Denis Doyle/Bloomberg NewsEmilio Botín, chairman of Santander.MADRID — Banco Santander reported a 93 percent drop in second-quarter profit on Thursday as the Spanish bank was forced to set aside more money to cover bad loans in its home market.
The announcement reflects the collapse of the Spanish real estate market that has led the country’s government to request up to 100 billion euros ($121 billion) in European rescue aid for its most troubled banks.
Santander, the largest bank in the euro zone by market capitalization, said it had set aside 2.78 billion euros in the three months ended June 30 to cover its exposure to bad Spanish property loans.
The bank’s loans in the country that are in or near default also rose more than a percentage point, to 5.98 percent, according to a company statement.
“The provisions we are making will allow us to put real estate write-offs in Spain behind us by the end of this year,” Santander’s chairman, Emilio Botín, said in a statement.
The extra costs associated with bad real estate loans weighed on the bank’s performance. Net income fell to 100 million euros in the second quarter from 1.39 billion euros in the period a year earlier.
Investors, however, reacted positively to the news, pushing up the bank’s share price as much as 3 percent in morning trading in Madrid on Thursday.
Santander has been reducing its exposure to the Spanish real estate market in the wake of the country’s financial crisis. In the last three years, Santander has cut its domestic property loans by 33 percent, to 28.3 billion euros, according to a company statement.
Raphael Minder reported from Madrid, and Mark Scott from London.