The dreaded “January cost” is usually a period marked by greater austerity after the excess spending derived from the holiday period. For the banking sector, on the other hand, it is a steep downward slope and they are traveling it at a dizzying pace thanks to a more lenient interest rate environment.
In fact, the beginning of the year has brought a new boost to European banking in general and Spanish banking in particular, which more than 8% is recorded in just two weeks that have passed since 2025. The Spanish sector, measured through the Ibex Banks index, has already exceeded the highest levels of 2024 and is trading at prices that have not been seen since this index was calculated, in 2016.
The explanation behind this situation is simple: the market now expects the ECB to lower rates much more gradually and not with an acceleration as was expected just a few weeks ago. In more detail, the current prices of the swaps They only anticipate four cuts of 25 basis points each during the year. In the first two meetings (January and March) two cuts are expected. The third would arrive in June and the fourth between September and December. This situation is more favorable for the banking business than it was a few weeks ago and will allow them to maintain a large part of their profits in the short term.
“I think what we are seeing with bank quotes is the same dynamic as that seen in 2024 as they are highly correlated with the direction of rate expectations and what the IRRs do, where we have seen a rebound and also a change in the 12-month Euribor, which after setting a low of 2.34% in December has turned around and is approaching 2.6%, reflecting those expectations that rates will not fall as quickly or as so low,” explains Nuria Álvarez, Renta 4 analyst.
Therefore, although there were voices that suggested that this year would be negative for banking and that investors should look towards other sectors, 2025 may continue to be a profitable year for this type of securities. In fact, despite the strong rebound in the stock market in the last bullish cycle, the sector is still trading at 0.85 times its book value. That is to say, there is still a 15% discount with respect to the net asset value of their assets, which does not fit with a context in which they continue to obtain returns well above the average.
This new panorama allows banking companies to better maintain their profitability, which remains well above double digits on average, and, consequently, their profits, which are now also supported by other income such as commissions and wealth management, at the same time the cost of deposits is being reduced. The consensus of analysts estimates that 2024 will have been a record year of profits for the sector, with a profit per share of 135 euros. For this course, a strong reduction was expected, which, however, is being moderated and is now only a deterioration of less than 4% is anticipated. “The problem is that there is an important dissociation. That is, we believe that there is progress in valuation, but it remains in the background and prices respond more to rate expectations,” continues Álvarez.
If we look at the profit multiplier, the sector has become more expensive but continues to trade at a PER (times that the profit is included in the share price) of less than 7 timesbelow the 7.4 times it averages in the last five years. This multiple leads the investor to be able to expect a revaluation of 15% (calculated through the inverse of the PER), to which a 6.4% dividend yield for 2025 and the possible buybacks that entities carry out in this period. “To maintain these returns, not only the rate environment influences, but also the expected evolution of credit and net commissions and I believe that banks have the levers to be able to maintain them in 2025 even if the interest margin this year shows some weakness due to the rate environment. of interest, logically,” concludes the Renta 4 analyst.
Unicaja offers the biggest discount
By companies, while Bankinter, Caixa and BBVA are trading at a premium Compared to their respective accounting prices (see graph), Sabadell, Santander and Unicaja offer large discounts compared to their net asset value (what they would hypothetically obtain from selling the business in parts).
In the case of Sabadell the discount is more than 25% despite the fact that it was the most bullish bank last year and is also at the beginning of the year, with an advance of almost 11% also supported by BBVA’s open takeover bid for it, which is waiting for Competition solve your analysis. In addition, it is the company that offers the highest dividend yield in the sector, above 8%.
Unicaja also exceeds that profitability threshold, which practically It is purchased at half its book price. Despite this, it was already behind last year on the stock market and this year too, with a rebound of just over 5%. Receives a hold recommendation.
The other value that has lagged this year within the sector is precisely Santander, which is trading at a discount of more than 30% compared to its book value. The entity chaired by Ana Botín is the one that receives the best recommendation in the sector, in addition to being the one with the greatest upward potential according to the analyst consensus, close to 24% from current levels. Likewise, it is the one with the cheapest profits, below 6 times PER.
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