“A dynamic, diversified economy reaping the benefits of past reforms and positive labour market trends are key strengths supporting the operating environment for Spanish banks and hence our expectations for the sector’s performance in 2025,” said Carola Saldias, lead analyst for Spanish banks.

Our sample of banks (BBVA, Santander, Banco de Sabadell and CaixaBank) achieved an average return on equity of 14.5% in Q3. “The strong performance of net interest income remained supportive, but we expect it to decrease in 2025 as margins start to reflect the reduction in interest rates while the cost of deposits remains stable as the share of time deposits stays broadly unchanged. That said, RoE will remain above 11% supported by loan growth, mostly in retail and consumer where margins remain relatively high,” Saldias said.

Profitability targets could be challenged if the bank tax is extended for another three years as proposed. If approved, the current 4.8% levy on NII and fees will switch to a range of 1% to 6% and will have a bigger effect on larger banks with bigger revenue bases. While fee and commission income decreased QoQ in Q3, it is still up on a 9M basis for most of the banks. We expect this positive trend to remain for 2025, as economic growth and the recovery in loan volumes provide a larger customer base hence a larger foundation for transaction fees.

Efficiency ratios continue to improve, reaching 39%-40% in Q3 for our sample, compared to the levels of 40%-45% in 2023. “We expect banks to maintain strong cost discipline in 2025, as most inflationary pressure should already have been absorbed, while restructuring measures implemented in the past year are finally seeing results,” Saldias noted.

Cost of risk showed a slight decrease for most banks in Q3, due to better-than-expected asset quality, a release of provisions and lower inflows of NPLs. We do expect cost of risk to increase in 2025 as loan deterioration materialises from growing consumer lending and from commercial loans exposed to sensitive sectors like trade and wholesale, which could face uncertainties as geopolitical risks remain high. We continue to expect asset quality to normalise in 2025, with NPLs above those of 2024 as the growth in consumer and retail lending comes with higher risk than collateralised loans or mortgages.

Competitive dynamics could also pressure growth prospects in 2025. BBVA’s acquisition of Sabadell is progressing more slowly than expected. Uncertainty around the transaction puts pressure on competitive dynamics in the Spanish banking sector. “We expect more aggressive competition in lending to profitable segments such as consumer and SMEs as most banks are willing to speed up the recovery on volumes, which could further tighten margins and accelerate the reduction in still-strong profitability expected for 2025,” Saldias said.

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Scope has subscription ratings on the following Spanish banks. To view the ratings and rating reports on ScopeOne, Scope’s digital marketplace, or to register, please click on the following links:

Banco Bilbao Vizcaya Argentaria SA
Banco Santander SA
Banco de Sabadell SA
CaixaBank SA