The Spanish financial sector has closed a 2023 of record profits in which everything has turned out in its favor. Among the five large banks – Santander, BBVA, CaixaBank, Sabadell and Bankinter – they have earned 26% more than the previous year, which was already excellent, exceeding the barrier of 26,000 million euros in aggregate. A level never seen before that the entities hope to beat again this year. To put it in context, this is a figure similar to spending on pensions in Spain for two months, somewhat higher than the annual budget that the Government allocates to finance unemployment and double what is spent on Defense.
Last year brought together a trail of good news for the sector. First, the change in monetary policy and the increase in income. To which were added the uncertainties that did not arrive or, at least, were delayed – an uptick in delinquencies and the remuneration of savings, an economic slowdown and more unemployment. Furthermore, the size factor is key for historical comparison, since the entities are now much larger than before the 2008 crisis. For example, they have doubled their volume of assets.
The first of the factors that changed the panorama was forged in mid-2022, in Frankfurt. Then, the European Central Bank (ECB) began a dazzling path of interest rate increases that has taken the price of money to 4.5%. “We came from atypical years, with negative interest rates. And we have had an abrupt rise, historically rapid,” José Ignacio Goirigolzarri, president of CaixaBank, explained on Friday. Although he recalled that it is only a normalization, which has allowed the sector to achieve healthy returns of around 15%.
The Eurogroup’s turnaround has had an extraordinary impact on the entities’ accounts, as reflected in skyrocketing interest margins in 2023 in the business in Spain. In aggregate, large banks increased these recurring income by 20% globally and 44% if we only look at what was harvested in national territory.
This is due to the increase in the cost of credit resulting from the current level of rates – and the Euribor – in the Old Continent, both for new loans and for the existing balance at a variable rate. For example, around 75% of mortgages are referenced to the Euribor, so the latest updates to the fee (normally reviewed every 12 months) have meant a notable increase in the bill for families. And in the next few years it will begin to moderate.
This contrasts with a still low return on household savings. According to the latest figures from the ECB, from December, banks in Spain paid families an average of 2.59% for term deposits of up to one year. It has grown strongly compared to 12 months before, but it is still very far from the 3.29% of the Eurozone and the 3.81% of Italy or the 3.79% of France.
In this way, the transmission of monetary policy has not been complete: it has been transferred to assets and not entirely to liabilities. This translates into a customer margin – what each user earns if the cost of deposits is subtracted from the credit yield – skyrocketing above 3%. In this metric, CaixaBank (3.58%), Santander (3.46%) and BBVA (3.42%) stand out.
This explains why three of the five largest entities in the country have far exceeded their historical profit figures—Banco Santander, BBVA and Sabadell. Only CaixaBank and Bankinter did not achieve it, although they managed to stay close to the level of an atypical 2021, when some extraordinary millionaires signed up for the absorption of Bankia in the first case and for the spin-off of Línea Directa in the second.
The lost tax debate
With these figures, the Government has won the debate in the street about the extraordinary tax on the sector. The entities do not share the argument of origin: they consider that what is extraordinary is not the current moment, but the era of negative rates. “We think it is a counterproductive measure for the economy,” Carlos Torres, president of BBVA, said on Tuesday about the tax. Along the same lines as her counterpart at Santander, Ana Botín: “No country in the world plans a tax on extraordinary profits beyond 2024.”
However, the Executive has remained firm in its position and what began as a temporary rate for two years has been extended for another year with the commitment to make it permanent while the bank’s appeal is resolved in the courts. There are differences between the parties, but it does seem that relations between the Government and the sector have been put on track. Hence the little political noise surrounding the sector’s annual results compared to what happened at this time last year.
Even more for this year
Despite these data, the sector is aiming even higher for 2024. “We aspire to improve these figures,” Gonzalo Gortázar, CEO of CaixaBank, said on Friday. More optimistic and forceful were those responsible for Santander and BBVA. “If 2023 has been good, 2024 is going to be even better,” said Botín. “The group’s profit will continue to grow,” Torres added.
To achieve this, the bank has some assets in its favor. For example, a portion of the assets must still be repriced to the new interest rate environment, although it will be a small increase. To this we must add the cushions they have for this year: the room for improvement in markets such as Brazil (for Santander) and Turkey (for BBVA), as well as the reduction of structural costs. “This year there will no longer be a material contribution to the Deposit Guarantee Fund and the Single Resolution Fund,” recalled César González-Bueno, CEO of Sabadell, on Thursday. That is, about 2,500 million less spending so that profits rise (even more) upwards.
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