Santander NII Rises 3.7% as Falling Deposit Costs Offset Lower Interest Income
The Spanish lender's net interest income reached €11.0 billion in Q1 2026, up 3.7% year-over-year, as a 6.9% drop in interest expense more than countered a decline in interest income.
Banco Santander (SAN) reported first-quarter 2026 net interest income of €11,019 million, a 3.7% increase from €10,621 million a year earlier, as moderating deposit costs drove interest expense down 6.9% to €14,233 million. The decline in funding costs more than offset a 2.5% drop in total interest income, which fell to €25,252 million from €25,908 million in the same period of 2025.
The lower expense line reflected a broader easing in rate dynamics across Santander's deposit base, even as the loan book expanded. Financial assets at amortised cost grew 2.3% year-over-year to €1,249,000 million at March 2026, while deposits and borrowings at amortised cost contracted 1.7% to €1,453,068 million. The combination of a growing asset base and cheaper liabilities provided a lift to the bank's core banking margin.
Fee income added to the top-line momentum. Net commission income rose 6.0% year-over-year to €3,357 million, on gross commission income of €4,543 million, up 5.3%. Trading revenue moved sharply in the opposite direction: gains on financial assets and liabilities held for trading fell 78.1% to €81 million from €370 million, and gains on non-trading financial assets at fair value through profit or loss dropped to €16 million from €495 million.
Despite the volatile-markets drag, operating profit before tax climbed 7.2% to €5,029 million, helped by a 2.7% decline in administrative expenses to €5,302 million. Staff costs edged lower to €3,379 million, and other general and administrative expenses fell to €1,923 million from €2,042 million. The cost discipline kept the cost-to-income trajectory moving in the right direction even as credit costs ticked higher.
Impairment charges on financial assets at amortised cost increased 4.7% year-over-year to €3,187 million, while provisions net of reversals rose 67.8% to €765 million. Part of the provision increase reflected a reclassification of certain charges into other operating expenses, muddying a direct comparison with the prior period.
Net profit attributable to shareholders surged 60.3% to €5,455 million, though the headline figure was flanked by €1,895 million in profit from discontinued operations tied to the sale of non-current assets held for sale — a line that was nil a year earlier. Non-current assets held for sale fell to €2,855 million at March 2026 from €3,969 million at March 2025, and associated liabilities of €62,995 million carried at December 2025 were eliminated by the end of the quarter. Basic earnings per share reached €0.36, up from €0.21.
Capital return accelerated in tandem. Santander executed €3,050 million in share buybacks during the quarter, nearly 3.6 times the €859 million deployed in the first quarter of 2025. Own shares held on the balance sheet rose to €2,679 million from €597 million. Dividends paid in the quarter totalled €1,821 million, compared with nil in the year-earlier period, reflecting a shift in distribution timing. Total equity stood at €112,548 million, broadly flat year-over-year at 1.8% growth, as buybacks and dividends absorbed much of the retained earnings uplift.
Income from equity-method investments nearly doubled to €313 million from €161 million. The results underscore a quarter in which Santander's core banking franchise delivered improving margins on lower funding costs, even as markets revenue normalised and the bank continued to reshape its balance sheet through asset disposals and an aggressive capital-return programme.