With the start of rate cuts in the eurozone, the traditional banking business has begun to deflate after two years of automatically growing in the heat of higher margins on loaned credit. However, interest rates continue to allow banks to make historically high profits, something that the market is only partially capturing.
And although lower rates are expected in the medium term after inflation has returned to more normalized levels and is considered under control, the banking business will not be so penalized since, in addition to continuing to have a price of money much higher than it has been in the last decadevolumes are growing and businesses adjacent to purely banking are also doing well, such as management companies, insurance companies, consumer credit, commissions… etc.
In the case of Spanish banking, despite the fact that cuts by the ECB have begun this year, there will be a joint net profit higher than in 2023, reaching 30,000 million eurosaccording to the consensus of analysts collected by FactSet, 14% more than what was reported last year among the six national entities. However, this figure will clearly be a ceiling since experts calculate that by 2025 profits will contract by around 5% and remain in line with that figure in 2026.
But not all cases are the same since there is one, that of Santander, that stands out among the others. The Cantabrian is the only bank that will continue to grow in the next two years. The expert consensus estimates collected by FactSet point to a net profit of 12,245 million by 2026, 2.2% above what is expected this year. And the rest of their counterparts in Spain will see their profits reduce considerably. Those who will come out the best unemployed, according to these same forecasts, are BBVA, Bankinter and Sabadell, with declines of a high single digit, while CaixaBank will earn 10% less. The most penalized by this new environment will be Unicaja, which will obtain a 20% lower profit in 2026.
Barclays calculates that, in aggregate, “net interest income will decrease between 6 and 7% in the next two years, which implies an average of 14% in net profit.” “The scenario for the next two years is one of lower income, more costs and provisions and higher capital requirements, in addition to the continuity of the tax on the sector,” they continue. “The question is whether lower interest rates will lead to a significant increase in the volumes and cost of deposits,” they add. “In the short term, Spanish banks would need a 15% increase in commissions to compensate for a 5% drop in net interest income,” they conclude.
In this context, the British bank points out that its preferred entity in Spain is Santander, which is trading at 0.8 times its price/book value for 2025, with a RoTE of 15% and a total return of 9.3%. . “We believe that it offers more resilient income than the rest due to the growth in volumes and the lower sensitivity to DCB rates [Digital Consumer Bank]Chile and the United Kingdom, a large exposure to higher growth markets, focus on costs and reduction of shares after buybacks, which boosts earnings per share in a scenario of downward valuations due to rates,” they explain.
Only 6% from the year’s highs
The first half of the year closed as clearly bullish for all Spanish banks as expectations of rate cuts cooled as the inflation data for the first half of the year remained above forecasts. However, starting in mid-2024, these CPI data improved considerably and it was from then on that investors began to take profits on the stock market.
Unicaja is the entity that has corrected the most and it is already at 28% of its ceiling for the year in the stock market. In the case of BBVA, the distance is 24%, clearly penalized by the takeover bid launched on Sabadell, whose shares are the most bullish in the sector this year, with an advance of more than 60%. On the contrary, both Santander and Caixa are less than 6% rise of his annual record.
Following the second quarter results, Santander raised its growth guidance to high single digits at constant rates and capital position to 12.5%. “The figures show solid income growth, supported by the revaluation of assets and the cost containment of deposits, as well as the good evolution of the customer business in all segments,” they explain in Renta 4.
Precisely this Tuesday it presented its results for the third quarter of the year, in which it obtained an attributed profit of 9,309 million euros between January and September, which represents a year-on-year increase of 14% and exceeds the 9,227.70 million projected by the consensus of analysts of Bloomberg.
However, the consensus of analysts gives a potential for the Cantabrian bank of more than 22%only lower than that of BBVA, which is 28% and that of Unicaja, which is just over 30% for the next 12 months. Likewise, it is one of the three banks that receives a buy recommendation from experts along with Caixa and Sabadell.
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