Santander, Spain’s biggest lender, reported a 20 per cent increase in net profit in the third quarter, as it benefited from the highest interest rates in the eurozone’s history.

The bank earned €2.9bn in the three months to September, beating analysts’ expectations of €2.8bn.

The strong performance was driven by a 16 per cent rise in net interest income, which measures the difference between what banks charge for loans and pay for deposits. Santander said this was mainly due to higher volumes and margins in its core markets of Spain, Brazil and the UK.

Santander’s results reflect the positive impact of the European Central Bank’s aggressive monetary policy tightening, which has lifted interest rates to 4 per cent, the highest level since the euro was launched in 1999. Higher interest rates boost banks’ profitability by increasing the spread between their lending and deposit rates.

However, some analysts have warned that the eurozone’s interest rate cycle may have peaked, as inflation pressures ease and economic growth slows. This could put pressure on banks’ net interest income in the coming quarters.

Santander said it was confident that its diversified business model, which includes a large presence in Latin America, would help it maintain its momentum in 2024. The bank said it was on track to achieve its 2023 targets of increasing its return on tangible equity to 13-15 per cent and its earnings per share by double digits.

Ana Botin, Santander’s executive chair, said: “While the external environment is increasingly uncertain, it is in these times that the strength of our model and our team is most evident. I am confident that we will achieve our 2023 targets given the positive momentum which we also expect to carry into 2024.”