With concerns growing for the economic health of the eurozone, investors could be forgiven for being unenthusiastic about buying shares in Spanish lender Banco Santander (BNC). But Spain's economy is one of the few in the eurozone where recovery is clearly under way, which should eventually prove good news for all Spanish-focused lenders. Moreover, worries related to the recent EU-wide bank stress-testing exercise should disappear given that Santander passed with flying colours. Add that to Santander's fat dividend yield and a re-rating looks likely.
- Spanish economy is on the mend
- Robust non-Spanish operations
- Plenty of capital
- Fat dividend yield
- Bad loans remain a drag
- Withholding tax on dividends
Admittedly, Santander faces plenty of challenges. Reflecting the impact of Spain's deep recession following the financial crisis, as well as the collapse of the country's property market, credit quality is a problem. On its Spanish lending, Santander's ratio of non-performing loans (NPL) to all loans was 7.59 per cent at the half-year stage. That has left the group's NPL ratio at almost 5.5 per cent - high compared with its international peers.