With the start of rate cuts in the euro zone, the traditional banking sector began to deflate after two years of automatic growth due to the increase in margins on loans lent. However, interest rates continue to allow banks to achieve historically high profits, which the market only partially captures.
And even if a drop in rates is expected in the medium term after inflation has returned to more normalized levels and is considered under control, banking activity will not be as penalized since, in addition to continuing to have a price of silver much higher than it has been in the last decadevolumes are increasing and activities adjacent to purely banking are also doing well, such as management companies, insurance companies, consumer credit, commissions, etc.
In the case of the Spanish banking sector, despite the start of ECB budget cuts this year, overall net profit will be higher than in 2023, reaching 30,000 million eurosaccording to the analyst consensus collected by FactSet, 14% more than what was reported last year among the six national entities. However, this figure will clearly constitute a ceiling since experts estimate that by 2025, profits will decrease by around 5% and remain at this figure in 2026.
But not all cases are the same since there is one, that of Santander, which stands out among the others. The Cantabrian is the only bank that will continue to grow over the next two years. Expert consensus estimates collected by FactSet call for net income of $12.245 million by 2026, 2.2% higher than expected this year. And the rest of their Spanish counterparts will see their profits decline significantly. Those who will emerge the best unemployed, according to these same forecasts, are BBVA, Bankinter and Sabadell, with high single-digit drops, while CaixaBank will gain 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 total, “net interest income will decline between 6 and 7% over the next two years, implying an average of 14% net profit.” “The scenario for the next two years is one of falling revenues, increasing costs and provisions and higher capital requirements, in addition to continued taxation on the sector,” continue- they. “The question is whether lower interest rates will lead to a significant increase in deposit volumes and costs,” they add. “In the short term, Spanish banks would need a 15% increase in fees to compensate for a 5% drop in net interest income,” they conclude.
In this context, the British bank highlights that its preferred entity in Spain is Santander, which trades at 0.8 times its price/book value for 2025, with a RoTE of 15% and a total return of 9.3%. “We believe it offers more resilient earnings than others due to volume growth and lower sensitivity to DCB rates. [Digital Consumer Bank]”, they explain.
Only 6% from year highs
The first half ended clearly bullish for all Spanish banks, as expectations for rate cuts eased while inflation data for the first half remained above forecasts. However, from mid-2024 onwards, this CPI data improved significantly and it was from then on that investors started taking profits in the stock market.
Unicaja is the entity that has corrected the most and it is already 28% of its ceiling for the year on 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, Santander and Caixa are both below 6% increase in its annual record.
Following the second quarter results, Santander raised its growth forecast to high single digits at constant rates and its capital position to 12.5%. “The figures show solid revenue growth, supported by the revaluation of assets and the control of deposit costs, as well as by the good evolution of customer activity in all segments,” they explain in Renta 4.
It is precisely this Tuesday that it will present its results for the next quarter of the year, the third. “The basic recovery trends observed during previous quarters should be confirmed. The emphasis will be placed on the evolution of the cost of risk in certain regions of Latin America and on the behavior of income in the United States, including margins remain under pressure,” they emphasize. in Renta 4.
However, the analyst consensus 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 receive a buy recommendation from experts, along with Caixa and Sabadell.
