SKN | Santander Delivers Strong Q3 Earnings Growth as Rising Non-Performing Loans Keep Credit Risk in Focus

Key Points:

• Santander’s Q3 2026 underlying net income reached €3.75 billion, increasing approximately 28% from €2.93 billion a year earlier, while revenue rose 8% to €12.07 billion.
• The bank reported a 12.7% CET1 capital ratio and an underlying return on tangible equity (RoTE) of 16% for the first nine months of 2026.
• Non-performing loans increased to €36.06 billion from €31.64 billion a year earlier, keeping asset quality under scrutiny despite stronger profitability and operating efficiency.

Banco Santander entered its third-quarter 2026 earnings announcement against a backdrop of pressure on its share price, but its latest financial results presented a more resilient operating picture. Quarterly revenue and underlying earnings advanced, while the bank maintained a solid capital position and continued to improve efficiency. However, the increase in non-performing loans introduces an important counterweight to the positive earnings performance, particularly as investors assess the sustainability of returns through 2028.

Quarterly Earnings Demonstrate Strong Growth

Santander reported third-quarter revenue of €12.07 billion, compared with €11.18 billion in the corresponding period of 2025, representing growth of approximately 8%. Underlying net income, excluding extraordinary items, reached €3.75 billion, up approximately 28% from €2.93 billion a year earlier.

Basic earnings per share increased to €0.41 from €0.19, reflecting substantial year-over-year growth. These figures indicate that the bank maintained strong earnings momentum during the quarter. Nevertheless, quarterly profitability needs to be considered alongside the quality of the underlying loan portfolio and the sustainability of the operating improvements.

Efficiency Gains Support the Longer-Term Profitability Strategy

For the first nine months of 2026, Santander generated €11.2 billion in underlying profit, with underlying RoTE reaching 16%. Its efficiency ratio improved to 42.6%, the lowest level reported in 17 years, according to the source.

Management attributed almost two percentage points of the efficiency improvement to its ONE Transformation program. Group costs remained broadly stable despite the inclusion of TSB and Webster on the bank’s balance sheet. These developments support Santander’s strategy of using technology, operational transformation, and its international platform to improve productivity and profitability.

Credit Quality Remains an Important Risk Indicator

Despite the stronger earnings figures, non-performing loans increased to €36.06 billion in the third quarter, compared with €31.64 billion in the same period of 2025. The reported non-performing loan ratio stood at approximately 3%, highlighting an area that investors will continue to monitor.

The increase in the non-performing loan balance does not, on its own, establish the extent of future credit losses. However, it raises questions about asset quality and the potential implications for provisions and profitability if credit conditions deteriorate. The balance between earnings growth and credit performance will therefore remain central to assessing Santander’s financial resilience.

Technology Execution and the 2028 Return Target

Santander remains on track, according to the source, toward its target of achieving RoTE above 20% by 2028. Its efficiency initiatives and technology programs, including ONE Transformation and Gravity, are central to the longer-term strategy. However, the bearish investment case highlights execution risks, including potential delays, duplicated platforms, and decommissioning challenges that could weaken expected cost savings.

Going forward, investors will need to assess whether Santander can sustain its efficiency gains and earnings momentum while controlling credit deterioration and executing its technology transformation. The bank’s ability to convert operational improvements into durable returns, without a material weakening in asset quality, will be central to evaluating its progress toward the 2028 profitability target.

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