“Most lenders are positive on the trajectory of core net interest income this year, and the potential to offset the absence of TLTRO benefits in the second half of the year,” said Chiara Romano, associate director in Scope’s financial institutions team. “In Spain, there is still no visible boost to margins from the steepening of the yield curve. Most banks are indicating a three-month lag before they start repricing, with the full effects only coming through in 2023.”

Domestic business diversification, especially in asset management and bancassurance, mainly benefited the former savings banks, which reported mid-single-digit growth in fees and commissions. Unicaja’s mutual funds business showed solid earnings growth (as did Bankinter’s asset management arm), while Kutxabank’s fees and commissions revenue plus insurance now surpass intermediation as the largest combined contribution to gross income.

Cost-to-income for the sector fell from 53% on average in the first quarter of 2021 from 51% in Q1 2022. Santander, BBVA and Bankinter demonstrated the best efficiency metrics.

“Cost of risk is generally below 2022 guidance. In Spain, the average cost of risk of banks in Scope’s sample as of Q1 2022 was 33bp, down from 44bp in 2021, although that is still higher than the 24bp in 2019. With no lending remaining under moratorium measures, though, lenders are cautious about releasing provisions given uncertainties around the payment behaviour of guaranteed lending under ICO public support schemes as well as altered geopolitics and related price inflation,” Romano said. NPL ratios were flat QoQ and lower YoY, with solid coverage across the board.

“Non-performing assets in Spain are declining at sector level. In the first quarter, the most pronounced clean-up was at Ibercaja, which reported a 38% year-on-year decline in its stock of non-performing assets, and at Kutxabank (-29%),” Romano noted.

Capital ratios fell slightly YoY; solid organic generation (ex-dividends and buybacks) offset risk-weighted asset inflation. However, several banks reported a material impact from fair-value adjustments on their available-for-sale (AFS) portfolios in the first quarter.

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Scope has subscription ratings on:

• BBVA
• Banco de Sabadell
• Banco Santander
• Bankinter
• Ibercaja Banco
• Kutxabank
• Unicaja Banco

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