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Santander Q4'16 UK PPI provision falls by three-fourths YOY

Banco Santander SA reported growth in fee income and improvements in credit quality in 2016, partially offset by the weakening of certain currencies against the euro and an increase in taxes in both Poland and the U.K.

The bank reported fourth-quarter 2016 profit attributable to the group of €1.60 billion, compared to €25 million earned a year earlier.

The year-ago figure was dragged down by a €1.44 billion charge for net capital gains and provisions, which included a €600 million provision related to payment protection insurance in the U.K. and an impairment charge for intangible assets. For the fourth quarter of 2016, the bank booked a charge of €49 million under the net capital gains and provisions category, which included a €137 million PPI provision, partially offset by a Single Resolution Fund contribution of €120 million charged in the second quarter of 2016 that was reallocated from nonrecurring items to gross income.

Net interest income for the period rose year over year to €8.10 billion from €7.89 billion, while net fee income also increased, to €2.64 billion from €2.45 billion.

Net loan loss provisions for the quarter amounted to €2.41 billion, down from the year-ago €2.56 billion. Impairment losses on other assets narrowed year over year to €159 million from €215 million.

Gains on financial transactions declined on a yearly basis to €412 million from €684 million.

For the full year 2016, attributable profit amounted to €6.20 billion, or 41 cents per share, up from €5.97 billion, or 40 cents per share, in 2015. In the U.K., attributable profit decreased by 14.7%, driven by the introduction of the 8% bank corporation tax surcharge and the weakening of the pound against the euro following the outcome of the referendum on EU membership.

ROE was 6.99%, compared to 6.57% in 2015. The bank's fully loaded common equity Tier 1 ratio stood at 10.55% as of Dec. 31, 2016, compared to 10.47% at the end of September 2016. The phase-in CET1 ratio stood at 12.53% at 2016-end, compared to 12.44% at September 2016-end.

Meanwhile, the bank said it is on track to meet its 2017 and 2018 targets, including increasing EPS in 2017 and posting a double-digit EPS growth by 2018. It foresees increasing its annual dividend, which was 21 cents per share for 2016, in 2017 and 2018.

"Going forward, we have many opportunities for profitable growth in Europe and the Americas, in an environment we anticipate will be volatile but generally better than 2016," Banco Santander Group Executive Chairman Ana Botín said.