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Crunch time for Spanish banks

The strong performance of BBVA and Santander can’t mask the impact of a looming housing crash on domestic institutions.

If you’re Spanish, there’s never been a better time to be a sports fan. First Spain win football’s European Championship, its first major trophy for 44 years. Next Rafael Nadal wins Wimbledon, the next step in his seemingly inevitable rise to become the world’s best tennis player. Then Carlos Sastre wins the Tour de France, the third Spaniard in a row to win cycling’s most prestigious race.

But if you’re a supporter of Spanish banks, your outlook will depend on which institutions you have backed.

In late July, Spain’s two biggest banking groups produced results that must have had victims of the global credit crunch weeping. First, BBVA announced a rise in operating profit of 12% to €5.5 billion for the first half of 2008; its return on equity is one of Europe’s highest, at 25%, and its return on assets a more than healthy 1.25%.

The next day, its main rival Santander produced equally impressive numbers. Its profit rose 22% in H1 2008, to €4.73 billion. Revenues grew 16% over the period, whereas costs grew by just 5%, enabling operating income to grow 26%.

Other core numbers are remarkably similar between the two: Santander’s group efficiency ratio is 40.4%;