a significant burden of bad debt, especially in Spain, where the non-performing loan rate was a chunky 7.59% at the end of June.

2.  -12%

Many UK-listed companies are currently reporting falling profits, thanks to ‘currency effects’ — the strength of the pound against most other currencies.

Santander’s reporting currency is Euros, so if anything, it’s benefited from the strong pound. 

However, UK shareholders have not benefited, as the strength of the pound against the Euro has slashed returns from Santander shares over the last year:

(Madrid listing)
Currency effect GBP
(London listing)
1yr share price gain 28% -12% 16%

It’s a similar story with the bank’s €0.60 dividend, which was worth 51.6p in August 2013, but is only worth 47.6p today — although this still equates to an incredible 8.4% yield.

3.  47.3% vs 114%

In this final section I want to break my own rules and highlight two numbers — one good, and one less good.

The good: The cost:income ratio is a key metric for banks, as it shows how much of a bank’s interest income gets eaten up by operating costs. Santander’s cost:income ratio is an impressive 47.3% — lower than any other UK-listed bank.

The bad: A second key ratio for banks is the loan:deposit ratio, which compares total loans with total deposits. Most banks target a loan:deposit ratio of less than 100%, to avoid the risk of liquidity problems; being unable to meet sudden funding requirements.

Santander’s loan:deposit ratio is 114%, which is higher than any other UK bank.

So is Santander a buy?

In my view, Santander size and geographic diversity make it a buy, despite the currency risks for UK investors (which could eventually reverse) and its relatively high levels of bad debt.

However, before deciding to buy or sell any UK bank shares, I recommend you take a look at "The Motley Fool's Guide To Investing In Banks".

This invaluable guide contains details of six valuation ratios -- such as the cost: income ratio I used in this article -- for each UK bank, along with an expert assessment of each bank's current outlook.

This must-read report is completely FREE and without obligation -- but availability is limited. To receive your free copy today, just click here now.

Roland Head owns shares in Barclays. The Motley Fool has no position in any of the shares mentioned.