What was expected at the time of skinny cows The banking sector, however, is very far from shortage and rather falls into periods of abundance. Financial entities began the year 2024 with the goal of lowering interest rates that had previously increased their margins so much. These rate cuts arrived, as expected, but they did not cap the estimated profits of these entities, which have continued to grow since January 1. THE Spanish banks’ net profit forecasts in 2024 increase by almost 20% compared to what was expected at the start of the year, according to FactSet data. Profits which will be higher than those of 2025, even if the expected profits for next year also increase. Bank prices reflect, on certain days like Tuesday, greater nervousness due to the acceleration of rate cuts, with reductions of up to 5%.
Estimates are up in both cases course. Profits for 2025 for all Spanish banks are now 16% higher than expected on January 1, with growth of up to 39% in the case of Banco Sabadell, which is also the one with the largest increase in profits expected in 2024, 25.6% (see graph).
The profit ceiling would in principle be reached in 2024, where All entities will earn more than in 2025, with the exception of Banco Santander, and according to consensus forecasts collected by FacSet. The entity led by Ana Botín will be the only one to increase its profits next year, with a slight increase of 1.2%, to 11,973 million euros. Unicaja is the one recording the biggest decline in this sense, with a drop of almost 15% in profits for next year compared to those expected for the whole of 2024.
The downward trend which has already started in Europe and which will accelerate in the coming months does not represent a “cliff” for bank profits, according to Bank of America. “Rates have fallen, which means that In the future, net profit will increasingly depend on volumes. Banks believe loan growth is approaching a key inflection point. British and Spanish banks were more optimistic, forecasting loan growth in line with nominal GDP. However, banks believe that the market underestimates the benefits of a resumption of a “normal” rate cycle,” explains the American company.
“The evolution of the net interest margin, in basis points, will be asymmetrical for banks, but even more so after falling below the threshold of 1.5 to 2%. This remains a key point for P multiples /E of the banks are revalued from the lowest in 20 years at which they are currently listed”, they add from BofA.
Antonio Castelar, Ibroker analyst, points out that “we cannot forget that banks have survived more than a decade of ‘zero’ interest rates, so they have a lot of experience in dealing with complex situations” . In this sense, the expert recalls the second other currency for lowering interest rates, namely that entities could see their business volume increase benefiting businesses and individuals from the opportunity to obtain cheaper financing.
The increase in profits expected for 2024 means surpassing the record profits that Spanish entities already recorded last year, where they drank of the boom period left by the highest interest rates of the last 20 years in Europe. In fact, at the start of this year, analysts did not believe that the entities would surpass the previous year’s profits, but soon after, estimates for 2024 exceeded those for 2023.
“Spanish banks expect to achieve good results for the second half of 2024, thanks to continued high interest rates and a faster-than-expected recovery in loan volume. Asset quality remains strong, so risks to profitability and organic capital generation are well contained,” said Carola A. Saldias Castillo, banking analyst at Scope Ratings, in a report that highlights the strength of national economy and the growth of credit support the results of the national banking sector.
“The profitability of banks remains robust and continues to be supported by the interest margin and maximum efficiency. The results of the second quarter were higher than those of the previous one, mainly thanks to the interest margin, which continues to benefit “of the still high interest rates, as well as the operating cost and the low cost of risk”, adds Saldias.
Upcoming rate cut
Even if the banks’ profit forecasts are not affected and, on the contrary, they are improving in all cases, company prices reflect this nervousness on days like this Tuesday. Ibex Banks correct 5% after the market bought a further acceleration in the trajectory of reductions.
Analysts at Deutsche Bank now expect the European Central Bank (ECB) to cut interest rates again in October, after a sharper-than-expected decline in euro zone inflation in September. “After an even larger-than-expected fall in inflation in September, we are accelerating the ECB’s next rate cut by 25 basis points (bps) from December to October,” Deutsche Bank analysts said. They also point out that a 50 basis point cut in December (a “jumbo” cut like the Fed) could be very close. if recent weaker trends in growth and inflation continue.
Barclays is also revising its growth and inflation forecasts for Europe this week and now expects a 25 basis point cut from the ECB in October, with consecutive cuts until June 2025.
The fall of the banks pushes the ibexes
The fact that the Ibex is a highly banked index makes it the most bullish among Europeans, thanks to the good performance of banking entities during the year, which occupy the first positions in terms of annual revaluation. However, days like Tuesday, when Spanish banks fell on average by 4%, weighed heavily on the index, with a correction of 2%, the largest since Black Monday August, which slightly exceeds it, with 2.2%. This decline leaves the ibex with annual gains of just over 15%.
